Connecticut Administrative Code › Title 12 - Taxation › 740(a) - INCOME TAX › Part IV - Resident and nonresident trusts and estates › Section 12-701(a)(10)-2 - Modifications comprising the Connecticut fiduciary adjustment: additions

Current through July 10, 2024
(a) The following items are to be added in
				computing the Connecticut fiduciary adjustment of a trust or estate:
(1) Interest income on obligations issued by
				or on behalf of any state or of a political subdivision, or public
				instrumentality, state or local authority, district or similar public entity of
				such state, and interest income on obligations issued by or on behalf of the
				District of Columbia. However, interest income on Connecticut obligations is
				not to be added to federal taxable income of the trust or estate. Furthermore,
				interest income on obligations issued by or on behalf of any territory or
				possession of the United States (such as Puerto Rico, Guam and the Virgin
				Islands), or a political subdivision or public instrumentality, authority,
				district or similar public entity thereof, the taxation of which by any state
				is prohibited by federal law, is not be added to federal taxable
				income.
(2)
(A) Any exempt-interest dividends, as defined
				in section 852(b)(5) of the Internal Revenue Code. However, exempt-interest
				dividends derived from Connecticut obligations are not to be added to federal
				taxable income. Furthermore, exempt-interest dividends derived from obligations
				issued by or on behalf of any territory or possession of the United States
				(such as Puerto Rico, Guam and the Virgin Islands), or a political subdivision
				or public instrumentality, authority, district or similar public entity
				thereof, the direct taxation of which by any state is prohibited by federal
				law, are not to be added to federal taxable income.
(B) Example: A resident trust receives $1,000
				in exempt-interest dividends from a mutual fund that owns governmental
				obligations issued by or on behalf of various states, including Connecticut,
				and by or on behalf of the territory of Guam. If 45% of the exempt-interest
				dividends was derived from Connecticut obligations, 20% from New York
				obligations, 10% from Massachusetts obligations and 25% from Guam obligations,
				then the amount that is to be added to federal taxable income is $300 (that is,
				the percentage of exempt-interest dividends that is not derived from
				Connecticut obligations and other obligations, the direct taxation of which by
				any state is prohibited by federal law). The percentage of exempt-interest
				dividends derived from Connecticut obligations and Guam obligations is not to
				be added to federal taxable income.
(3) Interest or dividend income on
				obligations or securities of any authority, commission or instrumentality
				issued by or on behalf of the United States, which the laws of the United
				States exempt from federal income tax but not from state income
				taxes.
(4)
(A) To the extent properly includible in
				determining the net gain or loss from sales or other dispositions of capital
				assets for federal income tax purposes, any loss from the sale or exchange of
				Connecticut obligations, in the taxable year such loss was recognized, whether
				or not, for federal income tax purposes, gains from sales or other dispositions
				of capital assets exceed losses therefrom.
(B) Example: For taxable year 1992, a
				resident trust has $4,000 of loss arising from the sale of Connecticut
				obligations and $3,000 of loss arising from the sale of bonds issued by the
				State of Florida. Such trust's federal gross income shall be increased by
				$4,000, the amount of loss derived from the sale of the Connecticut
				obligations, even though this amount exceeds the losses allowable under section
				1211(b) of the Internal Revenue Code.
(5) To the extent deductible in determining
				federal taxable income prior to deductions relating to distributions to
				beneficiaries, the amount of Connecticut income tax paid or accrued.
(6)
(A)
				Interest expenses on indebtedness incurred or continued to purchase or carry
				obligations or securities, the interest on which is exempt from Connecticut
				income tax, to the extent that such expenses are deductible in determining
				federal taxable income prior to deductions relating to distributions to
				beneficiaries.
(B) Example: The
				fiduciary of a trust borrows money to purchase United States treasury
				certificates, the income from which is subject to federal income tax but exempt
				from Connecticut income tax. To the extent that this borrowing expense is
				deductible in determining federal taxable income prior to deductions relating
				to distributions to beneficiaries, the fiduciary shall add this expense back in
				computing the trust's Connecticut taxable income.
(7)
(A)
				Expenses paid or incurred during the taxable year for (i) the production or
				collection of income exempt from Connecticut income tax or (ii) the management,
				conservation or maintenance of property held for the production of income
				exempt from Connecticut income tax or (iii) the amortizable bond premium on any
				bond, the interest on which is exempt from Connecticut income tax, to the
				extent such expenses and premiums are deductible in determining federal taxable
				income prior to deductions relating to distributions to beneficiaries.
If the trust or estate's miscellaneous itemized deductions,
				  as defined in section 67(b) of the Internal Revenue Code, exceed 2% of its
				  federal adjusted gross income, as computed under section 67(e) of the Internal
				  Revenue Code, and the expenses and premiums described herein are deducted as
				  miscellaneous itemized deductions, the portion of the excess that such expenses
				  and premiums bear to the total miscellaneous itemized deductions shall be added
				  to federal taxable income under this section.
If the expenses and premiums described herein are deducted
				  under section 67(e)(1) of the Internal Revenue Code, they shall be added to
				  federal taxable income under this section.
(B) Example: The fiduciary of a trust
				purchases shares in a mutual fund that invests solely in United States
				government obligations. The income therefrom is fully taxable for federal
				income tax purposes. The trust incurs expenses in connection with the
				production of such interest income. The trust has adjusted gross income of
				$10,000 and the amount of its miscellaneous itemized deductions, including the
				$400 of collection expenses, is $800. The interest income on the United States
				bonds is includible in the trust's federal taxable income but is subtracted
				from federal taxable income under §
											12-701(a)(10)-3
				of this Part. The miscellaneous itemized deductions ($800) exceed 2% of the
				trust's federal adjusted gross income ($200). The portion of the excess ($600)
				that the $400 paid or incurred to collect such U.S. bonds interest income bears
				to the miscellaneous itemized deductions ($800) is added to federal taxable
				income in computing Connecticut taxable income under this section. Therefore,
				$300 is added to federal taxable income. If miscellaneous itemized deductions
				had not exceeded 2% of federal adjusted gross income, no portion of the $400 of
				expenses would have been added to federal taxable income under this
				section.
(8) With
				respect to a trust or estate that is a shareholder of an S corporation carrying
				on business in Connecticut (as the term is used in Section
				12-214
				of the general statutes, and as defined in Conn. Agencies Regs. §
										12-214-1
				), the amount of such trust or estate's pro rata share of the corporation's
				nonseparately computed loss (as defined in §
										12-701(b)-1 of Part
				XIV), to the extent such loss is included in computing such trust or estate's
				federal gross income, multiplied by the corporation's apportionment fraction,
				if any, as determined under Section
				12-218
				of the general statutes (irrespective of whether the S corporation shall pay
				the additional tax under Section
				12-219
				of the general statutes).