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J Interest and Penalties

Miscellaneous items wholly exempt from

2. If the noncontingent beneficiary (or all the

tax. (1) Gifts (not received as a consideration

noncontingent beneficiaries, if more than one)

Interest. Interest will be charged on tax not paid

for services rendered) and money or property

is a California resident, the trust is taxable on

by the due date, even if the return is filed by the

acquired by bequest, devise or inheritance

all income from all sources (R&TC Section

extended due date.

(but the income derived therefrom is taxable);

17742).

Late filing of return. A penalty is charged if the

and, (2) income, other than rent, derived by a

3. If the trustee is a nonresident and at least

lessor of real property upon the termination

one noncontingent beneficiary is a California

return is filed after the due date (including exten-

resident and at least one noncontingent ben-

sions), unless there was reasonable cause for fil-

of a lease, representing the value of such

ing late. The penalty is 25% if the return is filed

property attributable to buildings erected or

eficiary is a nonresident, the trust is taxable

other improvements made by the lessee.

on all California source income plus the pro-

after the extended due date. If the return is filed

more than 60 days after the extended due date,

portion of all other income that the number of

N General Summary of Treatment

California resident noncontingent beneficiaries

the minimum penalty is $100 or 100% of tax due

on the return, whichever is less.

bear to the total number of noncontingent

for Sourcing Income Items

beneficiaries (R&TC Section 17744).

Late payment of tax. A penalty is charged for

Nonbusiness

not paying tax by the due date unless there was

Note: The residence of a corporate fiduciary

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(trustee) of a trust means the place where the

reasonable cause for not paying on time. The

Interest and dividends generally have a

penalty is 5% of the unpaid tax plus one-half of

corporation transacts the major portion of its

source at the taxpayer’s state of residence.

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administration of the trust (R&TC Section

1% for each month, or part of a month, that the

Gains and losses from sale/exchange of real

tax is late, up to a maximum of 25%.

17742(b)).

property and tangible personal property gen-

erally have a source where the property is

Note: If a QFT is subject to both the penalty for

located.

failure to file a timely return and the penalty for

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Specific Line Instructions

Income from intangible personal property

failure to pay the total tax by the due date, a

generally has a source at the taxpayer’s state

combination of the two penalties may be

Identification Area

of residence.

assessed, but the total will not exceed 25% of

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Rents and royalties generally have a source

the unpaid tax.

Complete the identification area with the same

where the property is located.

information used on federal Form 1041-QFT.

Note: If the QFT includes interest or any of these

California law is generally the same as federal

Business

penalties with the payment, identify and enter

law in the areas of:

these amounts in the bottom margin of

Generally, income from a business, trade or pro-

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Form 541, Side 1. Do not include the interest or

fession is sourced as follows:

Simplified filing requirements;

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penalty in the tax due on line 32 or reduce the

Method of reporting;

If it is conducted wholly within this state, it is

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overpaid tax on line 33.

Amended returns; and

California source income.

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Final returns.

Other penalties. Other penalties may be

If the operations within California are so sep-

imposed for a check returned by your bank for

arate and distinct from the operations outside

Note: If the trust is filing an amended

insufficient funds, accuracy related matters or

of California that taxable income can be sep-

Form 541-QFT, check the box labeled ‘‘Amended

fraud.

arately accounted for, only the income from

return.’’ Complete the entire return, correct the

within California must be included in

appropriate line(s) with the new information and

K Attachments

California source income.

recompute the tax liability. On an attached sheet,

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If the trade or business carried on within

explain the reason for the amendment(s) and

If the QFT needs more space on the form or

California is an integral part of a unitary busi-

identify the line(s) and amount(s) being changed

schedules, attach separate sheets showing the

ness carried on outside of California, the

on the amended return. Include the fiduciary’s

information in the same order as on the printed

entire net income must be reported and

name and FEIN on each attachment.

form.

apportioned or allocated in accordance with

Enter the QFT’s FEIN on each sheet. Also, use

Tax Computation

the provisions of the Uniform Division of

sheets that are the same size as the forms and

Income for Tax Purposes Act as contained in

Line 13 – Regular tax

schedules and indicate clearly the line of the

Sections 25120 through 25139.

Determine the tax on the taxable income (line 12)

printed form to which the information relates.

Partnership, LLC and S corporation income/loss

using the Tax Rate Schedule on page 3 and

Show the totals on the printed forms.

is apportioned or allocated the same as any

enter the tax on line 13.

other business. If the trust is a partner, member,

L Rounding to Whole-Dollar

Line 14 – Credits

or shareholder of a partnership, LLC, or S corpo-

The following California tax credits are available

Amounts

ration, income sourced to California is generally

to reduce the tax. For most credits, a separate

included in column (e) of the Schedule K-1 (565),

schedule or statement must be attached to

Show the money items on the return and accom-

K-1 (568), or K-1 (100S). For more detailed infor-

panying schedules as whole-dollar amounts.

Form 541-QFT.

mation, review Title 18 California Code of Regu-

lations Section 17951-4 and related tax code.

Credit Name

M Miscellaneous Items

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Community Development Financial Institution

Income retained by a trust is taxable to the trust.

California law follows federal law in the area of

Deposits — obtain certification from:

Income from California sources is taxable regard-

accounting methods.

California Organized Investment Network

less of the residence of the fiduciaries and bene-

(COIN), Department of Insurance, 300 Capitol

ficiaries. R&TC Sections 17742 through 17745

Liability for tax. The fiduciary is liable for pay-

Mall, Suite 1460, Sacramento CA 95814

provide that the taxability of non-California source

ment of the tax. Failure to pay the tax may result

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Disabled Access for Eligible Small

income retained by a trust and allocated to prin-

in the fiduciary being held personally liable. See

Businesses – FTB 3548

cipal depends on the residence of the fiduciaries

R&TC Section 19071 and Section 19516.

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Donated Agricultural Products Transportation

and noncontingent beneficiaries, not the person

Tax-exempt income. California does not tax:

– FTB 3547

who established the trust. Contingent beneficia-

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Interest on governmental obligations. Inter-

Employer Child Care Contribution –

ries are not relevant in determining the taxability

est derived from bonds issued by California

FTB 3501

of a trust. For QFT purposes all beneficiaries are

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or its political subdivisions, the federal gov-

Employer Child Care Program – FTB 3501

considered noncontingent beneficiaries.

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ernment, the District of Columbia (issued

Enhanced Oil Recovery – FTB 3546

There are three different situations that can occur

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before December 24, 1973) or territories of

Enterprise Zone Hiring & Sales or Use Tax –

when determining the taxability of a QFT. The sit-

the United States is not taxable by California.

FTB 3805Z

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uation and treatment follow:

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Proceeds of insurance policies. In general,

Farmworker Housing – obtain certification

1. If the trustee (or all the trustees, if more than

a lump sum payable at the death of the

from: Farmworker Housing Assistance

one) is a California resident, the trust is taxa-

insured under a life insurance policy is

Program, California Tax Credit Allocation

ble on all income from all sources (R&TC

excludable from gross income of the

Committee, 915 Capitol Mall, Room 485,

Section 17742).

recipient.

Sacramento CA 95814

Page 2

Form 541-QFT Instructions 1998

Instructions For Form 541-Qft - California Income Tax Return For Qualified Funeral Trusts - 1998 Page 2

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