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(1) The share of a nonresident estate or trust under section 39-22-403 and the share of a nonresident beneficiary of any estate or trust under section 39-22-109 in estate or trust income, gain, loss, and deduction from sources within Colorado shall be determined as follows:
(a) There shall be determined the items of income, gain, loss, and deduction derived from sources within Colorado which enter into the definition of federal distributable net income of the estate or trust for the taxable year, including such items from another estate or trust of which the first estate or trust is a beneficiary. Such determination of source shall be made in accordance with the applicable rules of section 39-22-109 as in the case of a nonresident individual.
(b) There shall be added or subtracted the modifications described in section 39-22-104, to the extent relating to items of income, gain, loss, and deduction, derived from sources within Colorado, which enter into the definition of federal distributable net income, including such items from another estate or trust of which the first estate or trust is a beneficiary. No modification shall be made under this paragraph (b) which has the effect of duplicating an item already reflected in the definition of federal distributable net income.
(c) (I) The amounts determined under paragraphs (a) and (b) of this subsection (1) shall be allocated among the estate or trust and its beneficiaries, including, solely for the purpose of this allocation, resident beneficiaries, in proportion to their respective shares of federal distributable net income.
(II) The amounts so allocated shall have the same character under this article as for federal income tax purposes.
(2) (a) If the estate or trust has no federal distributable net income for the taxable year, the share of each beneficiary, including, solely for the purpose of this allocation, resident beneficiaries, in the net amount, determined under paragraphs
(a) and (b) of subsection (1) of this section, shall be in proportion to his share of the estate or trust income for such year, under local law or the governing instrument which is required to be distributed currently and any other amounts of such income distributed in such year. Any balance of such net amount shall be allocated to the estate or trust.
(b) The executive director may, by regulation, establish such other method or methods of determining the respective shares of the beneficiaries and of the estate or trust in its income derived from sources within Colorado and in the modifications related thereto as may be appropriate and equitable. Such method may be used by the fiduciary in his discretion whenever the allocation of such respective shares under subsection (1) of this section or paragraph (a) of this subsection (2) would result in an inequity which is substantial both in amount and in relation to the total amount of the modifications referred to in paragraph (b) of subsection (1) of this section.