Many Questions Remain as First Net Investment Tax Filing Season Opens

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A new, parallel tax system for trusts and estates is bound to cause some confusion in the first year of its operation, and that has proven true for the net investment income tax, tax advisers told Bloomberg BNA.
Trusts and estates that had to pay the net investment income tax for the first time in 2013 were unsure how to properly allocate expenses, how to compute deductions for distributable net investment income and exactly what would constitute material participation for a trust or estate, to name a few of the hair-pulling dilemmas.
The Internal Revenue Service released final rules (T.D. 9644) in November 2013 that implemented the new investment income tax to overlay the existing income tax system, requiring trusts and estates to pay a 3.8 percent tax on any undistributed net investment income if they also had adjusted gross income of more than $11,950 (249 DTR J-1, 12/30/13).

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