26 U.S.C. § 643 : US Code - Section 643: Definitions applicable to subparts A, B, C, and D

Search 26 U.S.C. § 643 : US Code - Section 643: Definitions applicable to subparts A, B, C, and D

    (a) Distributable net income
      For purposes of this part, the term "distributable net income"
    means, with respect to any taxable year, the taxable income of the
    estate or trust computed with the following modifications - 
      (1) Deduction for distributions
        No deduction shall be taken under sections 651 and 661
      (relating to additional deductions).
      (2) Deduction for personal exemption
        No deduction shall be taken under section 642(b) (relating to
      deduction for personal exemptions).
      (3) Capital gains and losses
        Gains from the sale or exchange of capital assets shall be
      excluded to the extent that such gains are allocated to corpus
      and are not (A) paid, credited, or required to be distributed to
      any beneficiary during the taxable year, or (B) paid, permanently
      set aside, or to be used for the purposes specified in section
      642(c). Losses from the sale or exchange of capital assets shall
      be excluded, except to the extent such losses are taken into
      account in determining the amount of gains from the sale or
      exchange of capital assets which are paid, credited, or required
      to be distributed to any beneficiary during the taxable year. The
      exclusion under section 1202 shall not be taken into account.
      (4) Extraordinary dividends and taxable stock dividends
        For purposes only of subpart B (relating to trusts which
      distribute current income only), there shall be excluded those
      items of gross income constituting extraordinary dividends or
      taxable stock dividends which the fiduciary, acting in good
      faith, does not pay or credit to any beneficiary by reason of his
      determination that such dividends are allocable to corpus under
      the terms of the governing instrument and applicable local law.
      (5) Tax-exempt interest
        There shall be included any tax-exempt interest to which
      section 103 applies, reduced by any amounts which would be
      deductible in respect of disbursements allocable to such interest
      but for the provisions of section 265 (relating to disallowance
      of certain deductions).
      (6) Income of foreign trust
        In the case of a foreign trust - 
          (A) There shall be included the amounts of gross income from
        sources without the United States, reduced by any amounts which
        would be deductible in respect of disbursements allocable to
        such income but for the provisions of section 265(a)(1)
        (relating to disallowance of certain deductions).
          (B) Gross income from sources within the United States shall
        be determined without regard to section 894 (relating to income
        exempt under treaty).
          (C) Paragraph (3) shall not apply to a foreign trust. In the
        case of such a trust, there shall be included gains from the
        sale or exchange of capital assets, reduced by losses from such
        sales or exchanges to the extent such losses do not exceed
        gains from such sales or exchanges.
      (7) Abusive transactions
        The Secretary shall prescribe such regulations as may be
      necessary or appropriate to carry out the purposes of this part,
      including regulations to prevent avoidance of such purposes.

    If the estate or trust is allowed a deduction under section 642(c),
    the amount of the modifications specified in paragraphs (5) and (6)
    shall be reduced to the extent that the amount of income which is
    paid, permanently set aside, or to be used for the purposes
    specified in section 642(c) is deemed to consist of items specified
    in those paragraphs. For this purpose, such amount shall (in the
    absence of specific provisions in the governing instrument) be
    deemed to consist of the same proportion of each class of items of
    income of the estate or trust as the total of each class bears to
    the total of all classes.
    (b) Income
      For purposes of this subpart and subparts B, C, and D, the term
    "income", when not preceded by the words "taxable", "distributable
    net", "undistributed net", or "gross", means the amount of income
    of the estate or trust for the taxable year determined under the
    terms of the governing instrument and applicable local law. Items
    of gross income constituting extraordinary dividends or taxable
    stock dividends which the fiduciary, acting in good faith,
    determines to be allocable to corpus under the terms of the
    governing instrument and applicable local law shall not be
    considered income.
    (c) Beneficiary
      For purposes of this part, the term "beneficiary" includes heir,
    legatee, devisee.
    (d) Coordination with back-up withholding
      Except to the extent otherwise provided in regulations, this
    subchapter shall be applied with respect to payments subject to
    withholding under section 3406 - 
        (1) by allocating between the estate or trust and its
      beneficiaries any credit allowable under section 31(c) (on the
      basis of their respective shares of any such payment taken into
      account under this subchapter),
        (2) by treating each beneficiary to whom such credit is
      allocated as if an amount equal to such credit has been paid to
      him by the estate or trust, and
        (3) by allowing the estate or trust a deduction in an amount
      equal to the credit so allocated to beneficiaries.
    (e) Treatment of property distributed in kind
      (1) Basis of beneficiary
        The basis of any property received by a beneficiary in a
      distribution from an estate or trust shall be - 
          (A) the adjusted basis of such property in the hands of the
        estate or trust immediately before the distribution, adjusted
        for
          (B) any gain or loss recognized to the estate or trust on the
        distribution.
      (2) Amount of distribution
        In the case of any distribution of property (other than cash),
      the amount taken into account under sections 661(a)(2) and
      662(a)(2) shall be the lesser of - 
          (A) the basis of such property in the hands of the
        beneficiary (as determined under paragraph (1)), or
          (B) the fair market value of such property.
      (3) Election to recognize gain
        (A) In general
          In the case of any distribution of property (other than cash)
        to which an election under this paragraph applies - 
            (i) paragraph (2) shall not apply,
            (ii) gain or loss shall be recognized by the estate or
          trust in the same manner as if such property had been sold to
          the distributee at its fair market value, and
            (iii) the amount taken into account under sections
          661(a)(2) and 662(a)(2) shall be the fair market value of
          such property.
        (B) Election
          Any election under this paragraph shall apply to all
        distributions made by the estate or trust during a taxable year
        and shall be made on the return of such estate or trust for
        such taxable year.

