150-316-0410 Fiduciary Adjustment The modifications applicable to individuals described in ORS Chapter 316 may or may not be applied in computing the income tax liability of an estate or trust, depending on the treatment of distributable net income of the estate or trust in the Internal Revenue Code. No modification may be added or deducted separately. Neither may trust principles of accounting or statutory provisions governing allocations of receipts and disbursements by the fiduciary be applied in allocating the tax burdens or benefits arising from modifications. The net amount of all modifications constitutes the “fiduciary adjustment,” which must be allocated between the fiduciary and any beneficiaries as required in ORS 316.287(2). However, the share of a fiduciary adjustment allowable in reduction of the taxable income of a beneficiary shall be limited to the amount of the distribution deduction taxable on his individual federal return. The share of a fiduciary adjustment increasing taxable income of a beneficiary shall be limited to an amount computed by deducting the amount of income of the estate or trust taxable on his individual Oregon return from the total amount of money and the value of property distributed or required to be distributed to him during its current taxable year by the estate or trust. Any amounts not allocated to a beneficiary solely by reason of these limitations shall be added to the share of the estate or trust. A computation of the federal distributable net income must be shown on a copy of the federal Form 1041 attached to the Oregon fiduciary Form 41, unless it is clearly evident from the character of the estate or trust and the income that either (1) There is no distributable net income as defined in the Internal Revenue Code; (2) All distributable net income is taxable to the beneficiary; or (3) No distributable net income is deductible on the federal fiduciary return as a distribution deduction. Example: An estate had ordinary income and capital gains. A property worth in excess of the ordinary income was distributed to a residuary beneficiary in the taxable year. The total net fiduciary adjustment, including federal income tax paid on capital gains, is allocated to the distributee, although the personal representative must charge the federal income tax against principal. Thus, the tax benefit is granted to the beneficiary receiving current distribution while the eventual economic burden of payment falls on the residuary beneficiaries ratably. On the other hand, the beneficiary receiving a current distribution has been burdened with both federal and Oregon tax liability arising from ordinary income. Had he received no distribution the liability for tax would have fallen on the estate and the eventual economic burden on the residuary beneficiaries ratably. However, if the estate has federal taxable income which is not subject to Oregon income taxation, such as interest from the United States bonds, to include in the fiduciary adjustment to bring the total fiduciary adjustment up to an amount in excess of the value of the property distributed, the beneficiary may deduct on his individual return only the amount of fiduciary adjustment necessary to offset the income of the estate included in his taxable income. Similarly, if a U.S. income tax refund was claimed by and allowed to the estate in an amount to bring the total fiduciary adjustment up to an addition to income in excess of the value of the property distributed, the beneficiary need include only the amount of the fiduciary adjustment that, when added to the income of the estate included in his taxable income, equals the value of the property distributed. Statutory/Other Authority: ORS 305.100 Statutes/Other Implemented: ORS 316.287 History: Renumbered from 150-316.287, REV 65-2016, f. 8-15-16, cert. ef. 9-1-16 12-19-75 11-71