The following definitions apply to terms used in this chapter:

(1) "Beneficiary" means a person who:

(a) is a beneficiary as defined in 72-38-103, MCA; or

(b) is a devisee or heir of a decedent's estate.

(2) "Business trust" means any entity that is a business trust as defined in 35-5-101, MCA, or that is formed with a trust instrument and taxed as a corporation, partnership, or sole proprietorship for federal income tax purposes.

(3) "Charitable trust" means a trust or portion of a trust created for a charitable purpose as provided in 72-38-405(1), MCA. Common forms of trusts that include both a private and a charitable element are charitable remainder annuity trusts (CRAT), charitable remainder unitrusts (CRUT), charitable lead annuity trusts (CLAT), charitable lead unitrusts (CLUT) and pooled income funds.

(4) "Common trust fund" has the meaning given the term "common trust fund" in section 584 of the Internal Revenue Code (IRC) and IRS regulation section 1.6032-1. This generally means a fund maintained by a bank exclusively for the collective investment or reinvestment of monies contributed by the bank in its capacity as a fiduciary or custodian and in conformity with the rules and regulations of the Board of Governors of the Federal Reserve System or the Comptroller of Currency pertaining to the collective investment of trust funds by national banks. To the extent that anything in this definition appears to conflict with the IRC or regulations, the IRC and regulations control.

(5) "Electing small business trust (ESBT)" has the meaning given the term "electing small business trust" in IRC section 1361. This generally includes any trust if:

(a) the trust does not have as a beneficiary any person other than an individual, estate, or organization described in IRC section 170(c), or an organization which holds a contingent interest in such trust and is not a potential current beneficiary;

(b) no interest in such trust was acquired by purchase; and

(c) the trust has an election under IRC section 1361(e). To the extent that anything in this definition appears to conflict with the IRC, the IRC controls.

(6) "Foreign estate" has the meaning given the term "foreign estate" in IRC section 7701. This generally means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business with the United States, is not includible in gross income under IRC subtitle A.

(a) To the extent that anything in this definition appears to conflict with the IRC, the IRC controls.

(7) "Foreign trust" has the meaning given the term "foreign trust" in IRC section 7701. This generally means any trust other than a trust:

(a) over which a court within the United States is able to exercise primary supervision over its administration; and

(b) one or more United States persons have the authority to control all substantial decisions of the trust. To the extent that anything in this definition appears to conflict with the IRC, the IRC controls.

(8) "Grantor trust" means that the income or gains of the trust are taxable to the grantor or others treated as substantial owners under IRC sections 671 to 679.

(9) "Gross income of the estate or trust" means all income of the estate or trust as provided in 15-30-2152, MCA, and in ARM 42.30.104.

(10) "Irrevocable trust" means a trust that cannot be modified or terminated except as provided in 72-38-411 or 72-38-412, MCA.

(11) "Nonresident estate" means an estate other than a resident estate.

(12) "Nonresident trust" means a trust other than a resident trust.

(13) "Pre-need funeral trust" means funds set aside in a trust account held by a trustee to fund a pre-need funeral contract or agreement as defined in ARM 24.147.302. In most cases a pre-need funeral trust is also a "qualified funeral trust (QFT)." A QFT is defined in IRC section 685, for which the trustee has elected to file federal Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts.

(14) "Qualified subchapter S trust (QSST)" has the meaning given the term QSST in IRC section 1361(d)(3). This generally means a trust in which all of the income is distributed or required to be distributed currently to one individual who is a citizen or resident of the United States, and with terms requiring that:

(a) during the life of the current income beneficiary, there shall be only one income beneficiary of the trust;

(b) any corpus distributed during the life of the current income beneficiary may be distributed only to such beneficiary;

(c) the income interest of the current income beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust; and

(d) upon the termination of the trust during the life of the current income beneficiary, the trust shall distribute all of its assets to such beneficiary. To the extent that anything in this definition appears to conflict with the IRC, the IRC controls.

(15) "Resident estate" means an estate of a decedent who was a Montana resident at the time of the decedent's death.

