Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 89 - Fiduciary Income Tax › Rule 701-89.8 - Reportable Income and Deductions

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Application of the Internal
				Revenue Code.
Iowa Code section 422.4(16) provides that taxable income
				of estates and trusts for Iowa income tax purposes is the same as taxable
				income for federal income tax purposes, subject to certain adjustments
				specified in Iowa Code sections
				422.7
				and
				422.9.
				Therefore, the Internal Revenue Code is also Iowa law insofar as it relates to
				what constitutes gross income, allowable deductions and distributions, subject
				to the adjustments specified above. See
First National Bank of Ottumwa
				v. Bair,
252 N.W.2d 723 (Iowa 1977).
For purposes of a distribution deduction under this chapter,
				  an estate or trust shall receive a distribution deduction only for income
				  taxable to Iowa. For example, municipal interest will be included in the
				  distribution deduction because it is taxable to Iowa. U.S. government interest
				  would not be included because it is not taxable to Iowa.
For tax years ending after August 5, 1997, if the trust is a
				  qualified preneed funeral trust as set forth in Section 685 of the Internal
				  Revenue Code and the trustee has elected the special tax treatment under
				  Section 685 of the Internal Revenue Code, neither the trust nor the beneficiary
				  is subject to Iowa income tax on income accruing to the trust.
(2)
Authority of federal
				court cases, regulations and rulings.
The director has the
				responsibility to enforce and interpret the law relating to the taxes the
				department is obligated to administer, including those portions of the Internal
				Revenue Code which are Iowa law under Iowa Code section
				422.4(16).
				Federal regulations may be interpreted by Iowa courts for state tax
				purposes.
In re Estate of Louden,
249 Iowa 1393, 1396, 92
				N.W.2d 409 (1958). However, the construction of statutes by a court of the
				jurisdiction where the statute originated properly commands consideration and
				is highly persuasive.
Eddy v. Short,
190 Iowa 1376, 1383, 179
				N.W. 818 (1920),
In re Estate of Millard,
251 Iowa 1282, 1292,
				105 N.W.2d 95 (1960). Therefore, while federal court cases, regulations and
				rulings interpreting the Internal Revenue Code will be accorded every
				consideration, the department has the right to make its own interpretation of
				the Internal Revenue Code as to what constitutes taxable income for Iowa tax
				purposes, consistent with Iowa statutes and court decisions. Also see rule
				701-41.2(422).
(3)
Reportable income in general-Iowa estates and trusts.
Estates
				of Iowa resident decedents and trusts with a situs in Iowa must report all
				income received from sources within and without Iowa, regardless of whether the
				income is from real, personal, tangible or intangible property. See
				89.8(11)
"b"
for the credit allowable against the Iowa tax for
				income tax paid to another state or country on income reported to Iowa for
				taxation.
(4)
Reportable
				income in general-foreign situs estates and trusts.
Estates and trusts
				with a situs outside Iowa must report all income received from sources within
				and without Iowa, regardless of whether the income is from real, personal,
				tangible or intangible property. Foreign situs estates and trusts must also
				report that portion of the income which is from Iowa sources. Examples of Iowa
				source income include, but are not limited to: income from real and tangible
				personal property with a situs in Iowa, such as a farm and from a business
				located in Iowa; the capital gain portion of an installment sale contract of
				Iowa situs property; and wages, salaries and other compensation for services
				performed in Iowa, but received after the death of the decedent. Iowa source
				income would not include income from intangible personal property, such as
				annuities, interest on bank deposits, and dividends, unless the income was
				derived from a business, trade, profession or occupation carried on in Iowa.
				See paragraph 89.8(11)
"d"
for the credit allowed a foreign
				situs estate and trust for income earned outside Iowa.
(5)
Income from property subject to
				the jurisdiction of the probate court.
a.
Probate property subject to
				possession by the personal representative.
Income received on probate
				property after the decedent's death is chargeable to the estate or to the
				person succeeding to the decedent's property depending on whether the personal
				representative has the right to, or has taken possession of, the probate
				property producing the income. (Rev. Ruling 57-133, 1-CB 200 (1957).) If the
				personal representative has taken possession of or has the right to possession
				of a specific item of probate property, the income from this property is estate
				income, even though the personal representative is bound by law to distribute
				the income during the course of administration to a
				beneficiary.
Colthurst v. Colthurst,
265 N.W.2d 590 (Iowa
				1978);
In re Estate of Herring,
265 N.W.2d 740 (Iowa 1978). The
				personal representative is charged with the income from this property for each
				taxable year until the property is distributed or otherwise disposed of. Iowa
				Code section
				633.351
				(probate code) specifies the personal representative shall take possession of
				the decedent's personal property, except exempt property, and also the
				decedent's real estate, except the homestead, if any one of the following
				conditions are met: if there is no distributee present and competent to take
				possession; if the real estate is subject to a lease; or if the distributee is
				present and competent and gives consent to possession.
Colthurst v.
				Colthurst,
265 N.W.2d 590 (Iowa 1978);
In re Estate of
				Peterson,
263 N.W.2d 555 (Iowa Ct. of Appeals 1977). In addition, Iowa
				Code section
				633.386
				(probate code) gives the personal representative authority to lease real estate
				(and therefore to take possession) in order to pay the debts and charges of the
				estate.
b.
Income charged
				to the heir or beneficiary.
Under Iowa law title to probate property,
				both real and personal, passes instantaneously on death to the heir or
				beneficiary.
In re Estate of Bliven,
236 N.W.2d 366, 370 (Iowa
				1975). If property is not subject to the personal representative's right of
				possession under Iowa Code section
				633.351
				(probate code) and the personal representative has not exercised the right to
				sell, lease, mortgage or pledge real and personal property to pay debts and
				charges under Iowa Code section
				633.386
				(probate code), the income from this probate property is not estate income. It
				is income to the person succeeding to the property.