Opinion ID: 2383573
Heading Depth: 1
Heading Rank: 7

Heading: The Amended Returns

Text: Following receipt of the IRS letter ruling, the Trustees filed amended fiduciary income tax returns for 1990. Those returns reflected the trust's 1990 income of approximately $1.7 million as having been distributed to the beneficiaries as part of the 1990 distributions, meaning that the taxes due on this income would now be payable by the beneficiaries, not the trust. The Trustees made application by these returns for refunds, from the United States of $491,558.45 and from the State of New Jersey of $61,082.52, to recover the 1990 income taxes that the Trustees had previously paid. These amended returns further showed the trust's 1990 income as having been distributed to the beneficiaries in proportion to the respective size of the principal distribution each beneficiary received in 1990, not in proportion to each beneficiary's interest in the trust, and, perhaps more important, not in proportion to the amount of 1990 trust income that each beneficiary actually received in accordance with paragraph 16 of the Agreement. The result was that Martin Richards, who was entitled under the Agreement to only 47 per cent, or about $800,000 of the trust's 1990 income, was treated for tax purposes on the amended returns as having received over 91 per cent, or over $1.5 million, of that income (this because he did receive 91 per cent of the cash distributed in 1990). The other beneficiaries, who among them were entitled under the Agreement to 53 per cent, or over $900,000 of the 1990 income, were treated on those returns as having received less than 9 per cent, or less than $150,000. Mr. Richards claims to have been required to pay taxes and interest of over $291,000 on some $770,000 of 1990 trust income that was actually received by the other trust beneficiaries. (Under principles of accounting, the analysis presumably would be like that which differentiates between doing business on a cash basis or an accrual basis. The IRS taxed the distributions on the cash basis of their proportions.)