April 24, 1987


You have told us that the _____ Trust ("Trust") is a Massachusetts corporate trust that holds as its sole asset a piece of real property. Two resident shareholders and one nonresident shareholder ("Shareholders") own 100 percent of the trust shares. The shareholders plan to sell, in one transaction, all of the trust shares to a single, unrelated purchaser. The taxpayers request that, for Massachusetts tax purposes, the sale of the shares be treated as a deemed sale of the trust asset by the trust to the third party, followed by a distribution of the proceeds of the sale of the Trust asset to the shareholders.

We conclude That the sale of shares in a Massachusetts corporate trust that holds real estate in Massachusetts is the sale of an ownership interest in real property. The sale of 100 percent of the shares of a Massachusetts corporate trust, therefore, cannot be treated as a deemed sale of assets by the trust.
Unless a corporate trust is described in G.L. c. 62, § B(b), it is subject to tax under G.L. c. 62, and its Massachusetts adjusted gross income "shall be redetermined as if it were a resident natural person," with certain exceptions. G.L. c. 62, § B(a). If the Trust were treated as a corporation, Internal Revenue Code (I.R.C.) § 333 would allow the sale of shares to be treated as a sale of assets. Corporate trusts, however, are treated as corporations only for purposes of a determination involving sections [351] through [368] of the Code." G.L. c. 62, § 8(a). It follows that the provisions of I.R.C. § 338 do not apply to the sale of the trust shares.

The shareholders' equitable interest in the trust will not cause the sale by the shareholders to be imputed to the trust. A beneficial or equitable interest in a trust is not sufficient reason to ignore one of the taxpaying entities. See Dexter v. State Tax Commission, 350 Mass 380 (1960-) and Kirbv v. Board of Assessors of Medford, 350 Mass. 380 (1966). For Massachusetts tax purposes, therefore, any gain on the sale of the shares included in the resident shareholder's federal gross income will be Massachusetts Part A income to such shareholder. G.L. c. 62, § 2.

The Massachusetts gross income of a nonresident is "determined solely with respect to items of gross income from sources within the commonwealth...." G.L. c. 62, § 5A. An item of gross income has a source within Massachusetts if it is "derived from or effectively connected with ... the ownership of an interest in real ... property located in the commonwealth." G.L. c. 62, § 5A. See also 830 CMR 2.03. A taxpayer who is a shareholder in a corporate trust has "a beneficial interest in the real estate itself and not, as in the case of a corporation, an interest distinct from the corporate assets." State Tax Commission v. Colbert, 344 Mass. 494, 497 (1962). See also State Tax Commission v. Fine, 356 Mass. 51 (1969) and Coffman v. State Tax Commission, 365 Mass. 337 (1974). The nonresident shareholder, therefore, has Massachusetts source, Part A income to the extent that gain on the sale of the shares is included in federal gross income.

Very truly yours,
Ira A. Jackson
Commissioner of Revenue
April 24, 1987
LR 87-3