TITLE 30

State Taxes

Income, Inheritance and Estate Taxes

CHAPTER 16. PASS-THROUGH ENTITIES, ESTATES AND TRUSTS

Subchapter I. In General


Whenever used in this chapter, the following terms shall have the meanings ascribed to them in this section:

(1) "Beneficiary" has the meaning ascribed to it by common law, including, without limitation, any heir, devisee or legatee of an estate or beneficiary of a trust.

(2) "Distributive share" means, with respect to any member and with respect to any taxable year of such member:

In the case of a pass-through entity that is classified as a partnership under the Internal Revenue Code, the distributive share of such member for such taxable year of the pass-through entity's income, gain, loss or deduction, or items thereof, as appropriate, determined under § 704 of the Internal Revenue Code [26 U.S.C. § 704]; or

In the case of a pass-through entity that is an S corporation for federal income tax purposes, the pro rata share of such member for such taxable year of the pass-through entity's income, gain, loss or deduction, or items thereof, as appropriate, determined under § 1377(a) of the Internal Revenue Code [26 U.S.C. § 1377(a)].

(3) "Member of a pass-through entity" or "member" means a person treated for federal income tax purposes as either a partner in a partnership or a shareholder of an S corporation, but does not include a beneficiary of an estate or trust.

(4) "Nonresident estate" means an estate which is not a resident estate.

(5) "Nonresident trust" means a trust that is not a resident trust of this State.

(6) "Pass-through entity" means any person:

a. Which is classified as a partnership under the Internal Revenue Code [26 U.S.C. § 1, et seq.]; or

b. Which is classified as an "S corporation" for federal income tax purposes within the meaning of § 1361 of the Internal Revenue Code [26 U.S.C. § 1361].

(7) "Resident estate" means the estate of a decedent who at death was domiciled in this State.

(8) "Resident trust" means a trust:

a. Created by the will of a decedent who at death was domiciled in this State;

b. Created by, or consisting of property of, a person domiciled in this State; or

c. With respect to which the conditions of 1 of the following paragraphs are met during more than 1/2 of any taxable year:

1. The trust has only 1 trustee who or which is:

A. A resident individual of this State, or

B. A corporation, partnership or other entity having an office for the conduct of trust business in this State;

2. The trust has more than 1 trustee, and 1 of such trustees is a corporation, partnership or other entity having an office for the conduct of trust business in this State; or

3. The trust has more than 1 trustee, all of whom are individuals and 1/2 or more of whom are resident individuals of this State.

(9) "Trust" means an entity classified as a trust for federal income tax purposes, other than a trust of which the grantor or another person is treated as the owner of the entire trust under §§ 672 through 679 of the Internal Revenue Code [26 U.S.C. §§ 672-679].

72 Del. Laws, c. 467, § 1.;

The taxable year of a pass-through entity, estate or trust for purposes of this title shall be the same as its taxable year determined under the Internal Revenue Code. A change in the taxable year of a pass-through entity, estate or trust under the provisions of the Internal Revenue Code shall effect a change of its taxable year under this title.

72 Del. Laws, c. 467, § 1.;

The accounting method of a pass-through entity, estate or trust for purposes of this title shall be the same as its accounting method determined under the Internal Revenue Code. A change in the accounting method of a pass-through entity, estate or trust under the provisions of the Internal Revenue Code shall effect a change of its accounting method under this title.

72 Del. Laws, c. 467, § 1.;

An adjustment made to any item of income, gain, loss or deduction reported on the federal information or tax return of a pass-through entity shall effect an adjustment to such item of income, gain, loss or deduction under this title to the extent necessary to prevent such item from being duplicated or omitted.

72 Del. Laws, c. 467, § 1.;

(a) Pass-through entities.

(1) Returns. — Every pass-through entity having any income from sources within this State shall make a return to this State for the taxable year setting forth the information required by § 6031 or § 6037 of the Internal Revenue Code [26 U.S.C. § 6031 or § 6037] and such other information as the Director may prescribe pursuant to § 513 of this title. Such return may, to the extent prescribed by the Director, require the separate statement of any item of the pass-through entity's income, gain, loss or deduction if the separate treatment of such item could affect the liability for tax under this title of any member.

(2) Copies to members. — A pass-through entity required to file a return pursuant to paragraph (a)(1) of this section shall provide to each member a copy of such information shown on such return as the Director may prescribe pursuant to § 513 of this title.

(3) Time to file return. — A return required to be filed pursuant to paragraph (a)(1) of this section shall be filed on the date on which such pass-through entity's federal tax return is due.

(b) Estates and trusts.

(1) An income tax return with respect to the tax imposed by Chapter 11 of this title shall be made to this State by:

a. Every resident estate or resident trust which:

1. Is required to file a federal income tax return for the taxable year or would be required to file a federal income tax return for the taxable year if the additions provided under § 1106 of this title were included in its federal gross income, and

2. Which has not distributed, or set aside for distribution, to nonresident beneficiaries its entire federal taxable income as modified by § 1106 of this title; and

b. Every nonresident estate or nonresident trust which:

1. Is required to file a federal income tax return for the taxable year or would be required to file a federal income tax return for the taxable year if the additions provided under § 1106 of this title were included in its federal gross income, and

2. Which has any income from sources within this State.

(2) Copies to members. — An estate or trust required to file a return pursuant to paragraph (b)(1) of this section shall provide to each beneficiary of such estate or trust a copy of such information shown on such return as the Director may prescribe pursuant to § 513 of this title.

