Grantor Trust Returns No Longer Required
The Department of Revenue receives many North Carolina
grantor trusts income tax returns every year. In general, a grantor
trust tax return is ignored for federal tax purposes and all of
the income, deductions, and credits are treated as belonging directly
to the grantor (or other person who is taxable on the trust income)
and are not reported by the trust on the federal estates and trusts
return, Form 1041. Pursuant to Federal Regulation 1.671.4, a separate
statement must be attached to Form 1041 stating the name, taxpayer
identification number, and address of the person to whom the income
is taxable and setting forth the income, deductions, and credits.
Because there are no dollar amounts shown on federal
Form 1041, there is no financial information to report on the
North Carolina Estates and Trusts Income Tax Return, Form D-407.
Only the entity information and the name, address, and identification
number of the grantor is shown on the return. Any income, deductions,
and credits from the trust will be reported on the grantor's
federal return and, therefore, will be included in federal taxable
income on the grantor's individual State return. Because the
trust information provided on Form D-407 is of limited value
to the Department and we have access to the federal information,
the Department will no longer require State grantor trust tax
returns to be filed when the entire trust is treated as a grantor
trust for federal tax purposes.