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Changes to 2006 Form

2006 Update to 541 Booklet-Beneficiary's Instructions for Schedule K-1(541)

Revision Date: 04/27/2007

Revision Details: We reference the incorrect line number.

Page 32, 541 booklet; page 348 package X:

  • Form 541 booklet, page 32, column 1 line 10a instruction:

It should read:

Line 10A - Excess deductions on termination
Include any adjustment on Schedule CA (540 or 540NR), line 41 as an addition or subtraction, whichever is appropriate.

The revision does not impact tax liability.
The revised internet version is available for download.


2006 Update to Form 541 and Instructions

Revision Date: 04/09/2007

Revision Details: The Estate and Trusts unit informed TFDD that taxpayer's have been reporting errors on Form 541, Side 1, in situations where the Fiduciary includes nonresident beneficiaries should be transferring to Side 1, only the income reportable to California (Income and Deduction Apportionment Worksheet, column F). However, some Fiduciary's with nonresident trustees and/or nonresident beneficiaries, are transferring all their income (California source income and unapportioned Non-California source income)to Form 541, Side 1. This is incorrect. Because these Fiduciary's are transferring all their income from all sources to Form 541, Side 1, in situations where the income level exceeds one million dollars, the Mental Health ax and Alternative Minimum Tax are being assessed. This is also incorrect. These entities should only be taxed on income reportable to California, and if reported correctly, these entities may not be subject to the Mental Health Tax or the Alternative Minimum Tax. To mitigate these types of errors, cautionary language is being added to Form 541 and the instructions.

Side 1, Form 541 flat; Side 1 and 3, pages 6, 7, and 14, Form 541 Booklet; and page 312, 314, 319, 320 and 326 of Package X.

This revision may impact Fiduciary's with non-resident trustees and non-resident beneficiaries by decreasing/eliminating the Mental Health Tax and Alternative Minimum Tax in situations where the income reportable to California has been overstated.

The information shown below is being added to Form 541, Side 1, Side 3, and Page 6, Page 7, and Page 14 of the instructions.

  • Form 541, Side 1, Income Section, first sentence:

It should read:

Trusts that have nonresident trustees or beneficiaries must first complete the Income and Deduction Apportionment Worksheet on Side 3.

  • Form 541, Side 1, Income Section, line 9:

It should read:

9. Total Income. Add line 1 through line 8. (Apportioning fiduciaries: Complete worksheet on Side 3)

  • Form 541, Side 1, Deduction Section, line 16:

It should read:

16 Total. Add line 10 through line 14 and line 15c. (Apportioning fiduciaries: Complete worksheet on Side 3)

  • Form 541, Side 3, Non-California Source Income and Deduction Apportionment Worksheet title line:

It should read:

Income and Deduction Apportionment Worksheet

  • Form 541, Side 3, Income and Deduction Apportionment Worksheet, after 9:

It should read:

9 Total Income...........

Enter the amounts from lines 1 - 9, column F, on Form 541, Side 1, lines 1 - 9.

  • Form 541, Side 3, Deduction Allocation Worksheet, after line 15b:

It should read:

15b Allowable misc. itemized deductions subject to 2% floor...

Enter the amounts from lines 10 - 15b, column H, on Form 541, Side 1, lines 10 - 15b.

  • Form 541 instructions, page 6, column 2, situations and treatment number 3:

It should read:

bears to total number of trustees (R&TC Section 17743). Complete Income and Deduction Apportionment Worksheet on Form 541, Side 3. See instructions on page 14.

  • Form 541 instructions, page 6, column 2, situations and treatment number 4:

It should read:

4. If all of the trustees are nonresidents....Complete Income and Deduction, Apportionment Worksheet on Form 541, Side 3. See instructions on Page 14.

  • Form 541 instructions, page 6, column 2, situations and treatment number 5:

It should read:

5. If the trust has resident and nonresident trustees...Complete Income and Deduction, Apportionment Worksheet on Form 541, Side 3. See instructions on Page 14.

  • Form 541 instructions, page 7, column 2, paragraph 3:

It should read:

Trusts that have resident and nonresident trustees and/or resident and nonresident noncontingent beneficiaries must complete the Income and Deduction Apportionment Worksheet on Form 541, Side 3 in conjunction with the following line instructions. See also the instructions on Page 6, Trust Income to be Reported from Sources, and page 14, Income and Deduction Apportionment Worksheet.

The amounts transferred from the Income and Deduction Apportionment Worksheet should only include income and deductions reportable to California.

  • Form 541 instructions, page 14, column 3, title of the section, paragraph 3:

It should read:

Income and Deduction Apportionment Worksheet

  • Form 541 instructions, page 14, column 3, underneath the box

It should read:

The amounts transferred from the Income and Deduction Apportionment Worksheet should only include income and deductions reportable to California.

The revised internet version is available for download.

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