65-day distributions and other prior year transactions

[John Ralls]

> On Mar 29, 2017, at 12:52 PM, David Derr <derrjd at gmail.com> wrote:
> 
> I am using Gnucash to keep the books for a family trust. As trustee I
> elected to make a 65-day rule distribution (IRC 663(b) election) of 2016
> income to the beneficiary in 2017 before the 65-day cutoff date (early
> March).
> 
> Additionally, one of the ETFs that the trust funds are invested in made a
> "prior year" cash dividend on 1/4/2017.
> 
> How should these transactions be entered in Gnucash? Do I enter them with a
> 12/31/2016 date so that the income is including in all 2016 reports? (When a
> 663(b) election is made on the second page of Form 1041 for the trust, the
> distribution is considered as made on the last date of the previous year by
> the IRS.) Or do I enter them on the date the transaction was made (or
> dividend received) and make some adjustment to the accounts for 2017?
> 
> Any help would be appreciated.
> 

David,

Here's how I'd do it; I'm not an accountant, though I am a trustee for some estate trusts for my kids. If this trust is court-supervised then you should ask your accountant. If not supervised then how you keep the books is between you and the beneficiaries.

I'd book the dividend on 12/30/2016 and reconcile it in January, and I'd flow the distribution through a Liability account, incurring the liability on 12/30/2016 and redeeming it when I did the actual transfer to the beneficiary. That serves to remind me that the tax effect of the distribution is in the prior year while not making it hard to reconcile the bank/brokerage statement.

Regards,
John Ralls