(a) Business Income Exemption and Family Deductions. A testamentary trust subject to taxation or a "resident inter vivos trust" is not entitled to take the $2,000 exemption against business income except where all of its income is being accumulated for unborn or unascertained persons or persons with uncertain interests. However, a beneficiary of such a trust who is unqualifiedly entitled to business income of the trust may require the trustee to claim his $2,000 exemption and family deductions to the extent that he is entitled to receive such income from the trust and to the extent that such exemption and deductions are not claimed on his individual return, or on the return of any other trust, or of any partnership.
Example 1: A "resident inter vivos trust" operates a retail business in trust under the terms of an instrument which requires the net income to be accumulated for the benefit of such of the children of X (a living person) who attain the age of 35. In this case the trust may claim a $2,000 exemption.
Example 2: A "resident inter vivos trust" operates a retail business in trust for the benefit of X, Y, and Z who are residents of Massachusetts. The trustee may not claim a $2,000 business income exemption for the trust. X, who is entitled to receive $4,000 in business income from the trust, is married to a spouse who has no income at all from any source and has two children who qualify as dependents. X is a member of a partnership, from which he receives $3,000 in business income. X may claim on the partnership return the $2,000 business income exemption, $500 for his spouse, $400 for one child and $100 for the second child, thus wiping out any partnership liability for taxation on X's share. X may require the trustee to claim the balance of the deduction for the second child, $300, on the fiduciary return against X's share of the $4,000 distribution. X is entitled to no further business income exemption or family deductions on any other return. A "Non-Resident Inter Vivos Trust" is entitled to take the $2,000 exemption against business income derived from the conduct of a profession, trade or business within Massachusetts without regard for the status of its beneficiaries. Non-Resident beneficiaries or "Non-Resident Inter Vivos Trusts" who are themselves subject to the Massachusetts income tax may not claim their own $2,000 exemption and family deductions on the trust return.
(b) Business Income Deductions. Any trust carrying on a profession, trade or business within Massachusetts is entitled to all of the deductions against business income contained in 830 CMR 6.00. [830 CMR 6.00: [REPEALED] Such a trust may not, however, take a credit for income tax paid to another state because such credit is restricted to a natural person.
(c) Bond Premium Amortization. Where a trustee purchases taxable bonds at a premium, the premium may be amortized according to any approved method. The premium may be amortized to the first call date, or in the case of declining premium to different call dates the difference in declining premium may be amortized to the intermediate call date.
Example: A taxable bond due in 1980 is purchased at 125 in 1956. It is callable at 115 in 1966 and at 110 in 1971. If the trustee elects to amortize the premium, $10 may be deducted ratably from income in the 10 year period 1956-1966, $5 in the 5 year period 1966-1971 and the remaining $10 in the 9 year period 1971-1980.
Premium on bonds, the income from which is exempt from Massachusetts income taxation, are not subject to amortization deductions but in determining gain or loss the basis of such bonds must be reduced by what would have been the amortization deduction.
The amount of any premium due to a conversion privilege may not be amortized.
(d) Other Fiduciary Deduction. A testamentary trust subject to taxation in Massachusetts or "resident inter vivos trust" is entitled to deduct a portion of its expenses for safe deposit rental, and surety bond premiums which is measured by the ratio of the sum of taxable interest, dividends, annuities and gains from the sale of intangibles to the sum of total income from all sources exclusive of business income.
Example: A trust has $5,000 of taxable interest, $500 of U.S. bond interest, $3,000 in gains from the sale of intangibles, and $10,000 in business income. The Trustee pays $25 for a safe deposit box and $125 for a surety bond. Of the $150 paid out in these expenses 8000/8500 or $141 is deductible.
A testamentary trust subject to taxation in Massachusetts or a "resident inter vivos trust" is entitled to a deduction for compensation actually paid to the trustee based upon such part of the taxable interest and dividends which is paid to or accumulated for a resident of Massachusetts or for unborn or unascertained persons or persons with uncertain interests. The deduction is limited to six per cent (6%) of such income except that with respect to taxable years beginning after December 31, 1956 the rate shall be seven per cent, (7%).
Example: A "resident inter vivos trust" has taxable interest and dividends amounting to $10,000, $5,000 of exempt interest and $5,000 in gains from the sale of intangibles. The income of the trust is payable in equal shares to A, a resident of Massachusetts, and B, a resident of Maine. Provided the compensation is actually paid in the year for which the income is computed, the deduction will be six per cent of $5,000 or $300. For taxable years beginning after December 31, 1956, the rate of compensation for deduction purposes will be seven per cent or $350 on the foregoing example.