Final regulations on new grantor trust reporting requirements.

• Author: Watson, Mark T.

On Dec. 20, 1995, the IRS released the final amendments to Regs. Sec. 1.6714 (addressing the grantor trust reporting requirements). Like the proposed amendments, the final amendments implement two alternative reporting methods--eligibility for which depends on whether the trust is treated as owned by one grantor (or other person) or more than one grantor (or other person).

Trust Owned by One Person

If a trust is treated as owned by one grantor or other person, the trustee may choose between two alternative methods of reporting.

[] Alternative 1: The trustee must furnish to all payors of income and proceeds during the tax year (1) the name and taxpayer identification number (TIN) of the grantor or other person, and (2) the address of the trust.

If the trustee furnishes this information to all payors, the trustee is not required to file any type of return with the Service.

[] Alternative 2: The trustee must (1) furnish to all payors of income and proceeds during the tax year the trust's name, TIN and address, and (2) file with the IRS appropriate Forms 1099 reporting each type of income and each item of gross proceeds paid to the trust, showing the trust as the payor, and showing each grantor or other person treated as an owner of the trust as the payee.

Trust Owned by More Than One Person

If the trust is treated as owned by more than one grantor or other person, the trustee may use only the: alternative method of reporting described under Alternative 2 or continue to use the "old" reporting method set forth under Regs. Sec. 1.671-4(a) (i.e., file a "skeleton" Form 1041 with an information statement attached).

Under both alternative methods of reporting, unless the trustee or cotrustee is also the only grantor or other person treated as an owner of the trust, the final regulations require the trustee to furnish each grantor or other person with a statement that:

[] Shows all items of income, deduction and credit of the trust for the tax year.

[] Identifies the payor of each item of income (necessary only if the Alternative 1 reporting method is used).

[] Provides the grantor or other person with the information necessary to take the items into account in computing taxable income.

[] Informs the grantor or other person that the items of income, deduction, credit and other information shown on the statement must be included in computing the grantor's (or other person's) taxable income.

The final amendments, effective Jan. 1, 1996, also contain...