MO tax question

[Art]

I have an Illinois resident who received a Fed K-1 from a MO trust showing dividend and capital gain income, but he did not receive a MO K-1. He did get a MO Beneficiary Summary Form MO-1041 showing the Federal distribution of $29155 and a MO fiduciary adjustment of $45, but all of the lines showing MO source income for Nonresident Beneficiary Information were blank. I would have assumed that these items are considered MO source income and taxable in MO? I tried contacting the preparer, but have not gotten a reply.

[Koss]

Nonresident Beneficiary

What kind of income is flowing to the beneficiary from the trust? In other words, on the federal K-1, what type of income is it?

Interest? Dividends? Ordinary income? Or something else?

If it's bank interest, then it's not considered Missouri source income.

BMK

[Koss]

Source Income

Looking into this further, it appears that accumulation distributions from a trust, and any capital gain, are also excluded from the definition of Missouri source income for a nonresident.

Dividends may fall into a gray area of the law. The statute does not expressly exclude dividends from Missouri source income. But the language of the statute refers to income that is "attributable to the ownership or disposition of any interest in real or tangible personal property in this state" (emphasis supplied).

Stock and mutual fund shares are not real property, and they are not tangible personal property, either. So income flowing from the ownership of such assets is arguably not sourced to Missouri for a nonresident beneficiary, even if the trust is domiciled in Missouri.

BMK

[Art]

Dividends $1800; LTCG $25,000

[Koss]

Nonresident Beneficiary

You may want to take a look at Form MO-NRF. It is not a form that would be filed by your client, but it should be attached to the Missouri trust return, which is Form MO-1041. This form appears to confirm that capital gain is not included in the income of the trust or the beneficiary. There are several lines which indicate that various types of capital gain are deducted before arriving at the Missouri taxable income of the trust.

As for the dividends, see my comments above. I agree that it would be helpful to talk to the guy who prepared the 1041.

BMK

[Art]

Thanks for all of the replies. I have got a call in to the preparer.

Art