Mastering NIIT for Trusts and Estates: Net Investment Income Tax Planning Strategies to Minimize Surtax

The impact of the Section 1411 NIIT on estate and trust taxation cannot be overstated. Since its passage for tax years beginning after Dec. 31, 2012, tax advisers have wrestled with strategies to minimize the impact of the NIIT on fiduciary taxpayers.

Section 1411 imposes a 3.8% surtax on “net investment income”. For trusts and estates, the taxable base consists of the lesser of “undistributed net investment income” over the threshold of the highest regular income tax bracket in effect for the taxable year. The tax applies to most trusts, with very few enumerated exceptions.

Given the low threshold for the top tax bracket for trusts, and because virtually all trust and estate income—save limited exceptions where the trust can argue material participation in a business holding qualifies as net investment income—the NIIT applies to virtually all trust income.

Determining whether capital gains income can be treated as distributable net income and thus subject to the DNI deduction, advisers must fully grasp the impact of the NIIT. Trust advisers must understand the various moving pieces of NIIT calculations to minimize the impact of the additional surtax.

Listen as our experienced panel provides a practical roadmap to the calculations, reporting and planning considerations involved in the Section 1411 NIIT, including discussions on the latest IRS guidance on the application of the NIIT to trusts and estates, primarily focusing on material participation, but also on calculation of what constitutes net undistributed investment income.

1. Definition and scope of IRC 1411 impact on trusts and estates
2. Calculation of NIIT on trust undistributed net income
3. Material participation and other mitigating factors to reduce impact of NIIT
4. Determining whether trust documents permit capital gains to be included in DNI
5. Electing small business trusts and NIIT
6. Planning strategies

The panel will discuss these and other important topics:

• Calculating distributable net income deduction for purposes of reporting NIIT
• Determining whether capital gains can be treated as DNI for NITT calculations
• Minimizing NIIT impact through distribution and other transaction strategies
• Reporting the NIIT on Form 8960
• Impact of NIIT calculations on electing small business trusts (ESBTs)

Learning Objectives

After completing this course, you will be able to:

• Recognize the components of trust income subject to NIIT
• Decide whether a trust document permits capital gains to be included in DNI for purposes of calculating NIIT
• Identify specific planning options and strategies to minimize the impact of the NIIT surtax
• Determine the proper income thresholds for ESBTs

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience at mid-level within the organization, supervising other preparers/accountants, involved in complex estate and trust tax planning and reporting. Specific knowledge and understanding of IRC 1411's 3.8% NIIT and its general impact on trust and estate planning and reporting NIIT on Form 8960; familiarity with the concepts of taxable base in an estate trust, Electing Small Business Trusts, "material participation in a business", and the treatment of capital gains income as distributable net income.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).