Instructions For Form 5227 (Page 5 of 12) in pdf

may be used to reduce undistributed gain for earlier

without regard to any capital loss carrybacks and

years within that same category, and any excess may be

carryovers. See the Netting Rules and Ordering Rules

carried forward to reduce gain in future years within that

below; and Carryover Rules on page 6 for capital gains.

•

same category.

Third, as nontaxable income to the extent of the trust’s

nontaxable income for the current year and undistributed

For information on recordkeeping for long-term capital

nontaxable income for prior years.

gains or ordinary income, see the worksheets on pages

•

Fourth, as a distribution of trust corpus. For this

11 and 12.

purpose, trust corpus means the net fair market value of

the trust assets less the total undistributed income (but

Part III. Current Distributions

not loss) in each of the above categories.

Schedule

The accumulation distribution rules do not apply to

You must give each recipient listed in Part III a Schedule

charitable remainder trusts.

K-1 (Form 1041) that reflects that recipient’s current

distribution. Also, attach a copy of each Schedule K-1 to

Additional Rules for Capital Gains and

Form 5227. See the Specific Instructions for Schedule

Losses

K-1 (Form 1041) for more information.

Netting Rules

Beneficiary’s Identifying Number

Gains and losses are netted within each class to arrive at

As a payer of income, the trust is required under section

a net gain or loss for that class. After you net within a

6109 to request and provide a proper identifying number

class, the following additional netting rules apply to the

for each recipient of income. Enter the recipient’s number

capital gains category.

on the respective Schedule K-1. Individuals and business

recipients are responsible for giving you their taxpayer

1. Among the long-term capital gain and loss classes:

identification numbers upon request. You may use Form

a. A net loss from the 28% long-term capital gain

W-9, Request for Taxpayer Identification Number and

class reduces net gains in the following order:

•

Certification, to request the beneficiary’s identifying

First, gain from the section 1250 long-term capital

number.

gain class, then

•

Penalty. Under section 6723, the payer is charged a $50

Net gain from the all other long-term capital gain

penalty for each failure to provide a required taxpayer

class, and finally

•

identification number, unless reasonable cause is

Gain from the qualified 5-year long-term capital gain

established for not providing it. Explain any reasonable

class.

cause in a signed affidavit and attach it to this return.

b. A net loss from the all other long-term capital gain

class reduces net gains in the following order:

Substitute Forms

•

First, net gain from the 28% long-term capital gain

You do not need prior IRS approval for substitute

class, then

•

Schedules K-1 if it is an exact copy of the IRS schedule.

Gain from the section 1250 long-term capital gain

The boxes must use the same numbers and titles and

class, and finally

•

must be in the same order and format as on the

Gain from the qualified 5-year long-term capital gain

comparable IRS Schedule K-1. The substitute schedule

class.

must include the OMB number. You must request IRS

2. A net short-term capital loss is applied to reduce

approval to use other substitute Schedules K-1. To

the net long-term capital gain classes as follows:

•

request approval, write to:

First, net gain from the 28% long-term capital gain

class, then

Internal Revenue Service

•

Gain from the section 1250 long-term capital gain

Attention: Substitute Forms Program Coordinator

class, then

SE:W:CAR:MP:T:T:SP, IR-6406

•

Net gain from the all other long-term capital gain

1111 Constitution Avenue, NW

class, and finally

Washington, DC 20224

•

Gain from the qualified 5-year long-term capital gain

You may be subject to a penalty if you file a

class.

Schedule K-1 that does not conform to the

3. An overall net long-term capital loss reduces any

specifications in Pub. 1167, General Rules and

net short-term capital gain.

CAUTION

Specifications for Substitute Forms and Schedules.

Though the qualified 5-year gain provision has

Inclusion of Amounts in Recipients’ Income

been repealed for sales and other dispositions

If there are two or more recipients, each will be treated as

after May 5, 2003, these gains remain in a

CAUTION

receiving his or her pro rata share of the various classes

separate class because the 5-year gain provision is

of income or corpus.

scheduled to come back into existence in 2011.

Amounts distributed by a charitable remainder annuity

No additions may be made to this class for

trust or a charitable remainder unitrust have the following

dispositions after May 5, 2003, and before 2011, but

characteristics in the hands of the recipients:

•

distributions may continue to be made from this class

First, as ordinary income to the extent of ordinary

during that period.

income for the current year and undistributed ordinary

income for prior years of the trust. Ordinary income is

Ordering Rules

computed without regard to any net operating loss

deductions under section 172. See the Ordering Rules on

Ordinary income. Ordinary income is composed of two

this page.

classes for purposes of characterizing and ordering

•

Second, as capital gains to the extent of the trust’s

distributions: (a) qualified dividends, and (b) all other

undistributed capital gains. Undistributed capital gains of

ordinary income. If the trust has both classes of ordinary

the trust are determined on a cumulative net basis

income, distributions are treated as made first from the all

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Instructions For Form 5227 Page 5

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