Hawaii Tax on Accumulation Distribution of Trusts

Tax on Accumulation Distribution of Trusts
Form N-405, Rev. 2022, Tax On Accumulation Distribution of Trusts
Clear Form
STATE OF HAWAII—DEPARTMENT OF TAXATION

FORM

Tax on Accumulation Distribution
of Trusts

N-405
(Rev. 2023)

Name(s) as shown on return	

† Attach to beneficiary’s tax return.

Part I
1	
2	
3	
4	
5	
6	
7	
8	
9	
10	
11	
12	



N405_I 2023A 01 VID01
Social Security Number

Name and mailing address of trust	

Type of Trust:
 Domestic	

2023

Federal Employer I.D. No.

Beneficiary’s date of birth

Enter number of trusts from which you received accumulation
distributions in this tax year (see General Instructions)................. †

Foreign

Average Income and Determination of Computation Years

Amount of current distribution that is considered distributed in earlier tax years. (From Schedule J (Form N-40),
line 31 column (a).)...................................................................................................................................................................	
Distributions of income accumulated before you were born or reached age 21. ....................................................................	
Line 1 minus line 2. .................................................................................................................................................................	
Taxes imposed on the trust on amounts from line 3. (From Schedule J (Form N-40), line 31 column (b).).............................	
Total (add lines 3 and 4). .........................................................................................................................................................	
Tax-exempt interest included on line 5. (From Schedule J (Form N-40), line 31 column (c)).................................................	
Taxable part of line 5 (Line 5 minus line 6). . ...........................................................................................................................	
Number of trust’s earlier tax years in which amounts on line 7 are considered distributed. . ..................................................	
Average annual amount considered distributed (divide line 3 by line 8). .......................................	 9
Multiply line 9 by .25 (25%). ...........................................................................................................	10
Number of earlier tax years to be taken into account (see Instructions). ................................................................................	
Average amount for recomputing tax (divide line 7 by line 11). Enter here and in each column on line 15............................	

13	 Enter your taxable income before this
distribution for the 5 immediately preceding
tax years (see Instructions). ...........................

Part II

2022

2021

2020

1
2
3
4
5
6
7
8

11
12

2019

2018

Computation of Tax Attributable to the Accumulation Distribution
(a) ______

(b) ______

(c) ______

14	 Enter the amounts from line 13, eliminating the highest and lowest
taxable income years. ........................................................................................... 	 14
15	 Enter amount from line 12 in each column............................................................. 	 15
16	 Recomputed taxable income (add lines 14 and 15)............................................... 	 16
17	 Income tax on amounts on line 16 (see Instructions)............................................. 	 17
18	 Income tax before credits on amounts on line 14................................................... 	 18
19	 Additional tax before credits (line 17 minus line 18, but not less than zero).......... 	 19
20	 Tax credit adjustment (see Instructions)................................................................. 	 20
21	 Line 19 minus line 20............................................................................................. 	 21
22	 Add amounts on line 21, columns (a), (b), and (c) and enter here...........................................................................................	 22
23	 Divide the amount on line 22 by 3. ..........................................................................................................................................	 23
24	 Multiply the amount on line 23 by the number of years on line 11. .........................................................................................	 24
25	 Enter the amount from line 4. ..................................................................................................................................................	 25
26	 Partial tax (line 24 minus line 25). If less than zero, enter zero. Enter here and as indicated in the Instructions. ................	 26

ID NO 01

FORM N-405 (Rev. 2023)

FORM N-405		
(REV. 2023)

General Instructions

Specific Instructions

For tax years beginning after August 5, 1997,
the tax on accumulation distributions from trusts
does not apply to most domestic trusts. The tax
applies to foreign trusts, certain domestic trusts
that were once foreign trusts, and certain domestic trusts created before March 1, 1984. For
more information, see section 665(c).

Line 1.—For a nonresident individual or foreign
corporation, include only the part of the accumulation distribution that is attributable to Hawaii sources or is effectively connected with a
trade or business carried on in Hawaii.

(Section references are to the Internal Revenue
Code.)

Purpose of Form
The beneficiary of a trust that accumulated, instead of distributing, its income currently uses
Form N-405 to figure the partial tax under section 667. The fiduciary notifies the beneficiary
of an “accumulation distribution” by completing
Part IV of Schedule J (Form N-40).
If you received a distribution for this tax year
from a trust that accumulated its income instead
of distributing it to you each year (and the trust
paid taxes on that income), you must complete
Form N-405 to compute any additional tax liability. The trustee must give you a completed
Part IV of Schedule J (Form N-40) so you can
complete this form.
If you received accumulation distributions
from more than one trust during the current tax
year, prepare a separate Form N-405 for each
trust from which you received an accumulation
distribution. You can arrange the distributions
in any order you want them considered to have
been made.

