IRS provides guidance on trust's sec. 645 election and short-year return.

• Author: Fiore, Nicholas J.
• Position: Qualified revocable trusts

Under Sec. 645, a qualified revocable trust may elect to be treated and taxed for income tax purposes as part of an estate (and not as a separate trust) for all tax years of the estate ending after the date of the decedent's death and before the applicable date described in Sec. 645(b)(2).

Rev. Proc. 98-13 sets forth procedures for making the Sec. 645 election and filing the appropriate tax returns. A qualified revocable trust making a Sec. 645 election generally must obtain a taxpayer identification number (TIN) and file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for the trust's short tax year beginning with the decedent's death and ending December 31 of that year. A trust does not have to file a short-year return if (1) it filed the Form 1041 for the estate's first tax year before the due date for filing a Form 1041 for the trust for the tax year ending after the date of the decedent's death; (2) it reports the trust items attributable to the decedent under Regs. Sec. 1.671-4(b)(2)(i)(A) or (B); and (3) the entire trust is a qualified revocable trust.

Under Rev. Proc. 98-13, if the trust must file a Form 1041 for the short tax year, it must attach a copy of the required election statement to that form. The trust must attach the original of the required statement to the Form 1041 filed for the estate's first tax year. The Sec. 645 election is considered as having been made on the first of the filing of (1) the estate's Form 1041 with the original required statement attached or (2) the trust's Form 1041 with the copy of the required statement attached. Once the trust makes the election, it must exclude the items of income, deduction and credit attributable to its short year from its Form 1041 and report them...