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Multistate Allocation of Trust Distributable Net Income: Income Sourcing and Apportionment

DNI Calculations, Allocating Income Between Trust and Multistate Beneficiaries

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, April 30, 2020

Recorded event now available

This course will provide tax advisers and professionals with a thorough and practical guide into the calculation challenges of allocating distributable net income (DNI) for complex trusts with income or beneficiaries in multiple states. The panel will focus on tax reporting of trust income from assets such as partnership interests, capital gains and tax-exempt interest, and detail state variations in the tax treatment of various income components. The webinar will also identify those states that deviate from federal Code.

Description

Calculation of trust accounting income and the tax concept of DNI is one of the more complicated tasks in both fiduciary and tax accounting. DNI determines the maximum income distribution deduction that a trust or estate may claim and the amount that beneficiaries must report as taxable income. These calculations become even more complicated when a trust has income or beneficiaries in multiple states, with fiduciaries needing to grasp the various state rules and approaches to computing DNI.

Two factors that make DNI calculations so vexing are the presence of tax-exempt income or a trust situation that allows DNI to include capital gains. Also, scenarios where actual distributions are either higher than or less than actual DNI impact tax reporting and final computing of trust AGI.

The majority of states impose an income tax on resident trusts and state-sourced income and deduction of non-resident trusts. As with virtually all multistate taxation issues, the variety of conflicting state laws creates huge tax compliance issues for tax advisers. Depending on the allocation of income, a trust may have DNI sourced to one state that exceeds its federal amount.

Listen as our experienced panel provides a practical guide to some of the specific challenges of multistate allocation of DNI from complex trusts.

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Outline

  1. Trust accounting income vs. DNI
    1. Calculation of DNI under various income scenarios
    2. Allocation of DNI among beneficiaries
    3. Tier I vs. Tier II distribution requirements
  2. State taxation of resident trusts
  3. Allocating income between non-grantor trust and beneficiaries in multistate contact situations
  4. Sourcing issues
  5. State apportionment issues for trusts holding active business income
  6. States that deviate from the federal treatment of grantor trust income

Benefits

The panel will discuss these and other relevant topics:

  • Determining whether a trust is resident or nonresident for state income tax purposes
  • DNI calculations in a multistate setting: allocating income and deductions for FAI purposes
  • When trust income allocated to an individual state exceeds federal DNI
  • States that deviate from the federal tax treatment of grantor trusts

Faculty

Edmondson, S. Gray
S. Gray Edmondson
Partner
Edmondson Sage Allen

Mr. Edmondson practices in partnership, corporate, and individual tax planning; business transactions, including...  |  Read More

Jones, Paul
Paul Jones, CPA
Attorney
Paul Jones Attorney

Mr. Jones is an attorney and CPA. He focuses his practice on tax law, business law, estate planning, expat tax and...  |  Read More