What to consider: Schedule K-1 and withholding issues.

• Position: FTB NEWS

If you prepare Schedule K-1s for you or your clients' tax returns, and you or your clients have a withholding credit, here are some items you need to consider:

* California Revenue and Taxation Code Sec. 19002 states the amount withheld shall be allowed to the recipient of the income as a credit against the tax for the taxable year with respect to which the amount was withheld. This means that the withholding credit stays with the related income.

* If you or your client is a trust, check the income distribution deduction on California Form 541, California Fiduciary Income Tax Return, for income that is related to a withholding credit. If income related to the withholding credit is included and distributed, then the related withholding credit must also be distributed. The withholding credit is reported on the Schedule K-1 (541), Beneficiary's Share of Income, Deductions, Credits, Etc., and a Form 592, Resident and Nonresident Withholding Statement.

* To allocate the withholding to the beneficiary, the trust completes Form 592, which provides the FTB with the information it needs to apply the withholding credit to the beneficiary's account. At the same time, the trust provides California Form 592-B, Resident and...