(16) "Resident trust" means any trust that establishes a sufficient connection to Montana.  Factors that may be considered to determine whether a trust established sufficient connection to Montana include, but are not limited to, the testator's, grantor's, settlor's, or creator's domicile; the location where the trust was created; the location of trust property; the beneficiaries' domicile; the trustees' domicile; and the location of the trust's administration. Examples of resident trusts include, but are not limited to:

(a) any trust that designates Montana as its principal place of administration, as defined in 72-38-103 and 72-38-108, MCA;

(b) any trust that is primarily administered by a trustee or representative who is a Montana resident or whose principal place of business is located in Montana;

(c) any irrevocable trust created by, or consisting of property of, a Montana resident on the date the trust or portion of the trust became irrevocable and has at least one income beneficiary who, for all or some portion of the trust's current taxable year, was a Montana resident;

(d) any trust created by the will of a decedent who was a Montana resident at the time of the decedent's death; or

(e) any trust created by, or caused to be created by, a court as a result of the death of an individual when:

(i) property was transferred to an irrevocable inter vivos trust as a result of a decedent's death;

(ii) the decedent was a Montana resident at the time of the decedent's death; and

(iii) the trust has at least one income beneficiary who, for all or some of the trust's current taxable year, was a Montana resident.

(17) "Revocable trust" means any portion of a trust for which the power to revest title in the grantor is exercisable at any time by the trustor or a nonadverse party.

(18) "Simple trust" means a trust with terms that provide that all the net income must be distributed on an annual basis and do not provide that any amounts are to be paid, permanently set aside, or used for charitable purposes as specified in IRC section 642(c).

(19) "Split-interest trust" means a trust as provided in IRC section 4947, and includes a charitable remainder trust as provided in IRC section 664, a pooled income fund as provided in IRC section 642, charitable lead trust, grantor retained annuity trust (GRAT), grantor retained unitrust (GRUT), and grantor retained income trust (GRIT).

(20) "Supplemental needs trust" or "special needs trust" means a trust that was created for the benefit of a disabled beneficiary and under which the trust assets are not included in the beneficiary's asset or income base for purposes of government benefits such as Medicaid or supplemental security income as provided in 42 U.S.C. 1396p(d)(4).

(21) "Testamentary trust" means a trust that is created by a will and begins its existence when property is transferred from the decedent's estate to the trust. A testamentary trust is irrevocable and can either be a simple or complex trust.

(22) "Trust" means any entity that is classified as a trust for federal income tax purposes and includes a designated settlement fund as provided in IRC section 468B.

(1) Subject to (4), a fiduciary for a resident estate or resident trust is required to file a Montana Income Tax Return for Estates and Trusts (Form FID-3) if:

(a) the gross income of the estate from all sources exceeds an exemption allowance, regardless of any tax liability;

(b) the gross income of the trust from all sources exceeds an exemption allowance;

(c) the trust has any taxable income; or

(d) the estate or trust is filing a final year return.

(2) Subject to (4), a fiduciary for a nonresident estate, nonresident trust, part-year resident estate or part-year resident trust that has any item of income, gain, loss, and/or deduction derived from or connected with sources in Montana (including, but not limited to, a Montana trustee's intangible interest in a nonresident trust) is required to file a Form FID-3 if:

(a) the gross income of the estate from all sources exceeds an exemption allowance, regardless of any tax liability;

(b) the gross income of the trust from all sources exceeds an exemption allowance;

(c) the trust has any taxable income; or

(d) the estate or trust is filing a final year return.

(3) Form FID-3 is due on or before the 15th day of the fourth month following the close of the tax year of the estate or trust. If the due date falls on a weekend or holiday, the return is due the next business day.

(4) An estate or trust with a filing requirement as provided in (1) and (2) must complete a Form FID-3, unless otherwise provided in the following:

(a) A bankruptcy estate of an individual must file a Form FID-3, but complete only the heading portion and report the amount of tax computed on the attached copy of the individual's Montana tax return. Credits and payments that are applicable to the bankruptcy estate are reported on Form FID-3.

(b) A bankruptcy estate of a married couple filing a joint bankruptcy petition must file a Form FID-3, but complete only the heading portion and report the amount of tax computed on the attached copy of the joint Montana tax return. A joint bankruptcy estate is limited to one personal exemption in computing the amount of tax due. A married couple cannot use the filing status of married filing separately on the same return to determine their separate Montana income tax liabilities for a bankruptcy estate. If both spouses are filing for bankruptcy individually, then each spouse will complete a separate Form FID-3 and separate individual Montana income tax return. Credits and payments that are applicable to the bankruptcy estate are reported on Form FID-3.

(c) A business trust must file the following returns:

(i) a Montana Corporate Income Tax Return (Form CIT) if the trust files a U.S. Corporation Income Tax Return (Form 1120);

(ii) a Montana Partnership Information and Composite Tax Return (Form PR-1) if the trust files a U.S. Return of Partnership Income (Form 1065);

(iii) a Montana S Corporation Information and Composite Tax Return (Form CLT-4S) if the trust files a U.S. Income Tax Return for an S Corporation (Form 1120S); and

(iv) a Montana Disregarded Entity Information Return (Form DER-1) if the trust is a disregarded entity.

