Major Changes to 2007 1041 Form, Instruction, Schedules

Major Changes to the 2007 Form 1041,
U.S. Income Tax Return for Estates and Trusts
The following changes have been made to the 2007 Form 1041.
Page 1
¾ We deleted the previous line G, page 1, concerning Pooled mortgage accounts,
and replaced it with a request to “Check here if the estate or filing trust made a
section 645 election” and a checkbox. This is part of the move of the “widely held
investment trusts” off the Form 1041 and onto a Form 1099. See T.D. 9241,
2006-7 I.R.B. 427.
¾ We updated all the years throughout the document.
¾ We removed the language in line 24f allowing a credit for federal telephone
excise tax paid, as the credit is no longer available. We also renumbered line 24g
and 24h as 24f and 24g, and changed the total payments line from 24i to 24h.
Page 2
¾ We removed the abbreviation for distributable net income, DNI, on page 2, as the
abbreviation is not used elsewhere on the form.
Page 4
¾ On line 64, we updated the maximum amount subject to the 5% rate in the Computation
Using Maximum Capital Gains Rates. See Rev. Proc. 2006-53, 2006-48 I.R.B.
996.

Major Changes to the 2007 Instructions for Form 1041
and Schedules A, B, D, G, I, J, and K-1, U.S. Income Tax
Return for Estates and Trusts
General Changes
¾ All years, filing dates, and cost-of-living references have been updated. Page references
have been updated, but are subject to change pending changes in circulation and review.
¾ We removed the language in line 24f, and renumbered the remaining lines under line 24,
concerning allowing a credit for federal telephone excise tax paid, as the credit is not
allowed on the 2007 return.
Specific Changes
Page 1
¾ Under “What’s New,” we added notes that:
•
•

•

Farm rental income and expenses based on crops or livestock produced by a tenant
go on line 5 and not on line 6 of Form 1041.
Charitable remainder trusts (CRT) under section 664 no longer have to file Forms
1041. Instead if the CRT has any unrelated business taxable income, they must file
Form 4720, Return of Certain Excise Taxes Under Chapter 41 and 42 of the
Internal Revenue Code. See Pub. L. 109-432, Tax Relief and Health Care Act of
2006, act section 424(a). (Implan Action #67.00202)
Electing small business trusts (ESBTs) can now deduct interest expense paid or
accrued on indebtedness incurred to acquire stock in an S corporation. See Pub. L.
110-28, sec. 8236, IRC 641(c)(2)(C)(iv). (Implan Action #67.00008)

¾ Under “Reminders”, we added a note for widely held fixed investment trusts (WHFITs),
reminding them to no longer file Forms 1041. In addition, we gave instructions on how to
mark the Form 1041, if it was used.
Page 3
¾ We added “Revocable Living Trusts” to the definitions section under General Instructions.
A tip was added that most individuals (grantors) with these trusts may be able to use
Optional Method 1, and that method is generally the easiest method to use.
Page 8
¾ Under “Pooled Income Funds,” the last two paragraphs, including the note were modified
to reflect that pooled income funds:
• Must file a Form 5227, Split-Interest Trust Information Return, unless all amounts
were transferred in trust before May 27, 1969 and no section 642(c) deductions
were claimed, and
• No longer need file Form 1041-A.

¾ The language under “Electronic Filing” was modified to reflect the new option to
electronically sign a electronically filed Form 1041 by using Form 8879-F, IRS e-file
Signature Authorization for 1041.
Page 11
¾ Replaced the Form 8264, Application for Registration of a Tax Shelter with Form 8918,
Material Advisor Disclosure Statement. See Notice 2007-85, 2007-45 I.R.B. 1,
http://www.irs.gov/irs/article/0,,id=174844,00.html.
Page 12
¾ The section, “Additional Information” was moved up to directly follow the section “Other
Forms That May Be Required.” The section was also reformatted to promote clarity and
ease of the reader’s use.
Page 14—15
¾ The last paragraph under “Special Filing Instructions for Bankruptcy Estates,” was
modified to refer to Notice 2006-83, 2006-40 I.R.B. 596, which provides additional
information on methods of allocating Form W-2 wages between a bankruptcy estate and
the debtor.
¾ “Mortgage Pools” in the “Grantor Type Trust” section, was modified to note that for 2007
returns, certificate holders should receive Forms 1099 reflecting the individual’s share of
interest income (and other items) from the mortgage pool and they should report this
information on their individual tax returns. Certificate holders for mortgage pools for pre2007 tax returns and WHFITs (not following Regulations section 1.671-5) will continue to
be treated as the owner of an undivided interest in the entire trust. Those individuals must
continue to report their proportionate share of the mortgage interest and other items of
income on their individual tax return.
Page 15—16
¾ Under Nonexempt Charitable and Split-Interest Trusts, the sections “Other returns that must
be filed” was modified:
•
•
•

