Margaret CRUT Return Balance Sheet

[Terry D EA]

Margaret as usual I am dealing with my one and only CRUT return. The balance sheet of the 5227 really puzzles me. The CRUT that I am dealing with only has assets that are investments and there are no liabilities, and does not engage in any outside business activities. The balance sheet will never balance and I am wondering how you complete this. Plug figures? I don't like using plug figures and in this case they would be totally bogus. In the past I have left the balance sheet as it is unbalanced and have never had a problem or question. I don't want to ever leave any stone untured with this type of return as we both know the penalties are some of the highest the IRS will impose.

[Terry D EA]

Just moving this back to the top of the list hoping for a response.

[Margaret CPA in OH]

Hi, I just returned from a dive trip last week so am only now seeing this.

From inception you should have had a balanced balance sheet. The initial contribution should have been either cash or securities or other assets matched exactly with trust principal or corpus, line 57. Then as the assets changed (maybe stock sold or dividend income increased cash and distributions were made to the benes) the Net Assets lines may have changed as needed. Corpus may have had to be distributed to reach the required percentage if insufficient income was earned. Do the terms of the CRUT include distribution of cap gains? Lots of questions but every year should have had a match of assets and net assets.

Do you have the returns from inception? One client I had required that I amend about 5 years' worth because the balance sheet didn't balance. And remember that corpus never changes unless distributed or additional contributions were made. All changes in the balance sheet should be reflected via cash and cap gains. Columns a and b are book value so any changes would be easily followed by cash received and cap gains (losses) realized.

I have not plugged figures, didn't have to. Rounding did take place within a couple of dollars due to valuation but no plugging. I'm not quite sure what to tell you. Is it possible to go back to the first return and set it straight?

[Terry D EA]

>>>>The initial contribution should have been either cash or securities or other assets matched exactly with trust principal or corpus<<<< These items do match. The software that I am using throws a flag abouth the "liabilities" not matching as if it were a normal operating balance sheet. I agree that corpus should never change and in this situation it has changed due to the lack of sufficient income to meet the Unitrust distribution in some previous years. Also, the terms of this CRUT does include capital gains and following the ordering rules there is an undistributed amount this year that I think goes to corpus. This I am not sure of at this moment, and I will check the trust document, I am also aware that undistributed capital gains can go to the succeeding years as part of the Unitrust distribution and corpus doesn't get distributed until all is used up or income isn't sufficient. Again, following the ordering rules.

I have all returns since inception simply becasue I had to amend all of them some time ago. During that time, I had to create all of the trust accounting from inception as well. We have real good accurate records and as I said above I have been thrown by that warning so maybe I over thought it.

[Margaret CPA in OH]

If there were undistributed amounts from one year (forgot, wrong amount, made the following year) that would be a liability on the bs. It happened to me once but was distributed by January the following year. No foul.

If corpus was distributed, then you probably had gains/losses that should have come into play, too, and offset the cash and distributed amounts. Are you sure you took the expenses from the cash available or listed them if unpaid as liabilities?

I guess I am a bit confused. If your assets equal the net assets, you are good. The assets minus zero liabilities equal net assets, right? If so, I don't understand why there would be any reason to 'plug' any number. And I don't understand a message the tells you something doesn't match without identifying what that is, exactly. What is the actual verbiage of the message? What are the numbers in each column? PM me if you wish.

[Terry D EA]

I figured out my problem. Line 50 (Total Assets) must match Line 60 (Net Assets Plus Total Liabilities). The amount of undistributed capital gains is what was throwing me off. The trust instrument does state that undistributed income, capital gains, dividends; etc are allocated to corpus. Once I included that amount on line 58b and realized that I had transposed the ending book value (Col and FMV (Col C) all is well. So, it was not the program after all. When I took time to actually read the error and analyze it I got it. Simple enough so maybe a good excuse is I have been staring at it too long and created a mind block so I couldn't see it. I don't know why I do it but sometimes when I question myself my mind gets boggled up. From my original post, I was looking at it as though it was a financial balance sheet where the accounting equation applies. Duh! Thanks for your help as you did help me unravel my confusion and accpet my apologies if I confused you.

[Margaret CPA in OH]

Thanks for getting back to me. It does seem unusual to add undistributed income, cg's, divs, etc. to corpus, though. Not quite sure how that would work unless the sums are used to reinvest or left in cash form. Are you instead just leaving in 58a and b but considering those amounts as corpus? And transposition was not helpful for sure

I am glad that you got it figured out. Sometimes it does make one's eyes glaze over and rereading all the details can help. No apologies at all are needed. Glad I could help even if only to make you look again. This board is so helpful and I contribute so little and receive so much.

Have a great season end as you wrap this puppy up!

[Terry D EA]

While I agree it does seem unusal but the trust instrument is real clear with the exact wording. You are correct, this board is the bomb and I don't know how I could survive a tax season without it.

>>>>Are you instead just leaving in 58a and b but considering those amounts as corpus<<<< Yes. According to the trust document the unitrust amount is calculated from the year ending corpus. This also confused me regarding the ordering rules for the unitrust distribution. But... I can see that it works and the rules are followed in the following years. These things can make one crazy.