[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2014 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 26
Internal Revenue
________________________
Part 1 (Sec. Sec. 1.641 to 1.850)
Revised as of April 1, 2014
Containing a codification of documents of general
applicability and future effect
As of April 1, 2014
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
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Table of Contents
Page
Explanation................................................. v
Title 26:
Chapter I--Internal Revenue Service, Department of
the Treasury (Continued) 3
Finding Aids:
Table of CFR Titles and Chapters........................ 909
Alphabetical List of Agencies Appearing in the CFR...... 929
Table of OMB Control Numbers............................ 939
List of CFR Sections Affected........................... 957
[[Page iv]]
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 26 CFR 1.641 refers
to title 26, part 1,
section 641.
----------------------------
[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
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name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
volume.
LEGAL STATUS
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evidence of the text of the original documents (44 U.S.C. 1510).
HOW TO USE THE CODE OF FEDERAL REGULATIONS
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To determine whether a Code volume has been amended since its
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EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
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OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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PAST PROVISIONS OF THE CODE
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``[RESERVED]'' TERMINOLOGY
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INCORPORATION BY REFERENCE
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(a) The incorporation will substantially reduce the volume of
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(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
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(c) The incorporating document is drafted and submitted for
publication in accordance with 1 CFR part 51.
What if the material incorporated by reference cannot be found? If
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CFR INDEXES AND TABULAR GUIDES
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alphabetical list of agencies publishing in the CFR are also included in
this volume.
[[Page vii]]
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Charles A. Barth,
Director,
Office of the Federal Register.
April 1, 2014.
[[Page ix]]
THIS TITLE
Title 26--Internal Revenue is composed of twenty volumes. The
contents of these volumes represent all current regulations issued by
the Internal Revenue Service, Department of the Treasury, as of April 1,
2014. The first thirteen volumes comprise part 1 (Subchapter A--Income
Tax) and are arranged by sections as follows: Sec. Sec. 1.0-1.60;
Sec. Sec. 1.61-1.169; Sec. Sec. 1.170-1.300; Sec. Sec. 1.301-1.400;
Sec. Sec. 1.401-1.440; Sec. Sec. 1.441-1.500; Sec. Sec. 1.501-1.640;
Sec. Sec. 1.641-1.850; Sec. Sec. 1.851-1.907; Sec. Sec. 1.908-1.1000;
Sec. Sec. 1.1001-1.1400; Sec. Sec. 1.1401-1.1550; and Sec. 1.1551 to
end of part 1. The fourteenth volume containing parts 2-29, includes the
remainder of subchapter A and all of Subchapter B--Estate and Gift
Taxes. The last six volumes contain parts 30-39 (Subchapter C--
Employment Taxes and Collection of Income Tax at Source); parts 40-49;
parts 50-299 (Subchapter D--Miscellaneous Excise Taxes); parts 300-499
(Subchapter F--Procedure and Administration); parts 500-599 (Subchapter
G--Regulations under Tax Conventions); and part 600 to end (Subchapter
H--Internal Revenue Practice).
The OMB control numbers for Title 26 appear in Sec. 602.101 of this
chapter. For the convenience of the user, Sec. 602.101 appears in the
Finding Aids section of the volumes containing parts 1 to 599.
For this volume, Bonnie Fritts was Chief Editor. The Code of Federal
Regulations publication program is under the direction of the Managing
Editor, assisted by Ann Worley.
[[Page 1]]
TITLE 26--INTERNAL REVENUE
(This book contains part 1, Sec. Sec. 1.641 to 1.850)
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Part
chapter i--Internal Revenue Service, Department of the
Treasury (Continued)...................................... 1
[[Page 3]]
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
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Editorial Note: IRS published a document at 45 FR 6088, Jan. 25, 1980,
deleting statutory sections from their regulations. In chapter I cross
references to the deleted material have been changed to the
corresponding sections of the IRS Code of 1954 or to the appropriate
regulations sections. When either such change produced a redundancy, the
cross reference has been deleted. For further explanation, see 45 FR
20795, Mar. 31, 1980.
SUBCHAPTER A--INCOME TAX (CONTINUED)
Part Page
1 Income taxes (Continued).................... 5
Supplementary Publications: Internal Revenue Service Looseleaf
Regulations System.
Additional supplementary publications are issued covering Alcohol and
Tobacco Tax Regulations, and Regulations Under Tax Conventions.
[[Page 5]]
SUBCHAPTER A_INCOME TAX (CONTINUED)
PART 1_INCOME TAXES (CONTINUED)
Normal Taxes and Surtaxes (CONTINUED)
ESTATES, TRUSTS, BENEFICIARIES, AND DECEDENTS
ESTATES, TRUSTS, AND BENEFICIARIES
General Rules For Taxation Of Estates And Trusts
Sec.
1.641 [Reserved]
1.641(a)-0 Scope of subchapter J.
1.641(a)-1 Imposition of tax; application of tax.
1.641(a)-2 Gross income of estates and trusts.
1.641(b)-1 Computation and payment of tax; deductions and credits of
estates and trusts.
1.641(b)-2 Filing of returns and payment of the tax.
1.641(b)-3 Termination of estates and trusts.
1.641(c)-0 Table of contents.
1.641(c)-1 Electing small business trust.
1.642(a)(1)-1 Partially tax-exempt interest.
1.642(a)(2)-1 Foreign taxes.
1.642(a)(3)-1 Dividends received by an estate or trust.
1.642(a)(3)-2 Time of receipt of dividends by beneficiary.
1.642(a)(3)-3 Cross reference.
1.642(b)-1 Deduction for personal exemption.
1.642(c)-0 Effective dates.
1.642(c)-1 Unlimited deduction for amounts paid for a charitable
purpose.
1.642(c)-2 Unlimited deduction for amounts permanently set aside for a
charitable purpose.
1.642(c)-3 Adjustments and other special rules for determining unlimited
charitable contributions deduction.
1.642(c)-4 Nonexempt private foundations.
1.642(c)-5 Definition of pooled income fund.
1.642(c)-6 Valuation of a remainder interest in property transferred to
a pooled income fund.
1.642(c)-7 Transitional rules with respect to pooled income funds.
1.642(d)-1 Net operating loss deduction.
1.642(e)-1 Depreciation and depletion.
1.642(f)-1 Amortization deductions.
1.642(g)-1 Disallowance of double deductions; in general.
1.642(g)-2 Deductions included.
1.642(h)-1 Unused loss carryovers on termination of an estate or trust.
1.642(h)-2 Excess deductions on termination of an estate or trust.
1.642(h)-3 Meaning of ``beneficiaries succeeding to the property of the
estate or trust''.
1.642(h)-4 Allocation.
1.642(h)-5 Example.
1.642(i)-1 Certain distributions by cemetery perpetual care funds.
1.642(i)-2 Definitions.
1.643(a)-0 Distributable net income; deduction for distributions; in
general.
1.643(a)-1 Deduction for distributions.
1.643(a)-2 Deduction for personal exemption.
1.643(a)-3 Capital gains and losses.
1.643(a)-4 Extraordinary dividends and taxable stock dividends.
1.643(a)-5 Tax-exempt interest.
1.643(a)-6 Income of foreign trust.
1.643(a)-7 Dividends.
1.643(a)-8 Certain distributions by charitable remainder trusts.
1.643(b)-1 Definition of income.
1.643(b)-2 Dividends allocated to corpus.
1.643(c)-1 Definition of ``beneficiary''.
1.643(d)-1 Definition of ``foreign trust created by a United States
person''.
1.643(d)-2 Illustration of the provisions of section 643.
1.643(h)-1 Distributions by certain foreign trusts through
intermediaries.
pooled income fund actuarial tables applicable before may 1, 2009
1.642(c)-6A Valuation of charitable remainder interests for which the
valuation date is before May 1, 2009.
Election to treat trust as part of an estate
1.645-1 Election by certain revocable trusts to be treated as part of
estate.
Trusts which distribute current income only
1.651(a)-1 Simple trusts; deduction for distributions; in general.
1.651(a)-2 Income required to be distributed currently.
1.651(a)-3 Distribution of amounts other than income.
1.651(a)-4 Charitable purposes.
1.651(a)-5 Estates.
1.651(b)-1 Deduction for distributions to beneficiaries.
1.652(a)-1 Simple trusts; inclusion of amounts in income of
beneficiaries.
1.652(a)-2 Distributions in excess of distributable net income.
1.652(b)-1 Character of amounts.
1.652(b)-2 Allocation of income items.
1.652(b)-3 Allocation of deductions.
1.652(c)-1 Different taxable years.
1.652(c)-2 Death of individual beneficiaries.
1.652(c)-3 Termination of existence of other beneficiaries.
1.652(c)-4 Illustration of the provisions of sections 651 and 652.
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estates and trusts which may accumulate income or which distribute
corpus
1.661(a)-1 Estates and trusts accumulating income or distributing
corpus; general.
1.661(a)-2 Deduction for distributions to beneficiaries.
1.661(b)-1 Character of amounts distributed; in general.
1.661(b)-2 Character of amounts distributed when charitable
contributions are made.
1.661(c)-1 Limitation on deduction.
1.661(c)-2 Illustration of the provisions of section 661.
1.662(a)-1 Inclusion of amounts in gross income of beneficiaries of
estates and complex trusts; general.
1.662(a)-2 Currently distributable income.
1.662(a)-3 Other amounts distributed.
1.662(a)-4 Amounts used in discharge of a legal obligation.
1.662(b)-1 Character of amounts; when no charitable contributions are
made.
1.662(b)-2 Character of amounts; when charitable contributions are made.
1.662(c)-1 Different taxable years.
1.662(c)-2 Death of individual beneficiary.
1.662(c)-3 Termination of existence of other beneficiaries.
1.662(c)-4 Illustration of the provisions of sections 661 and 662.
1.663(a)-1 Special rules applicable to sections 661 and 662; exclusions;
gifts, bequests, etc.
1.663(a)-2 Charitable, etc., distributions.
1.663(a)-3 Denial of double deduction.
1.663(b)-1 Distributions in first 65 days of taxable year; scope.
1.663(b)-2 Election.
1.663(c)-1 Separate shares treated as separate trusts or as separate
estates; in general.
1.663(c)-2 Rules of administration.
1.663(c)-3 Applicability of separate share rule to certain trusts.
1.663(c)-4 Applicability of separate share rule to estates and qualified
revocable trusts.
1.663(c)-5 Examples.
1.663(c)-6 Effective dates.
1.664-1 Charitable remainder trusts.
1.664-2 Charitable remainder annuity trust.
1.664-3 Charitable remainder unitrust.
1.664-4 Calculation of the fair market value of the remainder interest
in a charitable remainder unitrust.
treatment of excess distributions by trusts applicable to taxable years
beginning before January 1, 1969
1.665(a)-0 Excess distributions by trusts; scope of subpart D.
1.665(a)-1 Undistributed net income.
1.665(b)-1 Accumulation distributions of trusts other than certain
foreign trusts; in general.
1.665(b)-2 Exclusions from accumulation distributions in the case of
trusts (other than a foreign trust created by a U.S. person).
1.665(b)-3 Exclusions under section 663(a) (1).
1.665(c)-1 Accumulation distributions of certain foreign trusts; in
general.
1.665(c)-2 Indirect payments to the beneficiary.
1.665(d)-1 Taxes imposed on the trust.
1.665(e)-1 Preceding taxable year.
1.665(e)-2 Application of separate share rule.
1.666(a)-1A Amount allocated.
1.666(b)-1A Total taxes deemed distributed.
1.666(c)-1A Pro rata portion of taxes deemed distributed.
1.666(c)-2A Illustration of the provisions of section 666 (a), (b), and
(c).
1.666(d)-1A Information required from trusts.
1.666(a)-1 Amount allocated.
1.666(b)-1 Total taxes deemed distributed.
1.666(c)-1 Pro rata portion of taxes deemed distributed.
1.666(c)-2 Illustration of the provisions of section 666.
1.667-1 Denial of refund to trusts.
1.667(a)-1A Denial of refund to trusts.
1.667(b)-1A Authorization of credit to beneficiary for taxes imposed on
the trust.
1.668(a)-1A Amounts treated as received in prior taxable years;
inclusion in gross income.
1.668(a)-2A Allocation among beneficiaries; in general.
1.668(a)-3A Determination of tax.
1.668(b)-1A Tax on distribution.
1.668(b)-2A Special rules applicable to section 668.
1.668(b)-3A Computation of the beneficiary's income and tax for a prior
taxable year.
1.668(b)-4A Information requirements with respect to beneficiary.
1.668(a)-1 Amounts treated as received in prior taxable years; inclusion
in gross income.
1.668(a)-2 Allocation among beneficiaries; in general.
1.668(a)-3 Excluded amounts.
1.668(a)-4 Tax attributable to throwback.
1.668(b)-1 Credit for taxes paid by the trust.
1.668(b)-2 Illustration of the provisions of subpart D.
1.669(a)-1A Amount allocated.
1.669(b)-1A Tax on distribution.
1.669(c)-1A Special rules applicable to section 669.
1.669(c)-2A Computation of the beneficiary's income and tax for a prior
taxable year.
1.669(c)-3A Information requirements with respect to beneficiary.
1.669(d)-1A Total taxes deemed distributed.
1.669(e)-1A Pro rata portion of taxes deemed distributed.
1.669(e)-2A Illustration of the provisions of section 669.
[[Page 7]]
1.669(f)-1A Character of capital gain.
1.669(f)-2A Exception for capital gain distributions from certain
trusts.
1.669(a)-1 Limitation on tax.
1.669(a)-2 Rules applicable to section 669 computations.
1.669(a)-3 Tax computed by the exact throwback method.
1.669(a)-4 Tax attributable to short-cut throwback method.
1.669(b)-1 Information requirements.
1.669(b)-2 Manner of exercising election.
unitrust actuarial tables applicable before may 1, 2009
1.664-4A Valuation of charitable remainder interests for which the
valuation date is before May 1, 2009.
treatment of excess distributions of trusts applicable to taxable years
beginning on or after January 1, 1969
1.665(a)-0A Excess distributions by trusts; scope of subpart D.
1.665(a)-1A Undistributed net income.
1.665(b)-1A Accumulation distributions.
1.665(b)-2A Special rules for accumulation distributions made in taxable
years beginning before January 1, 1974.
1.665(c)-1A Special rule applicable to distributions by certain foreign
trusts.
1.665(d)-1A Taxes imposed on the trust.
1.665(e)-1A Preceding taxable year.
1.665(f)-1A Undistributed capital gain.
1.665(g)-1A Capital gain distribution.
1.665(g)-2A Application of separate share rule.
grantors and others treated as substantial owners
1.671-1 Grantors and others treated as substantial owners; scope.
1.671-2 Applicable principles.
1.671-3 Attribution or inclusion of income, deductions, and credits
against tax.
1.671-4 Method of reporting.
1.671-5 Reporting for widely held fixed investment trusts.
1.672(a)-1 Definition of adverse party.
1.672(b)-1 Nonadverse party.
1.672(c)-1 Related or subordinate party.
1.672(d)-1 Power subject to condition precedent.
1.672(f)-1 Foreign persons not treated as owners.
1.672(f)-2 Certain foreign corporations.
1.672(f)-3 Exceptions to general rule.
1.672(f)-4 Recharacterization of purported gifts.
1.672(f)-5 Special rules.
1.673(a)-1 Reversionary interests; income payable to beneficiaries other
than certain charitable organizations; general rule.
1.673(b)-1 Income payable to charitable beneficiaries (before amendment
by Tax Reform Act of 1969).
1.673(c)-1 Reversionary interest after income beneficiary's death.
1.673(d)-1 Postponement of date specified for reacquisition.
1.674(a)-1 Power to control beneficial enjoyment; scope of section 674.
1.674(b)-1 Excepted powers exercisable by any person.
1.674(c)-1 Excepted powers exercisable only by independent trustees.
1.674(d)-1 Excepted powers exercisable by any trustee other than grantor
or spouse.
1.674(d)-2 Limitations on exceptions in section 674 (b), (c), and (d).
1.675-1 Administrative powers.
1.676(a)-1 Power to revest title to portion of trust property in
grantor; general rule.
1.676(b)-1 Powers exercisable only after a period of time.
1.677(a)-1 Income for benefit of grantor; general rule.
1.677(b)-1 Trusts for support.
1.678(a)-1 Person other than grantor treated as substantial owner;
general rule.
1.678(b)-1 If grantor is treated as the owner.
1.678(c)-1 Trusts for support.
1.678(d)-1 Renunciation of power.
1.679-0 Outline of major topics.
1.679-1 U.S. transferor treated as owner of foreign trust.
1.679-2 Trusts treated as having a U.S. beneficiary.
1.679-3 Transfers.
1.679-4 Exceptions to general rule.
1.679-5 Pre-immigration trusts.
1.679-6 Outbound migrations of domestic trusts.
1.679-7 Effective dates.
miscellaneous
1.681(a)-1 Limitation on charitable contributions deductions of trusts;
scope of section 681.
1.681(a)-2 Limitation on charitable contributions deduction of trusts
with trade or business income.
1.681(b)-1 Cross reference.
1.682(a)-1 Income of trust in case of divorce, etc.
1.682(b)-1 Application of trust rules to alimony payments.
1.682(c)-1 Definitions.
1.683-1 Applicability of provisions; general rule.
1.683-2 Exceptions.
1.683-3 Application of the 65-day rule of the Internal Revenue Code of
1939.
1.684-1 Recognition of gain on transfers to certain foreign trusts and
estates.
1.684-2 Transfers.
1.684-3 Exceptions to general rule of gain recognition.
1.684-4 Outbound migrations of domestic trusts.
[[Page 8]]
1.684-5 Effective date.
Income in Respect of Decedents
1.691(a)-1 Income in respect of a decedent.
1.691(a)-2 Inclusion in gross income by recipients.
1.691(a)-3 Character of gross income.
1.691(a)-4 Transfer of right to income in respect of a decedent.
1.691(a)-5 Installment obligations acquired from decedent.
1.691(b)-1 Allowance of deductions and credit in respect to decedents.
1.691(c)-1 Deduction for estate tax attributable to income in respect of
a decedent.
1.691(c)-2 Estates and trusts.
1.691(d)-1 Amounts received by surviving annuitant under joint and
survivor annuity contract.
1.691(e)-1 Installment obligations transmitted at death when prior law
applied.
1.691(f)-1 Cross reference.
1.692-1 Abatement of income taxes of certain members of the Armed Forces
of the United States upon death.
PARTNERS AND PARTNERSHIPS
Determination of Tax Liability
1.701-1 Partners, not partnership, subject to tax.
1.701-2 Anti-abuse rule.
1.702-1 Income and credits of partner.
1.702-2 Net operating loss deduction of partner.
1.702-3T 4-Year spread (temporary).
1.703-1 Partnership computations.
1.704-1 Partner's distributive share.
1.704-1T Partner's distributive share (temporary).
1.704-2 Allocations attributable to nonrecourse liabilities.
1.704-3 Contributed property.
1.704-4 Distribution of contributed property.
1.705-1 Determination of basis of partner's interest.
1.705-2 Basis adjustments coordinating sections 705 and 1032.
1.706-1 Taxable years of partner and partnership.
1.706-2T Temporary regulations; question and answer under the Tax Reform
Act of 1984.
1.707-0 Table of contents.
1.707-1 Transactions between partner and partnership.
1.707-2 Disguised payments for services. [Reserved]
1.707-3 Disguised sales of property to partnership; general rules.
1.707-4 Disguised sales of property to partnership; special rules
applicable to guaranteed payments, preferred returns,
operating cash flow distributions, and reimbursements of
preformation expenditures.
1.707-5 Disguised sales of property to partnership; special rules
relating to liabilities.
1.707-6 Disguised sales of property by partnership to partner; general
rules.
1.707-7 Disguised sales of partnership interests. [Reserved]
1.707-8 Disclosure of certain information.
1.707-9 Effective dates and transitional rules.
1.708-1 Continuation of partnership.
1.709-1 Treatment of organization and syndication costs.
1.709-2 Definitions.
Contributions, Distributions, and Transfers
contributions to a partnership
1.721-1 Nonrecognition of gain or loss on contribution.
1.721-2 Noncompensatory options.
1.722-1 Basis of contributing partner's interest.
1.723-1 Basis of property contributed to partnership.
distributions by a partnership
1.731-1 Extent of recognition of gain or loss on distribution.
1.731-2 Partnership distributions of marketable securities.
1.732-1 Basis of distributed property other than money.
1.732-2 Special partnership basis of distributed property.
1.732-3 Corresponding adjustment to basis of assets of a distributed
corporation controlled by a corporate partner.
1.733-1 Basis of distributee partner's interest.
1.734-1 Optional adjustment to basis of undistributed partnership
property.
1.734-2 Adjustment after distribution to transferee partner.
1.735-1 Character of gain or loss on disposition of distributed
property.
1.736-1 Payments to a retiring partner or a deceased partner's successor
in interest.
1.737-1 Recognition of precontribution gain.
1.737-2 Exceptions and special rules.
1.737-3 Basis adjustments; recovery rules.
1.737-4 Anti-abuse rule.
1.737-5 Effective dates.
transfers of interests in a partnership
1.741-1 Recognition and character of gain or loss on sale or exchange.
1.742-1 Basis of transferee partner's interest.
1.743-1 Optional adjustment to basis of partnership property.
[[Page 9]]
provisions common to part ii, subchapter k, chapter 1 of the code
1.751-1 Unrealized receivables and inventory items.
1.752-0 Table of contents.
1.752-1 Treatment of partnership liabilities.
1.752-2 Partner's share of resource liabilities.
1.752-3 Partner's share of nonrecourse liabilities.
1.752-4 Special rules.
1.752-5 Effective dates and transition rules.
1.752-6 Partnership assumption of partner's section 358(h)(3) liability
after October 18, 1999, and before June 24, 2003.
1.752-7 Partnership assumption of partner's Sec. 1.752-7 liability on
or after June 24, 2003.
1.753-1 Partner receiving income in respect of decedent.
1.754-1 Time and manner of making election to adjust basis of
partnership property.
1.755-1 Rules for allocation of basis.
definitions
1.761-1 Terms defined.
1.761-2 Exclusion of certain unincorporated organizations from the
application of all or part of subchapter K of chapter 1 of the
Internal Revenue Code.
1.761-3 Certain option holders treated as partners.
effective date for subchapter k, chapter 1 of the code
1.771-1 Effective date.
INSURANCE COMPANIES
Life Insurance Companies
definition; tax imposed
1.801-1 Definitions.
1.801-2 Taxable years affected.
1.801-3 Definitions.
1.801-4 Life insurance reserves.
1.801-5 Total reserves.
1.801-6 Adjustments in reserves for policy loans.
1.801-7 Variable annuities.
1.801-8 Contracts with reserves based on segregated asset accounts.
1.802(b)-1 Tax on life insurance companies.
1.802-2 Taxable years affected.
1.802-3 Tax imposed on life insurance companies.
1.802-4 Life insurance company taxable income.
1.802-5 Special rule for 1959 and 1960.
1.803-1 Life insurance reserves.
1.803-2 Adjusted reserves.
1.803-3 Interest paid or accrued.
1.803-4 Taxable income and deductions.
1.803-5 Real estate owned and occupied.
1.803-6 Amortization of premium and accrual of discount.
1.803-7 Taxable years affected.
investment income
1.804-3 Gross investment income of a life insurance company.
1.804-4 Investment yield of a life insurance company.
1.806-1 Adjustment for certain reserves.
1.806-2 Taxable years affected.
1.806-3 Certain changes in reserves and assets.
1.806-4 Change of basis in computing reserves.
1.807-1 Mortality and morbidity tables.
1.807-2 Cross-reference.
gain and loss from operations
1.809-1 Taxable years affected.
1.809-2 Exclusion of share of investment yield set aside for
policyholders.
1.809-3 Gain and loss from operations defined.
1.809-4 Gross amount.
1.809-5 Deductions.
1.809-6 Modifications.
1.809-7 Limitation on certain deductions.
1.809-8 Limitation on deductions for certain mutualization
distributions.
1.809-9 Computation of the differential earnings rate and the recomputed
differential earnings rate.
1.809-10 Computation of equity base.
1.810-1 Taxable years affected.
1.810-2 Rules for certain reserves.
1.810-3 Adjustment for change in computing reserves.
1.810-4 Certain decreases in reserves of voluntary employees'
beneficiary associations.
1.811-1 Taxable years affected.
1.811-2 Dividends to policyholders.
1.811-3 Cross-reference.
1.812-1 Taxable years affected.
1.812-2 Operations loss deduction.
1.812-3 Computation of loss from operations.
1.812-4 Operations loss carrybacks and operations loss carryovers.
1.812-5 Offset.
1.812-6 New company defined.
1.812-7 Application of subtitle A and subtitle F.
1.812-8 Illustration of operations loss carrybacks and carryovers.
1.812-9 Cross-reference.
distributions to shareholders
1.815-1 Taxable years affected.
1.815-2 Distributions to shareholders.
1.815-3 Shareholders surplus account.
1.815-4 Policyholders surplus account.
1.815-5 Other accounts defined.
1.815-6 Special rules.
miscellaneous provisions
1.817-1 Taxable years affected.
1.817-2 Treatment of capital gains and losses.
[[Page 10]]
1.817-3 Gain on property held on December 31, 1958, and certain
substituted property acquired after 1958.
1.817-4 Special rules.
1.817-5 Diversification requirements for variable annuity, endowment,
and life insurance contracts.
1.817A-0 Table of contents.
1.817A-1 Certain modified guaranteed contracts.
1.818-1 Taxable years affected.
1.818-2 Accounting provisions.
1.818-3 Amortization of premium and accrual of discount.
1.818-4 Election with respect to life insurance reserves computed on
preliminary term basis.
1.818-5 Short taxable years.
1.818-6 Transitional rule for change in method of accounting.
1.818-7 Denial of double deductions.
1.818-8 Special rules relating to consolidated returns and certain
capital losses.
1.819-1 Taxable years affected.
1.819-2 Foreign life insurance companies.
Mutual Insurance Companies (Other Than Life and Certain Marine Insurance
Companies and Other Than Fire or Flood Insurance Companies Which Operate
on Basis of Perpetual Policies or Premium Deposits)
1.821-1 Tax on mutual insurance companies other than life or marine or
fire insurance companies subject to the tax imposed by section
831.
1.821-2 Taxable years affected.
1.821-3 Tax on mutual insurance companies other than life or marine or
fire insurance companies subject to the tax imposed by section
831.
1.821-4 Tax on mutual insurance companies other than life insurance
companies and other than fire, flood, or marine insurance
companies, subject to tax imposed by section 831.
1.821-5 Special transitional underwriting loss.
1.822-1 Taxable income and deductions.
1.822-2 Real estate owned and occupied.
1.822-3 Amortization of premium and accrual of discount.
1.822-4 Taxable years affected.
1.822-5 Mutual insurance company taxable income.
1.822-6 Real estate owned and occupied.
1.822-7 Amortization of premium and accrual of discount.
1.822-8 Determination of taxable investment income.
1.822-9 Real estate owned and occupied.
1.822-10 Amortization of premium and accrual of discount.
1.822-11 Net premiums.
1.822-12 Dividends to policyholders.
1.823-1 Net premiums.
1.823-2 Dividends to policyholders.
1.823-3 Taxable years affected.
1.823-4 Net premiums.
1.823-5 Dividends to policyholders.
1.823-6 Determination of statutory underwriting income or loss.
1.823-7 Subscribers of reciprocal underwriters and interinsurers.
1.823-8 Special transitional underwriting loss; cross reference.
1.825-1 Unused loss deduction; in general.
1.825-2 Unused loss carryovers and carrybacks.
1.825-3 Examples.
1.826-1 Election by reciprocal underwriters and interinsurers.
1.826-2 Special rules applicable to electing reciprocals.
1.826-3 Attorney-in-fact of electing reciprocals.
1.826-4 Allocation of expenses.
1.826-5 Attribution of tax.
1.826-6 Credit or refund.
1.826-7 Examples.
Other Insurance Companies
1.831-1 Tax on insurance companies (other than life or mutual), mutual
marine insurance companies, and mutual fire insurance
companies issuing perpetual policies.
1.831-2 Taxable years affected.
1.831-3 Tax on insurance companies (other than life or mutual), mutual
marine insurance companies, mutual fire insurance companies
issuing perpetual policies, and mutual fire or flood insurance
companies operating on the basis of premium deposits; taxable
years beginning after December 31, 1962.
1.831-4 Election of multiple line companies to be taxed on total income.
1.832-1 Gross income.
1.832-2 Deductions.
1.832-3 Taxable years affected.
1.832-4 Gross income.
1.832-5 Deductions.
1.832-6 Policyholders of mutual fire or flood insurance companies
operating on the basis of premium deposits.
1.832-7T Treatment of salvage and reinsurance in computing ``losses
incurred'' deduction, taxable years beginning before January
1, 1990 (temporary).
1.833-1 Medical Loss Ratio under section 833(c)(5).
1.846-0 Outline of provisions.
1.846-1 Application of discount factors.
1.846-2 Election by taxpayer to use its own historical loss payment
pattern.
1.846-2T Election by taxpayer to use its own historical loss payment
pattern (temporary).
1.846-3 Fresh start and reserve strengthening.
1.846-4 Effective/applicability date.
1.846-4T Effective dates (temporary).
[[Page 11]]
1.848-0 Outline of regulations under section 848.
1.848-1 Definitions and special provisions.
1.848-2 Determination of net premiums.
1.848-3 Interim rules for certain reinsurance agreements.
1.849-1.850 [Reserved]
Authority: 26 U.S.C. 7805, unless otherwise noted.
Section 1.642(c)-6 also issued under 26 U.S.C. 642(c)(5).
Section 1.643(a)-8 also issued under 26 U.S.C. 643(a)(7).
Section 1.643(h)-1 also issued under 26 U.S.C. 643(a)(7).
Section 1.642(c)-6A also issued under 26 U.S.C. 642(c)(5).
Section 1.645-1 also issued under 26 U.S.C. 645.
Sections 1.663(c)-1, 1.663(c)-2, 1.663(c)-3, 1.663(c)-4, 1.663(c)-5,
and 1.663(c)-6 also issued under 26 U.S.C. 663(c).
Section 1.664-1 also issued under 26 U.S.C. 664(a).
Section 1.664-2 also issued under 26 U.S.C. 664(a).
Section 1.664-3 also issued under 26 U.S.C. 664(a).
Section 1.664-4 also issued under 26 U.S.C. 664(a).
Section 1.664-4A also issued under 26 U.S.C. 664(a).
Section 1.671-2 also issued under 26 U.S.C. 643(a)(7) and 672(f)(6).
Section 1.672(f)-1 also issued under 26 U.S.C. 643(a)(7) and
672(f)(6).
Section 1.672(f)-2 also issued under 26 U.S.C. 643(a)(7) and
672(f)(3) and (6).
Section 1.672(f)-3 also issued under 26 U.S.C. 643(a)(7) and
672(f)(2) and (6).
Section 1.672(f)-4 also issued under 26 U.S.C. 643(a)(7) and
672(f)(4) and (6).
Section 1.672(f)-5 also issued under 26 U.S.C. 643(a)(7) and
672(f)(6).
Section 1.679-1 also issued under 26 U.S.C. 643(a)(7) and 679(d).
Section 1.679-2 also issued under 26 U.S.C. 643(a)(7) and 679(d).
Section 1.679-3 also issued under 26 U.S.C. 643(a)(7) and 679(d).
Section 1.679-4 also issued under 26 U.S.C. 643(a)(7), 679(a)(3) and
679(d).
Section 1.679-5 also issued under 26 U.S.C. 643(a)(7) and 679(d).
Section 1.679-6 also issued under 26 U.S.C. 643(a)(7) and 679(d).
Section 1.684-1 also issued under 26 U.S.C. 643(a)(7) and 684(a).
Section 1.684-2 also issued under 26 U.S.C. 643(a)(7) and 684(a).
Section 1.684-3 also issued under 26 U.S.C. 643(a)(7) and 684(a).
Section 1.684-4 also issued under 26 U.S.C. 643(a)(7) and 684(a).
Section 1.684-5 also issued under 26 U.S.C. 643(a)(7) and 684(a).
Section 1.701-2 also issued under 26 U.S.C. 701 through 761.
Section 1.704-3 also issued under 26 U.S.C. 704(c).
Section 1.704-3T also issued under 26 U.S.C. 704(c).
Section 1.704-4 also issued under 26 U.S.C. 704(c).
Section 1.705-2 also issued under 26 U.S.C. 705 and 1032.
Section 1.706-1T also issued under 26 U.S.C. 706(b).
Section 1.706-3T also issued under 26 U.S.C. 444(f).
Sections 1.707-2 through 1.707-9 also issued under 26 U.S.C.
707(a)(2).
Section 1.721-1 also issued under 26 U.S.C. 721.
Section 1.731-2 also issued under 26 U.S.C. 731(c).
Section 1.732-1 also issued under 26 U.S.C. 732.
Section 1.732-2 also issued under 26 U.S.C. 732.
Section 1.732-3 also issued under 26 U.S.C. 732(f).
Section 1.734-1 also issued under 26 U.S.C. 734.
Section 1.743-1 also issued under 26 U.S.C. 743.
Section 1.751-1 also issued under 26 U.S.C. 751.
Section 1.752-1(a) also issued under Public Law 106-554, 114 Stat.
2763, 2763A-638 (2001).
Section 1.752-6 also issued under Public Law 106-554, 114 Stat.
2763, 2763A-638 (2001).
Section 1.752-7 also issued under Public Law 106-554, 114 Stat.
2763, 2763A-638 (2001).
Section 1.755-1 also issued under 26 U.S.C. 755.
Section 1.755-2 also issued under 26 U.S.C. 755 and 26 U.S.C. 1060.
Section 1.761-2 also issued under 26 U.S.C. 446(b) and 26 U.S.C.
761(a).
Section 1.807-2 also issued under 26 U.S.C. 817A(e).
Section 1.809-10 also issued under 26 U.S.C. 809(b)(2) and (g)(3).
Section 1.811-3 also issued under 26 U.S.C. 817A(e).
Section 1.812-9 also issued under 26 U.S.C. 817A(e).
Section 1.817-5 also issued under 26 U.S.C. 817(h).
Section 1.817A-1 also issued under 26 U.S.C. 817A(e).
Section 1.832-4 also issued under 26 U.S.C. 832(b)(5)(A).
Sections 1.846-1 through 1.846-4 also issued under 26 U.S.C. 846.
Section 1.848-2 also issued under 26 U.S.C. 845(b) and 26 U.S.C.
848(d)(4)(B).
Section 1.846-2(d) also issued under 26 U.S.C. 846.
Section 1.848-3 also issued under 26 U.S.C. 848(d)(4)(B).
[[Page 12]]
Source: T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31,
1960, unless otherwise noted.
ESTATES, TRUSTS, BENEFICIARIES, AND DECEDENTS
Estates, Trusts, and Beneficiaries
General Rules for Taxation of Estates and Trusts
Sec. 1.641 [Reserved]
Sec. 1.641(a)-0 Scope of subchapter J.
(a) In general. Subchapter J (sections 641 and following), chapter 1
of the Code, deals with the taxation of income of estates and trusts and
their beneficiaries, and of income in respect of decedents. Part I of
subchapter J contains general rules for taxation of estates and trusts
(subpart A), specific rules relating to trusts which distribute current
income only (subpart B), estates and trusts which may accumulate income
or which distribute corpus (subpart C), treatment of excess
distributions by trusts (subpart D), grantors and other persons treated
as substantial owners (subpart E), and miscellaneous provisions relating
to limitations on charitable deductions, income of an estate or trust in
case of divorce, and taxable years to which the provisions of subchapter
J are applicable (subpart F). Part I has no application to any
organization which is not to be classified for tax purposes as a trust
under the classification rules of Sec. Sec. 301.7701-2, 301.7701-3, and
301.7701-4 of this chapter (Regulations on Procedure and
Administration). Part II of subchapter J relates to the treatment of
income in respect of decedents. However, the provisions of subchapter J
do not apply to employee trusts subject to subchapters D and F, chapter
1 of the Code, and common trust funds subject to subchapter H, chapter 1
of the Code.
(b) Scope of subparts A, B, C, and D. Subparts A, B, C, and D
(section 641 and following), part I, subchapter J, chapter 1 of the
Code, relate to the taxation of estates and trusts and their
beneficiaries. These subparts have no application to any portion of the
corpus or income of a trust which is to be regarded, within the meaning
of the Code, as that of the grantor or others treated as its substantial
owners. See subpart E (section 671 and following), Part I, subchapter J,
chapter 1 of the Code, and the regulations thereunder for rules for the
treatment of any portion of a trust where the grantor (or another
person) is treated as the substantial owner. So-called alimony trusts
are treated under subparts A, B, C, and D, except to the extent
otherwise provided in section 71 or section 682. These subparts have no
application to beneficiaries of nonexempt employees' trusts. See section
402(b) and the regulations thereunder.
(c) Multiple trusts. Multiple trusts that have:
(1) No substantially independent purposes (such as independent
dispositive purposes),
(2) The same grantor and substantially the same beneficiary, and
(3) The avoidance or mitigation of (i) the progressive rates of tax
(including mitigation as a result of deferral of tax) or (ii) the
minimum tax for tax preferences imposed by section 56 as their principal
purpose,
shall be consolidated and treated as one trust for the purposes of
subchapter J.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
731, Jan. 17, 1969; T.D. 7204, 37 FR 17158, Aug. 25, 1972]
Sec. 1.641(a)-1 Imposition of tax; application of tax.
For taxable years beginning after December 31, 1970, section 641
prescribes that the taxes imposed by section 1(d), as amended by the Tax
Reform Act of 1969, shall apply to the income of estates or of any kind
of property held in trust. For taxable years ending before January 1,
1971, section 641 prescribes that the taxes imposed upon individuals by
chapter 1 of the Code apply to the income of estates or of any kind of
property held in trust. The rates of tax, the statutory provisions
respecting gross income, and, with certain exceptions, the deductions
and credits allowed to individuals apply also to estates and trust.
[T.D. 7117, 36 FR 9421, May 25, 1971]
[[Page 13]]
Sec. 1.641(a)-2 Gross income of estates and trusts.
The gross income of an estate or trust is determined in the same
manner as that of an individual. Thus, the gross income of an estate or
trust consists of all items of gross income received during the taxable
year, including:
(a) Income accumulated in trust for the benefit of unborn or
unascertained persons or persons with contingent interests;
(b) Income accumulated or held for future distribution under the
terms of the will or trust;
(c) Income which is to be distributed currently by the fiduciary to
the beneficiaries, and income collected by a guardian of an infant which
is to be held or distributed as the court may direct;
(d) Income received by estates of deceased persons during the period
of administration or settlement of the estate; and
(e) Income which, in the discretion of the fiduciary, may be either
distributed to the beneficiaries or accumulated. The several classes of
income enumerated in this section do not exclude others which also may
come within the general purposes of section 641.
Sec. 1.641(b)-1 Computation and payment of tax; deductions and credits
of estates and trusts.
Generally, the deductions and credits allowed to individuals are
also allowed to estates and trusts. However, there are special rules for
the computation of certain deductions and for the allocation between the
estate or trust and the beneficiaries of certain credits and deductions.
See section 642 and the regulations thereunder. In addition, an estate
or trust is allowed to deduct, in computing its taxable income, the
deductions provided by sections 651 and 661 and regulations thereunder,
relating to distributions to beneficiaries.
Sec. 1.641(b)-2 Filing of returns and payment of the tax.
(a) The fiduciary is required to make and file the return and pay
the tax on the taxable income of an estate or of a trust. Liability for
the payment of the tax on the taxable income of an estate attaches to
the person of the executor or administrator up to and after his
discharge if, prior to distribution and discharge, he had notice of his
tax obligations or failed to exercise due diligence in ascertaining
whether or not such obligations existed. For the extent of such
liability, see section 3467 of the Revised Statutes, as amended by
section 518 of the Revenue Act of 1934 (31 U. S. C. 192). Liability for
the tax also follows the assets of the estate distributed to heirs,
devisees, legatees, and distributees, who may be required to discharge
the amount of the tax due and unpaid to the extent of the distributive
shares received by them. See section 6901. The same considerations apply
to trusts.
(b) The estate of an infant, incompetent, or other person under a
disability, or, in general, of an individual or corporation in
receivership or a corporation in bankruptcy is not a taxable entity
separate from the person for whom the fiduciary is acting, in that
respect differing from the estate of a deceased person or of a trust.
See section 6012(b) (2) and (3) for provisions relating to the
obligation of the fiduciary with respect to returns of such persons.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6580, 26 FR
11486, Dec. 5, 1961]
Sec. 1.641(b)-3 Termination of estates and trusts.
(a) The income of an estate of a deceased person is that which is
received by the estate during the period of administration or
settlement. The period of administration or settlement is the period
actually required by the administrator or executor to perform the
ordinary duties of administration, such as the collection of assets and
the payment of debts, taxes, legacies, and bequests, whether the period
required is longer or shorter than the period specified under the
applicable local law for the settlement of estates. For example, where
an executor who is also named as trustee under a will fails to obtain
his discharge as executor, the period of administration continues only
until
[[Page 14]]
the duties of administration are complete and he actually assumes his
duties as trustee, whether or not pursuant to a court order. However,
the period of administration of an estate cannot be unduly prolonged. If
the administration of an estate is unreasonably prolonged, the estate is
considered terminated for Federal income tax purposes after the
expiration of a reasonable period for the performance by the executor of
all the duties of administration. Further, an estate will be considered
as terminated when all the assets have been distributed except for a
reasonable amount which is set aside in good faith for the payment of
unascertained or contingent liabilities and expenses (not including a
claim by a beneficiary in the capacity of beneficiary). Notwithstanding
the above, if the estate has joined in making a valid election under
section 645 to treat a qualified revocable trust, as defined under
section 645(b)(1), as part of the estate, the estate shall not terminate
under this paragraph prior to the termination of the section 645
election period. See section 645 and the regulations thereunder for
rules regarding the termination of the section 645 election period.
(b) Generally, the determination of whether a trust has terminated
depends upon whether the property held in trust has been distributed to
the persons entitled to succeed to the property upon termination of the
trust rather than upon the technicality of whether or not the trustee
has rendered his final accounting. A trust does not automatically
terminate upon the happening of the event by which the duration of the
trust is measured. A reasonable time is permitted after such event for
the trustee to perform the duties necessary to complete the
administration of the trust. Thus, if under the terms of the governing
instrument, the trust is to terminate upon the death of the life
beneficiary and the corpus is to be distributed to the remainderman, the
trust continues after the death of the life beneficiary for a period
reasonably necessary to a proper winding up of the affairs of the trust.
However, the winding up of a trust cannot be unduly postponed and if the
distribution of the trust corpus is unreasonably delayed, the trust is
considered terminated for Federal income tax purposes after the
expiration of a reasonable period for the trustee to complete the
administration of the trust. Further, a trust will be considered as
terminated when all the assets have been distributed except for a
reasonable amount which is set aside in good faith for the payment of
unascertained or contingent liabilities and expenses (not including a
claim by a beneficiary in the capacity of beneficiary).
(c)(1) Except as provided in subparagraph (2) of this paragraph,
during the period between the occurrence of an event which causes a
trust to terminate and the time when the trust is considered as
terminated under this section, whether or not the income and the excess
of capital gains over capital losses of the trust are to be considered
as amounts required to be distributed currently to the ultimate
distributee for the year in which they are received depends upon the
principles stated in Sec. 1.651(a)-2. See Sec. 1.663-1 et seq. for
application of the separate share rule.
(2)(i) Except in cases to which the last sentence of this
subdivision applies, for taxable years of a trust ending before
September 1, 1957, subparagraph (1) of this paragraph shall not apply
and the rule of subdivision (ii) of this subparagraph shall apply unless
the trustee elects to have subparagraph (1) of this paragraph apply.
Such election shall be made by the trustee in a statement filed on or
before April 15, 1959, with the district director with whom such trust's
return for any such taxable year was filed. The election provided by
this subdivision shall not be available if the treatment given the
income and the excess of capital gains over capital losses for taxable
years for which returns have been filed was consistent with the
provisions of subparagraph (1) of this paragraph.
(ii) The rule referred to in subdivision (i) of this subparagraph is
as follows: During the period between the occurrence of an event which
causes a trust to terminate and the time when a trust is considered as
terminated under this section, the income and the excess of capital
gains over capital losses of the trust are in general considered as
amounts required to be distributed for
[[Page 15]]
the year in which they are received. For example, a trust instrument
provides for the payment of income to A during her life, and upon her
death for the payment of the corpus to B. The trust reports on the basis
of the calendar year. A dies on November 1, 1955, but no distribution is
made to B until January 15, 1956. The income of the trust and the excess
of capital gains over capital losses for the entire year 1955, to the
extent not paid, credited, or required to be distributed to A or A's
estate, are treated under sections 661 and 662 as amounts required to be
distributed to B for the year 1955.
(d) If a trust or the administration or settlement of an estate is
considered terminated under this section for Federal income tax purposes
(as for instance, because administration has been unduly prolonged), the
gross income, deductions, and credits of the estate or trust are,
subsequent to the termination, considered the gross income, deductions,
and credits of the person or persons succeeding to the property of the
estate or trust.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 9032, 67 FR 78376, Dec. 24, 2002]
Sec. 1.641(c)-0 Table of contents.
This section lists the major captions contained in Sec. 1.641(c)-1.
Sec. 1.641(c)-1Electing small business trust.
(a) In general.
(b) Definitions.
(1) Grantor portion.
(2) S portion.
(3) Non-S portion.
(c) Taxation of grantor portion.
(d) Taxation of S portion.
(1) In general.
(2) Section 1366 amounts.
(3) Gains and losses on disposition of S stock.
(4) State and local income taxes and administrative expenses.
(e) Tax rates and exemption of S portion.
(1) Income tax rate.
(2) Alternative minimum tax exemption.
(f) Adjustments to basis of stock in the S portion under section
1367.
(g) Taxation of non-S portion.
(1) In general.
(2) Dividend income under section 1368(c)(2).
(3) Interest on installment obligations.
(4) Charitable deduction.
(h) Allocation of state and local income taxes and administration
expenses.
(i) Treatment of distributions from the trust.
(j) Termination or revocation of ESBT election.
(k) Effective date.
(l) Examples.
[T.D. 8994, 67 FR 34394, May 14, 2002]
Sec. 1.641(c)-1 Electing small business trust.
(a) In general. An electing small business trust (ESBT) within the
meaning of section 1361(e) is treated as two separate trusts for
purposes of chapter 1 of the Internal Revenue Code. The portion of an
ESBT that consists of stock in one or more S corporations is treated as
one trust. The portion of an ESBT that consists of all the other assets
in the trust is treated as a separate trust. The grantor or another
person may be treated as the owner of all or a portion of either or both
such trusts under subpart E, part I, subchapter J, chapter 1 of the
Internal Revenue Code. The ESBT is treated as a single trust for
administrative purposes, such as having one taxpayer identification
number and filing one tax return. See Sec. 1.1361-1(m).
(b) Definitions--(1) Grantor portion. The grantor portion of an ESBT
is the portion of the trust that is treated as owned by the grantor or
another person under subpart E.
(2) S portion. The S portion of an ESBT is the portion of the trust
that consists of S corporation stock and that is not treated as owned by
the grantor or another person under subpart E.
(3) Non-S portion. The non-S portion of an ESBT is the portion of
the trust that consists of all assets other than S corporation stock and
that is not treated as owned by the grantor or another person under
subpart E.
(c) Taxation of grantor portion. The grantor or another person who
is treated as the owner of a portion of the ESBT includes in computing
taxable income items of income, deductions, and credits against tax
attributable to that portion of the ESBT under section 671.
[[Page 16]]
(d) Taxation of S portion--(1) In general. The taxable income of the
S portion is determined by taking into account only the items of income,
loss, deduction, or credit specified in paragraphs (d)(2), (3), and (4)
of this section, to the extent not attributable to the grantor portion.
(2) Section 1366 amounts--(i) In general. The S portion takes into
account the items of income, loss, deduction, or credit that are taken
into account by an S corporation shareholder pursuant to section 1366
and the regulations thereunder. Rules otherwise applicable to trusts
apply in determining the extent to which any loss, deduction, or credit
may be taken into account in determining the taxable income of the S
portion. See Sec. 1.1361-1(m)(3)(iv) for allocation of those items in
the taxable year of the S corporation in which the trust is an ESBT for
part of the year and an eligible shareholder under section
1361(a)(2)(A)(i) through (iv) for the rest of the year.
(ii) Special rule for charitable contributions. If a deduction
described in paragraph (d)(2)(i) of this section is attributable to an
amount of the S corporation's gross income that is paid by the S
corporation for a charitable purpose specified in section 170(c)
(without regard to section 170(c)(2)(A)), the contribution will be
deemed to be paid by the S portion pursuant to the terms of the trust's
governing instrument within the meaning of section 642(c)(1). The
limitations of section 681, regarding unrelated business income, apply
in determining whether the contribution is deductible in computing the
taxable income of the S portion.
(iii) Multiple S corporations. If an ESBT owns stock in more than
one S corporation, items of income, loss, deduction, or credit from all
the S corporations are aggregated for purposes of determining the S
portion's taxable income.
(3) Gains and losses on disposition of S stock--(i) In general. The
S portion takes into account any gain or loss from the disposition of S
corporation stock. No deduction is allowed under section 1211(b)(1) and
(2) for capital losses that exceed capital gains.
(ii) Installment method. If income from the sale or disposition of
stock in an S corporation is reported by the trust on the installment
method, the income recognized under this method is taken into account by
the S portion. See paragraph (g)(3) of this section for the treatment of
interest on the installment obligation. See Sec. 1.1361-1(m)(5)(ii)
regarding treatment of a trust as an ESBT upon the sale of all S
corporation stock using the installment method.
(iii) Distributions in excess of basis. Gain recognized under
section 1368(b)(2) from distributions in excess of the ESBT's basis in
its S corporation stock is taken into account by the S portion.
(4) State and local income taxes and administrative expenses--(i) In
general. State and local income taxes and administrative expenses
directly related to the S portion and those allocated to that portion in
accordance with paragraph (h) are taken into account by the S portion.
(ii) Special rule for certain interest. Interest paid by the trust
on money borrowed by the trust to purchase stock in an S corporation is
allocated to the S portion but is not a deductible administrative
expense for purposes of determining the taxable income of the S portion.
(e) Tax rates and exemption of S portion--(1) Income tax rate.
Except for capital gains, the highest marginal trust rate provided in
section 1(e) is applied to the taxable income of the S portion. See
section 1(h) for the rates that apply to the S portion's net capital
gain.
(2) Alternative minimum tax exemption. The exemption amount of the S
portion under section 55(d) is zero.
(f) Adjustments to basis of stock in the S portion under section
1367. The basis of S corporation stock in the S portion must be adjusted
in accordance with section 1367 and the regulations thereunder. If the
ESBT owns stock in more than one S corporation, the adjustments to the
basis in the S corporation stock of each S corporation must be
determined separately with respect to each S corporation. Accordingly,
items of income, loss, deduction, or credit of an S corporation that are
taken into account by the ESBT under section 1366 can only result in an
adjustment
[[Page 17]]
to the basis of the stock of that S corporation and cannot affect the
basis in the stock of the other S corporations held by the ESBT.
(g) Taxation of non-S portion--(1) In general. The taxable income of
the non-S portion is determined by taking into account all items of
income, deduction, and credit to the extent not taken into account by
either the grantor portion or the S portion. The items attributable to
the non-S portion are taxed under subparts A through D of part I,
subchapter J, chapter 1 of the Internal Revenue Code. The non-S portion
may consist of more than one share pursuant to section 663(c).
(2) Dividend income under section 1368(c)(2). Any dividend income
within the meaning of section 1368(c)(2) is includible in the gross
income of the non-S portion.
(3) Interest on installment obligations. If income from the sale or
disposition of stock in an S corporation is reported by the trust on the
installment method, the interest on the installment obligation is
includible in the gross income of the non-S portion. See paragraph
(d)(3)(ii) of this section for the treatment of income from such a sale
or disposition.
(4) Charitable deduction. For purposes of applying section 642(c)(1)
to payments made by the trust for a charitable purpose, the amount of
gross income of the trust is limited to the gross income of the non-S
portion. See paragraph (d)(2)(ii) of this section for special rules
concerning charitable contributions paid by the S corporation that are
deemed to be paid by the S portion.
(h) Allocation of state and local income taxes and administration
expenses. Whenever state and local income taxes or administration
expenses relate to more than one portion of an ESBT, they must be
allocated between or among the portions to which they relate. These
items may be allocated in any manner that is reasonable in light of all
the circumstances, including the terms of the governing instrument,
applicable local law, and the practice of the trustee with respect to
the trust if it is reasonable and consistent. The taxes and expenses
apportioned to each portion of the ESBT are taken into account by that
portion.
(i) Treatment of distributions from the trust. Distributions to
beneficiaries from the S portion or the non-S portion, including
distributions of the S corporation stock, are deductible under section
651 or 661 in determining the taxable income of the non-S portion, and
are includible in the gross income of the beneficiaries under section
652 or 662. However, the amount of the deduction or inclusion cannot
exceed the amount of the distributable net income of the non-S portion.
Items of income, loss, deduction, or credit taken into account by the
grantor portion or the S portion are excluded for purposes of
determining the distributable net income of the non-S portion of the
trust.
(j) Termination or revocation of ESBT election. If the ESBT election
of the trust terminates pursuant to Sec. 1.1361-1(m)(5) or the ESBT
election is revoked pursuant to Sec. 1.1361-1(m)(6), the rules
contained in this section are thereafter not applicable to the trust.
If, upon termination or revocation, the S portion has a net operating
loss under section 172; a capital loss carryover under section 1212; or
deductions in excess of gross income; then any such loss, carryover, or
excess deductions shall be allowed as a deduction, in accordance with
the regulations under section 642(h), to the trust, or to the
beneficiaries succeeding to the property of the trust if the entire
trust terminates.
(k) Effective date. This section generally is applicable for taxable
years of ESBTs beginning on and after May 14, 2002. However, paragraphs
(a), (b), (c), and (l) Example 1 of this section are applicable for
taxable years of ESBTs that end on and after December 29, 2000. ESBTs
may apply paragraphs (d)(4) and (h) of this section for taxable years of
ESBTs beginning after December 31, 1996.
(l) Examples. The following examples illustrate the rules of this
section:
Example 1. Comprehensive example. (i) Trust has a valid ESBT
election in effect. Under section 678, B is treated as the owner of a
portion of Trust consisting of a 10% undivided fractional interest in
Trust. No other person is treated as the owner of any other portion of
Trust under subpart E. Trust owns stock in X, an S corporation, and in
Y, a C corporation. During 2000, Trust receives a
[[Page 18]]
distribution from X of $5,100, of which $5,000 is applied against
Trust's adjusted basis in the X stock in accordance with section
1368(c)(1) and $100 is a dividend under section 1368(c)(2). Trust makes
no distributions to its beneficiaries during the year.
(ii) For 2000, Trust has the following items of income and
deduction:
Ordinary income attributable to X under section 1366........... $5,000
Dividend income from Y......................................... $900
Dividend from X representing C corporation earnings and profits $100
Total trust income............................................. $6,000
Charitable contributions attributable to X under section 1366.. $300
Trustee fees................................................... $200
State and local income taxes................................... $100
(iii) Trust's items of income and deduction are divided into a
grantor portion, an S portion, and a non-S portion for purposes of
determining the taxation of those items. Income is allocated to each
portion as follows:
B must take into account the items of income attributable to the
grantor portion, that is, 10% of each item, as follows:
Ordinary income from X......................................... $500
Dividend income from Y......................................... $90
Dividend income from X......................................... $10
--------
Total grantor portion income............................... $600
The total income of the S portion is $4,500, determined as follows:
Ordinary income from X......................................... $5,000
Less: Grantor portion.......................................... ($500)
--------
Total S portion income..................................... $4,500
The total income of the non-S portion is $900 determined as follows:
Dividend income from Y (less grantor portion).................. $810
Dividend income from X (less grantor portion).................. $90
--------
Total non-S portion income................................. $900
(iv) The administrative expenses and the state and local income
taxes relate to all three portions and under state law would be
allocated ratably to the $6,000 of trust income. Thus, these items would
be allocated 10% (600/6000) to the grantor portion, 75% (4500/6000) to
the S portion and 15% (900/6000) to the non-S portion.
(v) B must take into account the following deductions attributable
to the grantor portion of the trust:
Charitable contributions from X................................ $30
Trustee fees................................................... $20
State and local income taxes................................... $10
(vi) The taxable income of the S portion is $4,005, determined as
follows:
Ordinary income from X......................................... $4,500
Less: Charitable contributions from X (less grantor portion)... ($270)
75% of trustee fees............................................ ($150)
75% of state and local income taxes............................ ($75)
Taxable income of S portion.................................... $4,005
(vii) The taxable income of the non-S portion is $755, determined as
follows:
Dividend income from Y......................................... $810
Dividend income from X......................................... $90
Total non-S portion income..................................... $900
Less: 15% of trustee fees...................................... ($30)
15% state and local income taxes............................... ($15)
Personal exemption............................................. ($100)
Taxable income of non-S portion................................ $755
Example 2. Sale of S stock. Trust has a valid ESBT election in
effect and owns stock in X, an S corporation. No person is treated as
the owner of any portion of Trust under subpart E. In 2003, Trust sells
all of its stock in X to a person who is unrelated to Trust and its
beneficiaries and realizes a capital gain of $5,000. This gain is taken
into account by the S portion and is taxed using the appropriate capital
gain rate found in section 1(h).
Example 3. (i) Sale of S stock for an installment note. Assume the
same facts as in Example 2, except that Trust sells its stock in X for a
$400,000 installment note payable with stated interest over ten years.
After the sale, Trust does not own any S corporation stock.
(ii) Loss on installment sale. Assume Trust's basis in its X stock
was $500,000. Therefore, Trust sustains a capital loss of $100,000 on
the sale. Upon the sale, the S portion terminates and the excess loss,
after being netted against the other items taken into account by the S
portion, is made available to the entire trust as provided in section
641(c)(4).
(iii) Gain on installment sale. Assume Trust's basis in its X stock
was $300,000 and that the $100,000 gain will be recognized under the
installment method of section 453. Interest income will be recognized
annually as part of the installment payments. The portion of the
$100,000 gain recognized annually is taken into account by the S
portion. However, the annual interest income is includible in the gross
income of the non-S portion.
Example 4. Charitable lead annuity trust. Trust is a charitable lead
annuity trust which is not treated as owned by the grantor or another
person under subpart E. Trust acquires stock in X, an S corporation, and
elects to be an ESBT. During the taxable year, pursuant to its terms,
Trust pays $10,000 to a charitable organization described in section
170(c)(2). The non-S portion of Trust receives an income tax deduction
for the charitable contribution under section 642(c) only to the extent
the amount is paid out of the gross income of the non-S portion. To the
extent the amount is paid from the S portion by distributing S
corporation stock, no charitable deduction is available to the S
portion.
Example 5. ESBT distributions. (i) As of January 1, 2002, Trust owns
stock in X, a C corporation. No portion of Trust is treated as owned by
the grantor or another person under subpart E. X elects to be an S
corporation effective January 1, 2003, and Trust elects to be an ESBT
effective January 1, 2003. On February 1, 2003, X makes an $8,000
[[Page 19]]
distribution to Trust, of which $3,000 is treated as a dividend from
accumulated earnings and profits under section 1368(c)(2) and the
remainder is applied against Trust's basis in the X stock under section
1368(b). The trustee of Trust makes a distribution of $4,000 to
Beneficiary during 2003. For 2003, Trust's share of X's section 1366
items is $5,000 of ordinary income. For the year, Trust has no other
income and no expenses or state or local taxes.
(ii) For 2003, Trust has $5,000 of taxable income in the S portion.
This income is taxed to Trust at the maximum rate provided in section
1(e). Trust also has $3,000 of distributable net income (DNI) in the
non-S portion. The non-S portion of Trust receives a distribution
deduction under section 661(a) of $3,000, which represents the amount
distributed to Beneficiary during the year ($4,000), not to exceed the
amount of DNI ($3,000). Beneficiary must include this amount in gross
income under section 662(a). As a result, the non-S portion has no
taxable income.
[T.D. 8994, 67 FR 34395, May 14, 2002]
Sec. 1.642(a)(1)-1 Partially tax-exempt interest.
An estate or trust is allowed the credit against tax for partially
tax-exempt interest provided by section 35 only to the extent that the
credit does not relate to interest properly allocable to a beneficiary
under section 652 or 662 and the regulations thereunder. A beneficiary
of an estate or trust is allowed the credit against tax for partially
tax-exempt interest provided by section 35 only to the extent that the
credit relates to interest properly allocable to him under section 652
or 662 and the regulations thereunder. If an estate or trust holds
partially tax-exempt bonds and elects under section 171 to treat the
premium on the bonds as amortizable, the credit allowable under section
35, with respect to the bond interest (whether allowable to the estate
or trust or to the beneficiary), is reduced under section 171(a)(3) by
reducing the shares of the interest allocable, respectively, to the
estate or trust and its beneficiary by the portion of the amortization
deduction attributable to the shares.
Sec. 1.642(a)(2)-1 Foreign taxes.
An estate or trust is allowed the credit against tax for taxes
imposed by foreign countries and possessions of the United States to the
extent allowed by section 901 only for so much of those taxes as are not
properly allocable under that section to the beneficiaries. See section
901(b)(4). For purposes of section 901(b)(4), the term beneficiaries
includes charitable beneficiaries.
Sec. 1.642(a)(3)-1 Dividends received by an estate or trust.
An estate or trust is allowed a credit against the tax for dividends
received on or before December 31, 1964 (see section 34), only for so
much of the dividends as are not properly allocable to any beneficiary
under section 652 or 662. Section 642(a)(3), and this section do not
apply to amounts received as dividends after December 31, 1964. For
treatment of the credit in the hands of the beneficiary see Sec.
1.652(b)-1.
[T.D. 6777, 29 FR 17808, Dec. 16, 1964]
Sec. 1.642(a)(3)-2 Time of receipt of dividends by beneficiary.
In general, dividends are deemed received by a beneficiary in the
taxable year in which they are includible in his gross income under
section 652 or 662. For example, a simple trust, reporting on the basis
of a fiscal year ending October 30, receives quarterly dividends on
November 3, 1954, and February 3, May 3, and August 3, 1955. These
dividends are all allocable to beneficiary A, reporting on a calendar
year basis, under section 652 and are deemed received by A in 1955. See
section 652(c). Accordingly, A may take all these dividends into account
in determining his credit for dividends received under section 34 and
his dividends exclusion under section 116. However, solely for purposes
of determining whether dividends deemed received by individuals from
trusts or estates qualify under the time limitations of section 34(a) or
section 116(a), section 642(a)(3) provides that the time of receipt of
the dividends by the trust or estate is also considered the time of
receipt by the beneficiary. For example, a simple trust reporting on the
basis of a fiscal year ending October 30 receives quarterly dividends on
December 3, 1953, and March 3, June 3, and September 3, 1954. These
dividends are all allocable to beneficiary A, reporting on the calendar
year basis, under section 652 and are includible in his income for 1954.
[[Page 20]]
However, for purposes of section 34(a) or section 116(a), these
dividends are deemed received by A on the same dates that the trust
received them. Accordingly, A may take into account in determining the
credit under section 34 only those dividends received by the trust on
September 3, 1954, since the dividend received credit is not allowed
under section 34 for dividends received before August 1, 1954 (or after
December 31, 1964). Section 642(a)(3) and this section do not apply to
amounts received by an estate or trust as dividends after December 31,
1964. However, the rules in this section relating to time of receipt of
dividends by a beneficiary are applicable to dividends received by an
estate or trust prior to January 1, 1965, and accordingly, such
dividends are deemed to be received by the beneficiary (even though
received after December 31, 1964) on the same dates that the estate or
trust received them for purposes of determining the credit under section
34 or the exclusion under section 116.
[T.D. 6777, 29 FR 17808, Dec. 16, 1964]
Sec. 1.642(a)(3)-3 Cross reference.
See Sec. 1.683-2(c) for examples relating to the treatment of
dividends received by an estate or trust during a fiscal year beginning
in 1953 and ending in 1954.
Sec. 1.642(b)-1 Deduction for personal exemption.
In lieu of the deduction for personal exemptions provided by section
151:
(a) An estate is allowed a deduction of $600,
(b) A trust which, under its governing instrument, is required to
distribute currently all of its income for the taxable year is allowed a
deduction of $300, and
(c) All other trusts are allowed a deduction of $100.
A trust which, under its governing instrument, is required to distribute
all of its income currently is allowed a deduction of $300, even though
it also distributes amounts other than income in the taxable year and
even though it may be required to make distributions which would qualify
for the charitable contributions deduction under section 642(c) (and
therefore does not qualify as a ``simple trust'' under sections 651-
652). A trust for the payment of an annuity is allowed a deduction of
$300 in a taxable year in which the amount of the annuity required to be
paid equals or exceeds all the income of the trust for the taxable year.
For the meaning of the term income required to be distributed currently,
see Sec. 1.651(a)-2.
Sec. 1.642(c)-0 Effective dates.
The provisions of section 642(c) (other than section 642(c)(5)) and
of Sec. Sec. 1.642 (c)-1 through 1.642(c)-4 apply to amounts paid,
permanently set aside, or to be used for a charitable purpose in taxable
years beginning after December 31, 1969. The provisions of section
642(c)(5) and of Sec. Sec. 1.642(c)-5 through 1.642(c)-7 apply to
transfers in trust made after July 31, 1969. For provisions relating to
amounts paid, permanently set aside, or to be used for a charitable
purpose in taxable years beginning before January 1, 1970, see 26 CFR
1.642(c)-1 through 1.642(c)-4 (Rev. as of Jan. 1, 1971).
[T.D. 7357, 40 FR 23739, June 2, 1975]
Sec. 1.642(c)-1 Unlimited deduction for amounts paid for a charitable
purpose.
(a) In general. (1) Any part of the gross income of an estate, or
trust which, pursuant to the terms of the governing instrument is paid
(or treated under paragraph (b) of this section as paid) during the
taxable year for a purpose specified in section 170(c) shall be allowed
as a deduction to such estate or trust in lieu of the limited charitable
contributions deduction authorized by section 170(a). In applying this
paragraph without reference to paragraph (b) of this section, a
deduction shall be allowed for an amount paid during the taxable year in
respect of gross income received in a previous taxable year, but only if
no deduction was allowed for any previous taxable year to the estate or
trust, or in the case of a section 645 election, to a related estate, as
defined under Sec. 1.645-1(b), for the amount so paid.
(2) In determining whether an amount is paid for a purpose specified
in section 170(c)(2) the provisions of section 170(c)(2)(A) shall not be
taken
[[Page 21]]
into account. Thus, an amount paid to a corporation, trust, or community
chest, fund, or foundation otherwise described in section 170(c)(2)
shall be considered paid for a purpose specified in section 170(c) even
though the corporation, trust, or community chest, fund, or foundation
is not created or organized in the United States, any State, the
District of Columbia, or any possession of the United States.
(3) See section 642(c)(6) and Sec. 1.642(c)-4 for disallowance of a
deduction under this section to a trust which is, or is treated under
section 4947(a)(1) as though it were a private foundation (as defined in
section 509(a) and the regulations thereunder) and not exempt from
taxation under section 501(a).
(b) Election to treat contributions as paid in preceding taxable
year--(1) In general. For purposes of determining the deduction allowed
under paragraph (a) of this section, the fiduciary (as defined in
section 7701(a)(6)) of an estate or trust may elect under section
642(c)(1) to treat as paid during the taxable year (whether or not such
year begins before January 1, 1970) any amount of gross income received
during such taxable year or any preceding taxable year which is
otherwise deductible under such paragraph and which is paid after the
close of such taxable year but on or before the last day of the next
succeeding taxable year of the estate or trust. The preceding sentence
applies only in the case of payments actually made in a taxable year
which is a taxable year beginning after December 31, 1969. No election
shall be made, however, in respect of any amount which was deducted for
any previous taxable year or which is deducted for the taxable year in
which such amount is paid.
(2) Time for making election. The election under subparagraph (1) of
this paragraph shall be made not later than the time, including
extensions thereof, prescribed by law for filing the income tax return
for the succeeding taxable year. Such election shall, except as provided
in subparagraph (4) of this paragraph, become irrevocable after the last
day prescribed for making it. Having made the election for any taxable
year, the fiduciary may, within the time prescribed for making it,
revoke the election without the consent of the Commissioner.
(3) Manner of making the election. The election shall be made by
filing with the income tax return (or an amended return) for the taxable
year in which the contribution is treated as paid a statement which:
(i) States the name and address of the fiduciary,
(ii) Identifies the estate or trust for which the fiduciary is
acting,
(iii) Indicates that the fiduciary is making an election under
section 642(c)(1) in respect of contributions treated as paid during
such taxable year,
(iv) Gives the name and address of each organization to which any
such contribution is paid, and
(v) States the amount of each contribution and date of actual
payment or, if applicable, the total amount of contributions paid to
each organization during the succeeding taxable year, to be treated as
paid in the preceding taxable year.
(4) Revocation of certain elections with consent. An application to
revoke with the consent of the Commissioner any election made on or
before June 8, 1970, must be in writing and must be filed not later than
September 2, 1975.
No consent will be granted to revoke an election for any taxable year
for which the assessment of a deficiency is prevented by the operation
of any law or rule of law. If consent to revoke the election is granted,
the fiduciary must attach a copy of the consent to the return (or
amended return) for each taxable year affected by the revocation. The
application must be addressed to the Commissioner of Internal Revenue,
Washington, DC 20224, and must indicate:
(i) The name and address of the fiduciary and the estate or trust
for which he was acting,
(ii) The taxable year for which the election was made,
(iii) The office of the district director, or the service center,
where the return (or amended return) for the year of election was filed,
and
[[Page 22]]
(iv) The reason for revoking the election.
[T.D. 7357, 40 FR 23739, June 2, 1975; 40 FR 24361, June 6, 1975; T.D.
9032, 67 FR 78376, Dec. 24, 2002]
Sec. 1.642(c)-2 Unlimited deduction for amounts permanently set aside
for a charitable purpose.
(a) Estates. Any part of the gross income of an estate which
pursuant to the terms of the will:
(1) Is permanently set aside during the taxable year for a purpose
specified in section 170(c), or
(2) Is to be used (within or without the United States or any of its
possessions) exclusively for religious, charitable, scientific,
literary, or educational purposes, or for the prevention of cruelty to
children or animals, or for the establishment, acquisition, maintenance,
or operation of a public cemetery not operated for profit,
shall be allowed as a deduction to the estate in lieu of the limited
charitable contributions deduction authorized by section 170(a).
(b) Certain trusts--(1) In general. Any part of the gross income of
a trust to which either subparagraph (3) or (4) of this paragraph
applies, that by the terms of the governing instrument:
(i) Is permanently set aside during the taxable year for a purpose
specified in section 170(c), or
(ii) Is to be used (within or without the United States or any of
its possessions) exclusively for religious, charitable, scientific,
literary, or educational purposes, or for the prevention of cruelty to
children or animals, or for the establishment, acquisition, maintenance,
or operation of a public cemetery not operated for profit,
shall be allowed, subject to the limitation provided in subparagraph (2)
of this paragraph, as a deduction to the trust in lieu of the limited
charitable contributions deduction authorized by section 170(a). The
preceding sentence applied only to a trust which is required by the
terms of its governing instrument to set amounts aside. See section
642(c)(6) and Sec. 1.642(c)-4 for disallowance of a deduction under
this section to a trust which is, or is treated under section 4947(a)(1)
as though it were, a private foundation (as defined in section 509(a)
and the regulations thereunder) that is not exempt from taxation under
section 501(a).
(2) Limitation of deduction. Subparagraph (1) of this paragraph
applies only to the gross income earned by a trust with respect to
amounts transferred to the trust under a will executed on or before
October 9, 1969, and satisfying the requirements of subparagraph (4) of
this paragraph or transferred to the trust on or before October 9, 1969.
For such purposes, any income, gains, or losses, which are derived at
any time from the amounts so transferred to the trust shall also be
taken into account in applying subparagraph (1) of this paragraph. If
any such amount so transferred to the trust is invested or reinvested at
any time, any asset received by the trust upon such investment or
reinvestment shall also be treated as an amount which was so transferred
to the trust. In the case of a trust to which this paragraph applies
which contains (i) amounts transferred pursuant to transfers described
in the first sentence of this subparagraph and (ii) amounts transferred
pursuant to transfers not so described, subparagraph (1) of this
paragraph shall apply only if the amounts described in subdivision (i)
of this subparagraph, together with all income, gains, and losses
derived therefrom, are separately accounted for from the amounts
described in subdivision (ii) of this subparagraph, together with all
income, gains, and losses derived therefrom. Such separate accounting
shall be carried out consistently with the principles of paragraph
(c)(4) of Sec. 53.4947-1 of this chapter (Foundation Excise Tax
Regulations), relating to accounting for segregated amounts of split-
interest trusts.
(3) Trusts created on or before October 9, 1969. A trust to which
this subparagraph applies is a trust, testamentary or otherwise, which
was created on or before October 9, 1969, and which qualifies under
either subdivision (i) or (ii) of this subparagraph.
(i) Transfer of irrevocable remainder interest to charity. To
qualify under this subdivision the trust must have been
[[Page 23]]
created under the terms of an instrument granting an irrevocable
remainder interest in such trust to or for the use of an organization
described in section 170(c). If the instrument granted a revocable
remainder interest but the power to revoke such interest terminated on
or before October 9, 1969, without the remainder interest having been
revoked, the remainder interest will be treated as irrevocable for
purposes of the preceding sentence.
(ii) Grantor under a mental disability to change terms of trust. (A)
To qualify under this subdivision (ii) the trust must have been created
by a grantor who was at all times after October 9, 1969, under a mental
disability to change the terms of the trust. The term mental disability
for this purpose means mental incompetence to change the terms of the
trust, whether or not there has been an adjudication of mental
incompetence and whether or not there has been an appointment of a
committee, guardian, fiduciary, or other person charged with the care of
the person or property of the grantor.
(B) If the grantor has not been adjudged mentally incompetent, the
trustee must obtain from a qualified physician a certificate stating
that the grantor of the trust has been mentally incompetent at all times
after October 9, 1969, and that there is no reasonable probability that
the grantor's mental capacity will ever improve to the extent that he
will be mentally competent to change the terms of the trust. A copy of
this certification must be filed with the first return on which a
deduction is claimed by reason of this subdivision (ii) and subparagraph
(1) of this paragraph. Thereafter, a statement referring to such medical
opinion must be attached to any return for a taxable year for which such
a deduction is claimed and during which the grantor's mental
incompetence continues. The original certificate must be retained by the
trustee of the trust.
(C) If the grantor has been adjudged mentally incompetent, a copy of
the judgment or decree, and any modification thereof, must be filed with
the first return on which a deduction is claimed by reason of this
subdivision (ii) and subparagraph (1) of this paragraph. Thereafter, a
statement referring to such judgment or decree must be attached to any
return for a taxable year for which such a deduction is claimed and
during which the grantor's mental incompetence continues. A copy of such
judgment or decree must also be retained by the trustee of the trust.
(D) This subdivision (ii) applies even though a person charged with
the care of the person or property of the grantor has the power to
change the terms of the trust.
(4) Testamentary trust established by will executed on or before
October 9, 1969. A trust to which this subparagraph applies is a trust
which was established by will executed on or before October 9, 1969, and
which qualifies under either subdivision (i), (ii), or (iii) of this
subparagraph. This subparagraph does not apply, however, to that portion
of any trust, not established by a will executed on or before October 9,
1969, which was transferred to such trust by a will executed on or
before October 9, 1969. Nor does it apply to that portion of any trust,
not established by a will executed on or before October 9, 1969, which
was subject to a testamentary power of appointment that fails by reason
of the testator's nonexercise of the power in a will executed on or
before October 9, 1969.
(i) Testator dying within 3 years without republishing his will. To
qualify under this subdivision the trust must have been established by
the will of a testator who died after October 9, 1969, but before
October 9, 1972, without having amended any dispositive provision of the
will after October 9, 1969, by codicil or otherwise.
(ii) Testator having no right to change his will. To qualify under
this subdivision the trust must have been established by the will of a
testator who died after October 9, 1969, and who at no time after that
date had the right to change any portion of such will pertaining to such
trust. This subdivision could apply, for example, where a contract has
been entered into for the execution of wills containing reciprocal
provisions as well as provisions for the benefit of an organization
described in section 170(c) and under applicable local law the surviving
testator is prohibited from revoking his will because
[[Page 24]]
he has accepted the benefit of the provisions of the will of the other
contracting party.
(iii) Testator under a mental disability to republish his will. To
qualify under this subdivision the trust must have been established by
the will of a testator who died after October 8, 1972, without having
amended any dispositive provision of such will after October 9, 1969,
and before October 9, 1972, by codicil or otherwise, and who is under a
mental disability at all times after October 8, 1972, to amend such
will, by codicil or otherwise. The provisions of subparagraph (3)(ii) of
this paragraph with respect to mental incompetence apply for purposes of
this subdivision.
(iv) Amendment of dispositive provisions. The provisions of
paragraph (e) (4) and (5) of Sec. 20.2055-2 of this chapter (Estate Tax
Regulations) are to be applied under subdivisions (i) and (iii) of this
subparagraph in determining whether there has been an amendment of a
dispositive provision of a will.
(c) Pooled income funds. Any part of the gross income of a pooled
income fund to which Sec. 1.642(c)-5 applies for the taxable year that
is attributable to net long-term capital gain (as defined in section
1222(7)) which, pursuant to the terms of the governing instrument, is
permanently set aside during the taxable year for a purpose specified in
section 170(c) shall be allowed as a deduction to the fund in lieu of
the limited charitable contributions deduction authorized by section
170(a). No amount of net long-term capital gain shall be considered
permanently set aside for charitable purposes if, under the terms of the
fund's governing instrument and applicable local law, the trustee has
the power, whether or not exercised, to satisfy the income
beneficiaries' right to income by the payment of either: an amount equal
to a fixed percentage of the fair market value of the fund's assets
(whether determined annually or averaged on a multiple year basis); or
any amount that takes into account unrealized appreciation in the value
of the fund's assets. In addition, no amount of net long-term capital
gain shall be considered permanently set aside for charitable purposes
to the extent the trustee distributes proceeds from the sale or exchange
of the fund's assets as income within the meaning of Sec. 1.642(c)-
5(a)(5)(i). No deduction shall be allowed under this paragraph for any
portion of the gross income of such fund which is (1) attributable to
income other than net long-term capital gain (2) earned with respect to
amounts transferred to such fund before August 1, 1969. However, see
paragraph (b) of this section for a deduction (subject to the
limitations of such paragraph) for amounts permanently set aside by a
pooled income fund which meets the requirements of that paragraph. The
principles of paragraph (b) or (2) of this section with respect to
investment, reinvestment, and separate accounting shall apply under this
paragraph in the case of amounts transferred to the fund after July 31,
1969.
(d) Disallowance of deduction for certain amounts not deemed to be
permanently set aside for charitable purposes. No amount will be
considered to be permanently set aside, or to be used, for a purpose
described in paragraph (a) or (b)(1) of this section unless under the
terms of the governing instrument and the circumstances of the
particular case the possibility that the amount set aside, or to be
used, will not be devoted to such purpose or use is so remote as to be
negligible. Thus, for example, where there is possibility of the
invasion of the corpus of a charitable remainder trust, as defined in
Sec. 1.664-1(a)(1)(ii), in order to make payment of the annuity amount
or unitrust amount, no deduction will be allowed under paragraph (a) of
this section in respect of any amount set aside by an estate for
distribution to such a charitable remainder trust.
(e) Effective dates. Generally, the second sentence of paragraph (c)
of this section, concerning the loss of any charitable deduction for
long-term capital gains if the fund's income may be determined by a
fixed percentage of the fair market value of the fund's assets or by any
amount that takes into account unrealized appreciation in the value of
the fund's assets, applies for taxable years beginning after January 2,
2004. In a state whose statute permits income to be determined by
reference to a fixed percentage of, or the unrealized appreciation in,
the value of the
[[Page 25]]
fund's assets, net long-term capital gain of a pooled income fund may be
considered to be permanently set aside for charitable purposes if the
fund's governing instrument is amended or reformed to eliminate the
possibility of determining income in such a manner and if income has not
been determined in this manner. For this purpose, a judicial proceeding
to reform the fund's governing instrument must be commenced, or a
nonjudicial reformation that is valid under state law must be completed,
by the date that is nine months after the later of January 2, 2004 or
the effective date of the state statute authorizing determination of
income in such a manner.
For treatment of distributions by an estate to a charitable remainder
trust, see paragraph (a)(5)(iii) of Sec. 1.664-1.
[T.D. 7357, 40 FR 23740, June 2, 1975; 40 FR 24361, June 6, 1975, as
amended by T.D. 9102, 69 FR 17, Jan. 2, 2004]
Sec. 1.642(c)-3 Adjustments and other special rules for determining
unlimited charitable contributions deduction.
(a) Income in respect of a decedent. For purposes of Sec. Sec.
1.642(c)-1 and 1.642(c)-2, an amount received by an estate or trust
which is includible in its gross income under section 691(a)(1) as
income in respect of a decedent shall be included in the gross income of
the estate or trust.
(b) Determination of amounts deductible under section 642(c) and the
character of such amounts--(1) Reduction of charitable contributions
deduction by amounts not included in gross income. If an estate, pooled
income fund, or other trust pays, permanently sets aside, or uses any
amount of its income for a purpose specified in section 642(c) (1), (2)
or (3) and that amount includes any items of estate or trust income not
entering into the gross income of the estate or trust, the deduction
allowable under Sec. 1.642(c)-1 or Sec. 1.642(c)-2 is limited to the
gross income so paid, permanently set aside, or used. In the case of a
pooled income fund for which a deduction is allowable under paragraph
(c) of Sec. 1.642(c)-2 for amounts permanently set aside, only the
gross income of the fund which is attributable to net long-term capital
gain (as defined in section 1222(7)) shall be taken into account.
(2) Determination of the character of an amount deductible under
section 642(c). In determining whether the amounts of income so paid,
permanently set aside, or used for a purpose specified in section
642(c)(1), (2), or (3) include particular items of income of an estate
or trust, whether or not included in gross income, a provision in the
governing instrument or in local law that specifically provides the
source out of which amounts are to be paid, permanently set aside, or
used for such a purpose controls for Federal tax purposes to the extent
such provision has economic effect independent of income tax
consequences. See Sec. 1.652(b)-2(b). In the absence of such specific
provisions in the governing instrument or in local law, the amount to
which section 642(c) applies is deemed to consist of the same proportion
of each class of the items of income of the estate or trust as the total
of each class bears to the total of all classes. See Sec. 1.643(a)-5(b)
for the method of determining the allocable portion of exempt income and
foreign income. This paragraph (b)(2) is illustrated by the following
examples:
Example 1. A charitable lead annuity trust has the calendar year as
its taxable year, and is to pay an annuity of $10,000 annually to an
organization described in section 170(c). A provision in the trust
governing instrument provides that the $10,000 annuity should be deemed
to come first from ordinary income, second from short-term capital gain,
third from fifty percent of the unrelated business taxable income,
fourth from long-term capital gain, fifth from the balance of unrelated
business taxable income, sixth from tax-exempt income, and seventh from
principal. This provision in the governing instrument does not have
economic effect independent of income tax consequences, because the
amount to be paid to the charity is not dependent upon the type of
income from which it is to be paid. Accordingly, the amount to which
section 642(c) applies is deemed to consist of the same proportion of
each class of the items of income of the trust as the total of each
class bears to the total of all classes.
Example 2. A trust instrument provides that 100 percent of the
trust's ordinary income must be distributed currently to an organization
described in section 170(c) and that all remaining items of income must
be distributed currently to B, a noncharitable beneficiary. This income
ordering provision
[[Page 26]]
has economic effect independent of income tax consequences because the
amount to be paid to the charitable organization each year is dependent
upon the amount of ordinary income the trust earns within that taxable
year. Accordingly, for purposes of section 642(c), the full amount
distributed to charity is deemed to consist of ordinary income.
(3) Other examples. For examples showing the determination of the
character of an amount deductible under Sec. 1.642(c)-1 or Sec.
1.642(c)-2, see examples 1 and 2 in Sec. 1.662(b)-2 and paragraph (e)
of the example in Sec. 1.662(c)-4.
(c) Capital gains included in charitable contribution. Where any
amount of the income paid, permanently set aside, or used for a purpose
specified in section 642(c) (1), (2), or (3), is attributable to net
long-term capital gain (as defined in section 1222(7)), the amount of
the deduction otherwise allowable under Sec. 1.642(c)-1 or Sec.
1.642(c)-2, must be adjusted for any deduction provided in section 1202
of 50 percent of the excess, if any, of the net long-term capital gain
over the net short-term capital loss. For determination of the extent to
which the contribution to which Sec. 1.642(c)-1 or Sec. 1.642(c)-2
applies is deemed to consist of net long-term capital gains, see
paragraph (b) of this section. The application of this paragraph may be
illustrated by the following examples:
Example 1. Under the terms of the trust instrument, the income of a
trust described in Sec. 1.642(c)-2 (b)(3)(i) is currently distributable
to A during his life and capital gains are allocable to corpus. No
provision is made in the trust instrument for the invasion of corpus for
the benefit of A. Upon A's death the corpus of the trust is to be
distributed to M University, an organization described in section
501(c)(3) which is exempt from taxation under section 501(a). During the
taxable year ending December 31, 1970, the trust has long-term capital
gains of $100,000 from property transferred to it on or before October
9, 1969, which are permanently set aside for charitable purposes. The
trust includes $100,000 in gross income but is allowed a deduction of
$50,000 under section 1202 for the long-term capital gains and a
charitable contributions deduction of $50,000 under section 642(c)(2)
($100,000 permanently set aside for charitable purposes less $50,000
allowed as a deduction under section 1202 with respect to such
$100,000).
Example 2. Under the terms of the will, $200,000 of the income
(including $100,000 capital gains) for the taxable year 1972 of an
estate is distributed, one-quarter to each of two individual
beneficiaries and one-half to N University, an organization described in
section 501(c)(3) which is exempt from taxation under section 501(a).
During 1972 the estate has ordinary income of $200,000, long-term
capital gains of $100,000, and no capital losses. It is assumed that for
1972 the estate has no other items of income or any deductions other
than those discussed herein. The entire capital gains of $100,000 are
included in the gross income of the estate for 1972, and N University
receives $100,000 from the estate in such year. However, the amount
allowable to the estate under section 642(c)(1) is subject to
appropriate adjustment for the deduction allowable under section 1202.
In view of the distributions of $25,000 of capital gains to each of the
individual beneficiaries, the deduction allowable to the estate under
section 1202 is limited by such section to $25,000 [($100,000 capital
gains less $50,000 capital gains includible in income of individual
beneficiaries under section 662) x 50%]. Since the whole of this $25,000
deduction under section 1202 is attributable to the distribution of
$50,000 of capital gains to N University, the deduction allowable to the
estate in 1972 under section 642(c)(1) is $75,000 [$100,000 (distributed
to N) less $25,000 (proper adjustment for section 1202 deduction)].
Example 3. Under the terms of the trust instrument, 30 percent of
the gross income (exclusive of capital gains) of a trust described in
Sec. 1.642(c)-2(b)(3)(i) is currently distributed to B, the sole income
beneficiary. Net capital gains (capital gain net income for taxable
years beginning after December 31, 1976) and undistributed ordinary
income are allocable to corpus. No provision is made in the trust
instrument for the invasion of corpus for the benefit of B. Upon B's
death the remainder of the trust is to be distributed to M Church.
During the taxable year 1972, the trust has ordinary income of $100,000,
long-term capital gains of $15,000, short-term capital gains of $1,000,
long-term capital losses of $5,000, and short-term capital losses of
$2,500. It is assumed that the trust has no other items of income or any
deductions other than those discussed herein. All the ordinary income
and capital gains and losses are attributable to amounts transferred to
the trust before October 9, 1969. The trust includes in gross income for
1972 the total amount of $116,000 [$100,000 (ordinary income)+$16,000
(total capital gains determined without regard to capital losses)].
Pursuant to the terms of the governing instrument the trust distributes
to B in 1972 the amount of $30,000 ($100,000x30%). The balance of
$78,500 [($116,000 less $7,500 capital losses) -030,000 distribution] is
available for the set-aside for charitable purposes. In determining
taxable income for 1972 the capital losses of $7,500 ($5,000+$2,500) are
allowable in full under section 1211(b)(1). The net capital gain
(capital
[[Page 27]]
gain net income for taxable years beginning after December 31, 1976) of
$8,500 ($16,000 less $7,500) is the excess of the net long-term capital
gain of $10,000 ($15,000 less $5,000) over the net short-term capital
loss of $1,500 ($2,500 less $1,000). The deduction under section 1202 is
$4,250 ($8,500x50%), all of which is attributable to the set-aside for
charitable purposes. Accordingly, for 1972 the deduction allowable to
the trust under section 642(c)(2) is $74,250 [$78,500 (set-aside for M)
less $4,250 (proper adjustment for section 1202 deduction)].
Example 4. During the taxable year a pooled income fund, as defined
in Sec. 1.642(c)-5, has in addition to ordinary income long-term
capital gains of $150,000, short-term capital gains of $15,000, long-
term capital losses of $100,000, and short-term capital losses of
$10,000. Under the Declaration of Trust and pursuant to State law net
long-term capital gain is allocable to corpus and net short-term capital
gain is to be distributed to the income beneficiaries of the fund. All
the capital gains and losses are attributable to amounts transferred to
the fund after July 31, 1969. In view of the distribution of the net
short-term capital gain of $5,000 ($15,000 less $10,000) to the income
beneficiaries, the deduction allowed to the fund under section 1202 is
limited by such section to $25,000 [($150,000 (long-term capital gains)
less $100,000 (long-term capital losses))x50%]. Since the whole of this
deduction under section 1202 is attributable to the set-aside for
charitable purposes, the deduction of $50,000 ($150,000 less $100,000)
otherwise allowable under section 642(c)(3) is subject to appropriate
adjustment under section 642(c)(4) for the deduction allowable under
section 1202. Accordingly, the amount of the set-aside deduction is
$25,000 [$50,000 (set-aside for public charity) less $25,000 (proper
adjustment for section 1202 deduction)].
Example 5. The facts are the same as in example 4 except that under
the Declaration of Trust and pursuant to State law all the net capital
gain (capital gain net income for taxable years beginning after December
31, 1976) for the taxable year is allocable to corpus of the fund. The
fund would thus include in gross income total capital gains of $165,000
($150,000+$15,000). In determining taxable income for the taxable year
the capital losses of $110,000 ($100,000+$10,000) are allowable in full
under section 1211(b)(1). The net capital gain of $55,000 ($165,000 less
$110,000) is available for the set-aside for charitable purposes under
section 642(c)(3) only in the amount of the net long-term capital gain
of $50,000 ($150,000 long-term gains less $100,000 long-term losses).
The deduction under section 1202 is $25,000 ($50,000x50%), all of which
is attributable to the set-aside for charitable purposes. Accordingly,
the deduction allowable to the fund under section 642(c)(3) is $25,000
[$50,000 (set-aside for public charity) less $25,000 (proper adjustment
for section 1202 deduction)]. The $5,000 balance of net capital gain
(capital gain net income for taxable years beginning after December 31,
1976) is taken into account in determining taxable income of the pooled
income fund for the taxable year.