(d) A common trust fund that files a U.S. Return of Partnership Income (Form 1065) must file a Montana Partnership Information and Composite Tax Return (Form PR-1).

(e) An electing small business trust is subject to special filing requirements as provided in ARM 42.30.204.

(f) A foreign decedent's estate has the same filing requirements as a nonresident estate as provided in (2).

(g) A foreign trust has the same filing requirements as a nonresident trust as provided in (2).

(h) A pre-need funeral trust is subject to special filing requirements as provided in ARM 42.30.203.

(i) If an entire trust is a grantor trust, the fiduciary must file a Form FID-3 but complete only the heading portion and report the trust's activity on a separate supporting statement. The supporting statement and a complete copy of the federal Form 1041 must be included with Form FID-3. If the fiduciary is not the grantor, then the fiduciary must provide a copy of Form FID-3 and the supporting statement to the grantor.

(j) If only part of a trust is a grantor trust, the fiduciary must report the activity attributable to the grantor trust as provided in (i) and report the activity not attributable to the grantor trust on a form prescribed by this rule.

(k) A qualified settlement fund or designated settlement fund that is treated as a corporation for federal income tax purposes and that files a U.S. Income Tax Return for Settlement Funds (Form 1120-SF) must file a Montana Corporate Income Tax Return (Form CIT).

(l) A split-interest trust must file Form FID-3, but complete only the heading portion and report the trust's activity on a separate supporting statement, rather than on Form FID-3. The supporting statement and a complete copy of the federal Split-Interest Trust Information Return (Form 5227) must be included with the Form FID-3.

(m) If an entire trust is a qualified subchapter S trust (QSST), the fiduciary must file a Form FID-3 but complete only the heading portion and report the trust's activity on a separate supporting statement. The supporting statement and a complete copy of the federal Form 1041 must be included with Form FID-3.

(n) If only part of a trust is a QSST, the fiduciary must report the activity attributable to the QSST as provided in (m) and report the activity not attributable to the QSST on a form prescribed by this rule.

(o) A tax-exempt trust is subject to special filing requirements as provided in ARM 42.30.202.

(5) If a fiduciary is required to file Form FID-3, then a copy of the U.S. Income Tax Return for Estates and Trusts (Form 1041) must be submitted on paper or electronically with Form FID-3 as follows:

(a) if filing on paper, then the fiduciary must include copies of the federal schedules that substantiate gross income, deductions, and ordinary or throwback distributions to beneficiaries; or

(b) if filing Form FID-3 electronically, then the fiduciary must provide a complete copy of the federal income tax return with all accompanying schedules and statements to the department if requested.

(6) If a fiduciary is not required to, or does not, file a federal tax return for a tax year for which they are required to file a Form FID-3, the fiduciary must compute federal adjusted total income, complete the applicable federal forms and schedules and submit a copy of the forms and schedules with the Form FID-3. The words "Pro Forma" must be clearly marked at the top of the federal forms and schedules.

(7) If the fiduciary of a decedent's estate, a bankruptcy estate, or a trust is filing for a short tax year and the applicable tax forms are not available, the fiduciary may use the prior year's tax forms. If the fiduciary uses the prior year's tax forms, the fiduciary must incorporate any tax law changes that are effective for the applicable tax year but may use the prior year's exemption amount and tax rate brackets. A short-year tax return may not be filed electronically.

(8) The guardian of a ward who has income files an individual income tax return on behalf of the ward. 

(1) For tax periods beginning before January 1, 2017, a fiduciary is allowed an automatic six-month extension to file a Montana Income Tax Return for Estates and Trusts (Form FID-3) if:

(a) the current year's tax liability is $200 or less and the entire tax liability is paid by the extended due date of the return; or

(b) the fiduciary has paid, through withholding, estimated tax payments or a combination of withholding and estimated tax payments, at least:

(i) 90 percent of the current year's tax liability by the due date of the return; or

(ii) 100 percent of the prior year's tax liability by the due date of the return.

(2) For tax years beginning on or after January 1, 2017, a six-month extension of time to file an individual income tax return is automatically allowed a taxpayer if the tax, penalty, and interest are paid when the return is filed.

(3) For purposes of this rule the tax liability and amount of payment are determined as provided in ARM Title 42, chapter 17, subchapter 3.

