Pennsylvania Code › Title 61 - REVENUE › Part I - Department of Revenue › Subpart B - General Fund Revenues › Article V - Personal Income Tax › Chapter 105 - ESTATES AND TRUSTS › Section 105.6 - Illustration of the provisions of this chapter

Current through Register Vol. 54, No. 28, July 13, 2024
The provisions of this chapter are illustrated in general
						by the following examples:
(1)
Example I.
A resident trust shall be required under its
					 governing instrument and applicable state law to distribute all of its income
					 to the income beneficiary. Under the governing instrument and applicable state
					 law, the term income shall not include net gains or net income from the sale or
					 exchange of items of corpus. The fiscal year of the trust ends on September 30
					 and for the period June 1, 1971, to September 30, 1971, the trust has income as
					 follows:
Subject
Amount
Net rental income
$4,000
Dividends
8,000
Interest
8,000
Net gains
4,000
The trust paid the beneficiary $16,000 on July 15, 1971,
						and $16,000 on October 15, 1971. The trust has elected to treat distribution
						made within 65 days after the close of its taxable year as having been made at
						the last day of the preceding year. The trust shall be deemed to have retained
						the net gains and shall be subject to tax under §
												103.1 (relating to tax imposed on
						residents) on $4,000. The beneficiary shall be deemed to have received the
						$4,000 of net rental income, the $8,000 of dividend income, and the $8,000 of
						interest income and shall be subject to tax under §
												103.1 on $20,000. The additional
						$12,000 actually received by the beneficiary shall be deemed to have been paid
						from pre June 1, 1971 income and, under this chapter, shall not be subject to
						tax thereon.
(2)
Example II.
Assume the same facts as in Example I of this
					 section and that the income is to be distributed in equal shares to A, a
					 resident of this Commonwealth and to B, a nonresident of this Commonwealth.
					 Assume further that the July 15 and October 15 payments were in equal shares to
					 A and B. As in Example I of this section, the trust shall be subject to tax
					 under §
											103.1 on the $4,000 of net gains.
					 A shall be subject to tax under §
											103.1 on his share of the net
					 rental income, the dividend income, and the interest income. B shall be subject
					 to tax under §
											103.2 only on his share of the net
					 rental income, provided that the property involved is situated in
					 Pennsylvania.
(3)
Example
					 III.
Assume the same facts as in Example II of this section and that
					 half of the interest income was derived from obligations which are free from
					 tax under an act of the General Assembly of this Commonwealth. As in Examples I
					 and II of this section, the trust shall be subject to tax under §
											103.1 on the $4,000 of net gains.
					 A and B shall be deemed to have received their pro rata share of each class of
					 income distributable to them. Thus, A shall be subject to tax under §
											103.1 on his share of the rental
					 income, the dividend income, and half of the interest income and B shall be
					 subject to tax under §
											103.2 only on his share of the net
					 rental income.
(4)
Example
					 IV.
A resident trust shall be required under its governing instrument
					 and applicable state law to distribute the first $10,000 of income to A, a
					 resident of this Commonwealth. The trustees are given discretionary powers with
					 respect to distributions of the balance of the income. Under the governing
					 instrument and applicable state law, the term income shall not include net
					 gains or net income from the sale or exchange of items of corpus. During the
					 taxable year the trust realizes net gains from the sale of property of $10,000,
					 receives dividends of $10,000, receives interest income of $10,000, of which
					 $5,000 is from Commonwealth obligations free from any tax and distributes
					 $15,000 to A. The trust shall be deemed to have retained the $10,000 of net
					 gains and its
pro rata
share of each of the other classes of
					 income, namely 25% of the dividend income, taxable interest, and nontaxable
					 interest. A shall be deemed to have received only his
pro rata
share of each of the classes of income required to be distributed to him, or in
					 fact paid or credited to him, namely 75% of the dividend income, taxable
					 interest, and nontaxable interest.
(5)
Example V.
Assume the
					 same facts as in Example IV of this section and that during the following
					 taxable year the trust realizes the same income in the same amounts and
					 distributes $25,000 to A. As in Example IV, the trust shall be deemed to have
					 retained the $10,000 of net gains. Inasmuch as the trust has distributed more
					 than the amount of all other classes of income received by the trust for the
					 taxable year, the trust shall not be deemed to have retained any of the other
					 classes of income. A shall be deemed to have received all of the other classes
					 of income received by the trust during its taxable year and shall be subject to
					 tax under §
											103.1 on the $10,000 of dividend
					 income and $5,000 of taxable interest income. Neither the $5,000 of nontaxable
					 interest income nor the $5,000 paid from previously accumulated and previously
					 taxed income shall be taxable to A.
(6)
Example VI.
A
					 nonresident trust shall be given discretionary powers with respect to
					 distributions of income. During its taxable years ended December 31, 1971,
					 1972, and 1973, the trust realized income as follows:
Class of Income (in dollars)
12 / 31 / 71
12 / 31 /
								72
12 / 31 / 73
Net rental
Income
7,000
12,000
12,000
Dividends
4,000
8,000
8,000
Interest
4,000
8,000
8,000
Net gains
-0-
-0-
10,000
The rental income was from property located in this
						Commonwealth and the net gain realized in the taxable year ended December 31,
						1973, was from the sale of the rental property. No distributions were made to
						the beneficiary until March, 1974, when the trust distributed all of its assets
						to A, a resident of this Commonwealth. The trust shall be taxable on the $7,000
						of rental income realized in the taxable years ended December 31, 1971, on the
						$12,000 of actual income realized in 1972 and 1973, and on the net gain from
						the sale of the rental property in the taxable year ended December 31, 1973.
						The trust shall not be subject to tax under this chapter on the dividend and
						interest income realized by the trust. The resident beneficiary shall be
						subject to tax in 1974 on the dividend and interest income accumulated by the
						trust and distributed to him in that year.