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2007 Instructions for Schedule K-1 (541)

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

What’s New

F Beneficiary’s Income

share of income of the estate or trust is from

within and outside California. The amounts

If no special computations are required, use

Revised Schedule K- (54)

derived from or attributable to income from

the following instructions to compute the

The California Schedule K-1 (541) line items

sources within and outside California are to

beneficiary’s income from the estate or trust.

are revised to be in a similar format with

be properly allocated and reported on the

the federal Schedule K-1 (1041). For more

California reporting requirements are the same

Schedule K-1 (541).

information, see the Schedule K-1 Federal/

as federal for:

Payments to nonresidents having a business

State Line References chart located on page 3.

• Income

or taxable situs in California are subject to

Round Cents to Dollars

• Character of income

withholding of taxes. For more information,

Beginning with the 2007 tax forms, round

• Allocation of deductions

get the Instructions for Form 592, Form 592-A,

cents to the nearest whole dollar. For example,

• Allocation of credits

and Form 592-B.

round $50.50 up to $51 or round $25.49

• Gifts and bequests

General Summary of Treatment for Sourcing

down to $25. If you do not round, Franchise

However, income of nonresidents from bank

Specific Nonbusiness Income Items

Tax Board (FTB) will disregard the cents. This

accounts, stocks, bonds, notes, and other

For California tax purposes:

change helps process your returns quickly and

intangible personal property is not income

accurately.

• Compensation for personal services has a

from sources in California unless one of the

source where the services are performed.

following applies 1) the property has acquired

A Purpose

• Interest and dividends generally have a

a business situs in California 2) orders

source at the taxpayer’s state of residence.

with brokers have been placed so regularly

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

• Gains and losses from the sale or exchange

as to constitute “doing business” (R&TC

Beneficiary’s Share of Income, Deductions,

of real and tangible personal property have

Section 17952). Include in column (e) only

Credits, etc., to report its beneficiary’s share of

a source where the property is located.

income from intangible property that is income

the income, deductions, credits, etc. The estate

• Income from intangible personal property

from sources within California.

or trust files copies of the Schedules K-1 (541)

generally has a source at the taxpayer’s

with the Form 541, California Fiduciary Income

Attach a separate schedule to each

state of residence. Rents and royalties have

Tax Return.

beneficiary’s Schedule K-1 (541) showing

a source where the property is located.

intangible income, such as interest, dividends,

• Pensions have a source where the services

B Who Must File

capital gains from the sale of stocks, bonds,

were performed. However, California

etc., whose source is dependent upon the

A fiduciary of the estate or trust (or one of

does not impose a tax on qualified

residence or commercial domicile of the

the joint fiduciaries) must file a Schedule

retirement income or pensions received by

beneficiary.

K-1 (541) for each beneficiary. A copy of

nonresidents on or after January 1, 1996.

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

For nonresidents, income from a trade or

Generally, income from a business, trade, or

be attached to Form 541 filed with the FTB.

business conducted within and outside

profession is sourced as follows:

The fiduciary also must give each beneficiary

California is apportioned or allocated to

• If the operations are conducted wholly

a copy of his or her respective Schedule

California in accordance with Cal. Code Regs.,

within California, the income has a

K-1 (541) and a copy of the Beneficiary’s

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

California source.

Instructions for Schedule K-1 (541) or other

• If the operations within California are so

G Passive Activities

prepared specific instructions. One copy of

separate and distinct from the operations

each Schedule K-1 (541) must be retained for

The limitations on passive activity losses and

outside of California that taxable income

the fiduciary’s records.

credits under Internal Revenue Code (IRC)

can be separately accounted for, only the

Section 469 apply to estates and trusts.

C Penalty

income from within California must be

Estates and trusts that distribute income

included in California source income.

The estate or trust will be charged a $50 penalty

to beneficiaries are allowed to allocate

• If the trade or business carried on within

for failure to provide a copy of each beneficiary’s

depreciation, depletion, and amortization

California is an integral part of a unitary

Schedule K-1 (541), unless reasonable cause

deductions to beneficiaries. These deductions

business carried on outside of California,

is established for not providing it, Revenue and

are called “directly allocable deductions.”

the entire net income must be reported and

Taxation Code (R&TC) Section 19183.

apportioned or allocated in accordance with

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

the provisions of the Uniform Division of

from more than one activity are reported on

D Substitute Forms

Income for Tax Purposes Act as contained

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

If the estate or trust does not use an official

in R&TC Sections 25120 through 25139.

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

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

passive activity.

Partnership, limited liability company, and

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

S corporation income (loss), is apportioned

H Nonresident Beneficiaries

it must get approval from the FTB to use

or allocated in the same manner as any other

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

business. If the estate or trust is a partner,

If the beneficiary of an estate or trust was a

Pub. 1098, Guidelines for the Development and

member, or S corporation shareholder in a

nonresident of California for the estate’s or

Use of Substitute, Scannable, and Reproduced

business entity, income sourced to California

trust’s entire taxable year, California will only

Tax Forms, for more information.

is generally included in column (e) of

tax the beneficiary on income that is derived

Schedules K-1 (565, 568, or 100S). For more

from California sources. If the beneficiary of

E Taxable Year

detailed information, review Cal. Code Regs.,

an estate or trust is a resident of California for

tit. 18, section 17951.4 and related tax codes.

Beneficiary’s taxable year. The beneficiary’s

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

income from the estate or trust must be

California will tax the beneficiary’s share of the

See Cal. Code Regs., tit. 18 sections 17951-1(c),

included in the beneficiary’s return for the

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

17951-2, and 17953 regarding taxability of

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

with FTB Pub. 1100, Taxation of Nonresidents

distributions to nonresident beneficiaries.

taxable year ends.

and Individuals Who Change Residency, and

If California source income is being

Legal Ruling 2003-1. Where an estate or trust

Prior Year. Do not include in the beneficiary’s

distributed to a nonresident beneficiary, see

derives income from both within and outside

income any amounts deducted on Form 541

instructions regarding withholding in General

California, it is necessary for the fiduciary to

for an earlier year that were credited or

Information Q, Miscellaneous Items, of the

determine what portion of the beneficiary’s

required to be distributed in that earlier year.

Form 541 instructions.

Schedule K-1 (541) 2007 Page

Schedule K-1 (541) Draft - Beneficiary'S Share Of Income, Deductions, Credits, Etc. - 2007 Page 3

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