To delete the requirement for split-interest trusts to file a Form 1041-A;
To require the fiduciary of all split-interest trusts to file a Form 5227, except for
amounts transferred in trust before May 27, 1969, if the trust’ governing
instrument requires that all of the trust’s income be distributed currently; and
To require section 664 charitable remainder trusts with any unrelated business
taxable income to file a Form 4720 reporting the income and paying the tax due.
See Pension Protection Act of 2006, ac section 1201(b) and P.L. 109-432, Tax
Relief and Health Care Act of 2006, act section 424(a).

¾ Under G. Pooled Mortgage Account, the entire text was replaced with information
concerning making an election under section 645. This is part of the removal of WHFITs
from Form 1041 and onto a Form 1099. See T.D. 9241, 2006-7 I.R.B. 427. The section

Page 19 (and last bullet in the "What's New) At the end of the
instructions for Line 10--Interest, we added language and a worksheet
to compute the qualified mortgage insurance premiums deductions. (P.
L. 109-432, Act section 419, action # 67.00200)

645 replacement text was part of a 2003 agreement with counsel to implement T.D. 9032,
I.R.B. 2003-7, 471.
¾ Under “Income,” the paragraph concerning the extraterritorial income exclusion was
modified to note that the exclusion is not available for transactions after 2006; however,
income from certain long-term sales and leases may still qualify for the exclusion. (Implan Action #67.00626)

Page 17
¾ The line 5 and 6 instructions were amended to provide information about the reporting of
farm rental income and expenses based on crops or livestock produced by a tenant on
Schedule E (Form 1040). A Caution Icon was added, telling filers to use Schedule E
(Form 1040) to report the tenant income and warning them not to use Form 4835, Schedule
F (Form 1040), or line 6 Farm Income or (Loss) to report the income.
(Technical Advisor)
Page 20
¾ References to a trust’s deductible share of qualified production activities income from
certain activities increased for 2007 from 3% to 6%. See IRC section 199(a)(2).
Page 21
Only

¾ The Exemption Worksheet for Qualified Disability Trusts was updated with the 2007
exemption threshold amounts, the current year’s exemption amount, and limited exemption
for trusts with modified AGI over $156,400. (Rev. Proc. 2006-53))
Page 23
¾ The instructions for Schedule A, Charitable Deduction, were modified to notify filers that:
•
•

that trusts other than split-interest or nonexempt charitable trusts, claiming a
charitable deduction must file a Form 1041-A unless the trust is required to
distribute currently to the beneficiaries all the income for the year, and
pooled income funds and charitable lead trusts must also file a Form 5227.

Page 26—27
¾ The 2006 tax rate schedules for trusts and estates was replaced with the 2007 rates.
¾ The paragraph concerning the qualified electric vehicle credit was changed to note that it
does not apply to vehicles placed in service after 2006, except in limited circumstances. (Implan Action
#67.00684)

¾ The credits listed under Line 2c, General Business Credit, were reordered reflecting the
movement of the Work opportunity credit, the Enhanced oil recovery credit, and the Credit
for employer social security and Medicare taxes paid on certain employee tips off the Form
3800 and to a separate requirement to list the credits involved in the blank on line 2c.

