IRS Form 4970 - IRS Forms, Instructions, Pubs 2026

IRS Form 4970 – IRS Forms, Instructions, Pubs 2026 – In the complex world of trust taxation, certain distributions can trigger additional tax obligations for beneficiaries. IRS Form 4970, officially titled “Tax on Accumulation Distribution of Trusts,” plays a crucial role in calculating these taxes. This form helps ensure that accumulated income from trusts is taxed appropriately, preventing potential tax avoidance through deferred distributions. Whether you’re a beneficiary of a domestic or foreign trust, understanding Form 4970 is essential for compliance with U.S. tax laws. In this article, we’ll break down what the form is, who needs to file it, how to complete it, and more, using the latest information as of 2026.

What is IRS Form 4970?

IRS Form 4970 is used by beneficiaries of certain trusts to compute the partial tax on accumulation distributions under Internal Revenue Code (IRC) Section 667. An accumulation distribution occurs when a trust distributes income that was accumulated in prior years rather than distributed currently. This form calculates a “throwback tax” to approximate what the tax would have been if the income had been distributed and taxed in those earlier years.

The purpose of the form is to address situations where trusts accumulate income over time, paying taxes on it at the trust level, but then distribute it to beneficiaries later. Without this mechanism, beneficiaries might benefit from lower tax rates or deferrals. Form 4970 ensures fairness by imposing an additional tax based on the beneficiary’s historical tax rates.

For the most current version, you can download the PDF from the official IRS website: https://www.irs.gov/pub/irs-pdf/f4970.pdf. As of November 2025, the form was updated for the 2025 tax year, with no major changes reported for 2026.

Who Needs to File Form 4970?

Not every trust beneficiary must file Form 4970. It’s required for:

Beneficiaries of domestic trusts created before March 1, 1984, that make accumulation distributions.
Individuals who receive distributions from trusts that accumulated income instead of distributing it annually, where the trust paid taxes on that income.
Cases involving multiple trusts: If you receive accumulation distributions from more than one trust in the same year, prepare a separate Form 4970 for each.

Foreign trust beneficiaries have special rules. If the distribution is from a foreign trust, report it on Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) instead of filing Form 4970 separately. However, you may need to attach Form 4970 as a worksheet to Form 3520. Nonresident aliens or foreign corporations should only include U.S.-sourced or effectively connected income.

If the trust provides you with Part IV of Schedule J (Form 1041), that’s your cue to complete Form 4970. Note that trusts that were once foreign but became domestic may have additional considerations under Revenue Ruling 91-6.

Key Definitions for Form 4970

To navigate Form 4970 effectively, familiarize yourself with these terms:

Undistributed Net Income (UNI): The trust’s distributable net income (DNI) minus current distributions and related taxes.
Accumulation Distribution: The excess of distributions over the trust’s DNI, reduced by required current distributions. Generally, the distribution loses its original character (e.g., tax-exempt interest) upon payout, except for foreign trusts.
Throwback Years: The prior years in which the accumulated income is deemed distributed for tax purposes.

These concepts underpin the form’s calculations, ensuring the tax reflects what would have been owed if distributions occurred earlier.

How to Complete IRS Form 4970: Step-by-Step Guide

Form 4970 is divided into two main parts: Part I for averaging income and determining computation years, and Part II for calculating the tax attributable to the accumulation distribution. You’ll need information from Schedule J (Form 1041) and your prior tax returns. Here’s a breakdown:

Part I: Average Income and Determination of Computation Years

Line 1: Enter the accumulation distribution amount from Schedule J (Form 1041), line 37, column (a). For nonresidents, include only U.S.-sourced income.
Line 2: Subtract any UNI accumulated before your birth or age 21.
Line 3: Subtract line 2 from line 1.
Line 4: Enter taxes imposed on the trust from Schedule J, line 37, column (b). Apply the multiple trust rule if applicable—exclude taxes from other trusts in the same years if distributions total $1,000 or more.
Line 5: Add lines 3 and 4.
Line 6: Enter tax-exempt interest from Schedule J, line 37, column (c).
Line 7: Subtract line 6 from line 5 (taxable portion).
Line 8: Number of throwback years from Schedule J lines 32–36.
Line 9: Divide line 3 by line 8.
Line 10: Multiply line 9 by 0.25.
Line 11: Subtract years where distributions were below line 10 from line 8.
Line 12: Divide line 7 by line 11.
Line 13: Enter your taxable income for the five prior years (2020–2024 for 2025 filings), adjusted for prior distributions.

Part II: Tax Attributable to the Accumulation Distribution

This part uses three columns for the middle three prior years (eliminating highest and lowest incomes from line 13).

Line 14: Enter adjusted prior incomes.
Line 15: Enter line 12 in each column.
Line 16: Add lines 14 and 15.
Line 17: Compute tax on line 16 using prior-year rates.
Line 18: Original tax on line 14 income.
Line 19: Subtract line 18 from 17.
Line 20: Adjust for increased credits (e.g., foreign tax credit).
Line 21: Subtract line 20 from 19.
Line 22: Alternative minimum tax adjustments using Form 6251 or equivalents.
Line 23: Combine lines 21 and 22.
Line 24: Add the three columns.
Line 25: Divide by 3.
Line 26: Multiply by line 11.
Line 27: Enter line 4.
Line 28: Subtract line 27 from 26 (partial tax). Reduce proportionately for estate or generation-skipping taxes if applicable.

For foreign trusts, additional interest may apply under the default method if trust records are unavailable.

Filing and Reporting Requirements

Individuals: Report the line 28 amount on Schedule 2 (Form 1040), line 17l.
Trusts/Estates: Add to Form 1041, Schedule G, line 8, noting “From Form 4970.”
Other Filers: Include in total tax liability on your return.
Attachments: Include refigured credit forms and AMT schedules.
Deadlines: File with your income tax return for the year of the distribution.
Electronic Filing Note: If attaching to Form 3520, paper file Form 1040 as e-filing may be rejected.

For foreign trusts, complete Form 4970 as a worksheet and attach to Form 3520, Part III, Schedule C.

Special Considerations for Foreign Trusts

Form 4970 applies to foreign trusts primarily as a worksheet for Form 3520. Distributions may trigger throwback taxes and interest charges. Use the default method if trust accounting is unavailable: average prior years’ income and apply rates, plus interest. Foreign taxes paid by the trust can offset U.S. tax, but enter zero if unknown.

Common Mistakes to Avoid When Filing Form 4970

Failing to obtain Schedule J from the trustee.
Ignoring multiple trust rules, leading to over- or under-reporting taxes.
Not adjusting for prior distributions in line 13.
Miscalculating throwback years or excluding pre-21 accumulations.
Forgetting to attach as a worksheet for foreign trusts, which could result in penalties.
Overlooking AMT adjustments or credit recalculations.

Consult a tax professional if dealing with complex trusts or international elements to avoid IRS audits or penalties.

Conclusion

IRS Form 4970 ensures equitable taxation on trust accumulation distributions, aligning with IRC principles. By following the step-by-step instructions and using official resources, beneficiaries can accurately compute and report this tax. Stay updated via IRS.gov for any future developments, especially with broader tax changes like the 2026 estate tax exemption increase to $15 million. Proper filing not only complies with the law but also optimizes your tax position. If you’re unsure, seek advice from a qualified tax advisor.