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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16580
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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A US citizen client died who is a member of a California LLC

Customer Question

A US citizen client died who is a member of a California LLC with a rental property. His daughter who lives in Israel, not a US citizen, inherited the members interest and has set up a US trust as the member of the LLC. If the trustee lives in NY, but all of the income is sourced from CA, do I still need to do a NY filing? Also, what are the rules on distributions to foreign beneficiaries? TIA!
Submitted: 3 years ago.
Category: Finance
Expert:  Megan C replied 3 years ago.

Megan C :

Hello and welcome. Thanks for your question, my name is Megan and I will be happy to help you today

Megan C :

The trust will only have to file a tax return for federal and the state of California.

Megan C :

So, no need to do a New York filing.

Megan C :

With a foreign beneficiary, the tax rate is 30% so you would withhold 30% of the distribution for tax.

Megan C :

The 30% tax is only on the following income items:

Megan C :
  • FDAP income (fixed or determinable annual or periodic income (e.g., rents and royalties)).
  • Certain gains from the disposal of timber, coal, or domestic iron ore with a retained economic interest.
  • Gains related to contingent payments received from the sale or exchange of patents, copyrights, and similar intangible property.
  • Distributions of effectively connected income from a publicly traded partnership.
Megan C :

The following are not required to be on form 1042-S::

Megan C :
  • Interest on bank deposits, provided that the income is not effectively connected, including bank deposit interest (and OID) from foreign branches of U.S. banks or savings and loans.16 The exemption also applies to interest paid to Canadian residents who are not U.S. citizens, but only if less than $10 per calendar year.
  • Interest and OID from short-term obligations (i.e., those payable 183 days or less from the date of original issue).
  • Accrued interest and OID.
Megan C :

You can read more about these rules, HERE

Megan C :

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