Definitions
Undistributed Net Income (UNI).— Undistributed net income is the distributable net income
(DNI) of the trust for any tax year less: (1) the
amount of income required to be distributed
currently and any other amounts properly paid
or credited or required to be distributed to beneficiaries in the tax year; and (2) the taxes imposed on the trust attributable to such DNI.
Accumulation Distribution.—An accumulation distribution is the excess of amounts properly paid, credited, or required to be distributed
(other than income required to be distributed
currently) over the DNI of the trust reduced by
the amount of income required to be distributed
currently.
Generally, except for tax-exempt interest,
the distribution loses it character upon distribution to the beneficiary. See section 667(d) for
special rules for foreign trusts.

Part I—Average Income and
Determination of Computation
Years

Line 2.—Enter any amount from line 1 that represents UNI of a domestic trust accumulated
before you were born or reached age 21. However, if the multiple trust rule applies, see the
instructions for line 4.
Line 4.—Multiple Trust Rule. If you received
accumulation distributions from two or more
other trusts that were considered to have been
made in any of the earlier tax years in which the
current accumulation distribution is considered
to have been made, do not include on line 4 the
taxes attributable to the current accumulation
distribution considered to have been distributed
in the same earlier tax year(s).
For this special rule only count as trusts
those trusts for which the sum of this accumulation distribution and any earlier accumulation
distributions from the trust which are considered
under section 666(a) to have been distributed
in the same earlier tax year, is $1,000 or more.
Foreign trust.—If the trust is a foreign trust,
see section 665(d)(2).
Line 8.—You can determine the number of
years in which the UNI is deemed to have been
distributed by counting the “throwback years”
for which there are entries on line 26 through
30 of Part IV of Schedule J (Form N-40). These
throwback rules apply even if you would not
have been entitled to receive a distribution in
the earlier tax year if the distribution had actually been made then.
Note: There can be more than five “throwback years.”
Line 11.—From the number of years entered on
line 8, subtract any year in which the distribution
from column (a), Part IV of Schedule J (Form
N-40) is less than the amount on line 10 of Form
N-405. If the distribution for each throwback
year is more than line 10, then enter the same
number on line 11 as you entered on line 8.
Line 13.—Enter your taxable incomes for years
2018 - 2022, even if less than five years of the
trust had accumulated income after you became 21. Use the taxable income as reported,
amended by you, or as changed by the Hawaii
Department of Taxation. Include in the taxable

PAGE 2

income amounts considered distributed in that
year as a result of prior accumulation distributions whether from the same or another trust,
and whether made in an earlier year or the current year.
If your taxable income as adjusted is less
than zero, enter zero.

Part II—Computation of Tax
Attributable to the Accumulation
Distribution
In the column header above line 14, enter the
taxable income YEAR that applies to the information contained for lines 14 through 23 of that
column.
Line 17.—Figure the income tax on the income
on line 16 using the tax rates in effect for your
particular earlier tax year shown in each of the
three columns. You may use the Tax Table or
Tax Rate Schedules. The Tax Rate Schedules
and appropriate prior year forms can be obtained from any taxation district office.
Line 18.—Enter your income tax as originally
reported, corrected, or amended, before reduction for any credits for your particular earlier
year shown in each of the three columns.
Line 20.—Nonrefundable credits that are limited to tax liability may be changed because of
an accumulation distribution. If the total allowable credits for any of the three computation
years increases, enter the increase on line 20.
However, do not treat as an increase the part of
the credit that was allowable as a carryforward
credit in the current or any preceding year other
than the computation year.
To refigure these credits, you must consider
the changes to the tax before credits for each
of the three computation years due to previous
accumulation distributions.
Attach the proper form for any credit you refigure. The amount determined for items on this
line is limited to tax law provisions in effect in
those years involved.
Line 26.—Attach this form to the current income
tax return being filed by the beneficiary and add
the amount (if greater than zero) on line 26 to
the total tax liability (before any tax credits) on
the current income tax return of the beneficiary.
If Hawaii estate taxes or Hawaii generationskipping transfer taxes apply to the accumulation distribution, reduce the partial tax proportionately for those taxes. See section 667(b)(6),
for the computation and adjust the numerator
and denominator accordingly for Hawaii taxes
paid.