To file a CRT tax return, the trustee prepares Form 5227 (the Split-Interest Trust Information Return) along with Form 1041-A, runs every distribution through a mandatory four-tier income ordering system, and issues a Schedule K-1 to each non-charitable beneficiary. The trust itself pays no income tax, but each dollar it distributes has to be characterized correctly before the beneficiary can report it, and getting the tier math wrong shifts tax in ways that are difficult to unwind later.
Forms, Due Dates, and How to Extend
A charitable remainder trust is tax-exempt and does not file Form 1041. The primary return is Form 5227, which reports the trust’s financial activity, the payout calculation, and how each distribution breaks down by tax character.1Internal Revenue Service. About Form 5227, Split-Interest Trust Information Return The trust must also file Form 1041-A, the U.S. Information Return for Trust Accumulation of Charitable Amounts, which the regulations require from any trust described in Section 664.2eCFR. 26 CFR 1.6034-1 – Information Returns Required of Trusts Described in Section 4947(a)(2) or Claiming Charitable or Other Deductions Under Section 642(c)
For calendar-year trusts, Form 5227 is due April 15.3Internal Revenue Service. Return Due Dates for Exempt Organizations If you need more time, file Form 8868 for an automatic extension.4Internal Revenue Service. Instructions for Form 5227 – Split-Interest Trust Information Return Note that CRTs use Form 8868, not Form 7004; the latter covers many other trust and business returns, and the mix-up is common.5Internal Revenue Service. Form 8868 – Application for Automatic Extension of Time to File an Exempt Organization Return or Excise Taxes
Under final regulations effective for tax years ending on or after December 31, 2023, any filer submitting 10 or more returns in the aggregate during a calendar year must file Form 5227 electronically. The threshold counts all return types together, so a trustee who handles several entities can hit it quickly.4Internal Revenue Service. Instructions for Form 5227 – Split-Interest Trust Information Return
Know Your CRT Type Before You Calculate the Payout
The payout calculation on Form 5227 depends on which type of CRT you administer. A charitable remainder annuity trust (CRAT) pays a fixed dollar amount every year, set as a percentage of the trust’s initial net fair market value at the time of contribution. That number never changes, which makes the annual math simple.
A charitable remainder unitrust (CRUT) recalculates its payout each year based on the current fair market value of the trust’s assets, so the payment moves with investment performance. For a CRUT, an accurate year-end valuation is not just a compliance detail; it drives the following year’s required distribution.
A net income with makeup charitable remainder unitrust (NIMCRUT) pays the lesser of the standard unitrust percentage or the trust’s actual net income. Any shortfall accumulates and can be made up in later years when income exceeds the standard payout. If you administer a NIMCRUT, tracking that cumulative deficit is an extra record-keeping obligation that feeds directly into the Form 5227 numbers.
The Four-Tier Income Ordering System
Every CRT distribution is categorized using the strict ordering system in IRC Section 664(b). Higher-tier income must be fully exhausted before any distribution can be treated as coming from a lower tier. The purpose is to prevent the trust from cherry-picking tax-favored income for beneficiaries while retaining taxable amounts.6Office of the Law Revision Counsel. 26 USC 664 – Charitable Remainder Trusts
- Tier 1, ordinary income. Interest, non-qualified dividends, short-term capital gains, and other income taxed at the beneficiary’s regular rate. Qualified dividends are tracked separately within this tier so beneficiaries can claim the preferential dividend rate.
- Tier 2, capital gains. Long-term capital gains from assets held more than a year. Distributions reach this tier only after all cumulative Tier 1 income has been paid out.
- Tier 3, other income. Tax-exempt items such as municipal bond interest. Not taxable to the beneficiary, but only accessible once Tiers 1 and 2 are empty.
- Tier 4, return of corpus. The original trust principal. Non-taxable, reached only after all three income tiers are exhausted.
The regulations require the trust to assign each income item to its category in the year it’s recognized.7eCFR. 26 CFR 1.664-1 – Charitable Remainder Trusts Anything not distributed in the current year stays in its tier and carries forward indefinitely. Over the life of a trust, these balances can grow substantially, so the character of a distribution in year fifteen may be driven by undistributed ordinary income from year three. Losing track of cumulative tier balances is one of the most common CRT administration failures, and reconstructing them years later is extremely difficult.
