EIN, Trusts and Claiming... Rusty?

The #1 community for Gun Owners of the Northeast

Member Benefits:

  • No ad networks!
  • Discuss all aspects of firearm ownership
  • Discuss anti-gun legislation
  • Buy, sell, and trade in the classified section
  • Chat with Local gun shops, ranges, trainers & other businesses
  • Discover free outdoor shooting areas
  • View up to date on firearm-related events
  • Share photos & video with other members
  • ...and so much more!
  • BigDaddy

    Ultimate Member
    Feb 7, 2014
    2,235
    The question is, you are putting high dollar items into the trust. Is that "income" to the trust?
    To avoid probate, as well as for some other estate planning benefits, revocable, grantor trusts are commonly used. If putting one's house and brokerage account into a trust created a taxable event, it would be like dying twice.
     

    ducrider45

    Active Member
    Jul 29, 2011
    672
    Severn
    Here is a good discussion on using an EIN vs SS with your revocable trust. These guys strongly recommend using SS except in very rare instances, though they are not focused on NFA trusts specifically:
    http://issues.flemingandcurti.com/2009/08/17/do-you-need-a-new-tax-id-number-for-your-living-trust/

    I'm assuming Rusty and others recommend an EIN because it separates its tax reporting from any of the individual trustees tax IDs.

    The instructions on the 1041 read:


    If you don't sell anything at a profit which brings in more than $600, no worries about reporting it.

    this
     

    NattyBoh

    Ultimate Member
    Jul 29, 2010
    2,030
    Thanks guys.

    Do Ducrider45, you're basically saying as long as you dont sell anything and make more than $600 on it... no need to file.. Correct?
     

    HT4

    Dum spiro spero.
    Jan 24, 2012
    2,728
    Bethesda
    I never understood the advise to get a trust account.

    I can see the argument that it shouldn't matter... there's either a trust, or there isn't. But it's not about that. It comes into play when there's a royal F-up. Let's just say that you screw something up and some JBT's come to seize all of your trust's assets... Then the ATF sees that all of your stamps were paid out of your personal account. Say goodbye to your personal account. :wave:

    That's why I have one.

    Remember that it was only five years ago that the ATF was issuing Leathermans with the motto: "ATF - Always Think Forfeiture" ... or something like that.
     

    outrider58

    Eats Bacon Raw
    MDS Supporter
    Jul 29, 2014
    49,818
    I never understood the advise to get a trust account.

    It was suggested to me that to fund the trust was more for appearances(visa vi BATFE) than a mandatory step, meant to show that the trust was a living breathing thing and not just a pile of "lawyerese". At least that's how I interpreted the recommendation. And that's what I did. Not that big a deal.
     

    NattyBoh

    Ultimate Member
    Jul 29, 2010
    2,030
    It doesnt cost anything to fund it.. So why not? Its pretty much self sustaining too.
     

    outrider58

    Eats Bacon Raw
    MDS Supporter
    Jul 29, 2014
    49,818
    To avoid probate, as well as for some other estate planning benefits, revocable, grantor trusts are commonly used. If putting one's house and brokerage account into a trust created a taxable event, it would be like dying twice.

    And nobody wants to do that:lol2:
     

    rob-cubed

    In need of moderation
    Sep 24, 2009
    5,387
    Holding the line in Baltimore
    The trust needs to be funded to be legitimate. What funding is depends on state law, and can take the form of a back account with a few bucks in it or a bill of sale showing transfer of property into the trust. Until it is funded, the trust is simply words on paper. It's the property that makes it real.

    If you create words on paper and fill out a Form 4 without funding the trust first, the BATFE could technically get nasty. They don't review trusts so this hasn't happened yet, but that's one of the reasons a bank account is suggested when creating a trust. Another is that it establishes a paper trail of ownership outside the Form 4s, and a clear separation of liquid assets used to fund purchases from those of the individual trustees.
     

    MdPrep

    Tactically Tactless
    Sep 24, 2014
    212
    It is likely that your gun trust is nothing more than a grantor revocable trust. For tax purposes, your trust is disregarded by the IRS. Just because you obtained an EIN for the trust does not mean that the trust is its own “entity”. File your taxes like you normally do. You don’t have to file anything for the trust.

    On another note, you are wasting your time by maintaining a separate account for the trust. Doing so will not keep you out of jail or prevent the government or other people from taking your stuff. It is idiotic advice dished out by supposed gun trust experts.

