("Bank") is a New York bank which serves as trustee under a number of trusts created by Massachusetts residents. As a non-Massachusetts corporate trustee, you inquire as to your Massachusetts income tax liability and filing requirements in the following situations:
1. A Massachusetts resident creates a trust for his benefit naming the Bank as corporate trustee. The trust is a "grantor trust" as defined by Sections 671 to 678 of the Internal Revenue Code ("Code"). There are no residents of Massachusetts named as co-trustee. By the terms of the trust instrument, upon the grantor's death two new trusts are created with the Bank as corporate trustee and no co-trustee residing in Massachusetts.
2. Same facts as (1) except the trust instrument does not direct disposition of the trust property upon the grantor's death. Rather, the grantor appoints the trust property by his will to two new trusts in terms specified by the will.
Generally, if the income of a trust is subject to tax under Chapter 62 of the Massachusetts General Laws, the trustee is required to file a fiduciary income tax return and pay the tax assessed to the trust. (G.L. c. 62, §§ 10, 25; G.L. c. 62C, § 6(b)). Income distributed to a beneficiary, on which the tax has been paid, is not taxable to him. (G.L. c. 62, § 10(a)).
Corporations acting in a fiduciary capacity are subject to the Massachusetts income tax and, with certain exceptions, are subject to the same rules as individual trustees. (G.L. c. 62, §§ 14, 15).
In the case of an inter vivos trust, the trustee is subject to tax on income allocated to Massachusetts beneficiaries where one or more of the trustee is an inhabitant of Massachusetts and one or more of the grantors was an inhabitant at the time of creation of the trust or at any time during the year for which the income is computed or at the time of his death. (G.L. c. 62, § 10).
If the grantor of a trust is treated as the owner of any portion of the trust under Sections 671 to 678 of the Code, income and losses of the trust are taxed to the grantor and are not taken into account in calculating the taxable income of the trust. (G.L. c. 62, § 10(e)). Any trustee receiving income which is taxable to a grantor as owner is required to file an information return indicating the items of income, deductions and credits against tax attributable to such portion of the trust and the name and taxpayer identification number of the person treated as owner. (G.L. c. 62, § 10(f)).
A non-resident trustee is subject to Massachusetts income tax on items of gross income derived from or effectively connected with any trade or business carried on in Massachusetts or derived from the ownership of any interest in real or tangible personal property in Massachusetts. (G.L. c. 62, §§ 5A, 10(d)).
A resident beneficiary must report and pay tax on income received or made available from a nonresident trustee or other fiduciary which is not subject to Massachusetts income taxation. (G.L. c. 62, § 11).
Based upon the foregoing facts, it is ruled that:
1. As a non-Massachusetts corporate trustee of certain trusts having no Massachusetts resident trustees, the Bank is subject to Massachusetts income tax on (a) trust income allocated to Massachusetts beneficiaries under any testamentary trust where the testator died an inhabitant of Massachusetts, and (b) trust income from sources within the Commonwealth.
2. As a trustee of certain grantor trusts where any Massachusetts resident is treated as the owner of some portion of the trust for purposes of Sections 671 to 678 of the Code, the Bank is required to file an information return indicating the items of income, deductions and credits against tax attributable to such portion of the trust and the name and taxpayer identifications number of the Massachusetts resident treated as owner.
3. Any Massachusetts resident who receives, is entitled to, or to whom income is available from a trustee not subject to Massachusetts income tax, is required to file a Massachusetts income tax return reporting such income according to the nature of the income received by the trustee.
Very truly yours
Ira A. Jackson
Commissioner of Revenue
January 24, 1984