Discussion:Trust Return State Filing Requirement

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Tax Questions --> Trust Return State Filing Requirement


Bendcpa (talk|edits) said:

8 March 2007
Does anyone know the state filing requirements for a trust? Specifically, does the trust get filed in the state of the trustee or in the state where the trust was formed? Any input would be greatly appreciated. Thanks.

KatieJ (talk|edits) said:

9 March 2007
It depends on the state(s) involved. Trusts are generally taxed as either "resident" or "nonresident," similar to an individual; a "resident" trust is taxed on all of its taxable income, while a "nonresident" trust is taxed only on income from sources within the state. Generally a trust must file returns in every state where it is either taxed as a resident or has source income. It may also be required to file in the state under whose laws it was organized, again depending on the state.

In California, as an example, a trust is taxed on all of its income (i.e., as a "resident") if EITHER the trustee OR the beneficiary is a California resident. (Contingent beneficiaries don't count.) There are complicated rules for determining how much of a trust's non-California source income is subject to California tax when there are multiple fiduciaries and/or multiple beneficiaries. In Oregon, on the other hand, a trust is a resident only if the fiduciary is a resident or the trust is administered in Oregon. It is very easy for a trust to be considered "resident" in more than one state; for example, a trust that has an Oregon trustee and a California resident beneficiary would be taxed as a resident by both states. As a result, provisions for credit for taxes paid to other states by trusts tend to be generous.

You would need to look into the laws of each of the states where (a) the trust is organized, (b) one or more fiduciaries are located, (c) one or more beneficiaries are located, and (I'm not done yet <G>) (d) the trust owns real or tangible personal property. A trust could have to file returns in all those states.

JR1 (talk|edits) said:

March 9, 2007
You couldn't at least tell us which state...?

Bendcpa (talk|edits) said:

9 March 2007
Thanks KatieJ, all of that info is very helpful. This trust was organized and is managed in Oregon, the beneficiaries are residences of Oregon, and the trustee is a resident of Illinois. The trust's only source of income is a small amount of dividends.

JR1 (talk|edits) said:

March 9, 2007
In IL, you only file if there's tax to pay...

Dennis (talk|edits) said:

9 March 2007
Interesting. According to a brief reading of the instruction booklets, Illinois claims residencey only if it was created in Illinois and Oregon only cares where the trustee is.

Bendcpa (talk|edits) said:

9 March 2007
In my situation, there has not been any distribution to the beneficiaries from the trust. The trust was set up as an education trust where the beneficiaries will receive their distributions when they reach college age...several years from now. So, it sounds like I need to file an Oregon trust return and an Illinois trust return. But since the beneficiaries did not receive any income in Oregon, the dividend income would be taxed in Illinois. Does that sound correct? Thank you very much for the help.

KatieJ (talk|edits) said:

9 March 2007
I haven't looked at Illinois, and don't have time to do that right now, but if Dennis is correct that Illinois considers a trust "resident" only if the trust is organized there, I'd say there is no taxable income in Illinois (though you probably should file a return). Dividend income is generally considered to have its source at the residence of the taxpayer (the trust). However, if the trust is administered in Oregon, it is taxable there as a resident (Or. Rev. Stat. § 316.282(1)(d)). So the income is taxable in Oregon.

Dennis (talk|edits) said:

9 March 2007
That was what I found interesting. With an Illinois Trustee Oregon doesn't want it and Illinois may not want it either.

Bendcpa (talk|edits) said:

9 March 2007
Thank you for your input on this issue. Per KatieJ's reference (Or. Rev. Stat. § 316.282(1)(d)), I think that the trust is an Oregon resident and therefore must pay the income tax in Oregon. Per that reference 'The Oregon state income tax is determined by the status of the principal administration as to its resident or nonresident character, and shall be computed on an Oregon return required to be filed by the fiduciary of the principal administration. If the principal administration is an Oregon resident estate, all income of the estate, including that of nonresident fiduciaries, is taxable as that of an Oregon resident'. Further, 'A trust is a resident if the fiduciary is a resident of Oregon or if it is aministered in Oregon'.

In my situation the principal administration takes place in Oregon, so the tax will be paid in Oregon. The administration being where the trust was legally drafted, where the brokerage firm is located, and where the accounting takes place. So, it does seem as though Oregon does want the tax.

I am also in agreement that an Illinois 1041 needs to be filed, but no tax should be assessed. Per the Illinois Dept. of Revenue search on Fiduciary 'you must file Form II 1041 if you are a fiduciary of a trust or an estate and the trust or the estate is a resident of Illinois, is required to file, or files a federal income tax return (regardless of net income or loss)'.

Thanks again everyone. Happy tax season.

Dennis (talk|edits) said:

9 March 2007
I vote that this will generate correspondence.♫

To join in on this discussion, you must first log in.
Personal tools