Connecticut Administrative Code › Title 12 - Taxation › 740(a) - INCOME TAX › Part IV - Resident and nonresident trusts and estates › Section 12-701(a)(10)-3 - Modifications comprising the Connecticut fiduciary adjustment: subtractions

Current through July 10, 2024
(a) The following items are to be subtracted
				in computing the Connecticut fiduciary adjustment of a trust or estate:
(1) Any income with respect to which taxation
				by any state is prohibited by federal law, to the extent properly includible in
				gross income for federal income tax purposes. The provisions of §
				12-701(a)(20)-3(a)(1) of Part I are incorporated by reference herein.
(2)
(A)
				Exempt dividends paid by a qualified regulated investment company. As provided
				in Section
				12-718 of the
				general statutes, a regulated investment company is a qualified regulated
				investment company if, at the close of each quarter of its taxable year, at
				least 50% of the value of its total assets (as defined in section 851(c)(4) of
				the Internal Revenue Code) is invested in obligations the taxation of which by
				any state is prohibited by federal law.
(B) The portion of the dividends received by
				a shareholder of a qualified regulated investment company that may be
				subtracted in computing the Connecticut fiduciary adjustment is based upon the
				portion of income received by such company that is derived from obligations
				which states are prohibited from taxing by federal law. Where all of the income
				of the company is derived from interest on obligations that states are
				prohibited from taxing by federal law, the full amount of the dividends
				received by the shareholders may be subtracted. Where less than the full amount
				is derived from such interest, the amount to be subtracted is determined as
				follows:
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(C) In
				the case of a series fund, the portion of the dividends paid that is exempt
				from Connecticut income tax shall be determined on a fund-by-fund
				basis.
(D) Dividends attributable
				to obligations which states are prohibited from taxing by federal law that are
				distributed by nonqualified regulated investment companies are fully taxable
				for Connecticut purposes and may not be subtracted under this
				section.
(E)
Example:
(i) Computation for
				regulated investment company. A qualified regulated investment company receives
				income from the following sources:
Capital gains from the sale of stock . . . . . . . .
							 . . . . . . . . . . . . . . . . . . . . . . .
$ 20,000
Interest income from federal obligations . . . . . .
							 . . . . . . . . . . . . . . . . . . . . . .
70,000
Dividends from a corporation . . . . . . . . . . . .
							 . . . . . . . . . . . . . . . . . . . . . . . . .
+ 10,000
Total: . . . . . . . . . . . . . . . . . . . . . . .
							 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100,000
Expenses ($10,000 of which are directly related to
							 interest income on
federal obligations) . . . . . . . . . . . . . . . .
							 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 20,000
Taxable income: . . . . . . . . . . . . . . . . . . .
							 . . . . . . . . . . . . . . . . . . . . . . . . .
$ 80,000
The regulated investment company distributed the entire
				  $80,000 to its shareholders. The percentage of this distribution that may be
				  subtracted from federal taxable income under this section is computed as
				  follows:
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(ii)
				Computation for shareholder. A shareholder receives dividend distributions of
				$2,000 in 1992 from the above regulated investment company. The amount of these
				dividends qualifying as exempt dividends is 75% of $2,000, or $1,500.
(3) Interest income on
				Connecticut obligations, to the extent properly included in gross income for
				federal tax purposes.
(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 gain (or amount that is properly
				treated as a capital gain dividend, as defined in section 852(b)(3) of the
				Internal Revenue Code) from the sale or exchange of Connecticut obligations, in
				the taxable year such gain was recognized, whether or not, for federal income
				tax purposes, gains from sales or other dispositions of capital assets exceed
				losses therefrom.
(B)
Example:
A resident trust has, for federal income tax
				purposes, a long-term capital gain of $3,000 arising from the sale of
				Connecticut obligations and a long-term capital loss of $2,000 arising from the
				sale of bonds issued by or on behalf of the Commonwealth of Massachusetts. Such
				trust's federal gross income shall be reduced by $3,000, the amount of the gain
				derived from the sale of the Connecticut obligations.
