Number 6. September 17, 1976

Number 6. September 17, 1976 Vincent J. Piro, Chairman Committee on Taxation House of Representatives State House Boston, Massachusetts Dear Chairman Piro: With respect to your duties as House Chairman of the Committee on Taxation, you have requested an opinion concerning the income taxation of certain "nominee trusts". You describe these trusts as "trusts or trustees which act as agent or nominee for and under the control and direction of their beneficiaries." Attached to your request is a copy of a draft bill which the committee has under consideration and which would effect various changes in the existing scheme of income taxation of trusts. The two principal issues raised by your questions relate to the income taxation of "nominee trusts" under G.L. c. 62, §10 as presently written and the potential taxation of such trusts if the bill before your committee is enacted. I have been informed that the issue raised with regard to the present state of the law is the subject of a case presently before the Appellate Tax Board. In the case of Drucker v. State Tax Commission, App. Tax Bd. Nos. 73670, 6361, the board ordered an abatement to be made to the bene- ficiary of a nominee trust because the losses of the "nominee trust" were attributable to the taxpayer-beneficiary. The Board has not yet issued an opinion in that case. I am also informed that an appeal is likely to be taken by the State Tax Commission in the Drucker case. In the ordinary course, one of my Assistant Attorneys General would represent the Com- mission before the Supreme Judicial Court in any such appeal. The issu- ance of an opinion by me in these circumstances would unduly complicate the administrative proceedings and would be premature in light of the possibility of judicial resolution. I must, therefore, respectfully decline to answer your first question. The second question you ask relates to the effect of the enactment of the revised bill attached to your request. This bill would substantially change the Commissioner of Corporation and Taxation rule of taxing the trust and in its place adopt the federal system found in the Internal Revenue Code of 1954, §§71-678. Under such a system, the beneficiary is taxed if any number of circumstances are present. Briefly, they are: (a) The trust income is distributable to or accumulated for the benefit of the grantor or the grantor's spouse; (b) The grantor holds a reversionary interest in the trust which is not postponed beyond a ten-year period; (c) The grantor has the power to revoke the trust in his favor; (d) The grantor has the power to control the beneficial enjoyment of the trust corpus or income; (e) The grantor has retained certain administrative powers with respect to the trust; and, P.D. 12 89 (f ) A person, other than the grantor, has the power to obtain the trust corpus or income. The ""nominee trust" would ordinarily come within the terms of a, b, c. d and e. Thus, the bill in question would assure that in a nominee trust situation tax liability or benefit would pass through the trustee to the beneficiary. Very truly yours, FRANCIS x/bELLOTTI Attorney General