(4) If a fiduciary is required to file Form FID-3, then the fiduciary is considered to have paid 100 percent of the previous year's tax for purposes of (1) if the estate or trust is a first-time filer or the estate or trust had zero or negative taxable income the previous year.

(5) If a fiduciary is required to file a return other than Form FID-3, then the extension rules for the return that the fiduciary is filing must apply. For example, if the fiduciary is required to file a Montana Partnership Information and Composite Tax Return (Form PR-1), then the extension rules that apply to filers of Form PR-1 will also apply to the fiduciary that is required to file a Form PR-1.

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(1) This rule applies to fiduciaries that are required to file a Montana Income Tax Return for Estates and Trusts (Form FID-3). If a fiduciary is required to file a different tax return for an estate or trust, then the tax will be determined on the required return. For example, if a fiduciary files a Montana Corporate Income Tax Return (Form CIT) for a business trust, then the tax liability for the business trust will be determined using Form CIT.

(2) Federal adjusted total income of the estate or trust is adjusted for Montana additions and subtractions as provided in (3) and 15-30-2152, MCA, to arrive at Montana adjusted total income.

(3) The Montana additions to federal adjusted total income of an estate or trust include, but are not limited to:

(a) recoveries of amounts claimed as deductions on a prior year's tax return that reduced Montana taxable income, such as a casualty loss reimbursement;

(b) health insurance premiums used to calculate the Insure Montana small business health insurance credit;

(c) expenses allocated to federal obligations that are not allowed as a deduction for Montana purposes; and

(d) other items properly included in Montana taxable income that are not included in federal taxable income, such as distributions to an estate from an employee's pension or retirement plan that are subject to Montana tax at the time of distribution.

(4) The Montana subtractions from federal adjusted total income of an estate or trust include, but are not limited to:

(a) state tax refunds included in federal taxable income. Montana income tax refunds and income tax refunds received from another state are not taxable to Montana;

(b) refund, credit, offset, or other recovery of an amount deducted in an earlier year that was included in federal taxable income but did not reduce Montana taxable income;

(c) pension or annuity income exempt from tax as provided in 15-30-2110, MCA;

(d) federal taxable Railroad Retirement Board Tier I and Tier II benefits; and

(e) deductible expenses allocated to other states' interest and mutual fund dividends such as expenses related to interest income from non-Montana municipal securities includable in Montana taxable income.

(5) Montana adjusted total income is reduced, but not below zero, by any Montana income distribution as determined in ARM 42.30.105.

(6) An estate or trust is allowed one personal exemption as provided in 15-30-2152, MCA.

(7) Resident estates and trusts pay tax on all of their income and are entitled to claim a credit for taxes paid to other states on the same income as provided in 15-30-2302, MCA, and ARM 42.4.401 through 42.4.404.

(8) Nonresident and part-year resident estates and trusts compute a tentative tax as if they are resident estates or trusts, and then determine their Montana income tax liability by multiplying the tentative tax by the ratio of their Montana source income to their income from all sources as provided in 15-30-2104, MCA.

(9) Nonresident estates and trusts cannot claim a credit for taxes paid to other states against their Montana income tax liability.

(1) Montana distributable net income (DNI) limits the deduction that a decedent's estate or trust may claim for aggregate distributions to beneficiaries and determines how much of the distribution has to be included in the beneficiaries' gross income.

(2) Montana DNI is computed in the same way distributable net income is computed for federal income tax purposes under Internal Revenue Code section 643, but with Montana adjustments to income as provided in 15-30-2152, MCA, and ARM 42.30.104.

(3) Decedent's estates and trusts are allowed to deduct the lesser of:

(a) the amounts of income actually distributed, including other amounts paid, credits, or amounts otherwise required to be distributed; or

(b) the taxable portion of Montana DNI.

(4) If a decedent's estate or trust elects for federal income tax purposes to treat distributions made within 65 days after the end of the tax year as having been made in the tax year, the decedent's estate or trust must also treat the distributions as having been made in the tax year for Montana income tax purposes.

(5) Income distributed to a beneficiary from a decedent's estate or trust retains the same character in the hands of the beneficiary as it had in the hands of the decedent's estate or trust, with the exception of unused capital loss distributed upon closure of the decedent's estate or trust to a corporation, which is treated as a short-term loss regardless of its character in the decedent's estate or trust.