Completing Form 5227 Part by Part
Part I: Financial Activities
Part I is the trust’s income statement and balance sheet. Section A reports ordinary income: interest, dividends (with qualified dividends broken out), business income, rents, royalties, and other items. Section B reports short-term and long-term capital gains and losses. Each line item has to land in the correct tier category.8Internal Revenue Service. IRS Form 5227 – Split-Interest Trust Information Return The balance sheet reports fair market value at the beginning and end of the year, which for a CRUT sets next year’s required payout.
Part II: Distributable Income
Part II calculates the annuity or unitrust amount owed to the non-charitable beneficiary. For a CRAT, the number is the same every year. For a CRUT, you multiply the trust’s net fair market value on the first day of the tax year (or the valuation date specified in the trust document) by the stated percentage. Part II also carries the accumulation columns for each tier category across years.8Internal Revenue Service. IRS Form 5227 – Split-Interest Trust Information Return
Part III: Income Characterization
Part III is where the tier system meets the return. Each line corresponds to a tier. Prior-year cumulative balances combine with current-year income, and the distribution from Part II is slotted through each tier in order until the full payout is accounted for. The four tier lines must sum to the total distribution. Whatever remains in each tier after the distribution carries to next year.
Part III also requires breaking out qualified dividends and different capital gain rate groups so the beneficiary’s K-1 shows the correct rates. A rough allocation here means the beneficiary pays the wrong rate on their 1040.
Part IV: Charitable Remainder Interest
Part IV calculates the present value of the remainder interest that will eventually pass to charity, using the Section 7520 rate published monthly by the IRS. As of April 2026, the Section 7520 rate is 4.6%.9Internal Revenue Service. Section 7520 Interest Rates Use the rate for the month of the valuation, or elect either of the two immediately preceding months if a lower rate is more favorable.
Issuing Schedule K-1 to Beneficiaries
After Form 5227 is complete, the trustee issues a Schedule K-1 (Form 1041) to each non-charitable beneficiary showing the tax character of their distributions. The Form 5227 instructions specifically require attaching a copy of each K-1 to the return.4Internal Revenue Service. Instructions for Form 5227 – Split-Interest Trust Information Return Every figure flows directly from Part III.
The K-1 breaks the distribution into its components: ordinary income (with qualified dividends separated), capital gains by rate group, tax-exempt income, and return of corpus. The beneficiary uses this to fill out their personal 1040. The K-1 is due to beneficiaries by the same date as the trust return, including extensions.
Net Investment Income Tax on the Beneficiary Side
The CRT itself is exempt from the 3.8% net investment income tax, but distributions to individual beneficiaries are subject to NIIT to the extent they consist of net investment income, which includes Tier 1 ordinary income and Tier 2 capital gains. The tax applies to the lesser of the beneficiary’s net investment income or the amount by which their modified adjusted gross income exceeds $250,000 for married filing jointly, $200,000 for single filers, or $125,000 for married filing separately.10Internal Revenue Service. Topic No. 559, Net Investment Income Tax These thresholds are not indexed for inflation.
The regulations require the CRT to categorize net investment income using the same four-tier system, so the K-1 must give the beneficiary enough detail to calculate NIIT. In practice, the trustee has to track which items within each tier qualify as net investment income, a layer of accounting that sits on top of the tier tracking itself.
The 100% Excise Tax on Unrelated Business Income
The CRT’s income tax exemption has a sharp edge. If the trust earns any unrelated business taxable income, whether from a trade or business regularly carried on that isn’t substantially related to the trust’s charitable purpose, or from debt-financed property, the trust owes an excise tax equal to 100% of the UBIT amount.6Office of the Law Revision Counsel. 26 USC 664 – Charitable Remainder Trusts Every dollar of UBIT goes to the IRS. Common triggers include partnership investments that generate active business income, certain real estate holdings with acquisition debt, and master limited partnerships.
If the trust has $1,000 or more in gross income from an unrelated business, the trustee must file Form 990-T, the Exempt Organization Business Income Tax Return.11Internal Revenue Service. Unrelated Business Income Tax Estimated tax payments are required if expected tax for the year is $500 or more. Avoiding UBIT through careful investment selection is far simpler than filing your way through it.
State Filings
Federal forms are only part of the picture. State filing requirements depend on where the trust is administered, where its assets are held, and where beneficiaries live. Many states require a return that mirrors Form 5227 with the same income characterization detail. Some states also require a separate charitable trust registration with the attorney general’s office, with its own deadlines and fees. A trust with beneficiaries in multiple states may owe filings in each of those states, not just the state of domicile. Because the rules differ, check each relevant state’s revenue department before the filing deadline.