    Could it be that they separate "entities" in the event of an audit/seizure type setting maybe? Example - Joe Smoe files bad tax returns for years, is assets (guns) are listed under an EIN as opposed to SSN. IRS comes to take all of Joe's wordly belongings, but can't legally touch the guns because they are a different "entity". Could this be the case and recommendation here?
     

    fabsroman

    Ultimate Member
    Mar 14, 2009
    35,852
    Winfield/Taylorsville in Carroll
    Holy toledo guys. Here is the answer as far as filing a Form 1041 income tax return for a trust is concerned, which comes directly from the instructions for Form 1041:

    Trust
    The fiduciary (or one of the joint
    fiduciaries) must file Form 1041 for a
    domestic trust taxable under section
    641 that has:
    1. Any taxable income for the tax year,
    2. Gross income of $600 or more (regardless of taxable income), or
    3. A beneficiary who is a nonresident alien.

    Please note item 1. A tax return is required if the trust has any taxable income whatsoever. Then, a tax return is required if the trust has $600 in gross income, even if the result is that none of it is actually taxable. So, make $150 in interest income on the trust, and you need to file a tax return.

    http://www.irs.gov/pub/irs-pdf/i1041.pdf

    As far as the validity of a trust is concerned, the general rule is that it does not actually come into being until it is funded. There might be some exceptions to it, but I don't really feel like digging right now. The ATF would really be splitting hairs about the trust not being in existence prior to the NFA item being donated to it, but it is probably best to be on the safe side of it versus being a test case/subject. Just apply for the EIN/TIN, open a NON-interest checking account, fund the trust by making a deposit to the checking account, and then buy the NFA item through the trust's checking account.

    Do not make any income with the trust and then you do not have to file a Form 1041 income tax return for the trust.
     

    fabsroman

    Ultimate Member
    Mar 14, 2009
    35,852
    Winfield/Taylorsville in Carroll
    What makes me qualified? I know what I am talking about. On the tax question, you don’t have to take my word for it. The IRS provides a helpful Q&A on the topic of the taxation of trusts here:

    http://www.irs.gov/Businesses/Small...ust-Tax-Evasion-Schemes-Questions-and-Answers
    With respect to the tax treatment of grantor revocable trusts, it provides:

    Q: What is a grantor trust?
    A: "Grantor trust" is a term used in the Internal Revenue Code to describe any trust over which the grantor or other owner retains the power to control or direct the trust's income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the grantor, rather than to the trust. (Examples, the power to decide who receives income, the power to vote or to direct the vote of the stock held by the trust or to control the investment of the trust funds, the power to revoke the trust, etc.) All "revocable trusts" are by definition grantor trusts. An "irrevocable trust" can be treated as a grantor trust if any of the grantor trust definitions contained in Internal Code §§ 671, 673, 674, 675, 676, or 677 are met. If a trust is a grantor trust, then the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor.

    Q: Do trusts have a requirement to file federal income tax returns?
    A: Trusts must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year where the trust has $600 in income or the trust has a non-resident alien as a beneficiary. However, if the trust is classified as a grantor trust, it is not required to file a Form 1041, provided that the individual grantor reports all items of income and allowable expenses on his own Form 1040, U.S. Individual Income Tax Return. Thus, the grantor/individual would pay the total tax liability upon the filing of his return for that taxable year.


    Its funny. That tax issues that this sort of trust presents is kindergaten material. Yet you have a guy, who apparently went to gun trust expert, having to ask for tax advice on a gun forum.

    This is correct, and an NFA trust would be a grantor trust unless the person making the NFA trust has lost his/her mind. A grantor trust is where the person granting the trust retains control over the trust and is usually a trustee (or the only trustee) and a beneficiary. So, the income can be put on the Form 1040 instead of having to file a Form 1041 for the trust. Thing is, just do not make any income with the trust and you are alright. I can see that being a problem where the trust sells an item for a profit, but even then just take the income on Form 1040. If the grantor kicks the bucket, then the income must be reported on Form 1041 the year after the decedent's final tax return.
     

    fabsroman

    Ultimate Member
    Mar 14, 2009
    35,852
    Winfield/Taylorsville in Carroll
    Had a nice long post about what is considered income and then I closed the window by accident. Brilliant!!!!!!!!!!!!!!

    Anyway, gross income is defined in 26 USC 61

    (a) General definition
    Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
    (1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
    (2) Gross income derived from business;
    (3) Gains derived from dealings in property;
    (4) Interest;
    (5) Rents;
    (6) Royalties;
    (7) Dividends;
    (8) Alimony and separate maintenance payments;
    (9) Annuities;
    (10) Income from life insurance and endowment contracts;
    (11) Pensions;
    (12) Income from discharge of indebtedness;
    (13) Distributive share of partnership gross income;
    (14) Income in respect of a decedent; and
    (15) Income from an interest in an estate or trust.
    (b) Cross references For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).