(6) Unless the will or trust instrument specifically provides otherwise, a distribution to beneficiaries is considered to be a proportionate distribution of the different kinds of income composing the Montana DNI of the estate or trust. The same character and proportionate distribution rule is illustrated by the following example:

(a) Decedent A, a resident of Montana, died February 15, 2016. Under the terms of the will, all the decedent's property was divided in equal shares to beneficiary B, a resident of Arizona, and beneficiary C, a resident of Montana. The estate adopted a calendar year as its taxable year. For calendar year 2016, the estate had Montana DNI of $50,000, which is composed of:

(b) On December 20, 2016, the estate distributed $12,500 to beneficiary B, and $12,500 to beneficiary C. Beneficiaries B and C received a distribution for 2016 as follows:

(c) Since the interest income of the estate is 20 percent of the Montana DNI, 20 percent of the distribution to beneficiaries B and C is considered interest income. Likewise, 10 percent of the estate's Montana DNI is dividends and 70 percent is farm income.

(1) Amounts used to calculate a Montana net operating loss (NOL) for decedents' estates and trusts cannot be distributed to a beneficiary as reportable tax items on the beneficiary's Montana tax return unless the distribution occurs with the filing of the final year return as provided in Internal Revenue Code (IRC) section 642(h) and 26 CFR 1.642(h)-1. If any excess NOL deduction can be distributed to the beneficiaries, the distribution must be part of the excess Montana NOL deduction, not the excess federal NOL deduction.

(2) A decedent's estate or trust has a Montana NOL if Montana taxable income, recomputed with the adjustments provided in IRC section 172(d), is less than zero. To recompute Montana taxable income, the following must be added back:

(a) any net operating loss deduction;

(b) any deduction for an exemption provided in 15-30-2152, MCA;

(c) any gain excluded from the sale or exchange of qualified small business stock pursuant to IRC section 1202;

(d) the amount by which a deduction for losses from sales or exchanges of capital assets exceeds the amount includable for gains from sales or exchanges of capital assets;

(e) the amount by which nonbusiness deductions exceed nonbusiness income;

(f) the domestic production activities deduction;

(g) total charitable deductions; and

(h) the income distribution deduction.

(3) To determine the portion of a deductible expense attributable to income from a trade or business, the expense must be multiplied by the ratio of net income from the trade or business to Montana adjusted gross income. When calculating the portion of federal tax attributable to trade or business income, the ratio must be calculated using the net business income and Montana adjusted total income for the year the federal tax was incurred.

(4) An election to waive the carryback of an NOL loss for an estate or trust is irrevocable. If a fiduciary elects to waive the carryback, the election must be made by the due date (including extensions of time) for filing the estate or trust's tax return in the tax year of the NOL.

(5) This rule is effective for tax years beginning after December 31, 2015.

(1) If a fiduciary is required to file a return other than a Montana Income Tax Return for Estates and Trusts (Form FID-3), then the interest and penalties that are calculated on the applicable tax return will apply to the fiduciary's filing of the same return. For example, if the fiduciary is required to file a Montana Corporate Income Tax Return (Form CIT) for a trust, then any interest and penalties that the fiduciary would be liable for will be calculated as though the trust was a corporation.

(2) If a fiduciary is required to file Form FID-3:

(a) late payment penalties and late filing penalties will be applied as provided in 15-1-216, MCA;

(b) for tax periods beginning before January 1, 2017:

(i) interest on unpaid tax will accrue from the original due date of the return as provided in 15-1-216, MCA, unless the current year's tax liability is $200 or less and the entire tax liability is paid by the extended due date; and

(ii) underpayment interest, as provided in 15-30-2512, MCA, will accrue from the original due date of the return unless the tax liability is $200 or less and the entire tax liability is paid by the extended due date; or

(c) for tax periods beginning on or after January 1, 2017:

(i) interest on unpaid tax will accrue from the original due date of the return as provided in 15-1-216, MCA; and

(ii) underpayment interest, as provided in 15-30-2512, MCA, will accrue from the original due date of the return.

(3) Fiduciaries that are required to file Form FID-3 are subject to underpayment interest as provided in 15-30-2512, MCA.

(4) Fiduciaries that are required to file Form FID-3 are required to make estimated tax payments as provided in 15-30-2512, MCA.

(1) When the department adjusts the return of an estate or trust as provided in 15-30-2605, MCA, and one or more adjustments affect any Montana return filed by a beneficiary, the department may also adjust the beneficiary's return to reflect the adjustments that are allocable to the beneficiary. If a beneficiary has not filed a Montana income tax return, the department may request that the beneficiary file a return, or may estimate the beneficiary's tax liability as provided in 15-30-2512, MCA.