(5)
(A)
				Interest expenses on indebtedness incurred or continued to purchase or carry
				obligations or securities, the interest income from which is subject to
				Connecticut income tax but exempt from federal income tax, to the extent such
				expenses would be deductible in determining federal taxable income prior to
				deductions relating to distributions to beneficiaries if the interest income
				were subject to federal income tax.
(B)
Example:
A trust borrows
				$100,000 from a bank to purchase bonds issued by or on behalf of the State of
				California. In computing the trust's federal taxable income, income from these
				bonds is not includible in federal gross income, and the borrowing expense is
				not deductible. However, income received from these bonds is subject to
				Connecticut income tax and is therefore added to federal taxable income in
				computing the trust's Connecticut taxable income under §
											12-701(a)(10)-2
				of this Part. In addition, the borrowing expense shall be subtracted from the
				trust's federal taxable income prior to deductions relating to distributions to
				beneficiaries to the extent such expenses would have been deductible if the
				interest income were subject to federal income tax.
(6)
(A)
				Ordinary and necessary expenses paid or incurred during the taxable year for
				(i) the production or collection of income which is subject to Connecticut
				income tax but exempt from federal income tax or (ii) the management,
				conservation or maintenance of property held for the production of income which
				is subject to Connecticut income tax but exempt from federal income tax or
				(iii) the amortizable bond premium on any bond, the interest income from which
				is subject to Connecticut income tax but exempt from federal income tax, but
				only to the extent that such expenses and premiums would be deductible in
				determining federal taxable income prior to deductions relating to
				distributions to beneficiaries if such income were subject to federal income
				tax.
If the sum of the trust or estate's miscellaneous itemized
				  deductions, as defined in section 67(b) of the Internal Revenue Code, plus the
				  expenses and premiums described herein, exceed 2% of the sum of its federal
				  adjusted gross income, as computed under section 67(e) of the Internal Revenue
				  Code, plus the income described herein which is subject to Connecticut income
				  tax but exempt from federal income tax, the portion of the excess that such
				  expenses and premiums described herein bear to the sum of the trust or estate's
				  miscellaneous itemized deductions, as defined in section 67(b) of the Internal
				  Revenue Code, plus the expenses and premiums described herein shall be
				  subtracted from federal taxable income under this section.
If the expenses and premiums described herein would be
				  deductible in determining federal taxable income prior to deductions relating
				  to distributions to beneficiaries under section 67(e)(1) of the Internal
				  Revenue Code, were such income described herein subject to federal income tax,
				  then such expenses and premiums shall be subtracted from federal taxable income
				  under this section.
(B)
Example:
If a trust pays or incurs $150 of ordinary and
				necessary expenses in connection with the production of income from its
				California bonds and amortizes $50 of a premium paid on such bonds, the amount
				of such expenses and premiums which are not deductible for federal income tax
				purposes shall be subtracted from the federal taxable income of the trust under
				this section, to the extent such expenses and premiums would have been
				deductible if such income were subject to federal income tax. The trust has
				adjusted gross income of $19,000. The amount of its miscellaneous itemized
				deductions is $800. The California bond expenses and premiums ($200) plus the
				miscellaneous itemized deductions ($800) exceed 2% of (i) the trust or estate's
				federal adjusted gross income ($19,000) plus (ii) the interest income on
				California bonds ($1,000). The portion of the excess ($600) that such expenses
				and premiums ($200) bears to the sum of miscellaneous itemized deductions
				($800) plus such expenses and premiums ($200) is to be subtracted from federal
				taxable income in computing the trust's Connecticut taxable income under this
				section. Therefore, $120 is subtracted from federal taxable income. If such
				expenses and premiums plus the miscellaneous itemized deductions had not
				exceeded 2% of (i) federal adjusted gross income plus (ii) the interest income
				on California bonds, no portion of the $200 would have been subtracted from
				federal taxable income under this section.
(7) 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 income (as defined in §
										12-701(b)-1 of Part
				XIV), 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).