The Compute-Federal Category

This option reports amounts on federal and state 1041 returns as dollar-and-cent entries or as amounts that are rounded to the nearest whole dollar. To prevent rounding issues when whole dollar amounts are used, whole dollar amounts are reported on your 1041 returns, and dollar-and-cent entries are used on your supporting statements.

Select

Yes

to prepare federal and state 1041 returns using cents. Select

No

to round dollar amounts to the nearest whole dollar.

This option reports amounts on your 5227 returns as dollar-and-cent entries or as amounts that are rounded off to the nearest whole dollar.

Select

Yes

to report the amounts as dollar-and-cent entries. Select

No

to round off the amounts to the nearest whole dollar.

When this option is set to

No

, ONESOURCE Trust Tax automatically determines whether a transaction coded with one of the qualified dividend tax codes (tax codes 3, 5, 6, 201 and 202) is a qualified or nonqualified dividend based on the parameters in the qualified dividend calculation.

When this option is set to

Yes

, ONESOURCE Trust Tax does not automatically determine if each transaction coded with one of the qualified dividend tax codes is a qualified or nonqualified dividend.

This option determines how the qualified dividend income calculation evaluates mutual fund transactions or transactions factored to tax codes 3, 5, 6, 201 or 202. The selections include:

For irrevocable accounts only, this option determines how qualified dividend amounts are presented on line 2b of Form 1041, Schedules D and I, and Form 4952. It does not determine how qualified dividend amounts are reported on the recipient's Schedule K-1 or tax letter.

This option allows for bypassing the 45-day holding period rule, which determines whether dividends qualify for Section 1099A taxability.

No

is the default.

When this option is set to

Yes

, no 45-day rule calculation is performed.

Yes

should be selected only if the 45-day rule calculation was performed prior to bridging the transaction or sale records to ONESOURCE Trust Tax.

When this option is set to

Yes

, the entity type reported on the tax return for a simple trust is changed to complex $300 when the trust has principal cash transactions posted to distribution tax codes.

For beneficiary distributions, this option determines whether the beneficiary percentage is multiplied by DNI or TAI for simple and complex $300 trusts. When

Yes

is selected for this option, gains are taxed for the trust for both regular and AMT purposes and DNAMTI is used to determine distributions reported on Schedule I.

ONESOURCE Trust Tax recommends setting this option to

No

. Simple and complex $300 trusts are required to distribute TAI. TAI should be reported as a required distribution on both Schedule B and Schedule I. In most instances, setting this option to

Yes

would not materially impact a return or Schedule K-1. However, the return or Schedule K-1 may be materially impacted if TAI is less than either DNI or DNAMTI.

This option is applicable only if

Use DNI, not TAI, to determine distributions reported on Schedule B-Simple/Complex $300 trusts

is set to

Yes

.

This option is used in situations where the distribution to one beneficiary is a specified amount and the other beneficiaries are distributed the remaining income. Selecting

Yes

indicates that DNI is used. Selecting

No

indicates that TAI is used.

This option determines the order the $10,000 state and local tax limitation is applied. The selections include:

This option determines the portion of the state refund that is subject to recovery. When this option is set to

No

(the default), ONESOURCE Trust Tax assumes that all of the state refund is subject to recovery. All of the state refund is included on line 8 and all state taxes are included on line 11 of Form 1041.

When this option and the

Only include refund for which tax benefit was derived in preceding tax year

option are set to

No

, 100 percent of the state refund is automatically reported as other income on page 1 of Form 1041.

When this option is set to

Yes

, ONESOURCE Trust Tax considers only the portion of the state refund that was actually paid in the prior year as subject to recovery. The amount recovered that is allocated to the current year (specifically, any fourth quarter payments made in January) is not included in other income. Rather, it serves as a reduction in the state tax paid on line 11 of Form 1041. Refer to the Recoveries section of IRS Publication 525 for an example.

This option determines the how much of the state refund is taxable for federal purposes. When this option is set to

No

(the default), all of the state refund is assumed to be taxable.

When this option and the

Only include refund which resulted from overpayment of state tax which was actually paid in the preceding tax year

option are set to

No

, 100 percent of the state refund is automatically reported in other income on page 1 of Form 1041.

When this option is set to

Yes

, ONESOURCE Trust Tax determines the taxability as the lesser of (limited to zero) the amount of state refund subject to recovery, or the amount of tax benefit derived from deducting the prior year state taxes paid in the prior year. Any portion of the state overpayment that exceeds $10,000 from a given tax year (applicable to tax years 2018 through 2025) is excluded from the estimate calculation for the state tax refund recovery computation.

