Sec. 7. 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 that relate 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 923 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 of this State.__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 interest income is included in the trust's Maine gross income during the taxable year.

Sec. 8. 36 MRSA §5200-A, sub-§2, śL, as amended by PL 2003, c. 20, Pt. EE, §3, is further amended to read:

L. An amount equal to the absolute value of any net operating loss arising from a tax year beginning or ending in 2001 for which federal taxable income was increased under subsection 1, paragraph M and that, pursuant to Section 102 of the federal Job Creation and Worker Assistance Act of 2002, Public Law 107-147, was carried back more than 2 years to the taxable year for federal income tax purposes, but only to the extent that:

(1) Maine taxable income is not reduced below zero;

(2) The taxable year is either within 2 years prior to the year in which the loss arose or within the