Proposed Removal of a Reporting Requirement for Trusts Whose Charitable Contribution Deductions are Solely for Contributions Made by Passthrough Entities, REG-109082-25, 91 Fed. Reg. _____ (proposed Aug. 17, 2026)

The Department of the Treasury and the Internal Revenue Service (IRS) have issued a notice of proposed rulemaking, REG-109082-25, designed to streamline the information reporting requirements under Internal Revenue Code (IRC) Section 6034 for certain trusts claiming charitable contribution deductions under Section 642(c). The primary objective of the proposed regulations is to eliminate the redundant and administratively burdensome obligation for a trust to file Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts, when its only charitable contribution deductions for the taxable year result from its direct or indirect ownership in passthrough entities, such as partnerships or S corporations. By removing this filing requirement, the IRS aims to reduce compliance costs and administrative friction for trustees in situations where the underlying charitable contributions are already documented via Schedule K-1 and do not involve the accumulation of trust income.

Additionally, the proposed regulations modify Section 1.6034-1 of the Income Tax Regulations to formally clarify that split-interest trusts, as described in Section 4947(a)(2), satisfy their information reporting obligations by filing Form 5227, Split-Interest Trust Information Return, rather than Form 1041-A. Importantly, the proposed regulations contain a taxpayer-favorable interim reliance provision, allowing eligible trusts to rely on the proposed rules for taxable years ending before the final regulations are published.

The Historical and Statutory Framework of Section 6034

To appreciate the relief offered by the proposed regulations, tax professionals must understand the statutory origins of IRC Section 6034. The predecessor provision to Section 6034 under the Internal Revenue Code of 1939 was enacted as part of the Revenue Act of 1950. In establishing this reporting regime, “Congress was concerned that deductions were being claimed for amounts accumulated in the trust that might not actually be paid to charity for an extended period.” To address this risk of double-deduction or indefinite accumulation, Section 6034(b)(1) requires trusts claiming a Section 642(c) deduction to furnish comprehensive annual information, including:

The amount of the Section 642(c) deduction taken within the year;
The amount paid out within the year representing deductions taken in prior years;
The amount for which prior-year deductions were taken but not yet paid out;
The cumulative amount of principal paid out for charitable purposes;
The total trust income and attributable expenses; and
A balance sheet showing the assets, liabilities, and net worth of the trust as of the beginning of the taxable year.

Under existing regulations, Section 1.6034-1(a) mirrors these requirements, instructing that the six categories of information be furnished on Form 1041-A. Section 6034(b)(2) carves out statutory exceptions from these requirements for (A) simple trusts (where all net income is required to be distributed currently under the governing instrument and local law) and (B) charitable trusts described in Section 4947(a)(1). Aside from these limited exceptions, any trust claiming a Section 642(c) deduction is required to file Form 1041-A on or before the 15th day of the fourth month following the close of the trust’s taxable year. Failure to comply triggers a Daily Failure to File penalty under Section 6652(c)(2)(A) of $10 per day, capped at a maximum of $5,000 per return.

The Reporting Friction for Passthrough Entity Charitable Contributions

The compliance bottleneck arises because a trust’s Section 642(c) deduction does not always stem from its own gross income or direct charitable actions. Instead, a trust holding an interest in a partnership or stock in an S corporation must separately account for its distributive or pro rata share of the entity’s charitable contributions.

Under IRC Section 702(a)(4), in determining its income tax, a partner trust must take into account separately its distributive share of the partnership’s charitable contributions (as defined in Section 170(c)).
Under IRC Section 1366(a)(1), an S corporation shareholder trust must take into account its pro rata share of the S corporation’s separate items of deduction, including charitable contributions.

This interaction between the trust rules and passthrough taxation is supported by long-standing administrative guidance, including Revenue Ruling 2004-5, 2004-1 C.B. 295 (for partnerships) and Section 1.641(c)-1(d)(2)(ii) (for S corporations). In both scenarios, the underlying partnership or S corporation makes the contribution, which is then reported to the IRS and the trust on the entity’s Schedule K-1.

Under existing rules, however, these trusts were technically required to file Form 1041-A solely because they claimed a Section 642(c) deduction based on the K-1 information. This filing requirement created an absurd procedural circle. As commenters highlighted to the IRS, such trusts “are not accumulating any income that may be distributed to charity in the future.” Furthermore, “these charitable deductions are based solely on the current contributions of a passthrough entity made directly to a charity and are not from any prior year’s accumulation of income by the trusts.”

The practical reality is that “the trusts themselves never received the amounts that were given to charity and never made any direct charitable contributions.” Consequently, the requirement to file Form 1041-A “places an unnecessary burden on those trustees who may not be aware of this filing requirement and who may not have the necessary information to fill out the form.”

IRS Legal Analysis and Justification for Administrative Relief

In proposing the regulatory updates under REG-109082-25, the Treasury Department and the IRS exercised the broad authority delegated to the Secretary under Section 6034(b) to prescribe information returns for trusts claiming Section 642(c) deductions, as well as the general rulemaking authority of Section 7805(a).

