December 3, 1981

You request a ruling concerning the Massachusetts income tax consequences of the liquidation of two Massachusetts corporate trusts: ********** ("Trust A"), and ********** ("Trust B").

Trust A was organized on August 1, 1960 and is engaged in the business of leasing real estate in Massachusetts. Trust B was organized on February 1, 1961 and is engaged in the business of operating a public warehouse located in Massachusetts. The principal place of business of both trusts is ********** Rhode Island.

Trust A has 400 shares of beneficial interest, all of which are owned by Trust B.

Trust B has 400 shares of beneficial interest divided among eight shareholders, five of which are individuals and three of which are trusts. The individual shareholders of Trust B are not Massachusetts residents. Of the three shareholders that are trusts, two are inter vivos trusts created by non-residents of Massachusetts and having no Massachusetts resident trustees; the third trust was created under the will of a person who died a non-resident of Massachusetts.

The proposed plan of liquidation for Trust A and Trust B provides that trustees of Trust B will be authorized and directed to wind up the trust's affairs, to collect and reduce to possession its assets, to pay or provide for its liabilities, and to distribute its assets (including the shares of Trust A), subject to all remaining liabilities, to its shareholders in proportion to and in cancellation of the number of shares owned by them. Immediately after the liquidation of Trust B, the trustees of Trust A will wind up its affairs, collect and reduce to possession its assets, pay or provide for its liabilities, and distribute its assets, subject to all remaining liabilities, to its shareholders in proportion to and in cancellation of the number of shares owned by them. Neither Trust A nor Trust B will sell its assets prior to its liquidation.

A Massachusetts corporate trust is subject to taxation under Chapter 62 of the General Laws. Massachusetts gross income is federal gross income as defined under the Internal Revenue Code, with certain modifications (G.L. c. 62, ss. 1, 2). With exceptions not here relevant, the Massachusetts adjusted gross income of a corporate trust is determined as though it were a resident natural person (G.L. c. 62, s. 8(a)); accordingly, only those provisions of the Code applicable to natural persons apply in the determination of the Massachusetts adjusted gross income of a corporate trust ( see B. W. Company v. State Tax Commission, 370 Mass. 18, 21 n. 4 (1976)).

For federal tax purposes, Trust A and Trust B are associations taxable as corporations. Under Section 336 of the Code, a corporation ordinarily recognizes no gain or loss for federal tax purposes on the distribution of property in partial or complete liquidation.

Under Section 331 of the Code, amounts distributed in complete liquidation of a corporate trust are treated by shareholders as received in full payment in exchange for their shares in the trust.

Individual non-residents of Massachusetts, inter vivos trusts created by non-residents of Massachusetts and having no Massachusetts resident trustees, and trusts created under the will of a person who died a non-resident of Massachusetts, are subject to Massachusetts income tax only on their items of gross income from sources within the Commonwealth, that is, on items of gross income derived from or effectively connected with any trade or business carried on by the taxpayer in Massachusetts or derived from the ownership of any interest in real or tangible personal property in Massachusetts (G.L. c. 62, ss. 5A, 10(c), (d)).

Based on the foregoing, it is ruled that:

1. The distribution of the assets of Trust B in complete liquidation of Trust B will not result in the recognition of gain or loss to Trust B for Massachusetts income tax purposes.

2. Shareholders of Trust B that are individual non-residents, inter vivos trusts created by non-residents of Massachusetts and having no Massachusetts resident trustees, or trusts created under the will of a person who died a non-resident of Massachusetts, will not be subject to Massachusetts income tax on receipt of the property of Trust B distributed to them in liquidation of Trust B.

3. The distribution of the assets of Trust A in complete liquidation of Trust A will not result in the recognition of gain or loss to Trust A for Massachusetts income tax purposes.

4. Shareholders of Trust A that are individual non-residents, inter vivos trusts created by non-residents of Massachusetts and having no Massachusetts resident trustees, or trusts created under the will of a person who died a non-resident of Massachusetts, will not be subject to Massachusetts income tax on receipt of the property of Trust A distributed to them in liquidation of Trust A.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

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LR 81-103