Treasury and the IRS on August 17, 2026, proposed to stop requiring certain trusts to file Form 1041-A, the information return that tracks charitable amounts a trust deducts or sets aside. The relief, published in the Federal Register as REG-109082-25, targets trusts whose only charitable deduction for the year arrives through a partnership or S corporation interest rather than from a gift the trust decided to make itself.
What changed
Section 6034 of the tax code requires a trust that claims a charitable deduction under Section 642(c) to file Form 1041-A. The return reports the amount of that deduction along with balance sheet information. Two groups have long been exempt: simple trusts that must distribute all of their income currently, and wholly charitable trusts described in Section 4947(a)(1).
The trouble has been ownership of operating and investment entities. When a partnership or S corporation makes a charitable contribution, the deduction is allocated out to its owners under Sections 702 and 1366. A trust holding a slice of that entity ends up with a Section 642(c) deduction on its own return, which under the current regulations can trigger the Form 1041-A requirement. According to the preamble, trusts in this position told the government that they never received the money that went to charity and never made a charitable decision of their own, yet still faced the filing.
The proposal carves out trusts whose Section 642(c) deduction arises solely because of Section 702 or Section 1366. A second change updates the rules for split-interest trusts, such as charitable remainder trusts, confirming that they meet their reporting obligation on Form 5227 or a successor form rather than on Form 1041-A. The preamble describes that as a reflection of how filing has worked in practice since 2006.
Who is affected
The change matters most to complex trusts that hold interests in family businesses, real estate partnerships or investment partnerships. Many dynasty trusts and trusts created for children fall into that category. If the underlying company writes a check to a local hospital or a university, each trust owner picks up a share of the deduction and, today, may be pulled into an extra return even though the trustee had no role in the gift.
Trusts that make their own charitable gifts are not covered by the proposed exception. If a trustee distributes income to charity under the governing instrument, or permanently sets aside amounts for charitable purposes, Form 1041-A reporting would continue as before. A trust that receives a passthrough deduction and also makes a direct gift in the same year would not qualify, because the exception applies only where the passthrough allocation is the sole source of the deduction.
What it means in practice
This is a compliance story rather than a rate story. The proposal does not change the size of the deduction or how it is computed. What it removes is a separate information return, the preparation time behind it and the exposure that comes with missing it. The preamble points to Section 6652(c)(2) as the civil penalty provision that applies to failures to file returns under Section 6034, which is why fiduciaries have tended to file even when the deduction was incidental.
Example: a family trust owns 20 percent of a real estate partnership. The partnership gives $100,000 to a regional food bank, and the trust’s Schedule K-1 shows a $20,000 charitable contribution. The trust itself makes no gifts. Under the proposal, the trust would still claim its share of the deduction on Form 1041 but would no longer need a Form 1041-A for that year. If the same trust also wrote a $5,000 check to a museum, the exception would not apply.
Congress enacted the predecessor to Section 6034 in 1950 out of concern that trusts were claiming deductions for accumulated amounts that might not reach charity for many years. A deduction passed through from an entity that has already paid the charity does not raise that concern, which is the policy logic behind the carve-out.
Timing and reliance
As proposed, the rules would apply to taxable years ending on or after the date final regulations are published. The preamble also permits affected trusts to rely on the proposed rules before they are finalized. Written comments and requests for a public hearing are due by October 16, 2026. The relief is narrow, and practitioner summaries such as Reed Corporation’s August roundup have characterized it as a rare case of guidance that removes a filing rather than adding one.
Moves to discuss with your advisor
- Trustees may want to review recent K-1s to see whether charitable allocations from entities have been the only source of the trust’s Section 642(c) deduction.
- Where a trust files Form 1041-A solely because of passthrough gifts, it is worth asking a CPA whether reliance on the proposed rules fits the trust’s facts for the current year.
- Families that coordinate giving across trusts and family entities often consider whether gifts made at the entity level or the trust level better match their reporting preferences, since only the former would fall under the exception.
- Charitable remainder trusts can confirm that their filings already run through Form 5227.
What to watch
The next milestones are the October 16 comment deadline and any request for a hearing. Comments could push the government to address related situations, such as trusts that hold interests through tiers of partnerships. Final regulations would lock in the effective date, and the IRS would then need to update the instructions for Form 1041-A, whose product page currently lists no recent developments.
Sources
- First reported Proposed Removal of a Reporting Requirement for Trusts Whose Charitable Contribution Deductions Are Solely for Contributions Made by Passthrough Entities (REG-109082-25) — Federal Register
- About Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts — IRS
- August 2026 Tax News Roundup — Reed Corporation CPA
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