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Question

Why is the S corporation income excluded from Form 1041 when the return is an electing small business trust (ESBT) and the return has non-S corporation income?

Answer

Per the Form 1041 instructions, special rules apply to electing small business trusts. If the trust consists of income from both the stock in one or more S corporations and other sources, only the income and deductions applicable to the other sources is reported on Form 1041 lines 1 through 22. A separate schedule should be attached to the return showing the income, deductions for the S corporation portion. The Electing Small Business and Qualified Subchapter S Trust Worksheet shows the income and deductions for the entire return with a separate column for the S corporation portion. 

Related topic: 1041-US: Electing small business trusts FAQs

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