Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Kassner Case Presentation (ms)

295 views

Published on

Residuary Trust Case of Fred. Kassner - 1998.

Published in: Law
  • Be the first to comment

  • Be the first to like this

Kassner Case Presentation (ms)

  1. 1. Residuary Trust A U/W/O Kassner v. Dir., Div. of Taxation, App. Div: An Overview of the Residuary Trust Landscape Presented By: Michael L. Salad
  2. 2. Facts • Fred E. Kassner, a New Jersey resident and domiciliary, died in 1998 • His will created a resident testamentary trust (Trust A) • Trustee was a New York resident and administered Trust A outside of New Jersey • Trust A owned S-Corporation stock
  3. 3. Facts • Trust A filed a 2006 Form NJ-1041 • Trust A paid tax on: – The net pro rata share of S-Corporation income allocated to New Jersey • No distribution made to beneficiaries in 2006
  4. 4. Facts • N.J. audit assessed a deficiency in tax liability • The New Jersey Division of Taxation determined 100% of undistributed income was taxable, including income outside of New Jersey
  5. 5. Issues: • May N.J. properly tax undistributed income derived from a testamentary trust? • Does ownership of stock in a N.J. S-Corp constitute ownership of N.J. assets?
  6. 6. Applicable N.J. Laws • The Act imposes taxes on the New Jersey gross income of all individuals, estates or trusts. N.J.S.A. 54A:2–1. • N.J.S.A. 54A:5–1(h) includes in New Jersey gross income the “net gains or income derived through estates or trusts.” • N.J.S.A. 54A:5–3 taxes “income or gains of the estate or trust ... which has not been distributed or credited to its beneficiaries.”
  7. 7. Argument #1 • Director contended that 100% of the undistributed income of Trust A was taxable pursuant to the New Jersey Gross Income Tax Act • Director cited District of Columbia v. Chase Manhattan Bank and Chase Manhattan Bank v. Gavin
  8. 8. Ruling 1 • Tax court cited Potter v. Taxation Div. Dir. And Pennoyer v. Dir. Div. Taxation • New Jersey is barred from jurisdiction when there is a lack of sufficient contacts in the state • Trust was not administered in N.J.
  9. 9. Argument #2 • Director believes that Trust A must report New Jersey pro rata share of S Corporation income as New Jersey income • Director cited N.J.S.A. 54A:5-10 and N.J.A.C. 18:35-1.5(d)(5)(i) through (ii)
  10. 10. Ruling • Tax court cited 26 U.S.C.A.§1361(a)(1) and the Pennoyer ruling • Final ruling held that the Director incorrectly conflated taxation with ownership of assets
  11. 11. Ruling • An S-Corporation elects to pass its income through to its shareholders who are subject to taxation thereon • No mention of transfer of ownership of assets from the corporation to the shareholder • The owner of the stock in an S-Corporation does not own or hold title to the assets
  12. 12. Appellate Ruling • Affirmed the ruling by the Tax Court • Cited Division’s Official Guidance • Refused to hear new arguments
  13. 13. Planning Techniques • Unconstitutional to tax a trust based solely on the settlor’s residency • Increasingly more common for trustees, beneficiaries and assets to be mobile • Importance in considering new or additional state income tax rulings and changes in residency of trustees, beneficiaries, and location of assets

×