(3) Time to file return. — A return required to be filed pursuant to paragraph (b)(1) of this section shall be filed on the thirtieth day of the fourth month following the end of the estate's or trust's taxable year.

72 Del. Laws, c. 467, § 1; 81 Del. Laws, c. 19, § 4.;

(a) Definitions.

(1) "Director" means the Director of the Division of Revenue or the Secretary of Finance of the State.

(2) "Nonresident pass-through entity" means, for purposes of this section, a pass-through entity having 1 or more members who are nonresident individuals or nonresident corporations.

(3) "Recorder" means the official with duty to record deeds and similar instruments.

(4) "Transfer under a deed in lieu of foreclosure" includes all of the following:

a. A transfer by the owner of the property to the following:

1. With respect to a deed in lieu of foreclosure of a mortgage, the mortgagee, the assignee of the mortgage, or any designee or nominee of the mortgagee or assignee of the mortgage.

2. With respect to a deed in lieu of foreclosure of any other lien instrument, the holder of the debt or other obligation secured by the lien instrument or any designee, nominee, or assignee of the holder of the debt secured by the lien instrument.

b. A transfer by any of the persons described in paragraph (a)(4)a. of this section to a subsequent purchaser for value.

(5) "Transfer under a foreclosure of a mortgage or other lien instrument" includes the following:

a. With respect to the foreclosure of a mortgage, all of the following:

1. A transfer by the sheriff or other party authorized to conduct the foreclosure sale under the mortgage to 1 of the following:

A. The mortgagee or the assignee of the mortgage.

B. Any designee, nominee, or assignee of the mortgagee or assignee of the mortgage.

C. Any purchaser, substituted purchaser, or assignee of any purchaser or substituted purchaser of the foreclosed property.

2. A transfer by any of the persons described in paragraphs (a)(5)a.1.A. and (a)(5)a.1.B. of this section to a subsequent purchaser for value.

b. With respect to the foreclosure of any other lien instrument, all of the following:

1. A transfer by the party authorized to make the sale to 1 of the following:

A. The holder of the debt or other obligation secured by the lien instrument.

B. Any designee, nominee, or assignee of the holder of the debt secured by the lien instrument.

C. Any purchaser, substituted purchaser, or assignee of any purchaser or substituted purchaser of the foreclosed property.

2. A transfer by any of the persons described in paragraphs (a)(5)b.1.A. and (a)(5)b.1.B. of this section to a subsequent purchaser for value.

(b) Estimated tax return; alternative forms. — Every nonresident pass-through entity that sells or exchanges Delaware real estate shall file with the Recorder for and on behalf of each of its nonresident members 1 of the following:

(1) A "Declaration of Estimated Income Tax" or a "Delaware Corporate Tentative Tax Return" for the quarter in which the sale or exchange is settled, applying the highest marginal rate of each of its nonresident members under § 1102 or § 1902 of this title, as the case may be, to an estimate of the nonresident member's distributive share of the gain recognized on the sale or exchange.

(2) An alternative form prepared by the Director to calculate income tax at the highest marginal rate under § 1102 or § 1902 of this title, applied to the nonresident member's distributive share of the difference between the total amount realized by the transferor and the net balance due at the time of settlement of all recorded liens encumbering the real estate.

(3) An alternative form prepared by the Director to declare under penalties of perjury that the sale or exchange of real estate is exempt from recognition of capital gain with respect to the tax year of the sale or exchange, with a statement of the facts and a citation to the provision or provisions of the Internal Revenue Code (Title 26, U.S.C.) relied upon.

(4) An alternative form prepared by the Director to declare under penalties of perjury that the sale or exchange of real estate is 1 of the following:

a. A transfer under a foreclosure of a mortgage or other lien instrument.

b. A transfer under a deed in lieu of foreclosure.

(c) Due date of estimated tax return, payment. — The return or form provided for in subsection (b) of this section, and the estimated tax reported due, shall be remitted with the deed to the Recorder before the deed shall be recorded.

(d) Payment credited to transferor. — The estimated tax remitted under subsection (c) of this section shall be deemed to have been paid to the Director on behalf of the nonresident members of the pass-through entity and the nonresident members shall be credited for purposes of §§ 1169 and 1170 or § 1905 of this title as a payment made on the date remitted to the Recorder.

(e) Persons or entities not liable for payments. — Neither the transferee, title insurance producer, title insurer, settlement agent, closing attorney, lending institution, nor the real estate agent or broker in a transaction subject to this section shall be liable for any amounts required to be collected and paid over to the Recorder or Director under this section.

(f) Tax not imposed; lawful collection of taxes not prohibited. — This section does not:

(1) Impose any tax on a transferor or affect any liability of the transferor for any tax; or

(2) Prohibit the Director from collecting any taxes due from a transferor in any other manner authorized by law.

77 Del. Laws, c. 291, § 2; 81 Del. Laws, c. 363, § 2.;