I need help with a basic trust concept: Who pays the taxes, the trust or beneficiaries, specifically if the trustee does not actually distribute the income.

I believe that I am clean on a simple trust. A simple trust is required to distribute all income to the beneficiaries (equal to the  trust's income distribution deduction).  The K1 carries this income to the individual and beneficiary pays tax whether or not they actually received a distribution. Beneficiary pays the tax even if no distribution was actually made.

Complex trust taxation depends on the trust instrument instructions and state law, etc. So if trust is required to distribute all income annually or quarterly to beneficiaries but has discretion about capital gains/losses etc. I prepare the K1 with the income flowing to the beneficiaries, but what if the trustee did not actually distribute that income and the March 6th deadline for Section 663(b) election to treat the distribution as being made in the previous tax year has passed?

I was going by the assumption that if the wording in the trust document states that the trust must distribute income that even for a complex trust and even if the distribution is not actually made, it still flows to the beneficiary to pay tax.

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