Section 40-18-25

Estates and trusts.

(a) The tax imposed by this chapter shall apply to the income of estates or of any kind of property held in trust, including:

(1) Income received by estates of deceased persons during the period of administration or settlement or settlements of the estate.

(2) Income accumulated in trust for the benefit of unborn or unascertained persons with contingent interests.

(3) Income held for future distribution under the terms of a will or trust.

(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct.

(b) The fiduciary shall be responsible for making the return of income for the estate or trust for which he or she acts. The net income of the estate or trust shall be computed in the same manner and on the same basis as provided in this chapter for individual taxpayers; except, that the deduction for amounts paid or permanently put aside for a charitable purpose shall be allowed to the extent specified in 26 U.S.C. § 642(c), relating to amounts paid or permanently set aside for a charitable purpose; and in cases under subdivision (4) of subsection (a) of this section, the fiduciary shall include in the return a statement of each beneficiary's distributive share of the net income, whether or not distributed before the close of the taxable year for which the return is made.

(c) In cases under subdivisions (1), (2), and (3) of subsection (a) of this section, the tax shall be imposed upon the net income of the estate or trust using the rate schedule in subdivision (1) of Section 40-18-5 and shall be paid by the fiduciary; except, that in determining the net income of the estate of any deceased person during the period of administration or settlement, there may be deducted the amount of any income properly paid or credited to any legatee, heir, or other beneficiary. In those cases the estate or trust shall be allowed the same exemptions as are allowed to single persons under Section 40-18-19, and in those cases the estate or trust created by a person not a resident and an estate of a person not a resident shall be subject to tax only to the extent to which individuals other than residents are liable under subdivision (3) of Section 40-18-14.

(d) In cases under subdivision (4) of subsection (a) of this section, and in the case of any income of an estate during the period of administration or settlement permitted by subsection (c) to be deducted from the net income upon which tax is to be paid by the fiduciary, the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary his or her distributive share whether distributed or not, of the net income of the estate or trust for the taxable year, or, if his or her net income for the taxable year is computed upon the basis of a period different from that upon the basis of which the net income of the estate or trust is computed, then his or her distributive share of the net income of the estate or trust for any accounting period of the estate or trust ending within the fiscal year upon the basis of which the beneficiary's net income is computed. In those cases the income of a beneficiary of the estate or trust not a resident shall be taxable to the extent provided in subdivision (3) of Section 40-18-14 for individuals other than residents, but only to the extent that the income of the trust or estate shall arise from sources within the state. For the purpose of determining any income tax due by any nonresident beneficiary of any trust or estate, the income from intangible personal property shall not be construed to arise from sources within the state merely because the title and ownership of such intangible personal property is vested in a resident fiduciary or trust or estate or the evidence of ownership thereof is located within the state.

(e) There shall be exempt from taxation imposed by this chapter income of any qualified trust defined in 26 U.S.C. § 401(a), relating to qualified pension, profit sharing, and stock bonus plans; any custodial account, any annuity contract or any contract issued by an insurance company treated as a qualified trust by reason of 26 U.S.C. § 401(f), relating to certain custodial accounts and contracts; any individual retirement account, any individual retirement annuity, or any custodial account which is exempt from federal income tax under 26 U.S.C. § 408(e), 26 U.S.C. § 408A, or 26 U.S.C. § 530, relating to individual retirement accounts; and any retirement bond described in 26 U.S.C. § 409, relating to retirement bonds. The foregoing exemption shall not apply to any entity which is not exempt from federal income tax by reason of 26 U.S.C. § 502 or 26 U.S.C. § 503 and shall not apply to any income which would constitute "unrelated business taxable income" as defined in 26 U.S.C. § 512, relating to unrelated business taxable income.

(f) There shall be exempt from taxation imposed by this chapter income of any trust which is described in Section 501(c)(2), 501(c)(3), 501(c)(9), 501(c)(11), 501(c)(17), 501(c)(20) or 501(c)(21) of 26 U.S.C., relating to exemption from tax on corporations, certain trusts, etc. The foregoing exemption shall not apply to any entity which is not exempt from federal income tax by reason of 26 U.S.C. § 502, relating to feeder organizations, or 26 U.S.C. § 503, relating to requirements for exemption, and shall not apply to any income which would constitute "unrelated business taxable income," as defined in 26 U.S.C. § 512, relating to unrelated business taxable income.