With state enactment of the most recent Uniform Principal Income Act (UPIA) provisions, distributions made to income beneficiaries may often exceed traditional trust accounting income and result in the distribution of gains. If this option is set to one of the gains distribution selections, then gains distributed are limited to the lesser of net gains in the account or the amount by which modified trust accounting income exceeds traditional trust accounting income. For a unitrust, the modified accounting income equals the unitrust payout amount.

When this option is set to

Yes

, distributions in excess of DNI are treated as distributed gains.

When this option is set to

Yes

, the loss is reported on page 1 of Form 1041, taxable income equals the loss, the carryover section on Schedule D is completed, and all of the losses are shown on the carryover loss line of Schedule K-1.

When this option is set to

No

, the capital loss or $3,000 (whichever is less) is carried to page 1 of Form 1041, taxable income is NONE, the carryover section on Schedule D is not completed, and current year losses are reported on lines 3 and 4 of Schedule K-1.

This option determines whether estate tax deductions are allocated, retained or distributed.

This option affects the allocation of income and principal for tax liability, overpayments, applied refunds and tax due for federal and state returns. The selections include:

In calculating the allocation of tax due, estimate payments from principal and income are used. If a portion of the tax due is allocated to income and all estimates were made from principal, the calculation is made by adjusting the portfolios. The allocation is displayed on the diagnostics page of the return.

This option determines how expenses are allocated against various classes of income, including USGI and distributed gains, for irrevocable accounts. The selections include:

This option applies to only 1041 and 5227 accounts. It applies only when the

Method of offsetting expenses against classes of income

Compute-Federal option is set to

Method of offsetting expenses against classes of income

or

Offset against lowest marginal tax rate income last and U.S. Government Interest next to last

.

The

Treat passive income as subject to reduced rates for purposes of Section 652(b) expense allocation

option allows for the favorable treatment of passive income since passive income is likely to be Qualified Business Income (QBI).

When the

Method of offsetting expenses against classes of income

is set to one of the selections listed above and the

Treat passive income as subject to reduced rates for purposes of Section 652(b) expense allocation

is set to

Yes

then expenses are offset against income (other than passive income and Section 199A REIT dividends) taxed at ordinary rates first, followed by passive income, Section 199A REIT dividends, then reduced rate income.

The following summarizes how the

Treat passive income as subject to reduced rates for purposes of Section 652(b) expense allocation

option impacts the order in which expenses are offset against different classes of income:

This option identifies how expenses reported on Schedule K-1 or Form 1042-S are allocated. Expenses can be allocated to the highest withholding rate first or proportionally against all classes of income.

Select

Yes

to allocate expenses to the highest withholding rate first. Select

No

to proportionally allocate expenses against all classes of income.

For irrevocable accounts, this option determines how expenses are allocated against distributed gains. The selections include:

If expenses are not allocated against distributed capital gains, then capital gain amounts on Schedule K-1 will reconcile to gains reported as being distributed on Schedule D.

If gains are distributed on a nonfinal account and there is an ordinary taxable loss then:

This option determines how expenses are allocated against various classes of taxable income, including USGI and qualified dividend income, for split-interest trusts. The selections include:

When this option is set to

Yes

, real estate tax on non-rental property (tax code 33) is offset against investment income that is not subject to net investment income to the extent possible first, with any excess offset against net investment income.

When this option is set to

No

, real estate tax on non-rental property (tax code 33) is offset based on the applicable expense allocation option in the

Compute-Federal

category.

No

is the default.

When this option is set to

Yes

, only the portion of investment expense that was actually offset against net investment income for I.R.C. Section 652(b) expense allocation purposes is reported in Part II of Form 8960.

When this option is set to

No

, 100% of investment expenses allowed on lines 10 (investment interest expense) and 15c (miscellaneous itemized deductions) of Form 1041 is included in Part II of Form 8960.

When this option is set to

Yes

, distributed passive income is reported on lines 6, 7, and 8 of Schedule K-1, and distributed active income is reported on line 5 of Schedule K-1.

When this option is set to

No

, all distributed active income is reported on lines 6, 7 and 8.

This option identifies how expenses are allocated against the retained portion of Section 199A income.

No

is the default.

Select

Yes

to allocate expenses against the retained portion of Section 199A income. Select

No

if you do not want to allocate expenses against the retained portion of Section 199A income.

When this option is set to

Yes

, the amount of qualified business income and/or publicly-traded partnership income reported on the Schedule K-1 Section 199A statement is limited to the amounts included in DNI and reported in lines 5 through 8 of Schedule K-1.

This option determines how depreciation is distributed.

This option determines how depletion is distributed.

This option determines how short-term capital loss carryovers are distributed.

This option determines how long-term capital loss carryovers are distributed.

This option determines whether excess deductions are applied to capital gains for split-interest trusts.

Select

Yes

to apply excess deductions to capital gains and nontaxable income. Select

No

if you do not want to apply excess deductions to capital gains and nontaxable income.

