Rev. Rul. 86-29

1986-1 C.B. 364, 1986-8 I.R.B. 23.

RETURNS; INFORMATION FAILURE TO FILE; FORM 1041, SCHEDULE K-1

Published: February 24, 1986

Section 6652.-Failure to File Certain Information Returns, Registration Statements, Etc., 26 CFR 301.6652-1: Failure to file certain information returns

(Also Section 6041: 1.604-1.)

  Returns; information failure to file; Form 1041, Schedule K-1. Schedule K-1 is considered an information return that is required to be timely filed with Form 1041, U.S. Fiduciary Income Tax Return. Trusts that fail to file Schedule K-1, file K-1s that omit material information or file substitute K-1s not in an approved format, are subject to the penalty under section 6652(a)(1)(A) of the Code.

ISSUE

  For purposes of the penalty imposed by section 6652(a)(1)(A) of the Internal Revenue Code, does the term 'statement of the amount of payments to another person required by . . . section 6041(a)' of the Code include Schedule K-1 to Form 1041 (U.S. Fiduciary Income Tax Return)?

FACTS

  Situation 1: Trust TrA filed Form 1041, U.S. Fiduciary Income Tax Return, and made payments to each beneficiary of $600 or more in taxable year, but failed to file any of five required Schedules K-1 with the Form 1041.

  Situation 2: Trust TrB filed Form 1041 and filed Schedules K-1, and made payments to each beneficiary of $600 or more in a taxable year, but omitted certain material information from three of the five schedules.

  Situation 3: Trust TrC filed Form 1041 and made payments to each beneficiary of $600 or more in a taxable year, but filed five 'substitute' Schedules K-1

(summaries). Contrary to the requirements in Rev. Proc. 83-9, 1983-1 C.B. 639 and in the instructions to Schedule K-1 (Form 1041) the substitutes were not in an approved format and were unprocessible.

LAW AND ANALYSIS

  Section 6041(a) of the Code provides, with certain exceptions not here relevant, that all persons engaged in a trade or business and making payment in the course of such trade or business to another person of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $600 or more in any taxable year shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amounts of such gains, profits, and income, and the name and address of the recipient of such payment.

  Section 6652(a)(1)(A) of the Code provides that in the case of each failure to file a statement of the amount of payments to another person required by section 6041(a) or (b) (relating to certain information at source) on the date prescribed therefore (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid (upon notice and demand by the Secretary and in the same manner as tax) by the person failing to file the statement, $50 for each such failure, but the total amount imposed on the delinquent person for all such failures during any calendar year shall not exceed $50,000.

  Section 1.6041-1(a)(2) of the Income Tax Regulations provides that information returns are required to be made on Forms 1096 and 1099 except that the return with respect to distributions to beneficiaries of a trust or of an estate shall be made on Form 1041. Instructions for Form 1041 and Schedules A, B, D, J, and K-1, state that a Schedule K-1 must be filed with Form 1041 to report a beneficiary's income from the estate or trust. The instructions also describe acceptable substitute Schedules K-1. Form 1096, instruction paragraph K, 'Other Information Returns,' lists the Schedule K-1 for Form 1041 and states that income information reported on the K-1s must not be reported on any of the other Forms covered in the instructions to Form 1096.

  In Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944), 1944 C.B. 540, the Supreme Court noted that the Congress gave discretion to the Commissioner to prescribe by regulation forms of returns. The discretion was granted so that the Commissioner would not only obtain necessary tax information but obtain that information with such 'uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished.'

  The Schedules K-1 are required to be filed with Form 1041 and serve the function of reporting the income of a beneficiary of an estate or trust. Thus, the schedules are among the information returns required by section 1.6041-

1(a)(2) of the regulations.

  In Situation 1, TrA filed Form 1041 but failed to file five Schedules K-1. In Situation 2, TrB omitted material information on three of five Schedules K-1. In Situation 3, TrC filed five substitute Schedules K-1 that were not in an approved format.

  Thus, in the three situations the Schedules K-1 either were not furnished to the Service or were not in acceptable format. The service, therefore, was hindered in carrying out this responsibility of performing the information collection duties placed upon it by Congress.

HOLDINGS

  For purposes of the penalty imposed by Section 6652(a)(1)(A) of the Code, the term 'statement of the amount of payments to another person required by . . . Section 6041(a)' of the Code includes Schedule K-1 to Form 1041. Therefore, the consequence of the three fact situation would be as follows:

  Situation 12. TrA's failure to file five Schedules K-1 resulted in five failures to file an information return for the purpose of imposing the penalty provided by section 6652(a)(1)(A) of the Code.

  Situation 2. TrB's failure to provide the missing information for three of five Schedules K-1 resulted in three failures to file an information return for the purpose of imposing the penalty provided by section 6652(a)(1)(A) of the Code.

  Situation 3. TrC's failure to file five substitute Schedules K-1 in an approved and processible format resulted in five failures to file an information return for the purpose of imposing the penalty provided by section

6652(a)(1)(A) of the Code.

Rev. Rul. 86-29, 1986-1 C.B. 364, 1986-8 I.R.B. 23.