Sec. 119.2. Allocating fiduciary adjustment among estate or trust and its beneficiaries

Tax Law, § 619(c)

(a) General rule.

Ordinarily the New York fiduciary adjustment is allocated among an estate or trust and its beneficiaries in proportion to their respective shares of the distributable net income of the estate or trust. Distributable net income means distributable net income as defined in the Internal Revenue Code. It should be noted that the Federal distributable net income of an estate or trust is not the same as the Federal taxable income of an estate or trust; the amount of Federal distributable net income appears as a separate item on the Federal fiduciary income tax return.

(1) Allocation of the fiduciary adjustment of a resident estate or trust is made in this way regardless of whether any or all of the beneficiaries are residents or nonresidents of New York State. A resident beneficiary, in preparing his own New York State personal income tax return, uses his share of the fiduciary adjustment as a modification of Federal adjusted gross income in computing his New York adjusted gross income as provided in section 112.4 of this Article. A nonresident beneficiary does not do this; instead, in computing his New York adjusted gross income, he must include his share of net change from New York State sources from an estate or trust as provided in section 132.1 of this Title. Nevertheless, a proportionate share of the fiduciary adjustment must be allocated to the nonresident beneficiary in order that the shares allocated to the estate or trust and its resident beneficiaries will be proportionate to their shares of Federal distributable net income.

(2) Allocation of the fiduciary adjustment according to the general rule stated in paragraph (1) of this subdivision is illustrated by the following example:

Example:

The New York fiduciary adjustment with respect to a resident estate, computed in accordance with section 119.1 of this Part, is a plus figure of $1,000. The estate has Federal distributable net income of $5,000, out of which it distributes $3,000 to A, a resident beneficiary, and $1,500 to B, a nonresident beneficiary. A's share is 60 percent of Federal distributable net income, so that 60 percent of the fiduciary adjustment ($600) is allocated to him, and on his New York State personal income tax return he must add this to his Federal adjusted gross income in determining his New York adjusted gross income. B's share of the distributable net income is 30 percent, so that 30 percent of the New York fiduciary adjustment ($300) is allocated to him even though he will not use this figure in computing his New York taxable income because he is a nonresident. Ten percent of the distributable net income was not distributed by the estate to any beneficiary so that 10 percent of the fiduciary adjustment ($100) is allocated to the estate, and the fiduciary on the estate's New York State fiduciary return must add this amount to the Federal taxable income of the estate in determining its New York taxable income.

(b) Special rule where estate or trust has no distributable net income.

If the distributable net income of an estate or trust for the taxable year is zero or a negative amount, the share of each beneficiary in the New York fiduciary adjustment is in proportion to his share of the income of the estate or trust for the taxable year, determined under local law or the governing instrument, which is required to be distributed currently, and any other amounts which are properly paid or credited or required to be distributed during the taxable year. Any balance of the fiduciary adjustment not allocable to any beneficiary is allocated to the estate or trust.

Example 1:

A trust has income, for trust accounting purposes, amounting to $10,000. The New York fiduciary adjustment with respect to the trust is a plus figure of $5,000. Certain expenses paid by the trustee are chargeable to principal under the terms of the trust but are nevertheless deductible for Federal income tax purposes and have the effect of reducing distributable net income to zero.

The trust instrument requires that $4,000 of income be distributed to A. An additional $3,000 is paid to A pursuant to the discretionary authority of the trustee, and the remaining $3,000 of income is accumulated by the trust. A's $7,000 share is 70 percent of the total income for trust accounting purposes, so that 70 percent of the fiduciary adjustment ($3,500) is allocated to him. If he is a resident, he must add this amount to his Federal adjusted gross income in determining his New York adjusted gross income, as provided in section 112.4 of this Article. The remaining $1,500 is the trust's share in the fiduciary adjustment, which must be added to the Federal taxable income of the trust in determining its New York taxable income, as provided in section 118.4 of this Article.

Example 2:

The facts are the same as in example 1, except that the fiduciary adjustment is a minus figure of $5,000. In computing his New York adjusted gross income, the beneficiary may therefore subtract $3,500, which is his share in the fiduciary adjustment, from his Federal adjusted gross income, and the trust may subtract $1,500, its share of the fiduciary adjustment, from its Federal taxable income.