Question: My client has an unfunded trust established in 1999. A bank account was originally opened up for the trust but the bank account was opened up under her late husbands social security number. The bank has changed the identification number to the tax id of the trust. The IRS has now sent the client a letter requesting all back trust returns. Does a trust tax return need to be filed?
Answer: Generally, a trust return must be filed for a domestic estate that has either, any taxable income for the tax year, gross income of $600 or more in a tax year, or if there is a beneficiary who is a nonresident alien. If the trust was unfunded, i.e. no assets transferred to the trust, then you should not have to file a trust return.
I recommend responding to the IRS stating that no trust return is required because the trust was unfunded and did not earn any income.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.