§ 105.6. Illustration of the provisions of this chapter.
The provisions of this chapter are illustrated in general by the following examples:
(1) Example I. A resident trust shall be required under its governing instrument and applicable state law to distribute all of its income to the income beneficiary. Under the governing instrument and applicable state law, the term income shall not include net gains or net income from the sale or exchange of items of corpus. The fiscal year of the trust ends on September 30 and for the period June 1, 1971, to September 30, 1971, the trust has income as follows:
Subject Amount Net rental income $4,000 Dividends 8,000 Interest 8,000 Net gains 4,000 The trust paid the beneficiary $16,000 on July 15, 1971, and $16,000 on October 15, 1971. The trust has elected to treat distribution made within 65 days after the close of its taxable year as having been made at the last day of the preceding year. The trust shall be deemed to have retained the net gains and shall be subject to tax under § 103.1 (relating to tax imposed on residents) on $4,000. The beneficiary shall be deemed to have received the $4,000 of net rental income, the $8,000 of dividend income, and the $8,000 of interest income and shall be subject to tax under § 103.1 on $20,000. The additional $12,000 actually received by the beneficiary shall be deemed to have been paid from pre June 1, 1971 income and, under this chapter, shall not be subject to tax thereon.
(2) Example II. Assume the same facts as in Example I of this section and that the income is to be distributed in equal shares to A, a resident of this Commonwealth and to B, a nonresident of this Commonwealth. Assume further that the July 15 and October 15 payments were in equal shares to A and B. As in Example I of this section, the trust shall be subject to tax under § 103.1 on the $4,000 of net gains. A shall be subject to tax under § 103.1 on his share of the net rental income, the dividend income, and the interest income. B shall be subject to tax under § 103.2 only on his share of the net rental income, provided that the property involved is situated in Pennsylvania.
(3) Example III. Assume the same facts as in Example II of this section and that half of the interest income was derived from obligations which are free from tax under an act of the General Assembly of this Commonwealth. As in Examples I and II of this section, the trust shall be subject to tax under § 103.1 on the $4,000 of net gains. A and B shall be deemed to have received their pro rata share of each class of income distributable to them. Thus, A shall be subject to tax under § 103.1 on his share of the rental income, the dividend income, and half of the interest income and B shall be subject to tax under § 103.2 only on his share of the net rental income.
(4) Example IV. A resident trust shall be required under its governing instrument and applicable state law to distribute the first $10,000 of income to A, a resident of this Commonwealth. The trustees are given discretionary powers with respect to distributions of the balance of the income. Under the governing instrument and applicable state law, the term income shall not include net gains or net income from the sale or exchange of items of corpus. During the taxable year the trust realizes net gains from the sale of property of $10,000, receives dividends of $10,000, receives interest income of $10,000, of which $5,000 is from Commonwealth obligations free from any tax and distributes $15,000 to A. The trust shall be deemed to have retained the $10,000 of net gains and its pro rata share of each of the other classes of income, namely 25% of the dividend income, taxable interest, and nontaxable interest. A shall be deemed to have received only his pro rata share of each of the classes of income required to be distributed to him, or in fact paid or credited to him, namely 75% of the dividend income, taxable interest, and nontaxable interest.
(5) Example V. Assume the same facts as in Example IV of this section and that during the following taxable year the trust realizes the same income in the same amounts and distributes $25,000 to A. As in Example IV, the trust shall be deemed to have retained the $10,000 of net gains. Inasmuch as the trust has distributed more than the amount of all other classes of income received by the trust for the taxable year, the trust shall not be deemed to have retained any of the other classes of income. A shall be deemed to have received all of the other classes of income received by the trust during its taxable year and shall be subject to tax under § 103.1 on the $10,000 of dividend income and $5,000 of taxable interest income. Neither the $5,000 of nontaxable interest income nor the $5,000 paid from previously accumulated and previously taxed income shall be taxable to A.
(6) Example VI. A nonresident trust shall be given discretionary powers with respect to distributions of income. During its taxable years ended December 31, 1971, 1972, and 1973, the trust realized income as follows:
Class of Income
(in dollars)12 / 31 / 71 12 / 31 / 72 12 / 31 / 73 Net rental Income 7,000 12,000 12,000 Dividends 4,000 8,000 8,000 Interest 4,000 8,000 8,000 Net gains -0- -0- 10,000 The rental income was from property located in this Commonwealth and the net gain realized in the taxable year ended December 31, 1973, was from the sale of the rental property. No distributions were made to the beneficiary until March, 1974, when the trust distributed all of its assets to A, a resident of this Commonwealth. The trust shall be taxable on the $7,000 of rental income realized in the taxable years ended December 31, 1971, on the $12,000 of actual income realized in 1972 and 1973, and on the net gain from the sale of the rental property in the taxable year ended December 31, 1973. The trust shall not be subject to tax under this chapter on the dividend and interest income realized by the trust. The resident beneficiary shall be subject to tax in 1974 on the dividend and interest income accumulated by the trust and distributed to him in that year.
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