DANRVAN

Looks like preparer has several things to explain......

Why would you need any more documentation if the note clearly states that $100,000 of the $500,000 principal is allocated to the covenant? Then clearly one-fifth of the payments are also allocated to the covenant. That article is not relevant to this situation. The allocation has already been made and there is no reason to question it.

Have him ask for the code section or authoritative source, or ask how section 453(b)(2) applies in his situation. Looks to me like $20,000 (1/5) would be reported in 2022.

That looks clear to me, as you stated in your 2nd post $100,000 was allocated in the contract. Look at sec 453(b)(2) which does not indicate the covenant is excluded from installment sale treatment. It is ordinary, see RR 69-643

That is correct for that situation.

Correct. Only distributions of taxable income. Trust takes income distribution deduction for same amount.

"or as allowed by the governing instrument"

Would also be eligible for accrual accounting election; and an initial short year that might result in better matching of income and expenses.

As long as it was a qualified revocable trust under sec 676.

Will the trust make distributions to a public charity as instructed by the governing instrument? If so, the they might be able to take a Charitable deduction for funds permanently set aside. Possibly a Private Foundation?

Please forgive my double negative error, that should have read "don't think the estate is entitled."

There would be a K-1 if taxable income was distributed.

I don't think so, unless there is some special rule for community property states.

Should be treated like the sell of any other business and recognize goodwill.

Off the top of my head, I am going to say probably not. First of all I don’t think it would be allowed since it was not spelled out in the will. Secondly, I don’t believe the retirement account would be included in the gross estate of the decedent. It should be excluded as a charitable deduction regardless of whether a 706 was filed. Therefore, if it was not part of the estate, I don't think the estate is not entitled to take a deduction on 1041.

Does the K-1 show ordinary income or royalty income.

That does not sound the correct, I believe it should off set passive income, not ordinary income. Is this a new client for you?

Should be line 20-T on the K-1 input sheet.

I have a similar situation. Partnership makes distribution to trust; trust makes distribution to individual. Trust deducts tax prep and income distribution deduction. Very simple. Trust also follows 65 day rule since partnership makes distribution right at year end.

The second question, are there any computations on the tax return affected by tax exempt interest such as SS income or MAGI?

Just curious, are the two teenagers from a previous marriage so wife did not get 100%? Under that scenario in Oregon, wife would get 50% and teens 25% each.

You referred to the first amount from line 8, can you be more specific as to where the last four amounts came from?

Could be an issue of marital vs nonmarital property depending on where the funding of the property came from. There are cases where 100% ownership turned out to be 50% ownership; and 1/2 step up bass instead of full step up in basis. Estate attorney should have sorted it out.

You can put it directly on line 1b without explaining.

If you are working on the individuals 1040, just let it flow from the K-1 to SE, then enter on line 1b of form SE, which is specifically designated for the CRP subtraction; same as you would if it came from Schedule F of 1040. The 1065 preparer should show as other information the amount of SE income from CRP, especially if going to non-client.