The IRS concluded that “an administrative exception should be created for trusts whose section 642(c) deductions consist solely of the trust’s allocable share of a contribution made by a partnership or S corporation in which the trust holds an interest, because these trusts do not fall within the purpose of the information reporting requirement of section 6034(b).”

The statutory purpose of Form 1041-A is to allow the IRS “to determine whether a charitable deduction claimed under section 642(c) relates to funds that have actually been paid and whether a deduction has been claimed more than once for the same charitable contribution.” Because passthrough contributions are made directly by the entity to the charity and are fully reported on the entity’s tax return and the trust’s Schedule K-1, the potential for double-deduction or abusive income accumulation at the trust level is nonexistent. Consequently, enforcing a Form 1041-A filing requirement yields zero regulatory utility while imposing significant compliance costs on taxpayers and administrative burdens on the IRS.

Summary of Key Amendments, Revisions, and Deletions

The proposed regulations accomplish their objectives through several targeted modifications to Section 1.6034-1:

Addition of the Passthrough Exception (Proposed § 1.6034-1(b)(3)): The core of the regulatory relief is the addition of a new paragraph (b)(3) to the exceptions section. This provides that “a trust is not required to file a Form 1041-A (or a successor form) if the trust’s only claimed deductions under section 642(c) of the Code are attributable to contributions taken into account by the trust under section 702(a)(4) of the Code, section 1366(a)(1) of the Code, or both, for amounts of gross income paid for a purpose specified in section 170(c) of the Code.”
Clarification of Split-Interest Trust Requirements (Proposed § 1.6034-1(a)): The existing regulations historically required split-interest trusts described in Section 4947(a)(2) to file Form 1041-A. However, following amendments made by the Pension Protection Act of 2006, the IRS replaced Form 1041-A with Form 5227 for split-interest trusts beginning in 2007. To resolve this outdated regulatory discrepancy, proposed Section 1.6034-1(a) is revised to state that “every trust described in section 4947(a)(2) of the Internal Revenue Code (Code) (including trusts described in section 664 of the Code) must file a return of information on Form 5227 (or a successor form) for each taxable year...” It further states that “every other trust claiming a charitable or other deduction under section 642(c) for the taxable year must file a return of information on Form 1041-A (or a successor form) for such taxable year.”
Update to Time and Place of Filing (Proposed § 1.6034-1(c)): The filing provisions are updated to integrate both forms, specifying that “the return on Form 1041-A or on Form 5227 (or a successor to either form) must be filed on or before the 15th day of the 4th month following the close of the taxable year of the trust...”
Modernization of Form References (Proposed § 1.6034-1(b)(1) & (b)(2)): To future-proof the regulations, the language “(or a successor form)” is added after each reference to Form 1041-A in the existing exceptions for simple trusts and Section 4947(a)(1) trusts.
Statutory Updates in Other Provisions (Proposed § 1.6034-1(d)): This paragraph is updated to modernize the cross-references. Specifically, it references Section 6104 for the public disclosure of Form 1041-A or Form 5227, Section 6652(d) for failure-to-file penalties, and Sections 7203, 7206, and 7207 for criminal penalties associated with willful failure to file or filing false returns.

Applicability Date and Crucial Interim Reliance Provision

Under proposed Section 1.6034-1(e), the regulations are slated to formally apply “to taxable years ending on or after [the date of publication of final regulations in the Federal Register].”

However, in a taxpayer-friendly move, the IRS has provided an immediate reliance provision. The preamble and the text of proposed Section 1.6034-1(e) explicitly state that “an entity described in proposed § 1.6034-1(b)(3) or a trust described in section 4947(a)(2) may rely on the proposed regulations for taxable years ending before that date.”

This means that for currently open tax years and any tax years ending before the final regulations are promulgated, qualifying trusts whose only Section 642(c) deductions represent passthrough contributions do not need to file Form 1041-A. This provides immediate administrative relief to trustees and tax practitioners alike.

Conclusion and Practice Insights

The proposed regulations under REG-109082-25 represent a sensible and highly anticipated exercise of administrative authority by the Treasury Department and the IRS. By eliminating the Form 1041-A filing requirement for trusts whose charitable deductions are derived solely from passthrough entities, the IRS has removed a trap for the unwary that offered no regulatory value.

For CPAs and EAs, this change simplifies trust compliance. Practitioners should immediately review their trust client rosters to identify any trusts holding partnership or S corporation interests that have historically filed Form 1041-A solely due to K-1 charitable contributions. Thanks to the immediate reliance provision, these trusts can cease filing Form 1041-A immediately, saving valuable administrative hours during the upcoming tax season. Meanwhile, practitioners managing split-interest trusts should ensure their compliance software is aligned with the formalization of Form 5227 as the sole information return required under these rules.

Prepared with assistance from Gemini Notebook.