Filip Babic has published an article, Income Taxation of Trusts in California, in the AICPA Tax Insider. The article begins as follows:
For years, the California Franchise Tax Board (FTB) has taken the position that trusts are subject to California state income tax on all of their California-source income, and that non-California-source income is apportioned pro rata according to the number of California fiduciaries and noncontingent beneficiaries (see Cal. Code Regs. tit. 18, §17743).
Recently, in a closely watched case, the California Superior Court in San Francisco rejected the FTB’s approach to the taxation of trusts and determined that all income, including California-source income, is subject to the apportionment formula set forth in California Revenue & Taxation Code Section 17743, et seq. (Paula Trust v. California Franchise Tax Bd., No. CGC-16-556126 (Cal. Super. Ct. 3/7/18)). Should this decision be upheld, tax on California-source income could be deferred for years (i.e., until the income is distributed to the beneficiaries).
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.