The New York State Department of Taxation and Finance, on July 23, 2010, announced a new policy that now requires New York resident trusts to file New York State fiduciary income tax returns, even if such trusts are not subject to New York income tax.
By way of background, a New York "resident trust" is a trust which (1) consists of property transferred to the trust by the will of a decedent who was domiciled in New York at his or her death; (2) is a revocable or irrevocable trust consisting of property transferred by a person domiciled in New York at the time of transfer; or (3) was revocable at the time it was created, but has since become irrevocable and consists of property transferred by a person who was domiciled in New York at the time that the trust became irrevocable. A resident trust is not required to pay New York State income tax if (1) all of the trustees of the trust are domiciled in a state other than New York; (2) the entire corpus of the trust is located outside of New York; and (3) all income and gains of the trust are derived from or connected with sources outside of New York.
Under the former policy of the New York State Department of Taxation and Finance, a resident trust was not required to file a New York State fiduciary income tax return if it met the requirements set forth above and was not subject to New York State income tax. Pursuant to the new policy, for tax years beginning on or after January 1, 2010, a New York resident trust which is required to file a federal income tax return for any tax year must file a New York State fiduciary income tax return for that year, even if the trust is not subject to New York State income tax. This income tax return must be accompanied by a New York State Resident Trust Nontaxable Certification form, certifying the reasons for the trust's exemption from New York State income tax.