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    Internal Revenue Service
 Revenue Ruling

Rev. Rul. 67-241

1967-2 C.B. 225

Sec. 661
 Sec. 662
 Sec. 678

IRS Headnote

A widow, having under the will of her deceased husband a power exercisable
solely by herself to vest in herself certain amounts annually from corpus
of the residuary trust, is treated under section 678(a) of the Internal
Revenue Code of 1954 as the owner of that portion of the trust corpus which
she may vest in herself in the taxable year. The widow's right to exercise
such power was not cumulative, so that upon her failure to exercise it
before the end of any calendar year, her right as to that year lapsed. As
owner of a portion of the trust corpus, there are included under section
671 of the Code in computing her tax liability those items of income,
deduction, and credit against tax attributable to or included in that
portion. The portions of trust corpus considered owned by the widow are not
subject to the provisions of sections 661(a)(2) and 662(a)(2) of the Code
when distributed to her. 

Full Text

Rev. Rul. 67-241 

A decedent in his will gave his widow a power, exercisable solely by her,
to require the trustees of the residuary trust created under his will to
pay to her at her request from corpus during any calendar year an amount
equal to the greater of five percent of the value of the trust corpus or
$5,000. The widow's right to exercise such power was not cumulative, so
that upon her failure to exercise it before the end of any calendar year,
her right as to that year lapsed. The trust income was payable in equal
amounts to the decedent's two sons. 

Section 678(a)(1) of the Internal Revenue Code of 1954 provides a general
rule that a person other than the grantor shall be treated as the owner of
any portion of a trust with respect to which such person has a power
exercisable solely by himself to vest the corpus or the income therefrom in
himself. 

Where a grantor or another person is treated under sections 673 through 678
of the Code as the owner of any portion of a trust, there are included
under section 671 of the Code in computing his tax liability those items of
income, deduction, and credit against tax, attributable to or included in
that portion. 

Section 1.671-2(d) of the Income Tax Regulations provides that items of
income, deduction, and credit not attributable to or included in any
portion of a trust of which the grantor or another person is treated as the
owner under sections 671 through 687 of the Code are subject to the
provisions of sections 641 through 668 of the Code. 

Sections 661(a)(2) and 662(a)(2) of the Code treat all distributions (with
certain exceptions) to beneficiaries, whether of income or principal, as
deductible by the trust and taxable to the beneficiary, subject to the
limitations determined by distributable net income of the trust. 

Since the widow has a power exercisable solely by herself to vest a portion
of the trust corpus in herself, she is treated as the owner of that portion
of the trust under section 678 of the Code. 

As the owner of a portion of the trust corpus, there are included in
computing her tax liability those items of income, deduction, and credit
against tax attributable to or included in that portion. Pursuant to the
provisions of section 1.671-4 of the regulations, these items should not be
reported by the trust on Form 1041, U.S. Fiduciary Income Tax Return (for
estates, and trusts), but should be shown on a separate statement to be
attached to that form. 

The portions of trust corpus considered owned by the widow are not subject
to the provisions of sections 661(a)(2) and 662(a)(2) of the Code when
distributed to her.