26 U.S.C. § 584 : US Code - Section 584: Common trust funds

Search 26 U.S.C. § 584 : US Code - Section 584: Common trust funds

(a) Definitions
For purposes of this subtitle, the term "common trust fund" means
a fund maintained by a bank -
(1) exclusively for the collective investment and reinvestment
of moneys contributed thereto by the bank in its capacity -
(A) as a trustee, executor, administrator, or guardian, or
(B) as a custodian of accounts -
(i) which the Secretary determines are established pursuant
to a State law which is substantially similar to the Uniform
Gifts to Minors Act as published by the American Law
Institute, and
(ii) with respect to which the bank establishes, to the
satisfaction of the Secretary, that it has duties and
responsibilities similar to duties and responsibilities of a
trustee or guardian; and
(2) in conformity with the rules and regulations, prevailing
from time to time, of the Board of Governors of the Federal
Reserve System or the Comptroller of the Currency pertaining to
the collective investment of trust funds by national banks.
For purposes of this subsection, two or more banks which are
members of the same affiliated group (within the meaning of section
1504) shall be treated as one bank for the period of affiliation
with respect to any fund of which any of the member banks is
trustee or two or more of the member banks are cotrustees.
(b) Taxation of common trust funds
A common trust fund shall not be subject to taxation under this
chapter and for purposes of this chapter shall not be considered a
corporation.
(c) Income of participants in fund
Each participant in the common trust fund in computing its
taxable income shall include, whether or not distributed and
whether or not distributable -
(1) as part of its gains and losses from sales or exchanges of
capital assets held for not more than 1 year, its proportionate
share of the gains and losses of the common trust fund from sales
or exchanges of capital assets held for not more than 1 year,
(2) as part of its gains and losses from sales or exchanges of
capital assets held for more than 1 year, its proportionate share
of the gains and losses of the common trust fund from sales or
exchanges of capital assets held for more than 1 year, and
(3) its proportionate share of the ordinary taxable income or
the ordinary net loss of the common trust fund, computed as
provided in subsection (d).
The proportionate share of each participant in the amount of
dividends received by the common trust fund and to which section
1(h)(11) applies shall be considered for purposes of such paragraph
as having been received by such participant.
(d) Computation of common trust fund income
The taxable income of a common trust fund shall be computed in
the same manner and on the same basis as in the case of an
individual, except that -
(1) there shall be segregated the gains and losses from sales
or exchanges of capital assets;
(2) after excluding all items of gain and loss from sales or
exchanges of capital assets, there shall be computed -
(A) an ordinary taxable income which shall consist of the
excess of the gross income over deductions; or
(B) an ordinary net loss which shall consist of the excess of
the deductions over the gross income; and
(3) the deduction provided by section 170 (relating to
charitable, etc., contributions and gifts) shall not be allowed.
(e) Admission and withdrawal
No gain or loss shall be realized by the common trust fund by the
admission or withdrawal of a participant. The admission of a
participant shall be treated with respect to the participant as the
purchase of, or an exchange for, the participating interest. The
withdrawal of any participating interest by a participant shall be
treated as a sale or exchange of such interest by the participant.
(f) Different taxable years of common trust fund and participant
If the taxable year of the common trust fund is different from
that of a participant, the inclusions with respect to the taxable
income of the common trust fund, in computing the taxable income of
the participant for its taxable year, shall be based upon the
taxable income of the common trust fund for any taxable year of the
common trust fund ending within or with the taxable year of the
participant.
(g) Net operating loss deduction
The benefit of the deduction for net operating losses provided by
section 172 shall not be allowed to a common trust fund, but shall
be allowed to the participants in the common trust fund under
regulations prescribed by the Secretary.
(h) Nonrecognition treatment for certain transfers to regulated
investment companies
(1) In general
If -
(A) a common trust fund transfers substantially all of its
assets to one or more regulated investment companies in
exchange solely for stock in the company or companies to which
such assets are so transferred, and
(B) such stock is distributed by such common trust fund to
participants in such common trust fund in exchange solely for
their interests in such common trust fund,
no gain or loss shall be recognized by such common trust fund by
reason of such transfer or distribution, and no gain or loss
shall be recognized by any participant in such common trust fund
by reason of such exchange.
(2) Basis rules
(A) Regulated investment company
The basis of any asset received by a regulated investment
company in a transfer referred to in paragraph (1)(A) shall be
the same as it would be in the hands of the common trust fund.
(B) Participants
The basis of the stock which is received in an exchange
referred to in paragraph (1)(B) shall be the same as that of
the property exchanged. If stock in more than one regulated
investment company is received in such exchange, the basis
determined under the preceding sentence shall be allocated
among the stock in each such company on the basis of respective
fair market values.
(3) Treatment of assumptions of liability
(A) In general
In determining whether the transfer referred to in paragraph
(1)(A) is in exchange solely for stock in one or more regulated
investment companies, the assumption by any such company of a
liability of the common trust fund shall be disregarded.
(B) Special rule where assumed liabilities exceed basis
(i) In general
If, in any transfer referred to in paragraph (1)(A), the
assumed liabilities exceed the aggregate adjusted bases (in
the hands of the common trust fund) of the assets transferred
to the regulated investment company or companies -
(I) notwithstanding paragraph (1), gain shall be
recognized to the common trust fund on such transfer in an
amount equal to such excess,
(II) the basis of the assets received by the regulated
investment company or companies in such transfer shall be
increased by the amount so recognized, and
(III) any adjustment to the basis of a participant's
interest in the common trust fund as a result of the gain
so recognized shall be treated as occurring immediately
before the exchange referred to in paragraph (1)(B).
If the transfer referred to in paragraph (1)(A) is to two or
more regulated investment companies, the basis increase under
subclause (II) shall be allocated among such companies on the
basis of the respective fair market values of the assets
received by each of such companies.
(ii) Assumed liabilities
For purposes of clause (i), the term "assumed liabilities"
means any liability of the common trust fund assumed by any
regulated investment company in connection with the transfer
referred to in paragraph (1)(A).
(C) Assumption
For purposes of this paragraph, in determining the amount of
any liability assumed, the rules of section 357(d) shall apply.
(4) Common trust fund must meet diversification rules
This subsection shall not apply to any common trust fund which
would not meet the requirements of section 368(a)(2)(F)(ii) if it
were a corporation. For purposes of the preceding sentence,
Government securities shall not be treated as securities of an
issuer in applying the 25-percent and 50-percent test and such
securities shall not be excluded for purposes of determining
total assets under clause (iv) of section 368(a)(2)(F).
(i) Taxable year of common trust fund
For purposes of this subtitle, the taxable year of any common
trust fund shall be the calendar year.