(2) The department will report the details of adjustments it makes to an estate or trust return to the fiduciary. If one or more items included in the income distribution deduction are affected by the adjustment, the department will also report the details of audit adjustments to the affected beneficiaries. The department will not report to a fiduciary the details of an adjustment to a beneficiary's return.

(3) The fiduciary of an estate or trust is responsible for filing all required forms and returns with the department on behalf of the estate or trust. The fiduciary of an estate or trust is also responsible for any estate or trust tax due. If there are two or more fiduciaries, the fiduciaries are jointly and severally liable.

(1) If a trust is held for educational, charitable, or religious purposes and is not classified as a corporation under 15-31-101, MCA:

(a) Montana individual income tax is not imposed on the fiduciary or the beneficiaries; and

(b) corporate income tax is imposed only on the trust's unrelated business taxable income and must be paid by the fiduciary as provided in (4).

(2) Subject to (3), if a trust, that is not classified as a corporation under 15-31-101, MCA, is part of a stock-bonus, pension, or profit-sharing plan for the exclusive benefit of some or all of the employer's employees, and the employer and employee contributions and earnings are accumulated by the trust in accordance with the plan for distribution to the employees, then:

(a) Montana individual income tax is not imposed on the fiduciary or beneficiaries when the trust receives or accrues income;

(b) Montana individual income tax is imposed on the amount of employer contributions and all trust earnings distributed or made available to the distributee in the year distributed; and

(c) corporate income tax is imposed on the trust's unrelated business taxable income and must be paid by the fiduciary as provided in (3).

(3) An otherwise tax-exempt trust that has unrelated business taxable income (UBTI), as determined for federal income tax purposes, is subject to Montana corporate income tax and is required to file a Montana corporate income tax return reporting that income if the trust's federal UBTI tax liability for the tax year exceeds $100. To the extent the trust's UBTI is Montana source income, the trust is treated as having been engaged in business in Montana within the meaning of 15-31-101, MCA.

(1) A pre-need funeral trust must file a Montana income tax return under the trust name used for filing the federal income tax return. If the fiduciary of a pre-need funeral trust is the fiduciary of more than one pre-need funeral trust and if the fiduciary elects to file a federal composite return for more than one pre-need funeral trust, the fiduciary can also elect to file a Montana composite return for the same pre-need funeral trusts as included in the federal composite return.

(2) The Montana composite return as referred to in (1) is completed on the Montana Income Tax Return for Estates and Trusts (Form FID-3) and must include a schedule reporting the following information for each separate pre-need funeral trust:

(a) the name of the owner or the beneficiary of each pre-need funeral trust;

(b) the type and gross amount of income earned by each pre-need funeral trust during the taxable year;

(c) the type and amount of each deduction and credit allocable to each pre-need funeral trust;

(d) the tax and payments made for each pre-need funeral trust; and

(e) the termination date of each pre-need funeral trust if it was terminated during the year.

(3) The Montana composite return referred to in (1) is subject to the filing requirements of ARM 42.30.102.

(1) The portion of an ESBT that consists of stock in one or more S corporations is treated as a separate trust for purposes of determining Montana tax liability. The tax, as provided in 15-30-2153, MCA, must be calculated separately and reported on a Montana Income Tax Return for Estates and Trusts (Form FID-3).

(2) To determine Montana taxable income for the portion of the ESBT that holds S corporation stock, federal ESBT taxable income is adjusted for Montana additions to, and subtractions from, income as provided in 15-30-2152, MCA, and ARM 42.30.104. The following are not included in this calculation:

(a) deductions for capital losses that exceed capital gains;

(b) an income distribution deduction;

(c) an exemption deduction;

(d) passive losses in excess of passive income; and

(e) ordinary losses in excess of ordinary income.

(3) An ESBT is allowed a capital gains tax credit. If an ESBT is allowed a nonrefundable credit, such as the capital gains tax credit, items from the non-ESBT portion of the trust cannot be used to calculate the credit.

(4) If the portion of a resident ESBT that has S corporation stock receives taxable income that is sourced to multiple states or countries, the ESBT reports all taxable income in the calculation of Montana taxable income. If the resident ESBT pays income tax on income sourced to another state or country, the trust will receive a credit for income taxes paid to that other state or country as provided in 15-30-2302, MCA. If the trust is either a part-year resident or a nonresident, the trust will separately calculate tax on its Montana source income as provided in 15-30-2104, MCA.