(d) Disallowance of deduction for amounts allocable to unrelated
business income. In the case of a trust, the deduction otherwise
allowable under Sec. 1.642(c)-1 or Sec. 1.642(c)-2 is disallowed to
the extent of amounts allocable to the trust's unrelated business
income. See section 681(a) and the regulations thereunder.
(e) Disallowance of deduction in certain cases. For disallowance of
certain deductions otherwise allowable under section 642(c) (1), (2), or
(3), see sections 508(d) and 4948(c)(4).
(f) Information returns. For rules applicable to the annual
information return that must be filed by trusts claiming a deduction
under section 642(c) for the taxable year, see section 6034 and the
regulations thereunder.
[T.D. 7357, 40 FR 23741, June 2, 1975; 40 FR 24361, June 6, 1975, as
amended by T.D. 7728, 45 FR 72650, Nov. 3, 1980; T.D. 9582, 77 FR 22484,
Apr. 16, 2012]
Sec. 1.642(c)-4 Nonexempt private foundations.
In the case of a trust which is, or is treated under section
4947(a)(1) as though it were, a private foundation (as defined in
section 509(a) and the regulations thereunder) that is not exempt from
taxation under section 501(a) for the taxable year, a deduction for
amounts paid or permanently set aside, or used for a purpose specified
in section 642(c) (1), or (2) shall not be allowed under Sec. 1.642(c)-
1 or Sec. 1.642(c)-2, but such trust shall, subject to the provisions
applicable to individuals, be allowed a deduction under section 170 for
charitable contributions paid during the taxable year. Section 642(c)(6)
and this section do not apply to a trust described in section 4947(a)(1)
unless such trust fails to meet the requirements of section 508(e).
However, if on October 9, 1969, or at any time thereafter, a trust is
recognized as being exempt from taxation under section 501(a) as an
organization described in section 501(c)(3), if at such time such trust
is a private
[[Page 28]]
foundation, and if at any time thereafter such trust is determined not
to be exempt from taxation under section 501(a) as an organization
described in section 501(c)(3), section 642(c)(6) and this section will
apply to such trust. See Sec. 1.509 (b)-1 (b).
[T.D. 7357, 40 FR 23742, June 2, 1975; 40 FR 24362, June 6, 1975]
Sec. 1.642(c)-5 Definition of pooled income fund.
(a) In general--(1) Application of provisions. Section 642(c)(5)
prescribes certain rules for the valuation of contributions involving
transfers to certain funds described in that section as pooled income
funds. This section sets forth the requirements for qualifying as a
pooled income fund and provides for the manner of allocating the income
of the fund to the beneficiaries. Section 1.642(c)-6 provides for the
valuation of a remainder interest in property transferred to a pooled
income fund. Section 1.642(c)-7 provides transitional rules under which
certain funds may be amended so as to qualify as pooled income funds in
respect to transfers of property occurring after July 31, 1969.
(2) Tax status of fund and its beneficiaries. Notwithstanding any
other provision of this chapter, a fund which meets the requirements of
a pooled income fund, as defined in section 642(c)(5) and paragraph (b)
of this section, shall not be treated as an association within the
meaning of section 7701(a)(3). Such a fund, which need not be a trust
under local law, and its beneficiaries shall be taxable under part I,
subchapter J, chapter 1 of the Code, but the provisions of subpart E
(relating to grantors and others treated as substantial owners) of such
part shall not apply to such fund.
(3) Recognition of gain or loss on transfer to fund. No gain or loss
shall be recognized to the donor on the transfer of property to a pooled
income fund. In such case, the fund's basis and holding period with
respect to property transferred to the fund by a donor shall be
determined as provided in sections 1015(b) and 1223(2). If, however, a
donor transfers property to a pooled income fund and, in addition to
creating or retaining a life income interest therein, receives property
from the fund, or transfers property to the fund which is subject to an
indebtedness, this subparagraph shall not apply to the gain realized by
reason of (i) the receipt of such property or (ii) the amount of such
indebtedness, whether or not assumed by the pooled income fund, which is
required to be treated as an amount realized on the transfer. For
applicability of the bargain sale rules, see section 1011(b) and the
regulations thereunder.
(4) Charitable contributions deduction. A charitable contributions
deduction for the value of the remainder interest, as determined under
Sec. 1.642(c)-6, may be allowed under section 170, 2055, 2106, or 2522,
where there is a transfer of property to a pooled income fund. For a
special rule relating to the reduction of the amount of a charitable
contribution of certain ordinary income property or capital gain
property, see section 170(e)(1) (A) or (B)(i) and the regulations
thereunder.
(5) Definitions. For purposes of this section, Sec. Sec. 1.642(c)-6
and 1.642(c)-7:
(i) The term income has the same meaning as it does under section
643(b) and the regulations thereunder, except that income generally may
not include any long-term capital gains. However, in conformance with
the applicable state statute, income may be defined as or satisfied by a
unitrust amount, or pursuant to a trustee's power to adjust between
income and principal to fulfill the trustee's duty of impartiality, if
the state statute both provides for a reasonable apportionment between
the income and remainder beneficiaries of the total return of the trust
and meets the requirements of Sec. 1.643(b)-1. In exercising a power to
adjust, the trustee must allocate to principal, not to income, the
proceeds from the sale or exchange of any assets contributed to the fund
by any donor or purchased by the fund at least to the extent of the fair
market value of those assets on the date of their contribution to the
fund or of the purchase price of those assets purchased by the fund.
This definition of income applies for taxable years beginning after
January 2, 2004.
(ii) The term donor includes a decedent who makes a testamentary
transfer of property to a pooled income fund.
[[Page 29]]
(iii) The term governing instrument means either the governing plan
under which the pooled income fund is established and administered or
the instrument of transfer, as the context requires.
(iv) The term public charity means an organization described in
clause (i) to (vi) of section 170(b)(1)(A). If an organization is
described in clause (i) to (vi) of section 170(b)(1)(A) and is also
described in clause (viii) of such section, it shall be treated as a
public charity.
(v) The term fair market value, when used with respect to property,
means its value in excess of the indebtedness or charges against such
property.
(vi) The term determination date means each day within the taxable
year of a pooled income fund on which a valuation is made of the
property in the fund. The property in the fund shall be valued on the
first day of the taxable year of the fund and on at least 3 other days
within the taxable year. The period between any two consecutive
determination dates within the taxable year shall not be greater than 3
calendar months. In the case of a taxable year of less than 12 months,
the property in the fund shall be valued on the first day of such
taxable year and on such other days within such year as occur at
successive intervals of no greater than 3 calendar months. Where a
valuation date falls on a Saturday, Sunday, or legal holiday (as defined
in section 7503 and the regulations thereunder), the valuation may be
made on either the next preceding day which is not a Saturday, Sunday,
or legal holiday or the next succeeding day which is not a Saturday,
Sunday, or legal holiday, so long as the next such preceding day or next
such succeeding day is consistently used where the valuation date falls
on a Saturday, Sunday, or legal holiday.
(6) Cross references. (i) See section 4947(a)(2) and section
4947(b)(3)(B) for the application to pooled income funds of the
provisions relating to private foundations and section 508(e) for rules
relating to provisions required in the governing instrument prohibiting
certain activities specified in section 4947(a)(2).
(ii) For rules for postponing the time for deduction of a charitable
contribution of a future interest in tangible personal property, see
section 170(a)(3) and the regulations thereunder.
(b) Requirements for qualification as a pooled income fund. A pooled
income fund to which this section applies must satisfy all of the
following requirements:
(1) Contribution of remainder interest to charity. Each donor must
transfer property to the fund and contribute an irrevocable remainder
interest in such property to or for the use of a public charity,
retaining for himself, or creating for another beneficiary or
beneficiaries, a life income interest in the transferred property. A
contingent remainder interest shall not be treated as an irrevocable
remainder interest for purposes of this subparagraph.
(2) Creation of life income interest. Each donor must retain for
himself for life an income interest in the property transferred to such
fund, or create an income interest in such property for the life of one
or more beneficiaries, each of whom must be living at the time of the
transfer of the property to the fund by the donor. The term one or more
beneficiaries includes those members of a named class who are alive and
can be ascertained at the time of the transfer of the property to the
fund. In the event more than one beneficiary of the income interest is
designated, such beneficiaries may enjoy their shares of income
concurrently, consecutively, or both concurrently and consecutively. The
donor may retain the power exercisable only by will to revoke or
terminate the income interest of any designated beneficiary other than
the public charity. The governing instrument must specify at the time of
the transfer the particular beneficiary or beneficiaries to whom the
income is payable and the share of income distributable to each person
so specified. The public charity to or for the use of which the
remainder interest is contributed may also be designated as one of the
beneficiaries of an income interest. The donor need not retain or create
a life interest in all the income from the property transferred to the
fund provided any income not payable under the terms of the governing
instrument to an income beneficiary is contributed to, and within the
taxable
[[Page 30]]
year in which it is received is paid to, the same public charity to or
for the use of which the remainder interest is contributed. No
charitable contributions deduction shall be allowed to the donor for the
value of such income interest of the public charity or for the amount of
any such income paid to such organization.
(3) Commingling of property required. The property transferred to
the fund by each donor must be commingled with, and invested or
reinvested with, other property transferred to the fund by other donors
satisfying the requirements of subparagraphs (1) and (2) of this
paragraph. The governing instrument of the pooled income fund must
contain a provision requiring compliance with the preceding sentence.
The public charity to or for the use of which the remainder interest is
contributed may maintain more than one pooled income fund, provided that
each such fund is maintained by the organization and is not a device to
permit a group of donors to create a fund which may be subject to their
manipulation. The fund must not include property transferred under
arrangements other than those specified in section 642(c)(5) and this
paragraph. However, a fund shall not be disqualified as a pooled income
fund under this paragraph because any portion of its properties is
invested or reinvested jointly with other properties, not a part of the
pooled income fund, which are held by, or for the use of, the public
charity which maintains the fund, as for example, with securities in the
general endowment fund of the public charity to or for the use of which
the remainder interest is contributed. Where such joint investment or
reinvestment of properties occurs, records must be maintained which
sufficiently identify the portion of the total fund which is owned by
the pooled income fund and the income earned by, and attributable to,
such portion. Such a joint investment or reinvestment of properties
shall not be treated as an association or partnership for purposes of
the Code. A bank which serves as trustee of more than one pooled income
fund may maintain a common trust fund to which section 584 applies for
the collective investment and reinvestment of moneys of such funds.
(4) Prohibition against exempt securities. The property transferred
to the fund by any donor must not include any securities, the income
from which is exempt from tax under subtitle A of the Code, and the fund
must not invest in such securities. The governing instrument of the fund
must contain specific prohibitions against accepting or investing in
such securities.
(5) Maintenance by charitable organization required. The fund must
be maintained by the same public charity to or for the use of which the
irrevocable remainder interest is contributed. The requirement of
maintenance will be satisfied where the public charity exercises control
directly or indirectly over the fund. For example, this requirement of
control shall ordinarily be met when the public charity has the power to
remove the trustee or trustees of the fund and designate a new trustee
or trustees. A national organization which carries out its purposes
through local organizations, chapters, or auxiliary bodies with which it
has an identity of aims and purposes may maintain a pooled income fund
(otherwise satisfying the requirements of this paragraph) in which one
or more local organizations, chapters, or auxiliary bodies which are
public charities have been named as recipients of the remainder
interests. For example, a national church body may maintain a pooled
income fund where donors have transferred property to such fund and
contributed an irrevocable remainder interest therein to or for the use
of various local churches or educational institutions of such body. The
fact that such local organizations or chapters have been separately
incorporated from the national organization is immaterial.
(6) Prohibition against donor or beneficiary serving as trustee. The
fund must not have, and the governing instrument must prohibit the fund
from having, as a trustee a donor to the fund or a beneficiary (other
than the public charity to or for the use of which the remainder
interest is contributed) of an income interest in any property
transferred to such fund. Thus, if a donor or beneficiary (other than
such
[[Page 31]]
public charity) directly or indirectly has general responsibilities with
respect to the fund which are ordinarily exercised by a trustee, such
fund does not meet the requirements of section 642(c)(5) and this
paragraph. The fact that a donor of property to the fund, or a
beneficiary of the fund, is a trustee, officer, director, or other
official of the public charity to or for the use of which the remainder
interest is contributed ordinarily will not prevent the fund from
meeting the requirements of section 642(c)(5) and this paragraph.
(7) Income of beneficiary to be based on rate of return of fund.
Each beneficiary entitled to income of any taxable year of the fund must
receive such income in an amount determined by the rate of return earned
by the fund for such taxable year with respect to his income interest,
computed as provided in paragraph (c) of this section. The governing
instrument of the fund shall direct the trustee to distribute income
currently or within the first 65 days following the close of the taxable
year in which the income is earned. Any such payment made after the
close of the taxable year shall be treated as paid on the last day of
the taxable year. A statement shall be attached to the return of the
pooled income fund indicating the date and amount of such payments after
the close of the taxable year. Subject to the provisions of part I,
subchapter J, chapter 1 of the Code, the beneficiary shall include in
his gross income all amounts properly paid, credited, or required to be
distributed to the beneficiary during the taxable year or years of the
fund ending within or with his taxable year. The governing instrument
shall provide that the income interest of any designated beneficiary
shall either terminate with the last regular payment which was made
before the death of the beneficiary or be prorated to the date of his
death.
(8) Termination of life income interest. Upon the termination of the
income interest retained or created by any donor, the trustee shall
sever from the fund an amount equal to the value of the remainder
interest in the property upon which the income interest is based. The
value of the remainder interest for such purpose may be either (i) its
value as of the determination date next succeeding the termination of
the income interest or (ii) its value as of the date on which the last
regular payment was made before the death of the beneficiary if the
income interest is terminated on such payment date. The amount so
severed from the fund must either be paid to, or retained for the use
of, the designated public charity, as provided in the governing
instrument. However, see subparagraph (3) of this paragraph for rules
relating to commingling of property.
(c) Allocation of income to beneficiary--(1) In general. Every
income interest retained or created in property transferred to a pooled
income fund shall be assigned a proportionate share of the annual income
earned by the fund, such share, or unit of participation, being based on
the fair market value of such property on the date of transfer, as
provided in this paragraph.
(2) Units of participation--(i) Unit plan. (a) On each transfer of
property by a donor to a pooled income fund, one or more units of
participation in the fund shall be assigned to the beneficiary or
beneficiaries of the income interest retained or created in such
property, the number of units of participation being equal to the number
obtained by dividing the fair market value of the property by the fair
market value of a unit in the fund at the time of the transfer.
(b) The fair market value of a unit in the fund at the time of the
transfer shall be determined by dividing the fair market value of all
property in the fund at such time by the number of units then in the
fund. The initial fair market value of a unit in a pooled income fund
shall be the fair market value of the property transferred to the fund
divided by the number of units assigned to the income interest in that
property. The value of each unit of participation will fluctuate with
each new transfer of property to the fund in relation to the
appreciation or depreciation in the fair market value of the property in
the fund, but all units in the fund will always have equal value.
(c) The share of income allocated to each unit of participation
shall be determined by dividing the income of the fund for the taxable
year by the outstanding number of units in the fund at
[[Page 32]]
the end of such year, except that, consistently with paragraph (b)(7) of
this section, income shall be allocated to units outstanding during only
part of such year by taking into consideration the period of time such
units are outstanding. For this purpose the actual income of such part
of the taxable year, or a prorated portion of the annual income, may be
used, after making such adjustments as are reasonably necessary to
reflect fluctuations during the year in the fair market value of the
property in the fund.
(ii) Other plans. The governing instrument of the fund may provide
any other reasonable method not described in subdivision (i) of this
subparagraph for assigning units of participation in the fund and
allocating income to such units which reaches a result reasonably
consistent with the provisions of such subdivision.
(iii) Transfers between determination dates. For purposes of
subdivisions (i) and (ii) of this subparagraph, if a transfer of
property to the fund by a donor occurs on other than a determination
date, the number of units of participation assigned to the income
interest in such property may be determined by using the fair market
value of the property in the fund on the determination date immediately
preceding the date of transfer (determined without regard to the
property so transferred), subject, however, to appropriate adjustments
on the next succeeding determination date. Such adjustments may be made
by any reasonable method, including the use of a method whereby the fair
market value of the property in the fund at the time of the transfer is
deemed to be the average of the fair market values of the property in
the fund on the determination dates immediately preceding and succeeding
the date of transfer. For purposes of determining such average any
property transferred to the fund between such preceding and succeeding
dates, or on such succeeding date, shall be excluded. The application of
this subdivision may be illustrated by the following example:
Example. The determination dates of a pooled income fund are the
first day of each calendar month. On April 1, 1971, the fair market
value of the property in the fund is $100,000, at which time 1,000 units
of participation are outstanding with a value of $100 each. On April 15,
1971, B transfers property with a fair market value of $50,000 to the
fund, retaining for himself for life an income interest in such
property. No other property is transferred to the fund after April 1,
1971. On May 1, 1971, the fair market value of the property in the fund,
including the property transferred by B, is $160,000. The average of the
fair market values of the property in the fund (excluding the property
transferred by B) on April 1 and May 1, 1971, is $105,000 ($100,000+
[$160,000-$50,000]/2). Accordingly, the fair market value of a unit of
participation in the fund on April 15, 1971, at the time of B's transfer
may be deemed to be $105 ($105,000/1,000 units), and B is assigned
476.19 units of participation in the fund ($50,000/$105).
(3) Special rule for partial allocation of income to charity.
Notwithstanding subparagraph (2) of this paragraph, the governing
instrument may provide that a unit of participation is entitled to share
in the income of the fund in a lesser amount than would otherwise be
determined under such subparagraph, provided that the income otherwise
allocable to the unit under such subparagraph is paid within the taxable
year in which it is received to the public charity to or for the use of
which the remainder interest is contributed under the governing
instrument.
(4) Illustrations. The application of this paragraph may be
illustrated by the following examples:
Example 1. On July 1, 1970, A and B transfer separate properties
with a fair market value of $20,000 and $10,000, respectively, to a
newly created pooled income fund which is maintained by Y University and
uses as its taxable year the fiscal year ending June 30. A and B each
retain in themselves for life an income interest in such property, the
remainder interest being contributed to Y University. The pooled income
fund assigns an initial value of $100 to each unit of participation in
the fund, and under the governing instruments A receives 200 units, and
B receives 100 units, in the fund. On October 1, 1970, which is a
determination date, C transfers property to the fund with a fair market
value of $12,000, retaining in himself for life an income interest in
such property and contributing the remainder interest to Y University.
The fair market value of the property in the fund at the time of C's
transfer is $36,000. The fair market value of A's and B's units at the
time of such transfer is $120 each ($36,000 / 300). By reason of his
transfer of
[[Page 33]]
property C is assigned 100 units of participation in the fund ($12,000 /
$120).
Example 2. Assume that the pooled income fund in example 1 earns
$2,600 for its taxable year ending June 30, 1971, and there are no
further contributions of property to the fund in such year. Further
assume $300 is earned in the first quarter ending September 30, 1970.
Therefore, the fund earns $1 per unit for the first quarter ($300
divided by 300 units outstanding) and $5.75 per unit for the remainder
of the taxable year ([$2,600 - $300] divided by 400 units outstanding).
If the fund distributes its income for the year based on its actual
earnings per quarter, the income must be distributed as follows:
Beneficiary Share of income
A........................................ $1,350 ([200 x $1] + [200 x
$5.75]).
B........................................ $675 ([100 x $1] + [100 x
$5.75]).
C........................................ $575 (100 x $5.75).
Example 3. (a) On July 1, 1970, A and B transfer separate properties
with a fair market value of $10,000 and $20,000, respectively, to a
newly created pooled income fund which is maintained by X University and
uses as its taxable year the fiscal year ending June 30. A and B each
retain in themselves an income interest for life in such property, the
remainder interest being contributed to X University. The governing
instrument provides that each unit of participation in the fund shall
have a value of not more than its initial fair market value; the
instrument also provides that the income allocable to appreciation in
the fair market value of such unit (to the extent in excess of its
initial fair market value) at the end of each quarter of the fiscal year
is to be distributed currently to X University. On October 1, 1970,
which is a determination date, C contributes to the fund property with a
fair market value of $60,000 and retains in himself an income interest
for life in such property, the remainder interest being contributed to X
University. The initial fair market value of the units assigned to A, B,
and C is $100. A, B, and C's units of participation are as follows:
Beneficiary Units of participation
A........................................ 100 ($10,000 divided by
$100).
B........................................ 200 ($20,000 divided by
$100).
C........................................ 100 ($10,000 divided by
$100).
(b) The fair market value of the property in the fund at the time of
C's contribution is $40,000. Assuming the fair market value of the
property in the fund is $100,000 on December 31, 1970, and that the
income of the fund for the second quarter ending December 31, 1970, is
$2,000, the income is shared by the income beneficiaries and X
University as follows:
Beneficiary Allocation of income
A, B, and C.............................. 90% ($90,000 divided by
$100,000).
X University............................. 10% ($10,000 divided by
$100,000).
(c) For the quarter ending December 31, 1970, each unit of
participation is allocated $2 (90 percentx$2,000 divided by 900) of the
income earned for that quarter. A, B, C, and X University share in the
income as follows:
Beneficiary Share of income
A........................................ $200 (100 x $2).
B........................................ $400 (200 x $2).
C........................................ $1,200 (600 x $2).
X University............................. $200 (10% x $2,000).
[T.D. 7105, 36 FR 6477, Apr. 6, 1971; 36 FR 7004, Apr. 13, 1971, as
amended by T.D. 7125, 36 FR 11032, June 8, 1971; T.D. 7357, 40 FR 23742,
June 2, 1975; T.D. 7633, 44 FR 57925, Oct. 9, 1979; T.D. 9102, 69 FR 18,
Jan. 2, 2004]
Sec. 1.642(c)-6 Valuation of a remainder interest in property
transferred to a pooled income fund.
(a) In general. (1) For purposes of sections 170, 2055, 2106, and
2522, the fair market value of a remainder interest in property
transferred to a pooled income fund is its present value determined
under paragraph (d) of this section.
(2) The present value of a remainder interest at the time of the
transfer of property to the pooled income fund is determined by
computing the present value (at the time of the transfer) of the life
income interest and subtracting that value from the fair market value of
the transferred property on the valuation date. The fact that the income
beneficiary may not receive the last income payment, as provided in
paragraph (b)(7) of Sec. 1.642(c)-5, is not taken into account for
purposes of determining the value of the life income interest. For
purposes of this section, the valuation date is the date on which
property is transferred to the fund by the donor except that, for
purposes of section 2055 or 2106, it is the alternate valuation date, if
elected, under the provisions and limitations set forth in section 2032
and the regulations thereunder.
(3) Any claim for a deduction on any return for the value of the
remainder interest in property transferred to a pooled income fund must
be supported by a statement attached to the return showing the
computation of the present value of the interest.
[[Page 34]]
(b) Actuarial computations by the Internal Revenue Service. The
regulations in this and in related sections provide tables of actuarial
factors and examples that illustrate the use of the tables in
determining the value of remainder interests in property. Section
1.7520-1(c)(2) refers to government publications that provide additional
tables of factors and examples of computations for more complex
situations. If the computation requires the use of a factor that is not
provided in this section, the Commissioner may supply the factor upon a
request for a ruling. A request for a ruling must be accompanied by a
recitation of the facts including the pooled income fund's highest
yearly rate of return for the 3 taxable years immediately preceding the
date of transfer, the date of birth of each measuring life, and copies
of the relevant documents. A request for a ruling must comply with the
instructions for requesting a ruling published periodically in the
Internal Revenue Bulletin (see Sec. Sec. 601.201 and
601.601(d)(2)(ii)(b) of this chapter) and include payment of the
required user fee. If the Commissioner furnishes the factor, a copy of
the letter supplying the factor should be attached to the tax return in
which the deduction is claimed. If the Commissioner does not furnish the
factor, the taxpayer must furnish a factor computed in accordance with
the principles set forth in this section.
(c) Computation of pooled income fund's yearly rate of return. (1)
For purposes of determining the present value of the life income
interest, the yearly rate of return earned by a pooled income fund for a
taxable year is the percentage obtained by dividing the amount of income
earned by the pooled income fund for the taxable year by an amount equal
to--
(i) The average fair market value of the property in such fund for
that taxable year; less
(ii) The corrective term adjustment.
(2) The average fair market value of the property in a pooled income
fund for a taxable year shall be the sum of the amounts of the fair
market value of all property held by the pooled income fund on each
determination date, as defined in paragraph (a)(5)(vi) of Sec.
1.642(c)-5, of such taxable year divided by the number of determination
dates in such taxable year. For such purposes the fair market value of
property held by the fund shall be determined without including any
income earned by the fund.
(3)(i) The corrective term adjustment shall be the sum of the
products obtained by multiplying each income payment made by the pooled
income fund within its taxable year by the percentage set forth in
column (2) of the following table opposite the period within such year,
set forth in column (1), which includes the date on which that payment
is made:
Table
(2) Percentage of
(1) Payment period payment
Last week of 4th quarter............................. 0
Balance of 4th quarter............................... 25
Last week of 3d quarter.............................. 25
Balance of 3d quarter................................ 50
Last week of 2d quarter.............................. 50
Balance of 2d quarter................................ 75
Last week of 1st quarter............................. 75
Balance of 1st quarter............................... 100
(ii) If the taxable year of the fund consists of less than 12
months, the corrective term adjustment shall be the sum of the products
obtained by multiplying each income payment made by the pooled income
fund within such taxable year by the percentage obtained by subtracting
from 1 a fraction the numerator of which is the number of days from the
first day of such taxable year to the date of such income payment and
the denominator of which is 365.
(4) A pooled income fund's method of calculating its yearly rate of
return must be supported by a full statement attached to the income tax
return of the pooled income fund for each taxable year.
(5) The application of this paragraph may be illustrated by the
following examples:
Example 1. (a) The pooled income fund maintained by W University has
established determination dates on the first day of each calendar
quarter. The pooled income fund is on a calendar-year basis. The pooled
income fund earned $5,000 of income during 1971. The fair market value
of its property (determined without including any income earned by the
fund), and the income paid out, on the
[[Page 35]]
first day of each calendar quarter in 1971 are as follows:
------------------------------------------------------------------------
Fair market value
Date of property Income payment
------------------------------------------------------------------------
Jan. 1............................ $100,000 $1,200
Apr. 1............................ 105,000 1,200
July 1............................ 95,000 1,200
Oct. 1............................ 100,000 1,400
-------------------------------------
400,000 5,000
------------------------------------------------------------------------
(b) The average fair market value of the property in the fund for
1971 is $100,000 ($400,000, divided by 4).
(c) The corrective term adjustment for 1971 is $3,050, determined by
applying the percentages obtained in column (2) of the table in
subparagraph (3) of this paragraph:
Multiplication: Product
100%x$1,200........................................ $1,200
75%x$1,200......................................... 900
50%x$1,200......................................... 600
25%x$1,400......................................... 350
------------------
Sum of products.................................. 3,050
(d) The pooled income fund's yearly rate of return for 1971 is 5.157
percent, determined as follows:
$5,000/$100,000-$3,050=0.05157
Example 2. (a) The pooled income fund maintained by X University has
established determination dates on the first day of each calendar
quarter. The pooled income fund is on a calendar-year basis. The pooled
income fund earned $5,000 of income during 1971 and paid out $3,000 on
December 15, 1971, and $2,000 on January 15, 1972, the last amount being
treated under paragraph (b)(7) of Sec. 1.642(c)-5 as paid on December
31, 1971. The fair market value of its property (determined without
including any income earned by the fund) on the determination dates in
1971 and the income paid out during 1971 are as follows:
------------------------------------------------------------------------
Fair market value
Date of property Income payment
------------------------------------------------------------------------
Jan. 1............................ $125,000 .................
Apr. 1............................ 125,000 .................
July 1............................ 75,000 .................
Oct. 1............................ 75,000
Dec. 15........................... ................. $3,000
Dec. 31........................... ................. 2,000
-------------------------------------
400,000 5,000
------------------------------------------------------------------------
(b) The average fair market value of the property in the fund for
1971 is $100,000 ($400,000 divided by 4).
(c) The corrective term adjustment for 1971 is $750, determined by
applying the percentages obtained in column (2) of the table in
subparagraph (3) of this paragraph:
Product
Multiplication:
0%x$2,000..........................................
25%x$3,000......................................... $750
------------------
Sum of products.................................. 750
(d) The pooled income fund's yearly rate of return for 1971 is 5.038
percent, determined as follows:
$5,000/$100,000-$750=0.05038
(d) Valuation. The present value of the remainder interest in
property transferred to a pooled income fund on or after May 1, 2009, is
determined under paragraph (e) of this section. The present value of the
remainder interest in property transferred to a pooled income fund for
which the valuation date is before May 1, 2009, is determined under the
following sections:
------------------------------------------------------------------------
Valuation dates
------------------------------------------------ Applicable regulations
After Before
------------------------------------------------------------------------
--............................. 01-01-52 1.642(c)-6A(a).
12-31-51....................... 01-01-71 1.642(c)-6A(b).
12-31-70....................... 12-01-83 1.642(c)-6A(c).
11-30-83....................... 05-01-89 1.642(c)-6A(d).
04-30-89....................... 05-01-99 1.642(c)-6A(e).
04-30-99....................... 05-01-09 1.642(c)-6A(f).
------------------------------------------------------------------------
(e) Present value of the remainder interest in the case of transfers
to pooled income funds for which the valuation date is on or after May
1, 2009--(1) In general. In the case of transfers to pooled income funds
for which the valuation date is on or after May 1, 2009, the present
value of a remainder interest is determined under this section. See,
however, Sec. 1.7520-3(b) (relating to exceptions to the use of
prescribed tables under certain circumstances). The present value of a
remainder interest that is dependent on the termination of the life of
one individual is computed by the use of Table S in paragraph (e)(6) of
this section. For purposes of the computations under this section, the
age of an individual is the age at the individual's nearest birthday.
(2) Transitional rules for valuation of transfers to pooled income
funds. (i) For purposes of sections 2055, 2106, or 2624, if on May 1,
2009, the decedent was mentally incompetent so that the disposition of
the property could not be changed, and the decedent died on or after May
1, 2009, without having regained competency to dispose of the decedent's
property, or the decedent
[[Page 36]]
died within 90 days of the date that the decedent first regained
competency on or after May 1, 2009, the present value of a remainder
interest is determined as if the valuation date with respect to the
decedent's gross estate is either before or after May 1, 2009, at the
option of the decedent's executor.
(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the
case of transfers to a pooled income fund for which the valuation date
is on or after May 1, 2009, and before July 1, 2009, the present value
of the remainder interest under this section is determined by use of the
appropriate yearly rate of return for the month in which the valuation
date occurs (see Sec. Sec. 1.7520-1(b) and 1.7520-2(a)(2)) and the
appropriate actuarial tables under either paragraph (e)(6) of this
section or Sec. 1.642(c)-6A(f)(6), at the option of the donor or the
decedent's executor, as the case may be.
(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this
section, where the donor or decedent's executor is given the option to
use the appropriate actuarial tables under either paragraph (e)(6) of
this section or Sec. 1.642(c)-6A(f)(6), the donor or decedent's
executor must use the same actuarial table with respect to each
individual transaction and with respect to all transfers occurring on
the valuation date (for example, gift and income tax charitable
deductions with respect to the same transfer must be determined based on
the same tables, and all assets includible in the gross estate and/or
estate tax deductions claimed must be valued based on the same tables).
(3) Present value of a remainder interest. The present value of a
remainder interest in property transferred to a pooled income fund is
computed on the basis of--
(i) Life contingencies determined from the values of lx that are set
forth in Table 2000CM in Sec. 20.2031-7(d)(7) of this chapter (see
Sec. 20.2031-7A for certain prior periods); and
(ii) Discount at a rate of interest, compounded annually, equal to
the highest yearly rate of return of the pooled income fund for the 3
taxable years immediately preceding its taxable year in which the
transfer of property to the fund is made. For purposes of this paragraph
(e), the yearly rate of return of a pooled income fund is determined as
provided in paragraph (c) of this section unless the highest rate of
return is deemed to be the rate described in paragraph (e)(4) of this
section for funds in existence less than 3 taxable years. For purposes
of this paragraph (e)(3)(ii), the first taxable year of a pooled income
fund is considered a taxable year even though the taxable year consists
of less than 12 months. However, appropriate adjustments must be made to
annualize the rate of return earned by the fund for that period. Where
it appears from the facts and circumstances that the highest yearly rate
of return of the fund for the 3 taxable years immediately preceding the
taxable year in which the transfer of property is made has been
purposely manipulated to be substantially less than the rate of return
that would otherwise be reasonably anticipated with the purpose of
obtaining an excessive charitable deduction, that rate of return may not
be used. In that case, the highest yearly rate of return of the fund is
determined by treating the fund as a pooled income fund that has been in
existence for less than 3 preceding taxable years.
(4) Pooled income funds in existence less than 3 taxable years. If a
pooled income fund has been in existence less than 3 taxable years
immediately preceding the taxable year in which the transfer is made to
the fund and the transfer to the fund is made after April 30, 1989, the
highest rate of return is deemed to be the interest rate (rounded to the
nearest two-tenths of one percent) that is 1 percent less than the
highest annual average of the monthly section 7520 rates for the 3
calendar years immediately preceding the calendar year in which the
transfer to the pooled income fund is made. The deemed rate of return
for transfers to new pooled income funds is recomputed each calendar
year using the monthly section 7520 rates for the 3-year period
immediately preceding the calendar year in which each transfer to the
fund is made until the fund has been in existence for 3 taxable years
and can compute its highest rate of return for the 3 taxable years
immediately preceding the taxable year in which the transfer of property
to the fund is made in accordance
[[Page 37]]
with the rules set forth in the first sentence of paragraph (e)(3)(ii)
of this section.
(5) Computation of value of remainder interest. (i) The factor that
is used in determining the present value of a remainder interest that is
dependent on the termination of the life of one individual is the factor
from Table S in paragraph (e)(6) of this section under the appropriate
yearly rate of return opposite the number that corresponds to the age of
the individual upon whose life the value of the remainder interest is
based (See Sec. 1.642(c)-6A for certain prior periods). The tables in
paragraph (e)(6) of this section include factors for yearly rates of
return from 0.2 to 14 percent. Many actuarial factors not contained in
the tables in paragraph (e)(6) of this section are contained in Table S
in Internal Revenue Service Publication 1457, ``Actuarial Valuations
Version 3A'' (2009). This publication is available, at no charge,
electronically via the IRS Internet site at http://www.irs.gov. For
other situations, see paragraph (b) of this section. If the yearly rate
of return is a percentage that is between the yearly rates of return for
which factors are provided, a linear interpolation must be made. The
present value of the remainder interest is determined by multiplying the
fair market value of the property on the valuation date by the
appropriate remainder factor.
(ii) This paragraph (e)(5) may be illustrated by the following
example:
Example. A, who is 54 years and 8 months, transfers $100,000 to a
pooled income fund, and retains a life income interest in the property.
The highest yearly rate of return earned by the fund for its 3 preceding
taxable years is 9.47 percent. In Table S, the remainder factor opposite
55 years under 9.4 percent is .16192 and under 9.6 percent is .15755.
The present value of the remainder interest is $16,039.00, computed as
follows:
[GRAPHIC] [TIFF OMITTED] TR10AU11.001
(6) Actuarial tables. In the case of transfers for which the
valuation date is on or after May 1, 2009, the present
[[Page 38]]
value of a remainder interest dependent on the termination of one life
in the case of a transfer to a pooled income fund is determined by use
of the following Table S:
[GRAPHIC] [TIFF OMITTED] TR10AU11.002
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(f) Effective/applicability date. This section applies on and after
May 1, 2009.
[T.D. 7105, 36 FR 6480, Apr. 6, 1971; 36 FR 9512, May 26, 1971; 36 FR
12290, June 30, 1971, as amended by T.D. 7955, 49 FR 19976, May 11,
1984; T.D. 8540, 59 FR 30105, June 10, 1994; T.D. 8819, 64 FR 23190,
Apr. 30, 1999; T.D. 8886, 65 FR 36910, June 12, 2000; T.D. 9448, 74 FR
21440, May 7, 2009; T.D. 9540, 76 FR 49572, Aug. 10, 2011]
Sec. 1.642(c)-7 Transitional rules with respect to pooled income
funds.
(a) In general--(1) Amendment of certain funds. A fund created
before May 7, 1971, and not otherwise qualifying as a pooled income fund
may be treated as a pooled income fund to which Sec. 1.642(c)-5 applies
if on July 31, 1969, or on each date of transfer of property to the fund
occurring after July 31, 1969, it possessed the initial characteristics
described in paragraph (b) of this section and is amended, in the time
and manner provided in paragraph (c) of this section, to meet all the
requirements of section 642(c)(5) and Sec. 1.642(c)-5. If a fund to
which this subparagraph applies is amended in the time and manner
provided in paragraph (c) of this section it shall be treated as
provided in paragraph (d) of this section for the period beginning on
August 1, 1969, or, if later, on the date of its creation and ending the
day before the date on which it meets the requirements of section
642(c)(5) and Sec. 1.642(c)-5.
(2) Severance of a portion of a fund. Any portion of a fund created
before May 7, 1971, which consists of property transferred to such fund
after July 31, 1969, may be severed from such fund consistently with the
principles of paragraph (c)(2) of this section and established before
January 1, 1972, as a separate pooled income fund, provided that on and
after the date of severance the severed fund meets all the requirements
of section 642(c)(5) and Sec. 1.642(c)-5. A separate fund which is
established pursuant to this subparagraph shall be treated as provided
in paragraph (d) of this section for the period beginning on the day of
the first transfer of property which becomes part of the separate fund
and ending the day before the day on which the separate fund meets the
requirements of section 642(c)(5) and Sec. 1.642(c)-5.
(b) Initial characteristics required. A fund described in paragraph
(a)(1) of this section shall not be treated as a pooled income fund to
which section 642(c)(5) applies, even though it is amended as provided
in paragraph (c) of this section, unless it possessed the following
characteristics on July 31, 1969, or on each date of transfer of
property to the fund occurring after July 31, 1969:
(1) It satisfied the requirements of section 642(c)(5)(A) other than
that the fund be a trust;
(2) It was constituted in a way to attract and contain commingled
properties transferred to the fund by more than one donor satisfying
such requirements; and
(3) Each beneficiary of a life income interest which was retained or
created in any property transferred to the fund was entitled to receive,
but not less often than annually, a proportional share of the annual
income earned by the fund, such share being based on the fair market
value of the property in which such life interest was retained or
created.
(c) Amendment requirements. (1) A fund described in paragraph (a)(1)
of this section and possessing the initial characteristics described in
paragraph (b) of this section on the date prescribed therein shall be
treated as a pooled income fund if it is amended to meet all the
requirements of section 642(c)(5) and Sec. 1.642(c)-5 before January 1,
1972, or, if later, on or before the 30th day after the date on which
any judicial proceedings commenced before January 1, 1972, which are
required to amend its governing instrument or any other instrument which
does not permit it to meet such requirements, become final. However, see
paragraph (d) of this section for limitation on the period in which a
claim for credit or refund may be filed.
(2) In addition, if the transferred property described in paragraph
(b)(2) of this section is commingled with other property, the
transferred property must be separated on or before the date specified
in subparagraph (1) of this paragraph from the other property and
allocated to the fund in accordance with the transferred property's
percentage share of the fair market value
[[Page 60]]
of the total commingled property on the date of separation. The
percentage share shall be the ratio which the fair market value of the
transferred property on the date of separation bears to the fair market
value of the total commingled property on that date and shall be
computed in a manner consistent with paragraph (c) of Sec. 1.642(c)-5.
The property which is so allocated to the fund shall be treated as
property received from transfers which meet the requirements of section
642(c)(5), and such transfers shall be treated as made on the dates on
which the properties giving rise to such allocation were transferred to
the fund by the respective donors. The property so allocated to the fund
must be representative of all the commingled property other than
securities the income from which is exempt from tax under subtitle A of
the Code; compensating increases in other commingled property allocated
to the fund shall be made where such tax-exempt securities are not
allocated to the fund. The application of this subparagraph may be
illustrated by the following example:
Example. (a) The trustees of X fund are in the process of amending
it in order to qualify as a pooled income fund. The property transferred
to the X fund was commingled with other property transferred to the
organization by which the fund was established. After taking into
account the various transfers and the appreciation in the fair market
value of all the properties, the fair market value of the property
allocated to the fund on the various transfer dates is set forth in the
following schedule and determined in the manner indicated:
Transfers
----------------------------------------------------------------------------------------------------------------
Value of all Trust Other Value of all Property
property property property property after allocated to
before ---------------------- transfer fund
Date of transfer transfer -----------------------------
---------------- (2) (3)
(1) (4) (5)
----------------------------------------------------------------------------------------------------------------
January 1, 1968............................. .............. $100,000 $100,000 $200,000 \1\ $100,000
September 30, 1968.......................... $300,000 100,000 ......... 400,000 \2\ 250,000
January 15, 1969............................ 480,000 60,000 ......... 540,000 \3\ 360,000
November 11, 1969........................... 600,000 200,000 ......... 800,000 \4\ 600,000
----------------------------------------------------------------------------------------------------------------
\1\ $100,000=(the amount in column (2)).
\2\ $250,000=([$100,000/$200,000x$300,000]+$100,000).
\3\ $360,000=([$250,000/$400,000x$480,000]+$60,000).
\4\ $600,000=([$360,000/$540,000x$600,000]+$200,000).
(b) On September 30, 1970, the trustees decide to separate the
property of X fund from the other property. The fair market value of all
the commingled property is $1 million on September 30, 1970, and there
were no additional transfers to the fund after November 11, 1969.
Accordingly, the fair market value of the property required to be
allocated to X fund must be $750,000 ($600,000/$800,000x$1,000,000), and
X fund's percentage share of the commingled property is 75 percent
($750,000/$1,000,000). Accordingly, assuming that the commingled
property consists of Y stock with a fair market value of $800,000 and Z
bonds with a fair market value of $200,000, there must be allocated to X
fund at the close of September 30, 1970, Y stock with a value of
$600,000 ($800,000x75%) and Z bonds with a value of $150,000
($200,000x75%).
(d) Transactions before amendment of or severance from fund. (1) A
fund which is amended pursuant to paragraph (c) of this section, or is
severed from a fund pursuant to paragraph (a)(2) of this section, shall
be treated for all purposes, including the allowance of a deduction for
any charitable contribution, as if it were before its amendment or
severance a pooled income fund to which section 642(c)(5) and Sec.
1.642(c)-5 apply. Thus, for example, where a donor transferred property
in trust to such an amended or severed fund on August 1, 1969, but
before its amendment or severance under this section, a charitable
contributions deduction for the value of the remainder interest may be
allowed under section 170, 2055, 2106, or 2522. The deduction may not be
allowed, however, until the fund is amended or severed pursuant to this
section and shall be allowed only if a claim for credit or refund is
filed within the period of limitation prescribed by section 6511(a).
[[Page 61]]
(2) For purposes of determining under Sec. 1.642(c)-6 the highest
yearly rate of return earned by a fund (which is amended pursuant to
paragraph (c) of this section) for the 3 preceding taxable years,
taxable years of the fund preceding its taxable year in which the fund
is so amended and qualifies as a pooled income fund under this section
shall be used provided that the fund did not at any time during such
preceding years hold any investments in securities the income from which
is exempt from tax under subtitle A of the Code. If any such tax-exempt
securities were held during such period by such amended fund, or if the
fund consists of a portion of a fund which is severed pursuant to
paragraph (a)(2) of this section, the highest yearly rate of return
under Sec. 1.642(c)-6 shall be determined by treating the fund as a
pooled income fund which has been in existence for less than 3 taxable
years preceding the taxable year in which the transfer of property to
the fund is made.
(3) Property transferred to a fund before its amendment pursuant to
paragraph (c) of this section, or before its severance under paragraph
(a)(2) of this section, shall be treated as property received from
transfers which meet the requirements of section 642(c)(5).
[T.D. 7105, 36 FR 6486, Apr. 6, 1971, as amended by T.D. 7125, 36 FR
11032, June 8, 1971; T.D. 8540, 59 FR 30102, June 10, 1994]
Sec. 1.642(d)-1 Net operating loss deduction.
The net operating loss deduction allowed by section 172 is available
to estates and trusts generally, with the following exceptions and
limitations:
(a) In computing gross income and deductions for the purposes of
section 172, a trust shall exclude that portion of the income and
deductions attributable to the grantor or another person under sections
671 through 678 (relating to grantors and others treated as substantial
owners).
(b) An estate or trust shall not, for the purposes of section 172,
avail itself of the deductions allowed by section 642(c) (relating to
charitable contributions deductions) and sections 651 and 661 (relating
to deductions for distributions).
Sec. 1.642(e)-1 Depreciation and depletion.
An estate or trust is allowed the deductions for depreciation and
depletion, but only to the extent the deductions are not apportioned to
beneficiaries under sections 167(h) and 611(b). For purposes of sections
167(h) and 611(b), the term beneficiaries includes charitable
beneficiaries. See the regulations under those sections.
[T.D. 6712, 29 FR 3655, Mar. 24, 1964]
Sec. 1.642(f)-1 Amortization deductions.
An estate or trust is allowed amortization deductions with respect
to an emergency facility as defined in section 168(d), with respect to a
certified pollution control facility as defined in section 169(d), with
respect to qualified railroad rolling stock as defined in section
184(d), with respect to certified coal mine safety equipment as defined
in section 187(d), with respect to on-the-job training and child-care
facilities as defined in section 188(b), and with respect to certain
rehabilitations of certified historic structures as defined in section
191, in the same manner and to the same extent as in the case of an
individual. However, the principles governing the apportionment of the
deductions for depreciation and depletion between fiduciaries and the
beneficiaries of an estate or trust (see sections 167(h) and 611(b) and
the regulations thereunder) shall be applicable with respect to such
amortization deductions.
[T.D. 7700, 45 FR 38055, June 6, 1980]
Sec. 1.642(g)-1 Disallowance of double deductions; in general.
Amounts allowable under section 2053(a)(2) (relating to
administration expenses) or under section 2054 (relating to losses
during administration) as deductions in computing the taxable estate of
a decedent are not allowed as deductions in computing the taxable income
of the estate unless there is filed a statement, in duplicate, to the
effect that the items have not been allowed as deductions from the gross
estate of the decedent under section 2053 or 2054 and that all rights to
have such items allowed at any time as deductions under section 2053 or
2054 are
[[Page 62]]
waived. The statement should be filed with the return for the year for
which the items are claimed as deductions or with the district director
for the internal revenue district in which the return was filed, for
association with the return. The statement may be filed at any time
before the expiration of the statutory period of limitation applicable
to the taxable year for which the deduction is sought. Allowance of a
deduction in computing an estate's taxable income is not precluded by
claiming a deduction in the estate tax return, so long as the estate tax
deduction is not finally allowed and the statement is filed. However,
after a statement is filed under section 642(g) with respect to a
particular item or portion of an item, the item cannot thereafter be
allowed as a deduction for estate tax purposes since the waiver operates
as a relinquishment of the right to have the deduction allowed at any
time under section 2053 or 2054.
Sec. 1.642(g)-2 Deductions included.
It is not required that the total deductions, or the total amount of
any deduction, to which section 642(g) is applicable be treated in the
same way. One deduction or portion of a deduction may be allowed for
income tax purposes if the appropriate statement is filed, while another
deduction or portion is allowed for estate tax purposes. Section 642(g)
has no application to deductions for taxes, interest, business expenses,
and other items accrued at the date of a decedent's death so that they
are allowable as a deduction under section 2053(a)(3) for estate tax
purposes as claims against the estate, and are also allowable under
section 691(b) as deductions in respect of a decedent for income tax
purposes. However, section 642(g) is applicable to deductions for
interest, business expenses, and other items not accrued at the date of
the decedent's death so that they are allowable as deductions for estate
tax purposes only as administration expenses under section 2053(a)(2).
Although deductible under section 2053(a)(3) in determining the value of
the taxable estate of a decedent, medical, dental, etc., expenses of a
decedent which are paid by the estate of the decedent are not deductible
in computing the taxable income of the estate. See section 213(d) and
the regulations thereunder for rules relating to the deductibility of
such expenses in computing the taxable income of the decedent.
Sec. 1.642(h)-1 Unused loss carryovers on termination of an estate or
trust.
(a) If, on the final termination of an estate or trust, a net
operating loss carryover under section 172 or a capital loss carryover
under section 1212 would be allowable to the estate or trust in a
taxable year subsequent to the taxable year of termination but for the
termination, the carryover or carryovers are allowed under section
642(h)(1) to the beneficiaries succeeding to the property of the estate
or trust. See Sec. 1.641(b)-3 for the determination of when an estate
or trust terminates.
(b) The net operating loss carryover and the capital loss carryover
are the same in the hands of a beneficiary as in the estate or trust,
except that the capital loss carryover in the hands of a beneficiary
which is a corporation is a short-term loss irrespective of whether it
would have been a long-term or short-term capital loss in the hands of
the estate or trust. The net operating loss carryover and the capital
loss carryover are taken into account in computing taxable income,
adjusted gross income, and the tax imposed by section 56 (relating to
the minimum tax for tax preferences). The first taxable year of the
beneficiary to which the loss shall be carried over is the taxable year
of the beneficiary in which or with which the estate or trust
terminates. However, for purposes of determining the number of years to
which a net operating loss, or a capital loss under paragraph (a) of
Sec. 1.1212-1, may be carried over by a beneficiary, the last taxable
year of the estate or trust (whether or not a short taxable year) and
the first taxable year of the beneficiary to which a loss is carried
over each constitute a taxable year, and, in the case of a beneficiary
of an estate or trust that is a corporation, capital losses carried over
by the estate or trust to any taxable year of the estate or trust
beginning after December 31, 1963, shall be treated as if they were
incurred in the last taxable year of the estate or
[[Page 63]]
trust (whether or not a short taxable year). For the treatment of the
net operating loss carryover when the last taxable year of the estate or
trust is the last taxable year to which such loss can be carried over,
see Sec. 1.642(h)-2.
(c) The application of this section may be illustrated by the
following examples:
Example 1. A trust distributes all of its assets to A, the sole
remainderman, and terminates on December 31, 1954, when it has a capital
loss carryover of $10,000 attributable to transactions during the
taxable year 1952. A, who reports on the calendar year basis, otherwise
has ordinary income of $10,000 and capital gains of $4,000 for the
taxable year 1954. A would offset his capital gains of $4,000 against
the capital loss of the trust and, in addition, deduct under section
1211(b) $1,000 on his return for the taxable year 1954. The balance of
the capital loss carryover of $5,000 may be carried over only to the
years 1955 and 1956, in accordance with paragraph (a) of Sec. 1.1212-1
and the rules of this section.
Example 2. A trust distributes all of its assets, one-half to A, an
individual, and one-half to X, a corporation, who are the sole
remaindermen, and terminates on December 31, 1966, when it has a short-
term capital loss carryover of $20,000 attributable to short-term
transactions during the taxable years 1964, 1965, and 1966, and a long-
term capital loss carryover of $12,000 attributable to long-term
transactions during such years. A, who reports on the calendar year
basis, otherwise has ordinary income of $15,000, short-term capital
gains of $4,000 and long-term capital gains of $6,000, for the taxable
year 1966. A would offset his short-term capital gains of $4,000 against
his share of the short-term capital loss carryover of the trust, $10,000
(one-half of $20,000), and, in addition deduct under section 1211(b)
$1,000 (treated as a short-term gain for purposes of computing capital
loss carryovers) on his return for the taxable year 1966. A would also
offset his long-term capital gains of $6,000 against his share of the
long-term capital loss carryover of the trust, $6,000 (one-half of
$12,000). The balance of A's share of the short-term capital loss
carryover, $5,000, may be carried over as a short-term capital loss
carryover to the succeeding taxable year and treated as a short-term
capital loss incurred in such succeeding taxable year in accordance with
paragraph (b) of Sec. 1.1212-1. X, which also reports on the calendar
year basis, otherwise has capital gains of $4,000 for the taxable year
1966. X would offset its capital gains of $4,000 against its share of
the capital loss carryovers of the trust, $16,000 (the sum of one-half
of each the short-term carryover and the long-term carryover of the
trust), on its return for the taxable year 1966. The balance of X's
share, $12,000, may be carried over as a short-term capital loss only to
the years 1967, 1968, 1969, and 1970, in accordance with paragraph (a)
of Sec. 1.1212-1 and the rules of this section.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6828, 30 FR
7805, June 17, 1965; T.D. 7564, 43 FR 40495, Sept. 12, 1978]
Sec. 1.642(h)-2 Excess deductions on termination of an estate or
trust.
(a) If, on the termination of an estate or trust, the estate or
trust has for its last taxable year deductions (other than the
deductions allowed under section 642(b) (relating to personal exemption)
or section 642(c) (relating to charitable contributions)) in excess of
gross income, the excess is allowed under section 642(h)(2) as a
deduction to the beneficiaries succeeding to the property of the estate
or trust. The deduction is allowed only in computing taxable income and
must be taken into account in computing the items of tax preference of
the beneficiary; it is not allowed in computing adjusted gross income.
The deduction is allowable only in the taxable year of the beneficiary
in which or with which the estate or trust terminates, whether the year
of termination of the estate or trust is of normal duration or is a
short taxable year. For example: Assume that a trust distributes all of
its assets to B and terminates on December 31, 1954. As of that date it
has excess deductions, for example, because of corpus commissions on
termination, of $18,000. B, who reported on the calendar year basis,
could claim the $18,000 as a deduction for the taxable year 1954.
However, if the deduction (when added to his other deductions) exceeds
his gross income, the excess may not be carried over to the year 1955 or
subsequent years.
(b) A deduction based upon a net operating loss carryover will never
be allowed to beneficiaries under both paragraphs (1) and (2) of section
642(h). Accordingly, a net operating loss deduction which is allowable
to beneficiaries succeeding to the property of the estate or trust under
the provisions of paragraph (1) of section 642(h) cannot also be
considered a deduction for purposes of paragraph (2) of section 642(h)
[[Page 64]]
and paragraph (a) of this section. However, if the last taxable year of
the estate or trust is the last year in which a deduction on account of
a net operating loss may be taken, the deduction, to the extent not
absorbed in that taxable year by the estate or trust, is considered an
``excess deduction'' under section 642(h)(2) and paragraph (a) of this
section.
(c) Any item of income or deduction, or any part thereof, which is
taken into account in determining the net operating loss or capital loss
carryover of the estate or trust for its last taxable year shall not be
taken into account again in determining excess deductions on termination
of the trust or estate within the meaning of section 642(h)(2) and
paragraph (a) of this section (see example in Sec. 1.642(h)-5).
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7564, 43 FR
40495, Sept. 12, 1978]
Sec. 1.642(h)-3 Meaning of ``beneficiaries succeeding to the property
of the estate or trust''.
(a) The phrase beneficiaries succeeding to the property of the
estate or trust means those beneficiaries upon termination of the estate
or trust who bear the burden of any loss for which a carryover is
allowed, or of any excess of deductions over gross income for which a
deduction is allowed, under section 642(h).
(b) With reference to an intestate estate, the phrase means the
heirs and next of kin to whom the estate is distributed, or if the
estate is insolvent, to whom it would have been distributed if it had
not been insolvent. If a decedent's spouse is entitled to a specified
dollar amount of property before any distribution to other heirs and
next of kin, and if the estate is less than that amount, the spouse is
the beneficiary succeeding to the property of the estate or trust to the
extent of the deficiency in amount.
(c) In the case of a testate estate, the phrase normally means the
residuary beneficiaries (including a residuary trust), and not specific
legatees or devisees, pecuniary legatees, or other nonresiduary
beneficiaries. However, the phrase does not include the recipient of a
specific sum of money even though it is payable out of the residue,
except to the extent that it is not payable in full. On the other hand,
the phrase includes a beneficiary (including a trust) who is not
strictly a residuary beneficiary but whose devise or bequest is
determined by the value of the decedent's estate as reduced by the loss
or deductions in question. Thus the phrase includes:
(1) A beneficiary of a fraction of a decedent's net estate after
payment of debts, expenses, etc.;
(2) A nonresiduary legatee or devisee, to the extent of any
deficiency in his legacy or devise resulting from the insufficiency of
the estate to satisfy it in full;
(3) A surviving spouse receiving a fractional share of an estate in
fee under a statutory right of election, to the extent that the loss or
deductions are taken into account in determining the share. However, the
phrase does not include a recipient of dower or curtesy, or any income
beneficiary of the estate or trust from which the loss or excess
deduction is carried over.
(d) The principles discussed in paragraph (c) of this section are
equally applicable to trust beneficiaries. A remainderman who receives
all or a fractional share of the property of a trust as a result of the
final termination of the trust is a beneficiary succeeding to the
property of the trust. For example, if property is transferred to pay
the income to A for life and then to pay $10,000 to B and distribute the
balance of the trust corpus to C, C and not B is considered to be the
succeeding beneficiary except to the extent that the trust corpus is
insufficient to pay B $10,000.
Sec. 1.642(h)-4 Allocation.
The carryovers and excess deductions to which section 642(h) applies
are allocated among the beneficiaries succeeding to the property of an
estate or trust (see Sec. 1.642(h)-3) proportionately according to the
share of each in the burden of the loss or deductions. A person who
qualified as a beneficiary succeeding to the property of an estate or
trust with respect to one amount and does not qualify with respect to
another amount is a beneficiary succeeding to the property of the estate
or
[[Page 65]]
trust as to the amount with respect to which he qualifies. The
application of this section may be illustrated by the following example:
Example. A decedent's will leaves $100,000 to A, and the residue of
his estate equally to B and C. His estate is sufficient to pay only
$90,000 to A, and nothing to B and C. There is an excess of deductions
over gross income for the last taxable year of the estate or trust of
$5,000, and a capital loss carryover of $15,000, to both of which
section 642(h) applies. A is a beneficiary succeeding to the property of
the estate to the extent of $10,000, and since the total of the excess
of deductions and the loss carryover is $20,000, A is entitled to the
benefit of one half of each item, and the remaining half is divided
equally between B and C.
Sec. 1.642(h)-5 Example.
The application of section 642(h) may be illustrated by the
following example:
Example. (a) A decedent dies January 31, 1954, leaving a will which
provides for distributing all her estate equally to A and an existing
trust for B. The period of administration of the estate terminates on
December 31, 1954, at which time all the property of the estate is
distributed to A and the trust. A reports his income for tax purposes on
a calendar year basis, and the trust reports its income on the basis of
a fiscal year ending August 31. During the period of the administration,
the estate has the following items of income and deductions:
Taxable interest........................................... $2,500
Business income............................................ 3,000
------------
Total.................................................. 5,500
============
Business expenses (including administrative expense 5,000
allocable to business income).............................
Administrative expenses and corpus commissions not 9,800
allocable to business income..............................
------------
Total deductions....................................... 14,800
It also has a capital loss of $5,000.
(b) Under section 642(h)(1), an unused net operating loss carryover
of the estate on termination of $2,000 will be allowable to: A to the
extent of $1,000 for his taxable year 1954 and the next four taxable
years in accordance with section 172; and to the trust to the extent of
$1,000 for its taxable year ending August 31, 1955, and its next four
taxable years. The amount of the net operating loss carryover is
computed as follows:
Deductions of estate for 1954........................... $14,800
Less adjustment under section 172(d)(4) (deductions not 7,300
attributable to a trade or business ($9,800) allowable
only to extent of gross income not derived from such
trade or business ($2,500))............................
---------------
Deductions as adjusted................................ 7,500
Gross income of estate for 1954......................... 5,500
---------------
Net operating loss of estate for 1954................. 2,000
(No deduction for capital loss of $5,000 under section
172(d)(2))
Neither A nor the trust will be allowed to carry back any part of the
net operating loss made available to them under section 642(h)(1).
(c) Under section 642(h)(2), excess deductions of the estate of
$7,300 will be allowed as a deduction to A to the extent of $3,650 for
the calendar year 1954 and to the trust to the extent of $3,650 for the
taxable year ending August 31, 1955. The deduction of $7,300 for
administrative expenses and corpus commissions is the only amount which
was not taken into account in determining the net operating loss of the
estate ($9,800 of such expenses less $2,500 taken into account).
(d) Under section 642(h)(1), there will be allowable to A a capital
loss carryover of $2,500 for his taxable year 1954 and for his next 4
taxable years in accordance with paragraph (a) of Sec. 1.1212-1. There
will be allowable to the trust a similar capital loss carryover of
$2,500 for its taxable year ending August 31, 1955, and its next 4
taxable years (but see paragraph (b) of Sec. 1.643(a)-3), (for taxable
years beginning after December 31, 1963, net capital losses may be
carried over indefinitely by beneficiaries other than corporations, in
accordance with Sec. 1.642(h)-1 and paragraph (b) of Sec. 1.1212-1.)
(e) The carryovers and excess deductions are not allowable directly
to B, the trust beneficiary, but to the extent the distributable net
income of the trust is reduced by the carryovers and excess deductions B
may receive indirect benefit.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6828, 30 FR
7806, June 17, 1965]
Sec. 1.642(i)-1 Certain distributions by cemetery perpetual care
funds.
(a) In general. Section 642 (i) provides that amounts distributed
during taxable years ending after December 31, 1963, by a cemetery
perpetual care fund trust for the care and maintenance of gravesites
shall be treated as distributions solely for purposes of sections 651
and 661. The deduction for such a distribution is allowable only if the
fund is taxable as a trust. In addition, the fund must have been created
pursuant to local law by a taxable cemetery corporation (as defined in
Sec. 1.642 (i)-2 (a)) expressly for the care and maintenance of
cemetery property. A care fund will be treated as having been created by
a
[[Page 66]]
taxable cemetery corporation (``cemetery'') if the distributee cemetery
is taxable, even though the care fund was created by the distributee
cemetery in a year that it was tax-exempt or by a predecessor of such
distributee cemetery which was tax-exempt in the year the fund was
established. The deduction is the amount of the distributions during the
fund's taxable year to the cemetery corporation for such care and
maintenance that would be otherwise allowable under section 651 or 661,
but in no event is to exceed the limitations described in paragraphs (b)
and (c) of this section. The provisions of this paragraph shall not have
the effect of extending the period of limitations under section 6511.
(b) Limitation on amount of deduction. The deduction in any taxable
year may not exceed the product of $5 multiplied by the aggregate number
of gravesites sold by the cemetery corporation before the beginning of
the taxable year of the trust. In general, the aggregate number of
gravesites sold shall be the aggregate number of interment rights sold
by the cemetery corporation (including gravesites sold by the cemetery
before a care fund trust law was enacted). In addition, the number of
gravesites sold shall include gravesites used to make welfare burials.
Welfare burials and pre-trust fund law gravesites shall be included only
to the extent that the cemetery cares for and maintain such gravesites.
For purposes of this section, a gravesite is sold as of the date on
which the purchaser acquires interment rights enforceable under local
law. The aggregate number of gravesites includes only those gravesites
with respect to which the fund or taxable cemetery corporation has an
obligation for care and maintenance.
(c) Requirements for deductibility of distributions for care and
maintenance--(1) Obligation for care and maintenance. A deduction is
allowed only for distributions for the care and maintenance of
gravesites with respect to which the fund or taxable cemetery
corporation has an obligation for care and maintenance. Such obligation
may be established by the trust instrument, by local law, or by the
cemetery's practice of caring for and maintaining gravesites, such as
welfare burial plots or gravesites sold before the enactment of a care
fund trust law.
(2) Distribution actually used for care and maintenance. The amount
of a deduction otherwise allowable for care fund distributions in any
taxable year shall not exceed the portion of such distributions expended
by the distributee cemetery corporation for the care and maintenance of
gravesites before the end of the fund's taxable year following the
taxable year in which it makes the distributions. A 6-month extension of
time for filing the trust's return may be obtained upon request under
section 6081. The failure of a cemetery to expend the care fund's
distributions within a reasonable time before the due date for filing
the return will be considered reasonable grounds for granting a 6-month
extension of time for section 6081. For purposes of this paragraph, any
amount expended by the care fund directly for the care and maintenance
of gravesites shall be treated as an additional care fund distribution
which is expended on the day of distribution by the cemetery
corporation. The fund shall be allowed a deduction for such direct
expenditure in the fund's taxable year during which the expenditure is
made.
(3) Example. The application of paragraph (c)(2) of this section is
illustrated by the following example:
Example. A, a calendar-year perpetual care fund trust, meeting the
requirements of section 642 (i), makes a $10,000 distribution on
December 1, 1978 to X, a taxable cemetery corporation operating on a May
31 fiscal year. From this $10,000 distribution, the cemetery makes the
following expenditures for the care and maintenance of gravesites:
$2,000 on December 20, 1978; $4,000 on June 1, 1979; $2,000 on October
1, 1979; and $1,000 on April 1, 1980. In addition, as authorized by the
trust instrument, A itself makes a direct $1,000 payment to a contractor
on September 1, 1979 for qualifying care and maintenance work performed.
As a result of these transactions, A will be allowed an $8,000 deduction
for its 1978 taxable year attributable to the cemetery's expenditures,
and a $1,000 deduction for its 1979 taxable year attributable to the
fund's direct payment. A will not be allowed a deduction for its 1978
taxable year for the cemetery's expenditure of either the $1,000
expended on April 1, 1980 or the remaining unspent portion of the
original $10,000 distribution. The trustee may request a 6-month
extension in order to allow the
[[Page 67]]
fund until October 15, 1979 to file its return for 1978.
(d) Certified statement made by cemetery officials to fund trustees.
A trustee of a cemetery perpetual care fund shall not be held personally
liable for civil or criminal penalties resulting from false statements
on the trust's tax return to the extent that such false statements
resulted from the trustee's reliance on a certified statement made by
the cemetery specifying the number of interments sold by the cemetery or
the amount of the cemetery's expenditures for care and maintenance. The
statement must indicate the basis upon which the cemetery determined
what portion of its expenditures were made for the care and maintenance
of gravesites. The statement must be certified by an officer or employee
of the cemetery who has the responsibility to make or account for
expenditures for care and maintenance. A copy of this statement shall be
retained by the trustee along with the trust's return and shall be made
available for inspection upon request by the Secretary. This paragraph
does not relieve the care fund trust of its liability to pay the proper
amount of tax due and to maintain adequate records to substantiate each
of its deductions, including the deduction provided in section 642(i)
and this section.
[T.D. 7651, 44 FR 61596, Oct. 26, 1979]
Sec. 1.642(i)-2 Definitions.
(a) Taxable cemetery corporation. For purposes of section 642(i) and
this section, the meaning of the term taxable cemetery corporation is
limited to a corporation (within the meaning of section 7701(a)(3))
engaged in the business of owning and operating a cemetery that either
(1) is not exempt from Federal tax, or (2) is subject to tax under
section 511 with respect to its cemetery activities.
(b) Pursuant to local law. A cemetery perpetual care fund is created
pursuant to local law if:
(1) The governing law of the relevant jurisdiction (State, district,
county, parish, etc.) requires or expressly permits the creation of such
a fund, or
(2) The legally enforceable bylaws or contracts of a taxable
cemetery corporation require a perpetual care fund.
(c) Gravesite. A gravesite is any type of interment right that has
been sold by a cemetery, including, but not limited to, a burial lot,
mausoleum, lawn crypt, niche, or scattering ground. For purposes of
Sec. 1.642 (i)-1, the term gravesites includes only those gravesites
with respect to which the care fund or cemetery has an obligation for
care and maintenance within the meaning of Sec. 1.642 (i)-1(c)(1).
(d) Care and maintenance. For purposes of section 642(i) and this
section, the term care and maintenance of gravesite shall be generally
defined in accordance with the definition of such term under the local
law pursuant to which the cemetery perpetual care fund is created. If
the applicable local law contains no definition, care and maintenance of
gravesites may include the upkeep, repair and preservation of those
portions of cemetery property in which gravesites (as defined in
paragraph (c) of this section) have been sold; including gardening, road
maintenance, water line and drain repair and other activities reasonably
necessary to the preservation of cemetery property. The costs for care
and maintenance include, but are not limited to, expenditures for the
maintenance, repair and replacement of machinery, tools, and equipment,
compensation of employees performing such work, insurance premiums,
reasonable payments for employees' pension and other benefit plans, and
the costs of maintaining necessary records of lot ownership, transfers
and burials. However, if some of the expenditures of the cemetery
corporation, such as officers' salaries, are for both care and
maintenance and for other purposes, the expenditures must be properly
allocated between care and maintenance of gravesites and the other
purposes. Only those expenditures that are properly allocable to those
portions of cemetery property in which gravesites have been sold qualify
as expenditures for care and maintenance of gravesites.
[T.D. 7651, 44 FR 61596, Oct. 26, 1979]
[[Page 68]]
Sec. 1.643(a)-0 Distributable net income; deduction for distributions;
in general.
The term distributable net income has no application except in the
taxation of estates and trusts and their beneficiaries. It limits the
deductions allowable to estates and trusts for amounts paid, credited,
or required to be distributed to beneficiaries and is used to determine
how much of an amount paid, credited, or required to be distributed to a
beneficiary will be includible in his gross income. It is also used to
determine the character of distributions to the beneficiaries.
Distributable net income means for any taxable year, the taxable income
(as defined in section 63) of the estate or trust, computed with the
modifications set forth in Sec. Sec. 1.643(a)-1 through 1.643(a)-7.
Sec. 1.643(a)-1 Deduction for distributions.
The deduction allowable to a trust under section 651 and to an
estate or trust under section 661 for amounts paid, credited, or
required to be distributed to beneficiaries is not allowed in the
computation of distributable net income.
Sec. 1.643(a)-2 Deduction for personal exemption.
The deduction for personal exemption under section 642(b) is not
allowed in the computation of distributable net income.
Sec. 1.643(a)-3 Capital gains and losses.
(a) In general. Except as provided in Sec. 1.643(a)-6 and paragraph
(b) of this section, gains from the sale or exchange of capital assets
are ordinarily excluded from distributable net income and are not
ordinarily considered as paid, credited, or required to be distributed
to any beneficiary.
(b) Capital gains included in distributable net income. Gains from
the sale or exchange of capital assets are included in distributable net
income to the extent they are, pursuant to the terms of the governing
instrument and applicable local law, or pursuant to a reasonable and
impartial exercise of discretion by the fiduciary (in accordance with a
power granted to the fiduciary by applicable local law or by the
governing instrument if not prohibited by applicable local law)--
(1) Allocated to income (but if income under the state statute is
defined as, or consists of, a unitrust amount, a discretionary power to
allocate gains to income must also be exercised consistently and the
amount so allocated may not be greater than the excess of the unitrust
amount over the amount of distributable net income determined without
regard to this subparagraph Sec. 1.643(a)-3(b));
(2) Allocated to corpus but treated consistently by the fiduciary on
the trust's books, records, and tax returns as part of a distribution to
a beneficiary; or
(3) Allocated to corpus but actually distributed to the beneficiary
or utilized by the fiduciary in determining the amount that is
distributed or required to be distributed to a beneficiary.
(c) Charitable contributions included in distributable net income.
If capital gains are paid, permanently set aside, or to be used for the
purposes specified in section 642(c), so that a charitable deduction is
allowed under that section in respect of the gains, they must be
included in the computation of distributable net income.
(d) Capital losses. Losses from the sale or exchange of capital
assets shall first be netted at the trust level against any gains from
the sale or exchange of capital assets, except for a capital gain that
is utilized under paragraph (b)(3) of this section in determining the
amount that is distributed or required to be distributed to a particular
beneficiary. See Sec. 1.642(h)-1 with respect to capital loss
carryovers in the year of final termination of an estate or trust.
(e) Examples. The following examples illustrate the rules of this
section:
Example 1. Under the terms of Trust's governing instrument, all
income is to be paid to A for life. Trustee is given discretionary
powers to invade principal for A's benefit and to deem discretionary
distributions to be made from capital gains realized during the year.
During Trust's first taxable year, Trust has $5,000 of dividend income
and $10,000 of capital gain from the sale of securities. Pursuant to the
terms of the governing instrument and applicable local law, Trustee
allocates the $10,000 capital gain to principal.
[[Page 69]]
During the year, Trustee distributes to A $5,000, representing A's right
to trust income. In addition, Trustee distributes to A $12,000, pursuant
to the discretionary power to distribute principal. Trustee does not
exercise the discretionary power to deem the discretionary distributions
of principal as being paid from capital gains realized during the year.
Therefore, the capital gains realized during the year are not included
in distributable net income and the $10,000 of capital gain is taxed to
the trust. In future years, Trustee must treat all discretionary
distributions as not being made from any realized capital gains.
Example 2. The facts are the same as in Example 1, except that
Trustee intends to follow a regular practice of treating discretionary
distributions of principal as being paid first from any net capital
gains realized by Trust during the year. Trustee evidences this
treatment by including the $10,000 capital gain in distributable net
income on Trust's federal income tax return so that it is taxed to A.
This treatment of the capital gains is a reasonable exercise of
Trustee's discretion. In future years Trustee must treat all
discretionary distributions as being made first from any realized
capital gains.
Example 3. The facts are the same as in Example 1, except that
Trustee intends to follow a regular practice of treating discretionary
distributions of principal as being paid from any net capital gains
realized by Trust during the year from the sale of certain specified
assets or a particular class of investments. This treatment of capital
gains is a reasonable exercise of Trustee's discretion.
Example 4. The facts are the same as in Example 1, except that
pursuant to the terms of the governing instrument (in a provision not
prohibited by applicable local law), capital gains realized by Trust are
allocated to income. Because the capital gains are allocated to income
pursuant to the terms of the governing instrument, the $10,000 capital
gain is included in Trust's distributable net income for the taxable
year.
Example 5. The facts are the same as in Example 1, except that
Trustee decides that discretionary distributions will be made only to
the extent Trust has realized capital gains during the year and thus the
discretionary distribution to A is $10,000, rather than $12,000. Because
Trustee will use the amount of any realized capital gain to determine
the amount of the discretionary distribution to the beneficiary, the
$10,000 capital gain is included in Trust's distributable net income for
the taxable year.
Example 6. Trust's assets consist of Blackacre and other property.
Under the terms of Trust's governing instrument, Trustee is directed to
hold Blackacre for ten years and then sell it and distribute all the
sales proceeds to A. Because Trustee uses the amount of the sales
proceeds that includes any realized capital gain to determine the amount
required to be distributed to A, any capital gain realized from the sale
of Blackacre is included in Trust's distributable net income for the
taxable year.
Example 7. Under the terms of Trust's governing instrument, all
income is to be paid to A during the Trust's term. When A reaches 35,
Trust is to terminate and all the principal is to be distributed to A.
Because all the assets of the trust, including all capital gains, will
be actually distributed to the beneficiary at the termination of Trust,
all capital gains realized in the year of termination are included in
distributable net income. See Sec. 1.641(b)-3 for the determination of
the year of final termination and the taxability of capital gains
realized after the terminating event and before final distribution.
Example 8. The facts are the same as Example 7, except Trustee is
directed to pay B $10,000 before distributing the remainder of Trust
assets to A. Because the distribution to B is a gift of a specific sum
of money within the meaning of section 663(a)(1), none of Trust's
distributable net income that includes all of the capital gains realized
during the year of termination is allocated to B's distribution.
Example 9. The facts are the same as Example 7, except Trustee is
directed to distribute one-half of the principal to A when A reaches 35
and the balance to A when A reaches 45. Trust assets consist entirely of
stock in corporation M with a fair market value of $1,000,000 and an
adjusted basis of $300,000. When A reaches 35, Trustee sells one-half of
the stock and distributes the sales proceeds to A. All the sales
proceeds, including all the capital gain attributable to that sale, are
actually distributed to A and therefore all the capital gain is included
in distributable net income.
Example 10. The facts are the same as Example 9, except when A
reaches 35, Trustee sells all the stock and distributes one-half of the
sales proceeds to A. If authorized by the governing instrument and
applicable state statute, Trustee may determine to what extent the
capital gain is distributed to A. The $500,000 distribution to A may be
treated as including a minimum of $200,000 of capital gain (and all of
the principal amount of $300,000) and a maximum of $500,000 of the
capital gain (with no principal). Trustee evidences the treatment by
including the appropriate amount of capital gain in distributable net
income on Trust's federal income tax return. If Trustee is not
authorized by the governing instrument and applicable state statutes to
determine to what extent the capital gain is distributed to A, one-half
of the capital gain attributable to the sale is included in
distributable net income.
[[Page 70]]
Example 11. The applicable state statute provides that a trustee may
make an election to pay an income beneficiary an amount equal to four
percent of the fair market value of the trust assets, as determined at
the beginning of each taxable year, in full satisfaction of that
beneficiary's right to income. State statute also provides that this
unitrust amount shall be considered paid first from ordinary and tax-
exempt income, then from net short-term capital gain, then from net
long-term capital gain, and finally from return of principal. Trust's
governing instrument provides that A is to receive each year income as
defined under state statute. Trustee makes the unitrust election under
state statute. At the beginning of the taxable year, Trust assets are
valued at $500,000. During the year, Trust receives $5,000 of dividend
income and realizes $80,000 of net long-term gain from the sale of
capital assets. Trustee distributes to A $20,000 (4% of $500,000) in
satisfaction of A's right to income. Net long-term capital gain in the
amount of $15,000 is allocated to income pursuant to the ordering rule
of the state statute and is included in distributable net income for the
taxable year.
Example 12. The facts are the same as in Example 11, except that
neither state statute nor Trust's governing instrument has an ordering
rule for the character of the unitrust amount, but leaves such a
decision to the discretion of Trustee. Trustee intends to follow a
regular practice of treating principal, other than capital gain, as
distributed to the beneficiary to the extent that the unitrust amount
exceeds Trust's ordinary and tax-exempt income. Trustee evidences this
treatment by not including any capital gains in distributable net income
on Trust's Federal income tax return so that the entire $80,000 capital
gain is taxed to Trust. This treatment of the capital gains is a
reasonable exercise of Trustee's discretion. In future years Trustee
must consistently follow this treatment of not allocating realized
capital gains to income.
Example 13. The facts are the same as in Example 11, except that
neither state statutes nor Trust's governing instrument has an ordering
rule for the character of the unitrust amount, but leaves such a
decision to the discretion of Trustee. Trustee intends to follow a
regular practice of treating net capital gains as distributed to the
beneficiary to the extent the unitrust amount exceeds Trust's ordinary
and tax-exempt income. Trustee evidences this treatment by including
$15,000 of the capital gain in distributable net income on Trust's
Federal income tax return. This treatment of the capital gains is a
reasonable exercise of Trustee's discretion. In future years Trustee
must consistently treat realized capital gain, if any, as distributed to
the beneficiary to the extent that the unitrust amount exceeds ordinary
and tax-exempt income.
Example 14. Trustee is a corporate fiduciary that administers
numerous trusts. State statutes provide that a trustee may make an
election to distribute to an income beneficiary an amount equal to four
percent of the annual fair market value of the trust assets in full
satisfaction of that beneficiary's right to income. Neither state
statutes nor the governing instruments of any of the trusts administered
by Trustee has an ordering rule for the character of the unitrust
amount, but leaves such a decision to the discretion of Trustee. With
respect to some trusts, Trustee intends to follow a regular practice of
treating principal, other than capital gain, as distributed to the
beneficiary to the extent that the unitrust amount exceeds the trust's
ordinary and tax-exempt income. Trustee will evidence this treatment by
not including any capital gains in distributable net income on the
Federal income tax returns for those trusts. With respect to other
trusts, Trustee intends to follow a regular practice of treating any net
capital gains as distributed to the beneficiary to the extent the
unitrust amount exceeds the trust's ordinary and tax-exempt income.
Trustee will evidence this treatment by including net capital gains in
distributable net income on the Federal income tax returns filed for
these trusts. Trustee's decision with respect to each trust is a
reasonable exercise of Trustee's discretion and, in future years,
Trustee must treat the capital gains realized by each trust consistently
with the treatment by that trust in prior years.
(f) Effective date. This section applies for taxable years of trusts
and estates ending after January 2, 2004.
[T.D. 9102, 69 FR 18, Jan. 2, 2004]
Sec. 1.643(a)-4 Extraordinary dividends and taxable stock dividends.
In the case solely of a trust which qualifies under subpart B
(section 651 and following) as a ``simple trust,'' there are excluded
from distributable net income extraordinary dividends (whether paid in
cash or in kind) or taxable stock dividends which are not distributed or
credited to a beneficiary because the fiduciary in good faith determines
that under the terms of the governing instrument and applicable local
law such dividends are allocable to corpus. See section 665(e),
paragraph (b) of Sec. 1.665(e)-1, and paragraph (b) of Sec. 1.665(e)-
1A for the treatment of such
[[Page 71]]
dividends upon subsequent distribution.
[T.D. 7204, 37 FR 17134, Aug. 25, 1972]
Sec. 1.643(a)-5 Tax-exempt interest.
(a) There is included in distributable net income any tax-exempt
interest excluded from gross income under section 103, reduced by
disbursements allocable to such interest which would have been
deductible under section 212 but for the provisions of section 265
(relating to disallowance of deductions allocable to tax-exempt income).
(b) If the estate or trust is allowed a charitable contributions
deduction under section 642(c), the amounts specified in paragraph (a)
of this section and Sec. 1.643(a)-6 are reduced by the portion deemed
to be included in income paid, permanently set aside, or to be used for
the purposes specified in section 642(c). If the governing instrument or
local law specifically provides as to the source out of which amounts
are paid, permanently set aside, or to be used for such charitable
purposes, the specific provision controls for Federal tax purposes to
the extent such provision has economic effect independent of income tax
consequences. See Sec. 1.652(b)-2(b). In the absence of such specific
provisions in the governing instrument or local law, an amount to which
section 642(c) applies is deemed to consist of the same proportion of
each class of the items of income of the estate or trust as the total of
each class bears to the total of all classes. For illustrations showing
the determination of the character of an amount deductible under section
642(c), see Examples 1 and 2 of Sec. 1.662(b)-2 and Sec. 1.662(c)-
4(e).
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 9582, 77 FR 22485, Apr. 16, 2012]
Sec. 1.643(a)-6 Income of foreign trust.
(a) Distributable net income of a foreign trust. In the case of a
foreign trust (see section 7701(a)(31)), the determination of
distributable net income is subject to the following rules:
(1) There is included in distributable net income the amounts of
gross income from sources without the United States, reduced by
disbursements allocable to such foreign income which would have been
deductible but for the provisions of section 265 (relating to
disallowance of deductions allocable to tax exempt income). See
paragraph (b) of Sec. 1.643(a)-5 for rules applicable when an estate or
trust is allowed a charitable contributions deduction under section
642(c).
(2) In the case of a distribution made by a trust before January 1,
1963, for purposes of determining the distributable net income of the
trust for the taxable year in which the distribution is made, or for any
prior taxable year;
(i) Gross income from sources within the United States is determined
by taking into account the provisions of section 894 (relating to income
exempt under treaty); and
(ii) Distributable net income is determined by taking into account
the provisions of section 643(a)(3) (relating to exclusion of certain
gains from the sale or exchange of capital assets).
(3) In the case of a distribution made by a trust after December 31,
1962, for purposes of determining the distributable net income of the
trust for any taxable year, whether ending before January 1, 1963, or
after December 31, 1962;
(i) Gross income (for the entire foreign trust) from sources within
the United States is determined without regard to the provisions of
section 894 (relating to income exempt under treaty);
(ii) In respect of a foreign trust created by a U.S. person (whether
such trust constitutes the whole or only a portion of the entire foreign
trust) (see section 643(d) and Sec. 1.643(d)-1), there shall be
included in gross income 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, and the
deduction under section 1202 (relating to deduction for capital gains)
shall not be taken into account; and
(iii) In respect of a foreign trust created by a person other than a
U.S. person (whether such trust constitutes the whole or only a portion
of the entire foreign trust) (see section 643(d) and Sec. 1.643(d)-1),
distributable net income is determined by taking into account all of the
provisions of section 643 except
[[Page 72]]
section 643(a)(6)(C) (relating to gains from the sale or exchange of
capital assets by a foreign trust created by a U.S. person).
(b) Examples. The application of this section, showing the
computation of distributable net income for one of the taxable years for
which such a computation must be made, may be illustrated by the
following examples:
Example 1. (1) A trust is created in 1952 under the laws of Country
X by the transfer to a trustee in Country X of money and property by a
U.S. person. The entire trust constitutes a foreign trust created by a
U.S. person. The income from the trust corpus is to be accumulated until
the beneficiary, a resident citizen of the United States who was born in
1944, reaches the age of 21 years, and upon his reaching that age, the
corpus and accumulated income are to be distributed to him. The trust
instrument provides that capital gains are to be allocated to corpus and
are not to be paid, credited, or required to be distributed to any
beneficiary during the taxable year or paid, permanently set aside, or
to be used for the purposes specified in section 642(c). Under the terms
of a tax convention between the United States and Country X, interest
income received by the trust from U.S. sources is exempt from U.S.
taxation. In 1965 the corpus and accumulated income are distributed to
the beneficiary. During the taxable year 1964, the trust has the
following items of income, loss, and expense:
Interest on bonds of a U.S. corporation...................... $10,000
Net long-term capital gain from U.S. sources................. 30,000
Gross income from investments in Country X................... 40,000
Net short-term capital loss from U.S. sources................ 5,000
Expenses allocable to gross income from investments in 5,000
Country X...................................................
(2) The distributable net income for the taxable year 1964 of the
foreign trust created by a U.S. person, determined under section 643(a),
is $70,000, computed as follows:
Interest on bonds of a U.S. corporation...................... $10,000
Gross income from investments in Country X................... 40,000
Net long-term capital gain from U.S. sources...... $30,000
Less: Net short-term capital loss from U.S. 5,000
sources..........................................
===========
Excess of net long-term capital gain over net short-term 25,000
capital loss................................................
------------
Total.................................................... 75,000
Less: Expenses allocable to income from investments in 5,000
Country X...................................................
------------
Distributable net income................................. 70,000
(3) In determining the distributable net income of $70,000, the
taxable income of the trust is computed with the following
modifications: No deduction is allowed for the personal exemption of the
trust (section 643(a)(2)); the interest received on bonds of a U.S.
corporation is included in the trust gross income despite the fact that
such interest is exempt from U.S. tax under the provisions of the tax
treaty between Country X and the United States (section 643(a)(6) (see
H. Con. Res. (B)); the excess of net long-term capital gain over net
short-term capital loss allocable to corpus is included in distributable
net income, but such excess is not subject to the deduction under
section 1202 (section 643(a)(6)(C)); and the amount representing gross
income from investments in Country X is included, but such amount is
reduced by the amount of the disbursements allocable to such income
(section 643(a)(6)(A)).
Example 2. (1) The facts are the same as in example 1 except that
money or property has also been transferred to the trust by a person
other than a U.S. person and, pursuant to the provisions of Sec.
1.643(d)-1, during 1964 only 60 percent of the entire trust constitutes
a foreign trust created by a U.S. person.
(2) The distributable net income for the taxable year 1964 of the
foreign trust created by a U.S. person, determined under section 643(a),
is $42,000 computed as follows:
Interest on bonds of a U.S. corporation (60 percent of $6,000
$10,000).....................................................
Gross income from investments in Country X (60 percent of 24,000
$40,000).....................................................
Net long-term capital gain from U.S. sources (60 $18,000
percent of $30,000)................................
Less: Net short-term capital loss from U.S. sources 3,000
(60 percent of $5,000).............................
----------
........ 15,000
---------
Total........................................... ........ 45,000
Less: Expenses allocable to income from investments in Country 3,000
X (60 percent of $5,000).....................................
-----------
Distributable net income.................................. 42,000
(3) The distributable net income for the taxable year 1964 of the
portion of the entire foreign trust which does not constitute a foreign
trust created by a U.S. person, determined under section 643(a), is
$18,000, computed as follows:
Interest on bonds of a U.S. corporation (40 percent of $4,000
$10,000).....................................................
Gross income from investments in Country X (40 percent of 16,000
$40,000).....................................................
---------
Total..................................................... 20,000
Less: Expenses allocable to income from investments in Country 2,000
X (40 percent of $5,000).....................................
---------
Distributable net income.................................. 18,000
(4) The distributable net income of the entire foreign trust for the
taxable year 1964 is $60,000, computed as follows:
Distributable net income of the foreign trust created by a $42,000
U.S. person.................................................
Distributable net income of that portion of the entire 18,000
foreign trust which does not constitute a foreign trust
created by a U.S. person....................................
----------
Distributable net income of the entire foreign trust....... 60,000
[[Page 73]]
It should be noted that the difference between the $70,000 distributable
net income of the foreign trust in example 1 and the $60,000
distributable net income of the entire foreign trust in this example is
due to the $10,000 (40 percent of $25,000) net capital gain (capital
gain net income for taxable years beginning after December 31, 1976)
which under section 643(a)(3) is excluded from the distributable net
income of that portion of the foreign trust in example 2 which does not
constitute a foreign trust created by a U.S. person.
[T.D. 6989, 34 FR 731, Jan. 17, 1969, as amended by T.D. 7728, 45 FR
72650, Nov. 3, 1980]
Sec. 1.643(a)-7 Dividends.
Dividends excluded from gross income under section 116 (relating to
partial exclusion of dividends received) are included in distributable
net income. For this purpose, adjustments similar to those required by
Sec. 1.643(a)-5 with respect to expenses allocable to tax-exempt income
and to income included in amounts paid or set aside for charitable
purposes are not made. See the regulations under section 642(c).
[T.D. 7357, 40 FR 23742, June 2, 1975]
Sec. 1.643(a)-8 Certain distributions by charitable remainder trusts.
(a) Purpose and scope. This section is intended to prevent the
avoidance of the purposes of the charitable remainder trust rules
regarding the characterizations of distributions from those trusts in
the hands of the recipients and should be interpreted in a manner
consistent with this purpose. This section applies to all charitable
remainder trusts described in section 664 and the beneficiaries of such
trusts.
(b) Deemed sale by trust. (1) For purposes of section 664(b), a
charitable remainder trust shall be treated as having sold, in the year
in which a distribution of an annuity or unitrust amount is made from
the trust, a pro rata portion of the trust assets to the extent that the
distribution of the annuity or unitrust amount would (but for the
application of this paragraph (b)) be characterized in the hands of the
recipient as being from the category described in section 664(b)(4) and
exceeds the amount of the previously undistributed
(i) Cash contributed to the trust (with respect to which a deduction
was allowable under section 170, 2055, 2106, or 2522); plus
(ii) Basis in any contributed property (with respect to which a
deduction was allowable under section 170, 2055, 2106, or 2522) that was
sold by the trust.
(2) Any transaction that has the purpose or effect of circumventing
the rules in this paragraph (b) shall be disregarded.
(3) For purposes of paragraph (b)(1) of this section, trust assets
do not include cash or assets purchased with the proceeds of a trust
borrowing, forward sale, or similar transaction.
(4) Proper adjustment shall be made to any gain or loss subsequently
realized for gain or loss taken into account under paragraph (b)(1) of
this section.
(c) Examples. The following examples illustrate the rules of
paragraph (b) of this section:
Example 1. Deemed sale by trust. Donor contributes stock having a
fair market value of $2 million to a charitable remainder unitrust with
a unitrust amount of 50 percent of the net fair market value of the
trust assets and a two-year term. The stock has a total adjusted basis
of $400,000. In Year 1, the trust receives dividend income of $20,000.
