The majority of New York State resident trusts will be required to file state fiduciary income tax returns for tax years beginning on or after January 1, 2010, irrespective of whether their income is subject to New York State income tax, under a new Statement of Department Policy from the New York State Department of Taxation and Finance known as TSB-M-10(5)I.

Under New York State Tax Law, a trust is a resident trust if the trust:

• consists of property transferred by a person domiciled in New York at the time of transfer, if the trust was then irrevocable;
• became irrevocable when the person who transferred property to the trust was domiciled in New York; or
• consists of property transferred under the will of a decedent domiciled in New York State at the time of death.

In general, a New York State resident trust is subject to New York State income tax if it has any New York taxable income for the tax year. Pursuant to Section 605(b)(3)(D) of the New York State Tax Law, New York State resident trusts are not subject to New York State income tax if:

• all of the trustees are domiciled outside of New York;
• all of the real and tangible property of the trust is located outside New York; and
• the trust has no New York source income.

Prior to the implementation of the new rule, New York State resident trusts were not required to file New York State income tax returns if they were not subject to New York State income taxes. Under the new rule, however, even if a New York State resident trust is not subject to New York State income tax, a New York return must be filed if any of the following conditions are met:

• the trust is required to file a federal income tax return for the tax year;
• the trust had any New York taxable income for the year;
• the trust had tax preference items for minimum income tax purposes in excess of the specific deduction ($5,000); or
• the trust is subject to a separate tax on lump-sum distributions.

New York State resident trusts that are not subject to New York State income tax, but which are required under the new rule to file a New York State fiduciary income tax return, will also be required to complete and attach a new form – New York State Resident Trust Nontaxable Certification (Form IT-205-C) – to the New York State fiduciary income tax return.

The new rule applies to all newly created and existing New York State resident trusts.

If you have any questions regarding this Bulletin, please contact one of the attorneys listed below.