QUESTION: Concerning a foreign situs trust with a U.S. beneficiary,
most of the accountants I deal with prepare Forms 3520A, 3520 and
1041. The 1041 is a grantor trust form. The question raised by one of
the CPAs is whether the 1041 is necessary in view of the other
filings. I thought you might know the answer.

REPLY: A domestic grantor trust (i.e. revocable living trust) is
required to file an abbreviated Form 1041.

Because a foreign trust with a U.S. grantor and a U.S. beneficiary is
defined to be a grantor trust by IRC 679, there is a question as to
whether such a trust must file a Form 1041 in addition to the Forms
3520 & 3520-A.

The instructions to the Form 1041 state that a foreign grantor trust
should file Form 1040NR instead of Form 1041. I have filed both with
the Forms 3520 and 3520-A and with an attachment explaining the
conflict in the instructions to the forms.

The problem in this regard is that the 1040NR is intended for
individuals and not trusts, but the Form 1041 is not intended for
foreign trusts. In addition, any information reported on
either form would be duplicated by the information on the Forms 3520-A
and 3520.

The American Institute of CPAs presently has an active task force (of
which I'm one of the many members) that is communicating with the IRS
relative to these problems -- but thus far there has not been any
resolution.

Vern Jacobs