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2010 Instructions for Schedule K-1 (541)

Beneficiary’s Share of Income, Deductions, Credits, etc.

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).

General Information

Schedule K-1 (541), unless reasonable cause

income to beneficiaries are allowed to allocate

is established for not providing it, R&TC

depreciation, depletion, and amortization

Conformity

Section 19183.

deductions to beneficiaries. These deductions

In general, for taxable years beginning on or

are called “directly allocable deductions.”

D Substitute Forms

after January 1, 2010, California law conforms

If items of income (loss), deduction, or credit

to the Internal Revenue Code (IRC) as of

from more than one activity are reported on

If the estate or trust does not use an official

January 1, 2009. However, there are continuing

Schedule K-1 (541), the fiduciary must attach

FTB Schedule K-1 (541) or a software program

differences between California and federal

a statement to Schedule K-1 (541) for each

with an FTB-approved Schedule K-1 (541),

law. When California conforms to federal tax

passive activity.

it must get approval from the FTB to use

law changes, we do not always adopt all of

a substitute Schedule K-1 (541). Get FTB

the changes made at the federal level. For

H Nonresident Beneficiaries

Pub. 1098, Annual Requirements and

more information, go to ftb.ca.gov and search

Specifications for the Development and Use

If the beneficiary of an estate or trust was a

for conformity. Additional information can

of Substitute, Scannable, and Reproduced Tax

nonresident of California for the estate’s or

be found in FTB Pub. 1001, Supplemental

Forms, for more information.

trust’s entire taxable year, California will only

Guidelines to California Adjustments, the

tax the beneficiary on income that is derived

instructions for California Schedule CA (540 or

E Taxable Year

from California sources. If the beneficiary of

540NR), and the Business Entity tax booklets.

an estate or trust is a resident of California for

Beneficiary’s taxable year. The beneficiary’s

The instructions provided with California tax

only part of the estate’s or trust’s taxable year,

income from the estate or trust must be

forms are a summary of California tax law

California will tax the beneficiary’s share of the

included in the beneficiary’s return for the

and are only intended to aid taxpayers in

estate’s or trust’s income or loss in accordance

taxable year in which the estate’s or trust’s

preparing their state income tax returns. We

with FTB Pub. 1100, Taxation of Nonresidents

taxable year ends.

include information that is most useful to the

and Individuals Who Change Residency, and

Prior Year. Do not include in the beneficiary’s

greatest number of taxpayers in the limited

FTB Legal Ruling 2003-1. Where an estate

income any amounts deducted on Form 541

space available. It is not possible to include

or trust derives income from both within

for an earlier year that were credited or

all requirements of the California Revenue

and outside California, it is necessary for the

required to be distributed in that earlier year.

and Taxation Code (R&TC) in the tax booklets.

fiduciary to determine what portion of the

Taxpayers should not consider the tax booklets

beneficiary’s share of income of the estate or

F Beneficiary’s Income

as authoritative law.

trust is from within and outside California. The

If no special computations are required, use

amounts derived from or attributable to income

Revised Schedule K- (54)

the following instructions to compute the

from sources within and outside California are

The California Schedule K-1 (541), Beneficiary’s

beneficiary’s income from the estate or trust.

to be properly allocated and reported on the

Share of Income, Deductions, Credits, etc.,

Schedule K-1 (541).

line items are in a similar format to the federal

California reporting requirements are the same

Schedule K-1 (1041), Beneficiary’s Share of

as federal for:

Payments to nonresidents having a business

Income, Deductions, Credits, etc. For more

or taxable situs in California are subject to

• Income

information, see the Schedule K-1 Federal/State

withholding of taxes. For more information,

• Character of income

Line References chart on page 3.

get the 2010 instructions for Form 592,

• Allocation of deductions

Resident and Nonresident Withholding

Round Cents to Dollars

• Allocation of credits

Statement; Form 592-A, Payment Voucher

Round cents to the nearest whole dollar. For

• Gifts and bequests

for Foreign Partner or Member Withholding;

example, round $50.50 up to $51 or round

However, income of nonresidents from bank

and Form 592-B, Resident and Nonresident

$25.49 down to $25.

accounts, stocks, bonds, notes, and other

Withholding Tax Statement.

intangible personal property is not income from

A Purpose

General Summary of Treatment for Sourcing

sources in California unless one of the following

Specific Nonbusiness Income Items

applies 1) the property has acquired a business

The estate or trust uses Schedule K-1 (541)

situs in California 2) orders with brokers have

to report its beneficiary’s share of the income,

For California tax purposes:

been placed so regularly as to constitute “doing

deductions, credits, etc. The estate or trust

• Compensation for personal services has a

business” (R&TC Section 17952).

files copies of the Schedules K-1 (541) with

source where the services are performed.

the Form 541, California Fiduciary Income Tax

Include on Schedule K-1 (541) column (e) only

• Interest and dividends generally have a

Return.

income from intangible property that is income

source at the taxpayer’s state of residence.

from sources within California.

• Gains and losses from the sale or exchange

B Who Must File

of real and tangible personal property have

Attach a separate schedule to each beneficiary’s

A fiduciary of the estate or trust (or one of

a source where the property is located.

Schedule K-1 (541) showing intangible income,

• Income from intangible personal property

the joint fiduciaries) must file a Schedule K-1

such as interest, dividends, capital gains from

generally has a source at the taxpayer’s

(541) for each beneficiary. A copy of each

the sale of stocks, bonds, etc., whose source is

state of residence.

beneficiary’s Schedule K-1 (541) must be

dependent upon the residence or commercial

• Rents and royalties have a source where the

attached to the Form 541 filed with the

domicile of the beneficiary.

property is located.

Franchise Tax Board (FTB). The fiduciary also

For nonresidents, income from a trade or

• Pensions have a source where the services

must give each beneficiary a copy of his or her

business conducted within and outside

were performed. However, California

respective Schedule K-1 (541) and a copy of

California is apportioned or allocated to

the Beneficiary’s Instructions for Schedule K-1

does not impose a tax on qualified

California in accordance with Cal. Code Regs.,

(541) or other prepared specific instructions.

retirement income or pensions received by

tit. 18, section 17951-4(c).

One copy of each Schedule K-1 (541) must be

nonresidents on or after January 1, 1996.

retained for the fiduciary’s records.

G Passive Activities

Generally, income from a business, trade, or

profession is sourced as follows:

C Penalty

The limitations on passive activity losses and

• If the operations are conducted wholly

credits under IRC Section 469 apply to estates

The estate or trust will be charged a $50 penalty

within California, the income has a

and trusts. Estates and trusts that distribute

for failure to provide a copy of each beneficiary’s

California source.

Schedule K-1 (541) 2010 Page

Schedule K-1 (541) Draft - Beneficiary'S Share Of Income, Deductions, Credits, Etc. - 2010 Page 3

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