    The one that gets a lot of people is that forgiven debt is taxable income. A lot of people would really be crying if it wasn't for Congress passing the Mortgage Debt Relief Act, or whatever it is called. The debt forgiven on a foreclosure or short sale would have been taxable if it wasn't for that act passed in 2009.
     

    anderson76

    Active Member
    Feb 16, 2013
    209
    Holy toledo is right.

    How in the heck do you go for Yes you need to file, to No you don’t need to file – in the span of only 2 posts?

    So is it this @ #31:

    Holy toledo guys. Here is the answer as far as filing a Form 1041 income tax return for a trust is concerned, which comes directly from the instructions for Form 1041:

    Trust
    The fiduciary (or one of the joint
    fiduciaries) must file Form 1041 for a
    domestic trust taxable under section
    641 that has:
    1. Any taxable income for the tax year,
    2. Gross income of $600 or more (regardless of taxable income), or
    3. A beneficiary who is a nonresident alien.

    Please note item 1. A tax return is required if the trust has any taxable income whatsoever. Then, a tax return is required if the trust has $600 in gross income, even if the result is that none of it is actually taxable. So, make $150 in interest income on the trust, and you need to file a tax return.

    http://www.irs.gov/pub/irs-pdf/i1041.pdf

    As far as the validity of a trust is concerned, the general rule is that it does not actually come into being until it is funded. There might be some exceptions to it, but I don't really feel like digging right now. The ATF would really be splitting hairs about the trust not being in existence prior to the NFA item being donated to it, but it is probably best to be on the safe side of it versus being a test case/subject. Just apply for the EIN/TIN, open a NON-interest checking account, fund the trust by making a deposit to the checking account, and then buy the NFA item through the trust's checking account.

    Do not make any income with the trust and then you do not have to file a Form 1041 income tax return for the trust.

    Or is it this @ #32:

    This is correct, and an NFA trust would be a grantor trust unless the person making the NFA trust has lost his/her mind. A grantor trust is where the person granting the trust retains control over the trust and is usually a trustee (or the only trustee) and a beneficiary. So, the income can be put on the Form 1040 instead of having to file a Form 1041 for the trust. Thing is, just do not make any income with the trust and you are alright. I can see that being a problem where the trust sells an item for a profit, but even then just take the income on Form 1040. If the grantor kicks the bucket, then the income must be reported on Form 1041 the year after the decedent's final tax return.

    For anyone that is left wondering, the answer is NO for probably 99% of these types of trusts.
     

    fabsroman

    Ultimate Member
    Mar 14, 2009
    35,852
    Winfield/Taylorsville in Carroll
    Holy toledo is right.

    How in the heck do you go for Yes you need to file, to No you don’t need to file – in the span of only 2 posts?

    So is it this @ #31:



    Or is it this @ #32:



    For anyone that is left wondering, the answer is NO for probably 99% of these types of trusts.

    Thing is, you make this broad statement that 99% don't need to file Form 1041, but then you don't explain to anybody what would require the filing of Form 1041. You don't explain the three optional methods, etc.

    Also, changing methods isn't as simple as just changing methods. Granted, it isn't too difficult, but it isn't as simple as just going form Form 1041 to Form 1040.

    End of the day, people need to show their specific trust to a tax preparer or attorney to see if they qualify for Option 1, Option 2, or Option 3 because it really has to do with who the grantor(s) are and whether they have met the other requirements during the year.

    Further, there is no $600 threshold for the reporting of trust income. Believe I saw that on here too. That is the problem with legal advice on a chatboard, there are too many ifs and everybody is an attorney, CPA, or enrolled agent.

    I thought about this entire ordeal this morning since I have to deal with this in the near term myself. I've read where people are worried about having to keep $500 in the checking account to avoid the service fee. Well, the way to get around that is to fund the checking account, but the NFA item, list the NFA item on the trust schedule, and now that the trust has corpus (i.e., assets other than cash) in it, close the bank account. Next time you need to buy another item, go open another bank account. Willing to be that 99% of the people out there will not be buying an NFA item often enough to warrant the use of trust checking account throughout the year. Further, the only worry about having the trust funded before submitting Form1, Form 4 to the ATF is that the trust is a valid trust. Well, once the trust has an NFA item in it, it no longer needs cash on hand in a checking account to be valid. So, pay for the additional NFA items with a personal check or a credit card and then have them flow into the trust.

    As I already mentioned, if you put the initial contribution funds into a non-interest bearing account, this is all a non-issue too because the trust will not have any income whatsoever. The only time I can see income tax issues come about is when an asset of the trust is sold for a profit. Then, we have to get into whether the capital gain is treated as short term or long term and we have to get into the proper reporting requirements for the gain.

    I wouldn't say that this stuff is beyond 99% of the people out there, but it isn't the simplest thing to deal with.

