CA TRUST WITH OREGON BENIFICIARY

[RBTAXMAN1]

Filing a CA trust return with single beneficiary with trustee in CA . Beneficiary is a resident of Oregon. Interest is the only income so no CA source income. How do I get the CA K-1 to show zero interest to beneficiary and issue the Oregon resident a document to report the interest income on their state return?

Thanks for any enlightenment on this problem.

[Just-Lisa-Now-]

If its  CA trust, then the OR beneficiary may have a Non resident return to file for that interest the CA trust earned and distributed to them.

[RBTAXMAN1]

Thank you for the suggestion. Luckily the CA income is below the filing thresh hold for CA. My thought is that there should be no CA liability regardless since there is no CA source income.

I am concerned about the beneficiary's OR return since the Federal trust K-1 does not state the amount of interest from U.S. treasury bills. The CA K-1 states the CA non taxable interest. The DNI is all interest and is substantial with the bulk of the interest coming from the treasury bills. It appears that a CA plus an Oregon trust return must be filed to give the beneficiary a K-1 to report the DNI on their OR return. There is no trust tax to CA or OR so no problem in that regard. If there is no other advise from the community I will file a CA plus an OR state trust return in order to supply the OR beneficiary with a K-1..

Again, thank you Just-Lisa-Now

[Just-Lisa-Now-]

"Interest is the only income so no CA source income"

If interest was earned by a CA trust, that IS California income.

No OR return for the trust, its California trust, unless it had something generating income from the state of Oregon (like an OR rental property), you wouldnt need an OR trust return.

Your OR beneficiary will get the 541 k-1 for his share of the trust income You may need to mark a check box on the 541 that you have a non-resident bene (It might mark it for you automatically when you enter an out of state address for the beneficiary, I cant remember).

And he may very well have a CA filing requirement, if his worldwide gross income is over $21,561  CA will compute the tax on all income and then multiply it by the % of CA income vs all other income, of course he would get credit for taxes paid to another state, since the CA income would be taxed by OR as well as CA.

[sjrcpa]

Generally, a state won't tax income from intangibles (interest, dividends) that go to a nonresident beneficiary of a trust.

CA may be different, though.

[Just-Lisa-Now-]

All my clients with K-1s are CA residents, so Im not sure how it would flow to a CA non-resident....

[sjrcpa]

I'm going by my MD trusts with MD nonresident beneficiaries. MD will only tax the nonresident beneficiaries on MD business income or income from MD real property from the trust, if any.

[willem]

Did you figure it out? I am having the same issue and Lacerte has been on it for over an hour. If you have suggestions please post.

Many thanks,

WO

[BobKamman]

@Just-Lisa-Now-  No, it's not California income for the beneficiary if it's not sourced to California (business or real estate).  Trusts are different.   But in most cases, a return has to be filed for the resident states of both the trustee and the beneficiary. 

I just finished a return with an Arizona trustee and a California beneficiary.  Only income is interest, dividends and capital gains.  The interest and dividends flow through to the beneficiary on a K-1, but the gains are taxed to the trust.  Arizona tax is paid on them, because of the trustee residence.  Then California tax is paid on them, taking credit for the Arizona tax, because of the beneficiary residence. The beneficiary gets a K-1 for federal and California, but not for Arizona.