Page 36
¾ The Schedule D instructions were updated under “What’s New” and in the General
Instructions. We noted that the Schedule D-1, Continuation Sheet for Schedule D was now
available for reporting Schedule D gains and losses not otherwise reportable on Schedule
D, due to space constrictions.
Page 39
¾ Just before the specific instructions for Schedule D and D-1, two new paragraphs were
added concerning the exclusion from gain from DC zone assets or qualified community
assets and how to report any gain from the sale. Specifically, the filers should enter on line
6a, column (a) “DC Zone Asset” or “Qualified Community Asset” and in column (f) enter
a loss for the amount of the allowable exclusion.
Page 43—44
¾ The Schedule D Tax Worksheet instructions were changed to provide that the worksheet
should be used only if, in addition to the other requirements, line 14b, col. 2, 14c, col. 2, or
Schedule D is more than zero, or both line 2b(1) of Form 1041 and line 4 g of Form 4952
are more than zero.
Page 46--47
¾ The Schedule K-1 instructions were modified to reflect changes made by T.D. 9350, 200738 I.R.B. 607, deleting the requirement that filers put the estate’s or trust’s tax shelter
registration number on the Schedules K-1:
•
•
•
•
•

A paragraph was added to the “What’s New” for the Schedule K-1 instructions,
noting that the filer no longer had to enter the estate’s or trust’s tax shelter
registration number (Box F previously);
We noted that Form 8271, Investor Reporting of Tax Shelter Registration has been
made obsolete and deleted the requirement for attaching a copy of the Form 8271;
The remaining boxes were relettered to reflect the deletion of the boxes F and G;
A paragraph later on the same page concerning Tax Shelter Identification Numbers
was deleted; and
The specific instructions for boxes F and G deleted.

Page 49
¾ Under “Other information” an example was added of additional information that a filer
may be required to include with any Schedule K-1 for the beneficiaries.
Page 50
¾ The address of the Tax Products Coordinating Committee was updated with the new room
number 6526.
Page 52

¾ The “Where to File” chart was updated to include “Department of the Treasury” as the first
line of all of the addresses, thereby meeting the new requirement for 3 line addresses.

Major Changes to 2007 Schedule D (Form 1041)
Capital Gains and Losses
¾ On page 1, lines 1 and 6 were each divided into 1a and 1b and 6a and 6b,
respectively. These changes are being made to accommodate the new Schedule D1, Continuation Sheet for Schedule D (Form 1041). Lines 1b and 6b will be the
new entry lines for any amounts listed on Schedule D-1.
¾ On page 2, Part V, we added a caution for certain filers, who need to complete the
worksheet in the instructions rather than completing Part V. This was added after
discussions.
¾ Otherwise, the dates and COLA amounts were updated throughout the product as
needed.

Major Changes to the 2007 Schedule J (Form 1041)
Accumulation Distribution for Certain Complex Trusts

We updated the dates throughout the document, but no other changes were made.

Major Changes to 2007 Schedule K-1 (Form 1041),
Beneficiary’s Share of Income, Deductions, Credits, etc.
¾ On page 1, under Part I, Information About the Estate or Trust, blocks F and G,
concerning Tax Shelter Registration Numbers and whether Form 8271, Investor
Reporting of Tax Shelter Registration, is attached, were deleted. The remaining
blocks H—J were relettered as F—H. See T.D. 9350, 2007-38 I.R.B. 607.
¾ On page 2, under credits, due to reordering of the credits on the Form 3800, the
codes, and the movement of various credits off the Form 3800 (P.L. 67.00006, Act sec. 8214).
●
The line references for the following credits were updated to conform with
the Form 3800 lines: Low-income housing credit Form 3800, line 1d; Welfare-towork credit Form 3800, line 1b; Credit for increasing research activities Form
3800 line 1c;. Indian employment credit Form 3800 line 1g; Orphan Drug Credit
Form 3800 line 1h; Credit for employer provided child care and facilities Form
3800, line 1k; Nonconventional source fuel credit Form 3800, line 1p; and the
Energy efficient appliance credit Form 3800 line 1r.
●
The Work opportunity credit line reference has been changed to reflect
that filers must now file for this credit on Form 5884.
●

The line reference for the Hurricane Katrina Housing Credit changed to reflect changes
made to Form 5884-A.

¾ The only other changes to the form were to the dates, and minor changes caused
by the current style guide.