Sometimes, even when the trust or estate doesn’t have to file Form 1041, you still receive tax information from other sources. When you won’t be preparing a 1041 (perhaps the trust or estate has terminated), there won’t be a Schedule K-1 either.
Instead, pass along any tax information you receive via a Form 1099 for income earned by property formerly owned by the trust or estate to the property’s new owners by issuing them a nominee Form 1099.
To prepare this form, copy the 1099 you received, replacing the payer’s name and TIN with the trust or estate’s name (adding the words as nominee next to the name) and TIN. Place the new owner’s name and TIN in the spaces reserved for the recipient. Nominee 1099s can be typed or handwritten on forms available through stationery stores (available in large quantities only), or directly from the IRS.
Be sure to give a copy to the new recipient and file the top copy (it’s preprinted in red) with the IRS together with Form 1096, which is just a transmittal sheet; the filing address appears on Form 1096.
Don’t use the Forms 1099 that are available on the IRS website. These are provided for informational purposes only, and the IRS won’t accept them if you try to file them. The preprinted forms are designed to be optically scanned; the forms you print from the website aren’t.
Most 1099s are required to be mailed to their recipients no later than January 31 of the year following the tax year in question, but not so for nominee 1099s. In fact, you may not receive the relevant 1099 with the information that needs to be split until well after the January 31 deadline.
Still, recognize that this is a deadline that exists to enable other people to file their tax returns on time; when you see that a nominee 1099 is required, do it as quickly as possible so you don’t hold up the wheels of progress for someone else (or even worse, force them to file an amended tax return.