Incomplete Gift Non-Grantor (ING) Trusts

Overview

Starting January 1, 2023, income from an incomplete gift non-grantor (ING) trust must be reported on the grantor's California income tax return. A qualified taxpayer is the grantor of the ING trust.

A qualified taxpayer must file a California Fiduciary Income Tax Return Form 541 to report taxable income from an ING trust. Check the box to designate the trust as an ING Trust.

Report income/losses and expenses/deductions from an ING trust using California Resident Income Tax Return Form 540.

Exception

There is an exception for certain electing ING trusts. The ING trust income would not be included in the qualified taxpayer's gross income for a taxable year if the following apply:

  1. The ING trust's fiduciary timely files an original California Fiduciary Income Tax Return Form 541 and makes an irrevocable election, by checking the Form 541 election box to be treated as a resident non-grantor trust.
  2. The ING trust is a non-grantor trust.
  3. 90% or more of the ING trust's distributable net income is distributed, or treated as being distributed, to a charitable organization as defined in Internal Revenue Code (IRC) section 501(c)(3).

Non-Residents

Non-resident grantors of ING trusts have a filing requirement in California if the ING trust received California sourced taxable income.

Non-residents with taxable income from an ING trust must file a California Fiduciary Income Tax Return Form 541. Check the box to designate the trust as an ING Trust.

Report ING trust income/losses and expenses/deductions using the California Nonresident or Part-Year Resident Income Tax Return Form 540NR.

Underpayment penalties for 2023 tax year

Senate Bill 131 (Chapter 55, Statutes of 2023) was enacted on July 10, 2023. Since this law was chaptered in 2023, estimated tax underpayment penalties will not apply to any underpaid estimated tax payments for the 2023 taxable year.

Charitable remainder trusts

Charitable remainder trusts (CRT) are not subject to Section 17082.

Forms

  • California Fiduciary Income Tax Return Form 541
  • California Resident Income Tax Return Form 540
  • California Nonresident or Part-Year Resident Income Tax Return Form 540NR