In a Fiduciary Advisory Services Alert published on April 22, 2009 we reported on Illinois Department of Revenue Regulation 100.7035 (“Regulation”) which requires trustees of Illinois trusts to withhold Illinois income tax from certain distributions made to non-Illinois resident beneficiaries. The Regulation had an effective date of January 23, 2009 but was in furtherance of 35 ILCS 709.5, enacted by Public Act 95-233 on August 16, 2007 (and as amended by PA 95-707 on January 11, 2008) (“Statute”). Consequently, the Statute and Regulation, taken together, are intended to apply to tax years beginning in 2008 (and not beginning in 2009 as previously reported).
Trustees of Illinois trusts who did not previously make the income tax payment on behalf of non-resident beneficiaries may wish to consider filing an amended Form IL-1000-X in cases where the beneficiary did not pay the applicable tax. Note that under 35 ILCS 5/713, if all income tax payments were made by the non-resident beneficiaries, then the trust would not be required to pay additional income tax, but may be liable for interest and penalties. Through subsequent conversations with Illinois Department of Revenue tax counsel, we understand that nominal interest and potential penalties might be abated due to reasonable cause for failure to comply with the Statute and Regulation for the 2008 tax year.
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