As of the valuation date, the trust's assets have a net fair market
value of $2,020,000 ($2 million in stock, plus $20,000 in cash). To
obtain additional cash to pay the unitrust amount to the noncharitable
beneficiary, the trustee borrows $990,000 against the value of the
stock. The trust then distributes $1,010,000 to the beneficiary before
the end of Year 1. Under section 664(b)(1), $20,000 of the distribution
is characterized in the hands of the beneficiary as dividend income. The
rest of the distribution, $990,000, is attributable to an amount
received by the trust that did not represent either cash contributed to
the trust or a return of basis in any contributed asset sold by the
trust during Year 1. Under paragraph (b)(3) of this section, the stock
is a trust asset because it was not purchased with the proceeds of the
borrowing. Therefore, in Year 1, under paragraph (b)(1) of this section,
the trust is treated as having sold $990,000 of stock and as having
realized $792,000 of capital gain (the trust's basis in the shares
deemed sold is $198,000). Thus, in the hands of the beneficiary,
$792,000 of the distribution is characterized as capital gain under
section 664(b)(2) and $198,000 is characterized as a tax-free return of
corpus under section 664(b)(4). No part of the $990,000 loan is treated
as acquisition indebtedness under section 514(c) because the entire loan
has been recharacterized as a deemed sale.
[[Page 74]]
Example 2. Adjustment to trust's basis in assets deemed sold. The
facts are the same as in Example 1. During Year 2, the trust sells the
stock for $2,100,000. The trustee uses a portion of the proceeds of the
sale to repay the outstanding loan, plus accrued interest. Under
paragraph (b)(4) of this section, the trust's adjusted basis in the
stock is $1,192,000 ($400,000 plus the $792,000 of gain recognized in
Year 1). Therefore, the trust recognizes capital gain (as described in
section 664(b)(2)) in Year 2 of $908,000.
Example 3. Distribution of cash contributions. Upon the death of D,
the proceeds of a life insurance policy on D's life are payable to T, a
charitable remainder annuity trust. The terms of the trust provide that,
for a period of three years commencing upon D's death, the trust shall
pay an annuity amount equal to $x annually to A, the child of D. After
the expiration of such three-year period, the remainder interest in the
trust is to be transferred to charity Z. In Year 1, the trust receives
payment of the life insurance proceeds and pays the appropriate pro rata
portion of the $x annuity to A from the insurance proceeds. During Year
1, the trust has no income. Because the entire distribution is
attributable to a cash contribution (the insurance proceeds) to the
trust for which a charitable deduction was allowable under section 2055
with respect to the present value of the remainder interest passing to
charity, the trust will not be treated as selling a pro rata portion of
the trust assets under paragraph (b)(1) of this section. Thus, the
distribution is characterized in A's hands as a tax-free return of
corpus under section 664(b)(4).
(d) Effective date. This section is applicable to distributions made
by a charitable remainder trust after October 18, 1999.
[T.D. 8926, 66 FR 1037, Jan. 5, 2001]
Sec. 1.643(b)-1 Definition of income.
For purposes of subparts A through D, part I, subchapter J, chapter
1 of the Internal Revenue Code, ``income,'' when not preceded by the
words ``taxable,'' ``distributable net,'' ``undistributed net,'' or
``gross,'' means the amount of income of an estate or trust for the
taxable year determined under the terms of the governing instrument and
applicable local law. Trust provisions that depart fundamentally from
traditional principles of income and principal will generally not be
recognized. For example, if a trust instrument directs that all the
trust income shall be paid to the income beneficiary but defines
ordinary dividends and interest as principal, the trust will not be
considered one that under its governing instrument is required to
distribute all its income currently for purposes of section 642(b)
(relating to the personal exemption) and section 651 (relating to simple
trusts). Thus, items such as dividends, interest, and rents are
generally allocated to income and proceeds from the sale or exchange of
trust assets are generally allocated to principal. However, an
allocation of amounts between income and principal pursuant to
applicable local law will be respected if local law provides for a
reasonable apportionment between the income and remainder beneficiaries
of the total return of the trust for the year, including ordinary and
tax-exempt income, capital gains, and appreciation. For example, a state
statute providing that income is a unitrust amount of no less than 3%
and no more than 5% of the fair market value of the trust assets,
whether determined annually or averaged on a multiple year basis, is a
reasonable apportionment of the total return of the trust. Similarly, a
state statute that permits the trustee to make adjustments between
income and principal to fulfill the trustee's duty of impartiality
between the income and remainder beneficiaries is generally a reasonable
apportionment of the total return of the trust. Generally, these
adjustments are permitted by state statutes when the trustee invests and
manages the trust assets under the state's prudent investor standard,
the trust describes the amount that may or must be distributed to a
beneficiary by referring to the trust's income, and the trustee after
applying the state statutory rules regarding the allocation of receipts
and disbursements to income and principal, is unable to administer the
trust impartially. Allocations pursuant to methods prescribed by such
state statutes for apportioning the total return of a trust between
income and principal will be respected regardless of whether the trust
provides that the income must be distributed to one or more
beneficiaries or may be accumulated in whole or in part, and regardless
of which alternate permitted method is actually used, provided the trust
complies with all requirements of
[[Page 75]]
the state statute for switching methods. A switch between methods of
determining trust income authorized by state statute will not constitute
a recognition event for purposes of section 1001 and will not result in
a taxable gift from the trust's grantor or any of the trust's
beneficiaries. A switch to a method not specifically authorized by state
statute, but valid under state law (including a switch via judicial
decision or a binding non-judicial settlement) may constitute a
recognition event to the trust or its beneficiaries for purposes of
section 1001 and may result in taxable gifts from the trust's grantor
and beneficiaries, based on the relevant facts and circumstances. In
addition, an allocation to income of all or a part of the gains from the
sale or exchange of trust assets will generally be respected if the
allocation is made either pursuant to the terms of the governing
instrument and applicable local law, or pursuant to a reasonable and
impartial exercise of a discretionary power granted to the fiduciary by
applicable local law or by the governing instrument, if not prohibited
by applicable local law. This section is effective for taxable years of
trusts and estates ending after January 2, 2004.
[T.D. 9102, 69 FR 19, Jan. 2, 2004]
Sec. 1.643(b)-2 Dividends allocated to corpus.
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 are
not considered ``income'' for purposes of subpart A, B, C, or D, part I,
subchapter J, chapter 1 of the Code. See section 643(a)(4), Sec.
1.643(a)-4, Sec. 1.643(d)-2, section 665(e), paragraph (b) of Sec.
1.665(e)-1, and paragraph (b) of Sec. 1.665(e)-1A for the treatment of
such items in the computation of distributable net income.
[T.D. 7204, 37 FR 17134, Aug. 25, 1972]
Sec. 1.643(c)-1 Definition of ``beneficiary''.
An heir, legatee, or devisee (including an estate or trust) is a
beneficiary. A trust created under a decedent's will is a beneficiary of
the decedent's estate. The following persons are treated as
beneficiaries:
(a) Any person with respect to an amount used to discharge or
satisfy that person's legal obligation as that term is used in Sec.
1.662(a)-4.
(b) The grantor of a trust with respect to an amount applied or
distributed for the support of a dependent under the circumstances
specified in section 677(b) out of corpus or out of other than income
for the taxable year of the trust.
(c) The trustee or cotrustee of a trust with respect to an amount
applied or distributed for the support of a dependent under the
circumstances specified in section 678(c) out of corpus or out of other
than income for the taxable year of the trust.
Sec. 1.643(d)-1 Definition of ``foreign trust created by a United
States person''.
(a) In general. For the purpose of part I, subchapter J, chapter 1
of the Internal Revenue Code, the term foreign trust created by a United
States person means that portion of a foreign trust (as defined in
section 7701(a)(31)) attributable to money or property (including all
accumulated earnings, profits, or gains attributable to such money or
property) of a U.S. person (as defined in section 7701(a)(30))
transferred directly or indirectly, or under the will of a decedent who
at the date of his death was a U.S. citizen or resident, to the foreign
trust. A foreign trust created by a person who is not a U.S. person, to
which a U.S. person transfers his money or property, is a foreign trust
created by a U.S. person to the extent that the fair market value of the
entire foreign trust is attributable to money or property of the U.S.
person transferred to the foreign trust. The transfer of money or
property to the foreign trust may be made either directly or indirectly
by a U.S. person. Transfers of money or property to a foreign trust do
not include transfers of money or property pursuant to a sale or
exchange which is made for a full and adequate consideration. Transfers
to which section 643(d) and this section apply are transfers of money or
property which establish or increase the corpus of a foreign trust. The
rules set forth in this section with respect to
[[Page 76]]
transfers by a U.S. person to a foreign trust also are applicable with
respect to transfers under the will of a decedent who at the date of his
death was a U.S. citizen or resident. For provisions relating to the
information returns which are required to be filed with respect to the
creation of or transfers to foreign trusts, see section 6048 and Sec.
16.3-1 of this chapter (Temporary Regulations under the Revenue Act of
1962).
(b) Determination of a foreign trust created by a U.S. person--(1)
Transfers of money or property only by a U.S. person. If all the items
of money or property constituting the corpus of a foreign trust are
transferred to the trust by a U.S. person, the entire foreign trust is a
foreign trust created by a U.S. person.
(2) Transfers of money or property by both a U.S. person and a
person other than a U.S. person; transfers required to be treated as
separate funds. Where there are transfers of money or property by both a
U.S. person and a person other than a U.S. person to a foreign trust,
and it is necessary, either by reason of the provisions of the governing
instrument of the trust or by reason of some other requirement such as
local law, that the trustee treat the entire foreign trust as composed
of two separate funds, one consisting of the money or property
(including all accumulated earnings, profits, or gains attributable to
such money or property) transferred by the U.S. person and the other
consisting of the money or property (including all accumulated earnings,
profits, or gains attributable to such money or property) transferred by
the person other than the U.S. person, the foreign trust created by a
U.S. person shall be the fund consisting of the money or property
transferred by the U.S. person. See example 1 in paragraph (c) of this
section.
(3) Transfers of money or property by both a U.S. person and a
person other than a U.S. person; transfers not required to be treated as
separate funds. Where the corpus of a foreign trust consists of money or
property transferred to the trust (simultaneously or at different times)
by a U.S. person and by a person who is not a U.S. person, the foreign
trust created by a U.S. person within the meaning of section 643(d) is
that portion of the entire foreign trust which, immediately after any
transfer of money or property to the trust, the fair market value of
money or property (including all accumulated earnings, profits, or gains
attributable to such money or property) transferred to the foreign trust
by the U.S. person bears to the fair market value of the corpus
(including all accumulated earnings, profits, or gains attributable to
the corpus) of the entire foreign trust.
(c) Examples. The provisions of paragraph (b) of this section may be
illustrated by the following examples. Example 1 illustrates the
application of paragraph (b)(2) of this section. Example (2) illustrates
the application of paragraph (b)(3) of this section in a case where
there is no provision in the governing instrument of the trust or
elsewhere which would require the trustee to treat the corpus of the
trust as composed of more than one fund.
Example 1. On January 1, 1964, the date of the creation of a foreign
trust, a U.S. person transfers to it stock of a U.S. corporation with a
fair market value of $50,000. On the same day, a person other than a
U.S. person transfers to the trust Country X bonds with a fair market
value of $25,000. The governing instrument of the trust provides that
the income from the stock of the U.S. corporation is to be accumulated
until A, a U.S. beneficiary, reaches the age of 21 years, and upon his
reaching that age, the stock and income accumulated thereon are to be
distributed to him. The governing instrument of the trust further
provides that the income from the Country X bonds is to be accumulated
until B, a U.S. beneficiary, reaches the age of 21 years, and upon his
reaching that age, the bonds and income accumulated thereon are to be
distributed to him. To comply with the provisions of the governing
instrument of the trust that the income from the stock of the U.S.
corporation be accumulated and distributed to A and that the income from
the Country X bonds be accumulated and distributed to B, it is necessary
that the trustee treat the transfers as two separate funds. The fund
consisting of the stock of the U.S. corporation is a foreign trust
created by a U.S. person.
Example 2. On January 1, 1964, the date of the creation of a foreign
trust, a U.S. person transfers to it property having a fair market value
of $60,000 and a person other than a U.S. person transfers to it
property having a fair market value of $40,000. Immediately
[[Page 77]]
after these transfers, the foreign trust created by a U.S. person is 60
percent of the entire foreign trust, determined as follows:
$60,000 (Value of property transferred by U.S. person)/$100,000 (Value
of entire property transferred to trust)=60 percent
The undistributed net income for the calendar years 1964 and 1965 is
$20,000 which increases the value of the entire foreign trust to
$120,000 ($100,000 plus $20,000). Accordingly, as of December 31, 1965,
the portion of the foreign trust created by the U.S. person is $72,000
(60 percent of $120,000). On January 1, 1966, the U.S. person transfers
property having a fair market value of $40,000 increasing the value of
the entire foreign trust to $160,000 ($120,000 plus $40,000) and
increasing the value of the portion of the foreign trust created by the
U.S. person to $112,000 ($72,000 plus $40,000). Immediately, after this
transfer, the foreign trust created by the U.S. person is 70 percent of
the entire foreign trust, determined as follows:
$112,000 (Value of property transferred by U.S. person)/$160,000 (Value
of entire property transferred to the trust)=70 percent
[T.D. 6989, 34 FR 732, Jan. 17, 1969]
Sec. 1.643(d)-2 Illustration of the provisions of section 643.
(a) The provisions of section 643 may be illustrated by the
following example:
Example. (1) Under the terms of the trust instrument, the income of
a trust is required to be currently distributed to W during her life.
Capital gains are allocable to corpus and all expenses are charges
against corpus. During the taxable year the trust has the following
items of income and expenses:
Dividends from domestic corporations......................... $30,000
Extraordinary dividends allocated to corpus by the trustee in 20,000
good faith..................................................
Taxable interest............................................. 10,000
Tax-exempt interest.......................................... 10,000
Long-term capital gains...................................... 10,000
Trustee's commissions and miscellaneous expenses allocable to 5,000
corpus......................................................
(2) The ``income'' of the trust determined under section 643(b)
which is currently distributable to W is $50,000, consisting of
dividends of $30,000, taxable interest of $10,000, and tax-exempt
interest of $10,000. The trustee's commissions and miscellaneous
expenses allocable to tax-exempt interest amount to $1,000 (10,000/
50,000x $5,000).
(3) The ``distributable net income'' determined under section 643(a)
amounts to $45,000, computed as follows:
Dividends from domestic corporations......................... $30,000
Taxable interest............................................. 10,000
Nontaxable interest............................... $10,000
Less: Expenses allocable thereto.................. 1,000
-----------
9,000
------------
Total.................................................... 49,000
Less: Expenses ($5,000 less $1,000 allocable to tax-exempt 4,000
interest)...................................................
------------
Distributable net income................................. 45,000
In determining the distributable net income of $45,000, the taxable
income of the trust is computed with the following modifications: No
deductions are allowed for distributions to W and for personal exemption
of the trust (section 643(a) (1) and (2)); capital gains allocable to
corpus are excluded and the deduction allowable under section 1202 is
not taken into account (section 643(a)(3)): the extraordinary dividends
allocated to corpus by the trustee in good faith are excluded (sections
643(a)(4)); and the tax- exempt interest (as adjusted for expenses) and
the dividend exclusion of $50 are included) section 643(a) (5) and (7)).
(b) See paragraph (c) of the example in Sec. 1.661(c)-2 for the
computation of distributable net income where there is a charitable
contributions deduction.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960. Redesignated, T.D. 6989, 34 FR
732, Jan. 1, 1969]
Sec. 1.643(h)-1 Distributions by certain foreign trusts through
intermediaries.
(a) In general--(1) Principal purpose of tax avoidance. Except as
provided in paragraph (b) of this section, for purposes of part I of
subchapter J, chapter 1 of the Internal Revenue Code, and section 6048,
any property (within the meaning of paragraph (f) of this section) that
is transferred to a United States person by another person (an
intermediary) who has received property from a foreign trust will be
treated as property transferred directly by the foreign trust to the
United States person if the intermediary received the property from the
foreign trust pursuant to a plan one of the principal purposes of which
was the avoidance of United States tax.
(2) Principal purpose of tax avoidance deemed to exist. For purposes
of paragraph (a)(1) of this section, a transfer will be deemed to have
been made pursuant to a plan one of the principal purposes of which was
the avoidance of United States tax if the United States person--
(i) Is related (within the meaning of paragraph (e) of this section)
to a
[[Page 78]]
grantor of the foreign trust, or has another relationship with a grantor
of the foreign trust that establishes a reasonable basis for concluding
that the grantor of the foreign trust would make a gratuitous transfer
(within the meaning of Sec. 1.671-2(e)(2)) to the United States person;
(ii) Receives from the intermediary, within the period beginning
twenty-four months before and ending twenty-four months after the
intermediary's receipt of property from the foreign trust, either the
property the intermediary received from the foreign trust, proceeds from
such property, or property in substitution for such property; and
(iii) Cannot demonstrate to the satisfaction of the Commissioner
that--
(A) The intermediary has a relationship with the United States
person that establishes a reasonable basis for concluding that the
intermediary would make a gratuitous transfer to the United States
person;
(B) The intermediary acted independently of the grantor and the
trustee of the foreign trust;
(C) The intermediary is not an agent of the United States person
under generally applicable United States agency principles; and
(D) The United States person timely complied with the reporting
requirements of section 6039F, if applicable, if the intermediary is a
foreign person.
(b) Exceptions--(1) Nongratuitous transfers. Paragraph (a) of this
section does not apply to the extent that either the transfer from the
foreign trust to the intermediary or the transfer from the intermediary
to the United States person is a transfer that is not a gratuitous
transfer within the meaning of Sec. 1.671-2(e)(2).
(2) Grantor as intermediary. Paragraph (a) of this section does not
apply if the intermediary is the grantor of the portion of the trust
from which the property that is transferred is derived. For the
definition of grantor, see Sec. 1.671-2(e).
(c) Effect of disregarding intermediary--(1) General rule. Except as
provided in paragraph (c)(2) of this section, the intermediary is
treated as an agent of the foreign trust, and the property is treated as
transferred to the United States person in the year the property is
transferred, or made available, by the intermediary to the United States
person. The fair market value of the property transferred is determined
as of the date of the transfer by the intermediary to the United States
person. For purposes of section 665(d)(2), the term taxes imposed on the
trust includes any income, war profits, and excess profits taxes imposed
by any foreign country or possession of the United States on the
intermediary with respect to the property transferred.
(2) Exception. If the Commissioner determines, or if the taxpayer
can demonstrate to the satisfaction of the Commissioner, that the
intermediary is an agent of the United States person under generally
applicable United States agency principles, the property will be treated
as transferred to the United States person in the year the intermediary
receives the property from the foreign trust. The fair market value of
the property transferred will be determined as of the date of the
transfer by the foreign trust to the intermediary. For purposes of
section 901(b), any income, war profits, and excess profits taxes
imposed by any foreign country or possession of the United States on the
intermediary with respect to the property transferred will be treated as
having been imposed on the United States person.
(3) Computation of gross income of intermediary. If property is
treated as transferred directly by the foreign trust to a United States
person pursuant to this section, the fair market value of such property
is not taken into account in computing the gross income of the
intermediary (if otherwise required to be taken into account by the
intermediary but for paragraph (a) of this section).
(d) Transfers not in excess of $10,000. This section does not apply
if, during the taxable year of the United States person, the aggregate
fair market value of all property transferred to such person from all
foreign trusts either directly or through one or more intermediaries
does not exceed $10,000.
(e) Related parties. For purposes of this section, a United States
person is treated as related to a grantor of a foreign trust if the
United States person
[[Page 79]]
and the grantor are related for purposes of section 643(i)(2)(B), with
the following modifications--
(1) For purposes of applying section 267 (other than section 267(f))
and section 707(b)(1), ``at least 10 percent'' is used instead of ``more
than 50 percent'' each place it appears; and
(2) The principles of section 267(b)(10), using ``at least 10
percent'' instead of ``more than 50 percent,'' apply to determine
whether two corporations are related.
(f) Definition of property. For purposes of this section, the term
property includes cash.
(g) Examples. The following examples illustrate the rules of this
section. In each example, FT is an irrevocable foreign trust that is not
treated as owned by any other person and the fair market value of the
property that is transferred exceeds $10,000. The examples are as
follows:
Example 1. Principal purpose of tax avoidance. FT was created in
1980 by A, a nonresident alien, for the benefit of his children and
their descendants. FT's trustee, T, determines that 1000X of accumulated
income should be distributed to A's granddaughter, B, who is a resident
alien. Pursuant to a plan with a principal purpose of avoiding the
interest charge that would be imposed by section 668, T causes FT to
make a gratuitous transfer (within the meaning of Sec. 1.671-2(e)(2))
of 1000X to I, a foreign person. I subsequently makes a gratuitous
transfer of 1000X to B. Under paragraph (a)(1) of this section, FT is
deemed to have made an accumulation distribution of 1000X directly to B.
Example 2. United States person unable to demonstrate that
intermediary acted independently. GM and her daughter, M, are both
nonresident aliens. M's daughter, D, is a resident alien. GM creates and
funds FT for the benefit of her children. On July 1, 2001, FT makes a
gratuitous transfer of XYZ stock to M. M immediately sells the XYZ stock
and uses the proceeds to purchase ABC stock. On January 1, 2002, M makes
a gratuitous transfer of the ABC stock to D. D is unable to demonstrate
that M acted independently of GM and the trustee of FT in making the
transfer to D. Under paragraph (a)(2) of this section, FT is deemed to
have distributed the ABC stock to D. Under paragraph (c)(1) of this
section, M is treated as an agent of FT, and the distribution is deemed
to have been made on January 1, 2002.
Example 3. United States person demonstrates that specified
conditions are satisfied. Assume the same facts as in Example 2, except
that M receives 1000X cash from FT instead of XYZ stock. M gives 1000X
cash to D on January 1, 2002. Also assume that M receives annual income
of 5000X from her own investments and that M has given D 1000X at the
beginning of each year for the past ten years. Based on this and
additional information provided by D, D demonstrates to the satisfaction
of the Commissioner that M has a relationship with D that establishes a
reasonable basis for concluding that M would make a gratuitous transfer
to D, that M acted independently of GM and the trustee of FT, that M is
not an agent of D under generally applicable United States agency
principles, and that D timely complied with the reporting requirements
of section 6039F. FT will not be deemed under paragraph (a)(2) of this
section to have made a distribution to D.
Example 4. Transfer to United States person less than 24 months
before transfer to intermediary. Several years ago, A, a nonresident
alien, created and funded FT for the benefit of his children and their
descendants. A has a close friend, C, who also is a nonresident alien.
A's granddaughter, B, is a resident alien. On December 31, 2001, C makes
a gratuitous transfer of 1000X to B. On January 15, 2002, FT makes a
gratuitous transfer of 1000X to C. B is unable to demonstrate that C has
a relationship with B that would establish a reasonable basis for
concluding that C would make a gratuitous transfer to B or that C acted
independently of A and the trustee of FT in making the transfer to B.
Under paragraph (a)(2) of this section, FT is deemed to have distributed
1000X directly to B. Under paragraph (c)(1) of this section, C is
treated as an agent of FT, and the distribution is deemed to have been
made on December 31, 2001.
Example 5. United States person receives property in substitution
for property transferred to intermediary. GM and her son, S, are both
nonresident aliens. S's daughter, GD, is a resident alien. GM creates
and funds FT for the benefit of her children and their descendants. On
July 1, 2001, FT makes a gratuitous transfer of ABC stock with a fair
market value of approximately 1000X to S. On January 1, 2002, S makes a
gratuitous transfer of DEF stock with a fair market value of
approximately 1000X to GD. GD is unable to demonstrate that S acted
independently of GM and the trustee of FT in transferring the DEF stock
to GD. Under paragraph (a)(2) of this section, FT is deemed to have
distributed the DEF stock to GD. Under paragraph (c)(1) of this section,
S is treated as an agent of FT, and the distribution is deemed to have
been made on January 1, 2002.
Example 6. United States person receives indirect loan from foreign
trust. Several years ago, A, a nonresident alien, created and funded FT
for the benefit of her children and their descendants. A's daughter, B,
is a resident alien. B needs funds temporarily while she is
[[Page 80]]
starting up her own business. If FT were to loan money directly to B,
section 643(i) would apply. FT deposits 500X with FB, a foreign bank, on
June 30, 2001. On July 1, 2001, FB loans 400X to B. Repayment of the
loan is guaranteed by FT's 500X deposit. B is unable to demonstrate to
the satisfaction of the Commissioner that FB has a relationship with B
that establishes a reasonable basis for concluding that FB would make a
loan to B or that FB acted independently of A and the trustee of FT in
making the loan. Under paragraph (a)(2) of this section, FT is deemed to
have loaned 400X directly to B on July 1, 2001. Under paragraph (c)(1)
of this section, FB is treated as an agent of FT. For the treatment of
loans from foreign trusts, see section 643(i).
Example 7. United States person demonstrates that specified
conditions are satisfied. GM, a nonresident alien, created and funded FT
for the benefit of her children and their descendants. One of GM's
children is M, who is a resident alien. During the year 2001, FT makes a
gratuitous transfer of 500X to M. M reports the 500X on Form 3520 as a
distribution received from a foreign trust. During the year 2002, M
makes a gratuitous transfer of 400X to her son, S, who also is a
resident alien. M files a Form 709 treating the gratuitous transfer to S
as a gift. Based on this and additional information provided by S, S
demonstrates to the satisfaction of the Commissioner that M has a
relationship with S that establishes a reasonable basis for concluding
that M would make a gratuitous transfer to S, that M acted independently
of GM and the trustee of FT, and that M is not an agent of S under
generally applicable United States agency principles. FT will not be
deemed under paragraph (a)(2) of this section to have made a
distribution to S.M
Example 8. Intermediary as agent of trust; increase in FMV. A, a
nonresident alien, created and funded FT for the benefit of his children
and their descendants. On December 1, 2001, FT makes a gratuitous
transfer of XYZ stock with a fair market value of 85X to B, a
nonresident alien. On November 1, 2002, B sells the XYZ stock to a third
party in an arm's length transaction for 100X in cash. On November 1,
2002, B makes a gratuitous transfer of 98X to A's grandson, C, a
resident alien. C is unable to demonstrate to the satisfaction of the
Commissioner that B acted independently of A and the trustee of FT in
making the transfer. Under paragraph (a)(2) of this section, FT is
deemed to have made a distribution directly to C. Under paragraph (c)(1)
of this section, B is treated as an agent of FT, and FT is deemed to
have distributed 98X to C on November 1, 2002.
Example 9. Intermediary as agent of United States person; increase
in FMV. Assume the same facts as in Example 8, except that the
Commissioner determines that B is an agent of C under generally
applicable United States agency principles. Under paragraph (c)(2) of
this section, FT is deemed to have distributed 85X to C on December 1,
2001. C must take the gain of 15X into account in the year 2002.
Example 10. Intermediary as agent of trust; decrease in FMV. Assume
the same facts as in Example 8, except that the value of the XYZ stock
on November 1, 2002, is only 80X. Instead of selling the XYZ stock to a
third party and transferring cash to C, B transfers the XYZ stock to C
in a gratuitous transfer. Under paragraph (c)(1) of this section, FT is
deemed to have distributed XYZ stock with a value of 80X to C on
November 1, 2002.
Example 11. Intermediary as agent of United States person; decrease
in FMV. Assume the same facts as in Example 10, except that the
Commissioner determines that B is an agent of C under generally
applicable United States agency principles. Under paragraph (c)(2) of
this section, FT is deemed to have distributed XYZ stock with a value of
85X to C on December 1, 2001.
(h) Effective date. The rules of this section are applicable to
transfers made to United States persons after August 10, 1999.
[T.D. 8831, 64 FR 43272, Aug. 10, 1999, as amended by T.D. 8890, 65 FR
41332, July 5, 2000]
pooled income fund actuarial tables applicable before may 1, 2009
Sec. 1.642(c)-6A Valuation of charitable remainder interests for which
the valuation date is before May 1, 2009.
(a) Valuation of charitable remainder interests for which the
valuation date is before January 1, 1952. There was no provision for the
qualification of pooled income funds under section 642 until 1969. See
Sec. 20.2031-7A(a) of this chapter (Estate Tax Regulations) for the
determination of the present value of a charitable remainder interest
created before January 1, 1952.
(b) Valuation of charitable remainder interests for which the
valuation date is after December 31, 1951, and before January 1, 1971.
No charitable deduction is allowable for a transfer to a pooled income
fund for which the valuation date is after the effective dates of the
Tax Reform Act of 1969 unless the pooled income fund meets the
requirements of section 642(c)(5). See Sec. 20.2031-7A(b) of this
chapter (Estate Tax Regulations) for the determination of the present
[[Page 81]]
value of a charitable remainder interest for which the valuation date is
after December 31, 1951, and before January 1, 1971.
(c) Present value of remainder interest in the case of transfers to
pooled income funds for which the valuation date is after December 31,
1970, and before December 1, 1983. For the determination of the present
value of a remainder interest in property transferred to a pooled income
fund for which the valuation date is after December 31, 1970, and before
December 1, 1983, see Sec. 20.2031-7A(c) of this chapter (Estate Tax
Regulations) and former Sec. 1.642(c)-6(e) (as contained in the 26 CFR
part 1 edition revised as of April 1, 1994).
(d) Present value of remainder interest dependent on the termination
of one life in the case of transfers to pooled income funds made after
November 30, 1983, for which the valuation date is before May 1, 1989--
(1) In general. For transfers to pooled income funds made after November
30, 1983, for which the valuation date is before May 1, 1989, the
present value of the remainder interest at the time of the transfer of
property to the fund is determined by computing the present value (at
the time of the transfer) of the life income interest in the transferred
property (as determined under paragraph (d)(2) of this section) and
subtracting that value from the fair market value of the transferred
property on the valuation date. The present value of a remainder
interest that is dependent on the termination of the life of one
individual is computed by use of Table G in paragraph (d)(4) of this
section. For purposes of the computation under this section, the age of
an individual is to be taken as the age of the individual at the
individual's nearest birthday.
(2) Present value of life income interest. The present value of the
life income interest in property transferred to a pooled income fund
shall be computed on the basis of:
(i) Life contingencies determined from the values of lx that are set
forth in Table LN of Sec. 20.2031-7A(d)(6) of this chapter (Estate Tax
Regulations); and
(ii) Discount at a rate of interest, compounded annually, equal to
the highest yearly rate of return of the pooled income fund for the 3
taxable years immediately preceding its taxable year in which the
transfer of property to the fund is made. For purposes of this paragraph
(d)(2), the yearly rate of return of a pooled income fund is determined
as provided in Sec. 1.642(c)-6(c) unless the highest yearly rate of
return is deemed to be 9 percent. For purposes of this paragraph (d)(2),
the first taxable year of a pooled income fund is considered a taxable
year even though the taxable year consists of less than 12 months.
However, appropriate adjustments must be made to annualize the rate of
return earned by the fund for that period. Where it appears from the
facts and circumstances that the highest yearly rate of return for the 3
taxable years immediately preceding the taxable year in which the
transfer of property is made has been purposely manipulated to be
substantially less than the rate of return that would otherwise be
reasonably anticipated with the purpose of obtaining an excessive
charitable deduction, that rate of return may not be used. In that case,
the highest yearly rate of return of the fund is determined by treating
the fund as a pooled income fund that has been in existence for less
than 3 preceding taxable years. If a pooled income fund has been in
existence less than 3 taxable years immediately preceding the taxable
year in which the transfer of property to the fund is made, the highest
yearly rate of return is deemed to be 9 percent.
(3) Computation of value of remainder interest. The factor which is
used in determining the present value of the remainder interest is the
factor under the appropriate yearly rate of return in column (2) of
Table G opposite the number in column (1) which corresponds to the age
of the individual upon whose life the value of the remainder interest is
based. If the yearly rate of return is a percentage which is between
yearly rates of return for which factors are provided in Table G, a
linear interpolation must be made. The present value of the remainder
interest is determined by multiplying, by the factor determined under
this paragraph (d)(3), the fair market value on the appropriate
valuation date. If the yearly rate of return is below 2.2 percent or
above 14 percent, see Sec. 1.642(c)-
[[Page 82]]
6(b). This paragraph (d)(3) may be illustrated by the following example:
Example. A, who will be 50 years old on April 15, 1985, transfers
$100,000 to a pooled income fund on January 1, 1985, and retains a life
income interest in such property. The highest yearly rate of return
earned by the fund for its 3 preceding taxable years is 9.9 percent. In
Table G the figure in column (2) opposite 50 years under 9.8 percent is
.15653 and under 10 percent is .15257. The present value of the
remainder interest is $15,455, computed as follows:
Factor at 9.8 percent for person aged 50...................... .15653
Factor at 10 percent for person aged 50....................... .15257
---------
Difference.................................................... .00396
Interpolation adjustment:
[GRAPHIC] [TIFF OMITTED] TC14NO91.133
Factor at 9.8 percent for person aged 50..................... 0.15653
Less:
Interpolation adjustment................................... .00198
----------
Interpolated factor........................................ .15455
==========
Present value of remainder interest ($100,000x.15455......... $15,455
(4) Actuarial tables. The following tables shall be used in the
application of the provisions of this section.
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
2.2% 2.4% 2.6% 2.8% 3.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .23930 .21334 .19077 .17113 .15401
1............................................................. .22891 .20224 .17903 .15880 .14114
2............................................................. .23297 .20610 .18265 .16218 .14429
3............................................................. .23744 .21035 .18669 .16600 .14787
4............................................................. .24212 .21485 .19098 .17006 .15171
5............................................................. .24701 .21955 .19547 .17434 .15577
6............................................................. .25207 .22442 .20015 .17880 .16001
7............................................................. .25726 .22944 .20497 .18342 .16441
8............................................................. .26259 .23461 .20995 .18820 .16898
9............................................................. .26809 .23995 .21511 .19315 .17373
10............................................................ .27373 .24544 .22043 .19828 .17865
11............................................................ .27953 .25110 .22592 .20358 .18375
12............................................................ .28546 .25690 .23156 .20904 .18902
13............................................................ .29149 .26280 .23731 .21462 .19440
14............................................................ .29757 .26877 .24312 .22026 .19986
15............................................................ .30368 .27476 .24896 .22593 .20535
16............................................................ .30978 .28075 .25481 .23161 .21085
17............................................................ .31589 .28676 .26068 .23732 .21637
18............................................................ .32204 .29280 .26659 .24306 .22193
19............................................................ .32825 .29892 .27257 .24889 .22759
20............................................................ .33457 .30514 .27867 .25484 .23336
21............................................................ .34099 .31148 .28489 .26092 .23927
22............................................................ .34751 .31794 .29124 .26712 .24532
23............................................................ .35416 .32452 .29773 .27348 .25152
24............................................................ .36096 .33127 .30439 .28002 .25791
25............................................................ .36793 .33821 .31124 .28676 .26452
26............................................................ .37509 .34535 .31832 .29374 .27136
27............................................................ .38244 .35269 .32560 .30093 .27844
28............................................................ .38998 .36023 .33311 .30836 .28577
29............................................................ .39767 .36795 .34080 .31599 .29330
30............................................................ .40553 .37584 .34868 .32382 .30104
31............................................................ .41352 .38388 .35672 .33182 .30897
32............................................................ .42165 .39208 .36494 .34001 .31710
33............................................................ .42993 .40044 .37333 .34839 .32543
34............................................................ .43834 .40894 .38188 .35694 .33395
35............................................................ .44689 .41760 .39060 .36567 .34266
36............................................................ .45556 .42640 .39947 .37458 .35156
37............................................................ .46435 .43534 .40850 .38365 .36063
38............................................................ .47325 .44440 .41767 .39288 .36987
39............................................................ .48226 .45358 .42696 .40225 .37927
40............................................................ .49136 .46288 .43640 .41177 .38884
41............................................................ .50056 .47228 .44596 .42143 .39856
42............................................................ .50988 .48182 .45566 .43125 .40846
43............................................................ .51927 .49145 .46547 .44120 .41850
44............................................................ .52874 .50118 .47540 .45128 .42869
45............................................................ .53828 .51099 .48543 .46146 .43899
46............................................................ .54788 .52088 .49554 .47176 .44943
47............................................................ .55754 .53083 .50574 .48216 .45998
48............................................................ .56726 .54087 .51604 .49267 .47065
49............................................................ .57703 .55097 .52642 .50327 .48144
50............................................................ .58685 .56114 .53688 .51398 .49234
51............................................................ .59670 .57136 .54740 .52476 .50333
52............................................................ .60658 .58161 .55798 .53560 .51441
53............................................................ .61647 .59189 .56859 .54651 .52556
54............................................................ .62635 .60217 .57923 .55744 .53675
55............................................................ .63622 .61246 .58987 .56840 .54798
56............................................................ .64606 .62273 .60052 .57937 .55923
57............................................................ .65589 .63299 .61117 .59037 .57052
58............................................................ .66569 .64324 .62181 .60136 .58183
59............................................................ .67546 .65347 .63246 .61237 .59316
60............................................................ .68521 .66368 .64309 .62338 .60450
61............................................................ .69492 .67388 .65372 .63440 .61587
62............................................................ .70461 .68406 .66434 .64542 .62726
63............................................................ .71425 .69420 .67494 .65643 .63865
64............................................................ .72384 .70430 .68550 .66742 .65002
65............................................................ .73336 .71434 .69602 .67837 .66137
66............................................................ .74281 .72431 .70647 .68926 .67267
67............................................................ .75216 .73419 .71684 .70009 .68391
68............................................................ .76143 .74399 .72714 .71085 .69509
69............................................................ .77060 .75370 .73735 .72153 .70622
70............................................................ .77969 .76334 .74750 .73215 .71728
71............................................................ .78870 .77290 .75758 .74272 .72830
72............................................................ .79764 .78240 .76760 .75323 .73928
73............................................................ .80646 .79178 .77751 .76364 .75016
74............................................................ .81511 .80099 .78725 .77387 .76086
75............................................................ .82353 .80995 .79674 .78386 .77132
76............................................................ .83169 .81866 .80596 .79357 .78149
77............................................................ .83960 .82710 .81491 .80301 .79139
78............................................................ .84727 .83530 .82360 .81218 .80101
79............................................................ .85473 .84328 .83207 .82112 .81041
80............................................................ .86201 .85106 .84034 .82986 .81960
81............................................................ .86905 .85861 .84837 .83835 .82853
82............................................................ .87585 .86589 .85612 .84655 .83717
83............................................................ .88239 .87291 .86360 .85447 .84552
84............................................................ .88873 .87971 .87085 .86216 .85362
85............................................................ .89487 .88630 .87789 .86963 .86150
86............................................................ .90070 .89258 .88459 .87674 .86901
87............................................................ .90609 .89838 .89079 .88332 .87597
88............................................................ .91106 .90372 .89650 .88939 .88239
89............................................................ .91570 .90872 .90184 .89507 .88839
90............................................................ .92014 .91350 .90696 .90051 .89416
91............................................................ .92435 .91804 .91182 .90569 .89964
[[Page 83]]
92............................................................ .92822 .92222 .91630 .91045 .90469
93............................................................ .93170 .92597 .92032 .91474 .90923
94............................................................ .93477 .92929 .92387 .91853 .91325
95............................................................ .93743 .93216 .92695 .92181 .91673
96............................................................ .93967 .93458 .92955 .92458 .91966
97............................................................ .94167 .93674 .93186 .92704 .92228
98............................................................ .94342 .93863 .93389 .92921 .92457
99............................................................ 94508 94041 .93580 .93124 .92673
100........................................................... .94672 .94218 .93770 .93326 .92887
101........................................................... .94819 .94377 .93940 .93508 .93080
102........................................................... .94979 .94550 .94125 .93704 .93288
103........................................................... .95180 .94766 .94357 .93952 .93550
104........................................................... .95377 .94979 .94585 .94194 .93806
105........................................................... .95663 .95288 .94916 .94547 .94181
106........................................................... .96101 .95762 .95425 .95091 .94760
107........................................................... .96688 .96398 .96110 .95824 .95539
108........................................................... .97569 .97354 .97141 .96928 .96717
109........................................................... .98924 .98828 .98733 .98638 .98544
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
3.2% 3.4% 3.6% 3.8% 4.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .13908 .12603 .11461 .10461 .09583
1............................................................. .12570 .11220 .10036 .08998 .08086
2............................................................. .12862 .11489 .10284 .09225 .08293
3............................................................. .13198 .11802 .10576 .09496 .08544
4............................................................. .13559 .12141 .10893 .09793 .08821
5............................................................. .13943 .12503 .11234 .10112 .09121
6............................................................. .14345 .12884 .11593 .10451 .09439
7............................................................. .14763 .13280 .11968 .10805 .09773
8............................................................. .15198 .13694 .12360 .11176 .10125
9............................................................. .15652 .14126 .12771 .11567 .10495
10............................................................ .16123 .14576 .13200 .11975 .10883
11............................................................ .16613 .15045 .13648 .12402 .11290
12............................................................ .17119 .15531 .14113 .12847 .11715
13............................................................ .17638 .16029 .14591 .13304 .12152
14............................................................ .18164 .16535 .15076 .13769 .12597
15............................................................ .18693 .17044 .15565 .14238 .13045
16............................................................ .19224 .17554 .16055 .14707 .13494
17............................................................ .19756 .18066 .16547 .15178 .13945
18............................................................ .20294 .18584 .17044 .15655 .14401
19............................................................ .20840 .19110 .17550 .16140 .14866
20............................................................ .21399 .19650 .18069 .16639 .15344
21............................................................ .21972 .20203 .18602 .17152 .15836
22............................................................ .22559 .20771 .19151 .17680 .16344
23............................................................ .23162 .21356 .19716 .18225 .16869
24............................................................ .23784 .21960 .20301 .18791 .17414
25............................................................ .24429 .22588 .20910 .19380 .17984
26............................................................ .25098 .23240 .21545 .19996 .18581
27............................................................ .25792 .23918 .22206 .20639 .19205
28............................................................ .26512 .24623 .22894 .21310 .19858
29............................................................ .27253 .25350 .23605 .22004 .20534
30............................................................ .28016 .26100 .24341 .22724 .21236
31............................................................ .28799 .26871 .25097 .23464 .21961
32............................................................ .29603 .27664 .25877 .24230 .22710
33............................................................ .30428 .28478 .26679 .25018 .23484
34............................................................ .31273 .29314 .27504 .25830 .24280
35............................................................ .32139 .30172 .28351 .26665 .25102
36............................................................ .33024 .31050 .29220 .27523 .25948
37............................................................ .33929 .31949 .30111 .28404 .26816
38............................................................ .34851 .32867 .31022 .29305 .27707
39............................................................ .35791 .33804 .31953 .30228 .28620
40............................................................ .36749 .34759 .32904 .31172 .29555
41............................................................ .37724 .35733 .33874 .32137 .30512
42............................................................ .38717 .36727 .34866 .33124 .31493
43............................................................ .39727 .37739 .35877 .34132 .32495
44............................................................ .40752 .38768 .36906 .35159 .33518
45............................................................ .41791 .39811 .37952 .36204 .34560
46............................................................ .42844 .40871 .39014 .37267 .35621
47............................................................ .43910 .41944 .40092 .38347 .36701
48............................................................ .44990 .43034 .41188 .39446 .37801
49............................................................ .46083 .44137 .42299 .40562 .38919
50............................................................ .47189 .45256 .43427 .41695 .40056
51............................................................ .48306 .46386 .44567 .42844 .41209
52............................................................ .49432 .47528 .45721 .44006 .42378
53............................................................ .50567 .48679 .46886 .45182 .43562
54............................................................ .51708 .49838 .48060 .46367 .44756
55............................................................ .52854 .51004 .49242 .47563 .45962
56............................................................ .54004 .52175 .50430 .48766 .47177
57............................................................ .55159 .53352 .51626 .49978 .48402
58............................................................ .56316 .54533 .52827 .51196 .49636
59............................................................ .57478 .55719 .54036 .52424 .50879
60............................................................ .58643 .56910 .55250 .53658 .52131
61............................................................ .59811 .58107 .56471 .54901 .53393
62............................................................ .60982 .59307 .57697 .56150 .54662
63............................................................ .62155 .60510 .58928 .57405 .55940
64............................................................ .63327 .61714 .60161 .58664 .57222
65............................................................ .64498 .62918 .61395 .59926 .58508
66............................................................ .65666 .64120 .62628 .61188 .59796
67............................................................ .66829 .65319 .63859 .62448 .61083
68............................................................ .67986 .66512 .65086 .63706 .62370
69............................................................ .69139 .67702 .66311 .64963 .63656
70............................................................ .70286 .68888 .67533 .66218 .64942
71............................................................ .71431 .70073 .68754 .67474 .66231
72............................................................ .72572 .71255 .69974 .68730 .67520
73............................................................ .73704 .72429 .71188 .69980 .68805
74............................................................ .74819 .73586 .72384 .71214 .70075
75............................................................ .75909 .74718 .73557 .72424 .71320
76............................................................ .76971 .75822 .74700 .73606 .72538
77............................................................ .78004 .76897 .75815 .74758 .73726
78............................................................ .79010 .77944 .76902 .75883 .74886
79............................................................ .79993 .78968 .77965 .76984 .76023
80............................................................ .80955 .79971 .79008 .78064 .77140
81............................................................ .81891 .80948 .80024 .79118 .78230
82............................................................ .82796 .81894 .81009 .80140 .79288
83............................................................ .83672 .82810 .81962 .81131 .80314
84............................................................ .84525 .83700 82891 .82096 .81314
85............................................................ .85352 .84567 .83795 .83037 .82291
86............................................................ .86141 .85394 .84659 .83936 .83224
87............................................................ .86874 .86162 .85461 .84771 .84092
88............................................................ .87549 .86870 .86201 .85542 .84893
89............................................................ .88182 .87534 .86895 .86266 .85645
90............................................................ .88789 .88171 .87562 86961 .86369
91............................................................ .89367 .88779 .88198 .87625 .87059
92............................................................ .89900 .89338 .88784 .88237 .87697
93............................................................ .90379 .89842 .89312 .88788 .88271
94............................................................ .90803 .90288 .89780 .89277 .88781
95............................................................ .91171 .90675 .90185 .89701 .89223
96............................................................ .91481 .91001 .90527 .90058 .89594
97............................................................ .91757 .91291 .90831 .90376 .89926
98............................................................ .91999 .91546 .91098 .90655 .90217
99............................................................ .92227 .91786 .91349 .90917 .90490
100........................................................... .92453 .92023 .91598 .91177 .90761
[[Page 84]]
101........................................................... .92656 .92236 .91821 .91410 .91003
102........................................................... .92875 .92467 .92063 .91662 .91266
103........................................................... .93152 .92758 .92367 .91980 91597
104........................................................... .93423 .93042 .92665 .92291 .91920
105........................................................... .93818 .93458 .93101 .92747 .92395
106........................................................... .94430 .94104 .93779 .93457 .93127
107........................................................... 95256 .94975 .94696 .94418 .94143
108........................................................... .96507 96298 .96090 .95883 .95676
109........................................................... .98450 .98356 .98263 .98170 .98077
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .08811 .08132 .07534 .07006 .06539
1............................................................. .07283 .06576 .05952 .05400 .04912
2............................................................. .07471 .06746 .06106 .05539 .05037
3............................................................. .07704 .06962 .06304 .05722 .05205
4............................................................. .07962 .07202 .06528 .05930 .05398
5............................................................. .08243 .07464 .06773 .06159 .05612
6............................................................. .08542 .07745 .07037 .06406 .05844
7............................................................. .08857 .08042 .07316 .06669 .06091
8............................................................. .09189 .08355 .07612 .06948 .06354
9............................................................. .09540 .08687 .07926 .07245 .06635
10............................................................ .09908 .09037 .08258 .07560 .06934
11............................................................ .10296 .09406 .08609 .07894 .07251
12............................................................ .10701 .09793 .08977 .08245 .07586
13............................................................ .11119 .10191 .09358 .08608 .07932
14............................................................ .11544 .10597 .09745 .08978 .08285
15............................................................ .11972 .11007 .10136 .09350 .08640
16............................................................ .12402 .11416 .10527 .09723 .08995
17............................................................ .12832 .11827 .10919 .10096 .09351
18............................................................ .13268 .12243 .11315 .10474 .09711
19............................................................ .13712 .12667 .11720 .10860 .10078
20............................................................ .14170 .13105 .12138 .11259 .10459
21............................................................ .14642 .13557 .12570 .11671 .10853
22............................................................ .15129 .14024 .13017 .12099 .11261
23............................................................ .15634 .14508 .13481 .12544 .11687
24............................................................ .16159 .15013 .13967 .13009 .12133
25............................................................ .16709 .15543 .14477 .13500 .12604
26............................................................ .17286 .16101 .15014 .14018 .13103
27............................................................ .17891 .16686 .15580 .14564 .13630
28............................................................ .18525 .17301 .16175 .15140 .14187
29............................................................ .19183 .17940 .16796 .15742 .14770
30............................................................ .19867 .18606 .17443 .16370 .15380
31............................................................ .20574 .19295 .18114 .17023 .16013
32............................................................ .21307 .20010 .18811 .17702 .16674
33............................................................ .22064 .20751 .19535 .18407 .17362
34............................................................ .22846 .21516 .20283 .19138 .18075
35............................................................ .23653 .22307 .21058 .19896 .18816
36............................................................ .24484 .23124 .21859 .20681 .19584
37............................................................ .25340 .23966 .22685 .21492 .20379
38............................................................ .26219 .24831 .23536 .22328 .21199
39............................................................ .27120 .25720 .24411 .23188 .22044
40............................................................ .28045 .26633 .25311 .24075 .22916
41............................................................ .28992 .27569 .26236 .24986 .23814
42............................................................ .29965 .28532 .27188 .25926 .24741
43............................................................ .30960 .29518 .28163 .26890 .25693
44............................................................ .31977 .30527 .29164 .27880 .26671
45............................................................ .33013 .31557 .30185 .28892 .27673
46............................................................ .34071 .32609 .31230 .29929 .28700
47............................................................ .35148 .33681 .32296 .30988 .29750
48............................................................ .36246 .34777 .33387 .32072 .30826
49............................................................ .37364 .35893 .34499 .33179 .31927
50............................................................ .38503 .37030 .35634 .34310 .33053
51............................................................ .39659 .38187 .36790 .35462 .34201
52............................................................ .40832 .39362 .37965 .36636 .35371
53............................................................ .42021 .40554 .39158 .37829 .36562
54............................................................ .43222 .41760 .40367 .39039 .37771
55............................................................ .44436 .42980 .41591 .40264 .38997
56............................................................ .45660 .44212 .42828 .41504 .40239
57............................................................ .46897 .45456 .44079 .42760 .41498
58............................................................ .48142 .46712 .45342 .44030 .42771
59............................................................ .49399 .47980 .46620 .45314 .44062
60............................................................ .50666 .49260 .47910 .46613 .45367
61............................................................ .51944 .50552 .49214 .47927 .46690
62............................................................ .53232 .51856 .50531 .49256 .48028
63............................................................ .54529 .53169 .51860 .50598 .49381
64............................................................ .55832 .54491 .53198 .51950 .50746
65............................................................ .57140 .55819 .54544 .53312 .52121
66............................................................ .58451 .57152 .55895 .54681 .53506
67............................................................ .59763 .58486 .57251 .56054 .54896
68............................................................ .61076 .59823 .58609 .57432 .56292
69............................................................ .62390 .61162 .59971 .58816 .57695
70............................................................ .63705 .62503 .61337 .60204 .59104
71............................................................ .65023 .63849 .62709 .61600 .60522
72............................................................ .66344 .65199 .64086 .63003 .61949
73............................................................ .67661 .66547 .65463 .64407 .63378
74............................................................ .68964 .67882 .66827 .65798 .64796
75............................................................ .70243 .69193 .68168 .67168 .66192
76............................................................ .71495 .70477 .69482 .68511 .67563
77............................................................ .72717 .71731 .70768 .69826 .68905
78............................................................ .73912 .72959 .72026 .71114 .70221
79............................................................ .75083 .74163 .73262 .72379 .71515
80............................................................ .76235 .75348 .74479 .73627 .72792
81............................................................ .77360 .76506 .75669 .74848 .74043
82............................................................ .78452 .77632 .76827 .76036 .75260
83............................................................ .79513 .78725 .77952 .77192 .76446
84............................................................ .80547 .79792 .79051 .78322 .77606
85............................................................ .81557 .80836 .80126 .79429 .78742
86............................................................ .82524 .81835 .81157 .80489 .79832
87............................................................ .83423 .82764 .82115 .81477 .80847
88............................................................ .84253 .83623 .83002 .82390 .81787
89............................................................ .85033 .84430 .83836 .83250 .82672
90............................................................ .85784 .85208 .84639 .84079 .83525
91............................................................ .86502 .85951 .85408 .84871 .84342
92............................................................ .87164 .86638 .86118 .85605 .85098
93............................................................ .87761 .87257 .86759 .86267 .85781
94............................................................ .88290 .87806 .87327 .86854 .86386
95............................................................ .88750 .88282 .87820 .87364 .86913
96............................................................ .89136 .88683 .88236 .87793 .87355
97............................................................ .89481 .89041 .88606 .88176 .87750
98............................................................ .89783 .89354 .88930 .88511 .88096
99............................................................ .90067 .89649 .89235 .88826 .88420
100........................................................... .90349 .89941 .89538 .89138 .88743
101........................................................... .90600 .90202 .89807 .89416 .89029
102........................................................... .90873 .90484 .90099 .89717 .89339
103........................................................... .91217 .90841 .90468 .90099 .99733
104........................................................... .91553 .91188 .90827 .90469 .90114
105........................................................... .92047 .91701 .91358 .91018 .90680
106........................................................... .92819 .92504 .92191 .91880 .91571
107........................................................... .93868 .93596 .93325 .93056 .92788
108........................................................... .95471 .95267 .95064 .94862 .94661
109........................................................... .97985 .97893 .97801 .97710 .97619
----------------------------------------------------------------------------------------------------------------
[[Page 85]]
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
5.2% 5.4% 5.6% 5.8% 6.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .06126 .05759 .05433 .05143 .04884
1............................................................. .04480 .04096 .03754 .03450 .03179
2............................................................. .04591 .04194 .03841 .03527 .03246
3............................................................. .04745 .04336 .03972 .03646 .03355
4............................................................. .04924 .04502 .04125 .03789 .03487
5............................................................. .05124 .04689 .04300 .03952 .03639
6............................................................. .05342 .04893 .04492 .04131 .03808
7............................................................. .05574 .05112 .04697 .04324 .03990
8............................................................. .05822 .05346 .04918 .04533 .04186
9............................................................. .06089 .05598 .05156 .04759 .04400
10............................................................ .06372 .05866 .05411 .05000 .04630
11............................................................ .06673 .06153 .05684 .05260 .04877
12............................................................ .06992 .06457 .05973 .05536 .05141
13............................................................ .07322 .06772 .06274 .05824 .05415
14............................................................ .07659 .07093 .06581 .06117 .05695
15............................................................ .07998 .07417 .06890 .06411 .05976
16............................................................ .08337 .07739 .07197 .06704 .06255
17............................................................ .08675 .08062 .07504 .06996 .06533
18............................................................ .09018 .08387 .07813 .07290 .06813
19............................................................ .09367 .08720 .08130 .07591 .07099
20............................................................ .09730 .09065 .08458 .07904 .07397
21............................................................ .10106 .09423 .08800 .08229 .07707
22............................................................ .10496 .09796 .09155 .08568 .08030
23............................................................ .10903 .10185 .09526 .08923 .08368
24............................................................ .11330 .10594 .09918 .09297 .08726
25............................................................ .11782 .11028 .10334 .09696 .09108
26............................................................ .12262 .11489 .10778 .10122 .09518
27............................................................ .12771 .11979 .11249 .10576 .09955
28............................................................ .13309 .12499 .11751 .11060 .10421
29............................................................ .13873 .13044 .12278 .11570 .10914
30............................................................ .14464 .13617 .12833 .12107 .11433
31............................................................ .15079 .14214 .13412 .12668 .11977
32............................................................ .15722 .14838 .14018 .13256 .12548
33............................................................ .16391 .15490 .14652 .13873 .13147
34............................................................ .17087 .16168 .15312 .14515 .13772
35............................................................ .17811 .16874 .16001 .15186 .14426
36............................................................ .18562 .17608 .16717 .15886 .15108
37............................................................ .19340 .18369 .17462 .16613 .15819
38............................................................ .20144 .19157 .18233 .17368 .16557
39............................................................ .20974 .19971 .19031 .18149 .17322
40............................................................ .21830 .20812 .19856 .18959 .18115
41............................................................ .22714 .21681 .20710 .19797 .18938
42............................................................ .23627 .22579 .21594 .20665 .19791
43............................................................ .24566 .23505 .22505 .21562 .20673
44............................................................ .25532 .24458 .23445 .22488 .21585
45............................................................ .26522 .25436 .24410 .23440 .22523
46............................................................ .27538 .26441 .25402 .24420 .23490
47............................................................ .28579 .27471 .26421 .25427 .24484
48............................................................ .29647 .28529 .27469 .26463 .25508
49............................................................ .30739 .29613 .28543 .27527 .26562
50............................................................ .31859 .30724 .29646 .28620 .27645
51............................................................ .33001 .31860 .30774 .29740 .28755
52............................................................ .34167 .33020 .31928 .30886 .29893
53............................................................ .35355 .34204 .33105 .32057 .31056
54............................................................ .36562 .35407 .34304 .33250 .32243
55............................................................ .37787 .36630 .35523 .34465 .33452
56............................................................ .39029 .37870 .36761 .35699 .34682
57............................................................ .40289 .39130 .38020 .36956 .35935
58............................................................ .41565 .40408 .39297 .38231 .37208
59............................................................ .42859 .41704 .40595 .39529 .38504
60............................................................ .44170 .43019 .41912 .40847 .39822
61............................................................ .45499 .44353 .43250 .42187 .41164
62............................................................ .46845 .45706 .44607 .43548 .42527
63............................................................ .48208 .47076 .45984 .44930 .43913
64............................................................ .49583 .48461 .47377 .46329 .45317
65............................................................ .50971 .49859 .48784 .47744 .46738
66............................................................ .52369 .51269 .50204 .49173 .48175
67............................................................ .53774 .52688 .51635 .50614 .49625
68............................................................ .55187 .54115 .53075 .52066 .51088
69............................................................ .56607 .55551 .54526 .53530 .52563
70............................................................ .58035 .56997 .55987 .55006 .54053
71............................................................ .59474 .58455 .57463 .56498 .55559
72............................................................ .60923 .59924 .58952 .58004 .57082
73............................................................ .62375 .61398 .60446 .59518 .58613
74............................................................ .63818 .62864 .61933 .61026 .60140
75............................................................ .65240 .64310 .63402 .62515 .61649
76............................................................ .66636 .65731 .64846 .63981 .63135
77............................................................ .68005 .67124 .66263 .65420 .64596
78............................................................ .69347 .68492 .67655 .66836 .66033
79............................................................ .70669 .69840 .69028 .68232 .67452
80............................................................ .71973 .71171 .70384 .69613 .68856
81............................................................ .73252 .72477 .71717 .70970 .70237
82............................................................ .74499 .73751 .73016 .72295 .71587
83............................................................ .75713 .74992 .74284 .73589 .72905
84............................................................ .76901 .76208 .75527 .74857 .74198
85............................................................ .78067 .77402 .76748 .76104 .75471
86............................................................ .79185 .78548 .77921 .77304 .76695
87............................................................ .80228 .79617 .79015 .78423 .77838
88............................................................ .81193 .80607 .80029 .79460 .78899
89............................................................ .82102 .81540 .80985 .80438 .79899
90............................................................ .82979 .82441 .81909 .81384 .80867
91............................................................ .83820 .83304 .82795 .82292 .81796
92............................................................ .84598 .84104 .83616 .83134 .82657
93............................................................ .85300 .84826 .84357 .83894 .83437
94............................................................ .85924 .85468 .85017 .84570 .84130
95............................................................ .86466 .86025 .85589 .85158 .84732
96............................................................ .86922 .86494 .86071 .85652 .85238
97............................................................ .87329 .86913 .86501 .86093 .85690
98............................................................ .87685 .87279 .86877 .86479 .86085
99............................................................ .88019 .87622 .87230 .86841 .86456
100........................................................... .88351 .87964 .87580 .87200 .86824
101........................................................... .88646 .88267 .87891 .87519 .87150
102........................................................... .88965 .88594 .88227 .87863 .87503
103........................................................... .89370 .89011 .88654 .88301 .87952
104........................................................... .89763 .89414 .89068 .88725 .88385
105........................................................... .90345 .90013 .89683 .89356 .89032
106........................................................... .91265 .90961 .90658 .90358 .90060
107........................................................... .92522 .92258 .91995 .91734 .91474
108........................................................... .94461 .94262 .94063 .93866 .93670
109........................................................... .97529 .97438 .97348 .97259 .97170
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .04653 .04447 .04262 .04095 .03946
1............................................................. .02937 .02720 .02525 .02351 .02194
2............................................................. .02994 .02769 .02567 .02385 .02221
3............................................................. .03094 .02860 .02650 .02460 .02290
4............................................................. .03216 .02973 .02755 .02558 .92380
5............................................................. .03359 .03106 .02879 .02674 .02488
6............................................................. .03517 .03255 .03019 .02805 .02612
7............................................................. .03688 .03416 .03171 .02949 .02747
8............................................................. .03874 .03592 .03337 .03106 .02896
[[Page 86]]
9............................................................. .04077 .03784 .03519 .03279 .03061
10............................................................ .04295 .03992 .03717 .03467 .03240
11............................................................ .04531 .04217 .03931 .03672 .03436
12............................................................ .04782 .04457 .04161 .03892 .02647
13............................................................ .05045 .04708 .04402 .04122 .03868
14............................................................ .05312 .04964 .04646 .04357 .04093
15............................................................ .05581 .05220 .04891 .04591 .04317
16............................................................ .05847 .05474 .05134 .04822 .04538
17............................................................ .06111 .05726 .05374 .05051 .04756
18............................................................ .06378 .05979 .05615 .05280 .04974
19............................................................ .06650 .06238 .05861 .05514 .05196
20............................................................ .06933 .06507 .06117 .05758 .05429
21............................................................ .07228 .06788 .06384 .06013 .05671
22............................................................ .07535 .07081 .06664 .06279 .05925
23............................................................ .07858 .07389 .06958 .06559 .06192
24............................................................ .08201 .07717 .07270 .06858 .06477
25............................................................ .08567 .08067 .07606 .07179 .06785
26............................................................ .08960 .08444 .07968 .07527 .07118
27............................................................ .09380 .08849 .08357 .07901 .07478
28............................................................ .09830 .09283 .08775 .08304 .07867
29............................................................ .10306 .09742 .09218 .08732 .08280
30............................................................ .10808 .10228 .09688 .09187 .08720
31............................................................ .11335 .10738 .10182 .09665 .09182
32............................................................ .11889 .11275 .10704 .10170 .09672
33............................................................ .12471 .11840 .11252 .10703 .10189
34............................................................ .13079 .12432 .11827 .11261 .10732
35............................................................ .13716 .13052 .12431 .11849 .11305
36............................................................ .14381 .13701 .13063 .12465 .11905
37............................................................ .15075 .14378 .13724 .13110 .12534
38............................................................ .15796 .15083 .14412 .13782 .13190
39............................................................ .16545 .15815 .15129 .14483 .13875
40............................................................ .17322 .16576 .15874 .15212 .14589
41............................................................ .18129 .17367 .16649 .15971 .15332
42............................................................ .18967 .18190 .17456 .16763 .16108
43............................................................ .19834 .19041 .18293 .17585 .16915
44............................................................ .20731 .19924 .19160 .18437 .17753
45............................................................ .21655 .20834 .20055 .19318 .18619
46............................................................ .22608 .21773 .20981 .20229 .19516
47............................................................ .23590 .22741 .21935 .21170 .20443
48............................................................ .24602 .23741 .22922 .22144 .21403
49............................................................ .25644 .24770 .23939 .23148 .22394
50............................................................ .26716 .25831 .24989 .24185 .23419
51............................................................ .27816 .26921 .26068 .25253 .24475
52............................................................ .28945 .28040 .27176 .26351 .25562
53............................................................ .30100 .29187 .28313 .27478 .26679
54............................................................ .31279 .30357 .29475 .28631 .27822
55............................................................ .32482 .31553 .30663 .29810 .28992
56............................................................ .33707 .32771 .31875 .31014 .30188
57............................................................ .34955 .34015 .33112 .32244 .31411
58............................................................ .36225 .35280 .34372 .33499 .32659
59............................................................ .37519 .36571 .35659 .34781 .33936
60............................................................ .38836 .37886 .36971 .36089 .35239
61............................................................ .40177 .39226 .38309 .37425 .36572
62............................................................ .41542 .40591 .39674 .38788 .37932
63............................................................ .42930 .41981 .41064 .40178 .39321
64............................................................ .44338 .43392 .42477 .41591 .40734
65............................................................ .45765 .44823 .43910 .43027 .42171
66............................................................ .47208 .46271 .45364 .44483 .43630
67............................................................ .48666 .47736 .46834 .45958 .45108
68............................................................ .50138 .49215 .48320 .47450 .46605
69............................................................ .51624 .50711 .49824 .48961 .48122
70............................................................ .53125 .52223 .51345 .50491 .49660
71............................................................ .54645 .53755 .52889 .52045 .51223
72............................................................ .56183 .55307 .54453 .53621 .52809
73............................................................ .57731 .56870 .56030 .55211 .54412
74............................................................ .59275 .58431 .57606 .56801 .56015
75............................................................ .60803 .59976 .59168 .58379 .57607
76............................................................ .62308 .61500 .60709 .59936 .59179
77............................................................ .63789 .63000 .62227 .61470 .60730
78............................................................ .65247 .64477 .63723 .62984 .62261
79............................................................ .66687 .65938 .65203 .64483 .63777
80............................................................ .68114 .67386 .66672 .65971 .65284
81............................................................ .69518 .68812 .68119 .67438 .66770
82............................................................ .70891 .70207 .69535 .68875 .68227
83............................................................ .72232 .71572 .70922 .70283 .69655
84............................................................ .73550 .72913 .72285 .71668 .71061
85............................................................ .74847 .74234 .73630 .73035 .72449
86............................................................ .76096 .75506 .74925 .74353 .73789
87............................................................ .77263 .76696 .76137 .75585 .75042
88............................................................ .78345 .77799 .77261 .76730 .76207
89............................................................ .79367 .78842 .78323 .77812 .77308
90............................................................ .80356 .79851 .79353 .78862 .78376
91............................................................ .81306 .80821 .80344 .79871 .79405
92............................................................ .82187 .81722 .81263 .80810 .80361
93............................................................ .82984 .82538 .82096 .81659 .81228
94............................................................ .83694 .83263 .82837 .82416 .81999
95............................................................ .84310 .83893 .83481 .83073 .82670
96............................................................ .84829 .84424 .84023 .83626 .83234
97............................................................ .85291 .84897 .84506 .84120 .83738
98............................................................ .85696 .85310 .84929 .84551 .84177
99............................................................ .86075 .85698 .85325 .84956 .84590
100........................................................... .86452 .86084 .85719 .85357 .85000
101........................................................... .86785 .86424 .86066 .85711 .85360
102........................................................... .87146 .86792 .86442 .86094 .85750
103........................................................... .87605 .87261 .86921 .86583 .86248
104........................................................... .88047 .87713 .87382 .87053 .86727
105........................................................... .88710 .88390 .88073 .87758 .87446
106........................................................... .89764 .89471 .89179 .88889 .88601
107........................................................... .91216 .90960 .90705 .90451 .90199
108........................................................... .93474 .93280 .93086 .92894 .92702
109........................................................... .97081 .96992 .96904 .96816 .96729
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
7.2% 7.4% 7.6% 7.8% 8.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .03811 .03689 .03579 .03479 .03388
1............................................................. .02052 .01924 .01809 .01704 .01609
2............................................................. .02074 .01940 .01819 .01710 .01611
3............................................................. .02136 .01996 .01870 .01756 .01652
4............................................................. .02219 .02074 .01942 .01822 .01713
5............................................................. .02321 .02169 .02031 .01905 .01791
6............................................................. .02437 .02278 .02134 .02003 .01883
7............................................................. .02565 .02399 .02248 .02111 .01986
8............................................................. .02706 .02533 .02376 .02232 .02101
9............................................................. .02863 .02682 .02518 .02367 .02230
10............................................................ .03034 .02846 .02674 .02517 .02373
11............................................................ .03221 .03025 .02846 .02682 .02532
12............................................................ .03424 .03219 .03032 .02861 .02704
13............................................................ .03635 .03422 .03228 .03049 .02885
14............................................................ .03851 .03630 .03427 .03240 .03069
15............................................................ .04066 .03836 .03624 .03430 .03252
16............................................................ .04277 .04037 .03817 .03615 .03429
17............................................................ .04485 .04236 .04007 .03796 .03602
[[Page 87]]
18............................................................ .04693 .04434 .04196 .03976 .03773
19............................................................ .04904 .04635 .04387 .04159 .03947
20............................................................ .05125 .04845 .04588 .04349 .04129
21............................................................ .05356 .05065 .04797 .04549 .04319
22............................................................ .05597 .05295 .05016 .04758 .04519
23............................................................ .05853 .05539 .05248 .04979 .04730
24............................................................ .06124 .05799 .05497 .05217 .04957
25............................................................ .06420 .06081 .05767 .05475 .05205
26............................................................ .06739 .06388 .06062 .05758 .05476
27............................................................ .07086 .06721 .06382 .06067 .05773
28............................................................ .07460 .07082 .06730 .06402 .06097
29............................................................ .07859 .07467 .07102 .06762 .06444
30............................................................ .08284 .07879 .07500 .07146 .06815
31............................................................ .08733 .08312 .07920 .07553 .07209
32............................................................ .09207 .08773 .08366 .07986 .07629
33............................................................ .09709 .09260 .08839 .08445 .08075
34............................................................ .10237 .09773 .09338 .08929 .08546
35............................................................ .10794 .10315 .09865 .09442 .09045
36............................................................ .11379 .10884 .10420 .09983 .09572
37............................................................ .11992 .11483 .11003 .10552 .10126
38............................................................ .12633 .12108 .11614 .11148 .10708
39............................................................ .13302 .12762 .12253 .11772 .11318
40............................................................ .14000 .13445 .12921 .12425 .11957
41............................................................ .14728 .14158 .13619 .13109 .12626
42............................................................ .15490 .14904 .14350 .13825 .13328
43............................................................ .16260 .15680 .15111 .145072 .14060
44............................................................ 17104 .16488 .15905 .15351 .14825
45............................................................ .17955 .17326 .16727 .16159 .15619
46............................................................ .18838 .18194 .17582 .16999 .16445
47............................................................ .19751 .19093 .18467 .17870 .17302
48............................................................ .20698 .20026 .19386 .18776 .18194
49............................................................ .21676 .20991 .20338 .19715 .19119
50............................................................ .22689 .21991 .21325 .20689 .20080
51............................................................ .23732 .23023 .22344 .21695 .21074
52............................................................ .24808 .24086 .23396 .22735 .22102
53............................................................ .25914 .25181 .24479 .23807 .24252
54............................................................ .27047 .26304 .25591 .24908 .25372
55............................................................ .28208 .27455 .26733 .26039 .25372
56............................................................ .29395 .28633 .37901 .27197 .26521
57............................................................ .30610 .29840 .29099 .28386 .27700
58............................................................ .31851 .31074 .30325 .29604 .28909
59............................................................ .33122 .32337 .31581 .30853 .30150
60............................................................ .34420 .33630 .32867 .32132 .31422
61............................................................ .35748 .34953 .34185 .33444 .32727
62............................................................ .37106 .36307 .35535 .34788 .34066
63............................................................ .38492 .37691 .36915 .36165 .35438
64............................................................ .39905 .39102 .38324 .37571 .36841
65............................................................ .41342 .40539 .39760 .39005 .38272
66............................................................ .42803 .42000 .41221 .40465 .39731
67............................................................ .44283 .43483 .42705 .41949 .41215
68............................................................ .45784 .44987 .44211 .43457 .42724
69............................................................ .47307 .46513 .45741 .44990 .44254
70............................................................ .48851 .48063 .47296 .46549 .45821
71............................................................ .50422 .49641 .48880 .48139 .47416
72............................................................ .52018 .51246 .50493 .49758 .49042
73............................................................ .53631 .52870 .52126 .51400 .50691
74............................................................ .55247 .54497 .53764 .53048 .52347
75............................................................ .56852 .56115 .55393 .54687 .53997
76............................................................ .58439 .57714 .57005 .56311 .55632
77............................................................ .60005 .59294 .58599 .57917 .57249
78............................................................ .61551 .60856 .60174 .59506 .58851
79............................................................ .63084 .62405 .61739 .61085 .60443
80............................................................ .64609 .63946 .63296 .62657 .62030
81............................................................ .66114 .65469 .64835 .64213 .63602
82............................................................ .67589 .66963 .66347 .65742 .65146
83............................................................ .60937 .68429 .67831 .67243 .66664
84............................................................ .70463 .69875 .69296 .68726 .68165
85............................................................ .71872 .71304 .70745 .70194 .69651
86............................................................ .73233 .72685 .72146 .71614 .71089
87............................................................ .74507 .73978 .73458 .72944 .72438
88............................................................ .75691 .75181 .74679 .74183 .73694
89............................................................ .76810 .76319 .75834 .75355 .74883
90............................................................ .77897 .77424 .76957 .76496 .76040
91............................................................ .78945 .78490 .78040 .77596 .77158
92............................................................ .79919 .79481 .79048 .78621 .78198
93............................................................ .80801 .80380 .79963 .79550 .79143
94............................................................ .81587 .81180 .80777 .80379 .79985
95............................................................ .82271 .81877 .81487 .81100 .80719
96............................................................ .82846 .82462 .82083 .81707 .81335
97............................................................ .83360 .82985 .82615 .82248 .81885
98............................................................ .33808 .83441 .83079 .82720 .82365
99............................................................ .84228 .83869 .83514 .83163 .82815
100........................................................... .84645 .84294 .83947 .83603 .83262
101........................................................... .85012 .84668 .84327 .83988 .83653
102........................................................... .85409 .85072 .84737 .84405 .84077
103........................................................... .85917 .85588 .85262 .84939 .84619
104........................................................... .86403 .86083 .85765 .85449 .85136
105........................................................... .87136 .86829 .86524 .86221 .85921
106........................................................... .88315 .88032 .87750 .87470 .87192
107........................................................... .89949 .89700 .89452 .89206 .88961
108........................................................... .92511 .92321 .92132 .91944 .91757
109........................................................... .96642 .96555 .96468 .96382 .96296
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .03305 .03230 .03161 .03098 .03040
1............................................................. .01523 .01444 .01372 .01307 .01247
2............................................................. .01520 .01438 .01362 .01294 .01230
3............................................................. .01557 .01470 .01391 .01319 .01253
4............................................................. .01613 .01522 .01439 .01363 .01294
5............................................................. .01687 .01591 .01504 .01424 .01351
6............................................................. .01774 .01674 .01582 .01498 .01421
7............................................................. .01871 .01766 .01670 .01581 .01500
8............................................................. .01980 .01870 .01769 .01676 .01591
9............................................................. .02104 .01989 .01883 .01785 .01695
10............................................................ .02241 .02120 .02009 .01906 .01812
11............................................................ .02394 .02267 .02150 .02042 .01943
12............................................................ .02560 .02427 .02305 .02192 .02088
13............................................................ .02734 .02595 .02467 .02349 .02240
14............................................................ .02912 .02766 .02632 .02509 .02394
15............................................................ .03087 .02935 .02795 .02666 .02546
16............................................................ .03257 .03099 .02952 .02817 .02691
17............................................................ .03423 .03257 .03104 .02962 .02831
18............................................................ .03586 .03414 .03253 .03105 .02967
19............................................................ .03752 .03572 .03404 .03249 .03105
20............................................................ .03925 .03737 .03562 .03399 .03248
21............................................................ .04107 .03910 .03727 .03557 .03398
22............................................................ .04297 .04091 .03899 .03722 .03556
23............................................................ .04498 .04283 .04083 .03897 .03723
24............................................................ .04715 .04491 .04282 .04087 .03905
25............................................................ .04953 .04718 .04499 .04295 .04105
26............................................................ .05213 .04968 .04740 .04527 .04327
[[Page 88]]
27............................................................ .05499 .05243 .05005 .04782 .04573
28............................................................ .05811 .05545 .05295 .05062 .04844
29............................................................ .06146 .05868 .05608 .05365 .05136
30............................................................ .06506 .06217 .05945 .05691 .05452
31............................................................ .06888 .06586 .06303 .06038 .05789
32............................................................ .07295 .06981 .06687 .06410 .06149
33............................................................ .07728 .07401 .07095 .06806 .06535
34............................................................ .08185 .07846 .07527 .07227 .06944
35............................................................ .08671 .08319 .07988 .07675 .07380
36............................................................ .09184 .08819 .08475 .08150 .07843
37............................................................ .09725 .09347 .08989 .08652 .08332
38............................................................ .10293 .09901 .09531 .09180 .08848
39............................................................ .10889 .10483 .10099 .09736 .09391
40............................................................ .11514 .11094 .10697 .10320 .09963
41............................................................ .12168 .11735 .11324 .10934 .10564
42............................................................ .12856 .12409 .11984 .11581 .11197
43............................................................ .13574 .13113 .12675 .12258 .11862
44............................................................ .14325 .13850 .13398 .12967 .12558
45............................................................ .15105 .14616 .14150 .13706 .13283
46............................................................ .15917 .15414 .14935 .14478 .14041
47............................................................ .16760 .16244 .15751 .15280 .14831
48............................................................ .17639 .17109 .16602 .16119 .15656
49............................................................ .18551 .18007 .17488 .16991 .16516
50............................................................ .19499 .18942 .18410 .17900 .17412
51............................................................ .20480 .19911 .19366 .18844 .18343
52............................................................ .21495 .20914 .20357 .19822 .19309
53............................................................ .22544 .21951 .21381 .20835 .20309
54............................................................ .23622 .23018 .22437 .21878 .21341
55............................................................ .24732 .24116 .23524 .22954 .22406
56............................................................ .25870 .25244 .24641 .24060 .23501
57............................................................ .27040 .26404 .25791 .25200 .24630
58............................................................ .28239 .27594 .26971 .26370 .25791
59............................................................ .29472 .28817 .28186 .27576 .26987
60............................................................ .30736 .30074 .29434 .28816 .28218
61............................................................ .32035 .31365 .30718 .30092 .29486
62............................................................ .33368 .32692 .32038 .31405 .30791
63............................................................ .34735 .34054 .33394 .32754 .32134
64............................................................ .36133 .35448 .34783 .34138 .33512
65............................................................ .37562 .36873 .36204 .35554 .34924
66............................................................ .39019 .38327 .37655 .37002 .36367
67............................................................ .40502 .39809 .39134 .38479 .37841
68............................................................ .42011 .41317 .40642 .39985 .39345
69............................................................ .43547 .42854 .42179 .41522 .40882
70............................................................ .45112 .44421 .43748 .43091 .42451
71............................................................ .46711 .46023 .45352 .44698 .44059
72............................................................ .48342 .47659 .46992 .46341 .45705
73............................................................ .49998 .49321 .48660 .48014 .47382
74............................................................ .51663 .50994 .50339 .49699 .49073
75............................................................ .53322 .52661 .52014 .51381 .50762
76............................................................ .54967 .54315 .53678 .53053 .52440
77............................................................ .56595 .55954 .55326 .54710 .54106
78............................................................ .58209 .57579 .56961 .56355 .55761
79............................................................ .59814 .59196 .58590 .57995 .57410
80............................................................ .61415 .60810 .60217 .59633 .59060
81............................................................ .63001 .62410 .61830 .61260 .60699
82............................................................ .64561 .63985 .63419 .62862 .62314
83............................................................ .66095 .65535 .64983 .64441 .63907
84............................................................ .67612 .67068 .66533 .66005 .65486
85............................................................ .69116 .68589 .68070 .67559 .67055
86............................................................ .70573 .70063 .69561 .69066 .68578
87............................................................ .71939 .71446 .70961 .70481 .70009
88............................................................ .73211 .72735 .72265 .71801 .71343
89............................................................ .74417 .73956 .73501 .73053 .72609
90............................................................ .75590 .75146 .74707 .74273 .73845
91............................................................ .76724 .76296 .75873 .75454 .75041
92............................................................ .77781 .77368 .76960 .76556 .76158
93............................................................ .78740 .78342 .77948 .77558 .77173
94............................................................ .79596 .79210 .78829 .78452 .78079
95............................................................ .80341 .79967 .79597 .79231 .78869
96............................................................ .80967 .80603 .80242 .79885 .79532
97............................................................ .81526 .81170 .80818 .80470 .80125
98............................................................ .82013 .81665 .81320 .80979 .80641
99............................................................ .82470 .82129 .81791 .81456 .81125
100........................................................... .82924 .82590 .82258 .81930 .81605
101........................................................... .83322 .82993 .82667 .82344 .82024
102........................................................... .83751 .83428 .83108 .82791 .82477
103........................................................... .84301 .83986 .83674 .83365 .83058
104........................................................... .84826 .84518 .84213 .83910 .83610
105........................................................... .85623 .85327 .85033 .84741 .84452
106........................................................... .86915 .86641 .86369 .86098 .85829
107........................................................... .88718 .88476 .88236 .87997 .87759
108........................................................... .91571 .91385 .91201 .91017 .90834
109........................................................... .96211 .96125 .96041 .95956 .95872
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
9.2% 9.4% 9.6% 9.8% 10.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02987 .02938 .02893 .02851 .02812
1............................................................. .01192 .01141 .01094 .01051 .01012
2............................................................. .01173 .01119 .01070 .01025 .00983
3............................................................. .01192 .01136 .01084 .01036 .00992
4............................................................. .01229 .01170 .01116 .01066 .01019
5............................................................. .01283 .01221 .01164 .01111 .01062
6............................................................. .01350 .01284 .01224 .01168 .01116
7............................................................. .01425 .01356 .01292 .01233 .01178
8............................................................. .01512 .01439 .01372 .01309 .01252
9............................................................. .01612 .01535 .01464 .01398 .01337
10............................................................ .01724 .01644 .01569 .01499 .01435
11............................................................ .01851 .01766 .01688 .01615 .01547
12............................................................ .01991 .01902 .01819 .01742 .01671
13............................................................ .02139 .02045 .01958 .01877 .01802
14............................................................ .02288 .02190 .02098 .02013 .01934
15............................................................ .02435 .02331 .02235 .02146 .02063
16............................................................ .02575 .02466 .02366 .02272 .02185
17............................................................ .02709 .02595 .02490 .02391 .02300
18............................................................ .02839 .02721 .02610 .02507 .02410
19............................................................ .02971 .02846 .02730 .02621 .02520
20............................................................ .03108 .02977 .02855 .02741 .02635
21............................................................ .03251 .03114 .02986 .02866 .02755
22............................................................ .03402 .03258 .03123 .02998 .02880
23............................................................ .03562 .03410 .03269 .03137 .03014
24............................................................ .03735 .03577 .03428 .03290 .03159
25............................................................ .03927 .03761 .03605 .03459 .03322
26............................................................ .04141 .03966 .03803 .03649 .03505
27............................................................ .04377 .04194 .04023 .03861 .03710
28............................................................ .04639 .04447 .04267 .04098 .03938
29............................................................ .04922 .04721 .04532 .04354 .04187
30............................................................ .05228 .05017 .04819 .04633 .04457
31............................................................ .05554 .05334 .05126 .04930 .04746
32............................................................ .05904 .05674 .05456 .05251 .05058
33............................................................ .06279 .06038 .05810 .05595 .05392
34............................................................ .06677 .06435 .06187 .05962 .05750
35............................................................ .07102 .06839 .06590 .06355 .06132
[[Page 89]]
36............................................................ .07553 .07278 .07019 .06773 .06540
37............................................................ .08030 .07745 .07474 .07217 .06974
38............................................................ .08534 .08237 .07955 .07687 .07433
39............................................................ .09065 .08755 .08462 .08182 .07917
40............................................................ .09624 .09302 .08996 .08706 .08429
41............................................................ .10212 .09878 .09560 .09258 .08970
42............................................................ .10833 .10486 .10156 .09842 .09543
43............................................................ .11484 .11125 .10783 .10456 .10145
44............................................................ .12167 .11795 .11441 .11102 .10779
45............................................................ .12880 .12495 .12128 .11777 .11442
46............................................................ .13625 .13227 .12847 .12484 .12137
47............................................................ .14402 .13991 .13599 .13223 .12863
48............................................................ .15214 .14791 .14385 .13997 .13626
49............................................................ .16060 .15625 .15207 .14806 .14422
50............................................................ .16944 .16496 .16065 .15653 .15257
51............................................................ .17862 .17401 .16959 .16534 .16126
52............................................................ .18816 .18343 .17888 .17451 .17031
53............................................................ .19805 .19320 .18853 .18404 .17972
54............................................................ .20825 .20328 .19850 .19390 .18946
55............................................................ .21878 .21370 .20881 .20409 .19954
56............................................................ .22963 .22443 .21943 .21460 .20994
57............................................................ .24081 .23551 .23040 .22546 .22069
58............................................................ .25231 .24691 .24170 .23665 .23178
59............................................................ .26418 .25868 .25336 .24822 .24325
60............................................................ .27640 .27081 .26540 .26016 .25509
61............................................................ .28899 .28332 .27782 .27249 .26733
62............................................................ .30197 .29622 .29064 .28523 .27998
63............................................................ .31533 .30950 .30385 .29836 .29304
64............................................................ .32905 .32316 .31743 .31188 .30648
65............................................................ .34311 .33716 .33138 .32576 .32030
66............................................................ .35751 .35151 .34568 .34001 .33449
67............................................................ .37221 .36618 .36030 .35459 .34902
68............................................................ .38723 .38116 .37526 .36950 .36390
69............................................................ .40257 .39649 .39056 .38478 .37914
70............................................................ .41826 .41217 .40623 .40043 .39478
71............................................................ .43435 .42827 .42233 .41652 .41086
72............................................................ .45084 .44478 .43885 .43305 .42739
73............................................................ .46765 .46161 .45571 .44994 .44429
74............................................................ .48460 .47861 .47274 .46700 .46138
75............................................................ .50155 .49561 .48979 .48409 .47851
76............................................................ .51841 .51253 .50677 .50112 .49559
77............................................................ .53514 .52934 .52364 .51806 .51258
78............................................................ .55177 .54605 .54043 .53492 .52951
79............................................................ .56837 .56273 .55720 .55177 .54643
80............................................................ .58497 .57944 .57401 .56866 .56341
81............................................................ .60148 .59606 .59073 .58548 .58033
82............................................................ .61775 .61245 .60723 .60210 .59705
83............................................................ .63381 .62863 .62354 .61852 .61358
84............................................................ .64974 .64470 .63973 .63484 .63002
85............................................................ .66558 .66068 .65586 .65110 .64641
86............................................................ .68096 .67622 .67154 .66692 .66236
87............................................................ .69542 .69082 .68628 .68180 .67738
88............................................................ .70891 .70445 .70005 .69570 .69141
89............................................................ .72172 .71739 .71312 .70891 .70474
90............................................................ .73422 .73004 .72591 .72182 .71779
91............................................................ .74632 .74229 .73829 .73435 .73045
92............................................................ .75763 .75373 .74988 .74606 .74229
93............................................................ .76791 .76414 .76042 .75673 .75308
94............................................................ .77710 .77345 .76983 .76626 .76272
95............................................................ .78510 .78155 .77804 .77457 .77113
96............................................................ .79183 .78837 .78494 .78155 .77819
97............................................................ .79783 .79445 .79110 .78779 .78450
98............................................................ .80306 .79975 .79647 .79322 .79000
99............................................................ .80797 .80471 .80149 .79830 .79514
100........................................................... .81283 .80964 .80648 .80335 .80025
101........................................................... .81708 .81394 .81082 .80774 .80468
102........................................................... .82165 .81856 .81550 .81247 .80946
103........................................................... .82754 .82452 .82153 .81857 .81563
104........................................................... .83312 .83017 .82723 .82433 .82144
105........................................................... .84165 .83880 .83597 .83316 .83038
106........................................................... .85562 .85297 .85034 .84772 .84512
107........................................................... .87523 .87288 .87054 .86822 .86591
108........................................................... .90652 .90471 .90291 .90111 .89932
109........................................................... .95788 .95704 .95620 .95537 .95455
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02776 .02743 .02712 .02682 .02655
1............................................................. .00975 .00941 .00909 .00880 .00852
2............................................................. .00945 .00909 .00875 .00844 .00816
3............................................................. .00952 .00914 .00879 .00846 .00815
4............................................................. .00976 .00936 .00899 .00865 .00832
5............................................................. .01016 .00974 .00935 .00898 .00864
6............................................................. .01068 .01023 .00981 .00943 .00907
7............................................................. .01128 .01080 .01036 .00995 .00957
8............................................................. .01198 .01148 .01101 .01058 .01017
9............................................................. .01281 .01228 .01179 .01133 .01090
10............................................................ .01375 .01319 .01267 .01219 .01173
11............................................................ .01483 .01425 .01370 .01318 .01270
12............................................................ .01604 .01542 .01484 .01430 .01379
13............................................................ .01732 .01666 .01605 .01548 .01494
14............................................................ .01860 .01792 .01727 .01667 .01610
15............................................................ .01986 .01913 .01845 .01782 .01723
16............................................................ .02103 .02027 .01956 .01889 .01827
17............................................................ .02214 .02134 .02059 .01989 .01923
18............................................................ .02320 .02236 .02157 .02084 .02014
19............................................................ .02426 .02337 .02254 .02177 .02104
20............................................................ .02536 .02442 .02355 .02273 .02197
21............................................................ .02650 .02552 .02460 .02374 .02293
22............................................................ .02770 .02667 .02570 .02479 .02394
23............................................................ .02898 .02789 .02687 .02591 .02501
24............................................................ .03037 .02923 .02815 .02714 .02619
25............................................................ .03194 .03073 .02960 .02853 .02752
26............................................................ .03370 .03243 .03123 .03010 .02904
27............................................................ .03568 .03434 .03307 .03188 .03076
28............................................................ .03789 .03647 .03514 .03389 .03271
29............................................................ .04029 .03880 .03740 .03608 .03483
30............................................................ .04291 .04135 .03987 .03848 .03716
31............................................................ .04572 .04407 .04252 .04105 .03966
32............................................................ .04875 .04702 .04538 .04384 .04237
33............................................................ .05200 .05019 .04847 .04684 .04530
34............................................................ .05548 .05358 .05177 .05006 .04843
35............................................................ .05921 .05722 .05532 .05352 .05181
36............................................................ .06319 .06110 .05911 .05722 .05543
37............................................................ .06743 .06524 .06315 .06117 .05929
38............................................................ .07191 .06962 .06744 .06536 .06338
39............................................................ .07665 .074425 .07197 .06980 .06773
40............................................................ .08166 .07916 .07677 .07450 .07233
41............................................................ .08696 .08434 .08185 .07947 .07721
42............................................................ .09257 .08985 .08725 .08477 .08239
43............................................................ .09848 .09564 .09293 .09034 .08787
44............................................................ .10470 .10175 .09893 .09623 .09365
[[Page 90]]
45............................................................ .11121 .10815 .10522 .10241 .09972
46............................................................ .11805 .11486 .11182 .10890 .10610
47............................................................ .12519 .12189 .11873 .11569 .11279
48............................................................ .13269 .12927 .12600 .12285 .11983
49............................................................ .14054 .13600 .13361 .13035 .12721
50............................................................ .14876 .14511 .14160 .13822 .13497
51............................................................ .15734 .15356 .14994 .14645 .14309
52............................................................ .16627 .16238 .15864 .15504 .15156
53............................................................ .17557 .17156 .16770 .16399 .16040
54............................................................ .18519 .18107 .17710 .17327 .16957
55............................................................ .19515 .19092 .18684 .18290 .17909
56............................................................ .20544 .20110 .19691 .19286 .18894
57............................................................ .21609 .21164 .20734 .20318 .19916
58............................................................ .22707 .22252 .21811 .21385 .20972
59............................................................ .23844 .23378 .22928 .22491 .22068
60............................................................ .25018 .24543 .24082 .23636 .23203
61............................................................ .26233 .25749 .25279 .24823 .24381
62............................................................ .27490 .26996 .26517 .26052 .25601
63............................................................ .28787 .28286 .27798 .27325 .26865
64............................................................ .30124 .29615 .29120 .28639 .28171
65............................................................ .31500 .30983 .30481 .29993 .29517
66............................................................ .32912 .32390 .31881 .31386 .30904
67............................................................ .34360 .33832 .33318 .32817 .32328
68............................................................ .35843 .35311 .34791 .34285 .33791
69............................................................ .37365 .36828 .36305 .35794 .35296
70............................................................ .38925 .38386 .37860 .37346 .36844
71............................................................ .40532 .39991 .39463 .38946 .38442
72............................................................ .42185 .41644 .41115 .40597 .40091
73............................................................ .43876 .43336 .42807 .42289 .41782
74............................................................ .45588 .45050 .44522 .44005 .43499
75............................................................ .47304 .46769 .46244 .45729 .45225
76............................................................ .49016 .48485 .47963 .47451 .46949
77............................................................ .50721 .50193 .49676 .49168 .48670
78............................................................ .52419 .51898 .51385 .50882 .50388
79............................................................ .54119 .53604 .53097 .52600 .52111
80............................................................ .55825 .55318 .54819 .54328 .53846
81............................................................ .57526 .57027 .56536 .56053 .55578
82............................................................ .59208 .58718 .58236 .57762 .57295
83............................................................ .60871 .60392 .59920 .59455 .58997
84............................................................ .62527 .62059 .61597 .61143 .60695
85............................................................ .64179 .63723 .63273 .62830 .62393
86............................................................ .65787 .65344 .64907 .64475 .64050
87............................................................ .67302 .66871 .66446 .66026 .65612
88............................................................ .68717 .68298 .67885 .67477 .67074
89............................................................ .70063 .69656 .69255 .68858 .68466
90............................................................ .71380 .70986 .70597 .70212 .69831
91............................................................ .72659 .72278 .71901 .71528 .71160
92............................................................ .73856 .73488 .73123 .72762 .72405
93............................................................ .74947 .74590 .74236 .73887 .73541
94............................................................ .75922 .75575 .75233 .74893 .74557
95............................................................ .76773 .76436 .76102 .75772 .75445
96............................................................ .77487 .77158 .76832 .76510 .76190
97............................................................ .78125 .77803 .77485 .77169 .76856
98............................................................ .78681 .78365 .78052 .77742 .77435
99............................................................ .79201 .78891 .78583 .78279 .77977
100........................................................... .79717 .79412 .79111 .78811 .78515
101........................................................... .80165 .79865 .79568 .79273 .78981
102........................................................... .80648 .80353 .80060 .79769 .79481
103........................................................... .81271 .80982 .80695 .80411 .80129
104........................................................... .81858 .81574 .81292 .81013 .80736
105........................................................... .83761 .82487 .82214 .81943 .81675
106........................................................... .84254 .83998 .83743 .83490 .83238
107........................................................... .86362 .86133 .85906 .85681 .85456
108........................................................... .89755 .89577 .89401 .89226 .89051
109........................................................... .95372 .95290 .95208 .95126 .95045
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
11.2% 11.4% 11.6% 11.8% 12.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02630 .02606 .02583 .02562 .02542
1............................................................. .00827 .00803 .00780 .00759 .00739
2............................................................. .00789 .00763 .00740 .00718 .00697
3............................................................. .00787 .00760 .00736 .00712 .00690
4............................................................. .00802 .00774 .00748 .00723 .00700
5............................................................. .00832 .00802 .00774 .00748 .00724
6............................................................. .00873 .00841 .00812 .00784 .00758
7............................................................. .00921 .00888 .00856 .00827 .00799
8............................................................. .00979 .00944 .00910 .00879 .00850
9............................................................. .01049 .01012 .00976 .00943 .00912
10............................................................ .01131 .01091 .01053 .01018 .00985
11............................................................ .01225 .01183 .01143 .01106 .01070
12............................................................ .01331 .01286 .01244 .01205 .01168
13............................................................ .01444 .01397 .01352 .01311 .01271
14............................................................ .01558 .01508 .01461 .01417 .01375
15............................................................ .01667 .01614 .01565 .01519 .01475
16............................................................ .01768 .01713 .01661 .01612 .01566
17............................................................ .01862 .01803 .01749 .01697 .01649
18............................................................ .01949 .01888 .01831 .01776 .01725
19............................................................ .02035 .01971 .01910 .01853 .01799
20............................................................ .02124 .02056 .01992 .01932 .01875
21............................................................ .02217 .02145 .02078 .02014 .01954
22............................................................ .02313 .02238 .02166 .02099 .02035
23............................................................ .02416 .02336 .02261 .02190 .02122
24............................................................ .02529 .02445 .02365 .02290 .02218
25............................................................ .02657 .02568 .02484 .02404 .02328
26............................................................ .02804 .02710 .02620 .02536 .02456
27............................................................ .02970 .02870 .02776 .02686 .02601
28............................................................ .03159 .03053 .02953 .02858 .02768
29............................................................ .03365 .03253 .03147 .03047 .02951
30............................................................ .03591 .03473 .03361 .03255 .03154
31............................................................ .03834 .03709 .03591 .03478 .03372
32............................................................ .04098 .03966 .03841 .03722 .03610
33............................................................ .04383 .04244 .04112 .03987 .03867
34............................................................ .04689 .04543 .04403 .04271 .04145
35............................................................ .05019 .04865 .04718 .04578 .04445
36............................................................ .05372 .05210 .05055 .04907 .04767
37............................................................ .05749 .05578 .05416 .05260 .05112
38............................................................ .06150 .05970 .05799 .05636 .05480
39............................................................ .06575 .06387 .06207 .06035 .05871
40............................................................ .07026 .06828 .06639 .06459 .06286
41............................................................ .07504 .07297 .07099 .06909 .06728
42............................................................ .08013 .07796 .07589 .07390 .07200
43............................................................ .08550 .08323 .08106 .07898 .07699
44............................................................ .09118 .08881 .08654 .08437 .08228
45............................................................ .09714 .09467 .09230 .09003 .08784
46............................................................ .10341 .10084 .09837 .09599 .09371
47............................................................ .10999 .10731 .10473 .10226 .09988
48............................................................ .11693 .11414 .11145 .10888 .10639
49............................................................ .12420 .12130 .11852 .11583 .11325
50............................................................ .13185 .12884 .12595 .12316 .12047
51............................................................ .13985 .13674 .13373 .13084 .12805
52............................................................ .14822 .14499 .14188 .13888 .13598
53............................................................ .15695 .15361 .15039 .14729 .14428
54............................................................ .16601 .16256 .15924 .15602 .15292
55............................................................ .17542 .17186 .16843 .16511 .16190
56............................................................ .18516 .18150 .17796 .17454 .17122
57............................................................ .19527 .19150 .18786 .18433 .18091
58............................................................ .20573 .20186 .19811 .19448 .19096
59............................................................ .21659 .21262 .20877 .20504 .20142
60............................................................ .22784 .22377 .21982 .21599 .21227
61............................................................ .23952 .23535 .23131 .22738 .22357
62............................................................ .25163 .24737 .24324 .23922 .23531
63............................................................ .26418 .25984 .25561 .25151 .24751
64............................................................ .27716 .27273 .26842 .26423 .26015
65............................................................ .29054 .28604 .28165 .27738 .27322
[[Page 91]]
66............................................................ .30434 .29976 .29530 .29096 .28672
67............................................................ .31852 .31388 .30935 .30494 .30063
68............................................................ .33310 .32840 .32381 .31933 .31496
69............................................................ .34809 .34334 .33870 .33417 .32975
70............................................................ .36353 .35874 .35405 .34948 .34500
71............................................................ .37948 .37466 .36994 .36532 .36081
72............................................................ .39595 .39111 .38636 .38172 .37718
73............................................................ .41286 .40801 .40325 .39859 .39403
74............................................................ .43004 .42518 .42042 .41575 .41118
75............................................................ .44730 .44245 .43770 .43304 .42846
76............................................................ .46457 .45974 .45500 .45035 .44579
77............................................................ .48181 .47700 .47229 .46766 .46311
78............................................................ .49903 .49426 .48958 .48497 .48045
79............................................................ .51631 .51159 .50694 .50238 .49789
80............................................................ .53371 .52905 .52446 .51994 .51550
81............................................................ .55110 .54650 .54197 .53752 .53313
82............................................................ .56835 .56382 .55937 .55497 .55065
83............................................................ .58546 .58101 .57663 .57231 .56806
84............................................................ .60253 .59817 .59388 .58965 .58547
85............................................................ .61961 .61536 .61116 .60703 .60294
86............................................................ .63630 .63215 .62806 .62402 .62004
87............................................................ .65203 .64800 .64401 .64007 .63619
88............................................................ .66676 .66282 .65894 .65510 .65131
89............................................................ .68079 .67696 .67318 .66944 .66574
90............................................................ .69455 .69084 .68716 .68353 .67993
91............................................................ .70795 .70435 .70078 .69726 .69377
92............................................................ .72052 .71703 .71357 .71015 .70677
93............................................................ .73198 .72860 .72524 .72192 .71864
94............................................................ .74225 .73896 .73570 .73248 .72928
95............................................................ .75121 .74801 .74483 .74169 .73858
96............................................................ .75874 .75561 .75250 .74943 .74639
97............................................................ .76546 .76240 .75936 .75635 .75336
98............................................................ .77131 .76830 .76531 .76235 .75942
99............................................................ .77678 .77382 .77088 .76798 .76509
100........................................................... .78221 .77930 .77642 .77356 .77072
101........................................................... .78691 .78404 .78119 .77837 .77557
102........................................................... .79196 .78912 .78632 .78353 .78077
103........................................................... .79849 .79572 .79297 .79024 .78753
104........................................................... .80460 .80188 .79917 .79648 .79381
105........................................................... .81408 .81143 .80881 .80620 .80361
106........................................................... .82989 .82740 .82494 .82249 .82006
107........................................................... .85233 .85012 .84791 .84572 .84353
108........................................................... .88877 .88704 .88532 .88361 .88190
109........................................................... .94964 .94883 .94803 .94723 .94643
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02523 .02505 .02488 .02472 .02456
1............................................................. .00721 .00703 .00687 .00671 .00657
2............................................................. .00678 .00659 .00642 .00626 .00610
3............................................................. .00670 .00650 .00632 .00615 .00599
4............................................................. .00678 .00658 .00638 .00620 .00603
5............................................................. .00701 .00679 .00658 .00639 .00620
6............................................................. .00733 .00710 .00688 .00668 .00648
7............................................................. .00733 .00748 .00725 .00703 .00682
8............................................................. .00822 .00796 .00771 .00748 .00726
9............................................................. .00882 .00854 .00828 .00803 .00780
10............................................................ .00953 .00924 .00896 .00869 .00844
11............................................................ .01037 .01006 .00976 .00948 .00922
12............................................................ .01132 .01099 .01068 .01038 .01010
13............................................................ .01234 .01199 .01166 .01134 .01104
14............................................................ .01336 .01299 .01264 .01231 .01199
15............................................................ .01434 .01395 .01358 .01323 .01289
16............................................................ .01522 .01481 .01442 .01405 .01371
17............................................................ .01603 .01559 .01518 .01480 .01443
18............................................................ .01677 .01631 .01588 .01547 .01508
19............................................................ .01748 .01700 .01654 .01611 .01570
20............................................................ .01821 .01770 .01722 .01677 .01633
21............................................................ .01897 .01843 .01792 .01744 .01698
22............................................................ .01975 .01918 .01864 .01813 .01765
23............................................................ .02059 .01998 .01941 .01887 .01836
24............................................................ .02151 .02087 .02027 .01970 .01915
25............................................................ .02257 .02189 .02125 .02064 .02006
26............................................................ .02380 .02308 .02240 .02175 .02114
27............................................................ .02521 .02445 .02373 .02304 .02239
28............................................................ .02683 .02602 .02525 .02452 .02383
29............................................................ .02861 .02775 .02694 .02616 .02543
30............................................................ .03058 .02967 .02881 .02798 .02720
31............................................................ .03270 .03174 .03082 .02995 .02911
32............................................................ .03502 .03400 .03303 .03210 .03122
33............................................................ .03754 .03646 .03543 .03444 .03350
34............................................................ .04025 .03910 .03801 .03697 .03597
35............................................................ .04318 .04197 .04081 .03971 .03865
36............................................................ .04633 .04505 .04383 .04266 .04154
37............................................................ .04971 .04836 .04707 .04583 .04465
38............................................................ .05331 .05188 .05052 .04922 .04797
39............................................................ .05714 .05564 .05420 .05282 .05150
40............................................................ .06121 .05963 .05812 .05667 .05528
41............................................................ .06554 .06388 .06229 .06076 .05929
42............................................................ .07018 .06843 .06675 .06514 .06360
43............................................................ .07508 .07324 .07148 .06979 .06817
44............................................................ .08028 .07325 .07651 .07473 .07303
45............................................................ .08575 .08373 .08180 .07993 .07814
46............................................................ .09152 .08941 .08738 .08543 .08355
47............................................................ .09759 .09539 .09326 .09122 .08926
48............................................................ .10401 .10171 .09949 .09735 .09530
49............................................................ .11076 .10836 .10605 .10382 .10167
50............................................................ .11788 .11538 .11297 .11065 .10840
51............................................................ .12535 .12276 .12025 .11782 .11548
52............................................................ .13319 .13049 .12788 .12536 .12292
53............................................................ .14139 .13858 .13588 .13326 .13072
54............................................................ .14992 .14701 .14420 .14149 .13885
55............................................................ .15880 .15579 .15288 .15006 .14733
56............................................................ .16801 .16491 .16190 .15898 .15615
57............................................................ .17760 .17439 .17128 .16827 .16534
58............................................................ .18755 .18424 .18103 .17792 .17489
59............................................................ .19790 .19450 .19119 .18798 .18486
60............................................................ .20866 .20516 .20175 .19844 .19523
61............................................................ .21986 .21626 .21276 .20936 .20605
62............................................................ .23151 .22782 .22423 .22073 .21733
63............................................................ .24362 .23984 .23616 .23257 .22908
64............................................................ .25617 .25231 .24854 .24487 .24129
65............................................................ .26917 .26522 .26137 .25761 .25395
66............................................................ .28259 .27857 .27464 .27081 .26707
67............................................................ .29643 .29233 .28833 .28443 .38061
68............................................................ .31070 .30653 .30246 .29849 .29461
69............................................................ .32542 .32120 .31707 .31303 .30908
70............................................................ .34063 .33635 .33217 .32807 .32407
71............................................................ .35639 .35207 .34784 .34370 .33965
72............................................................ .37273 .36837 .36410 .35993 .35583
73............................................................ .38955 .38517 .38088 .37667 .37255
74............................................................ .40670 .40230 .39799 .39377 .38962
[[Page 92]]
75............................................................ .42398 .41958 .41526 .41102 .40686
76............................................................ .44131 .43691 .43259 .42825 .42419
77............................................................ .45864 .45425 .44994 .44571 .44155
78............................................................ .47601 .47164 .46734 .46312 .45897
79............................................................ .49348 .48914 .48487 .48067 .47654
80............................................................ .51112 .50682 .50259 .49842 .49432
81............................................................ .52881 .52455 .52036 .51624 .51218
82............................................................ .54639 .54219 .53805 .53398 .52996
83............................................................ .56386 .55973 .55566 .55164 .54768
84............................................................ .58136 .57730 .57329 .56934 .56545
85............................................................ .59891 .59494 .59102 .58715 .58333
86............................................................ .61610 .61222 .60839 .60460 .60086
87............................................................ .62335 .62856 .62481 .62111 .61746
88............................................................ .64757 .64386 .64021 .63659 .63302
89............................................................ .66209 .65848 .65491 .65139 .64790
90............................................................ .67638 .67287 .66939 .66596 .66256
91............................................................ .69032 .68691 .68353 .68019 .67689
92............................................................ .70342 .70011 .69683 .69359 .69038
93............................................................ .71539 .71217 .70899 .70584 .70271
94............................................................ .72612 .72299 .71989 .71683 .71379
95............................................................ .73550 .43245 .72943 .72643 .72347
96............................................................ .74337 .74039 .73743 .73450 .73160
97............................................................ .75041 .74748 .74458 .74171 .73886
98............................................................ .74652 .75364 .75079 .74797 .74517
99............................................................ .76224 .75941 .75660 .75382 .75106
100........................................................... .76791 .76513 .76237 .75963 .75692
101........................................................... .77280 .77005 .76732 .67462 .76194
102........................................................... .77804 .77532 .77263 .76996 .76732
103........................................................... .78485 .78218 .77954 .77692 .77432
104........................................................... .79117 .78854 .78594 .78335 .78078
105........................................................... .80103 .79848 .78595 .79343 .79093
106........................................................... .81764 .81524 .81285 .81048 .80813
107........................................................... .84137 .93921 .83706 .83493 .83281
108........................................................... .88020 .87851 .87682 .87515 .87348
109........................................................... .94563 .94484 .94405 .94326 .94248
----------------------------------------------------------------------------------------------------------------
Table G
Table G--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Pooled Income Fund Having the Yearly Rate of Return Shown--Applicable for Transfers After November 30,
1983, and Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Yearly rate of return
(1) Age -------------------------------------------------
13.2% 13.4% 13.6% 13.8% 14.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02442 .02428 .02414 .02402 .02389
1............................................................. .00643 .00629 .00617 .00605 .00594
2............................................................. .00596 .00582 .00569 .00556 .00544
3............................................................. .00583 .00569 .00555 .00542 .00529
4............................................................. .00586 .00571 .00556 .00542 .00529
5............................................................. .00603 .00587 .00571 .00556 .00542
6............................................................. .00630 .00612 .00595 .00580 .00565
7............................................................. .00663 .00644 .00626 .00610 .00594
8............................................................. .00705 .00685 .00666 .00648 .00631
9............................................................. .00757 .00736 .00716 .00697 .00679
10............................................................ .00821 .00798 .00777 .00756 .00737
11............................................................ .00896 .00872 .00850 .00828 .00807
12............................................................ .00983 .00958 .00934 .00911 .00889
13............................................................ .01076 .01049 .01024 .00999 .00976
14............................................................ .01170 .01141 .01114 .01088 .01064
15............................................................ .01258 .01228 .01200 .01172 .01147
16............................................................ .01337 .01306 .01276 .01247 .01220
17............................................................ .01408 .01375 .01343 .01313 .01284
18............................................................ .01471 .01436 .01403 .01371 .01341
19............................................................ .01531 .01494 .01459 .01426 .01394
20............................................................ .01592 .01553 .01516 .01481 .01447
21............................................................ .01655 .01614 .01574 .01537 .01502
22............................................................ .01719 .01675 .01634 .01594 .01557
23............................................................ .01787 .01741 .01697 .01655 .01615
24............................................................ .01863 .01814 .01768 .01723 .01681
25............................................................ .01952 .01899 .01850 .01802 .01757
26............................................................ .02056 .02000 .01947 .01897 .01849
27............................................................ .02177 .02118 .02061 .02008 .01956
28............................................................ .02317 .02254 .02194 .02137 .02082
29............................................................ .02472 .02405 .02342 .02281 .02223
30............................................................ .02645 .02574 .02506 .02441 .02379
31............................................................ .02832 .02756 .02684 .02615 .02549
32............................................................ .03037 .02957 .02880 .02806 .02736
33............................................................ .03261 .03175 .03093 .03015 .02940
34............................................................ .03502 .03411 .03324 .03241 .03162
35............................................................ .03764 .03668 .03576 .03488 .03403
36............................................................ .04048 .03945 .03847 .03754 .03664
37............................................................ .04352 .04244 .04140 .04040 .03945
38............................................................ .04677 .04563 .04453 .04347 .04246
39............................................................ .05024 .04903 .04787 .04675 .04568
40............................................................ .05394 .05266 .05143 .05025 .04912
41............................................................ .05789 .05653 .05524 .05399 .05279
42............................................................ .06212 .06069 .05932 .05800 .05674
43............................................................ .06661 .06511 .06366 .06227 .06093
44............................................................ .07138 .06980 .06828 .06682 .06541
45............................................................ .07642 .07476 .07316 .07162 .07013
46............................................................ .08174 .08000 .07832 .07670 .07514
47............................................................ .08736 .08553 .08377 .08207 .08042
48............................................................ .09331 .09140 .08955 .08776 .08604
49............................................................ .09959 .09759 .09565 .09378 .09198
50............................................................ .10624 .10414 .10212 .10016 .09827
51............................................................ .11322 .11104 .10892 .10688 .10490
52............................................................ .12057 .11829 .11608 .11395 .11188
53............................................................ .12827 .12590 .12360 .12138 .11922
54............................................................ .13631 .13384 .13145 .12913 .12689
55............................................................ .14469 .14213 .13964 .13724 .13490
56............................................................ .15341 .15075 .14817 .14567 .14324
57............................................................ .16250 .15975 .15708 .15448 .15196
58............................................................ .17196 .16911 .16634 .16365 .16104
59............................................................ .18183 .17888 .17602 .17324 .17053
60............................................................ .19210 .18906 .18611 .18323 .18043
61............................................................ .20283 .19970 .19665 .19368 .19079
62............................................................ .21402 .21079 .20766 .20460 .20162
63............................................................ .22568 .22237 .21914 .21600 .21293
64............................................................ .23780 .23440 .23109 .22786 .22471
65............................................................ .25038 .24690 .24350 .24019 .23695
66............................................................ .26342 .25986 .25638 .25298 .24967
67............................................................ .27689 .27325 .26970 .26623 .26284
68............................................................ .29081 .28711 .28248 .27994 .27647
69............................................................ .30523 .30145 .29776 .29415 .29062
70............................................................ .32015 .31632 .31257 .30890 .30530
71............................................................ .33568 .33179 .32799 .32426 .32061
72............................................................ .35182 .34789 .34404 .34027 .33657
73............................................................ .36851 .36455 .36066 .35685 .35311
74............................................................ .38555 .38156 .37765 .37381 .37004
75............................................................ .40278 .39877 .39484 .39098 .38710
76............................................................ .42010 .41608 .41213 .40826 .40445
77............................................................ .43746 .43344 .42949 .42561 .42179
78............................................................ .45489 .45088 .44693 .44305 .43923
79............................................................ .47248 .46848 .46454 .46067 .45686
80............................................................ .49028 .48631 .48240 .47854 .47475
82............................................................ .50818 .50423 .50035 .49653 .59276
82............................................................ .52600 .52210 .51826 .51447 .51074
83............................................................ .54377 .53992 .53613 .53238 .52869
[[Page 93]]
84............................................................ .56160 .55781 .55407 .55038 .54674
85............................................................ .57956 .57584 .57216 .56854 .56496
86............................................................ .59717 .59353 .58993 .58638 .58287
87............................................................ .61385 .61028 .60676 .60328 .59984
88............................................................ .62950 .62601 .62256 .61915 .61578
89............................................................ .64445 .64104 .63767 .63434 .63105
90............................................................ .65920 .65588 .65259 .64934 .64612
91............................................................ .67362 .67039 .66719 .66402 .66089
92............................................................ .68720 .68405 .68094 .67786 .67481
93............................................................ .69962 .69657 .69354 .69054 .68757
94............................................................ .71078 .70780 .70485 .70193 .69903
95............................................................ .72053 .71763 .71475 .71189 .70906
96............................................................ .72872 .72587 .72305 .72026 .71748
97............................................................ .73604 .73325 .73048 .72773 .72501
98............................................................ .74239 .73964 .73692 .73422 .73154
99............................................................ .74833 .74562 .74294 .74028 .73764
100........................................................... .75423 .75156 .74892 .74630 .74370
101........................................................... .75928 .75664 .75403 .75144 .74887
102........................................................... .76469 .76209 .75950 .75694 .75440
103........................................................... .77174 .76918 .76664 .76413 .76163
104........................................................... .77824 .77571 .77320 .77071 .76824
105........................................................... .78845 .78599 .78354 .78111 .77870
106........................................................... .80579 .80346 .80115 .79885 .79657
107........................................................... .83070 .82860 .82652 .82444 .82238
108........................................................... .87182 .87016 .86852 .86688 .86525
109........................................................... .94170 .94092 .94014 .93937 .93860
----------------------------------------------------------------------------------------------------------------
(e) Present value of the remainder interest in the case of transfers
to pooled income funds for which the valuation date is after April 30,
1989, and before May 1, 1999--(1) In general. In the case of transfers
to pooled income funds for which the valuation date is after April 30,
1989, and before May 1, 1999, the present value of a remainder interest
is determined under this section. See, however, Sec. 1.7520-3(b)
(relating to exceptions to the use of prescribed tables under certain
circumstances). The present value of a remainder interest that is
dependent on the termination of the life of one individual is computed
by the use of Table S in paragraph (e)(5) of this section. For purposes
of the computations under this section, the age of an individual is the
age at the individual's nearest birthday. If the valuation date of a
transfer to a pooled income fund is after April 30, 1989, and before
June 10, 1994, a transferor can rely on Notice 89-24, 1989-1 C.B. 660,
or Notice 89-60, 1989-1 C.B. 700, in valuing the transferred interest.