This option determines how foreign taxes paid are distributed.

This option determines how the work opportunity tax credits are distributed.

This option determines how the R & D credit for research activities is distributed.

For accounts where charitable distributions are based on a percentage, this option determines whether prior year capital loss carryovers are netted against current year long-term capital gain distributions to charities before a distribution to a charity is made. The default value for this option is

Yes

.

This option determines whether charity adjustments are included on Schedule D and/or Schedule I.

Charity adjustments to Schedules D and I do not strictly adhere to IRS instructions but do provide more equitable results. Charity adjustments to Schedule D result in a potentially higher tax liability than if the IRS' instructions were strictly adhered to.

This option does not impact the computation of the gains distribution for final year accounts or total return trusts.

When this option is set to

Yes

, capital loss carryovers are netted against total current year gains or losses, and the net amount is distributed based on the charity or recipient's distribution percent or dollar amount.

When this option is set to

No

, capital loss carryovers are held in the account and only current year gains are distributed or allocated to charity.

When this option is set to

Yes

, net current year gains are not reduced by the amount of capital loss carryovers when determine the gains distribution for irrevocable accounts.

When this option is set to

Yes

, sales with unknown costs or terms are automatically reported on a supplemental schedule for revocable accounts.

If a portion of the lots for a sale have an unknown term then the term of the sale is considered unknown. For purposes of the supplemental schedule, the lots are treated separately and only the ones that have an unknown term are reported on the supplemental schedule.

If a portion of the lots have an unknown cost then the cost of the sale is considered unknown. All lots (including those lots that have a valid cost) for the sale are reported on the supplemental schedule.

A sale or sales lot can be considered unknown if:

Select

Yes

to present allocable expenses as three line items (gross expenses, amount allocated to TEI, and amount allocated to taxable income) on grantor and agency letters. ONESOURCE Trust Tax recommends setting this option to

Yes

if expenses are allocated against TEI.

Select

No

to present allocable expenses as one line item on grantor or agency letters.

This option determines whether expenses are allocated against tax-exempt income on grantor and agency returns. When an item other than

Do not allocate on both grantor and agency returns

is selected, tax-exempt income is shown net of expenses allocated or tax-exempt income is shown as gross amounts and expenses are shown as net amounts.

ONESOURCE Trust Tax recommends setting this option to a selection where either expenses are not allocated or expenses are allocated but tax-exempt income is shown at gross.

TEI is shown net of expenses on adjustment state beneficiary messages when this option is set to

Yes

and set the

Show gross expenses, then amount allocated to TEI, then net expenses on grantor and agency letters

Compute-Federal option to

Yes

.

TEI is shown at gross on state beneficiary messages when this option is set to

No

and the

Show gross expenses, then amount allocated to TEI, then net expenses on grantor and agency letters

Compute- Federal option is set to

Yes

.

When this option is set to

Yes

, TEI from pass-through entities is not included when expenses are allocated to TEI.

For simple and complex $300 accounts, this option determines whether capital gains are included as taxable income when expenses are allocated between taxable and tax-exempt income. The larger the taxable income amount, the larger the amount of expenses allocated to taxable income.

The selections include:

For complex $100 accounts and estates, this option determines whether capital gains are included as taxable income when expenses are allocated between taxable income and tax-exempt income. The larger the taxable income amount, the larger the amount of expenses allocated to taxable income.

The selections include:

For grantor accounts, this option determines whether capital gains are included as taxable income when expenses are allocated between taxable and tax-exempt income. The larger the taxable income amount, the larger the amount of expenses allocated to taxable income.

The selections include:

For agency accounts, this option determines whether capital gains are included as taxable income when expenses are allocated between taxable income and tax-exempt income. The larger the taxable income amount, the larger the amount of expenses allocated to taxable income.

The selections include:

When this option is set to

Yes

, nondividend distributions (tax code 4) are included in gross taxable income when expenses are allocated between taxable income and tax-exempt income.

This option is not applicable beginning with tax year 2019.

When this option is set to

Yes

, nondistributive income is included in gross taxable income when expenses are allocated between taxable income and tax-exempt income.

The tax codes for nondistributive income include:

201-Non-distributive Dividends202-Non-distributive Foreign Dividends203-Non-distributive Foreign Interest204-Non-distributive U.S. Government Interest205-Non-distributive Other Interest206-Non-distributive Ordinary Gain207-Non-distributive Other Income208-Non-distributive Resident Municipal Interest504-Nonqualified Non-distributive Dividends505-Nonqualified Non-distributive Foreign Dividends

When this option is set to

Yes

, accommodation letters generated for simple and complex $300 trusts will include transaction-level detail for payments made by the trust or on the trust's behalf for the beneficiaries. These payments include transactions posted to tax codes 301 through 339 and 342.

