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LEGAL RULING NO. 238

CALIFORNIA FRANCHISE TAX BOARD
Legal Ruling No. 238

October 27, 1959

TRUSTS: ACCUMULATED INCOME; TAXATION WHEN THERE ARE BOTH RESIDENT AND NONRESIDENT TRUSTEES AND BENEFICIARIES

When the entire income of a trust is derived from sources outside of California, and at least one of the trustees and at least one of the beneficiaries are California residents, both Sections 17743 and 17744 of the Personal Income Tax Law are applicable. Each section is applied after deducting from total income that portion attributable to the other section.

The entire accumulated income of a trust is derived from sources outside California. There are three trustees of whom one is a resident and two are nonresidents of this state. Of the two beneficiaries, one is a resident and the other a nonresident of California.

Section 17742 of the Personal Income Tax Law provides that the entire taxable income of a trust is taxable to the trust if the fiduciary or beneficiary is a resident of this state. Where, however, there is more than one fiduciary, Section 17743 requires that the taxable income be apportioned according to the number of fiduciaries who are residents of California. Section 17744 requires an apportionment of the trust's taxable income based upon the number of resident beneficiaries.

The income under Sections 17743 and 17744 is computed as follows:

Assume that the total taxable income of the trust is $90,000. The amount of income taxable in California would be $60,000.

Fiduciaries, 33-1/3% of $90,000 =$30,000
Beneficiaries, 50% of $60,000 =$30,000
Taxable Amount $60,000