(See Sec. 601.601(d)(2)(ii)(b) of this chapter.)
(2) Present value of a remainder interest. The present value of a
remainder interest in property transferred to a pooled income fund is
computed on the basis of--
(i) Life contingencies determined from the values of lx that are set
forth in Table 80CNSMT in Sec. 20.2031-7A(e)(4) of this chapter (Estate
Tax Regulations); and
(ii) Discount at a rate of interest, compounded annually, equal to
the highest yearly rate of return of the pooled income fund for the 3
taxable years immediately preceding its taxable year in which the
transfer of property to the fund is made. The provisions of Sec.
1.642(c)-6(c) apply for determining the yearly rate of return. However,
where the taxable year is less than 12 months, the provisions of Sec.
1.642(c)-6(e)(3)(ii) apply for the determining the yearly rate of
return.
(3) Pooled income funds in existence less than 3 taxable years. The
provisions of Sec. 1.642(c)-6(e)(4) apply for determining the highest
yearly rate of return when the pooled income fund has been in existence
less than three taxable years.
(4) Computation of value of remainder interest. The factor that is
used in determining the present value of a remainder interest that is
dependent on the termination of the life of one individual is the factor
from Table S in paragraph (e)(5) of this section under the appropriate
yearly rate of return opposite the number that corresponds to the age of
the individual upon whose life the value of the remainder interest is
based. Table S in paragraph (e)(5) of this section includes factors for
yearly rates of return from 4.2 to 14 percent. Many actuarial factors
not contained in Table S in paragraph (e)(5) of this section are
contained in Table S in Internal Revenue Service Publication 1457,
``Actuarial Values, Alpha Volume,'' (8-89). Publication 1457 is no
longer available for purchase from the Superintendent of Documents,
United States Government Printing Office, Washington, DC 20402. However,
pertinent factors in this publication may be obtained by a written
request to: CC:DOM:CORP:R (IRS Publication 1457), room 5226, Internal
Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044.
For other situations, see Sec. 1.642(c)-6(b). If the yearly rate of
return is a percentage
[[Page 94]]
that is between the yearly rates of return for which factors are
provided, a linear interpolation must be made. The present value of the
remainder interest is determined by multiplying the fair market value of
the property on the valuation date by the appropriate remainder factor.
For an example of a computation of the present value of a remainder
interest requiring a linear interpolation adjustment, see Sec.
1.642(c)-6(e)(5).
(5) Actuarial tables. In the case of transfers for which the
valuation date is after April 30, 1989, and before May 1, 1999, the
present value of a remainder interest dependent on the termination of
one life in the case of a transfer to a pooled income fund is determined
by use of the following tables:
Table S--Based on Life Table 80CNSMT Single Life Remainder Factors
[Applicable After April 30, 1989, and Before May 1, 1999]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age ---------------------------------------------------------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .07389 .06749 .06188 .05695 .05261 .04879 .04541 .04243 .03978 .03744
1................................................... .06494 .05832 .05250 .04738 .04287 .03889 .03537 .03226 .02950 .02705
2................................................... .06678 .05999 .05401 .04874 .04410 .03999 .03636 .03314 .03028 .02773
3................................................... .06897 .06200 .05587 .05045 .04567 .04143 .03768 .03435 .03139 .02875
4................................................... .07139 .06425 .05796 .05239 .04746 .04310 .03922 .03578 .03271 .02998
5................................................... .07401 .06669 .06023 .05451 .04944 .04494 .04094 .03738 .03421 .03137
6................................................... .07677 .06928 .06265 .05677 .05156 .04692 .04279 .03911 .03583 .03289
7................................................... .07968 .07201 .06521 .05918 .05381 .04903 .04477 .04097 .03757 .03453
8................................................... .08274 .07489 .06792 .06172 .05621 .05129 .04689 .04297 .03945 .03630
9................................................... .08597 .07794 .07079 .06443 .05876 .05370 .04917 .04511 .04148 .03821
10.................................................. .08936 .08115 .07383 .06730 .06147 .05626 .05159 .04741 .04365 .04027
11.................................................. .09293 .08453 .07704 .07035 .06436 .05900 .05419 .04988 .04599 .04250
12.................................................. .09666 .08807 .08040 .07354 .06739 .06188 .05693 .05248 .04847 .04486
13.................................................. .10049 .09172 .08387 .07684 .07053 .06487 .05977 .05518 .05104 .04731
14.................................................. .10437 .09541 .08738 .08017 .07370 .06788 .06263 .05791 .05364 .04978
15.................................................. .10827 .09912 .09090 .08352 .07688 .07090 .06551 .06064 .05623 .05225
16.................................................. .11220 .10285 .09445 .08689 .08008 .07394 .06839 .06337 .05883 .05472
17.................................................. .11615 .10661 .09802 .09028 .08330 .07699 .07129 .06612 .06144 .05719
18.................................................. .12017 .11043 .10165 .09373 .08656 .08009 .07422 .06890 .06408 .05969
19.................................................. .12428 .11434 .10537 .09726 .08992 .08327 .07724 .07177 .06679 .06226
20.................................................. .12850 .11836 .10919 .10089 .09337 .08654 .08035 .07471 .06959 .06492
21.................................................. .13282 .12248 .11311 .10462 .09692 .08991 .08355 .07775 .07247 .06765
22.................................................. .13728 .12673 .11717 .10848 .10059 .09341 .08686 .08090 .07546 .07049
23.................................................. .14188 .13113 .12136 .11248 .10440 .09703 .09032 .08418 .07858 .07345
24.................................................. .14667 .13572 .12575 .11667 .10839 .10084 .09395 .08764 .08187 .07659
25.................................................. .15167 .14051 .13034 .12106 .11259 .10486 .09778 .09130 .08536 .07991
26.................................................. .15690 .14554 .13517 .12569 .11703 .10910 .10184 .09518 .08907 .08346
27.................................................. .16237 .15081 .14024 .13056 .12171 .11359 .10614 .09930 .09302 .08724
28.................................................. .16808 .15632 .14555 .13567 .12662 .11831 .11068 .10366 .09720 .09125
29.................................................. .17404 .16208 .15110 .14104 .13179 .12329 .11547 .10827 .10163 .09551
30.................................................. .18025 .16808 .15692 .14665 .13721 .12852 .12051 .11313 .10631 .10002
31.................................................. .18672 .17436 .16300 .15255 .14291 .13403 .12584 .11827 .11127 .10480
32.................................................. .19344 .18090 .16935 .15870 .14888 .13980 .13142 .12367 .11650 .10985
33.................................................. .20044 .18772 .17598 .16514 .15513 .14587 .13730 .12936 .12201 .11519
34.................................................. .20770 .19480 .18287 .17185 .16165 .15221 .14345 .13533 .12780 .12080
35.................................................. .21522 .20215 .19005 .17884 .16846 .15883 .14989 .14159 .13388 .12670
36.................................................. .22299 .20974 .19747 .18609 .17552 .16571 .15660 .14812 .14022 .13287
37.................................................. .23101 .21760 .20516 .19360 .18286 .17288 .16358 .15492 .14685 .13933
38.................................................. .23928 .22572 .21311 .20139 .19048 .18032 .17085 .16201 .15377 .14607
39.................................................. .24780 .23409 .22133 .20945 .19837 .18804 .17840 .16939 .16097 .15310
40.................................................. .25658 .24273 .22982 .21778 .20654 .19605 .18624 .17706 .16847 .16043
41.................................................. .26560 .25163 .23858 .22639 .21499 .20434 .19436 .18502 .17627 .16806
42.................................................. .27486 .26076 .24758 .23525 .22370 .21289 .20276 .19326 .18434 .17597
43.................................................. .28435 .27013 .25683 .24436 .23268 .22172 .21143 .20177 .19270 .18416
44.................................................. .29407 .27975 .26633 .25373 .24191 .23081 .22038 .21057 .20134 .19265
45.................................................. .30402 .28961 .27608 .26337 .25142 .24019 .22962 .21966 .21028 .20144
46.................................................. .31420 .29970 .28608 .27326 .26120 .24983 .23913 .22904 .21951 .21053
47.................................................. .32460 .31004 .29632 .28341 .27123 .25975 .24892 .23870 .22904 .21991
48.................................................. .33521 .32058 .30679 .29379 .28151 .26992 .25897 .24862 .23883 .22957
49.................................................. .34599 .33132 .31746 .30438 .29201 .28032 .26926 .25879 .24888 .23949
50.................................................. .35695 .34224 .32833 .31518 .30273 .29094 .27978 .26921 .25918 .24966
51.................................................. .36809 .35335 .33940 .32619 .31367 .30180 .29055 .27987 .26973 .26010
52.................................................. .37944 .36468 .35070 .33744 .32486 .31292 .30158 .29081 .28057 .27083
53.................................................. .39098 .37622 .36222 .34892 .33629 .32429 .31288 .30203 .29170 .28186
54.................................................. .40269 .38794 .37393 .36062 .34795 .33590 .32442 .31349 .30308 .29316
55.................................................. .41457 .39985 .38585 .37252 .35983 .34774 .33621 .32522 .31474 .30473
[[Page 95]]
56.................................................. .42662 .41194 .39796 .38464 .37193 .35981 .34824 .33720 .32666 .31658
57.................................................. .43884 .42422 .41028 .39697 .38426 .37213 .36053 .34945 .33885 .32872
58.................................................. .45123 .43668 .42279 .40951 .39682 .38468 .37307 .36196 .35132 .34114
59.................................................. .46377 .44931 .43547 .42224 .40958 .39745 .38584 .37471 .36405 .35383
60.................................................. .47643 .46206 .44830 .43513 .42250 .41040 .39880 .38767 .37699 .36674
61.................................................. .48916 .47491 .46124 .44814 .43556 .42350 .41192 .40080 .39012 .37985
62.................................................. .50196 .48783 .47427 .46124 .44874 .43672 .42518 .41408 .40340 .39314
63.................................................. .51480 .50081 .48736 .47444 .46201 .45006 .43856 .42749 .41684 .40658
64.................................................. .52770 .51386 .50054 .48773 .47540 .46352 .45208 .44105 .43043 .42019
65.................................................. .54069 .52701 .51384 .50115 .48892 .47713 .46577 .45480 .44422 .43401
66.................................................. .55378 .54029 .52727 .51472 .50262 .49093 .47965 .46876 .45824 .44808
67.................................................. .56697 .55368 .54084 .52845 .51648 .50491 .49373 .48293 .47248 .46238
68.................................................. .58026 .56717 .55453 .54231 .53049 .51905 .50800 .49729 .48694 .47691
69.................................................. .59358 .58072 .56828 .55624 .54459 .53330 .52238 .51179 .50154 .49160
70.................................................. .60689 .59427 .58205 .57021 .55874 .54762 .53683 .52638 .51624 .50641
71.................................................. .62014 .60778 .59578 .58415 .57287 .56193 .55131 .54100 .53099 .52126
72.................................................. .63334 .62123 .60948 .59808 .58700 .57624 .56579 .55563 .54577 .53617
73.................................................. .64648 .63465 .62315 .61198 .60112 .59056 .58029 .57030 .56059 .55113
74.................................................. .65961 .64806 .63682 .62590 .61527 .60492 .59485 .58504 .57550 .56620
75.................................................. .67274 .66149 .65054 .63987 .62948 .61936 .60950 .59990 .59053 .58140
76.................................................. .68589 .67495 .66429 .65390 .64377 .63390 .62427 .61487 .60570 .59676
77.................................................. .69903 .68841 .67806 .66796 .65811 .64849 .63910 .62993 .62097 .61223
78.................................................. .71209 .70182 .69179 .68199 .67242 .66307 .65393 .64501 .63628 .62775
79.................................................. .72500 .71507 .70537 .69588 .68660 .67754 .66867 .65999 .65151 .64321
80.................................................. .73768 .72809 .71872 .70955 .70058 .69180 .68320 .67479 .66655 .65849
81.................................................. .75001 .74077 .73173 .72288 .71422 .70573 .69741 .68926 .68128 .67345
82.................................................. .76195 .75306 .74435 .73582 .72746 .71926 .71123 .70335 .69562 .68804
83.................................................. .77346 .76491 .75654 .74832 .74026 .73236 .72460 .71699 .70952 .70219
84.................................................. .78456 .77636 .76831 .76041 .75265 .74503 .73756 .73021 .72300 .71592
85.................................................. .79530 .78743 .77971 .77212 .76466 .75733 .75014 .74306 .73611 .72928
86.................................................. .80560 .79806 .79065 .78337 .77621 .76917 .76225 .75544 .74875 .74216
87.................................................. .81535 .80813 .80103 .79404 .78717 .78041 .77375 .76720 .76076 .75442
88.................................................. .82462 .81771 .81090 .80420 .79760 .79111 .78472 .77842 .77223 .76612
89.................................................. .83356 .82694 .82043 .81401 .80769 .80147 .79533 .78929 .78334 .77747
90.................................................. .84225 .83593 .82971 .82357 .81753 .81157 .80570 .79991 .79420 .78857
91.................................................. .85058 .84455 .83861 .83276 .82698 .82129 .81567 .81013 .80466 .79927
92.................................................. .85838 .85263 .84696 .84137 .83585 .83040 .82503 .81973 .81449 .80933
93.................................................. .86557 .86009 .85467 .84932 .84405 .83884 .83370 .82862 .82360 .81865
94.................................................. .87212 .86687 .86169 .85657 .85152 .84653 .84160 .83673 .83192 .82717
95.................................................. .87801 .87298 .86801 .86310 .85825 .85345 .84872 .84404 .83941 .83484
96.................................................. .88322 .87838 .87360 .86888 .86420 .85959 .85502 .85051 .84605 .84165
97.................................................. .88795 .88328 .87867 .87411 .86961 .86515 .86074 .85639 .85208 .84782
98.................................................. .89220 .88769 .88323 .87883 .87447 .87016 .86589 .86167 .85750 .85337
99.................................................. .89612 .89176 .88745 .88318 .87895 .87478 .87064 .86656 .86251 .85850
100................................................. .89977 .89555 .89136 .88722 .88313 .87908 .87506 .87109 .86716 .86327
101................................................. .90326 .89917 .89511 .89110 .88712 .88318 .87929 .87543 .87161 .86783
102................................................. .90690 .90294 .89901 .89513 .89128 .88746 .88369 .87995 .87624 .87257
103................................................. .91076 .90694 .90315 .89940 .89569 .89200 .88835 .88474 .88116 .87760
104................................................. .91504 .91138 .90775 .90415 .90058 .89704 .89354 .89006 .88661 .88319
105................................................. .92027 .91681 .91337 .90996 .90658 .90322 .89989 .89659 .89331 .89006
106................................................. .92763 .92445 .92130 .91816 .91506 .91197 .90890 .90586 .90284 .89983
107................................................. .93799 .93523 .93249 .92977 .92707 .92438 .92170 .91905 .91641 .91378
108................................................. .95429 .95223 .95018 .94814 .94611 .94409 .94208 .94008 .93809 .93611
109................................................. .97985 .97893 .97801 .97710 .97619 .97529 .97438 .97348 .97259 .97170
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 80CNSMT Single Life Remainder Factors
[Applicable After April 30, 1989, and Before May 1, 1999]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age ---------------------------------------------------------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .03535 .03349 .03183 .03035 .02902 .02783 .02676 .02579 .02492 .02413
1................................................... .02486 .02292 .02119 .01963 .01824 .01699 .01587 .01486 .01395 .01312
2................................................... .02547 .02345 .02164 .02002 .01857 .01727 .01609 .01504 .01408 .01321
3................................................... .02640 .02429 .02241 .02073 .01921 .01785 .01662 .01552 .01451 .01361
4................................................... .02753 .02535 .02339 .02163 .02005 .01863 .01735 .01619 .01514 .01418
5................................................... .02883 .02656 .02453 .02269 .02105 .01956 .01822 .01700 .01590 .01490
[[Page 96]]
6................................................... .03026 .02790 .02578 .02387 .02215 .02060 .01919 .01792 .01677 .01572
7................................................... .03180 .02935 .02714 .02515 .02336 .02174 .02027 .01894 .01773 .01664
8................................................... .03347 .03092 .02863 .02656 .02469 .02300 .02146 .02007 .01881 .01766
9................................................... .03528 .03263 .03025 .02810 .02615 .02438 .02278 .02133 .02000 .01880
10.................................................. .03723 .03449 .03201 .02977 .02774 .02590 .02423 .02271 .02133 .02006
11.................................................. .03935 .03650 .03393 .03160 .02949 .02757 .02583 .02424 .02279 .02147
12.................................................. .04160 .03865 .03598 .03356 .03136 .02936 .02755 .02589 .02438 .02299
13.................................................. .04394 .04088 .03811 .03560 .03331 .03123 .02934 .02761 .02603 .02458
14.................................................. .04629 .04312 .04025 .03764 .03527 .03311 .03113 .02933 .02768 .02617
15.................................................. .04864 .04536 .04238 .03968 .03721 .03496 .03290 .03103 .02930 .02773
16.................................................. .05099 .04759 .04451 .04170 .03913 .03679 .03466 .03270 .03090 .02926
17.................................................. .05333 .04982 .04662 .04370 .04104 .03861 .03638 .03434 .03247 .03075
18.................................................. .05570 .05207 .04875 .04573 .04296 .04044 .03812 .03599 .03404 .03225
19.................................................. .05814 .05438 .05095 .04781 .04494 .04231 .03990 .03769 .03565 .03378
20.................................................. .06065 .05677 .05321 .04996 .04698 .04424 .04173 .03943 .03731 .03535
21.................................................. .06325 .05922 .05554 .05217 .04907 .04623 .04362 .04122 .03901 .03697
22.................................................. .06594 .06178 .05797 .05447 .05126 .04831 .04559 .04309 .04078 .03865
23.................................................. .06876 .06446 .06051 .05688 .05355 .05048 .04766 .04505 .04265 .04042
24.................................................. .07174 .06729 .06321 .05945 .05599 .05281 .04987 .04715 .04465 .04233
25.................................................. .07491 .07031 .06609 .06219 .05861 .05530 .05224 .04941 .04680 .04438
26.................................................. .07830 .07355 .06918 .06515 .06142 .05799 .05481 .05187 .04915 .04662
27.................................................. .08192 .07702 .07250 .06832 .06446 .06090 .05759 .05454 .05170 .04906
28.................................................. .08577 .08071 .07603 .07171 .06772 .06402 .06059 .05740 .05445 .05170
29.................................................. .08986 .08464 .07981 .07534 .07120 .06736 .06380 .06049 .05742 .05456
30.................................................. .09420 .08882 .08383 .07921 .07492 .07095 .06725 .06381 .06061 .05763
31.................................................. .09881 .09327 .08812 .08335 .07891 .07479 .07095 .06738 .06405 .06095
32.................................................. .10369 .09797 .09267 .08774 .08315 .07888 .07491 .07120 .06774 .06451
33.................................................. .10885 .10297 .09750 .09241 .08767 .08325 .07913 .07529 .07170 .06834
34.................................................. .11430 .10824 .10261 .09736 .09246 .08790 .08363 .07964 .07592 .07243
35.................................................. .12002 .11380 .10800 .10259 .09754 .09282 .08841 .08428 .08041 .07679
36.................................................. .12602 .11963 .11366 .10809 .10288 .09800 .09344 .08917 .08516 .08140
37.................................................. .13230 .12574 .11961 .11387 .10850 .10347 .09876 .09433 .09018 .08628
38.................................................. .13887 .13214 .12584 .11994 .11441 .10922 .10436 .09978 .09549 .09145
39.................................................. .14573 .13883 .13237 .12630 .12061 .11527 .11025 .10553 .10109 .09690
40.................................................. .15290 .14583 .13920 .13297 .12712 .12162 .11644 .11157 .10698 .10266
41.................................................. .16036 .15312 .14633 .13994 .13393 .12827 .12294 .11792 .11318 .10871
42.................................................. .16810 .16071 .15375 .14720 .14103 .13522 .12973 .12456 .11967 .11505
43.................................................. .17614 .16858 .16146 .15475 .14842 .14245 .13682 .13149 .12645 .12169
44.................................................. .18447 .17675 .16948 .16261 .15613 .15000 .14421 .13873 .13355 .12864
45.................................................. .19310 .18524 .17780 .17078 .16414 .15787 .15192 .14630 .14096 .13591
46.................................................. .20204 .19402 .18644 .17926 .17247 .16604 .15995 .15418 .14870 .14350
47.................................................. .21128 .20311 .19538 .18806 .18112 .17454 .16830 .16238 .15676 .15141
48.................................................. .22080 .21249 .20462 .19716 .19007 .18335 .17696 .17090 .16513 .15964
49.................................................. .23059 .22214 .21413 .20653 .19930 .19244 .18591 .17970 .17379 .16816
50.................................................. .24063 .23206 .22391 .21617 .20881 .20180 .19514 .18879 .18274 .17697
51.................................................. .25095 .24225 .23398 .22610 .21861 .21147 .20466 .19818 .19199 .18609
52.................................................. .26157 .25275 .24436 .23636 .22874 .22147 .21453 .20791 .20159 .19556
53.................................................. .27249 .26357 .25505 .24694 .23919 .23180 .22474 .21799 .21154 .20537
54.................................................. .28369 .27466 .26604 .25782 .24995 .24244 .23526 .22839 .22181 .21552
55.................................................. .29518 .28605 .27734 .26900 .26103 .25341 .24611 .23912 .23243 .22601
56.................................................. .30695 .29774 .28893 .28050 .27242 .26469 .25728 .25019 .24338 .23685
57.................................................. .31902 .30973 .30084 .29232 .28415 .27632 .26881 .26161 .25469 .24805
58.................................................. .33138 .32203 .31306 .30446 .29621 .28829 .28069 .27339 .26637 .25962
59.................................................. .34402 .33461 .32558 .31691 .30859 .30059 .29290 .28550 .27839 .27155
60.................................................. .35690 .34745 .33836 .32963 .32124 .31317 .30540 .29792 .29073 .28379
61.................................................. .36999 .36050 .35137 .34259 .33414 .32601 .31817 .31062 .30334 .29633
62.................................................. .38325 .37374 .36458 .35576 .34726 .33907 .33117 .32356 .31621 .30912
63.................................................. .39669 .38717 .37799 .36913 .36060 .35236 .34441 .33674 .32933 .32217
64.................................................. .41031 .40078 .39159 .38272 .37415 .36588 .35789 .35016 .34270 .33548
65.................................................. .42416 .41464 .40545 .39656 .38798 .37968 .37166 .36390 .35639 .34912
66.................................................. .43825 .42876 .41958 .41070 .40211 .39380 .38576 .37797 .37043 .36312
67.................................................. .45260 .44315 .43399 .42513 .41655 .40824 .40019 .39238 .38482 .37749
68.................................................. .46720 .45779 .44868 .43985 .43129 .42299 .41494 .40713 .39956 .39221
69.................................................. .48197 .47263 .46357 .45478 .44625 .43798 .42995 .42215 .41458 .40722
70.................................................. .49686 .48760 .47861 .46988 .46140 .45316 .44516 .43738 .42983 .42248
71.................................................. .51182 .50265 .49374 .48508 .47666 .46847 .46051 .45276 .44523 .43790
72.................................................. .52685 .51778 .50896 .50038 .49203 .48390 .47599 .46829 .46079 .45349
73.................................................. .54194 .53298 .52426 .51578 .50751 .49946 .49161 .48397 .47652 .46926
74.................................................. .55714 .54832 .53972 .53134 .52317 .51520 .50744 .49986 .49247 .48527
[[Page 97]]
75.................................................. .57250 .56382 .55536 .54710 .53904 .53118 .52351 .51601 .50870 .50156
76.................................................. .58803 .57951 .57120 .56308 .55515 .54740 .53984 .53245 .52522 .51817
77.................................................. .60369 .59535 .58720 .57923 .57144 .56383 .55639 .54912 .54200 .53504
78.................................................. .61942 .61126 .60329 .59549 .58787 .58040 .57310 .56596 .55896 .55212
79.................................................. .63508 .62713 .61935 .61174 .60428 .59698 .58983 .58283 .57597 .56925
80.................................................. .65059 .64285 .63527 .62785 .62058 .61345 .60646 .59961 .59290 .58632
81.................................................. .66579 .65827 .65090 .64368 .63659 .62965 .62283 .61615 .60959 .60316
82.................................................. .68061 .67332 .66616 .65914 .65226 .64550 .63886 .63235 .62595 .61968
83.................................................. .69499 .68793 .68099 .67418 .66749 .66092 .65447 .64813 .64191 .63579
84.................................................. .70896 .70213 .69541 .68881 .68233 .67595 .66969 .66353 .65748 .65153
85.................................................. .72256 .71596 .70947 .70308 .69681 .69063 .68456 .67859 .67271 .66693
86.................................................. .73569 .72931 .72305 .71688 .71081 .70484 .69896 .69318 .68748 .68188
87.................................................. .74818 .74204 .73599 .73003 .72417 .71839 .71271 .70711 .70159 .69616
88.................................................. .76011 .75419 .74836 .74261 .73695 .73137 .72588 .72046 .71512 .70986
89.................................................. .77169 .76599 .76037 .75484 .74938 .74400 .73870 .73347 .72831 .72323
90.................................................. .78302 .77755 .77215 .76683 .76158 .75640 .75129 .74625 .74128 .73638
91.................................................. .79395 .78870 .78352 .77842 .77337 .76840 .76349 .75864 .75385 .74913
92.................................................. .80423 .79920 .79423 .78933 .78449 .77971 .77499 .77033 .76572 .76118
93.................................................. .81377 .80894 .80417 .79946 .79481 .79022 .78568 .78120 .77677 .77239
94.................................................. .82247 .81784 .81325 .80873 .80425 .79983 .79547 .79115 .78688 .78266
95.................................................. .83033 .82586 .82145 .81709 .81278 .80852 .80431 .80014 .79602 .79195
96.................................................. .83729 .83298 .82872 .82451 .82034 .81622 .81215 .80812 .80414 .80019
97.................................................. .84361 .83944 .83532 .83124 .82721 .82322 .81927 .81537 .81151 .80769
98.................................................. .84929 .84525 .84126 .83730 .83339 .82952 .82569 .82190 .81815 .81443
99.................................................. .85454 .85062 .84674 .84290 .83910 .83534 .83161 .82792 .82427 .82066
100................................................. .85942 .85561 .85184 .84810 .84440 .84074 .83711 .83352 .82997 .82644
101................................................. .86408 .86037 .85670 .85306 .84946 .84589 .84236 .83886 .83539 .83196
102................................................. .86894 .86534 .86177 .85823 .85473 .85126 .84782 .84442 .84104 .83770
103................................................. .87408 .87060 .86714 .86371 .86032 .85695 .85362 .85031 .84703 .84378
104................................................. .87980 .87644 .87311 .86980 .86653 .86328 .86005 .85686 .85369 .85054
105................................................. .88684 .88363 .88046 .87731 .87418 .87108 .86800 .86494 .86191 .85890
106................................................. .89685 .89389 .89095 .88804 .88514 .88226 .87940 .87656 .87374 .87094
107................................................. .91117 .90858 .90600 .90344 .90089 .89836 .89584 .89334 .89085 .88838
108................................................. .93414 .93217 .93022 .92828 .92634 .92442 .92250 .92060 .91870 .91681
109................................................. .97081 .96992 .96904 .96816 .96729 .96642 .96555 .96468 .96382 .96296
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 80CNSMT Single Life Remainder Factors
[Applicable After April 30, 1989, and Before May 1, 1999]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age ---------------------------------------------------------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .02341 .02276 .02217 .02163 .02114 .02069 .02027 .01989 .01954 .01922
1................................................... .01237 .01170 .01108 .01052 .01000 .00953 .00910 .00871 .00834 .00801
2................................................... .01243 .01172 .01107 .01048 .00994 .00944 .00899 .00857 .00819 .00784
3................................................... .01278 .01203 .01135 .01073 .01016 .00964 .00916 .00872 .00832 .00795
4................................................... .01332 .01253 .01182 .01116 .01056 .01001 .00951 .00904 .00862 .00822
5................................................... .01400 .01317 .01241 .01172 .01109 .01051 .00998 .00949 .00904 .00862
6................................................... .01477 .01390 .01310 .01238 .01171 .01110 .01054 .01002 .00954 .00910
7................................................... .01563 .01472 .01389 .01312 .01242 .01178 .01118 .01064 .01013 .00966
8................................................... .01660 .01564 .01477 .01396 .01322 .01254 .01192 .01134 .01081 .01031
9................................................... .01770 .01669 .01577 .01492 .01414 .01342 .01276 .01216 .01159 .01107
10.................................................. .01891 .01785 .01688 .01599 .01517 .01442 .01372 .01308 .01249 .01194
11.................................................. .02026 .01915 .01814 .01720 .01634 .01555 .01481 .01414 .01351 .01293
12.................................................. .02173 .02056 .01950 .01852 .01761 .01678 .01601 .01529 .01463 .01402
13.................................................. .02326 .02204 .02092 .01989 .01895 .01807 .01726 .01651 .01582 .01517
14.................................................. .02478 .02351 .02234 .02126 .02027 .01935 .01850 .01771 .01698 .01630
15.................................................. .02628 .02495 .02372 .02259 .02155 .02058 .01969 .01886 .01810 .01738
16.................................................. .02774 .02635 .02507 .02388 .02279 .02178 .02084 .01997 .01917 .01842
17.................................................. .02917 .02772 .02637 .02513 .02399 .02293 .02194 .02103 .02018 .01940
18.................................................. .03059 .02907 .02767 .02637 .02517 .02406 .02302 .02207 .02118 .02035
19.................................................. .03205 .03046 .02899 .02763 .02637 .02521 .02412 .02312 .02218 .02131
20.................................................. .03355 .03188 .03035 .02892 .02760 .02638 .02524 .02419 .02320 .02229
21.................................................. .03509 .03334 .03173 .03024 .02886 .02758 .02638 .02527 .02424 .02328
22.................................................. .03669 .03487 .03318 .03162 .03017 .02882 .02757 .02640 .02532 .02430
23.................................................. .03837 .03646 .03470 .03306 .03154 .03013 .02881 .02759 .02644 .02538
24.................................................. .04018 .03819 .03634 .03463 .03303 .03155 .03016 .02888 .02767 .02655
[[Page 98]]
25.................................................. .04214 .04006 .03812 .03633 .03465 .03309 .03164 .03029 .02902 .02784
26.................................................. .04428 .04210 .04008 .03820 .03644 .03481 .03328 .03186 .03052 .02928
27.................................................. .04662 .04434 .04223 .04025 .03841 .03670 .03509 .03360 .03219 .03088
28.................................................. .04915 .04677 .04456 .04249 .04056 .03876 .03708 .03550 .03403 .03264
29.................................................. .05189 .04941 .04709 .04493 .04291 .04102 .03925 .03760 .03604 .03458
30.................................................. .05485 .05226 .04984 .04757 .04546 .04348 .04162 .03988 .03825 .03671
31.................................................. .05805 .05535 .05282 .05045 .04824 .04616 .04421 .04238 .04067 .03905
32.................................................. .06149 .05867 .05603 .05356 .05124 .04906 .04702 .04510 .04329 .04160
33.................................................. .06520 .06226 .05950 .05692 .05449 .05221 .05007 .04806 .04616 .04438
34.................................................. .06916 .06609 .06322 .06052 .05799 .05560 .05336 .05125 .04926 .04738
35.................................................. .07339 .07020 .06720 .06439 .06174 .05925 .05690 .05469 .05260 .05063
36.................................................. .07787 .07455 .07143 .06850 .06573 .06313 .06068 .05836 .05617 .05411
37.................................................. .08262 .07917 .07593 .07287 .06999 .06727 .06470 .06228 .05999 .05783
38.................................................. .08765 .08407 .08069 .07751 .07451 .07167 .06899 .06646 .06407 .06180
39.................................................. .09296 .08925 .08574 .08243 .07931 .07635 .07356 .07092 .06841 .06604
40.................................................. .09858 .09472 .09109 .08765 .08440 .08132 .07841 .07565 .07303 .07055
41.................................................. .10449 .10050 .09673 .09316 .08978 .08658 .08355 .08067 .07794 .07535
42.................................................. .11069 .10656 .10265 .09895 .09544 .09212 .08896 .08596 .08312 .08041
43.................................................. .11718 .11291 .10887 .10503 .10140 .09794 .09466 .09154 .08858 .08576
44.................................................. .12399 .11958 .11540 .11143 .10766 .10407 .10067 .09743 .09434 .09141
45.................................................. .13111 .12656 .12224 .11814 .11423 .11052 .10699 .10362 .10042 .09736
46.................................................. .13856 .13387 .12941 .12516 .12113 .11728 .11362 .11013 .10680 .10363
47.................................................. .14633 .14150 .13690 .13252 .12835 .12438 .12059 .11697 .11352 .11022
48.................................................. .15442 .14945 .14471 .14020 .13589 .13179 .12787 .12412 .12055 .11713
49.................................................. .16280 .15769 .15281 .14816 .14373 .13949 .13544 .13157 .12787 .12433
50.................................................. .17147 .16622 .16121 .15643 .15186 .14749 .14331 .13931 .13548 .13182
51.................................................. .18045 .17507 .16993 .16501 .16030 .15580 .15150 .14737 .14342 .13963
52.................................................. .18979 .18427 .17899 .17394 .16911 .16448 .16004 .15579 .15172 .14780
53.................................................. .19947 .19383 .18842 .18324 .17828 .17352 .16896 .16458 .16038 .15635
54.................................................. .20950 .20372 .19819 .19288 .18779 .18291 .17822 .17372 .16940 .16524
55.................................................. .21986 .21397 .20831 .20288 .19767 .19266 .18785 .18322 .17878 .17450
56.................................................. .23058 .22457 .21879 .21324 .20791 .20278 .19785 .19310 .18854 .18414
57.................................................. .24167 .23554 .22965 .22399 .21854 .21329 .20824 .20338 .19870 .19419
58.................................................. .25314 .24690 .24090 .23512 .22956 .22420 .21904 .21407 .20927 .20464
59.................................................. .26497 .25863 .25252 .24664 .24097 .23550 .23023 .22515 .22024 .21551
60.................................................. .27712 .27068 .26448 .25849 .25272 .24716 .24178 .23659 .23158 .22674
61.................................................. .28956 .28304 .27674 .27067 .26480 .25913 .25366 .24837 .24325 .23831
62.................................................. .30228 .29567 .28929 .28312 .27717 .27141 .26584 .26045 .25524 .25020
63.................................................. .31525 .30857 .30211 .29586 .28982 .28397 .27832 .27284 .26754 .26240
64.................................................. .32851 .32176 .31522 .30890 .30278 .29685 .29111 .28555 .28016 .27493
65.................................................. .34209 .33528 .32868 .32229 .31610 .31010 .30429 .29865 .29317 .28787
66.................................................. .35604 .34918 .34253 .33609 .32983 .32377 .31788 .31217 .30663 .30124
67.................................................. .37037 .36347 .35678 .35028 .34398 .33786 .33191 .32614 .32053 .31508
68.................................................. .38508 .37815 .37142 .36489 .35854 .35237 .34638 .34055 .33488 .32937
69.................................................. .40008 .39313 .38638 .37982 .37344 .36724 .36120 .35533 .34961 .34405
70.................................................. .41533 .40838 .40162 .39504 .38864 .38241 .37634 .37043 .36468 .35907
71.................................................. .43076 .42382 .41705 .41047 .40405 .39780 .39171 .38578 .38000 .37436
72.................................................. .44638 .43945 .43269 .42611 .41969 .41344 .40733 .40138 .39558 .38991
73.................................................. .46218 .45527 .44854 .44197 .43556 .42931 .42321 .41725 .41143 .40575
74.................................................. .47823 .47137 .46466 .45812 .45173 .44549 .43940 .43345 .42763 .42195
75.................................................. .49459 .48777 .48112 .47462 .46826 .46205 .45598 .45004 .44424 .43856
76.................................................. .51127 .50452 .49793 .49148 .48517 .47900 .47297 .46706 .46129 .45563
77.................................................. .52823 .52157 .51505 .50867 .50243 .49632 .49033 .48447 .47873 .47311
78.................................................. .54541 .53885 .53242 .52613 .51996 .51392 .50800 .50220 .49652 .49094
79.................................................. .56267 .55621 .54989 .54369 .53762 .53166 .52582 .52009 .51448 .50897
80.................................................. .57987 .57354 .56733 .56125 .55527 .54941 .54366 .53802 .53248 .52705
81.................................................. .59685 .59065 .58457 .57860 .57274 .56699 .56134 .55579 .55035 .54499
82.................................................. .61351 .60746 .60151 .59567 .58993 .58429 .57875 .57331 .56796 .56270
83.................................................. .62978 .62387 .61806 .61236 .60675 .60123 .59581 .59047 .58523 .58007
84.................................................. .64567 .63992 .63426 .62869 .62321 .61783 .61253 .60731 .60218 .59713
85.................................................. .66125 .65565 .65014 .64472 .63938 .63413 .62896 .62387 .61886 .61392
86.................................................. .67636 .67092 .66557 .66030 .65511 .65000 .64496 .64000 .63511 .63030
87.................................................. .69081 .68554 .68034 .67522 .67018 .66520 .66031 .65548 .65071 .64602
88.................................................. .70468 .69957 .69453 .68956 .68466 .67983 .67507 .67037 .66574 .66117
89.................................................. .71821 .71326 .70838 .70357 .69882 .69414 .68952 .68495 .68045 .67601
90.................................................. .73153 .72676 .72204 .71739 .71280 .70827 .70379 .69938 .69502 .69071
91.................................................. .74447 .73986 .73532 .73083 .72640 .72202 .71770 .71343 .70921 .70504
92.................................................. .75669 .75225 .74787 .74354 .73927 .73504 .73087 .72674 .72267 .71864
93.................................................. .76807 .76379 .75957 .75540 .75127 .74719 .74317 .73918 .73524 .73135
[[Page 99]]
94.................................................. .77849 .77437 .77030 .76627 .76229 .75835 .75446 .75061 .74680 .74303
95.................................................. .78792 .78394 .78001 .77611 .77226 .76845 .76468 .76096 .75727 .75362
96.................................................. .79630 .79244 .78863 .78485 .78112 .77742 .77377 .77015 .76657 .76303
97.................................................. .80391 .80016 .79646 .79280 .78917 .78559 .78203 .77852 .77504 .77160
98.................................................. .81076 .80712 .80352 .79996 .79643 .79294 .78948 .78606 .78267 .77931
99.................................................. .81709 .81354 .81004 .80657 .80313 .79972 .79635 .79302 .78971 .78644
100................................................. .82296 .81950 .81609 .81270 .80934 .80602 .80273 .79947 .79624 .79304
101................................................. .82855 .82518 .82185 .81854 .81526 .81201 .80880 .80561 .80245 .79932
102................................................. .83438 .83110 .82785 .82462 .82142 .81826 .81512 .81200 .80892 .80586
103................................................. .84056 .83737 .83420 .83106 .82795 .82487 .82181 .81878 .81577 .81279
104................................................. .84743 .84433 .84127 .83822 .83521 .83221 .82924 .82630 .82338 .82048
105................................................. .85591 .85295 .85001 .84709 .84419 .84132 .83846 .83563 .83282 .83003
106................................................. .86816 .86540 .86266 .85993 .85723 .85454 .85187 .84922 .84659 .84397
107................................................. .88592 .88348 .88105 .87863 .87623 .87384 .87147 .86911 .86676 .86443
108................................................. .91493 .91306 .91119 .90934 .90749 .90566 .90383 .90201 .90020 .89840
109................................................. .96211 .96125 .96041 .95956 .95872 .95788 .95704 .95620 .95537 .95455
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 80CNSMT Single Life Remainder Factors
[Applicable After April 30, 1989, Before May 1, 1999]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age ---------------------------------------------------------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0% 11.2% 11.4% 11.6% 11.8% 12.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .01891 .01864 .01838 .01814 .01791 .01770 .01750 .01732 .01715 .01698
1................................................... .00770 .00741 .00715 .00690 .00667 .00646 .00626 .00608 .00590 .00574
2................................................... .00751 .00721 .00693 .00667 .00643 .00620 .00600 .00580 .00562 .00544
3................................................... .00760 .00728 .00699 .00671 .00646 .00622 .00600 .00579 .00560 .00541
4................................................... .00786 .00752 .00721 .00692 .00665 .00639 .00616 .00594 .00573 .00554
5................................................... .00824 .00788 .00755 .00724 .00695 .00668 .00643 .00620 .00598 .00578
6................................................... .00869 .00832 .00796 .00764 .00733 .00705 .00678 .00654 .00630 .00608
7................................................... .00923 .00883 .00846 .00811 .00779 .00749 .00720 .00694 .00669 .00646
8................................................... .00986 .00943 .00904 .00867 .00833 .00801 .00771 .00743 .00716 .00692
9................................................... .01059 .01014 .00972 .00933 .00897 .00863 .00831 .00801 .00773 .00747
10.................................................. .01142 .01095 .01051 .01009 .00971 .00935 .00901 .00869 .00840 .00812
11.................................................. .01239 .01189 .01142 .01098 .01057 .01019 .00983 .00950 .00918 .00889
12.................................................. .01345 .01292 .01243 .01197 .01154 .01113 .01075 .01040 .01007 .00975
13.................................................. .01457 .01401 .01349 .01300 .01255 .01212 .01172 .01135 .01100 .01067
14.................................................. .01567 .01508 .01453 .01402 .01354 .01309 .01267 .01227 .01190 .01155
15.................................................. .01672 .01610 .01552 .01498 .01448 .01400 .01356 .01314 .01275 .01238
16.................................................. .01772 .01707 .01646 .01589 .01536 .01486 .01439 .01396 .01354 .01315
17.................................................. .01866 .01798 .01734 .01674 .01618 .01566 .01516 .01470 .01427 .01386
18.................................................. .01958 .01886 .01818 .01755 .01697 .01641 .01590 .01541 .01495 .01452
19.................................................. .02050 .01974 .01903 .01837 .01775 .01717 .01662 .01611 .01563 .01517
20.................................................. .02143 .02064 .01989 .01919 .01854 .01793 .01735 .01681 .01630 .01582
21.................................................. .02238 .02154 .02075 .02002 .01933 .01868 .01807 .01750 .01696 .01646
22.................................................. .02336 .02247 .02164 .02087 .02014 .01946 .01882 .01821 .01764 .01711
23.................................................. .02438 .02345 .02257 .02176 .02099 .02027 .01959 .01895 .01835 .01778
24.................................................. .02550 .02451 .02359 .02273 .02192 .02115 .02044 .01976 .01913 .01853
25.................................................. .02673 .02569 .02472 .02381 .02295 .02214 .02138 .02067 .01999 .01936
26.................................................. .02811 .02701 .02598 .02502 .02411 .02326 .02246 .02170 .02098 .02031
27.................................................. .02965 .02849 .02741 .02639 .02543 .02452 .02367 .02287 .02211 .02140
28.................................................. .03134 .03013 .02898 .02790 .02689 .02593 .02503 .02418 .02338 .02262
29.................................................. .03322 .03193 .03072 .02958 .02851 .02750 .02654 .02564 .02479 .02398
30.................................................. .03527 .03391 .03264 .03143 .03030 .02923 .02821 .02726 .02635 .02550
31.................................................. .03753 .03610 .03475 .03348 .03228 .03115 .03008 .02907 .02811 .02720
32.................................................. .04000 .03849 .03707 .03573 .03446 .03326 .03213 .03105 .03004 .02907
33.................................................. .04269 .04111 .03961 .03819 .03685 .03558 .03438 .03325 .03217 .03115
34.................................................. .04561 .04394 .04236 .04087 .03946 .03812 .03685 .03565 .03451 .03342
35.................................................. .04877 .04702 .04535 .04378 .04229 .04087 .03953 .03826 .03706 .03591
36.................................................. .05215 .05031 .04856 .04690 .04533 .04384 .04242 .04108 .03980 .03859
37.................................................. .05578 .05384 .05200 .05025 .04860 .04703 .04553 .04411 .04276 .04148
38.................................................. .05965 .05761 .05568 .05385 .05211 .05045 .04888 .04738 .04595 .04460
39.................................................. .06379 .06165 .05962 .05770 .05587 .05412 .05247 .05089 .04939 .04795
40.................................................. .06820 .06596 .06383 .06181 .05989 .05806 .05631 .05465 .05307 .05155
41.................................................. .07288 .07054 .06832 .06620 .06418 .06226 .06042 .05868 .05701 .05541
42.................................................. .07784 .07539 .07306 .07085 .06873 .06671 .06479 .06295 .06119 .05952
43.................................................. .08308 .08052 .07808 .07576 .07355 .07143 .06941 .06748 .06564 .06387
[[Page 100]]
44.................................................. .08861 .08594 .08340 .08097 .07865 .07644 .07432 .07230 .07036 .06851
45.................................................. .09445 .09167 .08901 .08648 .08406 .08174 .07953 .07741 .07538 .07343
46.................................................. .10060 .09770 .09494 .09230 .08977 .08735 .08503 .08281 .08068 .07865
47.................................................. .10707 .10406 .10119 .09843 .09579 .09327 .09085 .08853 .08630 .08417
48.................................................. .11386 .11073 .10774 .10487 .10213 .09949 .09697 .09455 .09222 .08999
49.................................................. .12094 .11769 .11458 .11160 .10874 .10600 .10337 .10084 .09842 .09609
50.................................................. .12831 .12494 .12172 .11862 .11565 .11280 .11006 .10743 .10490 .10247
51.................................................. .13600 .13251 .12917 .12596 .12288 .11991 .11706 .11432 .11169 .10915
52.................................................. .14405 .14044 .13698 .13366 .13046 .12738 .12442 .12157 .11883 .11619
53.................................................. .15247 .14875 .14517 .14172 .13841 .13522 .13215 .12919 .12635 .12360
54.................................................. .16124 .15740 .15370 .15014 .14671 .14341 .14023 .13717 .13421 .13136
55.................................................. .17039 .16642 .16261 .15893 .15539 .15198 .14868 .14551 .14244 .13948
56.................................................. .17991 .17583 .17190 .16811 .16445 .16092 .15752 .15423 .15106 .14799
57.................................................. .18984 .18564 .18160 .17769 .17392 .17029 .16677 .16338 .16010 .15692
58.................................................. .20018 .19587 .19172 .18770 .18382 .18007 .17645 .17295 .16956 .16628
59.................................................. .21093 .20652 .20225 .19812 .19414 .19028 .18655 .18294 .17945 .17606
60.................................................. .22206 .21753 .21316 .20893 .20483 .20087 .19703 .19332 .18972 .18624
61.................................................. .23353 .22890 .22442 .22009 .21589 .21182 .20788 .20407 .20037 .19678
62.................................................. .24532 .24059 .23601 .23158 .22728 .22311 .21907 .21515 .21135 .20767
63.................................................. .25742 .25260 .24793 .24339 .23900 .23473 .23060 .22658 .22268 .21890
64.................................................. .26987 .26495 .26019 .25556 .25107 .24671 .24248 .23837 .23438 .23050
65.................................................. .28271 .27771 .27286 .26815 .26357 .25912 .25480 .25059 .24651 .24254
66.................................................. .29601 .29093 .28600 .28120 .27654 .27200 .26760 .26331 .25913 .25507
67.................................................. .30978 .30462 .29961 .29474 .29000 .28539 .28090 .27653 .27227 .26813
68.................................................. .32401 .31879 .31371 .30877 .30396 .29927 .29471 .29027 .28593 .28171
69.................................................. .33863 .33336 .32822 .32322 .31835 .31359 .30896 .30445 .30005 .29576
70.................................................. .35361 .34829 .34310 .33804 .33311 .32830 .32361 .31903 .31457 .31021
71.................................................. .36886 .36349 .35826 .35316 .34818 .34332 .33858 .33394 .32942 .32500
72.................................................. .38439 .37899 .37373 .36858 .36356 .35866 .35387 .34919 .34461 .34015
73.................................................. .40021 .39479 .38950 .38432 .37927 .37433 .36950 .36478 .36016 .35565
74.................................................. .41639 .41096 .40565 .40046 .39538 .39042 .38556 .38081 .37616 .37161
75.................................................. .43301 .42758 .42226 .41706 .41198 .40699 .40212 .39734 .39267 .38809
76.................................................. .45009 .44467 .43937 .43417 .42908 .42410 .41921 .41443 .40974 .40514
77.................................................. .46761 .46221 .45693 .45175 .44667 .44170 .43682 .43203 .42734 .42274
78.................................................. .48548 .48013 .47488 .46973 .46468 .45972 .45486 .45009 .44541 .44082
79.................................................. .50356 .49826 .49306 .48795 .48294 .47802 .47319 .46845 .46379 .45922
80.................................................. .52171 .51647 .51133 .50628 .50132 .49644 .49166 .48695 .48233 .47779
81.................................................. .53974 .53457 .52950 .52451 .51961 .51479 .51006 .50541 .50083 .49633
82.................................................. .55753 .55245 .54745 .54254 .53771 .53296 .52828 .52369 .51917 .51472
83.................................................. .57500 .57001 .56510 .56026 .55551 .55083 .54623 .54170 .53724 .53285
84.................................................. .59216 .58726 .58245 .57770 .57304 .56844 .56391 .55945 .55506 .55074
85.................................................. .60906 .60428 .59956 .59492 .59034 .58583 .58139 .57702 .57270 .56845
86.................................................. .62555 .62088 .61627 .61173 .60725 .60284 .59849 .59420 .58997 .58580
87.................................................. .64139 .63683 .63233 .62790 .62352 .61921 .61495 .61076 .60661 .60253
88.................................................. .65666 .65221 .64783 .64350 .63923 .63502 .63086 .62675 .62270 .61871
89.................................................. .67163 .66730 .66304 .65882 .65466 .65055 .64650 .64249 .63854 .63463
90.................................................. .68646 .68226 .67812 .67402 .66998 .66599 .66204 .65814 .65430 .65049
91.................................................. .70093 .69686 .69285 .68888 .68496 .68108 .67725 .67347 .66973 .66604
92.................................................. .71466 .71073 .70684 .70300 .69920 .69545 .69173 .68806 .68444 .68085
93.................................................. .72750 .72370 .71994 .71622 .71254 .70890 .70530 .70174 .69822 .69474
94.................................................. .73931 .73562 .73198 .72838 .72481 .72129 .71780 .71434 .71093 .70755
95.................................................. .75001 .74644 .74291 .73941 .73595 .73253 .72914 .72579 .72247 .71919
96.................................................. .75953 .75606 .75262 .74923 .74586 .74253 .73924 .73598 .73275 .72955
97.................................................. .76819 .76481 .76147 .75816 .75489 .75165 .74844 .74526 .74211 .73899
98.................................................. .77599 .77270 .76944 .76621 .76302 .75986 .75672 .75362 .75054 .74750
99.................................................. .78319 .77998 .77680 .77365 .77053 .76744 .76437 .76134 .75833 .75535
100................................................. .78987 .78673 .78362 .78054 .77748 .77446 .77146 .76849 .76555 .76263
101................................................. .79622 .79315 .79010 .78708 .78409 .78113 .77819 .77528 .77239 .76953
102................................................. .80283 .79983 .79685 .79390 .79097 .78807 .78519 .78234 .77951 .77671
103................................................. .80983 .80690 .80399 .80111 .79825 .79541 .79260 .78981 .78705 .78430
104................................................. .81760 .81475 .81192 .80912 .80633 .80357 .80083 .79810 .79541 .79273
105................................................. .82726 .82451 .82178 .81907 .81638 .81371 .81106 .80843 .80582 .80322
106................................................. .84137 .83879 .83623 .83368 .83115 .82863 .82614 .82366 .82119 .81874
107................................................. .86211 .85981 .85751 .85523 .85297 .85071 .84847 .84624 .84403 .84182
108................................................. .89660 .89481 .89304 .89127 .88950 .88775 .88601 .88427 .88254 .88081
109................................................. .95372 .95290 .95208 .95126 .95045 .94964 .94883 .94803 .94723 .94643
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 101]]
Table S--Based on Life Table 80CNSMT Single Life Remainder Factors
[Applicable After April 30, 1989, and Before May 1, 1999]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age ---------------------------------------------------------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0% 13.2% 13.4% 13.6% 13.8% 14.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .01683 .01669 .01655 .01642 .01630 .01618 .01607 .01596 .01586 .01576
1................................................... .00559 .00544 .00531 .00518 .00506 .00494 .00484 .00473 .00464 .00454
2................................................... .00528 .00513 .00499 .00485 .00473 .00461 .00449 .00439 .00428 .00419
3................................................... .00524 .00508 .00493 .00479 .00465 .00453 .00441 .00429 .00419 .00408
4................................................... .00536 .00519 .00503 .00488 .00473 .00460 .00447 .00435 .00423 .00412
5................................................... .00558 .00540 .00523 .00507 .00492 .00477 .00464 .00451 .00439 .00427
6................................................... .00588 .00569 .00550 .00533 .00517 .00502 .00487 .00473 .00460 .00448
7................................................... .00624 .00604 .00584 .00566 .00549 .00532 .00517 .00502 .00488 .00475
8................................................... .00668 .00646 .00626 .00606 .00588 .00570 .00554 .00538 .00523 .00509
9................................................... .00722 .00699 .00677 .00656 .00636 .00617 .00600 .00583 .00567 .00552
10.................................................. .00785 .00761 .00737 .00715 .00694 .00674 .00655 .00637 .00620 .00604
11.................................................. .00861 .00835 .00810 .00786 .00764 .00743 .00723 .00704 .00686 .00668
12.................................................. .00946 .00918 .00891 .00866 .00843 .00820 .00799 .00779 .00760 .00741
13.................................................. .01035 .01006 .00978 .00951 .00927 .00903 .00880 .00859 .00839 .00819
14.................................................. .01122 .01091 .01061 .01034 .01007 .00982 .00958 .00936 .00914 .00894
15.................................................. .01203 .01171 .01140 .01110 .01082 .01056 .01031 .01007 .00985 .00963
16.................................................. .01279 .01244 .01211 .01181 .01151 .01123 .01097 .01072 .01048 .01025
17.................................................. .01347 .01311 .01276 .01244 .01213 .01184 .01156 .01130 .01104 .01081
18.................................................. .01411 .01373 .01336 .01302 .01270 .01239 .01210 .01182 .01155 .01130
19.................................................. .01474 .01434 .01396 .01359 .01325 .01293 .01262 .01233 .01205 .01178
20.................................................. .01537 .01494 .01454 .01415 .01379 .01345 .01313 .01282 .01252 .01224
21.................................................. .01598 .01553 .01510 .01470 .01432 .01396 .01361 .01329 .01298 .01268
22.................................................. .01660 .01613 .01568 .01525 .01485 .01446 .01410 .01375 .01343 .01312
23.................................................. .01725 .01674 .01627 .01581 .01539 .01498 .01460 .01423 .01388 .01355
24.................................................. .01796 .01742 .01692 .01644 .01599 .01556 .01515 .01476 .01439 .01404
25.................................................. .01876 .01819 .01765 .01714 .01666 .01621 .01577 .01536 .01497 .01460
26.................................................. .01967 .01907 .01850 .01796 .01745 .01696 .01650 .01606 .01565 .01525
27.................................................. .02072 .02008 .01948 .01890 .01836 .01784 .01735 .01688 .01644 .01601
28.................................................. .02190 .02122 .02057 .01996 .01938 .01883 .01831 .01781 .01734 .01689
29.................................................. .02322 .02249 .02181 .02116 .02054 .01996 .01940 .01887 .01836 .01788
30.................................................. .02469 .02392 .02319 .02250 .02184 .02122 .02062 .02006 .01952 .01900
31.................................................. .02634 .02552 .02475 .02401 .02331 .02264 .02201 .02140 .02083 .02028
32.................................................. .02816 .02729 .02647 .02568 .02494 .02423 .02355 .02291 .02229 .02170
33.................................................. .03018 .02926 .02838 .02755 .02675 .02600 .02528 .02459 .02393 .02331
34.................................................. .03239 .03142 .03048 .02960 .02875 .02795 .02718 .02645 .02575 .02508
35.................................................. .03482 .03378 .03279 .03185 .03095 .03009 .02928 .02850 .02775 .02704
36.................................................. .03743 .03633 .03528 .03428 .03333 .03242 .03155 .03072 .02992 .02916
37.................................................. .04026 .03909 .03798 .03692 .03591 .03494 .03401 .03313 .03228 .03147
38.................................................. .04330 .04207 .04089 .03977 .03869 .03767 .03668 .03574 .03484 .03398
39.................................................. .04658 .04528 .04403 .04284 .04170 .04061 .03957 .03857 .03762 .03670
40.................................................. .05011 .04873 .04741 .04615 .04495 .04379 .04269 .04163 .04061 .03964
41.................................................. .05389 .05244 .05104 .04971 .04844 .04721 .04604 .04492 .04384 .04281
42.................................................. .05791 .05638 .05491 .05350 .05216 .05086 .04962 .04844 .04729 .04620
43.................................................. .06219 .06057 .05902 .05754 .05612 .05475 .05344 .05218 .05098 .04981
44.................................................. .06673 .06503 .06340 .06184 .06034 .05890 .05752 .05619 .05491 .05368
45.................................................. .07157 .06978 .06806 .06642 .06484 .06332 .06186 .06046 .05911 .05781
46.................................................. .07669 .07481 .07301 .07128 .06962 .06802 .06649 .06501 .06358 .06221
47.................................................. .08212 .08015 .07826 .07645 .07470 .07302 .07140 .06984 .06834 .06690
48.................................................. .08784 .08578 .08380 .08190 .08006 .07830 .07660 .07496 .07338 .07186
49.................................................. .09384 .09169 .08961 .08762 .08570 .08384 .08206 .08034 .07868 .07708
50.................................................. .10013 .09787 .09570 .09361 .09160 .08966 .08779 .08598 .08424 .08256
51.................................................. .10671 .10436 .10209 .09991 .09780 .09577 .09381 .09192 .09009 .08832
52.................................................. .11365 .11120 .10883 .10655 .10435 .10222 .10017 .09819 .09628 .09442
53.................................................. .12095 .11840 .11593 .11355 .11126 .10904 .10689 .10482 .10282 .10088
54.................................................. .12860 .12595 .12338 .12090 .11851 .11619 .11396 .11179 .10970 .10767
55.................................................. .13663 .13386 .13120 .12862 .12613 .12372 .12138 .11912 .11694 .11482
56.................................................. .14503 .14217 .13940 .13672 .13413 .13162 .12919 .12683 .12456 .12235
57.................................................. .15385 .15089 .14801 .14523 .14254 .13994 .13741 .13496 .13259 .13029
58.................................................. .16311 .16004 .15706 .15418 .15139 .14868 .14606 .14352 .14105 .13866
59.................................................. .17279 .16961 .16654 .16355 .16066 .15786 .15514 .15250 .14994 .14745
60.................................................. .18286 .17958 .17640 .17332 .17033 .16743 .16462 .16188 .15922 .15664
61.................................................. .19330 .18992 .18665 .18347 .18038 .17738 .17447 .17164 .16889 .16622
62.................................................. .20409 .20061 .19724 .19396 .19078 .18768 .18467 .18175 .17891 .17614
63.................................................. .21522 .21165 .20818 .20480 .20152 .19833 .19523 .19221 .18928 .18642
64.................................................. .22672 .22306 .21949 .21602 .21265 .20937 .20617 .20306 .20003 .19708
65.................................................. .23867 .23491 .23125 .22769 .22423 .22085 .21757 .21437 .21125 .20821
66.................................................. .25112 .24727 .24353 .23988 .23632 .23286 .22948 .22619 .22299 .21986
67.................................................. .26409 .26016 .25633 .25260 .24896 .24541 .24195 .23857 .23528 .23206
68.................................................. .27760 .27359 .26968 .26586 .26214 .25851 .25497 .25151 .24814 .24484
[[Page 102]]
69.................................................. .29157 .28748 .28350 .27961 .27581 .27211 .26849 .26495 .26150 .25812
70.................................................. .30596 .30181 .29775 .29379 .28992 .28614 .28245 .27884 .27532 .27187
71.................................................. .32069 .31648 .31236 .30833 .30440 .30055 .29679 .29312 .28952 .28600
72.................................................. .33578 .33151 .32733 .32325 .31925 .31535 .31152 .30778 .30412 .30054
73.................................................. .35123 .34691 .34269 .33855 .33450 .33054 .32666 .32286 .31914 .31550
74.................................................. .36715 .36279 .35852 .35434 .35024 .34623 .34230 .33845 .33468 .33098
75.................................................. .38360 .37921 .37491 .37069 .36656 .36250 .35853 .35464 .35082 .34708
76.................................................. .40064 .39623 .39190 .38765 .38349 .37941 .37540 .37148 .36762 .36384
77.................................................. .41823 .41381 .40947 .40521 .40103 .39692 .39290 .38895 .38507 .38126
78.................................................. .43632 .43189 .42755 .42329 .41910 .41499 .41095 .40698 .40309 .39926
79.................................................. .45473 .45032 .44599 .44173 .43755 .43344 .42940 .42543 .42153 .41770
80.................................................. .47333 .46894 .46463 .46040 .45623 .45213 .44811 .44414 .44025 .43642
81.................................................. .49191 .48755 .48328 .47907 .47493 .47085 .46684 .46290 .45902 .45520
82.................................................. .51034 .50603 .50179 .49762 .49351 .48947 .48549 .48157 .47772 .47392
83.................................................. .52852 .52427 .52008 .51595 .51189 .50788 .50394 .50006 .49623 .49246
84.................................................. .54648 .54228 .53815 .53407 .53006 .52610 .52221 .51836 .51458 .51084
85.................................................. .56426 .56013 .55606 .55205 .54810 .54420 .54035 .53656 .53282 .52913
86.................................................. .58169 .57764 .57364 .56970 .56581 .56197 .55818 .55445 .55076 .54713
87.................................................. .59850 .59452 .59060 .58673 .58291 .57913 .57541 .57174 .56811 .56453
88.................................................. .61476 .61086 .60702 .60322 .59947 .59577 .59212 .58851 .58494 .58142
89.................................................. .63078 .62697 .62321 .61950 .61583 .61220 .60862 .60508 .60159 .59813
90.................................................. .64674 .64302 .63935 .63573 .63215 .62861 .62511 .62165 .61823 .61485
91.................................................. .66238 .65877 .65520 .65167 .64819 .64474 .64133 .63795 .63462 .63132
92.................................................. .67730 .67379 .67032 .66689 .66350 .66014 .65682 .65354 .65029 .64708
93.................................................. .69130 .68789 .68452 .68119 .67789 .67463 .67140 .66820 .66504 .66191
94.................................................. .70421 .70090 .69762 .69438 .69118 .68800 .68486 .68175 .67867 .67563
95.................................................. .71594 .71272 .70954 .70639 .70326 .70017 .69712 .69409 .69109 .68812
96.................................................. .72638 .72325 .72014 .71707 .71403 .71101 .70803 .70507 .70215 .69925
97.................................................. .73590 .73285 .72982 .72682 .72385 .72090 .71799 .71510 .71224 .70941
98.................................................. .74448 .74149 .73853 .73560 .73269 .72981 .72696 .72414 .72134 .71856
99.................................................. .75240 .74948 .74658 .74371 .74086 .73805 .73525 .73248 .72974 .72702
100................................................. .75974 .75687 .75403 .75121 .74842 .74566 .74292 .74020 .73751 .73484
101................................................. .76669 .76388 .76109 .75833 .75559 .75287 .75018 .74751 .74486 .74223
102................................................. .77393 .77117 .76844 .76573 .76304 .76037 .75773 .75511 .75251 .74993
103................................................. .78158 .77888 .77620 .77355 .77091 .76830 .76571 .76313 .76058 .75805
104................................................. .79007 .78743 .78482 .78222 .77964 .77709 .77455 .77203 .76953 .76705
105................................................. .80065 .79809 .79556 .79304 .79054 .78805 .78559 .78314 .78071 .77829
106................................................. .81631 .81389 .81149 .80911 .80674 .80438 .80204 .79972 .79741 .79511
107................................................. .83963 .83745 .83529 .83313 .83099 .82886 .82674 .82463 .82254 .82045
108................................................. .87910 .87739 .87569 .87400 .87232 .87064 .86897 .86731 .86566 .86401
109................................................. .94563 .94484 .94405 .94326 .94248 .94170 .94092 .94014 .93937 .93860
--------------------------------------------------------------------------------------------------------------------------------------------------------
(f) Present value of the remainder interest in the case of transfers
to pooled income funds for which the valuation date is after April 30,
1999, and before May 1, 2009--(1) In general. In the case of transfers
to pooled income funds for which the valuation date is after April 30,
1999, and before May 1, 2009, the present value of a remainder interest
is determined under this section. See, however, Sec. 1.7520-3(b)
(relating to exceptions to the use of prescribed tables under certain
circumstances). The present value of a remainder interest that is
dependent on the termination of the life of one individual is computed
by the use of Table S in paragraph (f)(6) of this section. For purposes
of the computations under this section, the age of an individual is the
age at the individual's nearest birthday.
(2) Transitional rules for valuation of transfers to pooled income
funds. (i) For purposes of sections 2055, 2106, or 2624, if on May 1,
1999, the decedent was mentally incompetent so that the disposition of
the property could not be changed, and the decedent died after April 30,
1999, without having regained competency to dispose of the decedent's
property, or the decedent died within 90 days of the date that the
decedent first regained competency after April 30, 1999, the present
value of a remainder interest is determined as if the valuation date
with respect to the decedent's gross estate is either before
[[Page 103]]
May 1, 1999, or after April 30, 1999, at the option of the decedent's
executor.
(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the
case of transfers to a pooled income fund for which the valuation date
is after April 30, 1999, and before July 1, 1999, the present value of
the remainder interest under this section is determined by use of the
section 7520 interest rate for the month in which the valuation date
occurs (see Sec. Sec. 1.7520-1(b) and 1.7520-2(a)(2)) and the
appropriate actuarial tables under either paragraph (e)(5) or (f)(6) of
this section, at the option of the donor or the decedent's executor, as
the case may be.
