Sec. 6. 36 MRSA §5164, sub-§1, as amended by PL 1999, c. 708, §38, is further amended to read:

1. Fiduciary adjustment defined. The fiduciary adjustment is the net amount of the modifications described in section 5122, including subsection 3 if the estate or trust is a beneficiary of another estate or trust, which relates to items of income or deduction of an estate or trust. Income taxes imposed by this State or any other taxing jurisdiction and interest or expenses incurred in the production of income exempt from tax under this Part deducted in arriving at federal taxable income must be added back to the fiduciary adjustment. Interest or expenses incurred in the production of income taxable under this Part but exempt from federal income tax must be subtracted from the fiduciary adjustment.

Interest income earned on a trust that is established as an individual medical savings account pursuant to chapter 914 is not included as income if the interest income is received on obligations of a state, territory or possession of the United States or a political subdivision of a state, territory or possession that is located outside this State.__For such interest income, interest earned by a trust that is established as an individual medical savings account may be subtracted from the adjusted gross income to the extent that the income is included in the trust's Maine gross income during the taxable year.

Sec. 7. 36 MRSA §5204-C is enacted to read:

§5204-C.__Nonqualified withdrawal from an individual medical

savings account

The tax imposed under this Part on any individual as a result of a withdrawal of funds from an individual medical savings account other than for the payment of eligible medical expenses must be increased by an amount equal to 10% of the amount withdrawn.

Sec. 8. 36 MRSA §5220, sub-§1, ķA, as repealed and replaced by PL 1987, c. 504, §33, is amended to read:

A. Who is required to file a federal income tax return for the taxable year; or