Inconsistent income reporting between Federal and California Trust returns - Spidell

Inconsistent income reporting between Federal and California Trust returns

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Message Board Inconsistent income reporting between Federal and California Trust returns

This topic contains 1 reply, has 2 voices, and was last updated by Lynn Freer 4 months, 2 weeks ago.

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  • #151271
    Henry Goff
    Participant

    A Trust held a piece of land as its only asset which sold in 2018.  No income has ever been earned and this is the first return for the Trust (no bank account).  Upon sale, the Trust is terminated and the money is distributed directly to the beneficiary.  Since this could be the final year of the Trust, the capital gain income ($135,000) is allowed to pass through to the beneficiaries rather than being taxed inside the Trust. However, the California income tax was withheld using the Trust federal identification number rather than the Beneficiary’s social security number.

    In order to expedite the tax return processing and to offset this tax with the withholding, can the California Trust pay the tax, even though the Federal return will distribute the income for reporting on the
    Beneficiary’s income tax return?  Will this cause an audit risk for the Beneficiary’s personal tax return?

  • #151284
    Lynn Freer
    Participant

    No. The only thing that can be done is to have the trust file Form 592 and transfer the withholding to the beneficiaries. Then the trust files a return but pays no tax and the beneficiaries claim the withholding on their returns. The 592 should be filed prior to the beneficiaries filing their returns. Expect to have to follow up at some point if the FTB doesn’t transfer the withholding