On February 13, 1985, the Supreme Judicial Court issued a decision in favor of the plaintiff, Plymouth Home National Bank, in Commissioner of Revenue v. Plymouth Home National Bank, 394 Mass. 66 (1985).

The Court held that distributions consisting exclusively of the net proceeds of United States Government securities, paid to beneficiaries by the trustee of a Massachusetts corporate trust qualifying as a regulated investment company under Section 851 of the Internal Revenue Code, are not to be included in the beneficiaries' Massachusetts gross income under G.L. c. 62, § 2(a)2(A). The Court stated that distributions of the net income of the trust should retain their character as tax-exempt interest income in the hands of the beneficiaries.

Accordingly, income derived from interest on obligations of the United States that are exempt from state taxation, or from obligations issued by the Commonwealth, its political subdivisions or any agency or instrumentality of the Commonwealth or its political subdivisions, distributed by any corporate trust to its beneficiaries will not be included in the Massachusetts gross income of the beneficiaries. However, any such income received by a corporation and distributed to its shareholders as dividends is taxable to such shareholders as Massachusetts Part A income.

Ira A. Jackson
Commissioner of Revenue

April 16, 1985

TIR 85-4