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Mastering NIIT for Trusts and Estates: Net Investment Income Tax Planning Strategies to Minimize Surtax

Reporting Requirements, DNI Deductions, Income Thresholds for ESBTs, Material Participation Rules and More

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, October 19, 2016

Recorded event now available

or call 1-800-926-7926

This course will provide tax preparers and advisers with a comprehensive and practical guide to the planning and reporting issues in the imposition of IRC Section 1411 net investment income tax (NIIT) on trusts and estates. The panel will discuss how to calculate NIIT for reporting on a Form 1041 Income Tax Return, offer guidance on material participation rules, and identify planning tools for minimizing the impact of the NIIT on trust or estate income.


The impact of the Section 1411 NIIT on estate and trust taxation cannot be overstated. Since its passage for tax years beginning after Dec. 31, 2012, tax advisers have wrestled with strategies to minimize the impact of the NIIT on fiduciary taxpayers.

Section 1411 imposes a 3.8% surtax on “net investment income”. For trusts and estates, the taxable base consists of the lesser of “undistributed net investment income” over the threshold of the highest regular income tax bracket in effect for the taxable year. The tax applies to most trusts, with very few enumerated exceptions.

Given the low threshold for the top tax bracket for trusts, and because virtually all trust and estate income—save limited exceptions where the trust can argue material participation in a business holding qualifies as net investment income—the NIIT applies to virtually all trust income.

Determining whether capital gains income can be treated as distributable net income and thus subject to the DNI deduction, advisers must fully grasp the impact of the NIIT. Trust advisers must understand the various moving pieces of NIIT calculations to minimize the impact of the additional surtax.

Listen as our experienced panel provides a practical roadmap to the calculations, reporting and planning considerations involved in the Section 1411 NIIT, including discussions on the latest IRS guidance on the application of the NIIT to trusts and estates, primarily focusing on material participation, but also on calculation of what constitutes net undistributed investment income.



  1. Definition and scope of IRC 1411 impact on trusts and estates
  2. Calculation of NIIT on trust undistributed net income
  3. Material participation and other mitigating factors to reduce impact of NIIT
  4. Determining whether trust documents permit capital gains to be included in DNI
  5. Electing small business trusts and NIIT
  6. Planning strategies


The panel will discuss these and other important topics:

  • Calculating distributable net income deduction for purposes of reporting NIIT
  • Determining whether capital gains can be treated as DNI for NITT calculations
  • Minimizing NIIT impact through distribution and other transaction strategies
  • Reporting the NIIT on Form 8960
  • Impact of NIIT calculations on electing small business trusts (ESBTs)


Matthew E. Rappaport, Esq., LL.M.
Matthew E. Rappaport, Esq., LL.M.

Mr. Rappaport counsels clients on technical and complex tax issues. He works closely with closely held business owners,...  |  Read More

Michele Schlereth, CPA, J.D., MST
Michele Schlereth, CPA, J.D., MST
Senior Tax Manager
Baker Tilly Virchow Krause

Ms. Schlereth advises clients regarding all aspects of taxation with a concentration in trusts and estates. Her areas...  |  Read More

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