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

Inclusion of Amounts in Recipients’ Income

Part II—Accumulation Schedule

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

Report the income (both current and cumulative

receiving his or her pro rata share of the various classes

undistributed income) of the trust for purposes of

of income or corpus.

determining the character of distributions in three

categories:

Amounts distributed by a charitable remainder annuity

1. Ordinary income,

trust or a charitable remainder unitrust have the following

2. Capital gains and losses, and

characteristics in the hands of the recipients:

•

3. Nontaxable income.

First, as ordinary income to the extent of ordinary

income for the current year and undistributed ordinary

A loss in any one of the three categories may not be

income for prior years of the trust. Ordinary income is

used to reduce a gain in any other category. For

computed without regard to any net operating loss

example, a capital loss may not be used to reduce

deductions under section 172. See the Ordering Rules on

ordinary income. However, a loss in any one category

page 6.

•

may be used to reduce undistributed gain for earlier

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

years within that same category, and any excess may be

undistributed capital gains. Undistributed capital gains of

carried forward to reduce gain in future years within that

the trust are determined on a cumulative net basis

same category.

without regard to any capital loss carrybacks and

carryovers. See the Netting Rules, Ordering Rules, and

For information on recordkeeping for long-term capital

Carryover Rules for capital gains below.

gains or ordinary income, see the worksheets on pages

•

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

11 and 12.

nontaxable income for the current year and undistributed

nontaxable income for prior years.

Part III—Current Distributions

•

Fourth, as a distribution of trust corpus. For this

Schedule

purpose, “trust corpus” means the net fair market value of

the trust assets less the total undistributed income (but

You must give each recipient listed in Part III a Schedule

not loss) in each of the above categories.

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

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

The accumulation distribution rules do not apply to

Form 5227. See the Specific Instructions for Schedule

charitable remainder trusts.

K-1 (Form 1041) for more information.

Additional Rules for Capital Gains and

Beneficiary’s Identifying Number

Losses

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

6109 to request and provide a proper identifying number

Netting Rules

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

Gains and losses are netted within each class to arrive at

on the respective Schedule K-1. Individuals and business

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

recipients are responsible for giving you their taxpayer

class, the following additional netting rules apply to the

identification numbers upon request. You may use Form

capital gains category.

W-9, Request for Taxpayer Identification Number and

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

Certification, to request the beneficiary’s identifying

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

number.

class reduces net gains in the following order:

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

•

First, gain from the section 1250 long-term capital

penalty for each failure to provide a required taxpayer

gain class, then

identification number, unless reasonable cause is

•

Net gain from the all other long-term capital gain

established for not providing it. Explain any reasonable

class, and finally

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

•

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

class.

Substitute Forms

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

You do not need prior IRS approval for substitute

class reduces net gains in the following order:

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

•

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

The boxes must use the same numbers and titles and

class, then

must be in the same order and format as on the

•

Gain from the section 1250 long-term capital gain

comparable IRS Schedule K-1. The substitute schedule

class, and finally

must include the OMB number. You must request IRS

•

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

approval to use other substitute Schedules K-1. To

class.

request approval, write to:

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

Internal Revenue Service

the net long-term capital gain classes as follows:

Attention: Substitute Forms

•

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

Program Coordinator

class, then

IR-6406

•

Gain from the section 1250 long-term capital gain

SE:W:CAR:MP:T:T:SP

class, then

1111 Constitution Avenue, NW

•

Net gain from the all other long-term capital gain

Washington, DC 20224

class, and finally

•

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

specifications in Pub. 1167, General Rules and

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

CAUTION

net short-term capital gain.

Specifications for Substitute Forms and Schedules.

-5-

Instructions For Form 5227 Page 5

Related Articles

Related forms

Related Categories