Section 643: Definitions applicable to subparts A, B, C, and D
Internal Revenue Code
Table of Contents
This 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).
(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.
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.
(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.
(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
(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
(A) In general
In the case of any distribution of property (other than cash) to which an election under this paragraph applies—
(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.
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.
(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
(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
(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.
(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—
(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).
(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.
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.
(Aug. 16, 1954, ch. 736,
"(A) only on the trust's return of the tax imposed by this chapter for the taxable year, and
"(B) only if such return is filed on or before the 65th day after the close of the taxable year."
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Effective Date of 1996 Amendment
"(A) which is treated as owned by the grantor under section 676 or 677 (other than subsection (a)(3) thereof) of the Internal Revenue Code of 1986, and
"(B) which is in existence on September 19, 1995.
The preceding sentence shall not apply to the portion of any such trust attributable to any transfer to such trust after September 19, 1995."
Effective Date of 1993 Amendment
Effective Date of 1989 Amendment
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
Amendment by section 301(b)(7) of
Amendment by section 612(b)(4) of
Amendment by section 1806(a), (c) of
Effective Date of 1984 Amendment
"(A) the time for making an election under section 643(d)(3) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section) shall not expire before January 1, 1985, and
"(B) the requirement that such election be made on the return of the estate or trust shall not apply."
"(A) Except as provided in this paragraph, the amendments made by this subsection [amending this section and
"(B) The amendments made by paragraph (4) [amending
Effective Date of 1983 Amendment
Effective Date of 1981 Amendment
Amendment by section 301(b)(4) of
Effective and Termination Dates of 1980 Amendment
Effective Date of 1976 Amendment
For effective date of amendment by section 1013(e)(2) of
Effective Date of 1962 Amendment
Treatment as Single Trust
"(1) on a return for the 1st taxable year of the trusts involved beginning after March 1, 1984, 2 or more trusts were treated as a single trust for purposes of the tax imposed by
"(2) such trusts would have been required to be so treated but for the amendment made by section 1806(b) of the Reform Act [
"(3) such trusts did not accumulate any income during such taxable year and did not make any accumulation distributions during such taxable year,
then, notwithstanding the amendment made by section 1806(b) of the Reform Act, such trusts shall be treated as one trust for purposes of such taxable year."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of