(iii) For purposes of paragraphs (f)(2)(i) and (f)(2)(ii) of this
section, where the donor or decedent's executor is given the option to
use the appropriate actuarial tables under either paragraph (e)(5) or
(f)(6) of this section, the donor or decedent's executor must use the
same actuarial table with respect to each individual transaction and
with respect to all transfers occurring on the valuation date (for
example, gift and income tax charitable deductions with respect to the
same transfer must be determined based on the same tables, and all
assets includible in the gross estate and/or estate tax deductions
claimed must be valued based on the same tables).
(3) Present value of a remainder interest. The present value of a
remainder interest in property transferred to a pooled income fund is
computed on the basis of--
(i) Life contingencies determined from the values of lx that are set
forth in Table 90CM in Sec. 20.2031-7A(f)(4); and
(ii) Discount at a rate of interest, compounded annually, equal to
the highest yearly rate of return of the pooled income fund for the 3
taxable years immediately preceding its taxable year in which the
transfer of property to the fund is made. The provisions of Sec.
1.642(c)-6(c) apply for determining the yearly rate of return. However,
where the taxable year is less than 12 months, the provisions of Sec.
1.642(c)-6(e)(3)(ii) apply for the determining the yearly rate of
return.
(4) Pooled income funds in existence less than 3 taxable years. The
provisions of Sec. 1.642(c)-6(e)(4) apply for determining the highest
yearly rate of return when the pooled income fund has been in existence
less than 3 taxable years.
(5) Computation of value of remainder interest. The factor that is
used in determining the present value of a remainder interest that is
dependent on the termination of the life of one individual is the factor
from Table S in paragraph (f)(6) of this section under the appropriate
yearly rate of return opposite the number that corresponds to the age of
the individual upon whose life the value of the remainder interest is
based. Table S in paragraph (f)(6) of this section includes factors for
yearly rates of return from 4.2 to 14 percent. Many actuarial factors
not contained in Table S in paragraph (f)(6) of this section are
contained in Table S in Internal Revenue Service Publication 1457,
``Actuarial Values, Book Aleph,'' (7-99). Publication 1457 is no longer
available for purchase from the Superintendent of Documents, United
States Government Printing Office. However, pertinent factors in this
publication may be obtained by a written request to: CC:PA:LPD:PR (IRS
Publication 1457), Room 5205, Internal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC 20044. For other situations, see
Sec. 1.642(c)-6(b). If the yearly rate of return is a percentage that
is between the yearly rates of return for which factors are provided, a
linear interpolation must be made. The present value of the remainder
interest is determined by multiplying the fair market value of the
property on the valuation date by the appropriate remainder factor. For
an example of a computation of the present value of a remainder interest
requiring a linear interpolation adjustment, see Sec. 1.642(c)-6(e)(5).
(6) Actuarial tables. In the case of transfers for which the
valuation date is after April 30, 1999, and before May 1, 2009, the
present value of a remainder interest dependent on the termination of
one life in the case of a transfer to a pooled income fund is determined
by use of the following tables:
[[Page 104]]
Table S--Based on Life Table 90CM Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .06752 .06130 .05586 .05109 .04691 .04322 .03998 .03711 .03458 .03233
1............................................................. .06137 .05495 .04932 .04438 .04003 .03620 .03283 .02985 .02721 .02487
2............................................................. .06325 .05667 .05088 .04580 .04132 .03737 .03388 .03079 .02806 .02563
3............................................................. .06545 .05869 .05275 .04752 .04291 .03883 .03523 .03203 .02920 .02668
4............................................................. .06784 .06092 .05482 .04944 .04469 .04048 .03676 .03346 .03052 .02791
5............................................................. .07040 .06331 .05705 .05152 .04662 .04229 .03845 .03503 .03199 .02928
6............................................................. .07310 .06583 .05941 .05372 .04869 .04422 .04025 .03672 .03357 .03076
7............................................................. .07594 .06849 .06191 .05607 .05089 .04628 .04219 .03854 .03528 .03236
8............................................................. .07891 .07129 .06453 .05853 .05321 .04846 .04424 .04046 .03709 .03407
9............................................................. .08203 .07423 .06731 .06115 .05567 .05079 .04643 .04253 .03904 .03592
10............................................................ .08532 .07734 .07024 .06392 .05829 .05326 .04877 .04474 .04114 .03790
11............................................................ .08875 .08059 .07331 .06683 .06104 .05587 .05124 .04709 .04336 .04002
12............................................................ .09233 .08398 .07653 .06989 .06394 .05862 .05385 .04957 .04572 .04226
13............................................................ .09601 .08748 .07985 .07304 .06693 .06146 .05655 .05214 .04816 .04458
14............................................................ .09974 .09102 .08322 .07624 .06997 .06435 .05929 .05474 .05064 .04694
15............................................................ .10350 .09460 .08661 .07946 .07303 .06725 .06204 .05735 .05312 .04930
16............................................................ .10728 .09818 .09001 .08268 .07608 .07014 .06479 .05996 .05559 .05164
17............................................................ .11108 .10179 .09344 .08592 .07916 .07306 .06755 .06257 .05807 .05399
18............................................................ .11494 .10545 .09691 .08921 .08227 .07601 .07034 .06521 .06057 .05636
19............................................................ .11889 .10921 .10047 .09259 .08548 .07904 .07322 .06794 .06315 .05880
20............................................................ .12298 .11310 .10417 .09610 .08881 .08220 .07622 .07078 .06584 .06135
21............................................................ .12722 .11713 .10801 .09976 .09228 .08550 .07935 .07375 .06866 .06403
22............................................................ .13159 .12130 .11199 .10354 .09588 .08893 .08260 .07685 .07160 .06682
23............................................................ .13613 .12563 .11612 .10748 .09964 .09250 .08601 .08009 .07468 .06975
24............................................................ .14084 .13014 .12043 .11160 .10357 .09625 .08958 .08349 .07793 .07284
25............................................................ .14574 .13484 .12493 .11591 .10768 .10018 .09334 .08708 .08135 .07611
26............................................................ .15084 .13974 .12963 .12041 .11199 .10431 .09728 .09085 .08496 .07956
27............................................................ .15615 .14485 .13454 .12513 .11652 .10865 .10144 .09484 .08878 .08322
28............................................................ .16166 .15016 .13965 .13004 .12124 .11319 .10580 .09901 .09279 .08706
29............................................................ .16737 .15567 .14497 .13516 .12617 .11792 .11035 .10339 .09699 .09109
30............................................................ .17328 .16138 .15048 .14047 .13129 .12286 .11510 .10796 .10138 .09532
31............................................................ .17938 .16728 .15618 .14599 .13661 .12799 .12004 .11272 .10597 .09974
32............................................................ .18568 .17339 .16210 .15171 .14214 .13333 .12520 .11769 .11076 .10435
33............................................................ .19220 .17972 .16824 .15766 .14790 .13889 .13058 .12289 .11578 .10920
34............................................................ .19894 .18627 .17460 .16383 .15388 .14468 .13618 .12831 .12102 .11426
35............................................................ .20592 .19307 .18121 .17025 .16011 .15073 .14204 .13399 .12652 .11958
36............................................................ .21312 .20010 .18805 .17691 .16658 .15701 .14814 .13990 .13225 .12514
37............................................................ .22057 .20737 .19514 .18382 .17331 .16356 .15450 .14608 .13825 .13096
38............................................................ .22827 .21490 .20251 .19100 .18031 .17038 .16113 .15253 .14452 .13705
39............................................................ .23623 .22270 .21013 .19845 .18759 .17747 .16805 .15927 .15108 .14344
40............................................................ .24446 .23078 .21805 .20620 .19516 .18487 .17527 .16631 .15795 .15013
41............................................................ .25298 .23915 .22626 .21425 .20305 .19259 .18282 .17368 .16514 .15715
42............................................................ .26178 .24782 .23478 .22262 .21125 .20062 .19069 .18138 .17267 .16450
43............................................................ .27087 .25678 .24360 .23129 .21977 .20898 .19888 .18941 .18053 .17220
44............................................................ .28025 .26603 .25273 .24027 .22860 .21766 .20740 .19777 .18873 .18023
45............................................................ .28987 .27555 .26212 .24953 .23772 .22664 .21622 .20644 .19724 .18858
46............................................................ .29976 .28533 .27179 .25908 .24714 .23591 .22536 .21542 .20606 .19725
47............................................................ .30987 .29535 .28171 .26889 .25682 .24546 .23476 .22468 .21518 .20621
48............................................................ .32023 .30563 .29190 .27897 .26678 .25530 .24447 .23425 .22460 .21549
49............................................................ .33082 .31615 .30234 .28931 .27702 .26543 .25447 .24412 .23434 .22509
50............................................................ .34166 .32694 .31306 .29995 .28756 .27586 .26479 .25432 .24441 .23502
51............................................................ .35274 .33798 .32404 .31085 .29838 .28658 .27541 .26482 .25479 .24528
52............................................................ .36402 .34924 .33525 .32200 .30946 .29757 .28630 .27561 .26547 .25584
53............................................................ .37550 .36070 .34668 .33339 .32078 .30882 .29746 .28667 .27643 .26669
54............................................................ .38717 .37237 .35833 .34500 .33234 .32031 .30888 .29801 .28766 .27782
55............................................................ .39903 .38424 .37019 .35683 .34413 .33205 .32056 .30961 .29918 .28925
56............................................................ .41108 .39631 .38227 .36890 .35617 .34405 .33250 .32149 .31099 .30097
57............................................................ .42330 .40857 .39455 .38118 .36844 .35629 .34469 .33363 .32306 .31297
58............................................................ .43566 .42098 .40699 .39364 .38089 .36873 .35710 .34600 .33538 .32522
59............................................................ .44811 .43351 .41956 .40623 .39350 .38133 .36968 .35855 .34789 .33768
60............................................................ .46066 .44613 .43224 .41896 .40624 .39408 .38243 .37127 .36058 .35033
61............................................................ .47330 .45887 .44505 .43182 .41914 .40699 .39535 .38418 .37347 .36318
62............................................................ .48608 .47175 .45802 .44485 .43223 .42011 .40848 .39732 .38660 .37629
63............................................................ .49898 .48478 .47115 .45807 .44550 .43343 .42184 .41069 .39997 .38966
64............................................................ .51200 .49793 .48442 .47143 .45895 .44694 .43539 .42427 .41357 .40326
65............................................................ .52512 .51121 .49782 .48495 .47255 .46062 .44912 .43805 .42738 .41709
66............................................................ .53835 .52461 .51137 .49862 .48634 .47449 .46307 .45206 .44143 .43118
67............................................................ .55174 .53818 .52511 .51250 .50034 .48860 .47727 .46633 .45576 .44556
68............................................................ .56524 .55188 .53899 .52654 .51452 .50291 .49168 .48083 .47034 .46020
[[Page 105]]
69............................................................ .57882 .56568 .55299 .54071 .52885 .51737 .50627 .49552 .48513 .47506
70............................................................ .59242 .57951 .56703 .55495 .54325 .53193 .52096 .51034 .50004 .49007
71............................................................ .60598 .59332 .58106 .56918 .55767 .54651 .53569 .52520 .51503 .50516
72............................................................ .61948 .60707 .59504 .58338 .57206 .56108 .55043 .54009 .53004 .52029
73............................................................ .63287 .62073 .60895 .59751 .58640 .57561 .56513 .55495 .54505 .53543
74............................................................ .64621 .63435 .62282 .61162 .60073 .59015 .57985 .56984 .56009 .55061
75............................................................ .65953 .64796 .63671 .62575 .61510 .60473 .59463 .58480 .57523 .56591
76............................................................ .67287 .66160 .65063 .63995 .62954 .61940 .60952 .59989 .59050 .58135
77............................................................ .68622 .67526 .66459 .65419 .64404 .63415 .62450 .61509 .60590 .59694
78............................................................ .69954 .68892 .67856 .66845 .65858 .64895 .63955 .63036 .62140 .61264
79............................................................ .71278 .70250 .69246 .68265 .67308 .66372 .65457 .64563 .63690 .62836
80............................................................ .72581 .71588 .70618 .69668 .68740 .67833 .66945 .66077 .65227 .64396
81............................................................ .73857 .72899 .71962 .71045 .70147 .69268 .68408 .67566 .66741 .65933
82............................................................ .75101 .74178 .73274 .72389 .71522 .70672 .69840 .69024 .68225 .67441
83............................................................ .76311 .75423 .74553 .73700 .72864 .72044 .71240 .70451 .69678 .68919
84............................................................ .77497 .76645 .75809 .74988 .74183 .73393 .72618 .71857 .71110 .70377
85............................................................ .78665 .77848 .77047 .76260 .75487 .74728 .73982 .73250 .72530 .71823
86............................................................ .79805 .79025 .78258 .77504 .76764 .76036 .75320 .74617 .73925 .73245
87............................................................ .80904 .80159 .79427 .78706 .77998 .77301 .76615 .75940 .75277 .74624
88............................................................ .81962 .81251 .80552 .79865 .79188 .78521 .77865 .77220 .76584 .75958
89............................................................ .82978 .82302 .81636 .80980 .80335 .79699 .79072 .78455 .77847 .77248
90............................................................ .83952 .83309 .82676 .82052 .81437 .80831 .80234 .79645 .79064 .78492
91............................................................ .84870 .84260 .83658 .83064 .82479 .81902 .81332 .80771 .80217 .79671
92............................................................ .85716 .85136 .84563 .83998 .83441 .82891 .82348 .81812 .81283 .80761
93............................................................ .86494 .85942 .85396 .84858 .84326 .83801 .83283 .82771 .82266 .81767
94............................................................ .87216 .86690 .86170 .85657 .85149 .84648 .84153 .83664 .83181 .82704
95............................................................ .87898 .87397 .86902 .86412 .85928 .85450 .84977 .84510 .84049 .83592
96............................................................ .88537 .88060 .87587 .87121 .86659 .86203 .85751 .85305 .84864 .84427
97............................................................ .89127 .88672 .88221 .87775 .87335 .86898 .86467 .86040 .85618 .85200
98............................................................ .89680 .89245 .88815 .88389 .87968 .87551 .87138 .86730 .86326 .85926
99............................................................ .90217 .89803 .89393 .88987 .88585 .88187 .87793 .87402 .87016 .86633
100........................................................... .90738 .90344 .89953 .89567 .89183 .88804 .88428 .88056 .87687 .87322
101........................................................... .91250 .90876 .90504 .90137 .89772 .89412 .89054 .88699 .88348 .88000
102........................................................... .91751 .91396 .91045 .90696 .90350 .90007 .89668 .89331 .88997 .88666
103........................................................... .92247 .91912 .91579 .91249 .90922 .90598 .90276 .89957 .89640 .89326
104........................................................... .92775 .92460 .92148 .91839 .91532 .91227 .90924 .90624 .90326 .90031
105........................................................... .93290 .92996 .92704 .92415 .92127 .91841 .91558 .91276 .90997 .90719
106........................................................... .93948 .93680 .93415 .93151 .92889 .92628 .92370 .92113 .91857 .91604
107........................................................... .94739 .94504 .94271 .94039 .93808 .93579 .93351 .93124 .92899 .92675
108........................................................... .95950 .95767 .95585 .95404 .95224 .95045 .94867 .94689 .94512 .94336
109........................................................... .97985 .97893 .97801 .97710 .97619 .97529 .97438 .97348 .97259 .97170
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 90CM Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .03034 .02857 .02700 .02559 .02433 .02321 .02220 .02129 .02047 .01973
1............................................................. .02279 .02094 .01929 .01782 .01650 .01533 .01427 .01331 .01246 .01168
2............................................................. .02347 .02155 .01983 .01829 .01692 .01569 .01458 .01358 .01268 .01187
3............................................................. .02444 .02243 .02065 .01905 .01761 .01632 .01516 .01412 .01317 .01232
4............................................................. .02558 .02349 .02163 .01996 .01846 .01712 .01590 .01481 .01382 .01292
5............................................................. .02686 .02469 .02275 .02101 .01945 .01804 .01677 .01562 .01458 .01364
6............................................................. .02825 .02600 .02398 .02217 .02053 .01906 .01773 .01653 .01544 .01445
7............................................................. .02976 .02742 .02532 .02343 .02172 .02019 .01880 .01754 .01640 .01536
8............................................................. .03137 .02894 .02675 .02479 .02301 .02140 .01995 .01864 .01744 .01635
9............................................................. .03311 .03059 .02832 .02627 .02442 .02274 .02122 .01985 .01859 .01745
10............................................................ .03499 .03237 .03001 .02788 .02595 .02420 .02262 .02118 .01987 .01867
11............................................................ .03700 .03428 .03183 .02961 .02760 .02578 .02413 .02262 .02125 .02000
12............................................................ .03913 .03632 .03377 .03146 .02937 .02748 .02575 .02418 .02275 .02144
13............................................................ .04135 .03843 .03579 .03339 .03122 .02924 .02744 .02580 .02431 .02294
14............................................................ .04359 .04057 .03783 .03534 .03308 .03102 .02915 .02744 .02587 .02444
15............................................................ .04584 .04270 .03986 .03728 .03493 .03279 .03083 .02905 .02742 .02593
16............................................................ .04806 .04482 .04187 .03919 .03674 .03452 .03248 .03063 .02892 .02736
17............................................................ .05029 .04692 .04387 .04108 .03855 .03623 .03411 .03218 .03040 .02877
18............................................................ .05253 .04905 .04588 .04299 .04036 .03795 .03574 .03373 .03187 .03017
[[Page 106]]
19............................................................ .05484 .05124 .04796 .04496 .04222 .03972 .03742 .03532 .03339 .03161
20............................................................ .05726 .05354 .05013 .04702 .04418 .04158 .03919 .03700 .03498 .03313
21............................................................ .05980 .05595 .05242 .04920 .04625 .04354 .04105 .03877 .03667 .03473
22............................................................ .06246 .05847 .05482 .05147 .04841 .04559 .04301 .04063 .03844 .03642
23............................................................ .06524 .06112 .05734 .05387 .05069 .04777 .04508 .04260 .04032 .03821
24............................................................ .06819 .06392 .06001 .05642 .05312 .05008 .04728 .04470 .04232 .04012
25............................................................ .07131 .06690 .06285 .05913 .05570 .05255 .04964 .04695 .04447 .04218
26............................................................ .07460 .07005 .06586 .06200 .05845 .05518 .05215 .04936 .04677 .04438
27............................................................ .07810 .07340 .06907 .06508 .06140 .05800 .05485 .05195 .04925 .04676
28............................................................ .08179 .07693 .07246 .06833 .06451 .06098 .05772 .05469 .05189 .04929
29............................................................ .08566 .08065 .07603 .07176 .06780 .06414 .06075 .05761 .05469 .05198
30............................................................ .08973 .08456 .07978 .07536 .07127 .06748 .06396 .06069 .05766 .05483
31............................................................ .09398 .08865 .08372 .07915 .07491 .07098 .06733 .06394 .06078 .05785
32............................................................ .09843 .09294 .08785 .08313 .07875 .07468 .07089 .06737 .06409 .06103
33............................................................ .10310 .09745 .09220 .08732 .08279 .07858 .07466 .07100 .06759 .06441
34............................................................ .10799 .10217 .09676 .09173 .08705 .08269 .07862 .07483 .07129 .06798
35............................................................ .11314 .10715 .10157 .09638 .09155 .08704 .08283 .07890 .07522 .07179
36............................................................ .11852 .11236 .10662 .10127 .09628 .09162 .08726 .08319 .07938 .07581
37............................................................ .12416 .11783 .11193 .10641 .10126 .09645 .09194 .08772 .08377 .08006
38............................................................ .13009 .12359 .11751 .11183 .10652 .10155 .09689 .09253 .08843 .08459
39............................................................ .13629 .12962 .12338 .11753 .11206 .10693 .10212 .09761 .09337 .08938
40............................................................ .14281 .13597 .12955 .12355 .11791 .11262 .10766 .10299 .09860 .09447
41............................................................ .14966 .14264 .13606 .12989 .12409 .11864 .11352 .10870 .10417 .09989
42............................................................ .15685 .14966 .14291 .13657 .13061 .12500 .11972 .11475 .11006 .10564
43............................................................ .16437 .15702 .15010 .14360 .13747 .13171 .12627 .12115 .11631 .11174
44............................................................ .17224 .16472 .15764 .15098 .14469 .13876 .13317 .12789 .12290 .11819
45............................................................ .18042 .17274 .16550 .15867 .15223 .14615 .14040 .13496 .12982 .12496
46............................................................ .18893 .18110 .17370 .16671 .16011 .15387 .14796 .14238 .13708 .13207
47............................................................ .19775 .18975 .18220 .17505 .16830 .16190 .15584 .15010 .14466 .13950
48............................................................ .20688 .19873 .19102 .18373 .17682 .17027 .16406 .15817 .15258 .14727
49............................................................ .21633 .20804 .20018 .19274 .18568 .17898 .17262 .16658 .16084 .15539
50............................................................ .22612 .21769 .20969 .20210 .19490 .18805 .18155 .17536 .16948 .16388
51............................................................ .23625 .22769 .21955 .21182 .20448 .19749 .19084 .18452 .17849 .17275
52............................................................ .24669 .23799 .22973 .22186 .21438 .20726 .20047 .19400 .18784 .18196
53............................................................ .25742 .24861 .24022 .23222 .22461 .21735 .21043 .20383 .19753 .19151
54............................................................ .26845 .25952 .25101 .24290 .23516 .22777 .22072 .21399 .20756 .20140
55............................................................ .27978 .27074 .26212 .25389 .24604 .23853 .23136 .22450 .21793 .21166
56............................................................ .29140 .28227 .27355 .26522 .25725 .24963 .24233 .23535 .22867 .22227
57............................................................ .30333 .29411 .28529 .27686 .26879 .26106 .25365 .24656 .23976 .23324
58............................................................ .31551 .30621 .29731 .28878 .28061 .27278 .26528 .25807 .25116 .24453
59............................................................ .32790 .31854 .30956 .30095 .29269 .28477 .27716 .26986 .26284 .25610
60............................................................ .34050 .33107 .32202 .31334 .30500 .29699 .28929 .28190 .27478 .26794
61............................................................ .35331 .34384 .33473 .32598 .31757 .30948 .30170 .29422 .28701 .28007
62............................................................ .36639 .35688 .34772 .33892 .33044 .32229 .31443 .30687 .29958 .29255
63............................................................ .37974 .37020 .36101 .35216 .34363 .33542 .32750 .31986 .31250 .30539
64............................................................ .39334 .38378 .37456 .36568 .35711 .34884 .34087 .33317 .32574 .31857
65............................................................ .40718 .39761 .38838 .37947 .37087 .36257 .35455 .34681 .33932 .33208
66............................................................ .42128 .41172 .40249 .39357 .38496 .37663 .36858 .36079 .35326 .34597
67............................................................ .43569 .42616 .41694 .40803 .39941 .39107 .38299 .37518 .36761 .36028
68............................................................ .45038 .44089 .43170 .42281 .41419 .40585 .39777 .38994 .38235 .37499
69............................................................ .46531 .45587 .44672 .43786 .42927 .42094 .41286 .40503 .39743 .39006
70............................................................ .48040 .47103 .46194 .45312 .44456 .43626 .42820 .42038 .41278 .40540
71............................................................ .49558 .48629 .47727 .46851 .46000 .45174 .44371 .43591 .42832 .42095
72............................................................ .51082 .50162 .49268 .48399 .47554 .46733 .45934 .45157 .44401 .43666
73............................................................ .52607 .51697 .50813 .49952 .49114 .48299 .47506 .46733 .45981 .45249
74............................................................ .54139 .53241 .52367 .51515 .50686 .49879 .49092 .48325 .47578 .46849
75............................................................ .55683 .54798 .53936 .53095 .52276 .51477 .50698 .49938 .49197 .48474
76............................................................ .57243 .56373 .55524 .54696 .53888 .53100 .52330 .51579 .50846 .50130
77............................................................ .58819 .57965 .57132 .56318 .55523 .54747 .53988 .53247 .52523 .51815
78............................................................ .60408 .59572 .58755 .57957 .57177 .56414 .55668 .54939 .54225 .53527
79............................................................ .62001 .61184 .60385 .59604 .58840 .58092 .57360 .56644 .55943 .55256
80............................................................ .63582 .62786 .62007 .61244 .60497 .59765 .59048 .58347 .57659 .56985
81............................................................ .65142 .64367 .63608 .62864 .62135 .61421 .60721 .60034 .59361 .58701
82............................................................ .66673 .65920 .65182 .64458 .63748 .63052 .62368 .61698 .61041 .60395
83............................................................ .68175 .67444 .66728 .66024 .65334 .64656 .63991 .63338 .62696 .62066
84............................................................ .69657 .68950 .68256 .67574 .66904 .66246 .65599 .64964 .64340 .63727
85............................................................ .71128 .70446 .69775 .69116 .68467 .67830 .67204 .66587 .65982 .65386
86............................................................ .72576 .71919 .71272 .70636 .70010 .69394 .68789 .68193 .67606 .67029
87............................................................ .73981 .73349 .72726 .72114 .71511 .70917 .70333 .69757 .69190 .68632
[[Page 107]]
88............................................................ .75342 .74735 .74137 .73548 .72968 .72396 .71833 .71279 .70732 .70194
89............................................................ .76658 .76076 .75503 .74938 .74381 .73832 .73290 .72757 .72231 .71712
90............................................................ .77928 .77371 .76823 .76281 .75748 .75221 .74702 .74190 .73684 .73186
91............................................................ .79131 .78600 .78075 .77557 .77046 .76542 .76044 .75553 .75068 .74589
92............................................................ .80246 .79737 .79235 .78740 .78250 .77767 .77290 .76818 .76353 .75893
93............................................................ .81274 .80788 .80307 .79832 .79363 .78899 .78441 .77989 .77542 .77100
94............................................................ .82232 .81766 .81306 .80850 .80401 .79956 .79517 .79082 .78653 .78228
95............................................................ .83141 .82695 .82254 .81818 .81387 .80961 .80539 .80122 .79710 .79302
96............................................................ .83996 .83569 .83147 .82729 .82316 .81907 .81503 .81103 .80707 .80315
97............................................................ .84787 .84378 .83973 .83573 .83176 .82784 .82396 .82012 .81632 .81255
98............................................................ .85530 .85138 .84750 .84366 .83985 .83609 .83236 .82867 .82502 .82140
99............................................................ .86255 .85880 .85508 .85140 .84776 .84415 .84057 .83703 .83353 .83005
100........................................................... .86960 .86601 .86246 .85894 .85546 .85200 .84858 .84519 .84183 .83849
101........................................................... .87655 .87313 .86974 .86638 .86305 .85975 .85648 .85324 .85003 .84684
102........................................................... .88338 .88012 .87689 .87369 .87052 .86738 .86426 .86116 .85809 .85505
103........................................................... .89015 .88706 .88399 .88095 .87793 .87494 .87197 .86903 .86611 .86321
104........................................................... .89737 .89446 .89157 .88871 .88586 .88304 .88024 .87745 .87469 .87195
105........................................................... .90443 .90170 .89898 .89628 .89360 .89094 .88830 .88568 .88307 .88049
106........................................................... .91351 .91101 .90852 .90605 .90359 .90115 .89873 .89632 .89392 .89154
107........................................................... .92452 .92230 .92010 .91791 .91573 .91356 .91141 .90927 .90714 .90502
108........................................................... .94161 .93987 .93814 .93641 .93469 .93298 .93128 .92958 .92790 .92622
109........................................................... .97081 .96992 .96904 .96816 .96729 .96642 .96555 .96468 .96382 .96296
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 90CM Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .01906 .01845 .01790 .01740 .01694 .01652 .01613 .01578 .01546 .01516
1............................................................. .01098 .01034 .00977 .00924 .00876 .00833 .00793 .00756 .00722 .00691
2............................................................. .01113 .01046 .00986 .00930 .00880 .00834 .00791 .00753 .00717 .00684
3............................................................. .01155 .01084 .01020 .00962 .00909 .00860 .00816 .00775 .00737 .00702
4............................................................. .01211 .01137 .01069 .01008 .00952 .00900 .00853 .00810 .00770 .00733
5............................................................. .01279 .01201 .01130 .01065 .01006 .00952 .00902 .00856 .00814 .00775
6............................................................. .01356 .01274 .01199 .01131 .01068 .01011 .00959 .00910 .00865 .00824
7............................................................. .01442 .01356 .01277 .01205 .01140 .01079 .01023 .00972 .00925 .00881
8............................................................. .01536 .01446 .01363 .01287 .01218 .01154 .01096 .01041 .00991 .00945
9............................................................. .01641 .01546 .01460 .01380 .01307 .01240 .01178 .01120 .01068 .01019
10............................................................ .01758 .01659 .01567 .01484 .01407 .01336 .01270 .01210 .01154 .01103
11............................................................ .01886 .01781 .01686 .01598 .01517 .01442 .01373 .01310 .01251 .01196
12............................................................ .02024 .01915 .01814 .01721 .01636 .01558 .01485 .01419 .01357 .01299
13............................................................ .02168 .02054 .01948 .01851 .01762 .01679 .01603 .01533 .01467 .01407
14............................................................ .02313 .02193 .02083 .01981 .01887 .01801 .01721 .01646 .01578 .01514
15............................................................ .02456 .02330 .02214 .02107 .02009 .01918 .01834 .01756 .01684 .01617
16............................................................ .02593 .02462 .02340 .02229 .02126 .02030 .01942 .01860 .01785 .01714
17............................................................ .02728 .02590 .02463 .02346 .02238 .02138 .02046 .01960 .01880 .01806
18............................................................ .02861 .02717 .02584 .02462 .02348 .02243 .02146 .02056 .01972 .01894
19............................................................ .02998 .02847 .02708 .02580 .02461 .02351 .02249 .02154 .02066 .01984
20............................................................ .03142 .02984 .02839 .02704 .02580 .02465 .02357 .02258 .02165 .02079
21............................................................ .03295 .03130 .02978 .02837 .02706 .02585 .02473 .02368 .02271 .02180
22............................................................ .03455 .03283 .03124 .02976 .02839 .02712 .02594 .02484 .02382 .02286
23............................................................ .03626 .03446 .03279 .03124 .02981 .02847 .02723 .02608 .02500 .02400
24............................................................ .03809 .03620 .03446 .03283 .03133 .02993 .02863 .02741 .02628 .02522
25............................................................ .04005 .03808 .03625 .03456 .03298 .03151 .03014 .02887 .02768 .02656
26............................................................ .04216 .04010 .03819 .03641 .03476 .03322 .03178 .03044 .02919 .02802
27............................................................ .04444 .04229 .04029 .03843 .03670 .03508 .03357 .03217 .03085 .02962
28............................................................ .04687 .04463 .04254 .04059 .03877 .03708 .03550 .03402 .03263 .03133
29............................................................ .04946 .04712 .04493 .04289 .04099 .03922 .03756 .03600 .03455 .03318
30............................................................ .05221 .04976 .04748 .04534 .04335 .04149 .03975 .03812 .03659 .03515
31............................................................ .05511 .05255 .05017 .04794 .04585 .04390 .04208 .04037 .03876 .03725
32............................................................ .05818 .05551 .05302 .05069 .04851 .04647 .04455 .04276 .04107 .03948
33............................................................ .06144 .05866 .05606 .05363 .05135 .04921 .04720 .04532 .04355 .04188
34............................................................ .06489 .06200 .05928 .05674 .05436 .05212 .05002 .04805 .04619 .04444
35............................................................ .06857 .06555 .06273 .06007 .05758 .05524 .05304 .05097 .04902 .04718
36............................................................ .07246 .06932 .06638 .06361 .06101 .05856 .05626 .05409 .05205 .05012
37............................................................ .07659 .07332 .07025 .06737 .06466 .06210 .05969 .05742 .05528 .05325
[[Page 108]]
38............................................................ .08098 .07758 .07439 .07138 .06855 .06588 .06336 .06099 .05874 .05662
39............................................................ .08563 .08210 .07878 .07565 .07270 .06992 .06729 .06480 .06245 .06023
40............................................................ .09059 .08692 .08347 .08021 .07714 .07423 .07149 .06889 .06643 .06411
41............................................................ .09586 .09206 .08848 .08509 .08189 .07886 .07600 .07329 .07072 .06828
42............................................................ .10147 .09753 .09381 .09029 .08696 .08381 .08083 .07800 .07531 .07277
43............................................................ .10742 .10334 .09948 .09583 .09237 .08909 .08598 .08304 .08024 .07758
44............................................................ .11373 .10950 .10551 .10172 .09813 .09472 .09148 .08841 .08549 .08272
45............................................................ .12035 .11599 .11185 .10792 .10420 .10066 .09730 .09410 .09106 .08817
46............................................................ .12732 .12281 .11853 .11447 .11061 .10694 .10345 .10013 .09696 .09395
47............................................................ .13460 .12995 .12553 .12133 .11733 .11353 .10991 .10646 .10317 .10004
48............................................................ .14223 .13743 .13287 .12853 .12439 .12046 .11671 .11313 .10972 .10646
49............................................................ .15020 .14526 .14056 .13608 .13181 .12774 .12385 .12015 .11661 .11322
50............................................................ .15855 .15347 .14862 .14401 .13960 .13540 .13138 .12754 .12388 .12037
51............................................................ .16727 .16205 .15707 .15232 .14777 .14344 .13929 .13532 .13153 .12789
52............................................................ .17634 .17098 .16587 .16097 .15630 .15183 .14755 .14345 .13953 .13577
53............................................................ .18576 .18027 .17501 .16999 .16518 .16057 .15616 .15194 .14789 .14400
54............................................................ .19552 .18990 .18451 .17935 .17441 .16968 .16514 .16078 .15661 .15260
55............................................................ .20564 .19989 .19437 .18908 .18402 .17915 .17449 .17001 .16571 .16157
56............................................................ .21613 .21025 .20461 .19919 .19400 .18901 .18422 .17962 .17519 .17093
57............................................................ .22698 .22098 .21522 .20968 .20436 .19925 .19434 .18961 .18507 .18069
58............................................................ .23816 .23204 .22616 .22051 .21507 .20984 .20481 .19996 .19530 .19080
59............................................................ .24962 .24339 .23740 .23163 .22608 .22073 .21558 .21062 .20584 .20123
60............................................................ .26136 .25502 .24892 .24304 .23738 .23192 .22666 .22158 .21669 .21196
61............................................................ .27339 .26695 .26075 .25477 .24900 .24343 .23806 .23288 .22787 .22304
62............................................................ .28578 .27925 .27295 .26687 .26100 .25533 .24985 .24456 .23945 .23451
63............................................................ .29854 .29192 .28553 .27935 .27339 .26762 .26205 .25666 .25145 .24641
64............................................................ .31164 .30494 .29846 .29221 .28615 .28030 .27463 .26915 .26384 .25870
65............................................................ .32508 .31831 .31177 .30543 .29930 .29336 .28761 .28203 .27663 .27140
66............................................................ .33891 .33208 .32547 .31906 .31285 .30684 .30101 .29536 .28987 .28456
67............................................................ .35318 .34630 .33963 .33316 .32689 .32081 .31491 .30918 .30363 .29823
68............................................................ .36785 .36093 .35422 .34770 .34138 .33524 .32928 .32349 .31787 .31240
69............................................................ .38290 .37595 .36920 .36265 .35628 .35009 .34408 .33824 .33256 .32703
70............................................................ .39823 .39127 .38450 .37791 .37151 .36529 .35924 .35335 .34762 .34204
71............................................................ .41378 .40681 .40003 .39343 .38701 .38076 .37467 .36875 .36298 .35736
72............................................................ .42950 .42253 .41575 .40914 .40271 .39644 .39034 .38438 .37858 .37293
73............................................................ .44535 .43840 .43162 .42502 .41858 .41231 .40619 .40022 .39440 .38872
74............................................................ .46139 .45446 .44771 .44112 .43469 .42842 .42230 .41632 .41049 .40479
75............................................................ .47769 .47080 .46408 .45752 .45111 .44485 .43874 .43277 .42693 .42123
76............................................................ .49430 .48747 .48079 .47427 .46790 .46167 .45558 .44963 .44380 .43811
77............................................................ .51123 .50447 .49786 .49139 .48506 .47888 .47282 .46690 .46111 .45543
78............................................................ .52845 .52177 .51523 .50884 .50257 .49645 .49044 .48457 .47881 .47317
79............................................................ .54584 .53926 .53282 .52650 .52032 .51426 .50833 .50251 .49681 .49122
80............................................................ .56325 .55678 .55044 .54423 .53813 .53216 .52630 .52056 .51492 .50939
81............................................................ .58054 .57419 .56797 .56186 .55587 .54999 .54422 .53856 .53300 .52754
82............................................................ .59762 .59140 .58530 .57931 .57343 .56766 .56198 .55641 .55094 .54557
83............................................................ .61448 .60840 .60243 .59657 .59081 .58515 .57958 .57411 .56874 .56346
84............................................................ .63124 .62531 .61949 .61376 .60813 .60259 .59715 .59179 .58652 .58134
85............................................................ .64800 .64224 .63657 .63099 .62550 .62010 .61478 .60955 .60441 .59934
86............................................................ .66461 .65902 .65351 .64810 .64276 .63751 .63233 .62724 .62222 .61728
87............................................................ .68083 .67541 .67008 .66483 .65965 .65455 .64953 .64458 .63970 .63489
88............................................................ .69663 .69140 .68624 .68116 .67615 .67121 .66634 .66154 .65680 .65213
89............................................................ .71201 .70696 .70199 .69708 .69224 .68747 .68276 .67811 .67353 .66900
90............................................................ .72694 .72209 .71730 .71257 .70791 .70330 .69876 .69427 .68984 .68547
91............................................................ .74117 .73650 .73190 .72735 .72286 .71842 .71404 .70972 .70545 .70123
92............................................................ .75439 .74991 .74548 .74110 .73678 .73251 .72829 .72412 .72000 .71593
93............................................................ .76664 .76233 .75806 .75385 .74969 .74557 .74150 .73748 .73350 .72957
94............................................................ .77809 .77394 .76983 .76578 .76177 .75780 .75388 .75000 .74616 .74237
95............................................................ .78899 .78500 .78106 .77715 .77329 .76947 .76569 .76195 .75826 .75460
96............................................................ .79928 .79544 .79165 .78790 .78418 .78050 .77686 .77326 .76970 .76617
97............................................................ .80883 .80514 .80149 .79787 .79430 .79075 .78725 .78377 .78033 .77693
98............................................................ .81781 .81427 .81075 .80727 .80382 .80041 .79703 .79368 .79036 .78708
99............................................................ .82661 .82320 .81982 .81648 .81316 .80988 .80662 .80340 .80020 .79704
100........................................................... .83519 .83192 .82868 .82547 .82228 .81913 .81600 .81290 .80982 .80678
101........................................................... .84368 .84055 .83744 .83437 .83131 .82829 .82529 .82231 .81936 .81643
102........................................................... .85203 .84904 .84607 .84313 .84021 .83731 .83444 .83159 .82876 .82596
103........................................................... .86034 .85748 .85465 .85184 .84906 .84629 .84355 .84082 .83812 .83544
104........................................................... .86923 .86653 .86385 .86119 .85855 .85593 .85333 .85074 .84818 .84563
105........................................................... .87792 .87537 .87283 .87032 .86782 .86534 .86287 .86042 .85799 .85557
106........................................................... .88918 .88683 .88450 .88218 .87987 .87758 .87530 .87304 .87079 .86855
[[Page 109]]
107........................................................... .90291 .90082 .89873 .89666 .89460 .89255 .89051 .88849 .88647 .88447
108........................................................... .92455 .92288 .92123 .91958 .91794 .91630 .91468 .91306 .91145 .90984
109........................................................... .96211 .96125 .96041 .95956 .95872 .95788 .95704 .95620 .95537 .95455
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 90CM Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0% 11.2% 11.4% 11.6% 11.8% 12.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .01488 .01463 .01439 .01417 .01396 .01377 .01359 .01343 .01327 .01312
1............................................................. .00662 .00636 .00612 .00589 .00568 .00548 .00530 .00513 .00497 .00482
2............................................................. .00654 .00626 .00600 .00576 .00554 .00533 .00514 .00496 .00479 .00463
3............................................................. .00670 .00641 .00613 .00588 .00564 .00542 .00522 .00502 .00484 .00468
4............................................................. .00699 .00668 .00639 .00612 .00587 .00563 .00542 .00521 .00502 .00484
5............................................................. .00739 .00706 .00675 .00646 .00620 .00595 .00571 .00550 .00529 .00510
6............................................................. .00786 .00751 .00718 .00687 .00659 .00633 .00608 .00585 .00563 .00543
7............................................................. .00841 .00803 .00769 .00736 .00706 .00678 .00652 .00627 .00604 .00582
8............................................................. .00902 .00863 .00826 .00791 .00759 .00730 .00702 .00675 .00651 .00628
9............................................................. .00973 .00931 .00892 .00856 .00822 .00790 .00760 .00733 .00706 .00682
10............................................................ .01055 .01010 .00969 .00930 .00894 .00861 .00829 .00799 .00772 .00746
11............................................................ .01146 .01099 .01055 .01014 .00976 .00940 .00907 .00875 .00846 .00818
12............................................................ .01246 .01196 .01150 .01106 .01066 .01028 .00993 .00960 .00928 .00899
13............................................................ .01351 .01298 .01249 .01204 .01161 .01121 .01084 .01049 .01016 .00985
14............................................................ .01455 .01400 .01348 .01300 .01255 .01213 .01173 .01136 .01102 .01069
15............................................................ .01555 .01497 .01443 .01392 .01345 .01300 .01259 .01220 .01183 .01148
16............................................................ .01648 .01587 .01530 .01477 .01427 .01380 .01336 .01295 .01257 .01220
17............................................................ .01737 .01673 .01612 .01556 .01504 .01455 .01408 .01365 .01324 .01286
18............................................................ .01822 .01754 .01691 .01632 .01576 .01525 .01476 .01430 .01387 .01347
19............................................................ .01908 .01837 .01770 .01708 .01650 .01595 .01544 .01495 .01450 .01407
20............................................................ .01999 .01924 .01854 .01788 .01726 .01669 .01615 .01564 .01516 .01471
21............................................................ .02096 .02017 .01943 .01874 .01809 .01748 .01691 .01637 .01586 .01539
22............................................................ .02197 .02114 .02036 .01963 .01895 .01830 .01770 .01713 .01660 .01610
23............................................................ .02306 .02218 .02136 .02059 .01987 .01919 .01855 .01795 .01739 .01686
24............................................................ .02424 .02331 .02245 .02163 .02087 .02016 .01948 .01885 .01825 .01769
25............................................................ .02552 .02455 .02364 .02278 .02197 .02122 .02051 .01984 .01920 .01861
26............................................................ .02692 .02589 .02493 .02403 .02318 .02238 .02162 .02091 .02025 .01961
27............................................................ .02846 .02738 .02636 .02541 .02451 .02367 .02287 .02212 .02141 .02074
28............................................................ .03012 .02898 .02791 .02690 .02595 .02506 .02422 .02342 .02267 .02196
29............................................................ .03190 .03070 .02957 .02851 .02751 .02656 .02567 .02483 .02404 .02329
30............................................................ .03381 .03254 .03135 .03023 .02917 .02817 .02723 .02634 .02551 .02471
31............................................................ .03583 .03450 .03324 .03206 .03094 .02989 .02890 .02796 .02707 .02623
32............................................................ .03799 .03659 .03527 .03402 .03284 .03173 .03068 .02968 .02874 .02785
33............................................................ .04031 .03883 .03744 .03612 .03488 .03371 .03260 .03155 .03055 .02961
34............................................................ .04279 .04123 .03976 .03838 .03707 .03583 .03465 .03354 .03249 .03149
35............................................................ .04545 .04382 .04227 .04081 .03943 .03812 .03688 .03571 .03459 .03354
36............................................................ .04830 .04658 .04495 .04341 .04196 .04058 .03927 .03803 .03685 .03573
37............................................................ .05134 .04953 .04782 .04620 .04467 .04321 .04183 .04052 .03928 .03809
38............................................................ .05462 .05272 .05092 .04921 .04760 .04606 .04461 .04322 .04191 .04066
39............................................................ .05812 .05613 .05424 .05245 .05075 .04913 .04760 .04614 .04475 .04343
40............................................................ .06190 .05981 .05782 .05594 .05415 .05245 .05083 .04929 .04783 .04643
41............................................................ .06597 .06378 .06170 .05972 .05784 .05605 .05435 .05272 .05118 .04970
42............................................................ .07035 .06806 .06587 .06380 .06182 .05994 .05815 .05644 .05481 .05326
43............................................................ .07505 .07265 .07036 .06818 .06611 .06414 .06225 .06045 .05874 .05710
44............................................................ .08008 .07757 .07518 .07290 .07072 .06865 .06667 .06478 .06298 .06125
45............................................................ .08542 .08279 .08029 .07791 .07563 .07346 .07138 .06940 .06750 .06569
46............................................................ .09108 .08834 .08573 .08324 .08085 .07858 .07640 .07432 .07233 .07043
47............................................................ .09705 .09419 .09147 .08886 .08637 .08399 .08172 .07954 .07745 .07545
48............................................................ .10335 .10038 .09754 .09482 .09222 .08973 .08735 .08507 .08288 .08078
49............................................................ .10999 .10690 .10394 .10111 .09840 .09581 .09332 .09093 .08864 .08644
50............................................................ .11701 .11380 .11073 .10778 .10496 .10225 .09965 .09716 .09477 .09247
51............................................................ .12441 .12108 .11789 .11482 .11189 .10907 .10636 .10376 .10126 .09886
52............................................................ .13217 .12871 .12540 .12222 .11916 .11623 .11341 .11071 .10810 .10560
53............................................................ .14028 .13670 .13327 .12997 .12680 .12375 .12082 .11801 .11529 .11268
54............................................................ .14875 .14505 .14150 .13808 .13480 .13163 .12859 .12566 .12284 .12012
55............................................................ .15760 .15378 .15011 .14657 .14317 .13989 .13674 .13370 .13077 .12794
56............................................................ .16684 .16290 .15911 .15546 .15194 .14855 .14528 .14213 .13909 .13615
[[Page 110]]
57............................................................ .17648 .17242 .16851 .16474 .16111 .15760 .15422 .15096 .14781 .14477
58............................................................ .18647 .18229 .17827 .17438 .17064 .16702 .16353 .16015 .15689 .15374
59............................................................ .19678 .19249 .18835 .18435 .18049 .17676 .17316 .16968 .16631 .16305
60............................................................ .20740 .20300 .19875 .19464 .19066 .18682 .18311 .17952 .17604 .17268
61............................................................ .21837 .21385 .20949 .20527 .20119 .19724 .19341 .18971 .18613 .18266
62............................................................ .22973 .22511 .22064 .21631 .21212 .20807 .20414 .20033 .19664 .19306
63............................................................ .24152 .23680 .23222 .22779 .22350 .21934 .21530 .21139 .20760 .20392
64............................................................ .25372 .24890 .24422 .23969 .23529 .23103 .22690 .22289 .21899 .21521
65............................................................ .26633 .26141 .25664 .25201 .24752 .24316 .23893 .23482 .23083 .22695
66............................................................ .27940 .27439 .26953 .26481 .26023 .25577 .25145 .24724 .24316 .23918
67............................................................ .29299 .28790 .28296 .27815 .27348 .26894 .26453 .26024 .25606 .25200
68............................................................ .30709 .30193 .29691 .29202 .28728 .28265 .27816 .27378 .26952 .26537
69............................................................ .32166 .31643 .31134 .30639 .30157 .29687 .29230 .28785 .28351 .27928
70............................................................ .33661 .33133 .32618 .32116 .31628 .31152 .30688 .30235 .29794 .29364
71............................................................ .35188 .34654 .34134 .33627 .33133 .32651 .32181 .31722 .31275 .30838
72............................................................ .36742 .36204 .35679 .35168 .34668 .34181 .33706 .33241 .32788 .32345
73............................................................ .38317 .37776 .37248 .36733 .36229 .35738 .35257 .34788 .34330 .33882
74............................................................ .39923 .39380 .38849 .38330 .37823 .37328 .36844 .36370 .35908 .35455
75............................................................ .41566 .41021 .40489 .39968 .39459 .38961 .38474 .37997 .37531 .37074
76............................................................ .43254 .42709 .42176 .41655 .41144 .40645 .40156 .39677 .39208 .38749
77............................................................ .44988 .44444 .43912 .43391 .42880 .42380 .41891 .41411 .40940 .40479
78............................................................ .46765 .46224 .45694 .45174 .44665 .44166 .43677 .43197 .42726 .42265
79............................................................ .48574 .48037 .47510 .46993 .46487 .45990 .45502 .45024 .44554 .44094
80............................................................ .50397 .49865 .49343 .48830 .48327 .47834 .47349 .46873 .46406 .45947
81............................................................ .52219 .51693 .51176 .50669 .50171 .49682 .49201 .48729 .48265 .47809
82............................................................ .54029 .53510 .53000 .52499 .52007 .51523 .51047 .50580 .50120 .49667
83............................................................ .55826 .55315 .54813 .54319 .53834 .53356 .52886 .52424 .51969 .51522
84............................................................ .57624 .57123 .56629 .56144 .55666 .55195 .54732 .54277 .53828 .53386
85............................................................ .59435 .58944 .58460 .57984 .57516 .57054 .56599 .56151 .55710 .55275
86............................................................ .61241 .60762 .60289 .59824 .59365 .58913 .58468 .58029 .57596 .57170
87............................................................ .63015 .62548 .62087 .61633 .61185 .60744 .60309 .59880 .59456 .59039
88............................................................ .64753 .64299 .63851 .63409 .62973 .62543 .62118 .61700 .61287 .60879
89............................................................ .66454 .66013 .65579 .65150 .64726 .64308 .63895 .63488 .63086 .62689
90............................................................ .68115 .67689 .67268 .66853 .66442 .66037 .65637 .65241 .64851 .64465
91............................................................ .69706 .69294 .68887 .68486 .68089 .67696 .67309 .66925 .66547 .66173
92............................................................ .71190 .70792 .70399 .70011 .69627 .69247 .68872 .68501 .68134 .67771
93............................................................ .72569 .72184 .71804 .71429 .71057 .70689 .70326 .69967 .69611 .69259
94............................................................ .73861 .73490 .73123 .72759 .72400 .72044 .71692 .71344 .71000 .70659
95............................................................ .75097 .74739 .74384 .74033 .73686 .73342 .73002 .72665 .72331 .72001
96............................................................ .76267 .75922 .75579 .75240 .74905 .74572 .74243 .73917 .73595 .73275
97............................................................ .77356 .77022 .76691 .76363 .76039 .75718 .75399 .75084 .74772 .74463
98............................................................ .78382 .78059 .77740 .77423 .77110 .76799 .76491 .76186 .75884 .75584
99............................................................ .79390 .79079 .78771 .78465 .78162 .77862 .77565 .77270 .76978 .76688
100........................................................... .80376 .80076 .79779 .79485 .79193 .78904 .78617 .78333 .78051 .77771
101........................................................... .81353 .81066 .80780 .80497 .80217 .79938 .79662 .79388 .79117 .78847
102........................................................... .82318 .82042 .81768 .81496 .81227 .80960 .80694 .80431 .80170 .79911
103........................................................... .83278 .83014 .82752 .82491 .82233 .81977 .81723 .81470 .81220 .80971
104........................................................... .84310 .84059 .83810 .83563 .83317 .83073 .82831 .82591 .82352 .82115
105........................................................... .85318 .85079 .84843 .84607 .84374 .84142 .83911 .83682 .83455 .83229
106........................................................... .86633 .86413 .86193 .85975 .85758 .85543 .85329 .85116 .84904 .84694
107........................................................... .88247 .88049 .87852 .87656 .87460 .87266 .87073 .86881 .86690 .86500
108........................................................... .90825 .90666 .90507 .90350 .90193 .90037 .89881 .89727 .89572 .89419
109........................................................... .95372 .95290 .95208 .95126 .95045 .94964 .94883 .94803 .94723 .94643
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table S--Based on Life Table 90CM Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0% 13.2% 13.4% 13.6% 13.8% 14.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .01298 .01285 .01273 .01261 .01250 .01240 .01230 .01221 .01212 .01203
1............................................................. .00468 .00455 .00443 .00431 .00420 .00410 .00400 .00391 .00382 .00374
2............................................................. .00448 .00435 .00421 .00409 .00398 .00387 .00376 .00366 .00357 .00348
3............................................................. .00452 .00437 .00423 .00410 .00398 .00386 .00375 .00365 .00355 .00345
4............................................................. .00468 .00452 .00437 .00423 .00410 .00397 .00386 .00375 .00364 .00354
5............................................................. .00493 .00476 .00460 .00445 .00431 .00418 .00405 .00393 .00382 .00371
6............................................................. .00524 .00506 .00489 .00473 .00458 .00444 .00430 .00418 .00406 .00394
[[Page 111]]
7............................................................. .00562 .00543 .00525 .00508 .00492 .00477 .00462 .00449 .00436 .00423
8............................................................. .00606 .00586 .00566 .00548 .00531 .00515 .00499 .00485 .00471 .00458
9............................................................. .00659 .00637 .00616 .00597 .00579 .00561 .00545 .00529 .00514 .00500
10............................................................ .00721 .00698 .00676 .00655 .00636 .00617 .00600 .00583 .00567 .00552
11............................................................ .00792 .00767 .00744 .00722 .00701 .00682 .00663 .00645 .00628 .00612
12............................................................ .00871 .00845 .00821 .00797 .00775 .00754 .00735 .00716 .00698 .00681
13............................................................ .00955 .00928 .00902 .00877 .00854 .00831 .00810 .00790 .00771 .00753
14............................................................ .01038 .01009 .00981 .00955 .00930 .00907 .00885 .00864 .00843 .00824
15............................................................ .01116 .01085 .01056 .01028 .01002 .00977 .00954 .00932 .00910 .00890
16............................................................ .01186 .01153 .01123 .01094 .01066 .01040 .01015 .00992 .00969 .00948
17............................................................ .01250 .01215 .01183 .01152 .01124 .01096 .01070 .01045 .01022 .00999
18............................................................ .01308 .01272 .01238 .01206 .01175 .01147 .01119 .01093 .01068 .01044
19............................................................ .01367 .01329 .01293 .01259 .01227 .01196 .01167 .01140 .01113 .01088
20............................................................ .01428 .01388 .01350 .01314 .01280 .01248 .01217 .01188 .01161 .01134
21............................................................ .01494 .01451 .01411 .01373 .01337 .01303 .01271 .01240 .01211 .01183
22............................................................ .01562 .01517 .01475 .01435 .01397 .01361 .01326 .01294 .01263 .01233
23............................................................ .01635 .01588 .01543 .01501 .01460 .01422 .01386 .01351 .01319 .01287
24............................................................ .01716 .01665 .01618 .01573 .01530 .01489 .01451 .01415 .01380 .01347
25............................................................ .01804 .01751 .01701 .01653 .01608 .01565 .01524 .01485 .01448 .01413
26............................................................ .01902 .01845 .01792 .01741 .01693 .01648 .01604 .01563 .01524 .01487
27............................................................ .02011 .01951 .01895 .01841 .01790 .01742 .01696 .01652 .01610 .01571
28............................................................ .02129 .02066 .02006 .01949 .01895 .01844 .01795 .01748 .01704 .01662
29............................................................ .02258 .02191 .02127 .02067 .02009 .01955 .01903 .01853 .01806 .01762
30............................................................ .02396 .02325 .02257 .02193 .02132 .02074 .02019 .01966 .01916 .01869
31............................................................ .02543 .02467 .02396 .02328 .02263 .02201 .02143 .02087 .02034 .01983
32............................................................ .02701 .02621 .02545 .02472 .02404 .02338 .02276 .02217 .02160 .02106
33............................................................ .02871 .02786 .02706 .02629 .02556 .02487 .02420 .02357 .02297 .02240
34............................................................ .03054 .02964 .02879 .02797 .02720 .02646 .02576 .02509 .02445 .02383
35............................................................ .03253 .03158 .03067 .02981 .02898 .02820 .02745 .02674 .02606 .02541
36............................................................ .03467 .03366 .03269 .03178 .03090 .03007 .02928 .02852 .02779 .02710
37............................................................ .03697 .03590 .03488 .03391 .03298 .03209 .03125 .03044 .02967 .02893
38............................................................ .03947 .03833 .03725 .03622 .03524 .03430 .03340 .03254 .03172 .03094
39............................................................ .04217 .04096 .03982 .03873 .03768 .03669 .03573 .03482 .03395 .03312
40............................................................ .04510 .04383 .04262 .04146 .04035 .03930 .03828 .03732 .03639 .03550
41............................................................ .04830 .04695 .04567 .04445 .04327 .04215 .04108 .04005 .03907 .03812
42............................................................ .05177 .05035 .04900 .04770 .04646 .04527 .04413 .04304 .04200 .04100
43............................................................ .05553 .05404 .05261 .05123 .04992 .04866 .04746 .04630 .04520 .04413
44............................................................ .05960 .05802 .05651 .05506 .05368 .05235 .05107 .04985 .04867 .04754
45............................................................ .06395 .06229 .06069 .05917 .05770 .05630 .05495 .05365 .05241 .05121
46............................................................ .06860 .06685 .06517 .06356 .06202 .06053 .05911 .05774 .05643 .05516
47............................................................ .07353 .07169 .06992 .06823 .06660 .06504 .06353 .06209 .06070 .05936
48............................................................ .07877 .07684 .07498 .07320 .07149 .06984 .06826 .06673 .06527 .06385
49............................................................ .08433 .08231 .08036 .07849 .07669 .07495 .07329 .07168 .07013 .06864
50............................................................ .09026 .08814 .08609 .08413 .08224 .08042 .07867 .07698 .07535 .07378
51............................................................ .09655 .09433 .09219 .09013 .08815 .08624 .08440 .08262 .08091 .07926
52............................................................ .10318 .10086 .09863 .09647 .09439 .09239 .09046 .08860 .08680 .08506
53............................................................ .11017 .10774 .10541 .10315 .10098 .09888 .09686 .09491 .09302 .09120
54............................................................ .11750 .11498 .11254 .11019 .10792 .10572 .10361 .10156 .09958 .09767
55............................................................ .12522 .12258 .12005 .11759 .11522 .11294 .11072 .10859 .10652 .10451
56............................................................ .13332 .13059 .12794 .12539 .12292 .12054 .11823 .11599 .11383 .11174
57............................................................ .14183 .13899 .13624 .13359 .13102 .12853 .12613 .12380 .12154 .11936
58............................................................ .15070 .14775 .14490 .14215 .13948 .13689 .13439 .13197 .12962 .12734
59............................................................ .15990 .15685 .15389 .15103 .14826 .14558 .14298 .14046 .13801 .13564
60............................................................ .16942 .16626 .16321 .16024 .15737 .15459 .15189 .14927 .14673 .14426
61............................................................ .17929 .17603 .17287 .16981 .16684 .16395 .16115 .15844 .15580 .15324
62............................................................ .18960 .18623 .18297 .17980 .17673 .17375 .17085 .16803 .16530 .16264
63............................................................ .20035 .19688 .19352 .19025 .18708 .18400 .18100 .17809 .17525 .17250
64............................................................ .21154 .20797 .20451 .20114 .19787 .19469 .19159 .18859 .18566 .18281
65............................................................ .22318 .21951 .21595 .21249 .20912 .20584 .20265 .19955 .19652 .19358
66............................................................ .23532 .23156 .22790 .22434 .22088 .21751 .21422 .21102 .20791 .20487
67............................................................ .24804 .24419 .24044 .23679 .23324 .22977 .22640 .22311 .21990 .21678
68............................................................ .26133 .25740 .25356 .24983 .24618 .24263 .23917 .23579 .23250 .22929
69............................................................ .27516 .27114 .26723 .26341 .25969 .25605 .25251 .24905 .24567 .24237
70............................................................ .28945 .28536 .28137 .27747 .27367 .26996 .26633 .26279 .25934 .25596
71............................................................ .30412 .29996 .29590 .29193 .28806 .28427 .28057 .27696 .27343 .26998
72............................................................ .31913 .31491 .31078 .30675 .30281 .29895 .29519 .29150 .28790 .28438
73............................................................ .33444 .33016 .32597 .32188 .31788 .31396 .31013 .30638 .30271 .29913
74............................................................ .35012 .34579 .34155 .33741 .33335 .32938 .32549 .32168 .31795 .31430
75............................................................ .36628 .36190 .35762 .35343 .34932 .34530 .34136 .33750 .33372 .33001
[[Page 112]]
76............................................................ .38299 .37858 .37427 .37004 .36589 .36183 .35784 .35394 .35011 .34636
77............................................................ .40028 .39585 .39151 .38725 .38307 .37898 .37496 .37103 .36716 .36337
78............................................................ .41812 .41368 .40933 .40506 .40086 .39675 .39271 .38874 .38485 .38103
79............................................................ .43641 .43198 .42762 .42334 .41914 .41502 .41096 .40698 .40308 .39924
80............................................................ .45496 .45054 .44619 .44192 .43772 .43360 .42954 .42556 .42164 .41779
81............................................................ .47360 .46920 .46487 .46061 .45643 .45231 .44827 .44429 .44038 .43653
82............................................................ .49223 .48785 .48355 .47932 .47516 .47106 .46703 .46307 .45916 .45532
83............................................................ .51081 .50648 .50221 .49802 .49388 .48982 .48581 .48187 .47799 .47416
84............................................................ .52951 .52523 .52101 .51686 .51277 .50874 .50477 .50086 .49701 .49321
85............................................................ .54847 .54425 .54009 .53600 .53196 .52798 .52406 .52019 .51638 .51262
86............................................................ .56749 .56335 .55926 .55523 .55126 .54734 .54348 .53966 .53591 .53220
87............................................................ .58627 .58221 .57820 .57425 .57035 .56650 .56270 .55895 .55526 .55161
88............................................................ .60477 .60079 .59688 .59301 .58919 .58542 .58170 .57802 .57439 .57081
89............................................................ .62297 .61909 .61527 .61149 .60776 .60408 .60044 .59685 .59330 .58979
90............................................................ .64084 .63707 .63335 .62968 .62604 .62246 .61891 .61540 .61194 .60851
91............................................................ .65803 .65437 .65076 .64719 .64366 .64017 .63672 .63330 .62993 .62659
92............................................................ .67412 .67058 .66707 .66360 .66017 .65678 .65342 .65010 .64682 .64357
93............................................................ .68911 .68567 .68227 .67890 .67557 .67227 .66901 .66578 .66258 .65942
94............................................................ .70321 .69988 .69657 .69330 .69006 .68686 .68369 .68055 .67744 .67437
95............................................................ .71674 .71351 .71031 .70713 .70399 .70088 .69781 .69476 .69174 .68875
96............................................................ .72959 .72646 .72335 .72028 .71724 .71422 .71123 .70828 .70534 .70244
97............................................................ .74156 .73853 .73552 .73254 .72959 .72666 .72376 .72089 .71804 .71522
98............................................................ .75287 .74993 .74702 .74413 .74126 .73842 .73561 .73282 .73006 .72732
99............................................................ .76401 .76117 .75834 .75555 .75277 .75002 .74730 .74459 .74191 .73926
100........................................................... .77494 .77219 .76946 .76676 .76408 .76142 .75878 .75616 .75357 .75099
101........................................................... .78580 .78315 .78052 .77791 .77532 .77275 .77021 .76768 .76517 .76268
102........................................................... .79654 .79399 .79146 .78894 .78645 .78397 .78152 .77908 .77666 .77426
103........................................................... .80724 .80479 .80236 .79994 .79755 .79517 .79280 .79046 .78813 .78582
104........................................................... .81879 .81646 .81413 .81183 .80954 .80726 .80501 .80276 .80054 .79832
105........................................................... .83005 .82782 .82560 .82340 .82121 .81904 .81688 .81474 .81260 .81049
106........................................................... .84485 .84277 .84071 .83866 .83662 .83459 .83257 .83057 .82857 .82659
107........................................................... .86311 .86124 .85937 .85751 .85566 .85382 .85199 .85017 .84835 .84655
108........................................................... .89266 .89114 .88963 .88812 .88662 .88513 .88364 .88216 .88068 .87922
109........................................................... .94563 .94484 .94405 .94326 .94248 .94170 .94092 .94014 .93937 .93860
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) Effective/applicability dates. Paragraphs (f)(1) through (f)(6)
apply after April 30, 1999, and before May 1, 2009.
[Redesignated at 36 FR 6480, Apr. 6, 1971 as amended by T.D. 8540, 59 FR
30102, 30105, 30116, June 10, 1994; T.D. 8819, 64 FR 23190, 23199,
23228, Apr. 30, 1999; 64 FR 33196, June 22, 1999; T.D. 8886, 65 FR
36943, June 12, 2000; T.D. 9448, 74 FR 21440, 21464, May 7, 2009; T.D.
9540, 76 FR 49612, Aug. 10, 2011]
Election to Treat Trust as Part of an Estate
Sec. 1.645-1 Election by certain revocable trusts to be treated as
part of estate.
(a) In general. If an election is filed for a qualified revocable
trust, as defined in paragraph (b)(1) of this section, in accordance
with the rules set forth in paragraph (c) of this section, the qualified
revocable trust is treated and taxed for purposes of subtitle A of the
Internal Revenue Code as part of its related estate, as defined in
paragraph (b)(5) of this section (and not as a separate trust) during
the election period, as defined in paragraph (b)(6) of this section.
Rules regarding the use of taxpayer identification numbers (TINs) and
the filing of a Form 1041, ``U.S. Income Tax Return for Estates and
Trusts,'' for a qualified revocable trust are in paragraph (d) of this
section. Rules regarding the tax treatment of an electing trust and
related estate and the general filing requirements for the combined
entity during the election period are in paragraph (e)(2) of this
section. Rules regarding the tax treatment of an electing trust and its
filing requirements during the election period if no executor, as
defined in paragraph (b)(4) of this section, is appointed for a related
estate are in paragraph
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(e)(3) of this section. Rules for determining the duration of the
section 645 election period are in paragraph (f) of this section. Rules
regarding the tax effects of the termination of the election are in
paragraph (h) of this section. Rules regarding the tax consequences of
the appointment of an executor after a trustee has made a section 645
election believing that an executor would not be appointed for a related
estate are in paragraph (g) of this section.
(b) Definitions. For purposes of this section:
(1) Qualified revocable trust. A qualified revocable trust (QRT) is
any trust (or portion thereof) that on the date of death of the decedent
was treated as owned by the decedent under section 676 by reason of a
power held by the decedent (determined without regard to section
672(e)). A trust that was treated as owned by the decedent under section
676 by reason of a power that was exercisable by the decedent only with
the approval or consent of a nonadverse party or with the approval or
consent of the decedent's spouse is a QRT. A trust that was treated as
owned by the decedent under section 676 solely by reason of a power held
by a nonadverse party or by reason of a power held by the decedent's
spouse is not a QRT.
(2) Electing trust. An electing trust is a QRT for which a valid
section 645 election has been made. Once a section 645 election has been
made for the trust, the trust shall be treated as an electing trust
throughout the entire election period.
(3) Decedent. The decedent is the individual who was treated as the
owner of the QRT under section 676 on the date of that individual's
death.
(4) Executor. An executor is an executor, personal representative,
or administrator that has obtained letters of appointment to administer
the decedent's estate through formal or informal appointment procedures.
Solely for purposes of this paragraph (b)(4), an executor does not
include a person that has actual or constructive possession of property
of the decedent unless that person is also appointed or qualified as an
executor, administrator, or personal representative of the decedent's
estate. If more than one jurisdiction has appointed an executor, the
executor appointed in the domiciliary or primary proceeding is the
executor of the related estate for purposes of this paragraph (b)(4).
(5) Related estate. A related estate is the estate of the decedent
who was treated as the owner of the QRT on the date of the decedent's
death.
(6) Election period. The election period is the period of time
during which an electing trust is treated and taxed as part of its
related estate. The rules for determining the duration of the election
period are in paragraph (f) of this section.
(c) The election--(1) Filing the election if there is an executor--
(i) Time and manner for filing the election. If there is an executor of
the related estate, the trustees of each QRT joining in the election and
the executor of the related estate make an election under section 645
and this section to treat each QRT joining in the election as part of
the related estate for purposes of subtitle A of the Internal Revenue
Code by filing a form provided by the IRS for making the election
(election form) properly completed and signed under penalties of
perjury, or in any other manner prescribed after December 24, 2002 by
forms provided by the Internal Revenue Service (IRS), or by other
published guidance for making the election. For the election to be
valid, the election form must be filed not later than the time
prescribed under section 6072 for filing the Form 1041 for the first
taxable year of the related estate (regardless of whether there is
sufficient income to require the filing of that return). If an extension
is granted for the filing of the Form 1041 for the first taxable year of
the related estate, the election form will be timely filed if it is
filed by the time prescribed for filing the Form 1041 including the
extension granted with respect to the Form 1041.
(ii) Conditions to election. In addition to providing the
information required by the election form, as a condition to a valid
section 645 election, the trustee of each QRT joining in the election
and the executor of the related estate agree, by signing the election
form under penalties of perjury, that:
(A) With respect to a trustee--
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(1) The trustee agrees to the election;
(2) The trustee is responsible for timely providing the executor of
the related estate with all the trust information necessary to permit
the executor to file a complete, accurate, and timely Form 1041 for the
combined electing trust(s) and related estate for each taxable year
during the election period;
(3) The trustee of each QRT joining the election and the executor of
the related estate have agreed to allocate the tax burden of the
combined electing trust(s) and related estate for each taxable year
during the election period in a manner that reasonably reflects the tax
obligations of each electing trust and the related estate; and
(4) The trustee is responsible for insuring that the electing
trust's share of the tax obligations of the combined electing trust(s)
and related estate is timely paid to the Secretary.
(B) With respect to the executor--
(1) The executor agrees to the election;
(2) The executor is responsible for filing a complete, accurate, and
timely Form 1041 for the combined electing trust(s) and related estate
for each taxable year during the election period;
(3) The executor and the trustee of each QRT joining in the election
have agreed to allocate the tax burden of the combined electing trust(s)
and related estate for each taxable year during the election period in a
manner that reasonably reflects the tax obligations of each electing
trust and the related estate;
(4) The executor is responsible for insuring that the related
estate's share of the tax obligations of the combined electing trust(s)
and related estate is timely paid to the Secretary.
(2) Filing the election if there is no executor--(i) Time and manner
for filing the election. If there is no executor for a related estate,
an election to treat one or more QRTs of the decedent as an estate for
purposes of subtitle A of the Internal Revenue Code is made by the
trustees of each QRT joining in the election, by filing a properly
completed election form, or in any other manner prescribed after
December 24, 2002 by forms provided by the IRS, or by other published
guidance for making the election. For the election to be valid, the
election form must be filed not later than the time prescribed under
section 6072 for filing the Form 1041 for the first taxable year of the
trust, taking into account the trustee's election to treat the trust as
an estate under section 645 (regardless of whether there is sufficient
income to require the filing of that return). If an extension is granted
for the filing of the Form 1041 for the first taxable year of the
electing trust, the election form will be timely filed if it is filed by
the time prescribed for filing the Form 1041 including the extension
granted with respect to the filing of the Form 1041.
(ii) Conditions to election. In addition to providing the
information required by the election form, as a condition to a valid
section 645 election, the trustee of each QRT joining in the election
agrees, by signing the election form under penalties of perjury, that--
(A) The trustee agrees to the election;
(B) If there is more than one QRT joining in the election, the
trustees of each QRT joining in the election have appointed one trustee
to be responsible for filing the Form 1041 for the combined electing
trusts for each taxable year during the election period (filing trustee)
and the filing trustee has agreed to accept that responsibility;
(C) If there is more than one QRT, the trustees of each QRT joining
in the election have agreed to allocate the tax liability of the
combined electing trusts for each taxable year during the election
period in a manner that reasonably reflects the tax obligations of each
electing trust;
(D) The trustee agrees to:
(1) Timely file a Form 1041 for the electing trust(s) for each
taxable year during the election period; or
(2) If there is more than one QRT and the trustee is not the filing
trustee, timely provide the filing trustee with all of the electing
trust's information necessary to permit the filing trustee to file a
complete, accurate, and timely Form 1041 for the combined electing
trusts for each taxable year during the election period;
(3) Insure that the electing trust's share of the tax burden is
timely paid to the Secretary;
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(E) There is no executor and, to the knowledge and belief of the
trustee, one will not be appointed; and
(F) If an executor is appointed after the filing of the election
form and the executor agrees to the section 645 election, the trustee
will complete and file a revised election form with the executor.
(3) Election for more than one QRT. If there is more than one QRT,
the election may be made for some or all of the QRTs. If there is no
executor, one trustee must be appointed by the trustees of the electing
trusts to file Forms 1041 for the combined electing trusts filing as an
estate during the election period.
(d) TIN and filing requirements for a QRT--(1) Obtaining a TIN.
Regardless of whether there is an executor for a related estate and
regardless of whether a section 645 election will be made for the QRT, a
TIN must be obtained for the QRT following the death of the decedent.
See Sec. 301.6109-1(a)(3) of this chapter. The trustee must furnish
this TIN to the payors of the QRT. See Sec. 301.6109-1(a)(5) of this
chapter for the definition of payor.
(2) Filing a Form 1041 for a QRT--(i) Option not to file a Form 1041
for a QRT for which a section 645 election will be made. If a section
645 election will be made for a QRT, the executor of the related estate,
if any, and the trustee of the QRT may treat the QRT as an electing
trust from the decedent's date of death until the due date for the
section 645 election. Accordingly, the trustee of the QRT is not
required to file a Form 1041 for the QRT for the short taxable year
beginning with the decedent's date of death and ending December 31 of
that year. However, if a QRT is treated as an electing trust under this
paragraph from the decedent's date of death until the due date for the
section 645 election but a valid section 645 election is not made for
the QRT, the QRT will be subject to penalties and interest for failing
to timely file a Form 1041 and pay the tax due thereon.
(ii) Requirement to file a Form 1041 for a QRT if paragraph
(d)(2)(i) of this section does not apply--(A) Requirement to file Form
1041. If the trustee of the QRT and the executor of the related estate,
if any, do not treat the QRT as an electing trust as provided under
paragraph (d)(2)(i) of this section, or if the trustee of the electing
trust and the executor, if any, are uncertain whether a section 645
election will be made for a QRT, the trustee of the QRT must file a Form
1041 for the short taxable year beginning with the decedent's death and
ending December 31 of that year (unless the QRT is not required to file
a Form 1041 under section 6012 for this period).
(B) Requirement to amend Form 1041 if a section 645 election is
made--(1) If there is an executor. If there is an executor and a valid
section 645 election is made for a QRT after a Form 1041 has been filed
for the QRT as a trust (see paragraph (d)(2)(ii)(A) of this section),
the trustee must amend the Form 1041. The QRT's items of income,
deduction, and credit must be excluded from the amended Form 1041 filed
under this paragraph and must be included on the Form 1041 filed for the
first taxable year of the combined electing trust and related estate
under paragraph (e)(2)(ii)(A) of this section.
(2) If there is no executor. If there is no executor and a valid
section 645 election is made for a QRT after a Form 1041 has been filed
for the QRT as a trust (see paragraph (d)(2)(ii)(A) of this section) for
the short taxable year beginning with the decedent's death and ending
December 31 of that year, the trustee must file an amended return for
the QRT. The amended return must be filed consistent with paragraph
(e)(3) of this section and must be filed by the due date of the Form
1041 for the QRT, taking into account the trustee's election under
section 645.
(e) Tax treatment and general filing requirements of electing trust
and related estate during the election period--(1) Effect of election.
The section 645 election once made is irrevocable.
(2) If there is an executor--(i) Tax treatment of the combined
electing trust and related estate. If there is an executor, the electing
trust is treated, during the election period, as part of the related
estate for all purposes of subtitle A of the Internal Revenue Code.
Thus, for example, the electing trust is treated as part of the related
estate for purposes of the set-aside deduction under
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section 642(c)(2), the subchapter S shareholder requirements of section
1361(b)(1), and the special offset for rental real estate activities in
section 469(i)(4).
(ii) Filing requirements--(A) Filing the Form 1041 for the combined
electing trust and related estate during the election period. If there
is an executor, the executor files a single income tax return annually
(assuming a return is required under section 6012) under the name and
TIN of the related estate for the combined electing trust and the
related estate. Information regarding the name and TIN of each electing
trust must be provided on the Form 1041 as required by the instructions
to that form. The period of limitations provided in section 6501 for
assessments with respect to an electing trust and the related estate
starts with the filing of the return required under this paragraph.
Except as required under the separate share rules of section 663(c), for
purposes of filing the Form 1041 under this paragraph and computing the
tax, the items of income, deduction, and credit of the electing trust
and related estate are combined. One personal exemption in the amount of
$600 is permitted under section 642(b), and the tax is computed under
section 1(e), taking into account section 1(h), for the combined taxable
income.
(B) Filing a Form 1041 for the electing trust is not required.
Except for any final Form 1041 required to be filed under paragraph
(h)(2)(i)(B) of this section, if there is an executor, the trustee of
the electing trust does not file a Form 1041 for the electing trust
during the election period. Although the trustee is not required to file
a Form 1041 for the electing trust, the trustee of the electing trust
must timely provide the executor of the related estate with all the
trust information necessary to permit the executor to file a complete,
accurate and timely Form 1041 for the combined electing trust and
related estate. The trustee must also insure that the electing trust's
share of the tax obligations of the combined electing trust and related
estate is timely paid to the Secretary. In certain situations, the
trustee of a QRT may be required to file a Form 1041 for the QRT's short
taxable year beginning with the date of the decedent's death and ending
December 31 of that year. See paragraph (d)(2) of this section.
(iii) Application of the separate share rules--(A) Distributions to
beneficiaries (other than to a share (or shares) of the combined
electing trust and related estate). Under the separate share rules of
section 663(c), the electing trust and related estate are treated as
separate shares for purposes of computing distributable net income (DNI)
and applying the distribution provisions of sections 661 and 662.
Further, the electing trust share or the related estate share may each
contain two or more shares. Thus, if during the taxable year, a
distribution is made by the electing trust or the related estate, the
DNI of the share making the distribution must be determined and the
distribution provisions of sections 661 and 662 must be applied using
the separately determined DNI applicable to the distributing share.
(B) Adjustments to the DNI of the separate shares for distributions
between shares to which sections 661 and 662 would apply. A distribution
from one share to another share to which sections 661 and 662 would
apply if made to a beneficiary other than another share of the combined
electing trust and related estate affects the computation of the DNI of
the share making the distribution and the share receiving the
distribution. The share making the distribution reduces its DNI by the
amount of the distribution deduction that it would be entitled to under
section 661 (determined without regard to section 661(c)), had the
distribution been made to another beneficiary, and, solely for purposes
of calculating DNI, the share receiving the distribution increases its
gross income by the same amount. The distribution has the same character
in the hands of the recipient share as in the hands of the distributing
share. The following example illustrates the provisions of this
paragraph (e)(2)(iii)(B):
Example. (i) A's will provides that, after the payment of debts,
expenses, and taxes, the residue of A's estate is to be distributed to
Trust, an electing trust. The sole beneficiary of Trust is C. The estate
share has $15,000 of gross income, $5,000 of deductions, and $10,000 of
taxable income and DNI for the taxable year based on the assets held in
A's
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estate. During the taxable year, A's estate distributes $15,000 to
Trust. The distribution reduces the DNI of the estate share by $10,000.
(ii) For the same taxable year, the trust share has $25,000 of gross
income and $5,000 of deductions. None of the modifications provided for
under section 643(a) apply. In calculating the DNI for the trust share,
the gross income of the trust share is increased by $10,000, the amount
of the reduction in the DNI of the estate share as a result of the
distribution to Trust. Thus, solely for purposes of calculating DNI, the
trust share has gross income of $35,000, and taxable income of $30,000.
Therefore, the trust share has $30,000 of DNI for the taxable year.
(iii) During the same taxable year, Trust distributes $35,000 to C.
The distribution deduction reported on the Form 1041 filed for A's
estate and Trust is $30,000. As a result of the distribution by Trust to
C, C must include $30,000 in gross income for the taxable year. The
gross income reported on the Form 1041 filed for A's estate and Trust is
$40,000.
(iv) Application of the governing instrument requirement of section
642(c). A deduction is allowed in computing the taxable income of the
combined electing trust and related estate to the extent permitted under
section 642(c) for--
(A) Any amount of the gross income of the related estate that is
paid or set aside during the taxable year pursuant to the terms of the
governing instrument of the related estate for a purpose specified in
section 170(c); and
(B) Any amount of gross income of the electing trust that is paid or
set aside during the taxable year pursuant to the terms of the governing
instrument of the electing trust for a purpose specified in section
170(c).
(3) If there is no executor--(i) Tax treatment of the electing
trust. If there is no executor, the trustee treats the electing trust,
during the election period, as an estate for all purposes of subtitle A
of the Internal Revenue Code. Thus, for example, an electing trust is
treated as an estate for purposes of the set-aside deduction under
section 642(c)(2), the subchapter S shareholder requirements of section
1361(b)(1), and the special offset for rental real estate activities
under section 469(i)(4). The trustee may also adopt a taxable year other
than a calendar year.
(ii) Filing the Form 1041 for the electing trust. If there is no
executor, the trustee of the electing trust must, during the election
period, file a Form 1041, under the TIN obtained by the trustee under
Sec. 301.6109-1(a)(3) of this chapter upon the death of the decedent,
treating the trust as an estate. If there is more than one electing
trust, the Form 1041 must be filed by the filing trustee (see paragraph
(c)(2)(ii)(B) of this section) under the name and TIN of the electing
trust of the filing trustee. Information regarding the names and TINs of
the other electing trusts must be provided on the Form 1041 as required
by the instructions to that form. Any return filed in accordance with
this paragraph shall be treated as a return filed for the electing trust
(or trusts, if there is more than one electing trust) and not as a
return filed for any subsequently discovered related estate.
Accordingly, the period of limitations provided in section 6501 for
assessments with respect to a subsequently discovered related estate
does not start until a return is filed with respect to the related
estate. See paragraph (g) of this section.
(4) Application of the section 6654(l)(2) to the electing trust.
Each electing trust and related estate (if any) is treated as a separate
taxpayer for all purposes of subtitle F of the Internal Revenue Code,
including, without limitation, the application of section 6654. The
provisions of section 6654(l)(2)(A) relating to the two year exception
to an estate's obligation to make estimated tax payments, however, will
apply to each electing trust for which a section 645 election has been
made.
(f) Duration of election period--(1) In general. The election period
begins on the date of the decedent's death and terminates on the earlier
of the day on which both the electing trust and related estate, if any,
have distributed all of their assets, or the day before the applicable
date. The election does not apply to successor trusts (trusts that are
distributees under the trust instrument).
(2) Definition of applicable date--(i) Applicable date if no Form
706 ``United States Estate (and Generation Skipping Transfer) Tax
Return'' is required to be filed. If a Form 706 is not required to be
filed as a result of the decedent's death, the applicable date is the
day
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which is 2 years after the date of the decedent's death.
(ii) Applicable date if a Form 706 is required to be filed. If a
Form 706 is required to be filed as a result of the decedent's death,
the applicable date is the later of the day that is 2 years after the
date of the decedent's death, or the day that is 6 months after the date
of final determination of liability for estate tax. Solely for purposes
of determining the applicable date under section 645, the date of final
determination of liability is the earliest of the following--
(A) The date that is six months after the issuance by the Internal
Revenue Service of an estate tax closing letter, unless a claim for
refund with respect to the estate tax is filed within twelve months
after the issuance of the letter;
(B) The date of a final disposition of a claim for refund, as
defined in paragraph (f)(2)(iii) of this section, that resolves the
liability for the estate tax, unless suit is instituted within six
months after a final disposition of the claim;
(C) The date of execution of a settlement agreement with the
Internal Revenue Service that determines the liability for the estate
tax;
(D) The date of issuance of a decision, judgment, decree, or other
order by a court of competent jurisdiction resolving the liability for
the estate tax unless a notice of appeal or a petition for certiorari is
filed within 90 days after the issuance of a decision, judgment, decree,
or other order of a court; or
(E) The date of expiration of the period of limitations for
assessment of the estate tax provided in section 6501.
(iii) Definition of final disposition of claim for refund. For
purposes of paragraph (f)(2)(ii)(B) of this section, a claim for refund
shall be deemed finally disposed of by the Secretary when all items have
been either allowed or disallowed. If a waiver of notification with
respect to disallowance is filed with respect to a claim for refund
prior to disallowance of the claim, the claim for refund will be treated
as disallowed on the date the waiver is filed.
(iv) Examples. The application of this paragraph (f)(2) is
illustrated by the following examples:
Example 1. A died on October 20, 2002. The executor of A's estate
and the trustee of Trust, an electing trust, made a section 645
election. A Form 706 is not required to be filed as a result of A's
death. The applicable date is October 20, 2004, the day that is two
years after A's date of death. The last day of the election period is
October 19, 2004. Beginning October 20, 2004, Trust will no longer be
treated and taxed as part of A's estate.
Example 2. Assume the same facts as Example 1, except that a Form
706 is required to be filed as the result of A's death. The Internal
Revenue Service issues an estate tax closing letter accepting the Form
706 as filed on March 15, 2005. The estate does not file a claim for
refund by March 15, 2006, the day that is twelve months after the date
of issuance of the estate tax closing letter. The date of final
determination of liability is September 15, 2005, and the applicable
date is March 15, 2006. The last day of the election period is March 14,
2006. Beginning March 15, 2006, Trust will no longer be treated and
taxed as part of A's estate.
Example 3. Assume the same facts as Example 1, except that a Form
706 is required to be filed as the result of A's death. The Form 706 is
audited, and a notice of deficiency authorized under section 6212 is
mailed to the executor of A's estate as a result of the audit. The
executor files a petition in Tax Court. The Tax Court issues a decision
resolving the liability for estate tax on December 14, 2005, and neither
party appeals within 90 days after the issuance of the decision. The
date of final determination of liability is December 14, 2005. The
applicable date is June 14, 2006, the day that is six months after the
date of final determination of liability. The last day of the election
period is June 13, 2006. Beginning June 14, 2006, Trust will no longer
be treated and taxed as part of A's estate.
(g) Executor appointed after the section 645 election is made--(1)
Effect on the election. If an executor for the related estate is not
appointed until after the trustee has made a valid section 645 election,
the executor must agree to the trustee's election, and the IRS must be
notified of that agreement by the filing of a revised election form
(completed as required by the instructions to that form) within 90 days
of the appointment of the executor, for the election period to continue
past the date of appointment of the executor. If the executor does not
agree to the election or a revised election form is not timely filed as
required by this paragraph, the election period terminates the day
before the appointment of the
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executor. If the IRS issues other guidance after December 24, 2002 for
notifying the IRS of the executor's agreement to the election, the IRS
must be notified in the manner provided in that guidance for the
election period to continue.
(2) Continuation of election period--(i) Correction of returns filed
before executor appointed. If the election period continues under
paragraph (g)(1) of this section, the executor of the related estate and
the trustee of each electing trust must file amended Forms 1041 to
correct the Forms 1041 filed by the trustee before the executor was
appointed. The amended Forms 1041 must be filed under the name and TIN
of the electing trust and must reflect the items of income, deduction,
and credit of the related estate and the electing trust. The name and
TIN of the related estate must be provided on the amended Forms 1041 as
required in the instructions to that Form. The amended return for the
taxable year ending immediately before the executor was appointed must
indicate that this Form 1041 is a final return. If the period of
limitations for making assessments has expired with respect to the
electing trust for any of the Forms 1041 filed by the trustee, the
executor must file Forms 1041 for any items of income, deduction, and
credit of the related estate that cannot be properly included on amended
forms for the electing trust. The personal exemption under section
642(b) is not permitted to be taken on these Forms 1041 filed by the
executor.
(ii) Returns filed after the appointment of the executor. All
returns filed by the combined electing trust and related estate after
the appointment of the executor are to be filed under the name and TIN
of the related estate in accordance with paragraph (e)(2) of this
section. Regardless of the change in the name and TIN under which the
Forms 1041 for the combined electing trust and related estate are filed,
the combined electing trust and related estate will be treated as the
same entity before and after the executor is appointed.
(3) Termination of the election period. If the election period
terminates under paragraph (g)(1) of this section, the executor must
file Forms 1041 under the name and TIN of the estate for all taxable
years of the related estate ending after the death of the decedent. The
trustee of the electing trust is not required to amend any returns filed
for the electing trust during the election period. Following termination
of the election period, the trustee of the electing trust must obtain a
new TIN. See Sec. 301.6109-1(a)(4) of this chapter.
(h) Treatment of an electing trust and related estate following
termination of the election--(1) The share (or shares) comprising the
electing trust is deemed to be distributed upon termination of the
election period. On the close of the last day of the election period,
the combined electing trust and related estate, if there is an executor,
or the electing trust, if there is no executor, is deemed to distribute
the share (or shares, as determined under section 663(c)) comprising the
electing trust to a new trust in a distribution to which sections 661
and 662 apply. All items of income, including net capital gains, that
are attributable to the share (or shares) comprising the electing trust
are included in the calculation of the distributable net income of the
electing trust and treated as distributed by the combined electing trust
and related estate, if there is an executor, or by the electing trust,
if there is no executor, to the new trust. The combined electing trust
and related estate, if there is an executor, or the electing trust, if
there is no executor, is entitled to a distribution deduction to the
extent permitted under section 661 in the taxable year in which the
election period terminates as a result of the deemed distribution. The
new trust shall include the amount of the deemed distribution in gross
income to the extent required under section 662.
(2) Filing of the Form 1041 upon the termination of the section 645
election--(i) If there is an executor--(A) Filing the Form 1041 for the
year of termination. If there is an executor, the Form 1041 filed under
the name and TIN of the related estate for the taxable year in which the
election terminates includes--
(1) The items of income, deduction, and credit of the electing trust
attributable to the period beginning with the first day of the taxable
year of the
[[Page 120]]
combined electing trust and related estate and ending with the last day
of the election period;
(2) The items of income, deduction, and credit, if any, of the
related estate for the entire taxable year; and
(3) A deduction for the deemed distribution of the share (or shares)
comprising the electing trust to the new trust as provided for under
paragraph (h)(1) of this section.
(B) Requirement to file a final Form 1041 under the name and TIN of
the electing trust. If the electing trust terminates during the election
period, the trustee of the electing trust must file a Form 1041 under
the name and TIN of the electing trust and indicate that the return is a
final return to notify the IRS that the electing trust is no longer in
existence. The items of income, deduction, and credit of the trust are
not reported on this final Form 1041 but on the appropriate Form 1041
filed for the combined electing trust and related estate.
(ii) If there is no executor. If there is no executor, the taxable
year of the electing trust closes on the last day of the election
period. A Form 1041 is filed in the manner prescribed under paragraph
(e)(3)(ii) of this section reporting the items of income, deduction, and
credit of the electing trust for the short period ending with the last
day of the election period. The Form 1041 filed under this paragraph
includes a distribution deduction for the deemed distribution provided
for under paragraph (h)(1) of this section. The Form 1041 must indicate
that it is a final return.
(3) Use of TINs following termination of the election--(i) If there
is an executor. Upon termination of the section 645 election, a former
electing trust may need to obtain a new TIN. See Sec. 301.6109-1(a)(4)
of this chapter. If the related estate continues after the termination
of the election period, the related estate must continue to use the TIN
assigned to the estate during the election period.
(ii) If there is no executor. If there is no executor, the former
electing trust must obtain a new TIN if the trust will continue after
the termination of the election period. See Sec. 301.6109-1(a)(4) of
this chapter.
(4) Taxable year of estate and trust upon termination of the
election--(i) Estate--Upon termination of the section 645 election
period, the taxable year of the estate is the same taxable year used
during the election period.
