Fiduciary (Trust and Estate)

Replacement Tax, also known as Personal Property Replacement Tax, is a tax on the net income of corporations, subchapter S corporations, partnerships, and trusts. This tax replaces money lost by local governments when their power to impose personal property taxes was taken away. Replacement tax is collected from corporations, subchapter S corporations, partnerships, and trusts by the State of Illinois and paid to local governments.

A Fiduciary is the guardian, trustee, executor, administrator, receiver, conservator, or any person who accepts the responsibility for taking care of the needs or property of another person for the benefit of that person. The term usually refers to the executor or administrator of an estate or the trustee of a trust.

A Simple Trust is a trust which makes no distributions other than current income. The trust terms require all its income to be distributed currently and do not provide for charitable contributions.

A Complex Trust is a trust that permits accumulation of income, charitable deductions. or distribution of principal.

A Revocable Trust is any trust that is set up in such a way that the grantor reserves the right to revoke the trust at any time and remains in control of the assets.

A Grantor Trust is a trust in which all income and expenses of the trust are treated as belonging to the grantor (creator of the trust).

A Testamentary Trust is one that is created by a will or that becomes irrevocable only when the grantor dies. For example, a sole proprietorship of a business might choose to place their business in a trust that they can revoke or amend at any time prior to their death and where they are the beneficiary until their death. Or they could create a trust and leave the business in the trust in their will. These arrangements allow them to change who will inherit the business by changing the person who will be the beneficiaries after their death rather than changing their will. This type of trust will be a Grantor Trust before the sole proprietor dies.

An Inter Vivos Trust is the opposite of a Testamentary Trust.  An Inter Vivos Trust is created by a living person for the benefit of another person. Also known as a living trust, this trust has a duration that is determined at the trust's creation and can entail the distribution of assets to the beneficiary during or after the trustor's lifetime. A parent who sets up an education fund for a child's college education is an example of an Inter Vivos Trust.

Trusts and estates must pay a business income tax. Trusts also pay a replacement tax. Use the Tax Rate Database to determine the tax rates applied to trusts and estates.

Income from a trust or estate is often passed on to beneficiaries who, in turn, must report this income on their federal income tax returns. This income is included in federal adjusted gross income (for individual beneficiaries), which is the starting point for the Illinois Individual Income Tax, or federal taxable income (for other beneficiaries).

The starting point for the Illinois Fiduciary and Replacement Tax is federal taxable income, which is income minus deductions. Next, the federal taxable income is changed by adding back certain items (e.g., state, municipal, and other interest income excluded from federal taxable income) and subtracting others (e.g., interest income from U.S. Treasury obligations). The result is “base income.”

See the Illinois Department of Revenue Income Tax Credits and Expirations spreadsheet for information about income tax credits.

You must file Form IL-1041, Fiduciary Income and Replacement Tax Return, if you are a fiduciary of a trust or an estate and the trust or the estate

• has net income or loss as defined under the Illinois Income Tax Act (IITA), regardless of any deduction for distributions to beneficiaries;
• is a resident of Illinois, is required to file, or files a federal income tax return (regardless of net income or loss); or
• is a nonresident of Illinois but received income from Illinois sources which was not reported as pass-through withholding on Form IL-1120-ST, Form IL-1065, or Form IL-1041. You must also file Illinois Schedule NR (Form IL-1041), Nonresident Computation of Fiduciary Income, to determine the income that is taxed by Illinois during the tax year. For more information, see Illinois Schedule NR (Form IL-1041).

Note: "Grantor" trusts are not required to file Form IL-1041.

If the trust is a charitable organization exempt from federal income tax by reason of the IRC, Section 501(a), it is not required to file Form IL-1041. However, unrelated business taxable income, as determined under IRC, Section 512, is subject to tax (without any deduction for the Illinois income tax) and must be reported on Form IL-990-T, Exempt Organization Income and Replacement Tax Return, instead of Form IL-1041. For more information see Form IL-990-T Instructions.

Due dates

• Original return

In general

Form IL-1041 is due on or before the 15th day of the 4th month following the close of the tax year.

• Automatic filing extension

You are not required to file a form to obtain this automatic extension. However, if you expect tax to be due, you must pay any tentative tax due by the original due date of the return to avoid interest and penalty on tax not paid. An extension of time to file your Form IL-1041 does not extend the amount of time to pay your Illinois tax liability. See Make a Payment for payment options.

In general

we grant you an automatic six-month extension of time to file your tax return.

• Amended return

For amended returns claiming a credit or refund filed on or after June 25, 2021, IDOR has an automatic six month extension of time to issue an assessment of additional tax due if the amended return is filed within six months of the original expiration of the statute of limitations.

State Change

If your change creates or increases the Illinois net loss for the year, you must file Form IL-1041-X showing the increase in order to carry the increased loss amount to another year. If your change increases the tax due to Illinois, you should file Form IL-1041-X and pay the tax, penalty, and interest promptly. If your change decreases the tax due to Illinois and you are entitled to a refund or credit carryforward, you must file Form IL-1041-X within three years after the due date of the return (including extensions), three years after the date your original return was filed, or one year after the date your Illinois tax was paid, whichever is latest.

Federal Change

If your federal change decreases the tax due to Illinois and you are entitled to a refund or credit carryforward, you must file Form IL-1041-X within two years plus 120 days of federal finalization. If your federal change increases the tax due to Illinois, you must file Form IL-1041-X and pay any additional tax within 120 days of IRS partial agreement or finalization. To avoid late payment penalties, you must attach proof of the federal finalization date, showing the change was reported to Illinois within 120 days of IRS acceptance, or you may be assessed a late-payment penalty.  Note: You should not file Form IL-1041-X until you receive a federal finalization notification from the IRS stating that they have accepted your change, either by paying a refund, or by final assessment, agreement, or judgment. Acknowledgment that the IRS received your amended return is not acceptable proof of federal finalization.

S corporations, partnerships, and trusts are required to make Illinois Income Tax payments on behalf of their nonresident shareholders, partners, and beneficiaries. Although this is referred to as “pass-through entity withholding”, deductions are not actually taken from payments the pass-through entities make to their owners. Instead, the pass-through entities are required to make an income tax payment, a “pass-through withholding payment,” on behalf of the nonresident owner for each taxable year.

Nonresident partners, shareholders, and beneficiaries must be notified by the partnership, S corporation, or trust of the amount of pass-through withholding payments made on their behalf. If the pass-through withholding payments are sufficient to satisfy the nonresident partner’s, shareholder’s, or beneficiary’s Illinois Income Tax liability, no return is required. Any taxpayer that files an Illinois tax return for any reason must include any income passed through from the pass-through entity and will be allowed a credit for the pass-through withholding payment made on their behalf.

See the Pass-through Entity Information (Publication 129) web page  for more information.

If you need to correct or change your return after it has been filed, you must file Form IL-1041-X, Amended Fiduciary Income and Replacement Tax Return. Returns filed before the extended due date of the return are treated as your original return for all purposes. For more information see Form IL-1041-X Instructions.

You should file Form IL-1041-X only after you have filed a processable Illinois Income Tax return. You must file a separate Form IL-1041-X for each tax year you wish to change.

Do not file another Form IL-1041 with “amended” figures to change your originally filed Form IL-1041.