(a) For taxable years beginning on or after January 1, 2023, the income of an incomplete gift nongrantor trust shall be included in a qualified taxpayer’s gross income to the extent the income of the trust would be taken into account in computing the qualified taxpayer’s taxable income if the trust in its entirety were treated as a grantor trust under Section 17731.

(b) Notwithstanding subdivision (a), Section 17745 applies to distributions from an incomplete gift nongrantor trust.

Terms Used In California Revenue and Taxation Code 17082

  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
  • board: means the California Department of Tax and Fee Administration. See California Revenue and Taxation Code 20
  • Fiduciary: A trustee, executor, or administrator.
  • Gift: A voluntary transfer or conveyance of property without consideration, or for less than full and adequate consideration based on fair market value.
  • Grantor: The person who establishes a trust and places property into it.

(c) Notwithstanding subdivision (a), the income of an incomplete gift nongrantor trust shall not be included in a qualified taxpayer’s gross income for a taxable year if all of the following apply:

(1) The fiduciary of the incomplete gift nongrantor trust timely files an original California Fiduciary Income Tax Return and makes an irrevocable election on that return to be taxed as a resident nongrantor trust, pursuant to Chapter 9 (commencing with Section 17731). The election shall be made in the form and manner prescribed by the Franchise Tax Board.

(2) The incomplete gift nongrantor trust is a nongrantor trust pursuant to Chapter 9 (commencing with Section 17731).

(3) Ninety percent or more of the distributable net income of the incomplete gift nongrantor trust, pursuant to Chapter 9 (commencing with Section 17731), is distributed, or treated as being distributed pursuant to Section 17752 or 17731, including subdivision (a), for purposes of Chapter 9 (commencing with Section 17731), to a charitable organization, as defined in Section 501(c)(3) of the Internal Revenue Code.

(d) For purposes of this section, the following definitions apply:

(1) “Incomplete gift nongrantor trust” means a trust that meets both of the following conditions:

(A) The trust does not qualify as a grantor trust under Subpart E of Part I of Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to grantors and others treated as substantial owners.

(B) The qualified taxpayer’s transfer of assets to the trust is treated as an incomplete gift under Section 2511 of the Internal Revenue Code, relating to transfers in general.

(2) “Qualified taxpayer” means a grantor of an incomplete gift nongrantor trust.

(3) “Resident nongrantor trust” means a trust that is not a grantor trust and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary in accordance with Section 17742.

(e) (1) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this section.

(2) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, procedure, or other guidance prescribed by the Franchise Tax Board pursuant to this section.

(Added by Stats. 2023, Ch. 55, Sec. 4. (SB 131) Effective July 10, 2023.)

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