(ii) Trust. Upon termination of the section 645 election, the
taxable year of the new trust is the calendar year. See section 644.
(i) [Reserved]
(j) Effective date. Paragraphs (a), (b), (c), (d), (f), and (g) of
this section apply to trusts and estates of decedents dying on or after
December 24, 2002. Paragraphs (e) and (h) of this section apply to
taxable years ending on or after December 24, 2002.
[T.D. 9032, 67 FR 78377, Dec. 24, 2002]
trusts which distribute current income only
Sec. 1.651(a)-1 Simple trusts; deduction for distributions; in
general.
Section 651 is applicable only to a trust the governing instruments
of which:
(a) Requires that the trust distribute all of its income currently
for the taxable year, and
(b) Does not provide that any amounts may be paid, permanently set
aside, or used in the taxable year for the charitable, etc., purposes
specified in section 642(c),
and does not make any distribution other than of current income. A trust
to which section 651 applies is referred to in this part as a ``simple''
trust. Trusts subject to section 661 are referred to as ``complex''
trusts. A trust may be a simple trust for one year and a complex trust
for another year. It should be noted that under section 651 a trust
qualifies as a simple trust in a taxable year in which it is required to
distribute all its income currently and makes no other distributions,
whether or not distributions of current income are in fact made. On the
other hand a trust is not a complex trust by reason of distributions of
amounts other than income unless such distributions are in fact made
during the taxable year, whether or not they are required in that year.
[[Page 121]]
Sec. 1.651(a)-2 Income required to be distributed currently.
(a) The determination of whether trust income is required to be
distributed currently depends upon the terms of the trust instrument and
the applicable local law. For this purpose, if the trust instrument
provides that the trustee in determining the distributable income shall
first retain a reserve for depreciation or otherwise make due allowance
for keeping the trust corpus intact by retaining a reasonable amount of
the current income for that purpose, the retention of current income for
that purpose will not disqualify the trust from being a ``simple''
trust. The fiduciary must be under a duty to distribute the income
currently even if, as a matter of practical necessity, the income is not
distributed until after the close of the trust's taxable year. For
example: Under the terms of the trust instrument, all of the income is
currently distributable to A. The trust reports on the calendar year
basis and as a matter of practical necessity makes distribution to A of
each quarter's income on the fifteenth day of the month following the
close of the quarter. The distribution made by the trust on January 15,
1955, of the income for the fourth quarter of 1954 does not disqualify
the trust from treatment in 1955 under section 651, since the income is
required to be distributed currently. However, if the terms of a trust
require that none of the income be distributed until after the year of
its receipt by the trust, the income of the trust is not required to be
distributed currently and the trust is not a simple trust. For
definition of the term ``income'' see section 643(b) and Sec. 1.643(b)-
1.
(b) It is immaterial, for purposes of determining whether all the
income is required to be distributed currently, that the amount of
income allocated to a particular beneficiary is not specified in the
instrument. For example, if the fiduciary is required to distribute all
the income currently, but has discretion to ``sprinkle'' the income
among a class of beneficiaries, or among named beneficiaries, in such
amount as he may see fit, all the income is required to be distributed
currently, even though the amount distributable to a particular
beneficiary is unknown until the fiduciary has exercised his discretion.
(c) If in one taxable year of a trust its income for that year is
required or permitted to be accumulated, and in another taxable year its
income for the year is required to be distributed currently (and no
other amounts are distributed), the trust is a simple trust for the
latter year. For example, a trust under which income may be accumulated
until a beneficiary is 21 years old, and thereafter must be distributed
currently, is a simple trust for taxable years beginning after the
beneficiary reaches the age of 21 years in which no other amounts are
distributed.
(d) If a trust distributes property in kind as part of its
requirement to distribute currently all the income as defined under
section 643(b) and the applicable regulations, the trust shall be
treated as having sold the property for its fair market value on the
date of distribution. If no amount in excess of the amount of income as
defined under section 643(b) and the applicable regulations is
distributed by the trust during the year, the trust will qualify for
treatment under section 651 even though property in kind was distributed
as part of a distribution of all such income. This paragraph (d) applies
for taxable years of trusts ending after January 2, 2004.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 9102, 69 FR 20, Jan. 2, 2004]
Sec. 1.651(a)-3 Distribution of amounts other than income.
(a) A trust does not qualify for treatment under section 651 for any
taxable year in which it actually distributes corpus. For example, a
trust which is required to distribute all of its income currently would
not qualify as a simple trust under section 651 in the year of its
termination since in that year actual distributions of corpus would be
made.
(b) A trust, otherwise qualifying under section 651, which may make
a distribution of corpus in the discretion of the trustee, or which is
required under the terms of its governing instrument to make a
distribution of corpus upon the happening of a specified
[[Page 122]]
event, will be disqualified for treatment under section 651 only for the
taxable year in which an actual distribution of corpus is made. For
example: Under the terms of a trust, which is required to distribute all
of its income currently, half of the corpus is to be distributed to
beneficiary A when he becomes 30 years of age. The trust reports on the
calendar year basis. On December 28, 1954, A becomes 30 years of age and
the trustee distributes half of the corpus of the trust to him on
January 3, 1955. The trust will be disqualified for treatment under
section 651 only for the taxable year 1955, the year in which an actual
distribution of corpus is made.
(c) See section 661 and the regulations thereunder for the treatment
of trusts which distribute corpus or claim the charitable contributions
deduction provided by section 642(c).
Sec. 1.651(a)-4 Charitable purposes.
A trust is not considered to be a trust which may pay, permanently
set aside, or use any amount for charitable, etc., purposes for any
taxable year for which it is not allowed a charitable, etc., deduction
under section 642(c). Therefore, a trust with a remainder to a
charitable organization is not disqualified for treatment as a simple
trust if either (a) the remainder is subject to a contingency, so that
no deduction would be allowed for capital gains or other amounts added
to corpus as amounts permanently set aside for a charitable, etc.,
purpose under section 642 (c), or (b) the trust receives no capital
gains or other income added to corpus for the taxable year for which
such a deduction would be allowed.
Sec. 1.651(a)-5 Estates.
Subpart B has no application to an estate.
Sec. 1.651(b)-1 Deduction for distributions to beneficiaries.
In computing its taxable income, a simple trust is allowed a
deduction for the amount of income which is required under the terms of
the trust instrument to be distributed currently to beneficiaries. If
the amount of income required to be distributed currently exceeds the
distributable net income, the deduction allowable to the trust is
limited to the amount of the distributable net income. For this purpose
the amount of income required to be distributed currently, or
distributable net income, whichever is applicable, does not include
items of trust income (adjusted for deductions allocable thereto) which
are not included in the gross income of the trust. For determination of
the character of the income required to be distributed currently, see
Sec. 1.652(b)-2. Accordingly, for the purposes of determining the
deduction allowable to the trust under section 651, distributable net
income is computed without the modifications specified in paragraphs
(5), (6), and (7) of section 643(a), relating to tax-exempt interest,
foreign income, and excluded dividends. For example: Assume that the
distributable net income of a trust as computed under section 643(a)
amounts to $99,000 but includes nontaxable income of $9,000. Then
distributable net income for the purpose of determining the deduction
allowable under section 651 is $90,000 ($99,000 less $9,000 nontaxable
income).
Sec. 1.652(a)-1 Simple trusts; inclusion of amounts in income of
beneficiaries.
Subject to the rules in Sec. Sec. 1.652(a)-2 and 1.652(b)-1, a
beneficiary of a simple trust includes in his gross income for the
taxable year the amounts of income required to be distributed to him for
such year, whether or not distributed. Thus, the income of a simple
trust is includible in the beneficiary's gross income for the taxable
year in which the income is required to be distributed currently even
though, as a matter of practical necessity, the income is not
distributed until after the close of the taxable year of the trust. See
Sec. 1.642(a)(3)-2 with respect to time of receipt of dividends. See
Sec. 1.652(c)-1 for treatment of amounts required to be distributed
where a beneficiary and the trust have different taxable years. The term
income required to be distributed currently includes income required to
be distributed currently which is in fact used to discharge or satisfy
any person's legal obligation as that term is used in Sec. 1.662(a)-4.
[[Page 123]]
Sec. 1.652(a)-2 Distributions in excess of distributable net income.
If the amount of income required to be distributed currently to
beneficiaries exceeds the distributable net income of the trust (as
defined in section 643(a)), each beneficiary includes in his gross
income an amount equivalent to his proportionate share of such
distributable net income. Thus, if beneficiary A is to receive two-
thirds of the trust income and B is to receive one-third, and the income
required to be distributed currently is $99,000, A will receive $66,000
and B, $33,000. However, if the distributable net income, as determined
under section 643(a) is only $90,000, A will include two-thirds
($60,000) of that sum in his gross income, and B will include one-third
($30,000) in his gross income. See Sec. Sec. 1.652(b)-1 and 1.652(b)-2,
however, for amounts which are not includible in the gross income of a
beneficiary because of their tax-exempt character.
Sec. 1.652(b)-1 Character of amounts.
In determining the gross income of a beneficiary, the amounts
includible under Sec. 1.652(a)-1 have the same character in the hands
of the beneficiary as in the hands of the trust. For example, to the
extent that the amounts specified in Sec. 1.652(a)-1 consist of income
exempt from tax under section 103, such amounts are not included in the
beneficiary's gross income. Similarly, dividends distributed to a
beneficiary retain their original character in the beneficiary's hands
for purposes of determining the availability to the beneficiary of the
dividends received credit under section 34 (for dividends received on or
before December 31, 1964) and the dividend exclusion under section 116.
Also, to the extent that the amounts specified in Sec. 1.652(a)-1
consist of ``earned income'' in the hands of the trust under the
provisions of section 1348 such amount shall be treated under section
1348 as ``earned income'' in the hands of the beneficiary. Similarly, to
the extent such amounts consist of an amount received as a part of a
lump sum distribution from a qualified plan and to which the provisions
of section 72(n) would apply in the hands of the trust, such amount
shall be treated as subject to such section in the hands of the
beneficiary except where such amount is deemed under section 666(a) to
have been distributed in a preceding taxable year of the trust and the
partial tax described in section 668(a)(2) is determined under section
668(b)(1)(B). The tax treatment of amounts determined under Sec.
1.652(a)-1 depends upon the beneficiary's status with respect to them
not upon the status of the trust. Thus, if a beneficiary is deemed to
have received foreign income of a foreign trust, the includibility of
such income in his gross income depends upon his taxable status with
respect to that income.
[T.D. 7204, 37 FR 17134, Aug. 25, 1972]
Sec. 1.652(b)-2 Allocation of income items.
(a) The amounts specified in Sec. 1.652(a)-1 which are required to
be included in the gross income of a beneficiary are treated as
consisting of the same proportion of each class of items entering into
distributable net income of the trust (as defined in section 643(a)) as
the total of each class bears to such distributable net income, unless
the terms of the trust specifically allocate different classes of income
to different beneficiaries, or unless local law requires such an
allocation. For example: Assume that under the terms of the governing
instrument, beneficiary A is to receive currently one-half of the trust
income and beneficiaries B and C are each to receive currently one-
quarter, and the distributable net income of the trust (after allocation
of expenses) consists of dividends of $10,000, taxable interest of
$10,000, and tax-exempt interest of $4,000. A will be deemed to have
received $5,000 of dividends, $5,000 of taxable interest, and $2,000 of
tax-exempt interest; B and C will each be deemed to have received $2,500
of dividends, $2,500 of taxable interest, and $1,000 of tax-exempt
interest. However, if the terms of the trust specifically allocate
different classes of income to different beneficiaries, entirely or in
part, or if local law requires such an allocation, each beneficiary will
be deemed to have received those items of income specifically allocated
to him.
(b) The terms of the trust are considered specifically to allocate
different
[[Page 124]]
classes of income to different beneficiaries only to the extent that the
allocation is required in the trust instrument, and only to the extent
that it has an economic effect independent of the income tax
consequences of the allocation. For example:
(1) Allocation pursuant to a provision in a trust instrument
granting the trustee discretion to allocate different classes of income
to different beneficiaries is not a specific allocation by the terms of
the trust.
(2) Allocation pursuant to a provision directing the trustee to pay
all of one income to A, or $10,000 out of the income to A, and the
balance of the income to B, but directing the trustee first to allocate
a specific class of income to A's share (to the extent there is income
of that class and to the extent it does not exceed A's share) is not a
specific allocation by the terms of the trust.
(3) Allocation pursuant to a provision directing the trustee to pay
half the class of income (whatever it may be) to A, and the balance of
the income to B, is a specific allocation by the terms of the trust.
Sec. 1.652(b)-3 Allocation of deductions.
Items of deduction of a trust that enter into the computation of
distributable net income are to be allocated among the items of income
in accordance with the following principles:
(a) All deductible items directly attributable to one class of
income (except dividends excluded under section 116) are allocated
thereto. For example, repairs to, taxes on, and other expenses directly
attributable to the maintenance of rental property or the collection of
rental income are allocated to rental income. See Sec. 1.642(e)-1 for
treatment of depreciation of rental property. Similarly, all
expenditures directly attributable to a business carried on by a trust
are allocated to the income from such business. If the deductions
directly attributable to a particular class of income exceed that
income, the excess is applied against other classes of income in the
manner provided in paragraph (d) of this section.
(b) The deductions which are not directly attributable to a specific
class of income may be allocated to any item of income (including
capital gains) included in computing distributable net income, but a
portion must be allocated to nontaxable income (except dividends
excluded under section 116) pursuant to section 265 and the regulations
thereunder. For example, if the income of a trust is $30,000 (after
direct expenses), consisting equally of $10,000 of dividends, tax-exempt
interest, and rents, and income commissions amount to $3,000, one-third
($1,000) of such commissions should be allocated to tax-exempt interest,
but the balance of $2,000 may be allocated to the rents or dividends in
such proportions as the trustee may elect. The fact that the governing
instrument or applicable local law treats certain items of deduction as
attributable to corpus or to income not included in distributable net
income does not affect allocation under this paragraph. For instance, if
in the example set forth in this paragraph the trust also had capital
gains which are allocable to corpus under the terms of the trust
instrument, no part of the deductions would be allocable thereto since
the capital gains are excluded from the computation of distributable net
income under section 643(a)(3).
(c) Examples of expenses which are considered as not directly
attributable to a specific class of income are trustee's commissions,
the rental of safe deposit boxes, and State income and personal property
taxes.
(d) To the extent that any items of deduction which are directly
attributable to a class of income exceed that class of income, they may
be allocated to any other class of income (including capital gains)
included in distributable net income in the manner provided in paragraph
(b) of this section, except that any excess deductions attributable to
tax-exempt income (other than dividends excluded under section 116) may
not be offset against any other class of income. See section 265 and the
regulations thereunder. Thus, if the trust has rents, taxable interest,
dividends, and tax-exempt interest, and the deductions directly
attributable to the rents exceed the rental income, the excess may be
allocated to the taxable
[[Page 125]]
interest or dividends in such proportions as the fiduciary may elect.
However, if the excess deductions are attributable to the tax-exempt
interest, they may not be allocated to either the rents, taxable
interest, or dividends.
Sec. 1.652(c)-1 Different taxable years.
If a beneficiary has a different taxable year (as defined in section
441 or 442) from the taxable year of the trust, the amount he is
required to include in gross income in accordance with section 652 (a)
and (b) is based on the income of the trust for any taxable year or
years ending with or within his taxable year. This rule applies to
taxable years of normal duration as well as to so-called short taxable
years. Income of the trust for its taxable year or years is determined
in accordance with its method of accounting and without regard to that
of the beneficiary.
Sec. 1.652(c)-2 Death of individual beneficiaries.
If income is required to be distributed currently to a beneficiary,
by a trust for a taxable year which does not end with or within the last
taxable year of a beneficiary (because of the beneficiary's death), the
extent to which the income is included in the gross income of the
beneficiary for his last taxable year or in the gross income of his
estate is determined by the computations under section 652 for the
taxable year of the trust in which his last taxable year ends. Thus, the
distributable net income of the taxable year of the trust determines the
extent to which the income required to be distributed currently to the
beneficiary is included in his gross income for his last taxable year or
in the gross income of his estate. (Section 652(c) does not apply to
such amounts.) The gross income for the last taxable year of a
beneficiary on the cash basis includes only income actually distributed
to the beneficiary before his death. Income required to be distributed,
but in fact distributed to his estate, is included in the gross income
of the estate as income in respect of a decedent under section 691. See
paragraph (e) of Sec. 1.663(c)-3 with respect to separate share
treatment for the periods before and after the decedent's death. If the
trust does not qualify as a simple trust for the taxable year of the
trust in which the last taxable year of the beneficiary ends, see
section 662(c) and Sec. 1.662(c)-2.
Sec. 1.652(c)-3 Termination of existence of other beneficiaries.
If the existence of a beneficiary which is not an individual
terminates, the amount to be included under section 652(a) in its gross
income for its last taxable year is computed with reference to
Sec. Sec. 1.652(c)-1 and 1.652(c)-2 as if the beneficiary were a
deceased individual, except that income required to be distributed prior
to the termination but actually distributed to the beneficiary's
successor in interest is included in the beneficiary's income for its
last taxable year.
Sec. 1.652(c)-4 Illustration of the provisions of sections 651 and
652.
The rules applicable to a trust required to distribute all of its
income currently to its beneficiaries may be illustrated by the
following example:
Example. (a) Under the terms of a simple trust all of the income is
to be distributed equally to beneficiaries A and B and capital gains are
to be allocated to corpus. The trust and both beneficiaries file returns
on the calendar year basis. No provision is made in the governing
instrument with respect to depreciation. During the taxable year 1955,
the trust had the following items of income and expense:
Rents........................................................ $25,000
Dividends of domestic corporations........................... 50,000
Tax-exempt interest on municipal bonds....................... 25,000
Long-term capital gains...................................... 15,000
Taxes and expenses directly attributable to rents............ 5,000
Trustee's commissions allocable to income account............ 2,600
Trustee's commissions allocable to principal account......... 1,300
Depreciation................................................. 5,000
(b) The income of the trust for fiduciary accounting purposes is
$92,400, computed as follows:
Rents........................................................ $25,000
Dividends.................................................... 50,000
Tax-exempt interest.......................................... 25,000
------------
Total.................................................... 100,000
Deductions:
Expenses directly attributable to rental income. $5,000
Trustee's commissions allocable to income 2,600
account........................................
-----------
7,600
------------
Income computed under section 643(b)..................... 92,400
[[Page 126]]
One-half ($46,200) of the income of $92,400 is currently distributable
to each beneficiary.
(c) The distributable net income of the trust computed under section
643(a) is $91,100, determined as follows (cents are disregarded in the
computation):
Rents........................................................ $25,000
Dividends.................................................... 50,000
Tax-exempt interest............................... $25,000
Less: Expenses allocable thereto (25,000/100,000 975
x$3,900).........................................
-------- 24,025
----------
Total......................................... ......... 99,025
Deductions:
Expenses directly attributable to rental income. $5,000
Trustee's commissions ($3,900 less $975 2,925
allocable to tax-exempt interest)..............
-------- 7,925
----------
Distributable net income...................... ......... 91,100
In computing the distributable net income of $91,100, the taxable income
of the trust was computed with the following modifications: No
deductions were allowed for distributions to the beneficiaries and for
personal exemption of the trust (section 643(a) (1) and (2)); capital
gains were excluded and no deduction under section 1202 (relating to the
50-percent deduction for long-term capital gains) was taken into account
(section 643(a)(3)); the tax-exempt interest (as adjusted for expenses)
and the dividend exclusion of $50 were included (section 643(a) (5) and
(7)). Since all of the income of the trust is required to be currently
distributed, no deduction is allowable for depreciation in the absence
of specific provisions in the governing instrument providing for the
keeping of the trust corpus intact. See section 167(h) and the
regulations thereunder.
(d) The deduction allowable to the trust under section 651(a) for
distributions to the beneficiaries is $67,025, computed as follows:
Distributable net income computed under section 643(a) (see $91,100
paragraph (c))..............................................
Less:
Tax-exempt interest as adjusted................. $24,025
Dividend exclusion.............................. 50
-------- 24,075
----------
Distributable net income as determined under section 67,025
651(b)..................................................
Since the amount of the income ($92,400) required to be distributed
currently by the trust exceeds the distributable net income ($67,025) as
computed under section 651(b), the deduction allowable under section
651(a) is limited to the distributable net income of $67,025.
(e) The taxable income of the trust is $7,200 computed as follows:
Rents........................................................ $25,000
Dividends ($50,000 less $50 exclusion)....................... 49,950
Long-term capital gains...................................... 15,000
------------
Gross income............................................. 89,950
Deductions:
Rental expenses................................. $5,000
Trustee's commissions........................... 2,925
Capital gain deduction.......................... 7,500
Distributions to beneficiaries.................. 67,025
Personal exemption.............................. 300
-------- 82,750
----------
Taxable income................................ ......... 7,200
The trust is not allowed a deduction for the portion ($975) of the
trustee's commissions allocable to tax-exempt interest in computing its
taxable income.
(f) In determining the character of the amounts includible in the
gross income of A and B, it is assumed that the trustee elects to
allocate to rents the expenses not directly attributable to a specific
item of income other than the portion ($975) of such expenses allocated
to tax-exempt interest. The allocation of expenses among the items of
income is shown below:
----------------------------------------------------------------------------------------------------------------
Tax-exempt
Rents Dividends interest Total
----------------------------------------------------------------------------------------------------------------
Income for trust accounting purposes................. $25,000 $50,000 $25,000 $100,000
Less:
Rental expenses.................................... 5,000 ............ ............... 5,000
Trustee's commissions.............................. 2,925 ............ 975 3,900
==========================================================
Total deductions................................. 7,925 0 975 8,900
----------------------------------------------------------
Character of amounts in the hands of the 17,075 50,000 24,025 \1\ 91,100
beneficiaries.......................................
----------------------------------------------------------------------------------------------------------------
\1\ Distributable net income.
Inasmuch as the income of the trust is to be distributed equally to A
and B, each is deemed to have received one-half of each item of income;
that is, rents of $8,537.50, dividends of $25,000, and tax-exempt
interest of $12,012.50. The dividends of $25,000 allocated to each
beneficiary are to be aggregated with his other dividends (if any) for
purposes of the dividend exclusion provided by section 116 and the
dividend received credit allowed under section 34. Also, each
beneficiary is allowed a deduction of $2,500 for depreciation of rental
property attributable to
[[Page 127]]
the portion (one-half) of the income of the trust distributed to him.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6712, 29 FR
3655, Mar. 24, 1964]
estates and trusts which may accumulate income or which distribute
corpus
Sec. 1.661(a)-1 Estates and trusts accumulating income or distributing
corpus; general.
Subpart C, part I, subchapter J, chapter 1 of the Code, is
applicable to all decedents' estates and their beneficiaries, and to
trusts and their beneficiaries other than trusts subject to the
provisions of subpart B of such part I (relating to trusts which
distribute current income only, or ``simple'' trusts). A trust which is
required to distribute amounts other than income during the taxable year
may be subject to subpart B, and not subpart C, in the absence of an
actual distribution of amounts other than income during the taxable
year. See Sec. Sec. 1.651(a)-1 and 1.651(a)-3. A trust to which subpart
C is applicable is referred to as a ``complex'' trust in this part.
Section 661 has no application to amounts excluded under section 663(a).
Sec. 1.661(a)-2 Deduction for distributions to beneficiaries.
(a) In computing the taxable income of an estate or trust there is
allowed under section 661(a) as a deduction for distributions to
beneficiaries the sum of:
(1) The amount of income for the taxable year which is required to
be distributed currently, and
(2) Any other amounts properly paid or credited or required to be
distributed for such taxable year.
However, the total amount deductible under section 661(a) cannot exceed
the distributable net income as computed under section 643(a) and as
modified by section 661(c). See Sec. 1.661(c)-1.
(b) The term income required to be distributed currently includes
any amount required to be distributed which may be paid out of income or
corpus (such as an annuity), to the extent it is paid out of income for
the taxable year. See Sec. 1.651(a)-2 which sets forth additional rules
which are applicable in determining whether income of an estate or trust
is required to be distributed currently.
(c) The term any other amounts properly paid, credited, or required
to be distributed includes all amounts properly paid, credited, or
required to be distributed by an estate or trust during the taxable year
other than income required to be distributed currently. Thus, the term
includes the payment of an annuity to the extent it is not paid out of
income for the taxable year, and a distribution of property in kind (see
paragraph (f) of this section). However, see section 663(a) and
regulations thereunder for distributions which are not included. Where
the income of an estate or trust may be accumulated or distributed in
the discretion of the fiduciary, or where the fiduciary has a power to
distribute corpus to a beneficiary, any such discretionary distribution
would qualify under section 661(a)(2). The term also includes an amount
applied or distributed for the support of a dependent of a grantor or of
a trustee or cotrustee under the circumstances described in section
677(b) or section 678(c) out of corpus or out of other than income for
the taxable year.
(d) The terms income required to be distributed currently and any
other amounts properly paid or credited or required to be distributed
also include any amount used to discharge or satisfy any person's legal
obligation as that term is used in Sec. 1.662(a)-4.
(e) The terms income required to be distributed currently and any
other amounts properly paid or credited or required to be distributed
include amounts paid, or required to be paid, during the taxable year
pursuant to a court order or decree or under local law, by a decedent's
estate as an allowance or award for the support of the decedent's widow
or other dependent for a limited period during the administration of the
estate. The term any other amounts properly paid or credited or required
to be distributed does not include the value of any interest in real
estate owned by a decedent, title to which under local law passes
directly from the decedent to his heirs or devisees.
[[Page 128]]
(f) Gain or loss is realized by the trust or estate (or the other
beneficiaries) by reason of a distribution of property in kind if the
distribution is in satisfaction of a right to receive a distribution of
a specific dollar amount, of specific property other than that
distributed, or of income as defined under section 643(b) and the
applicable regulations, if income is required to be distributed
currently. In addition, gain or loss is realized if the trustee or
executor makes the election to recognize gain or loss under section
643(e). This paragraph applies for taxable years of trusts and estates
ending after January 2, 2004.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 7287, 38 FR 26912, Sept. 27, 1973; T.D. 9102, 69 FR 20,
Jan. 2, 2004]
Sec. 1.661(b)-1 Character of amounts distributed; in general.
In the absence of specific provisions in the governing instrument
for the allocation of different classes of income, or unless local law
requires such an allocation, the amount deductible for distributions to
beneficiaries under section 661(a) is treated as consisting of the same
proportion of each class of items entering into the computation of
distributable net income as the total of each class bears to the total
distributable net income. For example, if a trust has distributable net
income of $20,000, consisting of $10,000 each of taxable interest and
royalties and distributes $10,000 to beneficiary A, the deduction of
$10,000 allowable under section 661(a) is deemed to consist of $5,000
each of taxable interest and royalties, unless the trust instrument
specifically provides for the distribution or accumulation of different
classes of income or unless local law requires such an allocation. See
also Sec. 1.661(c)-1.
Sec. 1.661(b)-2 Character of amounts distributed when charitable
contributions are made.
In the application of the rule stated in Sec. 1.661(b)-1, the items
of deduction which enter into the computation of distributable net
income are allocated among the items of income which enter into the
computation of distributable net income in accordance with the rules set
forth in Sec. 1.652(b)-3, except that, in the absence of specific
provisions in the governing instrument, or unless local law requires a
different apportionment, amounts paid, permanently set aside, or to be
used for the charitable, etc., purposes specified in section 642(c) are
first ratably apportioned among each class of items of income entering
into the computation of the distributable net income of the estate or
trust, in accordance with the rules set out in paragraph (b) of Sec.
1.643(a)-5.
Sec. 1.661(c)-1 Limitation on deduction.
An estate or trust is not allowed a deduction under section 661(a)
for any amount which is treated under section 661(b) as consisting of
any item of distributable net income which is not included in the gross
income of the estate or trust. For example, if in 1962, a trust, which
reports on the calendar year basis, has distributable net income of
$20,000, which is deemed to consist of $10,000 of dividends and $10,000
of tax-exempt interest, and distributes $10,000 to beneficiary A, the
deduction allowable under section 661(a) (computed without regard to
section 661(c)) would amount to $10,000 consisting of $5,000 of
dividends and $5,000 of tax-exempt interest. The deduction actually
allowable under section 661(a) as limited by section 661(c) is $4,975,
since no deduction is allowable for the $5,000 of tax-exempt interest
and the $25 deemed distributed out of the $50 of dividends excluded
under section 116, items of distributable net income which are not
included in the gross income of the estate or trust.
[T.D. 6777, 29 FR 17809, Dec. 16, 1964]
Sec. 1.661(c)-2 Illustration of the provisions of section 661.
The provisions of section 661 may be illustrated by the following
example:
Example. (a) Under the terms of a trust, which reports on the
calendar year basis, $10,000 a year is required to be paid out of income
to a designated charity. The balance of the income may, in the trustee's
discretion, be accumulated or distributed to beneficiary A. Expenses are
allocable against income and the trust instrument requires a reserve for
depreciation. During the taxable year 1955 the trustee contributes
$10,000 to charity and
[[Page 129]]
in his discretion distributes $15,000 of income to A. The trust has the
following items of income and expense for the taxable year 1955:
Dividends........................................................$10,000
Partially tax-exempt interest.....................................10,000
Fully tax-exempt interest.........................................10,000
Rents.............................................................20,000
Rental expenses....................................................2,000
Depreciation of rental property....................................3,000
Trustee's commissions..............................................5,000
(b) The income of the trust for fiduciary accounting purposes is
$40,000, computed as follows:
Dividends.................................................... $10,000
Partially tax-exempt interest................................ 10,000
Fully tax-exempt interest.................................... 10,000
Rents........................................................ 20,000
------------
Total.................................................... 50,000
Less:
Rental expenses................................. $2,000
Depreciation.................................... 3,000
Trustee's commissions........................... 5,000
------------
10,000
------------
Income as computed under section 643(b).................. 40,000
(c) The distributable net income of the trust as computed under
section 643(a) is $30,000, determined as follows:
Rents............................ ........... ........... $20,000
Dividends........................ ........... ........... 10,000
Partially tax-exempt interest.... ........... ........... 10,000
Fully tax-exempt interest........ ........... $10,000
Less:
Expenses allocable thereto $1,000
(10,000/50,000x$5,000)........
Charitable contributions 2,000
allocable thereto (10,000/
50,000x$10,000)...............
--------------
........... 3,000
--------------
........... ........... 7,000
------------
Total........................ ........... ........... 47,000
Deductions:
Rental expenses................ ........... 2,000
Depreciation of rental property ........... 3,000
Trustee's commissions ($5,000 ........... 4,000
less $1,000 allocated to tax-
exempt interest)..............
Charitable contributions ........... 8,000
($10,000 less $2,000 allocated
to tax-exempt interest).......
--------------
........... ........... 17,000
------------
Distributable net income ........... ........... 30,000
(section 643(a))............
(d) The character of the amounts distributed under section 661(a),
determined in accordance with the rules prescribed in Sec. Sec.
1.661(b)-1 and 1.661(b)-2 is shown by the following table (for the
purpose of this allocation, it is assumed that the trustee elected to
allocate the trustee's commissions to rental income except for the
amount required to be allocated to tax-exempt interest):
----------------------------------------------------------------------------------------------------------------
Partially tax-
Rental Taxable Excluded exempt Tax-exempt Total
income dividends dividends interest interest
----------------------------------------------------------------------------------------------------------------
Trust income.................. $20,000 $9,950 $50 $10,000 $10,000 $50,000
Less:
Charitable contributions.... 4,000 2,000 ........... 2,000 2,000 10,000
Rental expenses............. 2,000 ........... ........... ............. ............. 2,000
Depreciation................ 3,000 ........... ........... ............. ............. 3,000
Trustee's commissions....... 4,000 ........... ........... ............. 1,000 5,000
---------------------------------------------------------------------------------
Total deductions.......... 13,000 2,000 0 2,000 3,000 20,000
Distributable net income...... 7,000 7,950 50 8,000 7,000 30,000
Amounts deemed distributed 3,500 3,975 25 4,000 3,500 15,000
under section 661(a) before
applying the limitation of
section 661(c)...............
----------------------------------------------------------------------------------------------------------------
In the absence of specific provisions in the trust instrument for the
allocation of different classes of income, the charitable contribution
is deemed to consist of a pro rata portion of the gross amount of each
items of income of the trust (except dividends excluded under section
116) and the trust is deemed to have distributed to A a pro rata portion
(one-half) of each item of income included in distributable net income.
[[Page 130]]
(e) The taxable income of the trust is $11,375 computed as follows:
Rental income................................................ $20,000
Dividends ($10,000 less $50 exclusion)....................... 9,950
Partially tax-exempt interest................................ 10,000
------------
Gross income............................................. 39,950
Deductions:
Rental expenses................................. $2,000
Depreciation of rental property................. 3,000
Trustee's commissions........................... 4,000
Charitable contributions........................ 8,000
Distributions to A.............................. 11,475
Personal exemption.............................. 100
------------
......... 28,575
----------
Taxable income........................................... 11,375
In computing the taxable income of the trust no deduction is allowable
for the portions of the charitable contributions deduction ($2,000) and
trustee's commissions ($1,000) which are treated under section 661(b) as
attributable to the tax-exempt interest excludable from gross income.
Also, of the dividends of $4,000 deemed to have been distributed to A
under section 661(a), $25 (25/50ths of $50) is deemed to have been
distributed from the excluded dividends and is not an allowable
deduction to the trust. Accordingly, the deduction allowable under
section 661 is deemed to be composed of $3,500 rental income, $3,975 of
dividends, and $4,000 partially tax-exempt interest. No deduction is
allowable for the portion of tax-exempt interest or for the portion of
the excluded dividends deemed to have been distributed to the
beneficiary.
(f) The trust is entitled to the credit allowed by section 34 with
respect to dividends of $5,975 ($9,950 less $3,975 distributed to A)
included in gross income. Also, the trust is allowed the credit provided
by section 35 with respect to partially tax-exempt interest of $6,000
($10,000 less $4,000 deemed distributed to A) included in gross income.
(g) Dividends of $4,000 allocable to A are to be aggregated with his
other dividends (if any) for purposes of the dividend exclusion under
section 116 and the dividend received credit under section 84.
Sec. 1.662(a)-1 Inclusion of amounts in gross income of beneficiaries
of estates and complex trusts; general.
There is included in the gross income of a beneficiary of an estate
or complex trust the sum of:
(a) Amounts of income required to be distributed currently to him,
and
(b) All other amounts properly paid, credited, or required to be
distributed to him
by the estate or trust. The preceding sentence is subject to the rules
contained in Sec. 1.662(a)-2 (relating to currently distributable
income), Sec. 1.662(a)-3 (relating to other amounts distributed), and
Sec. Sec. 1.662(b)-1 and 1.662(b)-2 (relating to character of amounts).
Section 662 has no application to amounts excluded under section 663(a).
Sec. 1.662(a)-2 Currently distributable income.
(a) There is first included in the gross income of each beneficiary
under section 662(a)(1) the amount of income for the taxable year of the
estate or trust required to be distributed currently to him, subject to
the provisions of paragraph (b) of this section. Such amount is included
in the beneficiary's gross income whether or not it is actually
distributed.
(b) If the amount of income required to be distributed currently to
all beneficiaries exceeds the distributable net income (as defined in
section 643(a) but computed without taking into account the payment,
crediting, or setting aside of an amount for which a charitable
contributions deduction is allowable under section 642(c)) of the estate
or trust, then there is included in the gross income of each beneficiary
an amount which bears the same ratio to distributable net income (as so
computed) as the amount of income required to be distributed currently
to the beneficiary bears to the amount required to be distributed
currently to all beneficiaries.
(c) The phrase the amount of income for the taxable year required to
be distributed currently includes any amount required to be paid out of
income or corpus to the extent the amount is satisfied out of income for
the taxable year. Thus, an annuity required to be paid in all events
(either out of income or corpus) would qualify as income required to be
distributed currently to the extent there is income (as defined in
section 643(b)) not paid, credited, or required to be distributed to
other beneficiaries for the taxable year. If an annuity or a portion of
an annuity is deemed under this paragraph to be income required to be
distributed currently, it is treated in all respects in the same manner
as an amount of income actually required to be distributed currently.
The phrase the amount of income for the taxable year required to
[[Page 131]]
be distributed currently also includes any amount required to be paid
during the taxable year in all events (either out of income or corpus)
pursuant to a court order or decree or under local law, by a decedent's
estate as an allowance or award for the support of the decedent's widow
or other dependent for a limited period during the administration of the
estate to the extent there is income (as defined in section 643(b)) of
the estate for the taxable year not paid, credited, or required to be
distributed to other beneficiaries.
(d) If an annuity is paid, credited, or required to be distributed
tax free, that is, under a provision whereby the executor or trustee
will pay the income tax of the annuitant resulting from the receipt of
the annuity, the payment of or for the tax by the executor or trustee
will be treated as income paid, credited, or required to be distributed
currently to the extent it is made out of income.
(e) The application of the rules stated in this section may be
illustrated by the following examples:
Example 1. (1) Assume that under the terms of the trust instrument
$5,000 is to be paid to X charity out of income each year; that $20,000
of income is currently distributable to A; and that an annuity of
$12,000 is to be paid to B out of income or corpus. All expenses are
charges against income and capital gains are allocable to corpus. During
the taxable year the trust had income of $30,000 (after the payment of
expenses) derived from taxable interest and made the payments to X
charity and distributions to A and B as required by the governing
instrument.
(2) The amounts treated as distributed currently under section
662(a)(1) total $25,000 ($20,000 to A and $5,000 to B). Since the
charitable contribution is out of income the amount of income available
for B's annuity is only $5,000. The distributable net income of the
trust computed under section 643(a) without taking into consideration
the charitable contributions deduction of $5,000 as provided by section
661(a)(1), is $30,000. Since the amounts treated as distributed
currently of $25,000 do not exceed the distributable net income (as
modified) of $30,000, A is required to include $20,000 in his gross
income and B is required to include $5,000 in his gross income under
section 662(a)(1).
Example 2. Assume the same facts as in paragraph (1) of example 1,
except that the trust has, in addition, $10,000 of administration
expenses, commissions, etc., chargeable to corpus. The amounts treated
as distributed currently under section 662(a)(1) total $25,000 ($20,000
to A and $5,000 to B), since trust income under section 643(b) remains
the same as in example 1. Distributable net income of the trust computed
under section 643(a) but without taking into account the charitable
contributions deduction of $5,000 as provided by section 662(a)(1) is
only $20,000. Since the amounts treated as distributed currently of
$25,000 exceed the distributable net income (as so computed) of $20,000,
A is required to include $16,000 (20,000/25,000 of $20,000) in his gross
income and B is required to include $4,000 (5,000/25,000 of $20,000) in
his gross income under section 662(a)(1). Because A and B are
beneficiaries of amounts of income required to be distributed currently,
they do not benefit from the reduction of distributable net income by
the charitable contributions deduction.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 7287, 38 FR 26912, Sept. 27, 1973]
Sec. 1.662(a)-3 Other amounts distributed.
(a) There is included in the gross income of a beneficiary under
section 662(a)(2) any amount properly paid, credited, or required to be
distributed to the beneficiary for the taxable year, other than (1)
income required to be distributed currently, as determined under Sec.
1.662(a)-2, (2) amounts excluded under section 663(a) and the
regulations thereunder, and (3) amounts in excess of distributable net
income (see paragraph (c) of this section). An amount which is credited
or required to be distributed is included in the gross income of a
beneficiary whether or not it is actually distributed.
(b) Some of the payments to be included under paragraph (a) of this
section are: (1) A distribution made to a beneficiary in the discretion
of the fiduciary; (2) a distribution required by the terms of the
governing instrument upon the happening of a specified event; (3) an
annuity which is required to be paid in all events but which is payable
only out of corpus; (4) a distribution of property in kind (see
paragraph (f) of Sec. 1.661(a)-2); (5) an amount applied or distributed
for the support of a dependent of a grantor or a trustee or cotrustee
under the circumstances specified in section 677(b) or section 678(c)
out of corpus or out of other than income for the taxable year; and (6)
an amount required to be paid during the taxable year pursuant to a
court order
[[Page 132]]
or decree or under local law, by a decedent's estate as an allowance or
award for the support of the decedent's widow or other dependent for a
limited period during the administration of the estate which is payable
only out of corpus of the estate under the order or decree or local law.
(c) If the sum of the amounts of income required to be distributed
currently (as determined under Sec. 1.662(a)-2) and other amounts
properly paid, credited, or required to be distributed (as determined
under paragraph (a) of this section) exceeds distributable net income
(as defined in section 643(a)), then such other amounts properly paid,
credited, or required to be distributed are included in gross income of
the beneficiary but only to the extent of the excess of such
distributable net income over the amounts of income required to be
distributed currently. If the other amounts are paid, credited, or
required to be distributed to more than one beneficiary, each
beneficiary includes in gross income his proportionate share of the
amount includible in gross income pursuant to the preceding sentence.
The proportionate share is an amount which bears the same ratio to
distributable net income (reduced by amounts of income required to be
distributed currently) as the other amounts (as determined under
paragraphs (a) and (d) of this section) distributed to the beneficiary
bear to the other amounts distributed to all beneficiaries. For
treatment of excess distributions by trusts, see sections 665 to 668,
inclusive, and the regulations thereunder.
(d) The application of the rules stated in this section may be
illustrated by the following example:
Example. The terms of a trust require the distribution annually of
$10,000 of income to A. If any income remains, it may be accumulated or
distributed to B, C, and D in amounts in the trustee's discretion. He
may also invade corpus for the benefit of A, B, C, or D. In the taxable
year, the trust has $20,000 of income after the deduction of all
expenses. Distributable net income is $20,000. The trustee distributes
$10,000 of income to A. Of the remaining $10,000 of income, he
distributes $3,000 each to B, C, and D, and also distributes an
additional $5,000 to A. A includes $10,000 in income under section
662(a)(1). The ``other amounts distributed'' amount of $14,000,
includible in the income of the recipients to the extent of $10,000,
distributable net income less the income currently distributable to A. A
will include an additional $3,571 (5,000/14,000x$10,000) in income under
this section, and B, C, and D will each include $2,143 (3,000/
14,000x$10,000).
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 7287, 38 FR 26913, Sept. 27, 1973]
Sec. 1.662(a)-4 Amounts used in discharge of a legal obligation.
Any amount which, pursuant to the terms of a will or trust
instrument, is used in full or partial discharge or satisfaction of a
legal obligation of any person is included in the gross income of such
person under section 662(a) (1) or (2), whichever is applicable, as
though directly distributed to him as a beneficiary, except in cases to
which section 71 (relating to alimony payments) or section 682 (relating
to income of a trust in case of divorce, etc.) applies. The term legal
obligation includes a legal obligation to support another person if, and
only if, the obligation is not affected by the adequacy of the
dependent's own resources. For example, a parent has a ``legal
obligation'' within the meaning of the preceding sentence to support his
minor child if under local law property or income from property owned by
the child cannot be used for his support so long as his parent is able
to support him. On the other hand, if under local law a mother may use
the resources of a child for the child's support in lieu of supporting
him herself, no obligation of support exists within the meaning of this
paragraph, whether or not income is actually used for support.
Similarly, since under local law a child ordinarily is obligated to
support his parent only if the parent's earnings and resources are
insufficient for the purpose, no obligation exists whether or not the
parent's earnings and resources are sufficient. In any event the amount
of trust income which is included in the gross income of a person
obligated to support a dependent is limited by the extent of his legal
obligation under local law. In the case of a parent's obligation to
support his child, to the extent that the parent's legal obligation of
support, including education, is determined under local law by the
family's station in life
[[Page 133]]
and by the means of the parent, it is to be determined without
consideration of the trust income in question.
Sec. 1.662(b)-1 Character of amounts; when no charitable contributions
are made.
In determining the amount includible in the gross income of a
beneficiary, the amounts which are determined under section 662(a) and
Sec. Sec. 1.662(a)-1 through 1.662(a)-4 shall have the same character
in the hands of the beneficiary as in the hands of the estate or trust.
The amounts are treated as consisting of the same proportion of each
class of items entering into the computation of distributable net income
as the total of each class bears to the total distributable net income
of the estate or trust unless the terms of the governing instrument
specifically allocate different classes of income to different
beneficiaries, or unless local law requires such an allocation. For this
purpose, the principles contained in Sec. 1.652(b)-1 shall apply.
Sec. 1.662(b)-2 Character of amounts; when charitable contributions
are made.
When a charitable contribution is made, the principles contained in
Sec. Sec. 1.652(b)-1 and 1.662(b)-1 generally apply. However, before
the allocation of other deductions among the items of distributable net
income, the charitable contributions deduction allowed under section
642(c) is (in the absence of specific allocation under the terms of the
governing instrument or the requirement under local law of a different
allocation) allocated among the classes of income entering into the
computation of estate or trust income in accordance with the rules set
forth in paragraph (b) of Sec. 1.643(a)-5. In the application of the
preceding sentence, for the purpose of allocating items of income and
deductions to beneficiaries to whom income is required to be distributed
currently, the amount of the charitable contributions deduction is
disregarded to the extent that it exceeds the income of the trust for
the taxable year reduced by amounts for the taxable year required to be
distributed currently. The application of this section may be
illustrated by the following examples (of which example (1) is
illustrative of the preceding sentence):
Example 1. (a) A trust instrument provides that $30,000 of its
income must be distributed currently to A, and the balance may either be
distributed to B, distributed to a designated charity, or accumulated.
Accumulated income may be distributed to B and to the charity. The trust
for its taxable year has $40,000 of taxable interest and $10,000 of tax-
exempt income, with no expenses. The trustee distributed $30,000 to A,
$50,000 to charity X, and $10,000 to B.
(b) Distributable net income for the purpose of determining the
character of the distribution to A is $30,000 (the charitable
contributions deduction, for this purpose, being taken into account only
to the extent of $20,000, the difference between the income of the trust
for the taxable year, $50,000, and the amount required to be distributed
currently, $30,000).
(c) The charitable contributions deduction taken into account,
$20,000, is allocated proportionately to the items of income of the
trust, $16,000 to taxable interest and $4,000 to tax-exempt income.
(d) Under section 662(a)(1), the amount of income required to be
distributed currently to A is $30,000, which consists of the balance of
these items, $24,000 of taxable interest and $6,000 of tax-exempt
income.
(e) In determining the amount to be included in the gross income of
B under section 662 for the taxable year, however, the entire charitable
contributions deduction is taken into account, with the result that
there is no distributable net income and therefore no amount to be
included in gross income.
(f) See subpart D (section 665 and following), part I, subchapter J,
chapter 1 of the Code for application of the throwback provisions to the
distribution made to B.
Example 2. The net income of a trust is payable to A for life, with
the remainder to a charitable organization. Under the terms of the trust
instrument and local law capital gains are added to corpus. During the
taxable year the trust receives dividends of $10,000 and realized a
long-term capital gain of $10,000, for which a long-term capital gain
deduction of $5,000 is allowed under section 1202. Since under the trust
instrument and local law the capital gains are allocated to the
charitable organization, and since the capital gain deduction is
directly attributable to the capital gain, the charitable contributions
deduction and the capital gain deduction are both allocable to the
capital gain, and dividends in the amount of $10,000 are allocable to A.
[[Page 134]]
Sec. 1.662(c)-1 Different taxable years.
If a beneficiary has a different taxable year (as defined in section
441 or 442) from the taxable year of an estate or trust, the amount he
is required to include in gross income in accordance with section 662
(a) and (b) is based upon the distributable net income of the estate or
trust and the amounts properly paid, credited, or required to be
distributed to the beneficiary for any taxable year or years of the
estate or trust ending with or within his taxable year. This rule
applies as to so-called short taxable years as well as taxable years of
normal duration. Income of an estate or trust for its taxable year or
years is determined in accordance with its method of accounting and
without regard to that of the beneficiary.
Sec. 1.662(c)-2 Death of individual beneficiary.
If an amount specified in section 662(a) (1) or (2) is paid,
credited, or required to be distributed by an estate or trust for a
taxable year which does not end with or within the last taxable year of
a beneficiary (because of the beneficiary's death), the extent to which
the amount is included in the gross income of the beneficiary for his
last taxable year or in the gross income of his estate is determined by
the computations under section 662 for the taxable year of the estate or
trust in which his last taxable year ends. Thus, the distributable net
income and the amounts paid, credited, or required to be distributed for
the taxable year of the estate or trust, determine the extent to which
the amounts paid, credited, or required to be distributed to the
beneficiary are included in his gross income for his last taxable year
or in the gross income of his estate. (Section 662(c) does not apply to
such amounts.) The gross income for the last taxable year of a
beneficiary on the cash basis includes only income actually distributed
to the beneficiary before his death. Income required to be distributed,
but in fact distributed to his estate, is included in the gross income
of the estate as income in respect of a decedent under section 691. See
paragraph (e) of Sec. 1.663(c)-3 with respect to separate share
treatment for the periods before and after the death of a trust's
beneficiary.
Sec. 1.662(c)-3 Termination of existence of other beneficiaries.
If the existence of a beneficiary which is not an individual
terminates, the amount to be included under section 662(a) in its gross
income for the last taxable year is computed with reference to
Sec. Sec. 1.662(c)-1 and 1.662(c)-2 as if the beneficiary were a
deceased individual, except that income required to be distributed prior
to the termination but actually distributed to the beneficiary's
successor in interest is included in the beneficiary's income for its
last taxable year.
Sec. 1.662(c)-4 Illustration of the provisions of sections 661 and
662.
The provisions of sections 661 and 662 may be illustrated in general
by the following example:
Example. (a) Under the terms of a testamentary trust one-half of the
trust income is to be distributed currently to W, the decedent's wife,
for her life. The remaining trust income may, in the trustee's
discretion, either be paid to D, the grantor's daughter, paid to
designated charities, or accumulated. The trust is to terminate at the
death of W and the principal will then be payable to D. No provision is
made in the trust instrument with respect to depreciation of rental
property. Capital gains are allocable to the principal account under the
applicable local law. The trust and both beneficiaries file returns on
the calendar year basis. The records of the fiduciary show the following
items of income and deduction for the taxable year 1955:
Rents........................................................ $50,000
Dividends of domestic corporations........................... 50,000
Tax-exempt interest.......................................... 20,000
Partially tax-exempt interest................................ 10,000
Capital gains (long term).................................... 20,000
Depreciation of rental property.............................. 10,000
Expenses attributable to rental income....................... 15,400
Trustee's commissions allocable to income account............ 2,800
Trustee's commissions allocable to principal account......... 1,100
(b) The income for trust accounting purposes is $111,800, and the
trustee distributes one-half ($55,900) to W and in his discretion makes
a contribution of one-quarter ($27,950) to charity X and distributes the
remaining one-quarter ($27,950) to D. The total of the distributions to
beneficiaries is $83,850, consisting of (1) income required to be
distributed currently to W of $55,900 and (2) other amounts properly
paid or credited to D of $27,950. The income for trust accounting
purposes of $111,800 is determined as follows:
[[Page 135]]
Rents........................................................ $50,000
Dividends.................................................... 50,000
Tax-exempt interest.......................................... 20,000
Partially tax-exempt interest................................ 10,000
------------
Total.................................................... 130,000
Less:
Rental expenses................................. $15,400
Trustee's commissions allocable to income 2,800
account........................................
-------- 18,200
----------
Income as computed under section 643(b)....... 111,800
(c) The distributable net income of the trust as computed under
section 643(a) is $82,750, determined as follows:
Rents............................ ........... ........... $50,000
Dividends........................ ........... ........... 50,000
Partially tax-exempt interest.... ........... ........... 10,000
Tax-exempt interest.............. ........... $20,000
Less:
Trustee's commissions allocable $600
thereto (20,000/130,000 of
$3,900).......................
Charitable contributions 4,300
allocable thereto (20,000/
130,000 of $27,950)...........
--------------
---------- 4,900
---------- 15,100
------------
Total........................ ........... ........... 125,100
Deductions:
Rental expenses................ ........... 15,400
Trustee's commissions ($3,900 ........... 3,300
less $600 allocated to tax-
exempt interest)..............
Charitable deduction ($27,950 ........... 23,650
less $4,300 attributable to
tax-exempt interest)..........
---------- 42,350
------------
Distributable net income..... ........... ........... 82,750
------------------------------------------------------------------------
In computing the distributable net income of $82,750, the taxable income
of the trust was computed with the following modifications: No
deductions were allowed for distributions to beneficiaries and for
personal exemption of the trust (section 643(a) (1) and (2)); capital
gains were excluded and no deduction under section 1202 (relating to the
50 percent deduction for long-term capital gains) was taken into account
(section 643(a)(3)); and the tax-exempt interest (as adjusted for
expenses and charitable contributions) and the dividend exclusion of $50
were included (section 643(a) (5) and (7)).
(d) Inasmuch as the distributable net income of $82,750 as
determined under section 643(a) is less than the sum of the amounts
distributed to W and D of $83,850, the deduction allowable to the trust
under section 661(a) is such distributable net income as modified under
section 661(c) to exclude therefrom the items of income not included in
the gross income of the trust, as follows:
Distributable net income..................................... $82,750
Less:
Tax-exempt interest (as adjusted for expenses $15,100
and the charitable contributions)..............
Dividend exclusion allowable under section 116.. 50
-------- 15,150
----------
Deduction allowable under section 661(a)................. 67,600
(e) For the purpose of determining the character of the amounts
deductible under section 642(c) and section 661(a), the trustee elected
to offset the trustee's commissions (other than the portion required to
be allocated to tax-exempt interest) against the rental income. The
following table shows the determination of the character of the amounts
deemed distributed to beneficiaries and contributed to charity.
----------------------------------------------------------------------------------------------------------------
Partially
Rents Taxable Excluded Tax exempt tax exempt Total
dividends dividends interest interest
----------------------------------------------------------------------------------------------------------------
Trust income............................ $50,000 $49,950 $50 $20,000 $10,000 $130,000
Less:
Charitable contribution............... 10,750 10,750 .......... 4,300 2,150 27,950
Rental expenses....................... 15,400 .......... .......... .......... .......... 15,400
Trustee's commissions................. 3,300 .......... .......... 600 .......... 3,900
-----------------------------------------------------------------------
Total deductions.................... 29,450 10,750 0 4,900 2,150 47,250
-----------------------------------------------------------------------
Amounts distributable to beneficiaries.. 20,550 39,200 50 15,100 7,850 82,750
----------------------------------------------------------------------------------------------------------------
[[Page 136]]
The character of the charitable contribution is determined by
multiplying the total charitable contribution ($27,950) by a fraction
consisting of each item of trust income, respectively, over the total
trust income, except that no part of the dividends excluded from gross
income are deemed included in the charitable contribution. For example,
the charitable contribution is deemed to consist of rents of $10,750
(50,000/130,000x $27,950).
(f) The taxable income of the trust is $9,900 determined as follows:
Rental income................................................ $50,000
Dividends ($50,000 less $50 exclusion)....................... 49,950
Partially tax-exempt interest................................ 10,000
Capital gains................................................ 20,000
------------
Gross income............................................. 129,950
Deductions:
Rental expenses................................. 15,400
Trustee's commissions........................... 3,300
Charitable contributions........................ 23,650
Capital gain deduction.......................... 10,000
Distributions to beneficiaries.................. 67,600
Personal exemption.............................. 100
------------
......... 120,050
----------
Taxable income........................................... 9,900
(g) In computing the amount includible in W's gross income under
section 662(a)(1), the $55,900 distribution to her is deemed to be
composed of the following proportions of the items of income deemed to
have been distributed to the beneficiaries by the trust (see paragraph
(e) of this example):
Rents (20,550/82,750x$55,900)................................ $13,882
Dividends (39,250/82,750x$55,900)............................ 26,515
Partially tax-exempt interest (7,850/ 82,750x$55,900)........ 5,303
Tax-exempt interest (15,100/82,750x$55,900).................. 10,200
------------
Total.................................................... 55,900
Accordingly, W will exclude $10,200 of tax-exempt interest from gross
income and will receive the credits and exclusion for dividends received
and for partially tax-exempt interest provided in sections 34, 116, and
35, respectively, with respect to the dividends and partially tax-exempt
interest deemed to have been distributed to her, her share of the
dividends being aggregated with other dividends received by her for
purposes of the dividend credit and exclusion. In addition, she may
deduct a share of the depreciation deduction proportionate to the trust
income allocable to her; that is, one-half of the total depreciation
deduction, or $5,000.
(h) Inasmuch as the sum of the amount of income required to be
distributed currently to W ($55,900) and the other amounts properly
paid, credited, or required to be distributed to D ($27,950) exceeds the
distributable net income ($82,750) of the trust as determined under
section 643(a), D is deemed to have received $26,850 ($82,750 less
$55,900) for income tax purposes. The character of the amounts deemed
distributed to her is determined as follows:
Rents (20,550/82,750x$26,850)................................ $6,668
Dividends (39,250/82,750x$26,850)............................ 12,735
Partially tax-exempt interest (7,850/ 82,750x$26,850)........ 2,547
Tax-exempt interest (15,100/82,750x$26,850).................. 4,900
------------
Total.................................................... 26,850
Accordingly, D will exclude $4,900 of tax-exempt interest from gross
income and will receive the credits and exclusion for dividends received
and for partially tax-exempt interest provided in sections 34, 116, and
35, respectively, with respect to the dividends and partially tax-exempt
interest deemed to have been distributed to her, her share of the
dividends being aggregated with other dividends received by her for
purposes of the dividend credit and exclusion. In addition, she may
deduct a share of the depreciation deduction proportionate to the trust
income allocable to her; that is, one-fourth of the total depreciation
deduction, or $2,500.
(i) [Reserved]
(j) The remaining $2,500 of the depreciation deduction is allocated
to the amount distributed to charity X and is hence non-deductible by
the trust, W, or D. (See Sec. 1.642(e)-1.)
Sec. 1.663(a)-1 Special rules applicable to sections 661 and 662;
exclusions; gifts, bequests, etc.
(a) In general. A gift or bequest of a specific sum of money or of
specific property, which is required by the specific terms of the will
or trust instrument and is properly paid or credited to a beneficiary,
is not allowed as a deduction to an estate or trust under section 661
and is not included in the gross income of a beneficiary under section
662, unless under the terms of the will or trust instrument the gift or
bequest is to be paid or credited to the recipient in more than three
installments. Thus, in order for a gift or bequest to be excludable from
the gross income of the recipient, (1) it must qualify as a gift or
bequest of a specific sum of money or of specific property (see
paragraph (b) of this section), and (2) the terms of the governing
instrument must not provide for its payment in more than three
installments (see paragraph (c) of this section). The date when the
estate came into existence or the date when the trust was created is
immaterial.
(b) Definition of a gift or bequest of a specific sum of money or of
specific property. (1) In order to qualify as a gift or bequest of a
specific sum of money or of specific property under section
[[Page 137]]
663(a), the amount of money or the identity of the specific property
must be ascertainable under the terms of a testator's will as of the
date of his death, or under the terms of an inter vivos trust instrument
as of the date of the inception of the trust. For example, bequests to a
decedent's son of the decedent's interest in a partnership and to his
daughter of a sum of money equal to the value of the partnership
interest are bequests of specific property and of a specific sum of
money, respectively. On the other hand, a bequest to the decedent's
spouse of money or property, to be selected by the decedent's executor,
equal in value to a fraction of the decedent's ``adjusted gross estate''
is neither a bequest of a specific sum of money or of specific property.
The identity of the property and the amount of money specified in the
preceding sentence are dependent both on the exercise of the executor's
discretion and on the payment of administration expenses and other
charges, neither of which are facts existing on the date of the
decedent's death. It is immaterial that the value of the bequest is
determinable after the decedent's death before the bequest is satisfied
(so that gain or loss may be realized by the estate in the transfer of
property in satisfaction of it).
(2) The following amounts are not considered as gifts or bequests of
a sum of money or of specific property within the meaning of this
paragraph:
(i) An amount which can be paid or credited only from the income of
an estate or trust, whether from the income for the year of payment or
crediting, or from the income accumulated from a prior year;
(ii) An annuity, or periodic gifts of specific property in lieu of
or having the effect of an annuity;
(iii) A residuary estate or the corpus of a trust; or
(iv) A gift or bequest paid in a lump sum or in not more than three
installments, if the gift or bequest is required to be paid in more than
three installments under the terms of the governing instrument.
(3) The provisions of subparagraphs (1) and (2) of this paragraph
may be illustrated by the following examples, in which it is assumed
that the gift or bequest is not required to be made in more than three
installments (see paragraph (c)):
Example 1. Under the terms of a will, a legacy of $5,000 was left to
A, 1,000 shares of X company stock was left to W, and the balance of the
estate was to be divided equally between W and B. No provision was made
in the will for the disposition of income of the estate during the
period of administration. The estate had income of $25,000 during the
taxable year 1954, which was accumulated and added to corpus for estate
accounting purposes. During the taxable year, the executor paid the
legacy of $5,000 in a lump sum to A, transferred the X company stock to
W, and made no other distributions to beneficiaries. The distributions
to A and W qualify for the exclusion under section 663(a)(1).
Example 2. Under the terms of a will, the testator's estate was to
be distributed to A. No provision was made in the will for the
distribution of the estate's income during the period of administration.
The estate had income of $50,000 for the taxable year. The estate
distributed to A stock with a basis of $40,000 and with a fair market
value of $40,000 on the date of distribution. No other distributions
were made during the year. The distribution does not qualify for the
exclusion under section 663(a)(1), because it is not a specific gift to
A required by the terms of the will. Accordingly, the fair market value
of the property ($40,000) represents a distribution within the meaning
of sections 661(a) and 662(a) (see Sec. 1.661(a)-2(c)).
Example 3. Under the terms of a trust instrument, trust income is to
be accumulated for a period of 10 years. During the eleventh year, the
trustee is to distribute $10,000 to B, payable from income or corpus,
and $10,000 to C, payable out of accumulated income. The trustee is to
distribute the balance of the accumulated income to A. Thereafter, A is
to receive all the current income until the trust terminates. Only the
distribution to B would qualify for the exclusion under section
663(a)(1).
(4) A gift or bequest of a specific sum of money or of specific
property is not disqualified under this paragraph solely because its
payment is subject to a condition. For example, provision for a payment
by a trust to beneficiary A of $10,000 when he reaches age 25, and
$10,000 when he reaches age 30, with payment over to B of any amount not
paid to A because of his death, is a gift to A of a specific sum of
money payable in two installments, within the meaning of this paragraph,
even though the exact amount payable to A cannot be
[[Page 138]]
ascertained with certainty under the terms of the trust instrument.
(c) Installment payments. (1) In determining whether a gift or
bequest of a specific sum of money or of specific property, as defined
in paragraph (b) of this section, is required to be paid or credited to
a particular beneficiary in more than three installments:
(i) Gifts or bequests of articles for personal use (such as personal
and household effects, automobiles, and the like) are disregarded.
(ii) Specifically devised real property, the title to which passes
directly from the decedent to the devisee under local law, is not taken
into account, since it would not constitute an amount paid, credited, or
required to be distributed under section 661 (see paragraph (e) of Sec.
1.661(a)-2).
(iii) All gifts and bequests under a decedent's will (which are not
disregarded pursuant to subdivisions (i) and (ii) of this subparagraph)
for which no time of payment or crediting is specified, and which are to
be paid or credited in the ordinary course of administration of the
decedent's estate, are considered as required to be paid or credited in
a single installment.
(iv) All gifts and bequests (which are not disregarded pursuant to
subdivisions (i) and (ii) of this subparagraph) payable at any one
specified time under the terms of the governing instrument are taken
into account as a single installment.
For purposes of determining the number of installments paid or credited
to a particular beneficiary, a decedent's estate and a testamentary
trust shall each be treated as a separate entity.
(2) The application of the rules stated in subparagraph (1) of this
paragraph may be illustrated by the following examples:
Example (1). (i) Under the terms of a decedent's will, $10,000 in
cash, household furniture, a watch, an automobile, 100 shares of X
company stock, 1,000 bushels of grain, 500 head of cattle, and a farm
(title to which passed directly to A under local law) are bequeathed or
devised outright to A. The will also provides for the creation of a
trust for the benefit of A, under the terms of which there are required
to be distributed to A, $10,000 in cash and 100 shares of Y company
stock when he reaches 25 years of age, $25,000 in cash and 200 shares of
Y company stock when he reaches 30 years of age, and $50,000 in cash and
300 shares of Y company stock when he reaches 35 years of age.
(ii) The furniture, watch, automobile, and the farm are excluded in
determining whether any gift or bequest is required to be paid or
credited to A in more than three installments. These items qualify for
the exclusion under section 663(a)(1) regardless of the treatment of the
other items of property bequeathed to A.
(iii) The $10,000 in cash, the shares of X company stock, the grain,
the cattle and the assets required to create the trust, to be paid or
credited by the estate to A and the trust are considered as required to
be paid or credited in a single installment to each, regardless of the
manner of payment or distribution by the executor, since no time of
payment or crediting is specified in the will. The $10,000 in cash and
shares of Y company stock required to be distributed by the trust to A
when he is 25 years old are considered as required to be paid or
distributed as one installment under the trust. Likewise, the
distributions to be made by the trust to A when he is 30 and 35 years
old are each considered as one installment under the trust. Since the
total number of installments to be made by the estate does not exceed
three, all of the items of money and property distributed by the estate
qualify for the exclusion under section 663(a)(1). Similarly, the three
distributions by the trust qualify.
Example (2). Assume the same facts as in example (1), except that
another distribution of a specified sum of money is required to be made
by the trust to A when he becomes 40 years old. This distribution would
also qualify as an installment, thus making four installments in all
under the trust. None of the gifts to A under the trust would qualify
for the exclusion under section 663(a)(1). The situation as to the
estate, however, would not be changed.
Example (3). A trust instrument provides that A and B are each to
receive $75,000 in installments of $25,000, to be paid in alternate
years. The trustee distributes $25,000 to A in 1954, 1956, and 1958, and
to B in 1955, 1957, and 1959. The gifts to A and B qualify for exclusion
under section 663(a)(1), although a total of six payments is made. The
gifts of $75,000 to each beneficiary are to be separately treated.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 8849, 64 FR 72543, Dec. 28, 1999]
Sec. 1.663(a)-2 Charitable, etc., distributions.
Any amount paid, permanently set aside, or to be used for the
charitable, etc., purposes specified in section 642(c) and which is
allowable as a deduction
[[Page 139]]
under that section is not allowed as a deduction to an estate or trust
under section 661 or treated as an amount distributed for purposes of
determining the amounts includible in gross income of beneficiaries
under section 662. Amounts paid, permanently set aside, or to be used
for charitable, etc., purposes are deductible by estates or trusts only
as provided in section 642(c). For purposes of this section, the
deduction provided in section 642(c) is computed without regard to the
provisions of section 508(d), section 681, or section 4948(c)(4)
(concerning unrelated business income and private foundations).
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7428, 41 FR
34627, Aug. 16, 1976]
Sec. 1.663(a)-3 Denial of double deduction.
No amount deemed to have been distributed to a beneficiary in a
preceding year under section 651 or 661 is included in amounts falling
within section 661(a) or 662(a). For example, assume that all of the
income of a trust is required to be distributed currently to beneficiary
A and both the trust and A report on the calendar year basis. For
administrative convenience, the trustee distributes in January and
February 1956 a portion of the income of the trust required to be
distributed in 1955. The portion of the income for 1955 which was
distributed by the trust in 1956 may not be claimed as a deduction by
the trust for 1956 since it is deductible by the trust and includible in
A's gross income for the taxable year 1955.
Sec. 1.663(b)-1 Distributions in first 65 days of taxable year; scope.
(a) Taxable years beginning after December 31, 1968--(1) General
rule. With respect to taxable years beginning after December 31, 1968,
the fiduciary of a trust may elect under section (b) to 663 treat any
amount or portion thereof that is properly paid or credited to a
beneficiary within the first 65 days following the close of the taxable
year as an amount that was properly paid or credited on the last day of
such taxable year.
(2) Effect of election. (i) An election is effective only with
respect to the taxable year for which the election is made. In the case
of distributions made after May 8, 1972, the amount to which the
election applies shall not exceed:
(a) The amount of income of the trust (as defined in Sec. 1.643(b)-
1) for the taxable year for which the election is made, or
(b) The amount of distributable net income of the trust (as defined
in Sec. Sec. 1.643(a)-1 through 1.643(a)-7) for such taxable year, if
greater,
reduced by any amounts paid, credited, or required to be distributed in
such taxable year other than those amounts considered paid or credited
in a preceding taxable year by reason of section 663(b) and this
section. An election shall be made for each taxable year for which the
treatment is desired. The application of this paragraph may be
illustrated by the following example:
Example. X Trust, a calendar year trust, has $1,000 of income (as
defined in Sec. 1.643(b)-1) and $800 of distributable net income (as
defined in Sec. Sec. 1.643(a)-1 through 1.643(a)-7) in 1972. The trust
properly pays $550 to A, a beneficiary, on January 15, 1972, which the
trustee elects to treat under section 663(b) as paid on December 31,
1971. The trust also properly pays to A $600 on July 19, 1972, and $450
on January 17, 1973. For 1972, the maximum amount that may be elected
under this subdivision to be treated as properly paid or credited on the
last day of 1972 is $400 ($1,000-$600). The $550 paid on January 15,
1972, does not reduce the maximum amount to which the election may
apply, because that amount is treated as properly paid on December 31,
1971.
(ii) If an election is made with respect to a taxable year of a
trust, this section shall apply only to those amounts which are properly
paid or credited within the first 65 days following such year and which
are so designated by the fiduciary in his election. Any amount
considered under section 663(b) as having been distributed in the
preceding taxable year shall be so treated for all purposes. For
example, in determining the beneficiary's tax liability, such amount
shall be considered as having been received by the beneficiary in his
taxable year in which or with which the last day of the preceding
taxable year of the trust ends.
(b) Taxable years beginning before January 1, 1969. With respect to
taxable
[[Page 140]]
years of a trust beginning before January 1, 1969, the fiduciary of the
trust may elect under section 663(b) to treat distributions within the
first 65 days following such taxable year as amounts which were paid or
credited on the last day of such taxable year, if:
(1) The trust was in existence prior to January 1, 1954;
(2) An amount in excess of the income of the immediately preceding
taxable year may not (under the terms of the governing instrument) be
distributed in any taxable year; and
(3) The fiduciary elects (as provided in Sec. 1.663(b)-2) to have
section 663(b) apply.
[T.D. 7204, 37 FR 17135, Aug. 25, 1972]
Sec. 1.663(b)-2 Election.
(a) Manner and time of election; irrevocability--(1) When return is
required to be filed. If a trust return is required to be filed for the
taxable year of the trust for which the election is made, the election
shall be made in the appropriate place on such return. The election
under this subparagraph shall be made not later than the time prescribed
by law for filing such return (including extensions thereof). Such
election shall become irrevocable after the last day prescribed for
making it.
(2) When no return is required to be filed. If no return is required
to be filed for the taxable year of the trust for which the election is
made, the election shall be made in a statement filed with the internal
revenue office with which a return by such trust would be filed if such
trust were required to file a return for such taxable year. See section
6091 and the regulations thereunder for place for filing returns. The
election under this subparagraph shall be made not later than the time
prescribed by law for filing a return if such trust were required to
file a return for such taxable year. Such election shall become
irrevocable after the last day prescribed for making it.
(b) Elections under prior law. Elections made pursuant to section
663(b) prior to its amendment by section 331(b) of the Tax Reform Act of
1969 (83 Stat. 598), which, under prior law, were irrevocable for the
taxable year for which the election was made and all subsequent years,
are not effective for taxable years beginning after December 31, 1968.
In the case of a trust for which an election was made under prior law,
the fiduciary shall make the election for each taxable year beginning
after December 31, 1968, for which the treatment provided by section
663(b) is desired.
[T.D. 7204, 37 FR 17135, Aug. 25, 1972]
Sec. 1.663(c)-1 Separate shares treated as separate trusts or as
separate estates; in general.
(a) If a single trust (or estate) has more than one beneficiary, and
if different beneficiaries have substantially separate and independent
shares, their shares are treated as separate trusts (or estates) for the
sole purpose of determining the amount of distributable net income
allocable to the respective beneficiaries under sections 661 and 662.
Application of this rule will be significant in, for example, situations
in which income is accumulated for beneficiary A but a distribution is
made to beneficiary B of both income and corpus in an amount exceeding
the share of income that would be distributable to B had there been
separate trusts (or estates). In the absence of a separate share rule B
would be taxed on income which is accumulated for A. The division of
distributable net income into separate shares will limit the tax
liability of B. Section 663(c) does not affect the principles of
applicable law in situations in which a single trust (or estate)
instrument creates not one but several separate trusts (or estates), as
opposed to separate shares in the same trust (or estate) within the
meaning of this section.
(b) The separate share rule does not permit the treatment of
separate shares as separate trusts (or estates) for any purpose other
than the application of distributable net income. It does not, for
instance, permit the treatment of separate shares as separate trusts (or
estates) for purposes of:
(1) The filing of returns and payment of tax,
(2) The deduction of personal exemption under section 642(b), and
(3) The allowance to beneficiaries succeeding to the trust (or
estate) property of excess deductions and unused net operating loss and
capital loss
[[Page 141]]
carryovers on termination of the trust (or estate) under section 642(h).
(c) The separate share rule may be applicable even though separate
and independent accounts are not maintained and are not required to be
maintained for each share on the books of account of the trust (or
estate), and even though no physical segregation of assets is made or
required.
(d) Separate share treatment is not elective. Thus, if a trust (or
estate) is properly treated as having separate and independent shares,
such treatment must prevail in all taxable years of the trust (or
estate) unless an event occurs as a result of which the terms of the
trust (or estate) instrument and the requirements of proper
administration require different treatment.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, as amended by T.D.
8849, 64 FR 72543, Dec. 28, 1999]
Sec. 1.663(c)-2 Rules of administration.
(a) When separate shares come into existence. A separate share comes
into existence upon the earliest moment that a fiduciary may reasonably
determine, based upon the known facts, that a separate economic interest
exists.
(b) Computation of distributable net income for each separate
share--(1) General rule. The amount of distributable net income for any
share under section 663(c) is computed as if each share constituted a
separate trust or estate. Accordingly, each separate share shall
calculate its distributable net income based upon its portion of gross
income that is includible in distributable net income and its portion of
any applicable deductions or losses.
(2) Section 643(b) income. This paragraph (b)(2) governs the
allocation of the portion of gross income includible in distributable
net income that is income within the meaning of section 643(b). Such
gross income is allocated among the separate shares in accordance with
the amount of income that each share is entitled to under the terms of
the governing instrument or applicable local law.
(3) Income in respect of a decedent. This paragraph (b)(3) governs
the allocation of the portion of gross income includible in
distributable net income that is income in respect of a decedent within
the meaning of section 691(a) and is not income within the meaning of
section 643(b). Such gross income is allocated among the separate shares
that could potentially be funded with these amounts irrespective of
whether the share is entitled to receive any income under the terms of
the governing instrument or applicable local law. The amount of such
gross income allocated to each share is based on the relative value of
each share that could potentially be funded with such amounts.
(4) Gross income not attributable to cash. This paragraph (b)(4)
governs the allocation of the portion of gross income includible in
distributable net income that is not attributable to cash received by
the estate or trust (for example, original issue discount, a
distributive share of partnership tax items, and the pro rata share of
an S corporation's tax items). Such gross income is allocated among the
separate shares in the same proportion as section 643(b) income from the
same source would be allocated under the terms of the governing
instrument or applicable local law.
(5) Deductions and losses. Any deduction or any loss which is
applicable solely to one separate share of the trust or estate is not
available to any other share of the same trust or estate.
(c) Computations and valuations. For purposes of calculating
distributable net income for each separate share, the fiduciary must use
a reasonable and equitable method to make the allocations, calculations,
and valuations required by paragraph (b) of this section.
[T.D. 8849, 64 FR 72543, Dec. 28, 1999]
Sec. 1.663(c)-3 Applicability of separate share rule to certain
trusts.
(a) The applicability of the separate share rule provided by section
663(c) to trusts other than qualified revocable trusts within the
meaning of section 645(b)(1) will generally depend upon whether
distributions of the trust are to be made in substantially the same
manner as if separate trusts had been created. Thus, if an instrument
directs a trustee to divide the testator's residuary estate into
separate shares (which under applicable law do not constitute separate
trusts) for each of the testator's children and the trustee is
[[Page 142]]
given discretion, with respect to each share, to distribute or
accumulate income or to distribute principal or accumulated income, or
to do both, separate shares will exist under section 663(c). In
determining whether separate shares exist, it is immaterial whether the
principal and any accumulated income of each share is ultimately
distributable to the beneficiary of such share, to his descendants, to
his appointees under a general or special power of appointment, or to
any other beneficiaries (including a charitable organization) designated
to receive his share of the trust and accumulated income upon
termination of the beneficiary's interest in the share. Thus, a separate
share may exist if the instrument provides that upon the death of the
beneficiary of the share, the share will be added to the shares of the
other beneficiaries of the trust.
(b) Separate share treatment will not be applied to a trust or
portion of a trust subject to a power to: (1) Distribute, apportion, or
accumulate income, or (2) distribute corpus to or for one or more
beneficiaries within a group or class of beneficiaries, unless payment
of income, accumulated income, or corpus of a share of one beneficiary
cannot affect the proportionate share of income, accumulated income, or
corpus of any shares of the other beneficiaries, or unless substantially
proper adjustment must thereafter be made (under the governing
instrument) so that substantially separate and independent shares exist.
(c) A share may be considered as separate even though more than one
beneficiary has an interest in it. For example, two beneficiaries may
have equal, disproportionate, or indeterminate interests in one share
which is separate and independent from another share in which one or
more beneficiaries have an interest. Likewise, the same person may be a
beneficiary of more than one separate share.
(d) Separate share treatment may be given to a trust or portion of a
trust otherwise qualifying under this section if the trust or portion of
a trust is subject to a power to pay out to a beneficiary of a share (of
such trust or portion) an amount of corpus in excess of his
proportionate share of the corpus of the trust if the possibility of
exercise of the power is remote. For example, if the trust is subject to
a power to invade the entire corpus for the health, education, support,
or maintenance of A, separate share treatment is applied if exercise of
the power requires consideration of A's other income which is so
substantial as to make the possibility of exercise of the power remote.
If instead it appears that A and B have separate shares in a trust,
subject to a power to invade the entire corpus for the comfort,
pleasure, desire, or happiness of A, separate share treatment shall not
be applied.
(e) For taxable years ending before December 31, 1978, the separate
share rule may also be applicable to successive interests in point of
time, as for instance in the case of a trust providing for a life estate
to A and a second life estate or outright remainder to B. In such a
case, in the taxable year of a trust in which a beneficiary dies items
of income and deduction properly allocable under trust accounting
principles to the period before a beneficiary's death are attributed to
one share, and those allocable to the period after the beneficiary's
death are attributed to the other share. Separate share treatment is not
available to a succeeding interest, however, with respect to
distributions which would otherwise be deemed distributed in a taxable
year of the earlier interest under the throwback provisions of subpart D
(section 665 and following), part I, subchapter J, chapter 1 of the
Code. The application of this paragraph may be illustrated by the
following example:
Example. A trust instrument directs that the income of a trust is to
be paid to A for her life. After her death income may be distributed to
B or accumulated. A dies on June 1, 1956. The trust keeps its books on
the basis of the calendar year. The trust instrument permits invasions
of corpus for the benefit of A and B, and an invasion of corpus was in
fact made for A's benefit in 1956. In determining the distributable net
income of the trust for the purpose of determining the amounts
includible in A's income, income and deductions properly allocable to
the period before A's death are treated as income and deductions of a
separate share; and for that purpose no account is taken of income
[[Page 143]]
and deductions allocable to the period after A's death.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 7633, 44 FR 57926, Oct. 9, 1979; T.D. 8849, 64 FR 72543,
Dec. 28, 1999]
Sec. 1.663(c)-4 Applicability of separate share rule to estates and
qualified revocable trusts.
(a) General rule. The applicability of the separate share rule
provided by section 663(c) to estates and qualified revocable trusts
within the meaning of section 645(b)(1) will generally depend upon
whether the governing instrument and applicable local law create
separate economic interests in one beneficiary or class of beneficiaries
of such estate or trust. Ordinarily, a separate share exists if the
economic interests of the beneficiary or class of beneficiaries neither
affect nor are affected by the economic interests accruing to another
beneficiary or class of beneficiaries. Separate shares include, for
example, the income on bequeathed property if the recipient of the
specific bequest is entitled to such income and a surviving spouse's
elective share that under local law is entitled to income and
appreciation or depreciation. Furthermore, a qualified revocable trust
for which an election is made under section 645 is always a separate
share of the estate and may itself contain two or more separate shares.
Conversely, a gift or bequest of a specific sum of money or of property
as defined in section 663(a)(1) is not a separate share.
(b) Special rule for certain types of beneficial interests.
Notwithstanding the provisions of paragraph (a) of this section, a
surviving spouse's elective share that under local law is determined as
of the date of the decedent's death and is not entitled to income or any
appreciation or depreciation is a separate share. Similarly,
notwithstanding the provisions of paragraph (a) of this section, a
pecuniary formula bequest that, under the terms of the governing
instrument or applicable local law, is not entitled to income or to
share in appreciation or depreciation constitutes a separate share if
the governing instrument does not provide that it is to be paid or
credited in more than three installments.
(c) Shares with multiple beneficiaries and beneficiaries of multiple
shares. A share may be considered as separate even though more than one
beneficiary has an interest in it. For example, two beneficiaries may
have equal, disproportionate, or indeterminate interests in one share
which is economically separate and independent from another share in
which one or more beneficiaries have an interest. Moreover, the same
person may be a beneficiary of more than one separate share.
[T.D. 8849, 64 FR 72544, Dec. 28, 1999]
Sec. 1.663(c)-5 Examples.
Section 663(c) may be illustrated by the following examples:
Example 1. (i) A single trust was created in 1940 for the benefit of
A, B, and C, who were aged 6, 4, and 2, respectively. Under the terms of
the instrument, the trust income is required to be divided into three
equal shares. Each beneficiary's share of the income is to be
accumulated until he becomes 21 years of age. When a beneficiary reaches
the age of 21, his share of the income may thereafter be either
accumulated or distributed to him in the discretion of the trustee. The
trustee also has discretion to invade corpus for the benefit of any
beneficiary to the extent of his share of the trust estate, and the
trust instrument requires that the beneficiary's right to future income
and corpus will be proportionately reduced. When each beneficiary
reaches 35 years of age, his share of the trust estate shall be paid
over to him. The interest in the trust estate of any beneficiary dying
without issue and before he has attained the age of 35 is to be equally
divided between the other beneficiaries of the trust. All expenses of
the trust are allocable to income under the terms of the trust
instrument.
(ii) No distributions of income or corpus were made by the trustee
prior to 1955, although A became 21 years of age on June 30, 1954.
During the taxable year of 1955, the trust has income from royalties of
$20,000 and expenses of $5,000. The trustee in his discretion
distributes $12,000 to A. Both A and the trust report on the calendar
year basis.
(iii) The trust qualifies for the separate share treatment under
section 663(c) and the distributable net income must be divided into
three parts for the purpose of determining the amount deductible by the
trust under section 661 and the amount includible in A's gross income
under section 662.
(iv) The distributable net income of each share of the trust is
$5,000 ($6,667 less $1,667). Since the amount ($12,000) distributed to A
[[Page 144]]
during 1955 exceeds the distributable net income of $5,000 allocated to
his share, the trust is deemed to have distributed to him $5,000 of 1955
income and $7,000 of amounts other than 1955 income. Accordingly, the
trust is allowed a deduction of $5,000 under section 661. The taxable
income of the trust for 1955 is $9,900, computed as follows:
Royalties......................................... $20,000
Deductions:
Expenses........................................ $5,000
Distribution to A............................... 5,000
Personal exemption.............................. 100
......... 10,100
----------
Taxable income........................................... 9,900
(v) In accordance with section 662, A must include in his gross
income for 1955 an amount equal to the portion ($5,000) of the
distributable net income of the trust allocated to his share. Also, the
excess distribution of $7,000 made by the trust is subject to the
throwback provisions of subpart D (section 665 and following), part I,
subchapter J, chapter 1 of the Code, and the regulations thereunder.
Example 2. (i) Facts. Testator, who dies in 2000, is survived by a
spouse and two children. Testator's will contains a fractional formula
bequest dividing the residuary estate between the surviving spouse and a
trust for the benefit of the children. Under the fractional formula, the
marital bequest constitutes 60% of the estate and the children's trust
constitutes 40% of the estate. During the year, the executor makes a
partial proportionate distribution of $1,000,0000, ($600,000 to the
surviving spouse and $400,000 to the children's trust) and makes no
other distributions. The estate receives dividend income of $20,000, and
pays expenses of $8,000 that are deductible on the estate's federal
income tax return.
(ii) Conclusion. The fractional formula bequests to the surviving
spouse and to the children's trust are separate shares. Because
Testator's will provides for fractional formula residuary bequests, the
income and any appreciation in the value of the estate assets are
proportionately allocated between the marital share and the trust's
share. Therefore, in determining the distributable net income of each
share, the income and expenses must be allocated 60% to the marital
share and 40% to the trust's share. The distributable net income is
$7,200 (60% of income less 60% of expenses) for the marital share and
$4,800 (40% of income less 40% of expenses) for the trust's share.
Because the amount distributed in partial satisfaction of each bequest
exceeds the distributable net income of each share, the estate's
distribution deduction under section 661 is limited to the sum of the
distributable net income for both shares. The estate is allowed a
distribution deduction of $12,000 ($7,200 for the marital share and
$4,800 for the trust's share). As a result, the estate has zero taxable
income ($20,000 income less $8,000 expenses and $12,000 distribution
deduction). Under section 662, the surviving spouse and the trust must
include in gross income $7,200 and $4,800, respectively.
Example 3. The facts are the same as in Example 2, except that in
2000 the executor makes the payment to partially fund the children's
trust but makes no payment to the surviving spouse. The fiduciary must
use a reasonable and equitable method to allocate income and expenses to
the trust's share. Therefore, depending on when the distribution is made
to the trust, it may no longer be reasonable or equitable to determine
the distributable net income for the trust's share by allocating to it
40% of the estate's income and expenses for the year. The computation of
the distributable net income for the trust's share should take into
consideration that after the partial distribution the relative size of
the trust's separate share is reduced and the relative size of the
spouse's separate share is increased.
Example 4. (i) Facts. Testator, who dies in 2000, is survived by a
spouse and one child. Testator's will provides for a pecuniary formula
bequest to be paid in not more than three installments to a trust for
the benefit of the child of the largest amount that can pass free of
Federal estate tax and a bequest of the residuary to the surviving
spouse. The will provides that the bequest to the child's trust is not
entitled to any of the estate's income and does not participate in
appreciation or depreciation in estate assets. During the 2000 taxable
year, the estate receives dividend income of $200,000 and pays expenses
of $15,000 that are deductible on the estate's federal income tax
return. The executor partially funds the child's trust by distributing
to it securities that have an adjusted basis to the estate of $350,000
and a fair market value of $380,000 on the date of distribution. As a
result of this distribution, the estate realizes long-term capital gain
of $30,000.
(ii) Conclusion. The estate has two separate shares consisting of a
formula pecuniary bequest to the child's trust and a residuary bequest
to the surviving spouse. Because, under the terms of the will, no estate
income is allocated to the bequest to the child's trust, the
distributable net income for that trust's share is zero. Therefore, with
respect to the $380,000 distribution to the child's trust, the estate is
allowed no deduction under section 661, and no amount is included in the
trust's gross income under section 662. Because no distributions were
made to the spouse, there is no need to compute the distributable net
income allocable to the marital share. The taxable income of the estate
for the 2000 taxable year is $214,400 ($200,000 (dividend income) plus
$30,000 (capital gain) minus $15,000 (expenses) and minus $600 (personal
exemption)).
[[Page 145]]
Example 5. The facts are the same as in Example 4, except that
during 2000 the estate reports on its federal income tax return a pro
rata share of an S corporation's tax items and a distributive share of a
partnership's tax items allocated on Form K-1s to the estate by the S
corporation and by the partnership, respectively. Because, under the
terms of the will, no estate income from the S corporation or the
partnership would be allocated to the pecuniary bequest to child's
trust, none of the tax items attributable to the S corporation stock or
the partnership interest is allocated to the trust's separate share.
Therefore, with respect to the $380,000 distribution to the trust, the
estate is allowed no deduction under section 661, and no amount is
included in the trust's gross income under section 662.
Example 6. The facts are the same as in Example 4, except that
during 2000 the estate receives a distribution of $900,000 from the
decedent's individual retirement account that is included in the
estate's gross income as income in respect of a decedent under section
691(a). The entire $900,000 is allocated to corpus under applicable
local law. Both the separate share for the child's trust and the
separate share for the surviving spouse may potentially be funded with
the proceeds from the individual retirement account. Therefore, a
portion of the $900,000 gross income must be allocated to the trust's
separate share. The amount allocated to the trust's share must be based
upon the relative values of the two separate shares using a reasonable
and equitable method. The estate is entitled to a deduction under
section 661 for the portion of the $900,000 properly allocated to the
trust's separate share, and the trust must include this amount in income
under section 662.
Example 7. (i) Facts. Testator, who dies in 2000, is survived by a
spouse and three adult children. Testator's will divides the residue of
the estate equally among the three children. The surviving spouse files
an election under the applicable state's elective share statute. Under
this statute, a surviving spouse is entitled to one-third of the
decedent's estate after the payment of debts and expenses. The statute
also provides that the surviving spouse is not entitled to any of the
estate's income and does not participate in appreciation or depreciation
of the estate's assets. However, under the statute, the surviving spouse
is entitled to interest on the elective share from the date of the court
order directing the payment until the executor actually makes payment.
During the estate's 2001 taxable year, the estate distributes to the
surviving spouse $5,000,000 in partial satisfaction of the elective
share and pays $200,000 of interest on the delayed payment of the
elective share. During that year, the estate receives dividend income of
$3,000,000 and pays expenses of $60,000 that are deductible on the
estate's federal income tax return.
(ii) Conclusion. The estate has four separate shares consisting of
the surviving spouse's elective share and each of the three children's
residuary bequests. Because the surviving spouse is not entitled to any
estate income under state law, none of the estate's gross income is
allocated to the spouse's separate share for purposes of determining
that share's distributable net income. Therefore, with respect to the
$5,000,000 distribution, the estate is allowed no deduction under
section 661, and no amount is included in the spouse's gross income
under section 662. The $200,000 of interest paid to the spouse must be
included in the spouse's gross income under section 61. Because no
distributions were made to any other beneficiaries during the year,
there is no need to compute the distributable net income of the other
three separate shares. Thus, the taxable income of the estate for the
2000 taxable year is $2,939,400 ($3,000,000 (dividend income) minus
$60,000 (expenses) and $600 (personal exemption)). The estate's $200,000
interest payment is a nondeductible personal interest expense described
in section 163(h).
Example 8. The will of Testator, who dies in 2000, directs the
executor to distribute the X stock and all dividends therefrom to child
A and the residue of the estate to child B. The estate has two separate
shares consisting of the income on the X stock bequeathed to A and the
residue of the estate bequeathed to B. The bequest of the X stock meets
the definition of section 663(a)(1) and therefore is not a separate
share. If any distributions, other than shares of the X stock, are made
during the year to either A or B, then for purposes of determining the
distributable net income for the separate shares, gross income
attributable to dividends on the X stock must be allocated to A's
separate share and any other income must be allocated to B's separate
share.
