Document Number
02-145
Tax Type
Fiduciary Income Tax
Description
Charitable remainder trust
Topic
Exemptions
Date Issued
11-20-2002

November 20, 2002


Re: Request for a Ruling: Fiduciary Income Tax


Dear *****:

This will reply to your letter in which you request a ruling regarding the Virginia fiduciary income tax filing requirements for a charitable remainder trust (the "Trust").
FACTS

Under Internal Revenue Code ("IRC") § 664, a charitable remainder trust is exempt from federal income tax unless it has unrelated business taxable income ("UBTI"), in which case, it is taxed as a complex trust. In this case, the Trust files Form 5227 (Split-Interest Trust Information Return) for federal income tax purposes. In addition, the Trust is required to file Form 1041-A unless all net income is required to be distributed currently to the beneficiaries. You request a ruling as to whether the Taxpayer needs to file Virginia fiduciary income tax returns.
RULING

The Tax Commissioner has previously ruled on this issue in Public Document (P.D.) 94-302 (9/30/94). The department held that a trust, which qualifies for exemption from federal income tax, would also qualify for exemption from the Virginia income tax.

In 1981, the Virginia General Assembly passed a House Joint Resolution directing the Virginia Code Commission to review the organization of Virginia's tax statutes contained in Title 58. This review resulted in the 1984 General Assembly passing legislation that recodified Title 58 into the form of a new Title 58.1.

As a result of the recodification, the taxation of trusts and estates was separated from the provisions for the taxation of individuals and recodified from Code of Virginia § 58.151.03 to Code of Virginia § 58.1-360 et seq. Prior to recodification, Code of Virginia § 58-151.03(a)(i), copy enclosed, exempted nonprofit organizations from the income tax imposed on trusts. This exemption provided the following:
    • Notwithstanding any other provision of this subsection, no tax is imposed, nor any return required to be filed by, (i) any organization which by reason of its purposes or activities is exempt from income tax under the laws of the United States (except organizations which have unrelated business income under such laws)

This provision pertaining to an exemption from taxation for trusts was omitted in the recodification. Such an omission made during recodification should not negate the original intent of a statute. In addition, the department can find no indication the General Assembly intended to repeal this particular exemption. Accordingly, the provisions and intent of the statute prior to recodification should carry over to Title 58.1.

Based on the information provided, to the extent that the Trust's income qualifies for exemption from federal income tax under IRC § 664, the Trust would also qualify for exemption from the Virginia income tax. As such, the Trust would not be required to file a Virginia fiduciary income tax return unless it incurred UBTI for federal income tax
purposes.

As with any ruling provided by the department, this analysis is limited to the facts and circumstances identified in your letter and through information you provided via the telephone. Any changes in the facts could lead to a different result.

Code of Virginia sections and public documents cited, along with other reference documents, are available online in the Tax Policy Library section of the department's web site, located at www.tax.state.va.us. If you have any further questions regarding this matter, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner



AR/41026B


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46