    For those of you that fall into the 1% and not the 99%, but believe you fall in the 99% based upon internet advice.........

    As far as my specific advice on this matter, if somebody has income from an NFA trust, see the portion in bold above, or talk to somebody about the matter before making income with the NFA trust.

    Time for dinner.
     

    dontpanic

    Ultimate Member
    Jul 7, 2013
    6,631
    Timonium
    Could you just add an asset to the trust when you get it drawn up? It seems you can add a lawnmower or a pack of gum as an asset and you could skip the bank account completely. It is a trust that we create for NFA items but it can have non NFA items.

    Or I could be completely wrong. Please correct me if I am. I do not have a trust now but I am trying to learn all I can.
     

    BigDaddy

    Ultimate Member
    Feb 7, 2014
    2,235
    Could you just add an asset to the trust when you get it drawn up? It seems you can add a lawnmower or a pack of gum as an asset and you could skip the bank account completely. It is a trust that we create for NFA items but it can have non NFA items.

    Or I could be completely wrong. Please correct me if I am. I do not have a trust now but I am trying to learn all I can.

    I have read most of Rusty Shackelfords posts, some of which are here:
    http://www.mdshooters.com/forumdisplay.php?f=190

    I am neither a lawyer nor have a trust. The reason to have a bank account is to establish a paper trail to "prove" the trust is a real entity and some sort of shell holding company.

    It is clear that many members here have NFA trusts without ever having had a separate bank account. No one ever has been asked for the trust bank account no by the ATF or the MSP when they submit their forms for an NFA item. Will the ATF ever go back and examine trusts in detail? Well it used to be easy to get a Class 1 FFL without a real bricks and mortar store, and they cracked down on that.

    Rusty's opinion was not to put non-NFA firearms in a NFA trust. I don't remember why. There are other gun lawyers on MDS, they may or may not agree with Rusty.
     

    teratos

    My hair is amazing
    MDS Supporter
    Patriot Picket
    Jan 22, 2009
    59,775
    Bel Air
    I asked my attorney specifically about setting up a separate account etc. He said it wasn't necessary. My FIL does Wills and Trusts (he did not do my NFA trust), he said the account wasn't necessary. I funded the trust initially with a $1 bill. Still have it with the original trust document. That made the entity exist with assets. Now that I have NFA items in it, I assume it is GTG.
     

    dontpanic

    Ultimate Member
    Jul 7, 2013
    6,631
    Timonium
    I asked my attorney specifically about setting up a separate account etc. He said it wasn't necessary. My FIL does Wills and Trusts (he did not do my NFA trust), he said the account wasn't necessary. I funded the trust initially with a $1 bill. Still have it with the original trust document. That made the entity exist with assets. Now that I have NFA items in it, I assume it is GTG.

    That is what I was told by an IP here. Would you mind sharing who did your trust?
     

    fabsroman

    Ultimate Member
    Mar 14, 2009
    35,852
    Winfield/Taylorsville in Carroll
    I asked my attorney specifically about setting up a separate account etc. He said it wasn't necessary. My FIL does Wills and Trusts (he did not do my NFA trust), he said the account wasn't necessary. I funded the trust initially with a $1 bill. Still have it with the original trust document. That made the entity exist with assets. Now that I have NFA items in it, I assume it is GTG.

    This. The NFA trust is not a good vehicle for owning non-NFA firearms, but that does not mean it cannot own other items like a lawnmower, tractor, etc. The reason it is good for owning NFA items is because federal law allows a trust, corporation, etc. to own NFA items. There is nothing that allows a trust, corporation, or other entity to own non NFA firearms.

    So, a NFA trust can be funded with whatever property you want to fund it with. There isn't anything specific to a NFA trust that requires that the only items in the trust be NFA items. Thing is, it makes no sense to have a NFA trust take title to a non-NFA firearm. There might be an exception though if you want to leave the non-NFA firearm in trust for your kids, wife, etc. should you pass away. In fact, I am sitting here wondering if a NFA Trust (i.e., my gun trust), would be a good idea for my "banned" items to flow into should I die before my kids are old enough to possess them. My Last Will & Testament could designate the trust as the beneficiary of those "assault weapons" and then the trust could have a provision in it wherein all the items are dispersed to the beneficiaries upon the youngest beneficiary attaining a certain age. I'm going to have to mull over this. Thing the issues is going to be who is in possession of the "assault weapons" prior to them going to my kids and whether they are in possession of them via inheritance or not.
     

    Users who are viewing this thread

    Forum statistics

    Threads
    274,930
    Messages
    7,259,485
    Members
    33,350
    Latest member
    Rotorboater

    Latest threads

    Top Bottom