IRS Schedule AI: Trust Accumulation of Charitable Amounts
Clarify the tax compliance requirements for trusts using Schedule AI to report charitable amounts set aside for future distribution with Form 1041.
Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts, is a specialized information return used by certain trusts. The role of Form 1041-A is to report and track charitable contributions that the trust is obligated to make in the future under the terms of its governing document, such as a will or trust agreement. This form becomes relevant when a trust takes a tax deduction for funds that have been permanently set aside for a charitable purpose but have not yet been distributed to the designated charity. It provides the Internal Revenue Service (IRS) with a transparent record of these accumulated amounts.
Determining if You Need to File
A trust must file Form 1041-A if it claims a deduction under Internal Revenue Code Section 642(c) for amounts set aside for a charitable purpose. This section of the tax code permits a deduction for any amount of gross income which, according to the governing instrument, is set aside for a purpose specified in section 170(c). The element necessitating Form 1041-A is when the deduction is for amounts that are permanently set aside for future payment to a charity, rather than amounts paid during the tax year.
If a trust’s governing document directs the trustee to make a current-year donation and the trustee pays that amount to the charity before the end of the tax year, Form 1041-A is not required for that transaction. The filing obligation arises when the trust instrument allows the trustee to accumulate income for a charitable purpose, and the trust claims a deduction for that accumulated income which has not yet been disbursed. This applies to complex trusts where the governing document provides for such set-asides.
For example, if a trust document stipulates that 20% of the annual income is to be donated to a specific charity, but gives the trustee discretion to accumulate this income and pay it out in a future lump sum, a deduction can be taken in the year the income is earned and set aside. In this scenario, Form 1041-A must be filed for each year the income is set aside but not paid.
Information Required to Complete Form 1041-A
To complete Form 1041-A, specific information and documents must be gathered. The IRS provides the form on its website for preparation. You will need the following:
- The trust’s legal name and its Employer Identification Number (EIN).
- The governing instrument, which could be a will or a trust document, as it contains the specific language authorizing the charitable set-aside.
- A detailed accounting of the trust’s total income for the tax year.
- Identification of any capital gains that are allocated to the trust’s principal, or corpus, as these are often treated differently than ordinary income for tax and distribution purposes.
- A record of all charitable amounts, both those paid out during the current year and those set aside for future payment, including tracking the accumulated amounts from prior years that remain unpaid.
Completing the Form 1041-A
The form is divided into four parts that systematically track the trust’s charitable set-asides.
- Part I, “Income and Deductions,” requires you to report the trust’s income and any deductions attributable to it. This includes interest, dividends, and other forms of income, as well as related expenses.
- Part II, “Distributions of Income Set Aside for Charitable Purposes,” tracks the accumulated income that has been set aside for charity. This section details the income from the current year and prior years that is designated for charity but has not yet been paid out.
- Part III, “Distributions of Principal for Charitable Purposes,” accounts for any amounts from the trust’s principal (or corpus) that were paid to charities during the year.
- Part IV consists of “Balance Sheets,” providing a snapshot of the trust’s assets and liabilities at the beginning and end of the tax year.
Filing Form 1041-A
Form 1041-A is a standalone information return and is not filed with Form 1041; it must be filed separately with the IRS. The due date for Form 1041-A is April 15 of the year following the tax year. Because it is a separate filing, it is important to track its deadline independently of the trust’s primary income tax return. Filing can be done either by mail or through an authorized e-file provider. The IRS uses this information to track the trust’s compliance with its charitable obligations over time.