      Any such election, once made, may be revoked only with the
      consent of the Secretary.
      (4) Exception for distributions described in section 663(a)
        This subsection shall not apply to any distribution described
      in section 663(a).
    (f) Treatment of multiple trusts
      For purposes of this subchapter, under regulations prescribed by
    the Secretary, 2 or more trusts shall be treated as 1 trust if - 
        (1) such trusts have substantially the same grantor or grantors
      and substantially the same primary beneficiary or beneficiaries,
      and
        (2) a principal purpose of such trusts is the avoidance of the
      tax imposed by this chapter.

    For purposes of the preceding sentence, a husband and wife shall be
    treated as 1 person.
    (g) Certain payments of estimated tax treated as paid by
      beneficiary
      (1) In general
        In the case of a trust - 
          (A) the trustee may elect to treat any portion of a payment
        of estimated tax made by such trust for any taxable year of the
        trust as a payment made by a beneficiary of such trust,
          (B) any amount so treated shall be treated as paid or
        credited to the beneficiary on the last day of such taxable
        year, and
          (C) for purposes of subtitle F, the amount so treated - 
            (i) shall not be treated as a payment of estimated tax made
          by the trust, but
            (ii) shall be treated as a payment of estimated tax made by
          such beneficiary on January 15 following the taxable year.
      (2) Time for making election
        An election under paragraph (1) shall be made on or before the
      65th day after the close of the taxable year of the trust and in
      such manner as the Secretary may prescribe.
      (3) Extension to last year of estate
        In the case of a taxable year reasonably expected to be the
      last taxable year of an estate - 
          (A) any reference in this subsection to a trust shall be
        treated as including a reference to an estate, and
          (B) the fiduciary of the estate shall be treated as the
        trustee.
    (h) Distributions by certain foreign trusts through nominees
      For purposes of this part, any amount paid to a United States
    person which is derived directly or indirectly from a foreign trust
    of which the payor is not the grantor shall be deemed in the year
    of payment to have been directly paid by the foreign trust to such
    United States person.
    (i) Loans from foreign trusts
      For purposes of subparts B, C, and D - 
      (1) General rule
        Except as provided in regulations, if a foreign trust makes a
      loan of cash or marketable securities (or permits the use of any
      other trust property) directly or indirectly to or by - 
          (A) any grantor or beneficiary of such trust who is a United
        States person, or
          (B) any United States person not described in subparagraph
        (A) who is related to such grantor or beneficiary,

      the amount of such loan (or the fair market value of the use of
      such property) shall be treated as a distribution by such trust
      to such grantor or beneficiary (as the case may be).
      (2) Definitions and special rules
        For purposes of this subsection - 
        (A) Cash
          The term "cash" includes foreign currencies and cash
        equivalents.
        (B) Related person
          (i) In general
            A person is related to another person if the relationship
          between such persons would result in a disallowance of losses
          under section 267 or 707(b). In applying section 267 for
          purposes of the preceding sentence, section 267(c)(4) shall
          be applied as if the family of an individual includes the
          spouses of the members of the family.
          (ii) Allocation
            If any person described in paragraph (1)(B) is related to
          more than one person, the grantor or beneficiary to whom the
          treatment under this subsection applies shall be determined
          under regulations prescribed by the Secretary.
        (C) Exclusion of tax-exempts
          The term "United States person" does not include any entity
        exempt from tax under this chapter.
        (D) Trust not treated as simple trust
          Any trust which is treated under this subsection as making a
        distribution shall be treated as not described in section 651.
        (E) Exception for compensated use of property
          In the case of the use of any trust property other than a
        loan of cash or marketable securities, paragraph (1) shall not
        apply to the extent that the trust is paid the fair market
        value of such use within a reasonable period of time of such
        use.
      (3) Subsequent transactions
        If any loan (or use of property) is taken into account under
      paragraph (1), any subsequent transaction between the trust and
      the original borrower regarding the principal of the loan (by way
      of complete or partial repayment, satisfaction, cancellation,
      discharge, or otherwise) or the return of such property shall be
      disregarded for purposes of this title.