Magazine article The CPA Journal

New York Resident Trusts May Not Be Subject to Tax on Income

Magazine article The CPA Journal

New York Resident Trusts May Not Be Subject to Tax on Income

Article excerpt

In an advisory opinion issued during 1994, the New York State Department of Taxation and Finance set forth the situation, supported by regulation, wherein a New York State resident trust is not subject to the New York State personal income tax (see TSB-A-94(7)I).

The facts giving rise to the opinion are that the petitioner was a complex inter vivos trust, created by a New York domiciliary (now deceased), naming his son as the sole trustee. After several years, the trustee sold his New York residence and moved out of New York State. During the years covered by the advisory opinion and while the trustee was not a domiciliary of New York State, the trust corpus consisted solely of intangible assets such as cash in checking and money-market accounts, marketable securities and U.S. government obligations, and loans receivable from other trusts and companies affiliated with the trustee.

The advisory opinion held that the trust was a New York resident trust under Tax Law Sec. 605(b)(3)(c) because the grantor was, at the time the trust was created and funded, a domiciliary of New York State. However, the advisory opinion indicated that an exception to taxation existed for resident trusts as set forth by New York Personal Income Tax Reg. Sec. 105.23(c), which provides that no New York State personal income tax may be imposed on a resident trust if all of the following conditions are met:

1) All the trustees are domiciled in a state other than New York State;

2) The entire corpus of the trust, including real and tangible property is located outside of New York State; and

3) All income and gains of the trust are derived and connected with sources outside of New York State, determined as if the trust were a nonresident. …

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