Example 9. The will of Testator, who dies in 2000, directs the
executor to divide the residue of the estate equally between Testator's
two children, A and B. The will directs the executor to fund A's share
first with the proceeds of Testator's individual retirement account. The
date of death value of the estate after the payment of debts, expenses,
and estate taxes is $9,000,000. During 2000, the $900,000 balance in
Testator's individual retirement account is distributed to the estate.
The entire $900,000 is allocated to corpus under applicable local law.
This amount is income in respect of a decedent within the meaning of
section 691(a). The estate has two separate shares, one for the benefit
of A and one for the benefit of B. If any distributions are made to
either A or B during the year, then, for purposes of determining the
distributable net income for each separate share,
[[Page 146]]
the $900,000 of income in respect of a decedent must be allocated to A's
share.
Example 10. The facts are the same as in Example 9, except that the
will directs the executor to fund A's share first with X stock valued at
$3,000,000, rather than with the proceeds of the individual retirement
account. The estate has two separate shares, one for the benefit of A
and one for the benefit of B. If any distributions are made to either A
or B during the year, then, for purposes of determining the
distributable net income for each separate share, the $900,000 of gross
income attributable to the proceeds from the individual retirement
account must be allocated between the two shares to the extent that they
could potentially be funded with those proceeds. The maximum amount of
A's share that could potentially be funded with the income in respect of
decedent is $1,500,000 ($4,500,000 value of share less $3,000,000 to be
funded with stock) and the maximum amount of B's share that could
potentially be funded with income in respect of decedent is $4,500,000.
Based upon the relative values of these amounts, the gross income
attributable to the proceeds of the individual retirement account is
allocated $225,000 (or one-fourth) to A's share and $675,000 (or three-
fourths) to B's share.
Example 11. The will of Testator, who dies in 2000, provides that
after the payment of specific bequests of money, the residue of the
estate is to be divided equally among the Testator's three children, A,
B, and C. The will also provides that during the period of
administration one-half of the income from the residue is to be paid to
a designated charitable organization. After the specific bequests of
money are paid, the estate initially has three equal separate shares.
One share is for the benefit of the charitable organization and A,
another share is for the benefit of the charitable organization and B,
and the last share is for the benefit of the charitable organization and
C. During the period of administration, payments of income to the
charitable organization are deductible by the estate to the extent
provided in section 642(c) and are not subject to the distribution
provisions of sections 661 and 662.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960.
Redesignated and amended by T.D. 8849, 64 FR 72543, 72544, Dec. 28,
1999; 65 FR 16317, Mar. 28, 2000]
Sec. 1.663(c)-6 Effective dates.
Sections 1.663(c)-1 through 1.663(c)-5 are applicable for estates
and qualified revocable trusts within the meaning of section 645(b)(1)
with respect to decedents who die on or after December 28, 1999.
However, for estates and qualified revocable trusts with respect to
decedents who died after the date that section 1307 of the Tax Reform
Act of 1997 became effective but before December 28, 1999, the IRS will
accept any reasonable interpretation of the separate share provisions,
including those provisions provided in 1999-11 I.R.B. 41 (see Sec.
601.601(d)(2)(ii)(b) of this chapter). For trusts other than qualified
revocable trusts, Sec. 1.663(c)-2 is applicable for taxable years of
such trusts beginning after December 28, 1999.
[T.D. 8849, 64 FR 72545, Dec. 28, 1999; 65 FR 16317, Mar. 28, 2000]
Sec. 1.664-1 Charitable remainder trusts.
(a) In general--(1) Introduction--(i) General description of a
charitable remainder trust. Generally, a charitable remainder trust is a
trust which provides for a specified distribution, at least annually, to
one or more beneficiaries, at least one of which is not a charity, for
life or for a term of years, with an irrevocable remainder interest to
be held for the benefit of, or paid over to, charity. The specified
distribution to be paid at least annually must be a sum certain which is
not less than 5 percent of the initial net fair market value of all
property placed in trust (in the case of a charitable remainder annuity
trust) or a fixed percentage which is not less than 5 percent of the net
fair market value of the trust assets, valued annually (in the case of a
charitable remainder unitrust). A trust created after July 31, 1969,
which is a charitable remainder trust, is exempt from all of the taxes
imposed by subtitle A of the Code for any taxable year of the trust,
except for a taxable year beginning before January 1, 2007, in which it
has unrelated business taxable income. For taxable years beginning after
December 31, 2006, an excise tax, treated as imposed by chapter 42, is
imposed on charitable remainder trusts that have unrelated business
taxable income. See paragraph (c) of this section.
(ii) Scope. This section provides definitions, general rules
governing the creation and administration of a charitable remainder
trust, and rules governing the taxation of the trust and its
beneficiaries. For the application of certain foundation rules to
charitable remainder trusts, see paragraph (b) of
[[Page 147]]
this section. If the trust has unrelated business taxable income, see
paragraph (c) of this section. For the treatment of distributions to
recipients, see paragraph (d) of this section. For the treatment of
distributions to charity, see paragraph (e) of this section. For the
time limitations for amendment of governing instruments, see paragraph
(f) of this section. For transitional rules under which particular
requirements are inapplicable to certain trusts, see paragraph (g) of
this section. Section 1.664-2 provides rules relating solely to a
charitable remainder annuity trust. Section 1.664-3 provides rules
relating solely to a charitable remainder unitrust. Section 1.664-4
provides rules governing the calculation of the fair market value of the
remainder interest in a charitable remainder unitrust. For rules
relating to the filing of returns for a charitable remainder trust, see
paragraph (a)(6) of Sec. 1.6012-3 and section 6034 and the regulations
thereunder.
(iii) Definitions. As used in this section and Sec. Sec. 1.664-2,
1.664-3, and 1.664-4:
(a) Charitable remainder trust. The term charitable remainder trust
means a trust with respect to which a deduction is allowable under
section 170, 2055, 2106, or 2522 and which meets the description of a
charitable remainder annuity trust (as described in Sec. 1.664-2) or a
charitable remainder unitrust (as described in Sec. 1.664-3).
(b) Annuity amount. The term annuity amount means the amount
described in paragraph (a)(1) of Sec. 1.664-2 which is payable, at
least annually, to the beneficiary of a charitable remainder annuity
trust.
(c) Unitrust amount. The term unitrust amount means the amount
described in paragraph (a)(1) of Sec. 1.664-3 which is payable, at
least annually, to the beneficiary of a charitable remainder unitrust.
(d) Recipient. The term recipient means the beneficiary who receives
the possession or beneficial enjoyment of the annuity amount or unitrust
amount.
(e) Governing instrument. The term governing instrument has the same
meaning as in section 508(e) and the regulations thereunder.
(2) Requirement that the trust must be either a charitable remainder
annuity trust or a charitable remainder unitrust. A trust is a
charitable remainder trust only if it is either a charitable remainder
annuity trust in every respect or a charitable remainder unitrust in
every respect. For example, a trust which provides for the payment each
year to a noncharitable beneficiary of the greater of a sum certain or a
fixed percentage of the annual value of the trust assets is not a
charitable remainder trust inasmuch as the trust is neither a charitable
remainder annuity trust (for the reason that the payment for the year
may be a fixed percentage of the annual value of the trust assets which
is not a ``sum certain'') nor a charitable remainder unitrust (for the
reason that the payment for the year may be a sum certain which is not a
``fixed percentage'' of the annual value of the trust assets).
(3) Restrictions on investments. A trust is not a charitable
remainder trust if the provisions of the trust include a provision which
restricts the trustee from investing the trust assets in a manner which
could result in the annual realization of a reasonable amount of income
or gain from the sale or disposition of trust assets. In the case of
transactions with, or for the benefit of, a disqualified person, see
section 4941(d) and the regulations thereunder for rules relating to the
definition of self-dealing.
(4) Requirement that trust must meet definition of and function
exclusively as a charitable remainder trust from its creation. In order
for a trust to be a charitable remainder trust, it must meet the
definition of and function exclusively as a charitable remainder trust
from the creation of the trust. Solely for the purposes of section 664
and the regulations thereunder, the trust will be deemed to be created
at the earliest time that neither the grantor nor any other person is
treated as the owner of the entire trust under subpart E, part 1,
subchapter J, chapter 1, subtitle A of the Code (relating to grantors
and others treated as substantial owners), but in no event prior to the
time property is first transferred to the trust. For purposes of the
preceding sentence, neither the grantor nor his spouse shall be
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treated as the owner of the trust under such subpart E merely because
the grantor or his spouse is named as a recipient. See examples 1
through 3 of subparagraph (6) of this paragraph for illustrations of the
foregoing rule.
(5) Rules applicable to testamentary transfers--(i) Deferral of
annuity or unitrust amount. Notwithstanding subparagraph (4) of this
paragraph and Sec. Sec. 1.664-2 and 1.664-3, for purposes of sections
2055 and 2106 a charitable remainder trust shall be deemed created at
the date of death of the decedent (even though the trust is not funded
until the end of a reasonable period of administration or settlement) if
the obligation to pay the annuity or unitrust amount with respect to the
property passing in trust at the death of the decedent begins as of the
date of death of the decedent, even though the requirement to pay such
amount is deferred in accordance with the rules provided in this
subparagraph. If permitted by applicable local law or authorized by the
provisions of the governing instrument, the requirement to pay such
amount may be deferred until the end of the taxable year of the trust in
which occurs the complete funding of the trust. Within a reasonable
period after such time, the trust must pay (in the case of an
underpayment) or must receive from the recipient (in the case of an
overpayment) the difference between:
(a) Any annuity or unitrust amounts actually paid, plus interest on
such amounts computed at the rate of interest specified in paragraph
(a)(5)(iv) of this section, compounded annually, and
(b) The annuity or unitrust amounts payable, plus interest on such
amounts computed at the rate of interest specified in paragraph
(a)(5)(iv) of this section, compounded annually.
The amounts payable shall be retroactively determined by using the
taxable year, valuation method, and valuation dates which are ultimately
adopted by the charitable remainder trust. See subdivision (ii) of this
subparagraph for rules relating to retroactive determination of the
amount payable under a charitable remainder unitrust. See paragraph
(d)(4) of this section for rules relating to the year of inclusion in
the case of an underpayment to a recipient and the allowance of a
deduction in the case of an overpayment to a recipient.
(ii) For purposes of retroactively determining the amount under
subdivision (i)(b) of this subparagraph, the governing instrument of a
charitable remainder unitrust may provide that the amount described in
subdivision (i)(b) of this subparagraph with respect to property passing
in trust at the death of the decedent for the period which begins on the
date of death of the decedent and ends on the earlier of the date of
death of the last recipient or the end of the taxable year of the trust
in which occurs the complete funding of the trust shall be computed by
multiplying:
(a) The sum of (1) the value, on the earlier of the date of death of
the last recipient or the last day in such taxable year, of the property
held in trust which is attributable to property passing to the trust at
the death of the decedent, (2) any distributions in respect of unitrust
amounts made by the trust or estate before such date, and (3) interest
on such distributions computed at the rate of interest specified in
paragraph (a)(5)(iv) of this section, compounded annually, from the date
of distribution to such date by:
(b)(1) In the case of transfers made after November 30, 1983, for
which the valuation date is before May 1, 1989, a factor equal to
1.000000 less the factor under the appropriate adjusted payout rate in
Table D in Sec. 1.664-4(e)(6) opposite the number of years in column 1
between the date of death of the decedent and the date of the earlier of
the death of the last recipient or the last day of such taxable year.
(2) In the case of transfers for which the valuation date is after
April 30, 1989, a factor equal to 1.000000 less the factor under the
appropriate adjusted payout rate in Table D in Sec. 1.664-4(e)(6)
opposite the number of years in column 1 between the date of death of
the decedent and the date of the earlier of the death of the last
recipient or the last day of such taxable year. The appropriate adjusted
payout rate is determined by using the appropriate Table F contained in
Sec. 1.664-4(e)(6) for the section 7520 rate for the month of the
valuation date.
[[Page 149]]
(3) If the number of years between the date of death and the date of
the earlier of the death of the last recipient or the last day of such
taxable year is between periods for which factors are provided, a linear
interpolation must be made.
(iii) Treatment of distributions. The treatment of a distribution to
a charitable remainder trust, or to a recipient in respect of an annuity
or unitrust amount, paid, credited, or required to be distributed by an
estate, or by a trust which is not a charitable remainder trust, shall
be governed by the rules of subchapter J, chapter 1, subtitle A of the
Code other than section 664. In the case of a charitable remainder trust
which is partially or fully funded during the period of administration
of an estate or settlement of a trust (which is not a charitable
remainder trust), the treatment of any amount paid, credited, or
required to be distributed by the charitable remainder trust shall be
governed by the rules of section 664.
(iv) Rate of interest. The following rates of interest shall apply
for purposes of paragraphs (a)(5) (i) through (ii) of this section:
(a) The section 7520 rate for the month in which the valuation date
with respect to the transfer is (or one of the prior two months if
elected under Sec. 1.7520-2(b)) after April 30, 1989;
(b) 10 percent for instruments executed or amended (other than in
the case of a reformation under section 2055(e)(3)) on or after August
9, 1984, and before May 1, 1989, and not subsequently amended;
(c) 6 percent or 10 percent for instruments executed or amended
(other than in the case of a reformation under section 2055(e)(3)) after
October 24, 1983, and before August 9, 1984; and
(d) 6 percent for instruments executed before October 25, 1983, and
not subsequently amended (other than in the case of a reformation under
section 2055(e)(3)).
(6) Examples. The application of the rules in paragraphs (a)(4) and
(a)(5) of this section require the use of actuarial factors contained in
Sec. Sec. 1.664-4(e) and 1.664-4A and may be illustrated by use of the
following examples:
Example 1. On September 19, 1971, H transfers property to a trust
over which he retains an inter vivos power of revocation. The trust is
to pay W 5 percent of the value of the trust assets, valued annually,
for her life, remainder to charity. The trust would satisfy all of the
requirements of section 664 if it were irrevocable. For purposes of
section 664, the trust is not deemed created in 1971 because H is
treated as the owner of the entire trust under subpart E. On May 26,
1975, H predeceases W at which time the trust becomes irrevocable. For
purposes of section 664, the trust is deemed created on May 26, 1975,
because that is the earliest date on which H is not treated as the owner
of the entire trust under subpart E. The trust becomes a charitable
remainder trust on May 26, 1975, because it meets the definition of a
charitable remainder trust from its creation.
Example 2. The facts are the same as in example 1, except that H
retains the inter vivos power to revoke only one-half of the trust. For
purposes of section 664, the trust is deemed created on September 19,
1971, because on that date the grantor is not treated as the owner of
the entire trust under subpart E. Consequently, a charitable deduction
is not allowable either at the creation of the trust or at H's death
because the trust does not meet the definition of a charitable remainder
trust from the date of its creation. The trust does not meet the
definition of a charitable remainder trust from the date of its creation
because the trust is subject to a partial power to revoke on such date.
Example 3. The facts are the same as in example 1, except that the
residue of H's estate is to be paid to the trust and the trust is
required to pay H's debts. The trust is not a charitable remainder trust
at H's death because it does not function exclusively as a charitable
remainder trust from the date of its creation which, in this case, is
the date it becomes irrevocable.
Example 4. (i) In 1971, H transfers property to Trust A over which
he retains an inter vivos power of revocation. Trust A, which is not a
charitable remainder trust, is to provide income or corpus to W until
the death of H. Upon H's death the trust is required by its governing
instrument to pay the debts and administration expenses of H's estate,
and then to terminate and distribute all of the remaining assets to a
separate Trust B which meets the definition of a charitable remainder
annuity trust.
(ii) Trust B will be charitable remainder trust from the date of its
funding because it will function exclusively as a charitable remainder
trust from its creation. For purposes of section 2055, Trust B will be
deemed created at H's death if the obligation to pay the annuity amount
begins on the date of H's death. For purposes of section 664, Trust B
becomes a charitable remainder trust as soon as it is partially or
completely funded.
[[Page 150]]
Consequently, unless Trust B has unrelated business taxable income, the
income of the trust is exempt from all taxes imposed by subtitle A of
the Code, and any distributions by the trust, even before it is
completely funded, are governed by the rules of section 664. Any
distributions made by Trust A, including distributions to a recipient in
respect of annuity amounts, are governed by the rules of subchapter J,
chapter 1, subtitle A of the Code other than section 664.
Example 5. In 1973, H dies testate leaving the net residue of his
estate (after payment by the estate of all debts and administration
expenses) to a trust which meets the definition of a charitable
remainder unitrust. For purposes of section 2055, the trust is deemed
created at H's death if the requirement to pay the unitrust amount
begins on H's death and is a charitable remainder trust even though the
estate is obligated to pay debts and administration expenses.
For purposes of section 664, the trust becomes a charitable
remainder trust as soon as it is partially or completely funded.
Consequently, unless the trust has unrelated business taxable income,
the income of the trust is exempt from all taxes imposed by subtitle A
of the Code, and any distributions by the trust, even before it is
completely funded, are governed by the rules of section 664. Any
distributions made by H's estate, including distributions to a recipient
in respect of unitrust amounts, are governed by the rules of subchapter
J, chapter 1, subtitle A of the Code other than section 664.
Example 6. (i) On January 1, 1974, H dies testate leaving the
residue of his estate to a charitable remainder unitrust. The governing
instrument provides that, beginning at H's death, the trustee is to make
annual payments to W, on December 31 of each year of 5 percent of the
net fair market value of the trust assets, valued as of December 31 of
each year, for W's life and to pay the remainder to charity at the death
of W. The governing instrument also provides that the actual payment of
the unitrust amount need not be made until the end of the taxable year
of the trust in which occurs the complete funding of the trust. The
governing instrument also provides that the amount payable with respect
to the period between the date of death and the end of such taxable year
shall be computed under the special method provided in subparagraph
(5)(ii) of this paragraph. The governing instrument provides that,
within a reasonable period after the end of the taxable year of the
trust in which occurs the complete funding of the trust, the trustee
shall pay (in the case of an underpayment) or shall receive from the
recipient (in the case of an overpayment) the difference between the
unitrust amounts paid (plus interest at 6 percentage compounded
annually) and the amount computed under the special method. The trust is
completely funded on September 20, 1976. No amounts were paid before
June 30, 1977. The trust adopts a fiscal year of July 1 to June 30. The
net fair market value of the trust assets on June 30, 1977, is $100,000.
(ii) Because no amounts were paid prior to the end of the taxable
year in which the trust was completely funded, the amount payable at the
end of such taxable year is equal to the net fair market value of the
trust assets on the last day of such taxable year (June 30, 1977)
multiplied by a factor equal to 1.0 minus the factor in Table D
corresponding to the number of years in the period between the date of
death and the end of such taxable year. The adjusted payout rate
(determined under Sec. 1.664-4A(c)) is 5 percent. Because the last day
of the taxable year in which the trust is completely funded in June 30,
1977, there are 3 181/365 years in such period. Because there is no
factor given in Table D for such a period, a linear interpolation must
be made:
1.0 minus 0.814506 (factor at 5 percent for 4 years)........ 0.185494
1.0 minus 0.857375 (factor at 5 percent for 3 years)........ .142625
-----------
Difference.............................................. .042869
181/365=X/0.042869
X=0.021258
1.0 minus 0.857375 (factor at 5 percent for 3 years......... 0.142625
Plus: X..................................................... .021258
-----------
Interpolated factor..................................... .163883
Thus, the amount payable for the period from January 1, 1974, to June
30, 1977, is $16,388.30 ($100,000x0.163883). Thereafter, the trust
assets must be valued on December 31 of each year and 5 percent of such
value paid annually to W for her life.
(7) Valuation of unmarketable assets--(i) In general. If
unmarketable assets are transferred to or held by a trust, the trust
will not be a trust with respect to which a deduction is available under
section 170, 2055, 2106, or 2522, or will be treated as failing to
function exclusively as a charitable remainder trust unless, whenever
the trust is required to value such assets, the valuation is--
(a) Performed exclusively by an independent trustee; or
(b) Determined by a current qualified appraisal, as defined in Sec.
1.170A-13(c)(3), from a qualified appraiser, as defined in Sec. 1.170A-
13(c)(5).
(ii) Unmarketable assets. Unmarketable assets are assets that are
not cash, cash equivalents, or other assets that can be readily sold or
exchanged for
[[Page 151]]
cash or cash equivalents. For example, unmarketable assets include real
property, closely-held stock, and an unregistered security for which
there is no available exemption permitting public sale.
(iii) Independent trustee. An independent trustee is a person who is
not the grantor of the trust, a noncharitable beneficiary, or a related
or subordinate party to the grantor, the grantor's spouse, or a
noncharitable beneficiary (within the meaning of section 672(c) and the
applicable regulations).
(b) Application of certain foundation rules to charitable remainder
trusts. See section 4947(a)(2) and section 4947(b)(3)(B) and the
regulations thereunder for the application to charitable remainder
trusts of certain provisions relating to private foundations. See
section 508(e) for rules relating to required provisions in governing
instruments prohibiting certain activities specified in section
4947(a)(2).
(c) Excise tax on charitable remainder trusts--(1) In general. For
each taxable year beginning after December 31, 2006, in which a
charitable remainder annuity trust or a charitable remainder unitrust
has any unrelated business taxable income, an excise tax is imposed on
that trust in an amount equal to the amount of such unrelated business
taxable income. For this purpose, unrelated business taxable income is
as defined in section 512, determined as if part III, subchapter F,
chapter 1, subtitle A of the Internal Revenue Code applied to such
trust. Such excise tax is treated as imposed by chapter 42 (other than
subchapter E) and is reported and payable in accordance with the
appropriate forms and instructions. Such excise tax shall be allocated
to corpus and, therefore, is not deductible in determining taxable
income distributed to a beneficiary. (See paragraph (d)(2) of this
section.) The charitable remainder trust income that is unrelated
business taxable income constitutes income of the trust for purposes of
determining the character of the distribution made to the beneficiary.
Income of the charitable remainder trust is allocated among the
charitable remainder trust income categories in paragraph (d)(1) of this
section without regard to whether any part of that income constitutes
unrelated business taxable income under section 512.
(2) Examples. The application of the rules in this paragraph (c) may
be illustrated by the following examples:
Example 1. For 2007, a charitable remainder annuity trust with a
taxable year beginning on January 1, 2007, has $60,000 of ordinary
income, including $10,000 of gross income from a partnership that
constitutes unrelated business taxable income to the trust. The trust
has no deductions that are directly connected with that income. For that
same year, the trust has administration expenses (deductible in
computing taxable income) of $16,000, resulting in net ordinary income
of $44,000. The amount of unrelated business taxable income is computed
by taking gross income from an unrelated trade or business and deducting
expenses directly connected with carrying on the trade or business, both
computed with modifications under section 512(b). Section 512(b)(12)
provides a specific deduction of $1,000 in computing the amount of
unrelated business taxable income. Under the facts presented in this
example, there are no other modifications under section 512(b). The
trust, therefore, has unrelated business taxable income of $9,000
($10,000 minus the $1,000 deduction under section 512(b)(12)).
Undistributed ordinary income from prior years is $12,000 and
undistributed capital gains from prior years are $50,000. Under the
terms of the trust agreement, the trust is required to pay an annuity of
$100,000 for year 2007 to the noncharitable beneficiary. Because the
trust has unrelated business taxable income of $9,000, the excise tax
imposed under section 664(c) is equal to the amount of such unrelated
business taxable income, $9,000. The character of the $100,000
distribution to the noncharitable beneficiary is as follows: $56,000 of
ordinary income ($44,000 from current year plus $12,000 from prior
years), and $44,000 of capital gains. The $9,000 excise tax is allocated
to corpus, and does not reduce the amount in any of the categories of
income under paragraph (d)(1) of this section. At the beginning of year
2008, the amount of undistributed capital gains is $6,000, and there is
no undistributed ordinary income.
Example 2. During 2007, a charitable remainder annuity trust with a
taxable year beginning on January 1, 2007, sells real estate generating
gain of $40,000. Because the trust had obtained a loan to finance part
of the purchase price of the asset, some of the income from the sale is
treated as debt-financed income under section 514 and thus constitutes
unrelated business taxable income under section 512. The unrelated debt-
financed income computed under section 514 is $30,000. Assuming the
trust receives no
[[Page 152]]
other income in 2007, the trust will have unrelated business taxable
income under section 512 of $29,000 ($30,000 minus the $1,000 deduction
under section 512(b)(12)). Except for section 512(b)(12), no other
exceptions or modifications under sections 512-514 apply when
calculating unrelated business taxable income based on the facts
presented in this example. Because the trust has unrelated business
taxable income of $29,000, the excise tax imposed under section 664(c)
is equal to the amount of such unrelated business taxable income,
$29,000. The $29,000 excise tax is allocated to corpus, and does not
reduce the amount in any of the categories of income under paragraph
(d)(1) of this section. Regardless of how the trust's income might be
treated under sections 511-514, the entire $40,000 is capital gain for
purposes of section 664 and is allocated accordingly to and within the
second of the categories of income under paragraph (d)(1) of this
section.
(3) Effective/applicability date. This paragraph (c) is applicable
for taxable years beginning after December 31, 2006. The rules that
apply with respect to taxable years beginning before January 1, 2007,
are contained in Sec. 1.664-1(c) as in effect prior to June 24, 2008.
(See 26 CFR part 1, Sec. 1.664-1(c)(1) revised as of April 1, 2007.)
(d) Treatment of annual distributions to recipients--(1) Character
of distributions--(i) Assignment of income to categories and classes at
the trust level. (a) A trust's income, including income includible in
gross income and other income, is assigned to one of three categories in
the year in which it is required to be taken into account by the trust.
These categories are--
(1) Gross income, other than gains and amounts treated as gains from
the sale or other disposition of capital assets (referred to as the
ordinary income category);
(2) Gains and amounts treated as gains from the sale or other
disposition of capital assets (referred to as the capital gains
category); and
(3) Other income (including income excluded under part III,
subchapter B, chapter 1, subtitle A of the Internal Revenue Code).
(b) Items within the ordinary income and capital gains categories
are assigned to different classes based on the Federal income tax rate
applicable to each type of income in that category in the year the items
are required to be taken into account by the trust. For example, for a
trust with a taxable year ending December 31, 2004, the ordinary income
category may include a class of qualified dividend income as defined in
section 1(h)(11) and a class of all other ordinary income, and the
capital gains category may include separate classes for short-term and
long-term capital gains and losses, such as a short-term capital gain
class, a 28-percent long-term capital gain class (gains and losses from
collectibles and section 1202 gains), an unrecaptured section 1250 long-
term capital gain class (long-term gains not treated as ordinary income
that would be treated as ordinary income if section 1250(b)(1) included
all depreciation), a qualified 5-year long-term capital gain class as
defined in section 1(h)(9) prior to amendment by the Jobs and Growth Tax
Relief Reconciliation Act of 2003 (JGTRRA), Public Law 108-27 (117 Stat.
752), and an all other long-term capital gain class. After items are
assigned to a class, the tax rates may change so that items in two or
more classes would be taxed at the same rate if distributed to the
recipient during a particular year. If the changes to the tax rates are
permanent, the undistributed items in those classes are combined into
one class. If, however, the changes to the tax rates are only temporary
(for example, the new rate for one class will sunset in a future year),
the classes are kept separate.
(ii) Order of distributions. (a) The categories and classes of
income (determined under paragraph (d)(1)(i) of this section) are used
to determine the character of an annuity or unitrust distribution from
the trust in the hands of the recipient irrespective of whether the
trust is exempt from taxation under section 664(c) for the year of the
distribution. The determination of the character of amounts distributed
or deemed distributed at any time during the taxable year of the trust
shall be made as of the end of that taxable year. The tax rate or rates
to be used in computing the recipient's tax on the distribution shall be
the tax rates that are applicable, in the year in which the distribution
is required to be made, to the classes of income deemed to make up that
distribution, and not the tax
[[Page 153]]
rates that are applicable to those classes of income in the year the
income is received by the trust. The character of the distribution in
the hands of the annuity or unitrust recipient is determined by treating
the distribution as being made from each category in the following
order:
(1) First, from ordinary income to the extent of the sum of the
trust's ordinary income for the taxable year and its undistributed
ordinary income for prior years.
(2) Second, from capital gain to the extent of the trust's capital
gains determined under paragraph (d)(1)(iv) of this section.
(3) Third, from other income to the extent of the sum of the trust's
other income for the taxable year and its undistributed other income for
prior years.
(4) Finally, from trust corpus (with corpus defined for this purpose
as the net fair market value of the trust assets less the total
undistributed income (but not loss) in paragraphs (d)(1)(i)(a) (1)
through (3) of this section).
(b) If the trust has different classes of income in the ordinary
income category, the distribution from that category is treated as being
made from each class, in turn, until exhaustion of the class, beginning
with the class subject to the highest Federal income tax rate and ending
with the class subject to the lowest Federal income tax rate. If the
trust has different classes of net gain in the capital gains category,
the distribution from that category is treated as being made first from
the short-term capital gain class and then from each class of long-term
capital gain, in turn, until exhaustion of the class, beginning with the
class subject to the highest Federal income tax rate and ending with the
class subject to the lowest rate. If two or more classes within the same
category are subject to the same current tax rate, but at least one of
those classes will be subject to a different tax rate in a future year
(for example, if the current rate sunsets), the order of that class in
relation to other classes in the category with the same current tax rate
is determined based on the future rate or rates applicable to those
classes. Within each category, if there is more than one type of income
in a class, amounts treated as distributed from that class are to be
treated as consisting of the same proportion of each type of income as
the total of the current and undistributed income of that type bears to
the total of the current and undistributed income of all types of income
included in that class. For example, if rental income and interest
income are subject to the same current and future Federal income tax
rate and, therefore, are in the same class, a distribution from that
class will be treated as consisting of a proportional amount of rental
income and interest income.
(iii) Treatment of losses at the trust level--(a) Ordinary income
category. A net ordinary loss for the current year is first used to
reduce undistributed ordinary income for prior years that is assigned to
the same class as the loss. Any excess loss is then used to reduce the
current and undistributed ordinary income from other classes, in turn,
beginning with the class subject to the highest Federal income tax rate
and ending with the class subject to the lowest Federal income tax rate.
If any of the loss exists after all the current and undistributed
ordinary income from all classes has been offset, the excess is carried
forward indefinitely to reduce ordinary income for future years and
retains its class assignment. For purposes of this section, the amount
of current income and prior years' undistributed income shall be
computed without regard to the deduction for net operating losses
provided by section 172 or 642(d).
(b) Other income category. A net loss in the other income category
for the current year is used to reduce undistributed income in this
category for prior years and any excess is carried forward indefinitely
to reduce other income for future years.
(iv) Netting of capital gains and losses at the trust level. Capital
gains of the trust are determined on a cumulative net basis under the
rules of this paragraph (d)(1) without regard to the provisions of
section 1212. For each taxable year, current and undistributed gains and
losses within each class are netted to determine the net gain or loss
for that class, and the classes of
[[Page 154]]
capital gains and losses are then netted against each other in the
following order. First, a net loss from a class of long-term capital
gain and loss (beginning with the class subject to the highest Federal
income tax rate and ending with the class subject to the lowest rate) is
used to offset net gain from each other class of long-term capital gain
and loss, in turn, until exhaustion of the class, beginning with the
class subject to the highest Federal income tax rate and ending with the
class subject to the lowest rate. Second, either--
(a) A net loss from all the classes of long-term capital gain and
loss (beginning with the class subject to the highest Federal income tax
rate and ending with the class subject to the lowest rate) is used to
offset any net gain from the class of short-term capital gain and loss;
or
(b) A net loss from the class of short-term capital gain and loss is
used to offset any net gain from each class of long-term capital gain
and loss, in turn, until exhaustion of the class, beginning with the
class subject to the highest Federal income tax rate and ending with the
class subject to the lowest Federal income tax rate.
(v) Carry forward of net capital gain or loss by the trust. If, at
the end of a taxable year, a trust has, after the application of
paragraph (d)(1)(iv) of this section, any net loss or any net gain that
is not treated as distributed under paragraph (d)(1)(ii)(a)(2) of this
section, the net gain or loss is carried over to succeeding taxable
years and retains its character in succeeding taxable years as gain or
loss from its particular class.
(vi) Special transitional rules. To be eligible to be included in
the class of qualified dividend income, dividends must meet the
definition of section 1(h)(11) and must be received by the trust after
December 31, 2002. Long-term capital gain or loss properly taken into
account by the trust before January 1, 1997, is included in the class of
all other long-term capital gains and losses. Long-term capital gain or
loss properly taken into account by the trust on or after January 1,
1997, and before May 7, 1997, if not treated as distributed in 1997, is
included in the class of all other long-term capital gains and losses.
Long-term capital gain or loss (other than 28-percent gain (gains and
losses from collectibles and section 1202 gains), unrecaptured section
1250 gain (long-term gains not treated as ordinary income that would be
treated as ordinary income if section 1250(b)(1) included all
depreciation), and qualified 5-year gain as defined in section 1(h)(9)
prior to amendment by JGTRRA), properly taken into account by the trust
before January 1, 2003, and distributed during 2003 is treated as if it
were properly taken into account by the trust after May 5, 2003. Long-
term capital gain or loss (other than 28-percent gain, unrecaptured
section 1250 gain, and qualified 5-year gain), properly taken into
account by the trust on or after January 1, 2003, and before May 6,
2003, if not treated as distributed during 2003, is included in the
class of all other long-term capital gain. Qualified 5-year gain
properly taken into account by the trust after December 31, 2000, and
before May 6, 2003, if not treated as distributed by the trust in 2003
or a prior year, must be maintained in a separate class within the
capital gains category until distributed. Qualified 5-year gain properly
taken into account by the trust before January 1, 2003, and deemed
distributed during 2003 is subject to the same current tax rate as
deemed distributions from the class of all other long-term capital gain
realized by the trust after May 5, 2003. Qualified 5-year gain properly
taken into account by the trust on or after January 1, 2003, and before
May 6, 2003, if treated as distributed by the trust in 2003, is subject
to the tax rate in effect prior to the amendment of section 1(h)(9) by
JGTRRA.
(vii) Application of section 643(a)(7). For application of the anti-
abuse rule of section 643(a)(7) to distributions from charitable
remainder trusts, see Sec. 1.643(a)-8.
(viii) Examples. The following examples illustrate the rules in this
paragraph (d)(1):
Example 1. (i) X, a charitable remainder annuity trust described in
section 664(d)(1), is created on January 1, 2003. The annual annuity
amount is $100. X's income for the 2003 tax year is as follows:
Interest income................................................. $80
[[Page 155]]
Qualified dividend income....................................... 50
Capital gains and losses........................................ 0
Tax-exempt income............................................... 0
(ii) In 2003, the year this income is received by the trust,
qualified dividend income is subject to a different rate of Federal
income tax than interest income and is, therefore, a separate class of
income in the ordinary income category. The annuity amount is deemed to
be distributed from the classes within the ordinary income category,
beginning with the class subject to the highest Federal income tax rate
and ending with the class subject to the lowest rate. Because during
2003 qualified dividend income is taxed at a lower rate than interest
income, the interest income is deemed distributed prior to the qualified
dividend income. Therefore, in the hands of the recipient, the 2003
annuity amount has the following characteristics:
Interest income................................................. $80
Qualified dividend income....................................... 20
(iii) The remaining $30 of qualified dividend income that is not
treated as distributed to the recipient in 2003 is carried forward to
2004 as undistributed qualified dividend income.
Example 2. (i) The facts are the same as in Example 1, and at the
end of 2004, X has the following classes of income:
Interest income class........................................... $5
Qualified dividend income class ($10 from 2004 and $30 carried 40
forward from 2003).............................................
Net short-term capital gain class............................... 15
Net long-term capital loss in 28-percent class.................. (325)
Net long-term capital gain in unrecaptured section 1250 gain 175
class..........................................................
Net long-term capital gain in all other long-term capital gain 350
class..........................................................
(ii) In 2004, gain in the unrecaptured section 1250 gain class is
subject to a 25-percent Federal income tax rate, and gain in the all
other long-term capital gain class is subject to a lower rate. The net
long-term capital loss in the 28-percent gain class is used to offset
the net capital gains in the other classes of long-term capital gain and
loss, beginning with the class subject to the highest Federal income tax
rate and ending with the class subject to the lowest rate. The $325 net
loss in the 28-percent gain class reduces the $175 net gain in the
unrecaptured section 1250 gain class to $0. The remaining $150 loss from
the 28-percent gain class reduces the $350 gain in the all other long-
term capital gain class to $200. As in Example 1, qualified dividend
income is taxed at a lower rate than interest income during 2004. The
annuity amount is deemed to be distributed from all the classes in the
ordinary income category and then from the classes in the capital gains
category, beginning with the class subject to the highest Federal income
tax rate and ending with the class subject to the lowest rate. In the
hands of the recipient, the 2004 annuity amount has the following
characteristics:
Interest income................................................. $ 5
Qualified dividend income....................................... 40
Net short-term capital gain..................................... 15
Net long-term capital gain in all other long-term capital gain 40
class..........................................................
(iii) The remaining $160 gain in the all other long-term capital
gain class that is not treated as distributed to the recipient in 2004
is carried forward to 2005 as gain in that same class.
Example 3. (i) The facts are the same as in Examples 1 and 2, and at
the end of 2005, X has the following classes of income:
Interest income class........................................... $ 5
Qualified dividend income....................................... 20
Net loss in short-term capital gain class....................... (50)
Net long-term capital gain in 28-percent gain class............. 10
Net long-term capital gain in unrecaptured section 1250 gain 135
class..........................................................
Net long-term capital gain in all other long-term capital gain 160
class (carried forward from 2004)..............................
(ii) There are no long-term capital losses to net against the long-
term capital gains. Thus, the net short-term capital loss is used to
offset the net capital gains in the classes of long-term capital gain
and loss, in turn, until exhaustion of the class, beginning with the
class subject to the highest Federal income tax rate and ending with the
class subject to the lowest rate. The $50 net short-term loss reduces
the $10 net gain in the 28-percent gain class to $0. The remaining $40
net loss reduces the $135 net gain in the unrecaptured section 1250 gain
class to $95. As in Examples 1 and 2, during 2005, qualified dividend
income is taxed at a lower rate than interest income; gain in the
unrecaptured section 1250 gain class is taxed at 25 percent; and gain in
the all other long-term capital gain class is taxed at a rate lower than
25 percent. The annuity amount is deemed to be distributed from all the
classes in the ordinary income category and then from the classes in the
capital gains category, beginning with the class subject to the highest
Federal income tax rate and ending with the class subject to the lowest
rate. Therefore, in the hands of the recipient, the 2005 annuity amount
has the following characteristics:
Interest income................................................. $ 5
Qualified dividend income....................................... 20
Unrecaptured section 1250 gain.................................. 75
(iii) The remaining $20 gain in the unrecaptured section 1250 gain
class and the $160 gain in the all other long-term capital gain class
that are not treated as distributed to the recipient in 2005 are carried
forward to 2006 as gains in their respective classes.
Example 4. (i) The facts are the same as in Examples 1, 2 and 3, and
at the end of 2006, X has the following classes of income:
Interest income class........................................... $ 95
Qualified dividend income class................................. 10
Net loss in short-term capital gain class....................... (20)
Net long-term capital loss in 28-percent gain class............. (350)
Net long-term capital gain in unrecaptured section 1250 gain 20
class (carried forward from 2005)..............................
[[Page 156]]
Net long-term capital gain in all other long-term capital gain 160
class (carried forward from 2005)..............................
(ii) A net long-term capital loss in one class is used to offset the
net capital gains in the other classes of long-term capital gain and
loss, in turn, until exhaustion of the class, beginning with the class
subject to the highest Federal income tax rate and ending with the class
subject to the lowest rate. The $350 net loss in the 28-percent gain
class reduces the $20 net gain in the unrecaptured section 1250 gain
class to $0. The remaining $330 net loss reduces the $160 net gain in
the all other long-term capital gain class to $0. As in Examples 1, 2
and 3, during 2006, qualified dividend income is taxed at a lower rate
than interest income. The annuity amount is deemed to be distributed
from all the classes in the ordinary income category and then from the
classes in the capital gains category, beginning with the class subject
to the highest Federal income tax rate and ending with the class subject
to the lowest rate. In the hands of the recipient, the 2006 annuity
amount has the following characteristics:
Interest income................................................. $ 95
Qualified dividend income....................................... 5
(iii) The remaining $5 of qualified dividend income that is not
treated as distributed to the recipient in 2006 is carried forward to
2007 as qualified dividend income. The $20 net loss in the short-term
capital gain class and the $170 net loss in the 28-percent gain class
are carried forward to 2007 as net losses in their respective classes.
Example 5. (i) X, a charitable remainder annuity trust described in
section 664(d)(1), is created on January 1, 2002. The annual annuity
amount is $100. Except for qualified 5-year gain of $200 realized before
May 6, 2003, but not distributed, X has no other gains or losses carried
over from former years. X's income for the 2007 tax year is as follows:
Interest income class........................................... $ 10
Net gain in short-term capital gain class....................... 5
Net long-term capital gain in 28-percent gain class............. 5
Net long-term capital gain in unrecaptured section 1250 gain 10
class..........................................................
Net long-term capital gain in all other long-term capital gain 10
class..........................................................
(ii) The annuity amount is deemed to be distributed from all the
classes in the ordinary income category and then from the classes in the
capital gains category, beginning with the class subject to the highest
Federal income tax rate and ending with the class subject to the lowest
rate. In 2007, gains distributed to a recipient from both the qualified
5-year gain class and the all other long-term capital gains class are
taxed at a 15/5 percent tax rate. Since after December 31, 2008, gains
distributed from the qualified 5-year gain class will be taxed at a
lower rate than gains distributed from the other classes of long-term
capital gain and loss, distributions from the qualified 5-year gain
class are made after distributions from the other classes of long-term
capital gain and loss. In the hands of the recipient, the 2007 annuity
amount has the following characteristics:
Interest income................................................. $10
Short-term capital gain......................................... 5
28-percent gain................................................. 5
Unrecaptured section 1250 gain.................................. 10
All other long-term capital gain................................ 10
Qualified 5-year gain (taxed as all other long-term capital 60
gain)..........................................................
(iii) The remaining $140 of qualified 5-year gain that is not
treated as distributed to the recipient in 2007 is carried forward to
2008 as qualified 5-year gain.
(ix) Effective dates. The rules in this paragraph (d)(1) that
require long-term capital gains to be distributed in the following
order: first, 28-percent gain (gains and losses from collectibles and
section 1202 gains); second, unrecaptured section 1250 gain (long-term
gains not treated as ordinary income that would be treated as ordinary
income if section 1250(b)(1) included all depreciation); and then, all
other long-term capital gains are applicable for taxable years ending on
or after December 31, 1998. The rules in this paragraph (d)(1) that
provide for the netting of capital gains and losses are applicable for
taxable years ending on or after December 31, 1998. The rule in the
second sentence of paragraph (d)(1)(vi) of this section is applicable
for taxable years ending on or after December 31, 1998. The rule in the
third sentence of paragraph (d)(1)(vi) of this section is applicable for
distributions made in taxable years ending on or after December 31,
1998. All other provisions of this paragraph (d)(1) are applicable for
taxable years ending after November 20, 2003.
(2) Allocation of deductions. Items of deduction of the trust for a
taxable year of the trust which are deductible in determining taxable
income (other than the deductions permitted by sections 642(b), 642(c),
661, and 1202) which are directly attributable to one or more classes of
items within a category of income (determined under paragraph
(d)(1)(i)(a) of this section) or to corpus shall be allocated to such
classes of items or to corpus. All other allowable deductions for such
taxable year which are not directly attributable to one or more classes
of items within a category of income or to corpus (other than the
[[Page 157]]
deductions permitted by sections 642(b), 642(c), 661, and 1202) shall be
allocated among the classes of items within the category (excluding
classes of items with net losses) on the basis of the gross income of
such classes for such taxable year reduced by the deductions allocated
thereto under the first sentence of this subparagraph, but in no event
shall the amount of expenses allocated to any class of items exceed such
income of such class for the taxable year. Items of deduction which are
not allocable under the above two sentences (other than the deductions
permitted by sections 642(b), 642(c), 661, and 1202) may be allocated in
any manner. All taxes imposed by chapter 42 of the Code (including
without limitation taxes treated under section 664(c)(2) as imposed by
chapter 42) and, for taxable years beginning prior to January 1, 2007,
all taxes imposed by subtitle A of the Code for which the trust is
liable because it has unrelated business taxable income, shall be
allocated to corpus. Any expense which is not deductible in determining
taxable income and which is not allocable to any class of items
described in paragraph (d)(1)(i)(a)(3) of this section shall be
allocated to corpus. The deductions allowable to a trust under sections
642(b), 642(c), 661, and 1202 are not allowed in determining the amount
or character of any class of items within a category of income described
in paragraph (d)(1)(i)(a) of this section or to corpus.
(3) Allocation of income among recipients. If there are two or more
recipients, each will be treated as receiving his pro rata portion of
the categories of income and corpus. The application of this rule may be
illustrated by the following example:
Example. X transfers $40,000 to a charitable remainder annuity trust
which is to pay $3,000 per year to X and $2,000 per year to Y for a term
of 5 years. During the first taxable year the trust has $3,000 of
ordinary income, $500 of capital gain, and $500 of tax-exempt income
after allocation of all expenses. X is treated as receiving ordinary
income of $1,800 ($3,000 / $5,000 x $3,000), capital gain of $300
($3,000 / $5,000 x $500), tax exempt income of $300 ($3,000 / $5,000 x
$500), and corpus of $600 ($3,000 / $5,000 x [$5,000 - $4,000]). Y is
treated as receiving ordinary income of $1,200 ($2,000 / $5,000 x
$3,000), capital gain of $200 ($2,000 / $5,000 x $500), tax exempt
income of $200 ($2,000 / $5,000 x $500), and corpus of $400 ($2,000 /
$5,000 x [$5,000 - $4,000]).
(4) Year of inclusion--(i) General rule. To the extent required by
this paragraph, the annuity or unitrust amount is includible in the
recipient's gross income for the taxable year in which the annuity or
unitrust amount is required to be distributed even though the annuity or
unitrust amount is not distributed until after the close of the taxable
year of the trust. If a recipient has a different taxable year (as
defined in section 441 or 442) from the taxable year of the trust, the
amount he is required to include in gross income to the extent required
by this paragraph shall be included in his taxable year in which or with
which ends the taxable year of the trust in which such amount is
required to be distributed.
(ii) Payments resulting from incorrect valuations. Notwithstanding
subdivision (i) of this subparagraph, any payments which are made or
required to be distributed by a charitable remainder trust pursuant to
paragraph (a)(5) of this section, under paragraph (f)(3) of this section
because of an amendment to the governing instrument, or under paragraphs
(a)(1) of Sec. Sec. 1.664-2 and 1.664-3 because of an incorrect
valuation, shall, to the extent required by this paragraph, be included
in the gross income of the recipient in his taxable year in which or
with which ends the taxable year of the trust in which the amount is
paid, credited, or required to be distributed. For rules relating to
required adjustments of underpayments and overpayments of the annuity or
unitrust amounts in respect of payments made prior to the amendment of a
governing instrument, see paragraph (f)(3) of this section. There is
allowable to a recipient a deduction from gross income for any amounts
repaid to the trust because of an overpayment during the reasonable
period of administration or settlement or until the trust is fully
funded, because of an amendment, or because of an incorrect valuation,
to the extent such amounts were
[[Page 158]]
included in his gross income. See section 1341 and the regulations
thereunder for rules relating to the computation of tax where a taxpayer
restores substantial amounts held under a claim of right.
(iii) Rules applicable to year of recipient's death. If the taxable
year of the trust does not end with or within the last taxable year of
the recipient because of the recipient's death, the extent to which the
annuity or unitrust amount required to be distributed to him is included
in the gross income of the recipient for his last taxable year, or in
the gross income of his estate, is determined by making the computations
required under this paragraph for the taxable year of the trust in which
his last taxable year ends. (The last sentence of subdivision (i) of
this subparagraph does not apply to such amounts.) The gross income for
the last taxable year of a recipient on the cash basis includes (to the
extent required by this paragraph) amounts actually distributed to the
recipient before his death. Amounts required to be distributed which are
distributed to his estate, are included (to the extent required by this
paragraph) in the gross income of the estate as income in respect of a
decedent under section 691.
(5) Distributions in kind. The annuity or unitrust amount may be
paid in cash or in other property. In the case of a distribution made in
other property, the amount paid, credited, or required to be distributed
shall be considered as an amount realized by the trust from the sale or
other disposition of property. The basis of the property in the hands of
the recipient is its fair market value at the time it was paid,
credited, or required to be distributed. The application of these rules
may be illustrated by the following example:
Example. On January 1, 1971, X creates a charitable remainder
annuity trust, whose taxable year is the calendar year, under which X is
to receive $5,000 per year. During 1971, the trust receives $500 of
ordinary income. On December 31, 1971, the trust distributed cash of
$500 and a capital asset of the trust having a fair market value of
$4,500 and a basis of $2,200. The trust is deemed to have realized a
capital gain of $2,300. X treats the distribution of $5,000 as being
ordinary income of $500, capital gain of $2,300 and trust corpus of
$2,200. The basis of the distributed property is $4,500 in the hands of
X.
(e) Other distributions--(1) Character of distributions. An amount
distributed by the trust to an organization described in section 170(c)
other than the annuity or unitrust amount shall be considered as a
distribution of corpus and of those categories of income specified in
paragraph (d)(1)(i)(a) of this section in an order inverse to that
prescribed in such paragraph. The character of such amount shall be
determined as of the end of the taxable year of the trust in which the
distribution is made after the character of the annuity or unitrust
amount has been determined.
(2) Distributions in kind. In the case of a distribution of an
amount to which subparagraph (1) of this paragraph applies, no gain or
loss is realized by the trust by reason of a distribution in kind unless
such distribution is in satisfaction of a right to receive a
distribution of a specific dollar amount or in specific property other
than that distributed.
(f) Effective date--(1) General rule. The provisions of this section
are effective with respect to transfers in trust made after July 31,
1969. Any trust created (within the meaning of applicable local law)
prior to August 1, 1969, is not a charitable remainder trust even if it
otherwise satisfies the definition of a charitable remainder trust.
(2) Transfers to pre-1970 trusts. Property transferred to a trust
created (within the meaning of applicable local law) before August 1,
1969, whose governing instrument provides that an organization described
in section 170(c) receives an irrevocable remainder interest in such
trust, shall, for purposes of subparagraphs (1) and (3) of this
paragraph, be deemed transferred to a trust created on the date of such
transfer provided that the transfer occurs after July 31, 1969, and
prior to October 18, 1971, and the transferred property and any
undistributed income therefrom is severed and placed in a separate trust
before December 31, 1972, or if later, on or before the 30th day after
the date on which any judicial proceedings begun before December 31,
1972, which are required to sever such property, become final.
[[Page 159]]
(3) Amendment of post-1969 trusts. A trust created (within the
meaning of applicable local law) subsequent to July 31, 1969, and prior
to December 31, 1972, which is not a charitable remainder trust at the
date of its creation, may be treated as a charitable remainder trust
from the date it would be deemed created under Sec. 1.664-1(a) (4) and
(5)(i) for all purposes: Provided, That all the following requirements
are met:
(i) At the time of the creation of the trust, the governing
instrument provides that an organization described in section 170(c)
receives an irrevocable remainder interest in such trust.
(ii) The governing instrument of the trust is amended so that the
trust will meet the definition of a charitable remainder trust and, if
applicable, will meet the requirement of paragraph (a)(5)(i) of this
section that obligation to make payment of the annuity or unitrust
amount with respect to property passing at death begin as of the date of
death, before December 31, 1972, or if later, on or before the 30th day
after the date on which any judicial proceedings which are begun before
December 31, 1972, and which are required to amend its governing
instrument, become final. In the case of a trust created (within the
meaning of applicable local law) subsequent to July 31, 1969, and prior
to December 31, 1972, the provisions of section 508(d)(2)(A) shall not
apply if the governing instrument of the trust is amended so as to
comply with the requirements of section 508(e) before December 31, 1972,
or if later, on or before the 30th day after the date on which any
judicial proceedings which are begun before December 31, 1972, and which
are required to amend its governing instrument, become final.
Notwithstanding the provisions of paragraphs (a)(3) and (a)(4) of
Sec. Sec. 1.664-2 and 1.664-3, the governing instrument may grant to
the trustee a power to amend the governing instrument for the sole
purpose of complying with the requirements of this section and Sec.
1.664-2 or Sec. 1.664-3: Provided, That at the creation of the trust,
the governing instrument (a) provides for the payment of a unitrust
amount described in Sec. 1.664-3(a)(1)(i) or an annuity which meets the
requirements of paragraph (a)(2) of Sec. 1.664-2 or Sec. 1.664-3, (b)
designates the recipients of the trust and the period for which the
amount described in (a) of this subdivision (ii) is to be paid, and (c)
provides that an organization described in section 170(c) receives an
irrevocable remainder interest in such trust. The mere granting of such
a power is not sufficient to meet the requirements of this subparagraph
that the governing instrument be amended in the manner and within the
time limitations of this subparagraph.
(iii)(a) Where the amount of the distributions which would have been
made by the trust to a recipient if the amended provisions of such trust
had been in effect from the time of creation of such trust exceeds the
amount of the distributions made by the trust prior to its amendment,
the trust pays an amount equal to such excess to the recipient.
(b) Where the amount of distributions made to the recipient prior to
the amendment of the trust exceeds the amount of the distributions which
would have been made by such trust if the amended provisions of such
trust had been in effect from the time of creation of such trust, such
excess is repaid to the trust by the recipient.
See paragraph (d)(4) of this section for rules relating to the year of
inclusion in the case of an underpayment to a recipient and the
allowance of a deduction in the case of an overpayment to a recipient. A
deduction for a transfer to a charitable remainder trust shall not be
allowed until the requirements of this paragraph are met and then only
if the deduction is claimed on a timely filed return (including
extensions) or on a claim for refund filed within the period of
limitations prescribed by section 6511(a).
(4) Valuation of unmarketable assets. The rules contained in
paragraph (a)(7) of this section are applicable for trusts created on or
after December 10, 1998. A trust in existence as of December 10, 1998,
whose governing instrument requires that an independent trustee value
the trust's unmarketable assets may be amended or reformed to permit a
valuation method that satisfies the requirements of paragraph (a)(7) of
this section for taxable years beginning on or after December 10, 1998.
[[Page 160]]
(g) Transitional effective date. Notwithstanding any other provision
of this section, Sec. 1.664-2 or Sec. 1.664-3, the requirement of
paragraph (a)(5)(i) of this section that interest accrue on overpayments
and underpayments, the requirement of paragraph (a)(5)(ii) of this
section that the unitrust amount accruing under the formula provided
therein cease with the death of the last recipient, and the requirement
that the governing instrument of the trust contain the provisions
specified in paragraph (a)(1)(iv) of Sec. 1.664-2 (relating to
computation of the annuity amount in certain circumstances), paragraph
(a)(1)(v) of Sec. 1.664-3 (relating to computation of the unitrust
amount in certain circumstances), paragraphs (b) of Sec. Sec. 1.664-2
and 1.664-3 (relating to additional contributions), and paragraph
(a)(1)(iii) of Sec. 1.664-3 (relating to incorrect valuations),
paragraphs (a)(6)(iv) of Sec. Sec. 1.664-2 and 1.664-3 (relating to
alternative remaindermen) shall not apply to:
(1) A will executed on or before December 31, 1972, if:
(i) The testator dies before December 31, 1975, without having
republished the will after December 31, 1972, by codicil or otherwise.
(ii) The testator at no time after December 31, 1972, had the right
to change the provisions of the will which pertain to the trust, or
(iii) The will is not republished by codicil or otherwise before
December 31, 1975, and the testator is on such date and at all times
thereafter under a mental disability to republish the will by codicil or
otherwise, or
(2) A trust executed on or before December 31, 1972, if:
(i) The grantor dies before December 31, 1975, without having
amended the trust after December 31, 1972,
(ii) The trust is irrevocable on December 31, 1972, or
(iii) The trust is not amended before December 31, 1975, and the
grantor is on such date and at all times thereafter under a mental
disability to change the terms of the trust.
[T.D. 7202, 37 FR 16913, Aug. 23, 1972]
Editorial Note: For Federal Register citations affecting Sec.
1.664-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 1.664-2 Charitable remainder annuity trust.
(a) Description. A charitable remainder annuity trust is a trust
which complies with the applicable provisions of Sec. 1.664-1 and meets
all of the following requirements:
(1) Required payment of annuity amount--(i) Payment of sum certain
at least annually. The governing instrument provides that the trust will
pay a sum certain not less often than annually to a person or persons
described in paragraph (a)(3) of this section for each taxable year of
the period specified in paragraph (a)(5) of this section.
(a) General rule applicable to all trusts. A trust will not be
deemed to have engaged in an act of self-dealing (within the meaning of
section 4941), to have unrelated debt-financed income (within the
meaning of section 514), to have received an additional contribution
(within the meaning of paragraph (b) of this section), or to have failed
to function exclusively as a charitable remainder trust (within the
meaning of Sec. 1.664-1(a)(4)) merely because the annuity amount is
paid after the close of the taxable year if such payment is made within
a reasonable time after the close of such taxable year and the entire
annuity amount in the hands of the recipient is characterized only as
income from the categories described in section 664(b)(1), (2), or (3),
except to the extent it is characterized as corpus described in section
664(b)(4) because--
(1) The trust pays the annuity amount by distributing property
(other than cash) that it owned at the close of the taxable year to pay
the annuity amount, and the trustee elects to treat any income generated
by the distribution as occurring on the last day of the taxable year in
which the annuity amount is due;
(2) The trust pays the annuity amount by distributing cash that was
contributed to the trust (with respect to which a deduction was
allowable under section 170, 2055, 2106, or 2522); or
(3) The trust pays the annuity amount by distributing cash received
as a return of basis in any asset that
[[Page 161]]
was contributed to the trust (with respect to which a deduction was
allowable under section 170, 2055, 2106, or 2522), and that is sold by
the trust during the year for which the annuity amount is due.
(b) Special rule for trusts created before December 10, 1998. In
addition to the circumstances described in paragraph (a)(1)(i)(a) of
this section, a trust created before December 10, 1998, will not be
deemed to have engaged in an act of self-dealing (within the meaning of
section 4941), to have unrelated debt-financed income (within the
meaning of section 514), to have received an additional contribution
(within the meaning of paragraph (b) of this section), or to have failed
to function exclusively as a charitable remainder trust (within the
meaning of Sec. 1.664-1(a)(4)) merely because the annuity amount is
paid after the close of the taxable year if such payment is made within
a reasonable time after the close of such taxable year and the sum
certain to be paid each year as the annuity amount is 15 percent or less
of the initial net fair market value of the property irrevocably passing
in trust as determined for federal tax purposes.
(c) Reasonable time. For this paragraph (a)(1)(i), a reasonable time
will not ordinarily extend beyond the date by which the trustee is
required to file Form 5227, ``Split-Interest Trust Information Return,''
(including extensions) for the taxable year.
(d) Example. The following example illustrates the rules in
paragraph (a)(1)(i)(a) of this section:
Example. X is a charitable remainder annuity trust described in
section 664(d)(1) that was created after December 10, 1998. The prorated
annuity amount payable from X for Year 1 is $100. The trustee does not
pay the annuity amount to the recipient by the close of Year 1. At the
end of Year 1, X has only $95 in the ordinary income category under
section 664(b)(1) and no income in the capital gain or tax-exempt income
categories under section 664(b)(2) or (3), respectively. By April 15 of
Year 2, in addition to $95 in cash, the trustee distributes to the
recipient of the annuity a capital asset with a $5 fair market value and
a $2 adjusted basis to pay the $100 annuity amount due for Year 1. The
trust owned the asset at the end of Year 1. Under Sec. 1.664-1(d)(5),
the distribution is treated as a sale by X, resulting in X recognizing a
$3 capital gain. The trustee elects to treat the capital gain as
occurring on the last day of Year 1. Under Sec. 1.664-1(d)(1), the
character of the annuity amount for Year 1 in the recipient's hands is
$95 of ordinary income, $3 of capital gain income, and $2 of trust
corpus. For Year 1, X satisfied paragraph (a)(1)(i)(a) of this section.
(e) Effective date. This paragraph (a)(1)(i) is applicable for
taxable years ending after April 18, 1997. However, paragraphs
(a)(1)(i)(a)(2) and (3) of this section apply only to distributions made
on or after January 5, 2001.
(ii) Definition of sum certain. A sum certain is a stated dollar
amount which is the same either as to each recipient or as to the total
amount payable for each year of such period. For example, a provision
for an amount which is the same every year to A until his death and
concurrently an amount which is the same every year to B until his
death, with the amount to each recipient to terminate at his death,
would satisfy the above rule. Similarly, provisions for an amount to A
and B for their joint lives and then to the survivor would satisfy the
above rule. In the case of a distribution to an organization described
in section 170(c) at the death of a recipient or the expiration of a
term of years, the governing instrument may provide for a reduction of
the stated amount payable after such a distribution: Provided, That:
(a) The reduced amount payable is the same either as to each
recipient or as to the total amount payable for each year of the balance
of such period, and
(b) The requirements of subparagraph (2)(ii) of this paragraph are
met.
(iii) Sum certain stated as a fraction or percentage. The stated
dollar amount may be expressed as a fraction or a percentage of the
initial net fair market value of the property irrevocably passing in
trust as finally determined for Federal tax purposes. If the stated
dollar amount is so expressed and such market value is incorrectly
determined by the fiduciary, the requirement of this subparagraph will
be satisfied if the governing instrument provides that in such event the
trust shall pay to the recipient (in the case of an undervaluation) or
be repaid by the recipient (in the case of an overvaluation) an amount
equal to the difference between the amount which the trust should have
paid the recipient if the correct
[[Page 162]]
value were used and the amount which the trust actually paid the
recipient. Such payments or repayments must be made within a reasonable
period after the final determination of such value. Any payment due to a
recipient by reason of such incorrect valuation shall be considered to
be a payment required to be distributed at the time of such final
determination for purposes of paragraph (d)(4)(ii) of Sec. 1.664-1. See
paragraph (d)(4) of Sec. 1.664-1 for rules relating to the year of
inclusion of such payments and the allowance of a deduction for such
repayments. See paragraph (b) of this section for rules relating to
future contributions. For rules relating to required adjustments for
underpayments or overpayments of the amount described in this paragraph
in respect of payments made during a reasonable period of
administration, see paragraph (a)(5) of Sec. 1.664-1. The application
of the rule permitting the stated dollar amount to be expressed as a
fraction or a percentage of the initial net fair market value of the
property irrevocably passing in trust as finally determined for Federal
tax purposes may be illustrated by the following example:
Example. The will of X provides for the transfer of one-half of his
residuary estate to a charitable remainder annuity trust which is
required to pay to W for life an annuity equal to 5 percent of the
initial net fair market value of the interest passing in trust as
finally determined for Federal tax purposes. The annuity is to be paid
on December 31 of each year computed from the date of X's death. The
will also provides that if such initial net fair market value is
incorrectly determined, the trust shall pay to W, in the case of an
undervaluation, or be repaid by W, in the case of an overvaluation, an
amount equal to the difference between the amount which the trust should
have paid if the correct value were used and the amount which the trust
actually paid. X dies on March 1, 1971. The executor files an estate tax
return showing the value of the residuary estate as $250,000 before
reduction for taxes and expenses of $50,000. The executor paid to W
$4,192 ([$250,000 - $50,000] x 1/2 x 5 percent x 306/365) on December
31, 1971. On January 1, 1972, the executor transfers one-half of the
residue of the estate to the trust. The trust adopts the calendar year
as its taxable year. The value of the residuary estate is finally
determined for Federal tax purposes to be $240,000 ($290,000 - $50,000).
Accordingly, the amount which the executor should have paid to W is
$5,030 ( [$290,000 - $50,000] x 1/2 x 5 percent x 306 / 365).
Consequently, an additional amount of $838 ($5,030 - $4,192) must be
paid to W within a reasonable period after the final determination of
value for Federal tax purposes.
(iv) Computation of annuity amount in certain circumstances--(a)
Short taxable years. The governing instrument provides that, in the case
of a taxable year which is for a period of less than 12 months other
than the taxable year in which occurs the end of the period specified in
subparagraph (5) of this paragraph, the annuity amount determined under
subdivision (i) of this subparagraph shall be the amount otherwise
determined under that subdivision multiplied by a fraction the numerator
of which is the number of days in the taxable year of the trust and the
denominator of which is 365 (366 if February 29 is a day included in the
numerator).
(b) Last taxable year of period. The governing instrument provides
that, in the case of the taxable year in which occurs the end of the
period specified in subparagraph (5) of this paragraph, the annuity
amount which must be distributed under subdivision (i) of this
subparagraph shall be the amount otherwise determined under that
subdivision multiplied by a fraction the numerator of which is the
number of days in the period beginning on the first day of such taxable
year and ending on the last day of the period specified in subparagraph
(5) of this paragraph and the denominator of which is 365 (366 if
February 29 is a day included in the numerator). See subparagraph (5) of
this paragraph for a special rule allowing termination of payment of the
annuity amount with the regular payment next preceding the termination
of the period specified therein.
(2) Minimum annuity amount--(i) General rule. The total amount
payable under subparagraph (1) of this paragraph is not less than 5
percent of the initial net fair market value of the property placed in
trust as finally determined for Federal tax purposes.
(ii) Reduction of annuity amount in certain cases. A trust will not
fail to meet the requirements of this subparagraph by reason of the fact
that it provides for a reduction of the stated
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amount payable upon the death of a recipient or the expiration of a term
of years provided that:
(a) A distribution is made to an organization described in section
170(c) at the death of such recipient or the expiration of such term of
years, and
(b) The total amounts payable each year under subparagraph (1) of
this paragraph after such distribution are not less than a stated dollar
amount which bears the same ratio to 5 percent of the initial net fair
market value of the trust assets as the net fair market value of the
trust assets immediately after such distribution bears to the net fair
market value of the trust assets immediately before such distribution.
(iii) Rule applicable to inter vivos trust which does not provide
for payment of minimum annuity amount. In the case where the grantor of
an inter vivos trust underestimates in good faith the initial net fair
market value of the property placed in trust as finally determined for
Federal tax purposes and specifies a fixed dollar amount for the annuity
which is less than 5 percent of the initial net fair market value of the
property placed in trust as finally determined for Federal tax purposes,
the trust will be deemed to have met the 5 percent requirement if the
grantor or his representative consents, by appropriate agreement with
the District Director, to accept an amount equal to 20 times the annuity
as the fair market value of the property placed in trust for purposes of
determining the appropriate charitable contributions deduction.
(3) Permissible recipients--(i) General rule. The amount described
in subparagraph (1) of this paragraph is payable to or for the use of a
named person or persons, at least one of which is not an organization
described in section 170(c). If the amount described in subparagraph (1)
of this paragraph is to be paid to an individual or individuals, all
such individuals must be living at the time of the creation of the
trust. A named person or persons may include members of a named class
provided that, in the case of a class which includes any individual, all
such individuals must be alive and ascertainable at the time of the
creation of the trust unless the period for which the annuity amount is
to be paid to such class consists solely of a term of years. For
example, in the case of a testamentary trust, the testator's will may
provide that an amount shall be paid to his children living at his
death.
(ii) Power to alter amount paid to recipients. A trust is not a
charitable remainder annuity trust if any person has the power to alter
the amount to be paid to any named person other than an organization
described in section 170(c) if such power would cause any person to be
treated as the owner of the trust, or any portion thereof, if subpart E,
part 1, subchapter J, chapter 1, subtitle A of the Code were applicable
to such trust. See paragraph (a)(4) of this section for a rule
permitting the retention by a grantor of a testamentary power to revoke
or terminate the interest of any recipient other than an organization
described in section 170(c). For example, the governing instrument may
not grant the trustee the power to allocate the annuity among members of
a class unless such power falls within one of the exceptions to section
674(a).
(4) Other payments. No amount other than the amount described in
subparagraph (1) of this paragraph may be paid to or for the use of any
person other than an organization described in section 170(c). An amount
is not paid to or for the use of any person other than an organization
described in section 170(c) if the amount is transferred for full and
adequate consideration. The trust may not be subject to a power to
invade, alter, amend, or revoke for the beneficial use of a person other
than an organization described in section 170(c). Notwithstanding the
preceding sentence, the grantor may retain the power exercisable only by
will to revoke or terminate the interest of any recipient other than an
organization described in section 170(c). The governing instrument may
provide that any amount other than the amount described in subparagraph
(1) of this paragraph shall be paid (or may be paid in the discretion of
the trustee) to an organization described in section 170(c) provided
that in the case of distributions in kind, the adjusted basis of the
[[Page 164]]
property distributed is fairly representative of the adjusted basis of
the property available for payment on the date of payment. For example,
the governing instrument may provide that a portion of the trust assets
may be distributed currently, or upon the death of one or more
recipients, to an organization described in section 170(c).
(5) Period of payment of annuity amount--(i) General rules. The
period for which an amount described in subparagraph (1) of this
paragraph is payable begins with the first year of the charitable
remainder trust and continues either for the life or lives of a named
individual or individuals or for a term of years not to exceed 20 years.
Only an individual or an organization described in section 170(c) may
receive an amount for the life of an individual. If an individual
receives an amount for life, it must be solely for his life. Payment of
the amount described in subparagraph (1) of this paragraph may terminate
with the regular payment next preceding the termination of the period
described in this subparagraph. The fact that the recipient may not
receive such last payment shall not be taken into account for purposes
of determining the present value of the remainder interest. In the case
of an amount payable for a term of years, the length of the term of
years shall be ascertainable with certainty at the time of the creation
of the trust, except that the term may be terminated by the death of the
recipient or by the grantor's exercise by will of a retained power to
revoke or terminate the interest of any recipient other than an
organization described in section 170(c). In any event, the period may
not extend beyond either the life or lives of a named individual or
individuals or a term of years not to exceed 20 years. For example, the
governing instrument may not provide for the payment of an annuity
amount to A for his life and then to B for a term of years because it is
possible for the period to last longer than either the lives of
recipients in being at the creation of the trust or a term of years not
to exceed 20 years. On the other hand, the governing instrument may
provide for the payment of an annuity amount to A for his life and then
to B for his life or a term of years (not to exceed 20 years), whichever
is shorter (but not longer), if both A and B are in being at the
creation of the trust because it is not possible for the period to last
longer than the lives of recipients in being at the creation of the
trust.
(ii) Relationship to 5 percent requirement. The 5 percent
requirement provided in subparagraph (2) of this paragraph must be met
until the termination of all of the payments described in subparagraph
(1) of this paragraph. For example, the following provisions would
satisfy the above rules:
(a) An amount equal to at least 5 percent of the initial net fair
market value of the property placed in trust to A and B for their joint
lives and then to the survivor for his life;
(b) An amount equal to at least 5 percent of the initial net fair
market value of the property placed in trust to A for life or for a term
of years not longer than 20 years, whichever is longer (or shorter);
(c) An amount equal to at least 5 percent of the initial net fair
market value of the property placed in trust to A for a term of years
not longer than 20 years and then to B for life (provided B was living
at the date of creation of the trust);
(d) An amount to A for his life and concurrently an amount to B for
his life (the amount to each recipient to terminate at his death) if the
amount given to each individual is not less than 5 percent of the
initial net fair market value of the property placed in trust; or
(e) An amount to A for his life and concurrently an equal amount to
B for his life, and at the death of the first to die, the trust to
distribute one-half of the then value of its assets to an organization
described in section 170(c), if the total of the amounts given to A and
B is not less than 5 percent of the initial net fair market value of the
property placed in trust.
(6) Permissible remaindermen--(i) General rule. At the end of the
period specified in subparagraph (5) of this paragraph the entire corpus
of the trust is required to be irrevocably transferred, in whole or in
part, to or for the use of one or more organizations described in
[[Page 165]]
section 170(c) or retained, in whole or in part, for such use.
(ii) Treatment of trust. If all of the trust corpus is to be
retained for such use, the taxable year of the trust shall terminate at
the end of the period specified in subparagraph (5) of this paragraph
and the trust shall cease to be treated as a charitable remainder trust
for all purposes. If all or any portion of the trust corpus is to be
transferred to or for the use of such organization or organizations, the
trustee shall have a reasonable time after the period specified in
subparagraph (5) of this paragraph to complete the settlement of the
trust. During such time, the trust shall continue to be treated as a
charitable remainder trust for all purposes, such as sections 664,
4947(a)(2), and 4947(b)(3)(B). Upon the expiration of such period, the
taxable year of the trust shall terminate and the trust shall cease to
be treated as a charitable remainder trust for all purposes. If the
trust continues in existence, it will be subject to the provisions of
section 4947(a)(1) unless the trust is exempt from taxation under
section 501(a). For purposes of determining whether the trust is exempt
under section 501(a) as an organization described in section 501(c)(3),
the trust shall be deemed to have been created at the time it ceases to
be treated as a charitable remainder trust.
(iii) Concurrent or successive remaindermen. Where interests in the
corpus of the trust are given to more than one organization described in
section 170(c) such interests may be enjoyed by them either concurrently
or successively.
(iv) Alternative remaindermen. The governing instrument shall
provide that if an organization to or for the use of which the trust
corpus is to be transferred or for the use of which the trust corpus is
to be retained is not an organization described in section 170(c) at the
time any amount is to be irrevocably transferred to or for the use of
such organization, such amount shall be transferred to or for the use of
one or more alternative organizations which are described in section
170(c) at such time or retained for such use. Such alternative
organization or organizations may be selected in any manner provided by
the terms of the governing instrument.
(b) Additional contributions. A trust is not a charitable remainder
annuity trust unless its governing instrument provides that no
additional contributions may be made to the charitable remainder annuity
trust after the initial contribution. For purposes of this section, all
property passing to a charitable remainder annuity trust by reason of
death of the grantor shall be considered one contribution.
(c) Calculation of the fair market value of the remainder interest
of a charitable remainder annuity trust. For purposes of sections 170,
2055, 2106, and 2522, the fair market value of the remainder interest of
a charitable remainder annuity trust (as described in this section) is
the net fair market value (as of the appropriate valuation date) of the
property placed in trust less the present value of the annuity. For
purposes of this section, valuation date means, in general, the date on
which the property is transferred to the trust by the donor regardless
of when the trust is created. In the case of transfers to a charitable
remainder annuity trust for which the valuation date is after April 30,
1989, if an election is made under section 7520 and Sec. 1.7520-2(b) to
compute the present value of the charitable interest by use of the
interest rate component for either of the 2 months preceding the month
in which the transfer is made, the month so elected is the valuation
date for purposes of determining the interest rate and mortality tables.
For purposes of section 2055 or 2106, the valuation date is the date of
death unless the alternate valuation date is elected in accordance with
section 2032 in which event, and within the limitations set forth in
section 2032 and the regulations under that section, the valuation date
is the alternate valuation date. If the decedent's estate elects the
alternate valuation date under section 2032 and also elects, under
section 7520 and Sec. 1.7520-2(b), to use the interest rate component
for one of the 2 months preceding the alternate valuation date, the
month so elected is the valuation date for purposes of determining the
interest rate and mortality tables. The present value of an annuity is
computed under Sec. 20.2031-7(d)
[[Page 166]]
of this chapter for transfers for which the valuation date is on or
after May 1, 2009, or under Sec. 20.2031-7A(a) through (f), whichever
is applicable, for transfers for which the valuation date is before May
1, 2009. See, however, Sec. 1.7520-3(b) (relating to exceptions to the
use of prescribed tables under certain circumstances).
(d) Deduction for transfers to a charitable remainder annuity trust.
For rules relating to a deduction for transfers to a charitable
remainder annuity trust, see section 170, 2055, 2106, or 2522 and the
regulations thereunder. Any claim for deduction on any return for the
value of a remainder interest in a charitable remainder annuity trust
must be supported by a full statement attached to the return showing the
computation of the present value of such interest. The deduction allowed
by section 170 is limited to the fair market value of the remainder
interest of a charitable remainder annuity trust regardless of whether
an organization described in section 170(c) also receives a portion of
the annuity. For a special rule relating to the reduction of the amount
of a charitable contribution deduction with respect to a contribution of
certain ordinary income property or capital gain property, see section
170(e)(1)(A) or 170(e)(1)(B)(i) and the regulations thereunder. For
rules for postponing the time for deduction of a charitable contribution
of a future interest in tangible personal property, see section
170(a)(3) and the regulations thereunder.
(e) Effective/applicability date. Paragraph (c) applies after April
30, 1989.
[T.D. 7202, 37 FR 16918, Aug. 23, 1972, as amended by T.D. 7955, 49 FR
19983, May 11, 1984; T.D. 8540, 59 FR 30116, June 10, 1994; T.D. 8791,
63 FR 68191, Dec. 10, 1998; T.D. 8819, 64 FR 23229, Apr. 30, 1999; T.D.
8819, Mar. 9, 2000, 65 FR 12471; T.D. 8926, 66 FR 1037, Jan. 5, 2001;
T.D. 9448, 74 FR 21464, May 7, 2009; T.D. 9540, 76 FR 49595, Aug. 10,
2011]
Sec. 1.664-3 Charitable remainder unitrust.
(a) Description. A charitable remainder unitrust is a trust which
complies with the applicable provisions of Sec. 1.664-1 and meets all
of the following requirements:
(1) Required payment of unitrust amount--(i) Payment of fixed
percentage at least annually--(a) General rule. The governing instrument
provides that the trust will pay not less often than annually a fixed
percentage of the net fair market value of the trust assets determined
annually to a person or persons described in paragraph (a)(3) of this
section for each taxable year of the period specified in paragraph
(a)(5) of this section. This paragraph (a)(1)(i)(a) is applicable for
taxable years ending after April 18, 1997.
(b) Income exception. Instead of the amount described in (a) of this
subdivision (i), the governing instrument may provide that the trust
shall pay for any year either the amount described in (1) or the total
of the amounts described in (1) and (2) of this subdivision (b).
(1) The amount of trust income for a taxable year to the extent that
such amount is not more than the amount required to be distributed under
paragraph (a)(1)(i)(a) of this section.
(2) An amount of trust income for a taxable year that is in excess
of the amount required to be distributed under paragraph (a)(1)(i)(a) of
this section for such year to the extent that (by reason of paragraph
(a)(1)(i)(b)(1) of this section) the aggregate of the amounts paid in
prior years was less than the aggregate of such required amounts.
(3) For purposes of this paragraph (a)(1)(i)(b), trust income
generally means income as defined under section 643(b) and the
applicable regulations. However, trust income may not be determined by
reference to a fixed percentage of the annual fair market value of the
trust property, notwithstanding any contrary provision in applicable
state law. Proceeds from the sale or exchange of any assets contributed
to the trust by the donor must be allocated to principal and not to
trust income at least to the extent of the fair market value of those
assets on the date of their contribution to the trust. Proceeds from the
sale or exchange of any assets purchased by the trust must be allocated
to principal and not to trust income at least to the extent of the
trust's purchase price of those assets. Except as provided in the two
preceding sentences, proceeds from the sale or exchange of any assets
contributed to the trust by the donor or
[[Page 167]]
purchased by the trust may be allocated to income, pursuant to the terms
of the governing instrument, if not prohibited by applicable local law.
A discretionary power to make this allocation may be granted to the
trustee under the terms of the governing instrument but only to the
extent that the state statute permits the trustee to make adjustments
between income and principal to treat beneficiaries impartially.
(4) The rules in paragraph (a)(1)(i)(b)(1) and (2) of this section
are applicable for taxable years ending after April 18, 1997. The rule
in the first sentence of paragraph (a)(1)(i)(b)(3) is applicable for
taxable years ending after April 18, 1997. The rules in the second,
fourth, and fifth sentences of paragraph (a)(1)(i)(b)(3) are applicable
for taxable years ending after January 2, 2004. The rule in the third
sentence of paragraph (a)(1)(i)(b)(3) is applicable for sales or
exchanges that occur after April 18, 1997. The rule in the sixth
sentence of paragraph (a)(1)(i)(b)(3) is applicable for trusts created
after January 2, 2004.
(c) Combination of methods. Instead of the amount described in
paragraph (a)(1)(i)(a) or (b) of this section, the governing instrument
may provide that the trust will pay not less often than annually the
amount described in paragraph (a)(1)(i)(b) of this section for an
initial period and then pay the amount described in paragraph
(a)(1)(i)(a) of this section (calculated using the same fixed
percentage) for the remaining years of the trust only if the governing
instrument provides that--
(1) The change from the method prescribed in paragraph (a)(1)(i)(b)
of this section to the method prescribed in paragraph (a)(1)(i)(a) of
this section is triggered on a specific date or by a single event whose
occurrence is not discretionary with, or within the control of, the
trustees or any other persons;
(2) The change from the method prescribed in paragraph (a)(1)(i)(b)
of this section to the method prescribed in paragraph (a)(1)(i)(a) of
this section occurs at the beginning of the taxable year that
immediately follows the taxable year during which the date or event
specified under paragraph (a)(1)(i)(c)(1) of this section occurs; and
(3) Following the trust's conversion to the method described in
paragraph (a)(1)(i)(a) of this section, the trust will pay at least
annually to the permissible recipients the amount described only in
paragraph (a)(1)(i)(a) of this section and not any amount described in
paragraph (a)(1)(i)(b) of this section.
(d) Triggering event. For purposes of paragraph (a)(1)(i)(c)(1) of
this section, a triggering event based on the sale of unmarketable
assets as defined in Sec. 1.664-1(a)(7)(ii), or the marriage, divorce,
death, or birth of a child with respect to any individual will not be
considered discretionary with, or within the control of, the trustees or
any other persons.
(e) Examples. The following examples illustrate the rules in
paragraph (a)(1)(i)(c) of this section. For each example, assume that
the governing instrument of charitable remainder unitrust Y provides
that Y will initially pay not less often than annually the amount
described in paragraph (a)(1)(i)(b) of this section and then pay the
amount described in paragraph (a)(1)(i)(a) of this section (calculated
using the same fixed percentage) for the remaining years of the trust
and that the requirements of paragraphs (a)(1)(i)(c)(2) and (3) of this
section are satisfied. The examples are as follows:
Example 1. Y is funded with the donor's former personal residence.
The governing instrument of Y provides for the change in method for
computing the annual unitrust amount as of the first day of the year
following the year in which the trust sells the residence. Y provides
for a combination of methods that satisfies paragraph (a)(1)(i)(c) of
this section.
Example 2. Y is funded with cash and an unregistered security for
which there is no available exemption permitting public sale under the
Securities and Exchange Commission rules. The governing instrument of Y
provides that the change in method for computing the annual unitrust
amount is triggered on the earlier of the date when the stock is sold or
at the time the restrictions on its public sale lapse or are otherwise
lifted. Y provides for a combination of methods that satisfies paragraph
(a)(1)(i)(c) of this section.
Example 3. Y is funded with cash and with a security that may be
publicly traded under the Securities and Exchange Commission
[[Page 168]]
rules. The governing instrument of Y provides that the change in method
for computing the annual unitrust amount is triggered when the stock is
sold. Y does not provide for a combination of methods that satisfies the
requirements of paragraph (a)(1)(i)(c) of this section because the sale
of the publicly-traded stock is within the discretion of the trustee.
Example 4. S establishes Y for her granddaughter, G, when G is 10
years old. The governing instrument of Y provides for the change in
method for computing the annual unitrust amount as of the first day of
the year following the year in which G turns 18 years old. Y provides
for a combination of methods that satisfies paragraph (a)(1)(i)(c) of
this section.
Example 5. The governing instrument of Y provides for the change in
method for computing the annual unitrust amount as of the first day of
the year following the year in which the donor is married. Y provides
for a combination of methods that satisfies paragraph (a)(1)(i)(c) of
this section.
Example 6. The governing instrument of Y provides that if the donor
divorces, the change in method for computing the annual unitrust amount
will occur as of the first day of the year following the year of the
divorce. Y provides for a combination of methods that satisfies
paragraph (a)(1)(i)(c) of this section.
Example 7. The governing instrument of Y provides for the change in
method for computing the annual unitrust amount as of the first day of
the year following the year in which the noncharitable beneficiary's
first child is born. Y provides for a combination of methods that
satisfies paragraph (a)(1)(i)(c) of this section.
Example 8. The governing instrument of Y provides for the change in
method for computing the annual unitrust amount as of the first day of
the year following the year in which the noncharitable beneficiary's
father dies. Y provides for a combination of methods that satisfies
paragraph (a)(1)(i)(c) of this section.
Example 9. The governing instrument of Y provides for the change in
method for computing the annual unitrust amount as of the first day of
the year following the year in which the noncharitable beneficiary's
financial advisor determines that the beneficiary should begin receiving
payments under the second prescribed payment method. Because the change
in methods for paying the unitrust amount is triggered by an event that
is within a person's control, Y does not provide for a combination of
methods that satisfies paragraph (a)(1)(i)(c) of this section.
Example 10. The governing instrument of Y provides for the change in
method for computing the annual unitrust amount as of the first day of
the year following the year in which the noncharitable beneficiary
submits a request to the trustee that the trust convert to the second
prescribed payment method. Because the change in methods for paying the
unitrust amount is triggered by an event that is within a person's
control, Y does not provide for a combination of methods that satisfies
paragraph (a)(1)(i)(c) of this section.
(f) Effective date--(1) General rule. Paragraphs (a)(1)(i)(c), (d),
and (e) of this section are applicable for charitable remainder trusts
created on or after December 10, 1998.
(2) General rule regarding reformations of combination of method
unitrusts. If a trust is created on or after December 10, 1998, and
contains a provision allowing a change in calculating the unitrust
amount that does not comply with the provisions of paragraph
(a)(1)(i)(c) of this section, the trust will qualify as a charitable
remainder unitrust only if it is amended or reformed to use the initial
method for computing the unitrust amount throughout the term of the
trust, or is reformed in accordance with paragraph (a)(1)(i)(f)(3) of
this section. If a trust was created before December 10, 1998, and
contains a provision allowing a change in calculating the unitrust
amount that does not comply with the provisions of paragraph
(a)(1)(i)(c) of this section, the trust may be reformed to use the
initial method for computing the unitrust amount throughout the term of
the trust without causing the trust to fail to function exclusively as a
charitable remainder unitrust under Sec. 1.664-1(a)(4), or may be
reformed in accordance with paragraph (a)(1)(i)(f)(3) of this section.
Except as provided in paragraph (a)(1)(i)(f)(3) of this section, a
qualified charitable remainder unitrust will not continue to qualify as
a charitable remainder unitrust if it is amended or reformed to add a
provision allowing a change in the method for calculating the unitrust
amount.
(3) Special rule for reformations of trusts that begin by June 8,
1999. Notwithstanding paragraph (a)(1)(i)(f)(2) of this section, if a
trust either provides for payment of the unitrust amount under a
combination of methods that is not permitted under paragraph
(a)(1)(i)(c) of this section, or provides for payment of the unitrust
amount under only the method prescribed in
[[Page 169]]
paragraph (a)(1)(i)(b) of this section, then the trust may be reformed
to allow for a combination of methods permitted under paragraph
(a)(1)(i)(c) of this section without causing the trust to fail to
function exclusively as a charitable remainder unitrust under Sec.
1.664-1(a)(4) or to engage in an act of self-dealing under section 4941
if the trustee begins legal proceedings to reform by June 8, 1999. The
triggering event under the reformed governing instrument may not occur
in a year prior to the year in which the court issues the order
reforming the trust, except for situations in which the governing
instrument prior to reformation already provided for payment of the
unitrust amount under a combination of methods that is not permitted
under paragraph (a)(1)(i)(c) of this section and the triggering event
occurred prior to the reformation.
(g) Payment under general rule for fixed percentage trusts. When the
unitrust amount is computed under paragraph (a)(1)(i)(a) of this
section, a trust will not be deemed to have engaged in an act of self-
dealing (within the meaning of section 4941), to have unrelated debt-
financed income (within the meaning of section 514), to have received an
additional contribution (within the meaning of paragraph (b) of this
section), or to have failed to function exclusively as a charitable
remainder trust (within the meaning of Sec. 1.664-1(a)(4)) merely
because the unitrust amount is paid after the close of the taxable year
if such payment is made within a reasonable time after the close of such
taxable year and the entire unitrust amount in the hands of the
recipient is characterized only as income from the categories described
in section 664(b)(1), (2), or (3), except to the extent it is
characterized as corpus described in section 664(b)(4) because--
(1) The trust pays the unitrust amount by distributing property
(other than cash) that it owned at the close of the taxable year, and
the trustee elects to treat any income generated by the distribution as
occurring on the last day of the taxable year in which the unitrust
amount is due;
(2) The trust pays the unitrust amount by distributing cash that was
contributed to the trust (with respect to which a deduction was
allowable under section 170, 2055, 2106, or 2522); or
(3) The trust pays the unitrust amount by distributing cash received
as a return of basis in any asset that was contributed to the trust
(with respect to which a deduction was allowable under section 170,
2055, 2106, or 2522), and that is sold by the trust during the year for
which the unitrust amount is due.
(h) Special rule for fixed percentage trusts created before December
10, 1998. When the unitrust amount is computed under paragraph
(a)(1)(i)(a) of this section, a trust created before December 10, 1998,
will not be deemed to have engaged in an act of self-dealing (within the
meaning of section 4941), to have unrelated debt-financed income (within
the meaning of section 514), to have received an additional contribution
(within the meaning of paragraph (b) of this section), or to have failed
to function exclusively as a charitable remainder trust (within the
meaning of Sec. 1.664-1(a)(4)) merely because the unitrust amount is
paid after the close of the taxable year if such payment is made within
a reasonable time after the close of such taxable year and the fixed
percentage to be paid each year as the unitrust amount is 15 percent or
less of the net fair market value of the trust assets as determined
under paragraph (a)(1)(iv) of this section.
(i) Example. The following example illustrates the rules in
paragraph (a)(1)(i)(g) of this section:
Example. X is a charitable remainder unitrust that calculates the
unitrust amount under paragraph (a)(1)(i)(a) of this section. X was
created after December 10, 1998. The prorated unitrust amount payable
from X for Year 1 is $100. The trustee does not pay the unitrust amount
to the recipient by the end of the Year 1. At the end of Year 1, X has
only $95 in the ordinary income category under section 664(b)(1) and no
income in the capital gain or tax-exempt income categories under section
664(b) (2) or (3), respectively. By April 15 of Year 2, in addition to
$95 in cash, the trustee distributes to the unitrust recipient a capital
asset with a $5 fair market value and a $2 adjusted basis to pay the
$100 unitrust amount due for Year 1. The trust owned the asset at the
end of Year 1. Under Sec. 1.664-1(d)(5), the distribution is treated as
a sale by X, resulting in X recognizing a $3 capital gain. The trustee
elects to treat the capital gain as occurring on the last day
[[Page 170]]
of Year 1. Under Sec. 1.664-1(d)(1), the character of the unitrust
amount for Year 1 in the recipient's hands is $95 of ordinary income, $3
of capital gain income, and $2 of trust corpus. For Year 1, X satisfied
paragraph (a)(1)(i)(g) of this section.
(j) Payment under income exception. When the unitrust amount is
computed under paragraph (a)(1)(i)(b) of this section, a trust will not
be deemed to have engaged in an act of self-dealing (within the meaning
of section 4941), to have unrelated debt-financed income (within the
meaning of section 514), to have received an additional contribution
(within the meaning of paragraph (b) of this section), or to have failed
to function exclusively as a charitable remainder trust (within the
meaning of Sec. 1.664-1(a)(4)) merely because payment of the unitrust
amount is made after the close of the taxable year if such payment is
made within a reasonable time after the close of such taxable year.