(g) Distributions from or rollovers to individual retirement accounts described in 26 U.S.C. §§ 408A and 530, shall be taxed to the distributee according to 26 U.S.C. §§ 408A or 530. The amount actually distributed to any distributee of any other trust described in subsection (e) of this section, any other individual retirement account, individual retirement annuity, individual retirement bond, or custodial account which is treated as an individual retirement account shall be taxable to the distributee in accordance with 26 U.S.C. § 72 in the year in which distributed as if it were an annuity the consideration for which is the amount contributed by the employee. Notwithstanding the preceding sentence, distributions which are not included in gross income for federal income tax purposes by reason of the rollover provisions in 26 U.S.C. § 402, relating to taxability of beneficiary of employees' trust, 26 U.S.C. § 403, relating to taxation of employee annuities, 26 U.S.C. § 408, relating to individual retirement accounts, or 26 U.S.C. § 409, relating to retirement bonds, shall not be included in gross income for purposes of this chapter.

For the foregoing purposes, "the amount contributed by the employee" means:

(1) Amounts contributed prior to January 1, 1982, by an individual for himself or herself, his or her spouse or both under an individual retirement account, annuity or bond for which no deduction was allowed under Section 40-18-15 or corresponding provisions of prior laws of this state.

(2) Amounts contributed prior to January 1, 1982, by a person described in Section 40-18-15(a)(12) to a trust described in subsection (e) of this section for which no deduction was allowed under Section 40-18-15 or corresponding provisions of prior laws of this state.

(3) The amount included in gross income in prior years by the employee, the distributee, his or her predecessor in interest, or the trust by reason of the lack of exemption from the tax imposed by this chapter of a trust, individual retirement account, individual retirement annuity or individual retirement bond to which contributions described in (1) and (2) were made.

(4) The amount included in gross income by the employee, distributee, or predecessor in interest as a result of a distribution from any other trust, individual retirement plan, individual retirement account, individual retirement bond, or custodial account because the distribution was not excludable from gross income under the second sentence of this subsection when made or was includable pursuant to 26 U.S.C. § 408(m), relating to investment in collectibles treated as distributions.

(h) The income of a charitable remainder annuity trust or a charitable remainder unitrust, as those terms are defined in 26 U.S.C. § 664, relating to charitable remainder trusts, shall be exempt from the tax imposed by this chapter to the extent provided in 26 U.S.C. § 664. Recipients of distributions from charitable remainder unitrust and charitable remainder annuity trusts shall include in gross income the amounts specified in 26 U.S.C. § 664(b)(1) and 26 U.S.C. § 664(b)(2).

(i) Contributions to a trust made by an employer during a taxable year of the employer which ends within or with a taxable year of the trust for which the trust is not exempt under subsection (e) of this section shall be included in the gross income of an employee for the taxable year in which the contribution is made to the trust in the case of an employee whose beneficial interest in such contribution is nonforfeitable at the time the contribution is made or if the interest of the employee is not nonforfeitable in such year, the fair market value of the employee's interest in the trust shall be included in the gross income of the employee in the year in which it becomes nonforfeitable.

(j) The tax on an electing small business trust, as defined in 26 U.S.C. § 1361(e)(1), and the beneficiaries of the trust shall be determined as follows:

(1) The portion of the trust that consists of stock in one or more Alabama S corporations, as defined in Section 40-18-160, shall be treated as a separate trust. The net income of the separate trust shall be computed including only the items taken into account under Section 40-18-162, gain or loss from the disposition of stock of an Alabama S corporation, and federal income taxes and administrative expenses allocable to the income items treated under this subsection. The net income shall be taxed at the rate of five percent. The separate trust shall not be allowed any personal exemption.

(2) No item shall be apportioned to any beneficiary of the trust from the separate trust described in subdivision (1).

(3) The income taxation of the remainder of the trust that does not own the stock of any Alabama S corporation and its beneficiaries shall be determined under subsections (b), (c), and (d) of this section without regard to the income, gain, deductions, loss, or credits of the separate trust owning stock in one or more Alabama S corporations.

(k) In the case of a qualified subchapter S trust, as defined in 26 U.S.C. § 1361(d), all the items of income, deduction, and credit of the portion of the trust consisting of the stock in an Alabama S corporation shall not be subject to tax under this section but shall be included in computing the net income of the beneficiary of the trust.

(Acts 1935, No. 194, p. 256; Acts 1939, No. 558, p. 880; Code 1940, T. 51, §392; Acts 1945, No. 316, p. 507; Acts 1982, No. 82-465, p. 759, §5; Acts 1982, 1st Ex. Sess., No. 82-667, p. 85, §5; Acts 1985, No. 85-515, §§11-12; Acts 1997, No. 97-625, p. 1048, §3; Act 98–299, §1; Act 98–502, §1.)