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Rule Title: FIDUCIARY - MONTANA DISTRIBUTABLE NET INCOME AND MONTANA INCOME DISTRIBUTION DEDUCTION – CHARACTER
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Department: REVENUE
Chapter: TAXATION OF ESTATES AND TRUSTS
Subchapter: General Provisions
 
Latest version of the adopted rule presented in Administrative Rules of Montana (ARM):

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42.30.105    FIDUCIARY - MONTANA DISTRIBUTABLE NET INCOME AND MONTANA INCOME DISTRIBUTION DEDUCTION – CHARACTER

(1) Montana distributable net income (DNI) limits the deduction that a decedent's estate or trust may claim for aggregate distributions to beneficiaries and determines how much of the distribution has to be included in the beneficiaries' gross income.

(2) Montana DNI is computed in the same way distributable net income is computed for federal income tax purposes under Internal Revenue Code section 643, but with Montana adjustments to income as provided in 15-30-2152, MCA, and ARM 42.30.104.

(3) Decedent's estates and trusts are allowed to deduct the lesser of:

(a) the amounts of income actually distributed, including other amounts paid, credits, or amounts otherwise required to be distributed; or

(b) the taxable portion of Montana DNI.

(4) If a decedent's estate or trust elects for federal income tax purposes to treat distributions made within 65 days after the end of the tax year as having been made in the tax year, the decedent's estate or trust must also treat the distributions as having been made in the tax year for Montana income tax purposes.

(5) Income distributed to a beneficiary from a decedent's estate or trust retains the same character in the hands of the beneficiary as it had in the hands of the decedent's estate or trust, with the exception of unused capital loss distributed upon closure of the decedent's estate or trust to a corporation, which is treated as a short-term loss regardless of its character in the decedent's estate or trust.

(6) Unless the will or trust instrument specifically provides otherwise, a distribution to beneficiaries is considered to be a proportionate distribution of the different kinds of income composing the Montana DNI of the estate or trust. The same character and proportionate distribution rule is illustrated by the following example:

(a) Decedent A, a resident of Montana, died February 15, 2016. Under the terms of the will, all the decedent's property was divided in equal shares to beneficiary B, a resident of Arizona, and beneficiary C, a resident of Montana. The estate adopted a calendar year as its taxable year. For calendar year 2016, the estate had Montana DNI of $50,000, which is composed of:

 

DNI

Interest Income

$10,000

Dividend Income

$ 5,000

Net Montana Farm Income

$35,000

Total

$50,000

 

(b) On December 20, 2016, the estate distributed $12,500 to beneficiary B, and $12,500 to beneficiary C. Beneficiaries B and C received a distribution for 2016 as follows:

 

Beneficiary B

 

Beneficiary C

Interest Income

$ 2,500

Interest Income

$ 2,500

Dividend Income

$ 1,250

Dividends

$ 1,250

Farm Income

$ 8,750

Farm Income

$ 8,750

Total

$12,500

Total

$12,500

 

(c) Since the interest income of the estate is 20 percent of the Montana DNI, 20 percent of the distribution to beneficiaries B and C is considered interest income. Likewise, 10 percent of the estate's Montana DNI is dividends and 70 percent is farm income.

History: 15-1-201, 15-30-2104, 15-30-2620, MCA; IMP, 15-30-2104, 15-30-2151, 15-30-2152, 15-30-2153, 15-30-2603, MCA; NEW, 2016 MAR p. 22, Eff. 1/9/16.


 

 
MAR Notices Effective From Effective To History Notes
42-2-931 1/9/2016 Current History: 15-1-201, 15-30-2104, 15-30-2620, MCA; IMP, 15-30-2104, 15-30-2151, 15-30-2152, 15-30-2153, 15-30-2603, MCA; NEW, 2016 MAR p. 22, Eff. 1/9/16.
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