May 8, 1986


You inquire whether the income earned by the investment fund of a foreign country's government ("Customer"), which is in a trust maintained by your bank as trustee, is completely taxable to the Customer or is partially taxable to the Customer and partially taxable to the trust or to the bank.

The fund contains four separate funds invested by the same Customer, and has been drawn up as a "pooled fund." The written agreement between the bank and the Customer ("Agreement") provides that the assets of the Customer will not be co-mingled with the assets of other customers. The Customer may withdraw all or any part of the pooled fund upon ten days' notice. You state that this Customer is the only owner of the fund.

General Laws Chapter 62, Section 10(e) provides:

If the grantor or another person is treated as the owner of any portion of a trust by reason of the provisions of section six hundred and seventy-one to six hundred and seventy-eight inclusive, of the federal Internal Revenue Code, the items of income, deduction and credits against tax which are attributable to that portion of the trust shall not be taken into account in calculating the income taxable to the trust but shall be taken into account in computing the Massachusetts taxable income or credits against the tax of such grantor ....

Under Internal Revenue Code Section 677, "[t]he grantor shall be treated as the owner of any portion of a trust . . . whose income . . . in the discretion of the grantor. . . may be . . . distributed to the grantor. . . (or) held or accumulated for future distribution to the grantor. . . ." The customer is the grantor of the pooled income fund since it has transferred to such fund the assets which the fund holds. The Customer is owner of the pooled fund under Section 677 because of its discretion in making withdrawals under the Agreement. As a result, provided that the Customer continues to be the sole owner of the fund, the income earned by the pooled fund is not taxable to the trust or bank under G.L. c. 62, §10(e).

Very truly yours,
Ira A. Jackson
Commissioner of Revenue
May 8, 1986
LR 86-6