Tax Type
Corporation Income Tax
Description
Determination of Taxation
Topic
Collection of Tax
Date Issued
03-24-2000
March 24, 2000
Re: Request for Ruling: Individual Income Tax
Dear ****
This will reply to your letter requesting a ruling regarding the taxation of accumulated income distributions received from a foreign trust.
FACTS
In 1999, you received a distribution of accumulated income from a foreign non-grantor trust, which was previously established by a non-resident relative. This income was derived from interest on foreign bonds and dividends on foreign shares of stock.
For federal income tax purposes, the accumulated income is subject to a partial tax pursuant to Internal Revenue Code ("I.R.C.") ' 667. This income is not included in federal adjusted gross income ("FAGI"). The tax on this income is computed on Forms 3520 and 4970, which are attached to the taxpayer's Form 1040. You are requesting that a subtraction for the accumulated income be allowed because of an inconsistency in Virginia law that allows a Virginia resident to subtract current foreign trust distributions, but not foreign source income from accumulated trust distributions.
RULING
For Virginia purposes, income subject to the partial tax on an accumulated distribution gain pursuant to l.R.C. § 667 is required to be added in determining Virginia adjusted gross income to the extent excluded from FAGI, pursuant to Code of Virginia § 58.1-322(B)(9).
Under Code of Virginia § 58.1-322(C)(7), foreign source income is allowed as a subtraction to the extent that it is included in FAGI. In pertinent part, foreign source income is defined under Code of Virginia § 58.1-302 as "1. Interest, other than interest derived from sources within the United States; 2. Dividends, other than dividends derived from sources within the United States; . . .
The accumulated income referenced above meets the definition of foreign source income. However, a subtraction is not allowed for the accumulated income because the income is not included in FAGI. As such, the accumulated income would be required to be added to FAGI in determining Virginia taxable income, but would not be allowed to be subtracted as foreign source income. While I am sympathetic with the circumstances of your request, there is no statutory authority to allow a subtraction for foreign source income received from accumulated distributions of a foreign non-grantor trust.
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. If you have any additional questions regarding this ruling, please feel free to call **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26926G
Re: Request for Ruling: Individual Income Tax
Dear ****
This will reply to your letter requesting a ruling regarding the taxation of accumulated income distributions received from a foreign trust.
FACTS
In 1999, you received a distribution of accumulated income from a foreign non-grantor trust, which was previously established by a non-resident relative. This income was derived from interest on foreign bonds and dividends on foreign shares of stock.
For federal income tax purposes, the accumulated income is subject to a partial tax pursuant to Internal Revenue Code ("I.R.C.") ' 667. This income is not included in federal adjusted gross income ("FAGI"). The tax on this income is computed on Forms 3520 and 4970, which are attached to the taxpayer's Form 1040. You are requesting that a subtraction for the accumulated income be allowed because of an inconsistency in Virginia law that allows a Virginia resident to subtract current foreign trust distributions, but not foreign source income from accumulated trust distributions.
RULING
For Virginia purposes, income subject to the partial tax on an accumulated distribution gain pursuant to l.R.C. § 667 is required to be added in determining Virginia adjusted gross income to the extent excluded from FAGI, pursuant to Code of Virginia § 58.1-322(B)(9).
Under Code of Virginia § 58.1-322(C)(7), foreign source income is allowed as a subtraction to the extent that it is included in FAGI. In pertinent part, foreign source income is defined under Code of Virginia § 58.1-302 as "1. Interest, other than interest derived from sources within the United States; 2. Dividends, other than dividends derived from sources within the United States; . . .
The accumulated income referenced above meets the definition of foreign source income. However, a subtraction is not allowed for the accumulated income because the income is not included in FAGI. As such, the accumulated income would be required to be added to FAGI in determining Virginia taxable income, but would not be allowed to be subtracted as foreign source income. While I am sympathetic with the circumstances of your request, there is no statutory authority to allow a subtraction for foreign source income received from accumulated distributions of a foreign non-grantor trust.
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. If you have any additional questions regarding this ruling, please feel free to call **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26926G
Rulings of the Tax Commissioner