(Formerly Standard 14)
PGTS Standard
28. Procedures are in effect to assure that all required tax reports are accurately filed on a timely basis, and qualified tax counsel is obtained when appropriate. (This includes Federal, provincial, and state tax reports.) [PGO, PGP, PGTS]
The keywords in this standard are “required,” “accurately,” and “timely.” This includes all types of federal and state taxes: income taxes, property taxes, trust, and estate taxes, and business taxes. In this article, we will focus on federal income taxes in the United States that may need to be filed on behalf of the donor. What types of income tax reports does standard 28 include? Standard 28 deals with all reports required by the IRS to be filed, either on behalf of your organization or on behalf of donors who have entrusted your organization to act as a fiduciary, thereby giving it the responsibility of filing their taxes. These fiduciary duties include serving as a personal representative, attorney-in-fact, trustee, or guardian.
The federal forms most commonly required to be filed are IRS Form 1040, 1310, 1041, Schedule K-1, 706, and 8282. There are certainly many more forms that could be required under various circumstances.
Required
You are only required to file forms that the IRS requires to be filed relevant to the facts and circumstances of each situation. In some circumstances, a form may not be required to be filed, but it may be considered best practice to file one anyway. In these situations, it is up to your organization to choose whether or not to file the form. When the IRS does not require a form to be filed, and your organization opts not to file it, that is okay as far as your Trust Review is concerned.
Accurate
If your organization is acting as a fiduciary, you will need to find qualified tax counsel. This usually requires the tax counsel to have a current and active certification.
It may be thought this standard only applies to organizations that accept fiduciary duties on behalf of their members. However, this is not true. It also applies to charitable gift annuities (CGA), where forms that report payouts as taxable income must be filed with the IRS and also sent to the donor. If non-cash assets are received by your organization and sold within three years of the date of donation, an IRS Form 8282 must be filed.
Timely
The requirement for timely filing of the forms listed above are as follows:
Form 1040
Most income taxpayers operate on a cash basis and use a calendar year. Form 1040 is filed each calendar year when the organization is acting as attorney-in-fact or guardian for a donor while they are living. The normal filing date is April 15 of the following year that is being reported.
When someone dies, form 1040 is filed for the portion of the year in which the deceased was still living. The normal filing date is April 15, the year following their death.
An extension may be granted by filing Form 4868 and paying the estimated income tax that may be due on or before April 15. The extension is six months, and the final income tax return must be filed by October 15 of the same year.
Form 1310
When your organization acts as the personal representative for a deceased person who had income tax withheld from their income in the year of their death, you must file form 1310 along with the final form 1040 for the deceased person. If you are filing form 1310 and there is a refund due to the deceased, you will have to file by mail – you cannot file electronically. There is no due date since the IRS does not care if you claim this refund. The timely way to file this form is with the final form 1040. You will have to provide a copy of your letters of testamentary, or other court-issued documents, to prove you are the personal representative for the estate.
Form 1041 and Schedule K-1
Form 1041 and Schedule K-1 are filed for estates and trusts. The due date depends on the type of year that has been elected. For a calendar year, the due date is on or before April 15 of the year following the year being reported. For fiscal years the due date is the 15th day of the fourth month after the end of the fiscal year (i.e., for the fiscal year ending March 30, the return would need to be filed by July 15 of that same year).
An extension may be granted by filing Form 7004 and paying the estimated income tax that may be due on or before the due date. The extension is for five-and-a-half months, and the final income tax return must be filed on or before the end of the extension. Using the same example above of a fiscal year ending on March 30, and a filing date of July 15, the five-and-a-half-month extension would mean a filing date no later than December 31. If the filing is late, interest and penalties will be due.
A copy of Schedule K-1 for each beneficiary must be filed with Form 1041. One copy must be sent to each beneficiary for inclusion with their income tax filing, and one copy must be kept by the organization for their records. The beneficiaries must include a copy of their Schedule K-1 with their individual income tax returns. Your organization must mail the Schedule K-1 to each beneficiary by March 15.
Form 706
Form 706 deals with Estate and Generation-Skipping taxes and only applies to a very few estates. The Unified Exclusion effectively eliminates estate and generation-skipping tax for any estate that falls under a certain amount. In 2020 that amount is $11,580,000 per person, and for married couples, it is doubled to $23,160,000. With portability, the spouse who is last to die may use the unused portion of the exclusion from the first spouse to die. Only estates over this exclusion amount must file Form 706, but if an estate falls below the exclusion amount and there is a surviving spouse, it is considered best practice to file form 706 to preserve the unused portion of the unified exclusion amount for the surviving spouse. Filing of this tax form must take place within nine months of the date of the decedent’s death. A six-month extension of filing and payment of estate tax or generation-skipping tax may be obtained by filing IRS Form 4768.
Form 8282
Form 8282 must be filed when an organization receives a non-cash gift valued at more than $500 and sells, exchanges, or disposes of it, within three calendar years of receiving the gift, which is the date listed on Form 8283 the donor filed with their income tax return documenting the non-cash gift. Form 8282 is affectionately called the “tattletale” form because the organization is reporting the amount of money for which they sold the gift.
The donee organization must file the form directly with the IRS within 125 days after the gift disposition, and a copy of the form must be given to the donor. There is a penalty for failure to file Form 8282 within the time frame required. Not providing the correct information also carries a large penalty. There is no extension for filing Form 8282. Still, if there is missing information that was not available on or before the due date, the organization should file by completing Form 8282 with the basic required information. The donee organization has then fulfilled its obligation.
Although not required, most organizations assist the donor with the preparation of Form 8283 that the donor must submit with their income tax return for the year they are deducting the non-cash donation over $500. If the organization has given this assistance to the donor, they will have all the information that is needed to complete Form 8282.
Sources of Information
If you need more detailed information about the filing of Federal income tax returns, see IRS Publication 17 or online instructions at www.irs.gov.
For state and local taxes, check with your local tax preparer or the state website.