NC Trust return needed/

[Catherine]

Client is beneficiary of a Massachusetts trust.  Moved (retired) to NC.  NC requires tax return for NC beneficiary of a trust BUT -- what if the beneficiary gets ZERO income from the trust?  What then?  Tried calling NC Tax Dept.  Trust section sent me to individual section sent me back to trust section where I got sick of waiting on hold (plus expecting drop-off client to show up).  So I never got an answer from them.

Anyone here know?

[Terry D EA]

Catherine,

I am reading between the lines of your post a bit. If the trust has no income, then it is not required to file a Federal return and therefore no NC filing is required by the trust or the bene. Not sure what kind of trust this is but a CRUT (Charitable Remainder Unitrust) does not pay tax to NC. But, if there is no income, could the Bene receive a 0.00 K-1 form that would be reported on his NC D400 tax return? That seems to be the only way to approach this. Maybe I am missing it totally but I couldn't find any other information to help you.

[Catherine]

Trust has LOTS of income - but none is distributed to the beneficiary.  Trust files federal and state of MA returns and pays taxes to both.  So - no issue when the beneficiary also lived in MA.  However, she moved to NC and NC taxes trusts when there is a beneficiary in NC.

I'm thinking I do need the NC return, but was hoping to get confirmation one way or 'tother.  Heaven knows the NC tax dept. was clueless.

[BHoffman]

I did some reading at NC Dept of Revenue and searched around for info.

 My understanding is that, in any case, the fiduciary (and not the beneficiary) has the responsibility for reporting any applicable income to NC.  I'm reading the instructions for form D407A.  It looks like the beneficiary is only required to report whatever distributions are on the K-1, as usual.

Also, see "Kimberly Rice Kaestner 1992 Family Trust vs. North Carolina Department of Revenue".   The law that says out of state trusts have to pay tax to NC because a beneficiary lives in NC was decided to be unconstitutional by the Wake County NC Superior Court, but only for that one case.  NC DOR is expected to appeal.

 

 

[Terry D EA]

http://strausslaw.com/do-you-have-an-out-of-state-trust-getting-your-refund-after-the-kimberly-rice-kaestner-case/

Catherine, here is a link for information regarding the Kimberly Rice case. It makes reference to a form to use while the case is under appeal. BHoffman stated form D407 and ittructions which are easy to find on the internet. The fiduciary is required to file the return and using form D407A looks like it would generate a tax due to NC. However, maybe using the general statute form in the article above may give your client some relief. Sorry there isn't any more information than this. I agree the DOR in NC will be clueless with this and is obviously no help to you.