An accommodation letter is generated for each beneficiary listed on a simple or complex $300 trust. Each accommodation letter reports only the transactions that apply to the individual beneficiary's tax return.

When this option is set to

Yes

, accommodation letters generated for complex $100 trusts will include transaction-level detail for payments made by the trust or on the trust's behalf for the beneficiaries. These payments include transactions posted to tax codes 301 through 339 and 342.

An accommodation letter is generated for each beneficiary listed on a complex $100 trust. Each accommodation letter reports only the transactions that apply to the individual beneficiary's tax return.

When this option is set to

Yes

, accommodation letters generated for estates will include transaction-level detail for payments made by the trust or on the trust's behalf for the beneficiaries. These payments include transactions posted to tax codes 301 through 399 and 342.

An accommodation letter is generated for each beneficiary listed on an estate account. Each accommodation letter reports only the transactions that apply to the individual beneficiary's tax return.

When this option is set to

Yes

, accommodation letters generated for grantor accounts will include transaction-level detail for payments made by the trust or on the trust's behalf for the recipients. These payments include transactions posted to tax codes 301 through 339 and 342.

An accommodation letter is generated for each beneficiary listed on a grantor account. Each accommodation letter reports only the transactions that apply to the individual beneficiary's tax return.

When this option is set to

Yes

, accommodation letters generated for agency accounts will include transaction-level detail for payments made by the trust or on the trust's behalf for the recipients. These payments include transactions posted to tax codes 301 through 339 and 342.

An accommodation letter is generated for each beneficiary listed on an agency account. Each accommodation letter reports only the transactions that apply to the individual beneficiary's tax return.

Select

Yes

to suppress the paid-to information on the detailed accommodation statement.

This option identifies whether bank deposit interest paid to NRA recipients is reported on Form 1042-S.

Select

Yes

to report bank deposit interest regardless of whether reporting is required by the NRA recipient's resident country. Select

No

to report bank deposit interest only when reporting is required by the NRA recipient's resident country.

This option identifies whether capital gains distributed to NRA recipients are included on Form 1042-S.

Select

Yes

to include distributed capital gains on Form 1042-S. Select

No

to exclude distributed capital gains on Form 1042-S.

For charitable remainder unitrusts (CRUTs) and charitable remainder annuity trusts (CRATs), this option determines whether an ending balance sheet adjustment is created for the difference between the computed annuity or unitrust amount and the total of tax code 149 (Beneficiary Distributions) transactions.

The selections include:

When this option is set to create an adjustment, an informational diagnostic is generated in the Miscellaneous pages of the tax return print file to alert you that the total of tax code 149 transactions differs from the calculated unitrust or annuity amount.

When this option is set to

Yes

, foreign taxes are treated as a deduction against income. Form 1116 is not generated for the trust's share of foreign taxes and foreign tax information is not provided to recipients.

This option does not impact 1041 processing for grantor or agent/custodial accounts.

When this option is set to

Yes

, certain trust expenses are allocated against foreign income on Part I of Form 1116.

When this option is set to

Yes

, the lesser of foreign tax actually paid or that which was required to be paid is reported on Form 1116. This option does not affect recipient reporting of foreign tax information on 1099 returns or Schedule K-1s, or for grantor accounts.

ONESOURCE Trust Tax uses the withholding rates found in Table 1 of IRS Publication 515 to determine if the country from which the foreign taxes are paid has a withholding rate established by treaty with the United States. If no treaty rate applies then the 30% withholding rate is used.

The required 30% withholding rate is used if this option is selected and the country from which the foreign taxes are paid is listed as either

Various

or

Other

on Form 1116.

An informational diagnostic is generated when this option is selected and the foreign tax paid for a country is limited by the amount actually required to be paid.

This option determines whether undistributed excess deductions are carried from one tax year to the next tax year.

Select

Yes

to carry undistributed excess deductions from one tax year to the next. Select

No

if you do not want to carry undistributed excess deductions from one tax year to the next.

This option applies to split-interest trusts. When this option is set to

Yes

, the amount capital losses reported on Form 1041-A and California Form 541-A is limited to $3,000.

This option applies to split-interest trusts. It determines whether capital loss carryovers are included or excluded on Form 5227 Schedule D. The selections include:

This option applies to split-interest trusts. When this option is set to

Yes

and direct expenses exceed the type of taxable income they are directly allocable to (for example, net investment income or excluded income), any excess direct expenses are allocated to any available taxable income in the trust.

This option applies to Form 1041 and 990 return types. When this option is set to

Yes

, market discount is included in interest income and is reported as a negative adjustment (code D) on Form 8949.

For pooled income funds (PIFs) and charitable lead trusts (CLTs), capital loss carryovers are included in total gains when this option is set to

No

(the default). This option also applies to California Form 541-B.