Massachusetts taxes estate and trust income to the beneficiary even when the fiduciary already paid #10061

Found while reviewing state income lists for #10060.

Problem

ma_gross_income starts from irs_gross_income. Since #9633, federal gross income includes estate_income (a beneficiary's estate or trust income, Schedule E Part III), so Massachusetts now taxes all of it to the beneficiary.

Massachusetts taxes most of this income at the fiduciary level instead:

• M.G.L. c. 62 § 10(a): "No person shall be taxed under this chapter for income received from any trustee or other fiduciary, which income has itself been taxed under this section." (https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section10)
• § 10(c) applies that fiduciary-level tax to trustees and executors under the will of a Massachusetts decedent, and to trusts created by a Massachusetts inhabitant that have a Massachusetts-inhabitant trustee. § 9 does the same for estates of deceased residents (https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section9).
• The 2022 Form 1 instructions list as taxable to the individual only "Income from any estate or trust not taxed directly" (https://web.archive.org/web/20230616200742/https://www.mass.gov/doc/2022-form-1-instructions/download).

So the right answer depends on whether the estate or trust was taxed on Form 2, which the model does not know.

Options

1. Subtract estate_income from Massachusetts gross income by default (the pre-Include estate and trust income in federal gross income and the NIIT base #9633 result), on the view that estates of Massachusetts decedents and trusts with a Massachusetts grantor and trustee are the usual case for a resident beneficiary.
2. Keep the inherited inclusion, which is right for trusts outside § 10(c).
3. Add an input for whether the income was taxed at the fiduciary level, and pick one of the two as its default.

Also check the loss side: ma_gross_income_loss_adjustment adds back Form 1 line 6 and 7 losses for rental, partnership and farm rent income but not for estate_income.

Choosing the default is a modeling call, so this needs a decision before a PR.