26 USC 643 - Definitions applicable to subparts A, B, C, and D

U.S Code last checked for updates: Oct 22, 2026

§ 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

(2)

Deduction for personal exemption

(3)

Capital gains and losses

(4)

Extraordinary dividends and taxable stock dividends

(5)

Tax-exempt interest

(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

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

(c)

Beneficiary

(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 such election, once made, may be revoked only with the consent of the Secretary.

(4)

Exception for distributions 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

(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

(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

(B)

Related person

(i)

In general

(ii)

Allocation

(C)

Exclusion of tax-exempts

(D)

Trust not treated as simple trust

(E)

Exception for compensated use of property

(3)

Subsequent transactions

(Aug. 16, 1954, ch. 736, 68A Stat. 217; Pub. L. 87–834, § 7(a), Oct. 16, 1962, 76 Stat. 985; Pub. L. 94–455, title X, § 1013(c), (e)(2), Oct. 4, 1976, 90 Stat. 1615, 1616; Pub. L. 96–223, title IV, § 404(b)(4), Apr. 2, 1980, 94 Stat. 306; Pub. L. 97–34, title III, § 301(b)(4), (6)(B), Aug. 13, 1981, 95 Stat. 270; Pub. L. 97–248, title III, §§ 302(b)(1), 308(a), Sept. 3, 1982, 96 Stat. 586, 591; Pub. L. 97–448, title I, § 103(a)(3), Jan. 12, 1983, 96 Stat. 2375; Pub. L. 98–67, title I, § 102(a), Aug. 5, 1983, 97 Stat. 369; Pub. L. 98–369, div. A, title I, §§ 81(a), 82(a), title VII, § 722(h)(3), July 18, 1984, 98 Stat. 597, 598, 975; Pub. L. 99–514, title III, § 301(b)(7), title VI, § 612(b)(4), title XIV, § 1404(b), title XVIII, § 1806(a), (c), Oct. 22, 1986, 100 Stat. 2217, 2250, 2713, 2810, 2811; Pub. L. 100–647, title I, § 1014(d)(3), (4), Nov. 10, 1988, 102 Stat. 3561; Pub. L. 101–239, title VII, § 7811(b), (f)(1), Dec. 19, 1989, 103 Stat. 2406, 2409; Pub. L. 103–66, title XIII, § 13113(d)(3), Aug. 10, 1993, 107 Stat. 430; Pub. L. 104–188, title I, §§ 1904(c)(1), 1906(b), (c)(1), Aug. 20, 1996, 110 Stat. 1912, 1915;

cite as: 26 USC 643