(k) Reasonable time. For paragraphs (a)(1)(i) (g), (h), and (j) of
this section, a reasonable time will not ordinarily extend beyond the
date by which the trustee is required to file Form 5227, ``Split-
Interest Trust Information Return,'' (including extensions) for the
taxable year.
(l) Effective date. Paragraphs (a)(1)(i) (g), (h), (i), (j), and (k)
of this section are applicable for taxable years ending after April 18,
1997. Paragraphs (a)(1)(i)(g)(2) and (3) apply only to distributions
made on or after January 5, 2001.
(ii) Definition of fixed percentage. The fixed percentage may be
expressed either as a fraction or as a percentage and must be payable
each year in the period specified in subparagraph (5) of this paragraph.
A percentage is fixed if the percentage is the same either as to each
recipient or as to the total percentage payable each year of such
period. For example, provision for a fixed percentage which is the same
every year to A until his death and concurrently a fixed percentage
which is the same every year to B until his death, the fixed percentage
to each recipient to terminate at his death, would satisfy the rule.
Similarly, provision for a fixed percentage to A and B for their joint
lives and then to the survivor would satisfy the rule. In the case of a
distribution to an organization described in section 170(c) at the death
of a recipient or the expiration of a term of years, the governing
instrument may provide for a reduction of the fixed percentage payable
after such distribution Provided That:
(a) The reduced fixed percentage is the same either as to each
recipient or as to the total amount payable for each year of the balance
of such period, and
(b) The requirements of subparagraph (2)(ii) of this paragraph are
met.
(iii) Rules applicable to incorrect valuations. The governing
instrument provides that in the case where the net fair market value of
the trust assets is incorrectly determined by the fiduciary, the trust
shall pay to the recipient (in the case of an undervaluation) or be
repaid by the recipient (in the case of an overvaluation) an amount
equal to the difference between the amount which the trust should have
paid the recipient if the correct value were used and the amount which
the trust actually paid the recipient. Such payments or repayments must
be made within a reasonable period after the final determination of such
value. Any payment due to a recipient by reason of such incorrect
valuation shall be considered to be a payment required to be distributed
at the time of such final determination for purposes of paragraph
(d)(4)(ii) of Sec. 1.664-1. See paragraph (d)(4) of Sec. 1.664-1 for
rules relating to the year of inclusion of such payments and the
allowance of a deduction for such repayments. See paragraph (b) of this
section for rules relating to additional contributions.
(iv) Rules applicable to valuation. In computing the net fair market
value of the trust assets there shall be taken into account all assets
and liabilities without regard to whether particular items are taken
into account in determining the income of the trust. The net fair market
value of the trust assets may be determined on any one date during the
taxable year of the trust, or by taking the average of valuations made
on more than one date during the taxable year of the trust, so long as
the same valuation date or dates and valuation methods are used each
year. If the governing instrument
[[Page 171]]
does not specify the valuation date or dates, the trustee must select
such date or dates and indicate the selection on the first return on
Form 5227, ``Split-Interest Trust Information Return,'' that the trust
must file. The amount described in subdivision (i)(a) of this
subparagraph which must be paid each year must be based upon the
valuation for such year.
(v) Computation of unitrust amount in certain circumstances--(a)
Short taxable years. The governing instrument provides that, in the case
of a taxable year which is for a period of less than 12 months other
than the taxable year in which occurs the end of the period specified in
subparagraph (5) of this paragraph:
(1) The amount determined under subdivision (i)(a) of this
subparagraph shall be the amount otherwise determined under that
subdivision multiplied by a fraction the numerator of which is the
number of days in the taxable year of the trust and the denominator of
which is 365 (366 if February 29 is a day included in the numerator),
(2) The amount determined under subdivision (i)(b) of this
subparagraph shall be computed by using the amount determined under
subdivision (a)(1) of this subdivision (v), and
(3) If no valuation date occurs before the end of the taxable year
of the trust, the trust assets shall be valued as of the last day of the
taxable year of the trust.
(b) Last taxable year of period. (1) The governing instrument
provides that, in the case of the taxable year in which occurs the end
of the period specified in subparagraph (5) of this paragraph:
(i) The unitrust amount which must be distributed under subdivision
(i)(a) of this subparagraph shall be the amount otherwise determined
under that subdivision multiplied by a fraction the numerator of which
is the number of days in the period beginning on the first day of such
taxable year and ending on the last day of the period specified in
subparagraph (5) of this paragraph and the denominator of which is 365
(366 if February 29 is a day included in the numerator),
(ii) The amount determined under subdivision (i)(b) of this
subparagraph shall be computed by using the amount determined under
(b)(1)(i) of this subdivision (v), and
(iii) If no valuation date occurs before the end of such period, the
trust assets shall be valued as of the last day of such period.
(2) See subparagraph (5) of this paragraph for a special rule
allowing termination of payment of the unitrust amount with the regular
payment next preceding the termination of the period specified therein.
(2) Minimum unitrust amount--(i) General rule. The fixed percentage
described in subparagraph (1)(i) of this paragraph with respect to all
beneficiaries taken together is not less than 5 percent.
(ii) Reduction of unitrust amount in certain cases. A trust will not
fail to meet the requirements of this subparagraph by reason of the fact
that it provides for a reduction of the fixed percentage payable upon
the death of a recipient or the expiration of a term of years Provided
That:
(a) A distribution is made to an organization described in section
170(c) at the death of such recipient or the expiration of such term of
years, and
(b) The total of the percentage payable under subparagraph (1) of
this paragraph after such distribution is not less than 5 percent.
(3) Permissible recipients--(i) General rule. The amount described
in subparagraph (1) of this paragraph is payable to or for the use of a
named person or persons, at least one of which is not an organization
described in section 170(c). If the amount described in subparagraph (1)
of this paragraph is to be paid to an individual or individuals, all
such individuals must be living at the time of creation of the trust. A
named person or persons may include members of a named class except in
the case of a class which includes any individual, all such individuals
must be alive and ascertainable at the time of the creation of the trust
unless the period for which the unitrust amount is to be paid to such
class consists solely of a term of years. For example, in the case of a
testamentary trust, the testator's will may provide that the required
amount shall be paid to his children living at his death.
[[Page 172]]
(ii) Power to alter amount paid to recipients. A trust is not a
charitable remainder unitrust if any person has the power to alter the
amount to be paid to any named person other than an organization
described in section 170(c) if such power would cause any person to be
treated as the owner of the trust, or any portion thereof, if subpart E,
part 1, subchapter J, chapter 1, subtitle A of the Code were applicable
to such trust. See paragraph (a)(4) of this section for a rule
permitting the retention by a grantor of a testamentary power to revoke
or terminate the interest of any recipient other than an organization
described in section 170(c). For example, the governing instrument may
not grant the trustee the power to allocate the fixed percentage among
members of a class unless such power falls within one of the exceptions
to section 674(a).
(4) Other payments. No amount other than the amount described in
subparagraph (1) of this paragraph may be paid to or for the use of any
person other than an organization described in section 170(c). An amount
is not paid to or for the use of any person other than an organization
described in section 170(c) if the amount is transferred for full and
adequate consideration. The trust may not be subject to a power to
invade, alter, amend, or revoke for the beneficial use of a person other
than an organization described in section 170(c). Notwithstanding the
preceding sentence, the grantor may retain the power exercisable only by
will to revoke or terminate the interest of any recipient other than an
organization described in section 170(c). The governing instrument may
provide that any amount other than the amount described in subparagraph
(1) of this paragraph shall be paid (or may be paid in the discretion of
the trustee) to an organization described in section 170(c) provided
that, in the case of distributions in kind, the adjusted basis of the
property distributed is fairly representative of the adjusted basis of
the property available for payment on the date of payment. For example,
the governing instrument may provide that a portion of the trust assets
may be distributed currently, or upon the death of one or more
recipients, to an organization described in section 170(c).
(5) Period of payment of unitrust amount--(i) General rules. The
period for which an amount described in subparagraph (1) of this
paragraph is payable begins with the first year of the charitable
remainder trust and continues either for the life or lives of a named
individual or individuals or for a term of years not to exceed 20 years.
Only an individual or an organization described in section 170(c) may
receive an amount for the life of an individual. If an individual
receives an amount for life, it must be solely for his life. Payment of
the amount described in subparagraph (1) of this paragraph may terminate
with the regular payment next preceding the termination of the period
described in this subparagraph. The fact that the recipient may not
receive such last payment shall not be taken into account for purposes
of determining the present value of the remainder interest. In the case
of an amount payable for a term of years, the length of the term of
years shall be ascertainable with certainty at the time of the creation
of the trust, except that the term may be terminated by the death of the
recipient or by the grantor's exercise by will of a retained power to
revoke or terminate the interest of any recipient other than an
organization described in section 170(c). In any event, the period may
not extend beyond either the life or lives of a named individual or
individuals or a term of years not to exceed 20 years. For example, the
governing instrument may not provide for the payment of a unitrust
amount to A for his life and then to B for a term of years because it is
possible for the period to last longer than either the lives of
recipients in being at the creation of the trust or a term of years not
to exceed 20 years. On the other hand, the governing instrument may
provide for the payment of a unitrust amount to A for his life and then
to B for his life or a term of years (not to exceed 20 years), whichever
is shorter (but not longer), if both A and B are in being at the
creation of the trust because it is not possible for the period to last
longer than the lives of recipients in being at the creation of the
trust.
[[Page 173]]
(ii) Relationship to 5 percent requirement. The 5 percent
requirement provided in subparagraph (2) of this paragraph must be met
until the termination of all of the payments described in subparagraph
(1) of this paragraph. For example, the following provisions would
satisfy the above rules:
(a) A fixed percentage of at least 5 percent to A and B for their
joint lives and then to the survivor for his life;
(b) A fixed percentage of at least 5 percent to A for life or for a
term of years not longer than 20 years, whichever is longer (or
shorter);
(c) A fixed percentage of at least 5 percent to A for life or for a
term of years not longer than 20 years and then to B for life (provided
B was living at the creation of the trust);
(d) A fixed percentage to A for his life and concurrently a fixed
percentage to B for his life (the percentage to each recipient to
terminate at his death) if the percentage given to each individual is
not less than 5 percent;
(e) A fixed percentage to A for his life and concurrently an equal
percentage to B for his life, and at the death of the first to die, the
trust to distribute one-half of the then value of its assets to an
organization described in section 170(c) if the total of the percentages
is not less than 5 percent for the entire period described in this
subparagraph.
(6) Permissible remaindermen--(i) General rule. At the end of the
period specified in subparagraph (5) of this paragraph, the entire
corpus of the trust is required to be irrevocably transferred, in whole
or in part, to or for the use of one or more organizations described in
section 170(c) or retained, in whole or in part, for such use.
(ii) Treatment of trust. If all of the trust corpus is to be
retained for such use, the taxable year of the trust shall terminate at
the end of the period specified in subparagraph (5) of this paragraph
and the trust shall cease to be treated as a charitable remainder trust
for all purposes. If all or any portion of the trust corpus is to be
transferred to or for the use of such organization or organizations, the
trustee shall have a reasonable time after the period specified in
subparagraph (5) of this paragraph to complete the settlement of the
trust. During such time, the trust shall continue to be treated as a
charitable remainder trust for all purposes, such as section 664,
4947(a)(2), and 4947(b)(3)(B). Upon the expiration of such period, the
taxable year of the trust shall terminate and the trust shall cease to
be treated as a charitable remainder trust for all purposes. If the
trust continues in existence, it will be subject to the provisions of
section 4947(a)(1) unless the trust is exempt from taxation under
section 501(a). For purposes of determining whether the trust is exempt
under section 501(a) as an organization described in section 501(c)(3),
the trust shall be deemed to have been created at the time it ceases to
be treated as a charitable remainder trust.
(iii) Concurrent or successive remaindermen. Where interests in the
corpus of the trust are given to more than one organization described in
section 170(c) such interests may be enjoyed by them either concurrently
or successively.
(iv) Alternative remaindermen. The governing instrument shall
provide that if an organization to or for the use of which the trust
corpus is to be transferred or for the use of which the trust corpus is
to be retained is not an organization described in section 170(c) at the
time any amount is to be irrevocably transferred to or for the use of
such organization, such amount shall be transferred to or for the use of
or retained for the use of one or more alternative organizations which
are described in section 170(c) at such time. Such alternative
organization or organizations may be selected in any manner provided by
the terms of the governing instrument.
(b) Additional contributions. A trust is not a charitable remainder
annuity trust unless its governing instrument either prohibits
additional contributions to the trust after the initial contribution or
provides that for the taxable year of the trust in which the additional
contribution is made:
(1) Where no valuation date occurs after the time of the
contribution and during the taxable year in which the contribution is
made, the additional property shall be valued as of the time of
contribution; and
[[Page 174]]
(2) The amount described in paragraph (a)(1)(i)(a) of this section
shall be computed by multiplying the fixed percentage by the sum of (i)
the net fair market value of the trust assets (excluding the value of
the additional property and any earned income from and any appreciation
on such property after its contribution), and (ii) that proportion of
the value of the additional property (that was excluded under
subdivision (i) of this paragraph), which the number of days in the
period which begins with the date of contribution and ends with the
earlier of the last day of such taxable year or the last day of the
period described in paragraph (a)(5) of this section bears to the number
of days in the period which begins with the first day of such taxable
year and ends with the earlier of the last day of such taxable year or
the last day of the period described in paragraph (a)(5) of this
section.
For purposes of this section, all property passing to a charitable
remainder unitrust by reason of death of the grantor shall be considered
one contribution. The application of the preceding rules may be
illustrated by the following examples:
Example 1. On March 2, 1971, X makes an additional contribution of
property to a charitable remainder unitrust. The taxable year of the
trust is the calendar year and the regular valuation date is January 1
of each year. For purposes of computing the required payout with respect
to the additional contribution for the year of contribution, the
additional contribution is valued on March 2, 1971, the time of
contribution. The property had a value on that date of $5,000. Income
from such property in the amount of $250 was received on December 31,
1971. The required payout with respect to the additional contribution
for the year of contribution is $208 (5 percentx$5,000x305/365). The
income earned after the date of the contribution and after the regular
valuation date does not enter into the computation.
Example 2. On July 1, 1971, X makes an additional contribution of
$10,000 to a charitable remainder unitrust. The taxable year of the
trust is the calendar year and the regular valuation date is December 31
of each year. The fixed percentage is 5 percent. Between July 1, 1971,
and December 31, 1971, the additional property appreciates in value to
$12,500 and earns $500 of income. Because the regular valuation date for
the year of contribution occurs after the date of the additional
contribution, the additional contribution including income earned by it
is valued on the regular valuation date. Thus, the required payout with
respect to the additional contribution is $325.87 (5
percentx[$12,500+$500]x183/365).
(c) Calculation of the fair market value of the remainder interest
of a charitable remainder unitrust. See Sec. 1.664-4 for rules relating
to the calculation of the fair market value of the remainder interest of
a charitable remainder unitrust.
(d) Deduction for transfers to a charitable remainder unitrust. For
rules relating to a deduction for transfers to a charitable remainder
unitrust, see section 170, 2055, 2106, or 2522 and the regulations
thereunder. The deduction allowed by section 170 for transfers to
charity is limited to the fair market value of the remainder interest of
a charitable remainder unitrusts regardless of whether an organization
described in section 170(c) also receives a portion of the amount
described in Sec. 1.664-3(a)(1). For a special rule relating to the
reduction of the amount of a charitable contribution deduction with
respect to a contribution of certain ordinary income property or capital
gain property, see section 170(e)(1) (A) or (B)(i) and the regulations
thereunder. For rules for postponing the time for deduction of a
charitable contribution of a future interest in tangible personal
property, see section 170(a)(3) and the regulations thereunder.
[T.D. 7202, 37 FR 16920, Aug. 23, 1972, as amended by T.D. 8791, 63 FR
68192, Dec. 10, 1998; T.D. 8926, 66 FR 1038, Jan. 5, 2001; T.D. 9102, 69
FR 20, Jan. 2, 2004]
Sec. 1.664-4 Calculation of the fair market value of the remainder
interest in a charitable remainder unitrust.
(a) Rules for determining present value. For purposes of sections
170, 2055, 2106, and 2522, the fair market value of a remainder interest
in a charitable remainder unitrust (as described in Sec. 1.664-3) is
its present value determined under paragraph (d) of this section. The
present value determined under this section shall be computed on the
basis of--
(1) Life contingencies determined as to each life involved, from the
values of lx set forth in Table 2000CM contained in Sec. 20.2031-
7(d)(7) of this chapter in the case of transfers for which the
[[Page 175]]
valuation date is on or after May 1, 2009; or from Table 90CM contained
in Sec. 20.2031-7A(f)(4) in the case of transfers for which the
valuation date is after April 30, 1999, and before May 1, 2009. See
Sec. 20.2031-7A(a) through (e), whichever is applicable, for transfers
for which the valuation date is before May 1, 1999;
(2) Interest at the section 7520 rate in the case of transfers for
which the valuation date is after April 30, 1989, or 10 percent in the
case of transfers to charitable remainder unitrusts made after November
30, 1983, for which the valuation date is before May 1, 1989. See Sec.
20.2031-7A (a) through (c) of this chapter, whichever is applicable, for
transfers for which the valuation date is before December 1, 1983; and
(3) The assumption that the amount described in Sec. 1.664-
3(a)(1)(i)(a) is distributed in accordance with the payout sequence
described in the governing instrument. If the governing instrument does
not prescribe when the distribution is made during the period for which
the payment is made, for purposes of this section, the distribution is
considered payable on the first day of the period for which the payment
is made.
(b) Actuarial Computations by the Internal Revenue Service. The
regulations in this and in related sections provide tables of actuarial
factors and examples that illustrate the use of the tables in
determining the value of remainder interests in property. Section
1.7520-1(c)(2) refers to government publications that provide additional
tables of factors and examples of computations for more complex
situations. If the computation requires the use of a factor that is not
provided in this section, the Commissioner may supply the factor upon a
request for a ruling. A request for a ruling must be accompanied by a
recitation of the facts including the date of birth of each measuring
life, and copies of the relevant documents. A request for a ruling must
comply with the instructions for requesting a ruling published
periodically in the Internal Revenue Bulletin (See Sec.
601.601(d)(2)(ii)(b) of this chapter) and include payment of the
required user fee. If the Commissioner furnishes the factor, a copy of
the letter supplying the factor should be attached to the tax return in
which the deduction is claimed. If the Commissioner does not furnish the
factor, the taxpayer must furnish a factor computed in accordance with
the principles set forth in this section.
(c) Statement supporting deduction required. Any claim for a
deduction on any return for the value of a remainder interest in a
charitable remainder unitrust must be supported by a full statement
attached to the return showing the computation of the present value of
such interest.
(d) Valuation. The fair market value of a remainder interest in a
charitable remainder unitrust (as described in Sec. 1.664-3) for
transfers for which the valuation date is on or after May 1, 2009, is
its present value determined under paragraph (e) of this section. The
fair market value of a remainder interest in a charitable remainder
unitrust (as described in Sec. 1.664-3) for transfers for which the
valuation date is before May 1, 2009, is its present value determined
under the following sections:
------------------------------------------------------------------------
Valuation dates
--------------------------------------------------------- Applicable
After Before regulations
------------------------------------------------------------------------
--......................................... 01-01-52 1.664-4A(a)
12-31-51................................... 01-01-71 1.664-4A(b)
12-31-70................................... 12-01-83 1.664-4A(c)
11-30-83................................... 05-01-89 1.664-4A(d)
04-30-89................................... 05-01-99 1.664-4A(e)
04-30-99................................... 05-01-09 1.664-4A(f)
------------------------------------------------------------------------
(e) Valuation of charitable remainder unitrusts having certain
payout sequences for transfers for which the valuation date is on or
after May 1, 2009--(1) In general. Except as otherwise provided in
paragraph (e)(2) of this section, in the case of transfers for which the
valuation date is on or after May 1, 2009, the present value of a
remainder interest is determined under paragraphs (e)(3) through (e)(7)
of this section, provided that the amount of the payout as of any payout
date during any taxable year of the trust is not larger than the amount
that the trust could distribute on such date under Sec. 1.664-
3(a)(1)(v) if the taxable year of the trust were to end on such date.
See, however, Sec. 1.7520-3(b) (relating to exceptions to the use of
the prescribed tables under certain circumstances).
[[Page 176]]
(2) Transitional rules for valuation of charitable remainder
unitrusts. (i) For purposes of sections 2055, 2106, or 2624, if on May
1, 2009, the decedent was mentally incompetent so that the disposition
of the property could not be changed, and the decedent died on or after
May 1, 2009, without having regained competency to dispose of the
decedent's property, or the decedent died within 90 days of the date
that the decedent first regained competency on or after May 1, 2009, the
present value of a remainder interest under this section is determined
as if the valuation date with respect to the decedent's gross estate is
either before or after May 1, 2009, at the option of the decedent's
executor.
(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the
case of transfers to a charitable remainder unitrust for which the
valuation date is on or after May 1, 2009, and before July 1, 2009, the
present value of a remainder interest based on one or more measuring
lives is determined under this section by use of the section 7520
interest rate for the month in which the valuation date occurs (see
Sec. Sec. 1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial
tables under either paragraph (e)(7) of this section or Sec. 1.664-
4A(f)(6), at the option of the donor or the decedent's executor, as the
case may be.
(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this
section, where the donor or decedent's executor is given the option to
use the appropriate actuarial tables under either paragraph (e)(7) of
this section or Sec. 1.664-4A(f)(6), the donor or decedent's executor
must use the same actuarial table with respect to each individual
transaction and with respect to all transfers occurring on the valuation
date (for example, gift and income tax charitable deductions with
respect to the same transfer must be determined based on the same
tables, and all assets includible in the gross estate and/or estate tax
deductions claimed must be valued based on the same tables).
(3) Adjusted payout rate. For transfers for which the valuation date
is after April 30, 1989, the adjusted payout rate is determined by using
the appropriate Table F in paragraph (e)(6) of this section, for the
section 7520 interest rate applicable to the transfer. If the interest
rate is between 4.2 and 14 percent, see paragraph (e)(6) of this
section. If the interest rate is below 4.2 percent or greater than 14
percent, see paragraph (b) of this section. The adjusted payout rate is
determined by multiplying the fixed percentage described in Sec. 1.664-
3(a)(1)(i)(a) by the factor describing the payout sequence of the trust
and the number of months by which the valuation date for the first full
taxable year of the trust precedes the first payout date for such
taxable year. If the governing instrument does not prescribe when the
distribution or distributions shall be made during the taxable year of
the trust, see paragraph (a) of this section. In the case of a trust
having a payout sequence for which no figures have been provided by the
appropriate table, and in the case of a trust that determines the fair
market value of the trust assets by taking the average of valuations on
more than one date during the taxable year, see paragraph (b) of this
section.
(4) Period is a term of years. If the period described in Sec.
1.664-3(a)(5) is a term of years, the factor that is used in determining
the present value of the remainder interest for transfers for which the
valuation date is after November 30, 1983, is the factor under the
appropriate adjusted payout rate in Table D of paragraph (e)(6) of this
section corresponding to the number of years in the term. If the
adjusted payout rate is an amount that is between adjusted payout rates
for which factors are provided in Table D, a linear interpolation must
be made. The present value of the remainder interest is determined by
multiplying the net fair market value (as of the appropriate valuation
date) of the property placed in trust by the factor determined under
this paragraph. For purposes of this section, the valuation date is, in
the case of an inter vivos transfer, the date on which the property is
transferred to the trust by the donor. However, if an election is made
under section 7520 and Sec. 1.7520-2(b) to compute the present value of
the charitable interest by use of the interest rate component for either
of the 2 months preceding the month in which the date of transfer
[[Page 177]]
falls, the month so elected is the valuation date for purposes of
determining the interest rate and mortality tables. In the case of a
testamentary transfer under section 2055, 2106, or 2624, the valuation
date is the date of death, unless the alternate valuation date is
elected under section 2032, in which event, and within the limitations
set forth in section 2032 and the regulations thereunder, the valuation
date is the alternate valuation date. If the decedent's estate elects
the alternate valuation date under section 2032 and also elects, under
section 7520 and Sec. 1.7520-2(b), to use the interest rate component
for one of the 2 months preceding the alternate valuation date, the
month so elected is the valuation date for purposes of determining the
interest rate and mortality tables. The application of this paragraph
(e)(4) may be illustrated by the following example:
Example. D transfers $100,000 to a charitable remainder unitrust on
January 1. The trust instrument requires that the trust pay 8 percent of
the fair market value of the trust assets as of January 1st for a term
of 12 years to D in quarterly payments (March 31, June 30, September 30,
and December 31). The section 7520 rate for January (the month that the
transfer occurred) is 9.6 percent. Under Table F(9.6) in paragraph
(e)(6) of this section, the appropriate adjustment factor is .944628 for
quarterly payments payable at the end of each quarter. The adjusted
payout rate is 7.557 (8%x .944628). Based on the remainder factors in
Table D in paragraph (e)(6) of this section, the present value of the
remainder interest is $38,950.30, computed as follows:
Factor at 7.4 percent for 12 years........................... .397495
Factor at 7.6 percent for 12 years........................... .387314
----------
Difference................................................. .010181
Interpolation adjustment:
[GRAPHIC] [TIFF OMITTED] TR12JN00.002
Factor at 7.4 percent for 12 years........................... .397495
Less: Interpolation adjustment............................... .007992
----------
Interpolated factor........................................ .389503
Present value of remainder interest:
($100,000x.389503)..........$38,950.30
(5) Period is the life of one individual. (i) If the period
described in Sec. 1.664-3(a)(5) is the life of one individual, the
factor that is used in determining the present value of the remainder
interest for transfers for which the valuation date is on or after May
1, 2009, is the factor in Table U(1) in paragraph (e)(7) of this section
under the appropriate adjusted payout. For purposes of the computations
described in this paragraph (e)(5), the age of an individual is the age
of that individual at the individual's nearest birthday. If the adjusted
payout rate is an amount that is between adjusted payout rates for which
factors are provided in the appropriate table, a linear interpolation
must be made. The present value of the remainder interest is determined
by multiplying the net fair market value (as of the valuation date as
determined in paragraph (e)(4) of this section) of the property placed
in trust by the factor determined under this paragraph (e)(5). If the
adjusted payout rate is between 4.2 and 14 percent, see paragraph (e)(7)
of this section. If the adjusted payout rate is below 4.2 percent or
greater than 14 percent, see paragraph (b) of this section.
(ii) The application of paragraph (e)(5)(i) of this section may be
illustrated by the following example:
Example. A, who is 44 years and 11 months old, transfers $100,000 to
a charitable remainder unitrust on January 1st. The trust instrument
requires that the trust pay to A semiannually (on June 30 and December
31) 8 percent of the fair market value of the trust assets as of January
1st during A's life. The section 7520 rate for January is 6.6 percent.
Under Table F(6.6) in paragraph (e)(6) of this section, the appropriate
adjustment factor is .953317 for semiannual payments payable at the end
of the semiannual period. The adjusted payout rate is 7.627% (8% x
.953317). Based on the remainder factors in Table U(1) in this section,
the present value of the remainder interest is $11,075.00, computed as
follows:
[[Page 178]]
[GRAPHIC] [TIFF OMITTED] TR10AU11.023
(6) Actuarial Table D and F (4.2 through 14.0) for transfers for
which the valuation date is after April 30, 1989. For transfers for
which the valuation date is after April 30, 1989, the present value of a
charitable remainder unitrust interest that is dependent upon a term of
years is determined by using the section 7520 rate and the tables in
this paragraph (e)(6). For transfers for which the valuation date is on
or after May 1, 2009, where the present value of a charitable remainder
unitrust interest is dependent on the termination of a life interest,
see Paragraph (e)(5) of this section. See, however, Sec. 1.7520-3(b)
(relating to exceptions to the use of prescribed tables under certain
circumstances). Many actuarial factors not contained in the following
tables are contained in Internal Revenue Service Publication 1458,
``Actuarial Valuations Version 3B'' (2009). This publication will be
available beginning May 1, 2009, at no charge, electronically via the
IRS Internet site at http://www.irs.gov.
Table D--Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Years ---------------------------------------------------------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... .958000 .956000 .954000 .952000 .950000 .948000 .946000 .944000 .942000 .940000
2................................................... .917764 .913936 .910116 .906304 .902500 .898704 .894916 .891136 .887364 .883600
3................................................... .879218 .873723 .868251 .862801 .857375 .851971 .846591 .841232 .835897 .830584
4................................................... .842291 .835279 .828311 .821387 .814506 .807669 .800875 .794123 .787415 .780749
5................................................... .806915 .798527 .790209 .781960 .773781 .765670 .757627 .749652 .741745 .733904
6................................................... .773024 .763392 .753859 .744426 .735092 .725855 .716716 .707672 .698724 .689870
7................................................... .740557 .729802 .719182 .708694 .698337 .688111 .678013 .668042 .658198 .648478
8................................................... .709454 .697691 .686099 .674677 .663420 .652329 .641400 .630632 .620022 .609569
9................................................... .679657 .666993 .654539 .642292 .630249 .618408 .606765 .595317 .584061 .572995
10.................................................. .651111 .637645 .624430 .611462 .598737 .586251 .573999 .561979 .550185 .538615
11.................................................. .623764 .609589 .595706 .582112 .568800 .555766 .543003 .530508 .518275 .506298
12.................................................. .597566 .582767 .568304 .554170 .540360 .526866 .513681 .500800 .488215 .475920
[[Page 179]]
13.................................................. .572469 .557125 .542162 .527570 .513342 .499469 .485942 .472755 .459898 .447365
14.................................................. .548425 .532611 .517222 .502247 .487675 .473496 .459701 .446281 .433224 .420523
15.................................................. .525391 .509177 .493430 .478139 .463291 .448875 .434878 .421289 .408097 .395292
16.................................................. .503325 .486773 .470732 .455188 .440127 .425533 .411394 .397697 .384427 .371574
17.................................................. .482185 .465355 .449079 .433339 .418120 .403405 .389179 .375426 .362131 .349280
18.................................................. .461933 .444879 .428421 .412539 .397214 .382428 .368163 .354402 .341127 .328323
19.................................................. .442532 .425304 .408714 .392737 .377354 .362542 .348282 .334555 .321342 .308624
20.................................................. .423946 .406591 .389913 .373886 .358486 .343690 .329475 .315820 .302704 .290106
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table D--Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Years ---------------------------------------------------------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... .938000 .936000 .934000 .932000 .930000 .928000 .926000 .924000 .922000 .920000
2................................................... .879844 .876096 .872356 .868624 .864900 .861184 .857476 .853776 .850084 .846400
3................................................... .825294 .820026 .814781 .809558 .804357 .799179 .794023 .788889 .783777 .778688
4................................................... .774125 .767544 .761005 .754508 .748052 .741638 .735265 .728933 .722643 .716393
5................................................... .726130 .718421 .710779 .703201 .695688 .688240 .680855 .673535 .666277 .659082
6................................................... .681110 .672442 .663867 .655383 .646990 .638687 .630472 .622346 .614307 .606355
7................................................... .638881 .629406 .620052 .610817 .601701 .592701 .583817 .575048 .566391 .557847
8................................................... .599270 .589124 .579129 .569282 .559582 .550027 .540615 .531344 .522213 .513219
9................................................... .562115 .551420 .540906 .530571 .520411 .510425 .500609 .490962 .481480 .472161
10.................................................. .527264 .516129 .505206 .494492 .483982 .473674 .463564 .453649 .443925 .434388
11.................................................. .494574 .483097 .471863 .460866 .450104 .439570 .429260 .419171 .409298 .399637
12.................................................. .463910 .452179 .440720 .429527 .418596 .407921 .397495 .387314 .377373 .367666
13.................................................. .435148 .423239 .411632 .400320 .389295 .378550 .368081 .357879 .347938 .338253
14.................................................. .408169 .396152 .384465 .373098 .362044 .351295 .340843 .330680 .320799 .311193
15.................................................. .382862 .370798 .359090 .347727 .336701 .326002 .315620 .305548 .295777 .286297
16.................................................. .359125 .347067 .335390 .324082 .313132 .302529 .292264 .282326 .272706 .263394
17.................................................. .336859 .324855 .313254 .302044 .291213 .280747 .270637 .260870 .251435 .242322
18.................................................. .315974 .304064 .292579 .281505 .270828 .260533 .250610 .241044 .231823 .222936
19.................................................. .296383 .284604 .273269 .262363 .251870 .241775 .232065 .222724 .213741 .205101
20.................................................. .278008 .266389 .255233 .244522 .234239 .224367 .214892 .205797 .197069 .188693
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table D--Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Years ---------------------------------------------------------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... .918000 .916000 .914000 .912000 .910000 .908000 .906000 .904000 .902000 .900000
2................................................... .842724 .839056 .835396 .831744 .828100 .824464 .820836 .817216 .813604 .810000
3................................................... .773621 .768575 .763552 .758551 .753571 .748613 .743677 .738763 .733871 .729000
4................................................... .710184 .704015 .697886 .691798 .685750 .679741 .673772 .667842 .661951 .656100
5................................................... .651949 .644878 .637868 .630920 .624032 .617205 .610437 .603729 .597080 .590490
6................................................... .598489 .590708 .583012 .575399 .567869 .560422 .553056 .545771 .538566 .531441
7................................................... .549413 .541089 .532873 .524764 .516761 .508863 .501069 .493377 .485787 .478297
8................................................... .504361 .495637 .487046 .478585 .470253 .462048 .453968 .446013 .438180 .430467
9................................................... .463003 .454004 .445160 .436469 .427930 .419539 .411295 .403196 .395238 .387420
10.................................................. .425037 .415867 .406876 .398060 .389416 .380942 .372634 .364489 .356505 .348678
11.................................................. .390184 .380934 .371885 .363031 .354369 .345895 .337606 .329498 .321567 .313811
12.................................................. .358189 .348936 .339902 .331084 .322475 .314073 .305871 .297866 .290054 .282430
13.................................................. .328817 .319625 .310671 .301949 .293453 .285178 .277119 .269271 .261628 .254187
14.................................................. .301854 .292777 .283953 .275377 .267042 .258942 .251070 .243421 .235989 .228768
15.................................................. .277102 .268184 .259533 .251144 .243008 .235119 .227469 .220053 .212862 .205891
16.................................................. .254380 .245656 .237213 .229043 .221137 .213488 .206087 .198928 .192001 .185302
17.................................................. .233521 .225021 .216813 .208887 .201235 .193847 .186715 .179830 .173185 .166772
18.................................................. .214372 .206119 .198167 .190505 .183124 .176013 .169164 .162567 .156213 .150095
19.................................................. .196794 .188805 .181125 .173741 .166643 .159820 .153262 .146960 .140904 .135085
[[Page 180]]
20.................................................. .180657 .172946 .165548 .158452 .151645 .145117 .138856 .132852 .127096 .121577
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table D--Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Years ---------------------------------------------------------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0% 11.2% 11.4% 11.6% 11.8% 12.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... .898000 .896000 .894000 .892000 .890000 .888000 .886000 .884000 .882000 .880000
2................................................... .806404 .802816 .799236 .795664 .792100 .788544 .784996 .781456 .777924 .774400
3................................................... .724151 .719323 .714517 .709732 .704969 .700227 .695506 .690807 .686129 .681472
4................................................... .650287 .644514 .638778 .633081 .627422 .621802 .616219 .610673 .605166 .599695
5................................................... .583958 .577484 .571068 .564708 .558406 .552160 .545970 .539835 .533756 .527732
6................................................... .524394 .517426 .510535 .503720 .496981 .490318 .483729 .477214 .470773 .464404
7................................................... .470906 .463613 .456418 .449318 .442313 .435402 .428584 .421858 .415222 .408676
8................................................... .422874 .415398 .408038 .400792 .393659 .386637 .379726 .372922 .366226 .359635
9................................................... .379741 .372196 .364786 .357506 .350356 .343334 .336437 .329663 .323011 .316478
10.................................................. .341007 .333488 .326118 .318896 .311817 .304881 .298083 .291422 .284896 .278501
11.................................................. .306224 .298805 .291550 .284455 .277517 .270734 .264102 .257617 .251278 .245081
12.................................................. .274989 .267729 .260645 .253734 .246990 .240412 .233994 .227734 .221627 .215671
13.................................................. .246941 .239886 .233017 .226331 .219821 .213486 .207319 .201317 .195475 .189791
14.................................................. .221753 .214937 .208317 .201887 .195641 .189575 .183684 .177964 .172409 .167016
15.................................................. .199134 .192584 .186236 .180083 .174121 .168343 .162744 .157320 .152065 .146974
16.................................................. .178822 .172555 .166495 .160634 .154967 .149488 .144191 .139071 .134121 .129337
17.................................................. .160582 .154609 .148846 .143286 .137921 .132746 .127754 .122939 .118295 .113817
18.................................................. .144203 .138530 .133069 .127811 .122750 .117878 .113190 .108678 .104336 .100159
19.................................................. .129494 .124123 .118963 .114007 .109247 .104676 .100286 .096071 .092024 .088140
20.................................................. .116286 .111214 .106353 .101694 .097230 .092952 .088853 .084927 .081166 .077563
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table D--Showing the Present Worth of a Remainder Interest Postponed for a Term Certain in a Charitable Remainder Unitrust
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Years ---------------------------------------------------------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0% 13.2% 13.4% 13.6% 13.8% 14.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... .878000 .876000 .874000 .872000 .870000 .868000 .866000 .864000 .862000 .860000
2................................................... .770884 .767376 .763876 .760384 .756900 .753424 .749956 .746496 .743044 .739600
3................................................... .676836 .672221 .667628 .663055 .658503 .653972 .649462 .644973 .640504 .636056
4................................................... .594262 .588866 .583507 .578184 .572898 .567648 .562434 .557256 .552114 .547008
5................................................... .521762 .515847 .509985 .504176 .498421 .492718 .487068 .481469 .475923 .470427
6................................................... .458107 .451882 .445727 .439642 .433626 .427679 .421801 .415990 .410245 .404567
7................................................... .402218 .395848 .389565 .383368 .377255 .371226 .365279 .359415 .353631 .347928
8................................................... .353147 .346763 .340480 .334297 .328212 .322224 .316332 .310535 .304830 .299218
9................................................... .310063 .303764 .297579 .291507 .285544 .279690 .273944 .268302 .262764 .257327
10.................................................. .272236 .266098 .260084 .254194 .248423 .242771 .237235 .231813 .226502 .221302
11.................................................. .239023 .233102 .227314 .221657 .216128 .210725 .205446 .200286 .195245 .190319
12.................................................. .209862 .204197 .198672 .193285 .188032 .182910 .177916 .173047 .168301 .163675
13.................................................. .184259 .178877 .173640 .168544 .163588 .158766 .154075 .149513 .145076 .140760
14.................................................. .161779 .156696 .151761 .146971 .142321 .137809 .133429 .129179 .125055 .121054
15.................................................. .142042 .137266 .132639 .128158 .123819 .119618 .115550 .111611 .107798 .104106
16.................................................. .124713 .120245 .115927 .111754 .107723 .103828 .100066 .096432 .092922 .089531
17.................................................. .109498 .105334 .101320 .097450 .093719 .090123 .086657 .083317 .080098 .076997
18.................................................. .096139 .092273 .088554 .084976 .081535 .078227 .075045 .071986 .069045 .066217
19.................................................. .084410 .080831 .077396 .074099 .070936 .067901 .064989 .062196 .059517 .056947
20.................................................. .074112 .070808 .067644 .064614 .061714 .058938 .056280 .053737 .051303 .048974
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 181]]
Table F(4.2)--With Interest at 4.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .989820 .984755 .981389
1 2 .996577 .986432 .981385 .978030
2 3 .993166 .983056 .978026
3 4 .989767 .979691 .974679
4 5 .986380 .976338
5 6 .983004 .972996
6 7 .979639 .969666
7 8 .976286
8 9 .972945
9 10 .969615
10 11 .966296
11 12 .962989
12 ........................ .959693
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(4.4)--With Interest at 4.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .989350 .984054 .980533
1 2 .996418 .985806 .980529 .977021
2 3 .992849 .982275 .977017
3 4 .989293 .978757 .973517
4 5 .985749 .975251
5 6 .982219 .971758
6 7 .978700 .968277
7 8 .975195
8 9 .971702
9 10 .968221
10 11 .964753
11 12 .961298
12 ........................ .957854
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(4.6)--With Interest at 4.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .988882 .983354 .979680
1 2 .996259 .985183 .979676 .976015
2 3 .992532 .981498 .976011
3 4 .988820 .977826 .972360
4 5 .985121 .974168
5 6 .981436 .970524
6 7 .977764 .966894
7 8 .974107
8 9 .970463
9 10 .966832
10 11 .963216
11 12 .959613
12 ........................ .956023
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 182]]
Table F(4.8)--With Interest at 4.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .988415 .982657 .978830
1 2 .996101 .984561 .978825 .975013
2 3 .992217 .980722 .975008
3 4 .988348 .976898 .971206
4 5 .984494 .973089
5 6 .980655 .969294
6 7 .976831 .965515
7 8 .973022
8 9 .969228
9 10 .965448
10 11 .961684
11 12 .957934
12 ........................ .954198
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(5.0)--With Interest at 5.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .987950 .981961 .977982
1 2 .995942 .983941 .977977 .974014
2 3 .991901 .979949 .974009
3 4 .987877 .975973 .970057
4 5 .983868 .972013
5 6 .979876 .968069
6 7 .975900 .964141
7 8 .971940
8 9 .967997
9 10 .964069
10 11 .960157
11 12 .956261
12 ........................ .952381
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(5.2)--With Interest at 5.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .987486 .981268 .977137
1 2 .995784 .983323 .977132 .973018
2 3 .991587 .979178 .973012
3 4 .987407 .975050 .968911
4 5 .983244 .970940
5 6 .979099 .966847
6 7 .974972 .962771
7 8 .970862
8 9 .966769
9 10 .962694
10 11 .958636
11 12 .954594
12 ........................ .950570
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 183]]
Table F(5.4)--With Interest at 5.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .987023 .980577 .976295
1 2 .995627 .982707 .976289 .972026
2 3 .991273 .978409 .972019
3 4 .986938 .974131 .967769
4 5 .982622 .969871
5 6 .978325 .965629
6 7 .974047 .961407
7 8 .969787
8 9 .965546
9 10 .961323
10 11 .957119
11 12 .952934
12 ........................ .948767
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(5.6)--With Interest at 5.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .986562 .979888 .975455
1 2 .995470 .982092 .975449 .971036
2 3 .990960 .977643 .971029
3 4 .986470 .973214 .966630
4 5 .982001 .968805
5 6 .977552 .964416
6 7 .973124 .960047
7 8 .968715
8 9 .964326
9 10 .959958
10 11 .955609
11 12 .951279
12 ........................ .946970
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(5.8)--With Interest at 5.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .986102 .979201 .974618
1 2 .995313 .981480 .974611 .970050
2 3 .990647 .976879 .970043
3 4 .986004 .972300 .965496
4 5 .981382 .967743
5 6 .976782 .963206
6 7 .972203 .958692
7 8 .967646
8 9 .963111
9 10 .958596
10 11 .954103
11 12 .949631
12 ........................ .945180
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 184]]
Table F(6.0)--With Interest at 6.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .985643 .978516 .973784
1 2 .995156 .980869 .973776 .969067
2 3 .990336 .976117 .969059
3 4 .985538 .971389 .964365
4 5 .980764 .966684
5 6 .976014 .962001
6 7 .971286 .957341
7 8 .966581
8 9 .961899
9 10 .957239
10 11 .952603
11 12 .947988
12 ........................ .943396
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(6.2)--With Interest at 6.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .985185 .977833 .972952
1 2 .995000 .980259 .972944 .968087
2 3 .990024 .975358 .968079
3 4 .985074 .970481 .963238
4 5 .980148 .965628
5 6 .975247 .960799
6 7 .970371 .955995
7 8 .965519
8 9 .960691
9 10 .955887
10 11 .951107
11 12 .946352
12 ........................ .941620
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(6.4)--With Interest at 6.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .984729 .977152 .972122
1 2 .994844 .979652 .972114 .967110
2 3 .989714 .974600 .967101
3 4 .984611 .969575 .962115
4 5 .979534 .964576
5 6 .974483 .959602
6 7 .969458 .954654
7 8 .964460
8 9 .959487
9 10 .954539
10 11 .949617
11 12 .944721
[[Page 185]]
12 ........................ .939850
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(6.6)--With Interest at 6.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .984274 .976473 .971295
1 2 .994688 .979046 .971286 .966136
2 3 .989404 .973845 .966127
3 4 .984149 .968672 .960995
4 5 .978921 .963527
5 6 .973721 .958408
6 7 .968549 .953317
7 8 .963404
8 9 .958286
9 10 .953196
10 11 .948132
11 12 .943096
12 ........................ .938086
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(6.8)--With Interest at 6.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .983821 .975796 .970471
1 2 .994533 .978442 .970461 .965165
2 3 .989095 .973092 .965156
3 4 .983688 .967772 .959879
4 5 .978309 .962481
5 6 .972961 .957219
6 7 .967641 .951985
7 8 .962351
8 9 .957089
9 10 .951857
10 11 .946653
11 12 .941477
12 ........................ .936330
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 186]]
Table F(7.0)--With Interest at 7.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .983368 .975122 .969649
1 2 .994378 .977839 .969639 .964198
2 3 .988787 .972342 .964187
3 4 .983228 .966875 .958766
4 5 .977700 .961439
5 6 .972203 .956033
6 7 .966736 .950658
7 8 .961301
8 9 .955896
9 10 .950522
10 11 .945178
11 12 .939864
12 ........................ .934579
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(7.2)--With Interest at 7.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .982917 .974449 .968830
1 2 .994223 .977239 .968819 .963233
2 3 .988479 .971593 .963222
3 4 .982769 .965980 .957658
4 5 .977091 .960400
5 6 .971446 .954851
6 7 .965834 .949335
7 8 .960255
8 9 .954707
9 10 .949192
10 11 .943708
11 12 .938256
12 ........................ .932836
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(7.4)--With Interest at 7.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .982467 .973778 .968013
1 2 .994068 .976640 .968002 .962271
2 3 .988172 .970847 .962260
3 4 .982311 .965088 .956552
4 5 .976484 .959364
5 6 .970692 .953673
6 7 .964935 .948017
7 8 .959211
8 9 .953521
9 10 .947866
10 11 .942243
11 12 .936654
[[Page 187]]
12 ........................ .931099
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(7.6)--With Interest at 7.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .982019 .973109 .967199
1 2 .993914 .976042 .967187 .961313
2 3 .987866 .970103 .961301
3 4 .981854 .964199 .955451
4 5 .975879 .958331
5 6 .969940 .952499
6 7 .964037 .946703
7 8 .958171
8 9 .952340
9 10 .946544
10 11 .940784
11 12 .935058
12 ........................ .929368
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(7.8)--With Interest at 7.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.0000000 .981571 .972442 .966387
1 2 .993761 .975447 .966374 .960357
2 3 .987560 .969361 .960345
3 4 .981398 .963312 .954353
4 5 .975275 .957302
5 6 .969190 .951329
6 7 .963143 .945393
7 8 .957133
8 9 .951161
9 10 .945227
10 11 .939329
11 12 .933468
12 ........................ .927644
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 188]]
Table F(8.0)--With Interest at 8.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .981125 .971777 .965578
1 2 .993607 .974853 .965564 .959405
2 3 .987255 .968621 .959392
3 4 980944 .962429 .953258
4 5 .974673 .956276
5 6 .968442 .950162
6 7 .962250 .944088
7 8 .956099
8 9 .949987
9 10 .943913
10 11 .937879
11 12 .931883
12 ........................ .925926
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(8.2)--With Interest at 8.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .980680 .971114 .964771
1 2 .993454 .974261 .964757 .958455
2 3 .986951 .967883 .958441
3 4 .980490 .961547 .952167
4 5 .974072 .955253
5 6 .967695 .949000
6 7 .961361 .942788
7 8 .955068
8 9 .948816
9 10 .942605
10 11 .936434
11 12 .930304
12 ........................ .924214
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(8.2)--With Interest at 8.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .980237 .970453 .963966
1 2 .993301 .973670 .963952 .957509
2 3 .986647 .967148 .957494
3 4 .980037 .960669 .951080
4 5 .973472 .954233
5 6 .966951 .947841
6 7 .960473 .941491
7 8 .954039
8 9 .947648
9 10 .941300
10 11 .934994
11 12 .928731
12 ........................ .922509
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 189]]
Table F(8.6)--With Interest at 8.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .979794 .969794 .963164
1 2 .993148 .973081 .963149 .956565
2 3 .986344 .966414 .956550
3 4 .979586 .959793 .949996
4 5 .972874 .953217
5 6 .966209 .946686
6 7 .959589 .940199
7 8 .953014
8 9 .946484
9 10 .940000
10 11 .933559
11 12 .927163
12 ........................ .920810
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(8.8)--With Interest at 8.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .979353 .969136 .962364
1 2 .992996 .972494 .962349 .955624
2 3 .986041 .965683 .955609
3 4 .979135 .958919 .948916
4 5 .972278 .952203
5 6 .965468 .945534
6 7 .958706 .938912
7 8 .951992
8 9 .945324
9 10 .938703
10 11 .932129
11 12 .925600
12 ........................ .919118
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(9.0)--With Interest at 9.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .978913 .968481 .961567
1 2 .992844 .971908 .961551 .954686
2 3 .985740 .964954 .954670
3 4 .978686 .958049 .947839
4 5 .971683 .951193
5 6 .964730 .944387
6 7 .957826 .937629
7 8 .950972
8 9 .944167
9 10 .937411
10 11 .930703
11 12 .924043
12 ........................ .917431
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 190]]
Table F(9.2)--With Interest at 9.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .978474 .967827 .960772
1 2 .992693 .971324 .960755 .953752
2 3 .985439 .964226 .953734
3 4 .978238 .957180 .946765
4 5 .971089 .950186
5 6 .963993 .943242
6 7 .956949 .936350
7 8 .949956
8 9 .943014
9 10 .936123
10 11 .929283
11 12 .922492
12 ........................ .915751
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(9.4)--With Interest at 9.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .978037 .967176 .959980
1 2 .992541 .970742 .959962 .952820
2 3 .985138 .963501 .952802
3 4 .977790 .956315 .945695
4 5 .970497 .949182
5 6 .963258 .942102
6 7 .956074 .935075
7 8 .948942
8 9 .941865
9 10 .934839
10 11 .927867
11 12 .920946
12 ........................ .914077
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(9.6)--With Interest at 9.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .977600 .966526 .959190
1 2 .992390 .970161 .959171 .951890
2 3 .984838 .962778 .951872
3 4 .977344 .955452 .944628
4 5 .969906 .948181
5 6 .962526 .940965
6 7 .955201 .933805
7 8 .947932
8 9 .940718
9 10 .933560
10 11 .926455
11 12 .919405
12 ........................ .912409
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 191]]
Table F(9.8)--With Interest at 9.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .977165 .965878 .958402
1 2 .992239 .969582 .958382 .950964
2 3 .984539 .962057 .950945
3 4 .976898 .954591 .943565
4 5 .969317 .947183
5 6 .961795 .939832
6 7 .954331 .932539
7 8 .946924
8 9 .939576
9 10 .932284
10 11 .925049
11 12 .917870
12 ........................ .910747
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(10.0)--With Interest at 10.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .976731 .965232 .957616
1 2 .992089 .969004 .957596 .950041
2 3 .984240 .961338 .950021
3 4 .976454 .953733 .942505
4 5 .968729 .946188
5 6 .961066 .938703
6 7 .953463 .931277
7 8 .945920
8 9 .938436
9 10 .931012
10 11 .923647
11 12 .916340
12 ........................ .909091
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(10.2)--With Interest at 10.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .976298 .964588 .956833
1 2 .991939 .968428 .956812 .949120
2 3 .983943 .960622 .949099
3 4 .976011 .952878 .941448
4 5 .968143 .945196
5 6 .960338 .937577
6 7 .952597 .930019
7 8 .944918
8 9 .937301
9 10 .929745
10 11 .922250
11 12 .914816
12 ........................ .907441
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 192]]
Table F(10.4)--With Interest at 10.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .975867 .963946 .956052
1 2 .991789 .967854 .956031 .948202
2 3 .983645 .959907 .948181
3 4 .975568 .952025 .940395
4 5 .967558 .944208
5 6 .959613 .936455
6 7 .951734 .928765
7 8 .943919
8 9 .936168
9 10 .928481
10 11 .920858
11 12 .913296
12 ........................ .905797
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(10.6)--With Interest at 10.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .975436 .963305 .955274
1 2 .991639 .967281 .955252 .947287
2 3 .983349 .959194 .947265
3 4 .975127 .951174 .939345
4 5 .966974 .943222
5 6 .958890 .935336
6 7 .950873 .927516
7 8 .942923
8 9 .935039
9 10 .927222
10 11 .919470
11 12 .911782
12 ........................ .904159
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(10.8)--With Interest at 10.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .975007 .962667 .954498
1 2 .991490 .966710 .954475 .946375
2 3 .983052 .958483 .946352
3 4 .974687 .950327 .938299
4 5 .966392 .942239
5 6 .958168 .934221
6 7 .950014 .926271
7 8 .941930
8 9 .933914
9 10 .925966
10 11 .918086
11 12 .910273
12 ........................ .902527
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 193]]
Table F(11.0)--With Interest at 11.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .974579 .962030 .953724
1 2 .991341 .966140 .953700 .945466
2 3 .982757 .957774 .945442
3 4 .974247 .949481 .937255
4 5 .965811 .941260
5 6 .957449 .933109
6 7 .949158 .925029
7 8 .940939
8 9 .932792
9 10 .924715
10 11 .916708
11 12 .908770
12 ........................ .900901
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(11.2)--With Interest at 11.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .974152 .961395 .952952
1 2 .991192 .965572 .952927 .944559
2 3 .982462 .957068 .944534
3 4 .973809 .948638 .936215
4 5 .965232 .940283
5 6 .956731 .932001
6 7 .948304 .923792
7 8 .939952
8 9 .931673
9 10 .923467
10 11 .915333
11 12 .907272
12 ........................ .899281
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(11.4)--With Interest at 11.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .973726 .960762 .952183
1 2 .991044 .965005 .952157 .943655
2 3 .982168 .956363 .943630
3 4 .973372 .947798 .935178
4 5 .964654 .939309
5 6 .956015 .930896
6 7 .947452 .922559
7 8 .938967
8 9 .930557
9 10 .922223
10 11 .913964
11 12 .905778
12 ........................ .897666
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 194]]
Table F(11.6)--With Interest at 11.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .973302 .960130 .951416
1 2 .990896 .964440 .951389 .942754
2 3 .981874 .955660 .942728
3 4 .972935 .946959 .934145
4 5 .964077 .938338
5 6 .955300 .929795
6 7 .946603 .921330
7 8 .937985
8 9 .929445
9 10 .920984
10 11 .912599
11 12 .904290
12 ........................ .896057
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(11.8)--With Interest at 11.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .972878 .959501 .950651
1 2 .990748 .963877 .950624 .941855
2 3 .981582 .954959 .941828
3 4 .972500 .946124 .933114
4 5 .963502 .937370
5 6 .954588 .928698
6 7 .945756 .920105
7 8 .937006
8 9 .928337
9 10 .919748
10 11 .911238
11 12 .902807
12 ........................ .894454
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(12.0)--With Interest at 12.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .972456 .958873 .949888
1 2 .990600 .963315 .949860 .940960
2 3 .981289 .954260 .940932
3 4 .972065 .945290 .932087
4 5 .962928 .936405
5 6 .953877 .927603
6 7 .944911 .918884
7 8 .936029
8 9 .927231
9 10 .918515
10 11 .909882
11 12 .901329
12 ........................ .892857
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 195]]
Table F(12.2)--With Interest at 12.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .972034 .958247 .949128
1 2 .990453 .962754 .949099 .940067
2 3 .980997 .953563 .940038
3 4 .971632 .944460 .931063
4 5 .962356 .935443
5 6 .953168 .926512
6 7 .944069 .917667
7 8 .935056
8 9 .926129
9 10 .917287
10 11 .908530
11 12 .899856
12 ........................ .891266
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(12.4)--With Interest at 12.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .971614 .957623 .948370
1 2 .990306 .962195 .948340 .939176
2 3 .980706 .952868 .939147
3 4 .971199 .943631 .930043
4 5 .961785 .934484
5 6 .952461 .925425
6 7 .943228 .916454
7 8 .934085
8 9 .925030
9 10 .916063
10 11 .907183
11 12 .898389
12 ........................ .889680
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(12.6)--With Interest at 12.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least but less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .971195 .957000 .947614
1 2 .990159 .961638 .947583 .938289
2 3 .980416 .952175 .938258
3 4 .970768 .942805 .929025
4 5 .961215 .933527
5 6 .951756 .924341
6 7 .942390 .915245
7 8 .933117
8 9 .923934
9 10 .914842
10 11 .905840
11 12 .896926
[[Page 196]]
12 ........................ .888099
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(12.8)--With Interest at 12.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least but less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .970777 .956379 .946860
1 2 .990013 .961082 .946828 .937403
2 3 .980126 .951484 .937372
3 4 .970337 .941981 .928011
4 5 .960647 .932574
5 6 .951053 .923260
6 7 .941554 .914040
7 8 .932151
8 9 .922842
9 10 .913625
10 11 .904501
11 12 .895468
12 ........................ .886525
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(13.0)--With Interest at 13.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .970360 .955760 .946108
1 2 .989867 .960528 .946075 .936521
2 3 .979836 .950795 .936489
3 4 .969908 .941160 .926999
4 5 .960079 .931623
5 6 .950351 .922183
6 7 .940721 .912838
7 8 .931188
8 9 .921753
9 10 .912412
10 11 .903167
11 12 .894015
12 ........................ .884956
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 197]]
Table F(13.2)--With Interest at 13.2 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .969945 .955143 .945359
1 2 .989721 .959975 .945325 .935641
2 3 .979548 .950107 .935608
3 4 .969479 .940341 .925991
4 5 .959514 .930675
5 6 .949651 .921109
6 7 .939889 .911641
7 8 .930228
8 9 .920667
9 10 .911203
10 11 .901837
11 12 .892567
12 ........................ .883392
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(13.4)--With Interest at 13.4 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .969530 .954527 .944611
1 2 .989575 .959423 .944577 .934764
2 3 .979260 .949422 .934730
3 4 .969051 .939524 .924986
4 5 .958949 .929730
5 6 .948953 .920038
6 7 .939060 .910447
7 8 .929271
8 9 .919584
9 10 .909998
10 11 .900511
11 12 .891124
12 ........................ .881834
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(13.6)--With Interest at 13.6 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .969117 .953913 .943866
1 2 .989430 .958873 .943831 .933890
2 3 .978972 .948738 .933854
3 4 .968624 .938710 .923984
4 5 .958386 .928788
5 6 .948256 .918971
6 7 .938233 .909257
7 8 .928316
8 9 .918504
9 10 .908796
10 11 .899190
11 12 .889686
12 ........................ .880282
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 198]]
Table F(13.8)--With Interest at 13.8 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first full taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .968704 .953301 .943123
1 2 .989285 .958325 .943087 .933018
2 3 .978685 .948056 .932982
3 4 .968199 .937898 .922985
4 5 .957824 .927849
5 6 .947561 .917907
6 7 .937408 .908072
7 8 .927364
8 9 .917428
9 10 .907598
10 11 .897873
11 12 .888252
12 ........................ .878735
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table F(14.0)--With Interest at 14.0 Percent, Showing Factors for Computation of the Adjusted Payout Rate for Certain Valuations
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Number of months by which the valuation date for 2 Factors for payout at the end of each period
the first rull taxable year of the trust precedes -----------------------------------------------------------------------------------------------------
the first payout
--------------------------------------------------- Annual period Semiannual period Quarterly period Monthly period
At least But less than
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 1.000000 .968293 .952691 .942382
1 2 .989140 .957778 .942345 .932148
2 3 .978399 .947377 .932111
3 4 .967774 .937088 .921989
4 5 .957264 .926912
5 6 .946868 .916846
6 7 .936586 .906889
7 8 .926415
8 9 .916354
9 10 .906403
10 11 .896560
11 12 .886824
12 ........................ .877193
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) Actuarial Table U(1) for transfers for which the valuation date
is on or after May 1, 2009. For transfers for which the valuation date
is on or after May 1, 2009, the present value of a charitable remainder
unitrust interest that is dependent on the termination of a life
interest is determined by using the section 7520 rate, Table U(1) in
this paragraph (e)(7) and Table F(4.2) through (14.0) in paragraph
(e)(6) of this section. See, however, Sec. 1.7520-3(b) (relating to
exceptions to the use of prescribed tables under certain circumstances).
Many actuarial factors not contained in the following tables are
contained in Internal Revenue Service Publication 1458, ``Actuarial
Valuations Version 3B'' (2009). This publication is available, at no
charge, electronically via the IRS Internet site at http://www.irs.gov.
[[Page 199]]
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(f) Effective/applicability date. This section applies on and after
May 1, 2009.
[T.D. 8540, 59 FR 30117, June 10, 1994, as amended by T.D. 8819, 64 FR
23199, Apr. 30, 1999; T.D. 8886, 65 FR 36919, 36943, June 12, 2000; T.D.
9448, 74 FR 21465, May 7, 2009; T.D. 9540, 76 FR 49595, Aug. 10, 2011]
treatment of excess distributions of trusts applicable to taxable years
beginning before january 1, 1969
Sec. 1.665(a)-0 Excess distributions by trusts; scope of subpart D.
Subpart D (section 665 and following), part I, subchapter J, chapter
1 of the Internal Revenue Code, in the case of trusts other than foreign
trusts created by U.S. persons, is designed generally to prevent a shift
of tax burden to a trust from a beneficiary or beneficiaries. In the
case of a foreign trust created by a U.S. person, subpart D is designed
to prevent certain other tax avoidance possibilities. To accomplish
these ends, subpart D provides special rules for treatment of amounts
paid, credited, or required to be distributed by a complex trust
(subject to subpart C (section 661 and following) of such part I) in any
year in excess of distributable net income for that year. Such an excess
distribution is defined as an accumulation distribution, subject to the
limitations in section 665 (b) or (c). An accumulation distribution, in
the case of a trust other than a foreign trust created by a U.S. person,
is ``thrown back'' to each of the 5 preceding years in inverse order. In
the case of a foreign trust created by a U.S. person such an
accumulation distribution is ``thrown back,'' in inverse order, to each
of the preceding years to which the Internal Revenue Code of 1954
applies. That is, an accumulation distribution will be taxed to the
beneficiaries of the trust in the year the distribution is made or
required, but, in general, only to the extent of the distributable net
income of those years which was not in fact distributed. However, with
respect to a distribution by a trust other than a foreign trust created
by a U.S. person, the resulting tax will not be greater than the
aggregate of the taxes that would have been attributable to the amount
thrown back to previous years had they been included in gross income of
the beneficiaries in those years. In the case of a foreign trust created
by a U.S. person, the resulting tax is computed under the provisions of
section 669. To prevent double taxation, both in the case of a foreign
trust created by a U.S. person, and a trust other than a foreign trust
created by a U.S. person, the beneficiaries receive a credit for any
taxes previously paid by the trust which are attributable to the excess
thrown back and which are creditable under the provisions of chapter 1
of the Internal Revenue Code. Subpart D does not apply to any estate.
[T.D. 6989, 34 FR 733, Jan. 17, 1969]
Sec. 1.665(a)-1 Undistributed net income.
(a) The term undistributed net income means for any taxable year the
distributable net income of the trust for that year as determined under
section 643(a), less:
(1) The amount of income required to be distributed currently and
any other amounts properly paid or credited or required to be
distributed to beneficiaries in the taxable year as specified in
paragraphs (1) and (2) of section 661(a), and
(2) The amount of taxes imposed on the trust, as defined in Sec.
1.665(d)-1.
The application of the rule in this paragraph to the first year of a
trust in which income is accumulated may be illustrated by the following
example:
Example. Assume that under the terms of the trust, $10,000 of income
is required to be distributed currently to A and the trustee has
discretion to make additional distributions to A. During the taxable
year 1954 the trust had distributable net income of $30,100 derived from
royalties and the trustee made distributions of $20,000 to A. The
taxable income of the trust is $10,000 on which a tax of $2,640 is paid.
The undistributed net income of the trust as of the close of the taxable
year 1954 is $7,460 computed as follows:
Distributable net income..................................... $30,100
Less:
Income currently distributable to A............. $10,000
Other amounts distributed to A.................. 10,000
Taxes imposed on the trust (see Sec. 1.665(d)- 2,640
1).............................................
-----------
22,640
------------
Undistributed net income................................. 7,460
[[Page 215]]
See also paragraphs (e)(1) and (f)(1) of Sec. 1.668(b)-2 for additional
illustrations of the application of the rule in this paragraph to the
first year of a trust in which income is accumulated.
(b) The undistributed net income of a foreign trust created by a
U.S. person for any taxable year is the distributable net income of such
trust (see Sec. 1.643(a)-6 and the examples set forth in paragraph (b)
thereof), less:
(1) The amount of income required to be distributed currently and
any other amounts properly paid or credited or required to be
distributed to beneficiaries in the taxable year as specified in
paragraphs (1) and (2) of section 661(a), and
(2) The amount of taxes imposed on such trust by chapter 1 of the
Internal Revenue Code, which are attributable to items of income which
are required to be included in such distributable net income. For
purposes of subparagraph (2) of this paragraph, the amount of taxes
imposed on the trust (for any taxable year), by chapter 1 of the
Internal Revenue Code is the amount of taxes imposed pursuant to the
provisions of section 871 which is properly allocable to the
undistributed portion of the distributable net income. See Sec.
1.665(d)-1. The amount of taxes imposed pursuant to the provisions of
section 871 is the difference between the total tax imposed pursuant to
the provisions of that section on the foreign trust created by a U.S.
person for the year and the amount which would have been imposed on such
trust had all the distributable net income, as determined under section
643(a), been distributed. The application of the rule in this paragraph
may be illustrated by the following examples:
Example 1. A trust was created in 1952 under the laws of Country X
by the transfer to a trustee in Country X of money or property by a U.S.
person. The entire trust constitutes a foreign trust created by a U.S.
person. The governing instrument of the trust provides that $7,000 of
income is required to be distributed currently to a U.S. beneficiary and
gives the trustee discretion to make additional distributions to the
beneficiary. During the taxable year 1963 the trust had income of
$10,000 from dividends of a U.S. corporation (on which Federal income
taxes of $3,000 were imposed pursuant to the provisions of section 871
and withheld under section 1441 resulting in the receipt by the trust of
cash in the amount of $7,000), $20,000 in capital gains from the sale of
stock of a Country Y corporation, and $30,000 from dividends of a
Country X corporation, none of the gross income of which was derived
from sources within the United States. The trustee did not file a U.S.
income tax return for the taxable year 1963. The distributable net
income of the trust before distributions to the beneficiary for 1963 is
$60,000 ($57,000 of which is cash). During 1963 the trustee made
distributions to the U.S. beneficiary equaling one-half of the trust's
distributable net income or $30,000. Thus, the U.S. beneficiary is
treated as having had distributed to him $5,000 (composed of $3,500 as a
cash distribution and $1,500 as the tax imposed pursuant to the
provisions of section 871 and withheld under section 1441), representing
one-half of the income from U.S. sources; $10,000 in cash, representing
one-half of the capital gains from the sale of stock of the Country Y
corporation; and $15,000 in cash, representing one-half of the income
from Country X sources for a total of $30,000. The undistributed net
income of the trust at the close of taxable year 1963 is $28,500
computed as follows:
Distributable net income..................................... $60,000
Less:
(1) Amounts distributed to the beneficiary--....
Income currently distributed to the beneficiary. $7,000
Other amounts distributed to the beneficiary.... 21,500
Taxes under sec. 871 deemed distributed to the 1,500
beneficiary....................................
-----------
Total amounts distributed to the beneficiary.. 30,000
(2) Amount of taxes imposed on the trust under 1,500
chapter 1 of the Code (See Sec. 1.665(d)-1)..
-----------
Total.................................................... 31,500
------------
Undistributed net income................................. 28,500
Example 2. The facts are the same as in example 1 except that
property has been transferred to the trust by a person other than a U.S.
person, and during 1963 the foreign trust created by a U.S. person was
60 percent of the entire foreign trust. The trustee paid no income taxes
to Country X in 1963.
(1) The undistributed net income of the foreign trust created by a
U.S. person for 1963 is $17,100, computed as follows:
Distributable net income (60% of each item of gross income of
entire trust):
60% of $10,000 U.S. dividends.............................. $6,000
60% of $20,000 Country X capital gains..................... 12,000
60% of $30,000 Country X dividends......................... 18,000
------------
Total.................................................... 36,000
[[Page 216]]
Less:
(i) Amounts distributed to the beneficiary--
Income currently distributed to the beneficiary $4,200
(60% of $7,000)................................
Other amounts distributed to the beneficiary 12,900
(60% of $21,500)...............................
Taxes under sec. 871 deemed distributed to the 900
beneficiary (60% of $1,500)....................
-----------
Total amounts distributed to the beneficiary.. 18,000
(ii) Amount of taxes imposed on the trust under $900
chapter 1 of the Code (See Sec. 1.665(d)-1)
(60% of $1,500)................................
----------
Total.................................................... $18,900
------------
Undistributed net income................................. 17,100
(2) The undistributed net income of the portion of the entire trust
which is not a foreign trust created by a U.S. person for 1963 is
$11,400, computed as follows:
Distributed net income (40% of each item of gross income of
entire trust)
40% of $10,000 U.S. dividends.............................. $4,000
40% of $20,000 Country X capital gains..................... 8,000
40% of Country X dividends................................. 12,000
------------
Total.................................................... 24,000
Less:
(i) Amounts distributed to the beneficiary--
Income currently distributed to the beneficiary $2,800
(40% of $7,000)................................
Other amounts distributed to the beneficiary 8,600
(40% of $21,500)...............................
Taxes under sec. 871 deemed distributed to the 600
beneficiary (40% of $1,500)....................
-----------
Total amounts distributed to the beneficiary.. 12,000
(ii) Amount of taxes imposed on the trust under $600
chapter 1 of the Code (See Sec. 1.665(d)-1)
(40% of $1,500)................................
-----------
Total.................................................... $12,600
------------
Undistributed net income................................. 11,400
(c) However, the undistributed net income for any year to which an
accumulation distribution for a later year may be thrown back may be
reduced by accumulation distributions in intervening years and also by
any taxes imposed on the trust which are deemed to be distributed under
section 666 by reason of the accumulation distributions. On the other
hand, undistributed net income for any year will not be reduced by any
distributions in an intervening year which are excluded from the
definition of an accumulation distribution under section 665(b), or
which are excluded under section 663(a)(1), relating to gifts, bequests,
etc. See paragraph (f)(5) of Sec. 1.668(b)-2 for an illustration of the
reduction of undistributed net income for any year by a subsequent
accumulation distribution.
[T.D. 6989, 34 FR 733, 741, Jan. 17, 1969]
Sec. 1.665(b)-1 Accumulation distributions of trusts other than
certain foreign trusts; in general.
(a) Subject to the limitations set forth in Sec. 1.665(b)-2, in the
case of a trust other than a foreign trust created by a U.S. person, the
term accumulation distribution for any taxable year means an amount (if
in excess of $2,000), by which the amounts properly paid, credited, or
required to be distributed within the meaning of section 661(a)(2) for
that year exceed the distributable net income (determined under section
643(a)) of the trust, reduced (but not below zero) by the amount of
income required to be distributed currently. (In computing the amount of
an accumulation distribution pursuant to the preceding sentence, there
is taken into account amounts applied or distributed for the support of
a dependent under the circumstances specified in section 677(b) or
section 678(c) out of corpus or out of other than income for the taxable
year and amounts used to discharge or satisfy any person's legal
obligation as that term is used in Sec. 1.662(a)-4.) If the
distribution as so computed is $2,000 or less, it is not an accumulation
distribution within the meaning of subpart D (section 665 and
following), part I, subchapter J, chapter 1 of the Code. If the
distribution exceeds $2,000, then the full amount is an accumulation
distribution for the purposes of subpart D.
(b) Although amounts properly paid, credited, or required to be
distributed under section 661(a)(2) do not exceed the income of the
trust during the taxable year, an accumulation distribution may result
if such amounts exceed distributable net income reduced (but not below
zero) by the amount required to be distributed currently. This may
result from the fact that expenses allocable to corpus are taken into
account in determining taxable income and hence distributable net
income. However, in the case of a trust other than
[[Page 217]]
a foreign trust created by a U.S. person, the provisions of subpart D
will not apply unless there is undistributed net income in at least one
of the five preceding taxable years. See section 666 and the regulations
thereunder.
(c) The provisions of paragraphs (a) and (b) of this section may be
illustrated by the following examples (it is assumed in each case that
the exclusions provided in Sec. 1.665(b)-2 do not apply):
Example 1. A trustee properly makes a distribution to a beneficiary
of $20,000 during the taxable year 1956, of which $10,000 is income
required to be distributed currently to the beneficiary. The
distributable net income of the trust is $15,000. There is an
accumulation distribution of $5,000 computed as follows:
Total distribution........................................... $20,000
Less: Income required to be distributed currently (section 10,000
661(a)(1))..................................................
------------
Other amounts distributed (section 661(a)(2))............ 10,000
Distributable net income.......................... $15,000
Less: Income required to be distributed currently. 10,000
-----------
Balance of distributable net income.......................... 5,000
------------
Accumulation distribution................................ 5,000
Example 2. Under the terms of the trust instrument, an annuity of
$15,000 is required to be paid to A out of income each year and the
trustee may in his discretion make distributions out of income or corpus
to B. During the taxable year the trust had income of $18,000, as
defined in section 643(b), and expenses allocable to corpus of $5,000.
Distributable net income amounted to $13,000. The trustee distributed
$15,000 of income to A and in the exercise of his discretion, paid
$5,000 to B. There is an accumulation distribution of $5,000 computed as
follows:
Total distribution........................................... $20,000
Less: Income required to be distributed currently to A 15,000
(section 661(a)(1)).........................................
------------
Other amounts distributed (section 661(a)(2))............ 5,000
Distributable net income.......................... $13,000
Less: Income required to be distributed currently 15,000
to A.............................................
-----------
Balance of distributable net income.......................... 0
------------
Accumulation distribution to B........................... 5,000
Example 3. Under the terms of a trust instrument, the trustee may
either accumulate the trust income or make distributions to A and B. The
trustee may also invade corpus for the benefit of A and B. During the
taxable year, the trust had income as defined in section 643(b) of
$22,000 and expenses of $5,000 allocable to corpus. Distributable net
income amounts to $17,000. The trustee distributed $10,000 each to A and
B during the taxable year. There is an accumulation distribution of
$3,000 computed as follows:
Total distribution........................................... $20,000
Less: income required to be distributed currently............ 0
------------
Other amounts distributed (section 661(a)(2))............ 20,000
Distributable net income..................................... 17,000
------------
Accumulation distribution................................ 3,000
(d) There are not taken into account, in computing the accumulation
distribution for any taxable year, any amounts deemed distributed in
that year because of an accumulation distribution in a later year.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
734, Jan. 17, 1969]
Sec. 1.665(b)-2 Exclusions from accumulation distributions in the case
of trusts (other than a foreign trust created by a U.S.
person).
(a) In the case of a trust other than a foreign trust created by a
U.S. person, certain amounts paid, credited, or required to be
distributed to a beneficiary are excluded under section 665(b) in
determining whether there is an accumulation distribution for the
purposes of subpart D (section 665 and following), part I, subchapter J,
chapter 1 of the Code. These exclusions are solely for the purpose of
determining the amount allocable to preceding years under section 666
and in no way affect the determination under subpart C (section 661 and
following) of such part I of the beneficiary's tax liability for the
year of distribution. Further, amounts excluded from accumulation
distributions do not reduce the amount of undistributed net income for
the 5 years preceding the year of distribution.
(b) The amounts excluded from the computation of an accumulation
distribution are discussed in the following subparagraphs:
(1) Distributions from accumulations while a beneficiary is under
21. (i) The first exception to the definition of an accumulation
distribution is for amounts paid, credited, or required to be
distributed to a beneficiary who was under 21 years of age or unborn
when it was accumulated. A distribution is to be considered as so paid,
credited, or
[[Page 218]]
required to be distributed to the extent, and only to the extent, that
there is no undistributed net income for taxable years preceding the
year of distribution other than undistributed net income accumulated
while the beneficiary was under 21. If a distribution can be made from
income accumulated either before or after a beneficiary reaches 21, it
will be considered as made from the most recently accumulated income,
and it will be so considered even though the governing instrument
directs that distributions be charged first against the earliest
accumulations.
(ii) As was indicated in paragraph (a) of this section, a
distribution of an amount excepted from the definition of an
accumulation distribution will not reduce undistributed net income for
the purpose of determining the effect of a future accumulation
distribution. Thus, a distribution to a beneficiary of income
accumulated before he reached 21 would not reduce the undistributed net
income includible in a future accumulation distribution to another
beneficiary. However, all future distributions to the same beneficiary,
or to another beneficiary to whom a distribution would be excepted under
the provisions of this subparagraph, would be excepted from the
definition of an accumulation distribution to the extent that they could
not be paid, credited, or required to be distributed from other
accumulated income.
(iii) The following examples illustrate the application of the
foregoing rules of this subparagraph (in each of these examples it is
assumed that the exceptions in section 665(b) (2), (3), and (4) do not
apply):
(a) Income is to be accumulated until A reaches 21 when the corpus
and accumulated income are to be distributed to him. The distribution is
not an accumulation distribution.
(b) Income is to be accumulated until A is 21, when it is to be
distributed to him but the corpus is to remain in trust. A distribution
of the accumulated income to A when he reaches 21 is not an accumulation
distribution.
(c) Income is to be accumulated and added to corpus until A reaches
21, when he is to receive one-third of the corpus (including
accumulations). Thereafter all the income is to be paid to A until he is
23 when the remaining corpus (including accumulations) is to be paid to
him. If A dies under that age any undistributed portion is to be paid to
B. Distributions to A at 21 and 23 out of accumulations are not
accumulation distributions even though they include accumulated income.
However, if A died at the age of 22, when B was 23, a distribution to B
would be an accumulation distribution to the extent of income
accumulations since B reached 21, and the amount of undistributed net
income includible in the distribution will not be reduced by the
previous distribution to A.
(d) Income is to be accumulated and added to corpus until A is 21.
After he is 21, he is entitled to all the income and, in addition, to
distributions of corpus in the discretion of the trustee. When he
reaches 25 he is entitled to the corpus. Distributions to A are not
accumulation distributions, whether they are discretionary or upon
termination of the trust.
(e) The facts are the same as in the preceding example, except that
income is to be accumulated until A is 23. Distributions to A are
accumulation distributions to the extent of income accumulated after A
reached 21.
(f) Income may be distributed among a testator's children or
accumulated and added to corpus until the youngest child is 21, when the
corpus is to be distributed to the testator's then living descendants.
Upon termination of the trust, the corpus is distributed to A, age 21;
B, age 23; and C, the child of a deceased child, age 3. The
distributions to A and C are not accumulation distributions. The
distribution to B is an accumulation distribution to the extent of
income accumulated after he reaches 21. (If the terms of the trust were
such that it was subject to the separate share treatment under section
663(c), the distribution to B would be an accumulation distribution only
to the extent of income accumulated for B's separate share since he
reached 21.)
(g) Income may be distributed to A or accumulated and added to
corpus during A's life. Upon the death of A the corpus is to be
distributed to B. B is 23 at A's death. The distribution is an
accumulation distribution to the extent
[[Page 219]]
of income accumulated since B reached 21.
(2) Emergency distributions. The second exclusion from the
definition of an accumulation distribution is for amounts properly paid
or credited to a beneficiary to meet his emergency needs. Whether or not
a distribution falls within this exclusion depends upon the facts and
circumstances causing the distribution. A distribution based upon an
unforeseen or unforeseeable combination of circumstances requiring
immediate help to the beneficiary would qualify for the exclusion.
However, the beneficiary must be in actual need of the distribution and
the fact that he had other sufficient resources would tend to negate the
conclusion that a distribution was to meet his emergency needs. Ordinary
distributions for the support, maintenance, or education of the
beneficiary would not qualify for the exclusion.
(3) Certain distributions at specified ages. The third exclusion
from the definition of an accumulation distribution is for amounts
properly paid or credited to a beneficiary upon the beneficiary's
attaining a specified age or ages; provided, (i) the total number of
such distributions with respect to that beneficiary cannot exceed 4;
(ii) the period between each such distribution is 4 years or more; and
(iii) on January 1, 1954, such distributions were required by the
specific terms of the governing instrument. Any discretionary invasion
of corpus at other times is not excluded under this subparagraph, but
does not affect the status of distributions that would otherwise be
excluded. If more than four distributions are required to be made to a
particular beneficiary at specified ages if he survives to receive them,
none of the distributions will be excluded, even though the beneficiary
dies before he receives more than four. On the other hand, a direction
to make additional distributions to a remainderman will not affect the
status of distributions required to be made to the primary beneficiary.
For example, a trust agreement provided on January 1, 1954, that when A
reached age 25 he would receive one-eighth of the corpus and accumulated
income, as then constituted, and similar distributions at ages 30, 35,
and 40. It also provided for similar distributions to B after A's death,
and for additional discretionary distributions to both A and B. Required
distributions to both A and B are excluded, regardless of whether
discretionary distributions are made, but discretionary distributions
are not excluded. On the other hand, if an additional distribution to A
was directed when he reached 45, no distributions to him would be
excluded, regardless of when he died.
(4) Certain final distributions. (i) The last exception to the
definition of an accumulation distribution is for amounts properly paid
or credited to a beneficiary as a final distribution of a trust if the
final distribution is made more than 9 years after the date of the last
transfer to such trust.
(ii) The term last transfer to such trust includes only transfers,
whether by the original grantor or by a third person, made with a
donative intent. A transfer arising out of a property right held by the
trust is excluded, such as a transfer by a debtor in satisfaction of his
indebtedness, or a distribution in liquidation or reorganization of a
corporation. If the terms of two or more trusts include cross-remainders
on the deaths of life beneficiaries, the donative transfers occurred at
the time the trusts were created. The addition of the corpus of one
trust to that of another when a remainder falls in is therefore not a
new transfer within the meaning of section 665(b)(4).
(iii) For example, under the terms of a trust created July 1, 1950,
with an original corpus of $100,000, by H for the benefit of his wife,
W, the income of the trust is to be accumulated and added to corpus.
Upon the expiration of a 10-year period, the trust is to terminate and
its assets, including all accumulated income, are to be distributed to
W. No transfers were made by H or other persons to the trust after it
was created. Both the trust and W file returns on the calendar year
basis. In accordance with its terms, the trust terminated on June 30,
1960, and on August 1, 1960, the trustee made a final distribution of
the assets of the trust to W, consisting of investments derived from
$100,000 of donated principal, accumulated income of $30,000
attributable to the period July 1, 1950,
[[Page 220]]
through December 31, 1959, and income of $3,000 attributable to the
period the trust was in existence during 1960. Subpart D is inapplicable
to the $3,000 of income of the trust for 1960 since that amount would be
deductible by the trust and includible in W's gross income for that year
to the extent provided in subpart C. However, the balance of the
distribution will qualify as an exclusion from the provisions of subpart
D.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
735, Jan. 17, 1969]
Sec. 1.665(b)-3 Exclusions under section 663(a)(1).
Subpart D (section 665 and following), part I, subchapter J, chapter
1 of the Code, has no application to an amount which qualifies as an
exclusion under section 663(a)(1), relating to gifts, bequests, etc.
Sec. 1.665(c)-1 Accumulation distributions of certain foreign trusts;
in general.
(a) In the case of a foreign trust created by a U.S. person, the
term accumulation distribution for any taxable year means an amount by
which the amounts properly paid, credited, or required to be distributed
within the meaning of section 661(a)(2) for that year exceed the
distributable net income (determined under section 643(a)) of the trust,
reduced (but not below zero) by the amount of income required to be
distributed currently. (In computing the amount of an accumulation
distribution pursuant to the preceding sentence, there is taken into
account amounts applied or distributed for the support of a dependent
under circumstances specified in section 677(b) and section 678(c) out
of corpus or out of other than income for the taxable year and amounts
used to discharge or satisfy any person's legal obligation as that term
is used in Sec. 1.662(a)-4.)
(b) Although amounts properly paid, credited, or required to be
distributed under section 661(a)(2) do not exceed the income of the
trust during the taxable year, an accumulation distribution may result
if such amounts exceed distributable net income reduced (but not below
zero) by the amount required to be distributed currently. This may
result from the fact that expenses allocable to corpus are taken into
account in determining taxable income and hence distributable net
income. However, the provisions of subpart D will not apply unless there
is undistributed net income in at least one of the preceding taxable
years which began after December 31, 1953, and ended after August 16,
1954. See section 666 and the regulations thereunder.
(c) The provisions of paragraphs (a) and (b) of this section may be
illustrated by the examples provided in paragraph (c) of Sec. 1.665(b)-
1.
[T.D. 6989, 34 FR 735, Jan. 17, 1969]
Sec. 1.665(c)-2 Indirect payments to the beneficiary.
(a) In general. Except as provided in paragraph (b) of this section,
for purposes of section 665 any amount paid to a U.S. person which is
from a payor who is not a U.S. person and which is derived directly or
indirectly from a foreign trust created by a U.S. person shall be deemed
in the year of payment to the U.S. person to have been directly paid to
the U.S. person by the trust. For example, if a nonresident alien
receives a distribution from a foreign trust created by a U.S. person
and then pays the amount of the distribution over to a U.S. person, the
payment of such amount to the U.S. person represents an accumulation
distribution to the U.S. person from the trust to the extent that the
amount received would have been an accumulation distribution had the
trust paid the amount directly to the U.S. person in the year in which
the payment was received by the U.S. person. This section also applies
in a case where a nonresident alien receives indirectly an accumulation
distribution from a foreign trust created by a U.S. person and then pays
it over to a U.S. person. An example of such a transaction is one where
the foreign trust created by a U.S. person makes the distribution to an
intervening foreign trust created by either a U.S. person or a person
other than a U.S. person and the intervening trust distributes the
amount received to a nonresident alien who in turn pays it over to a
U.S. person. Under these circumstances, it is deemed that the payment
received by the U.S. person was
[[Page 221]]
received directly from a foreign trust created by a U.S. person.
(b) Limitation. In the case of a distribution to a beneficiary who
is a U.S. person, paragraph (a) of this section does not apply if the
distribution is received by such beneficiary under circumstances
indicating lack of intent on the part of the parties to circumvent the
purposes for which section 7 of the Revenue Act of 1962 (76 Stat. 985)
was enacted.
[T.D. 6989, 34 FR 735, Jan. 17, 1969]
Sec. 1.665(d)-1 Taxes imposed on the trust.
(a) For the purpose of subpart D (section 665 and following), part
I, subchapter J, chapter 1 of the Code, the term taxes imposed on the
trust means (for any taxable year) the amount of Federal income taxes
which are properly allocable to the undistributed portion of the
distributable net income. This amount is the difference between the
total taxes of the trust for the year and the amount which would have
been paid by the trust had all of the distributable net income, as
determined under section 643(a), been distributed. Thus, in determining
the amount of taxes imposed on the trust for the purposes of subpart D,
there is excluded the portion of the taxes paid by the trust which is
attributable to items of gross income which are not includible in
distributable net income, such as capital gains allocable to corpus. The
rule stated in this paragraph may be illustrated by the following
example:
Example. (1) Under the terms of a trust which reports on the
calendar year basis the income may be accumulated or distributed to A in
the discretion of the trustee and capital gains are allocable to corpus.
During the taxable year 1954, the trust had income of $20,000 from
royalties, long-term capital gains of $10,000, and expenses of $2,000.
The trustee in his discretion made a distribution of $10,000 to A. The
taxes imposed on the trust for the purposes of this subpart are $2,713,
determined as shown below.
(2) The distributable net income of the trust computed under section
643(a) is $18,000 (royalties of $20,000 less expenses of $2,000). The
total taxes paid by the trust are $3,787, computed as follows:
Royalties.................................................... $20,000
Capital gains................................................ 10,000
------------
Gross income............................................. 30,000
Deductions:
Expenses........................................ $2,000
Distributions to A.............................. 10,000
Capital gain deduction.......................... 5,000
Personal exemption.............................. 100
-----------
17,100
------------
Taxable income........................................... 12,900
Total income taxes........................................... 3,787
(3) The amount of taxes which would have been paid by the trust, had
all of the distributable net income ($18,000) of the trust been
distributed to A, is $1,074, computed as follows:
Taxable income of the trust.................................. $12,900
Less: Undistributed portion of distributable net income 8,000
($18,000-$10,000)...........................................
------------
Balance of taxable income................................ 4,900
Income taxes on $4,900....................................... 1,074
(4) The amount of taxes imposed on the trust as defined in this
paragraph is $2,713, computed as follows:
Total taxes....................................... $3,787
Taxes which would have been paid by the trust 1,074
had all of the distributable net income been
distributed....................................
------------
Taxes imposed on the trust as defined in this 2,713
paragraph......................................
(b) If in any subsequent year an accumulation distribution is made
by the trust which results in a throwback to the taxable year, the taxes
of the taxable year allocable to the undistributed portion of
distributable net income (the taxes imposed on the trust), after the
close of the subsequent year, are the taxes prescribed in paragraph (a)
of this section reduced by the taxes of the taxable year allowed as
credits to beneficiaries on account of amounts deemed distributed on the
last day of the taxable year under section 666. See paragraph (f)(4) of
Sec. 1.668(b)-2 for an illustration of the application of this
paragraph.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960. Redesignated by T.D. 6989, 34 FR
735, Jan. 17, 1969]
Sec. 1.665(e)-1 Preceding taxable year.
(a) Definition. For purposes of subpart D (section 665 and
following), part I, subchapter J, chapter 1 of the Internal Revenue Code
of 1954, the term preceding taxable year does not include any taxable
year to which such part I does not apply. See section 683 and
regulations thereunder. Accordingly, the provisions of such subpart D
may not, in general, be applied to any taxable year which begins before
1954 or ends before
[[Page 222]]
August 17, 1954. For example, if a trust (reporting on the calendar year
basis) makes a distribution during the calendar year 1955 of income
accumulated during prior years and the distribution exceeds the
distributable net income of 1955, the excess distribution may be
allocated under such subpart D to 1954, but it may not be allocated to
1953 and preceding years, since the Internal Revenue Code of 1939
applies to those years.
(b) Simple trusts subject to subpart D. An accumulation distribution
may be properly allocated to a preceding taxable year in which the trust
qualified as a simple trust (that is, qualified for treatment under
subpart B (section 651 and following) of such part I). In such event,
the trust is treated for such preceding taxable year in all respects as
if it were a trust to which subpart C (section 661 and following) of
such part I applies. An example of such a circumstance would be in the
case of a trust (required under the trust instrument to distribute all
of its income currently) which received in the preceding taxable year
extraordinary dividends or taxable stock dividends which the trustee in
good faith allocated to corpus, but which are subsequently determined to
be currently distributable to the beneficiary. See section 643(a)(4) and
Sec. 1.643(a)-4. The trust would qualify for treatment under such
subpart C for the year of distribution of the extraordinary dividends or
taxable stock dividends, because the distribution is not out of income
of the current taxable year and would be treated as other amounts
properly paid or credited or required to be distributed for such taxable
year within the meaning of section 661(a)(2). Also, in the case of a
trust other than a foreign trust created by a U.S. person, the
distribution would qualify as an accumulation distribution for the
purposes of such subpart D if in excess of $2,000 and not excepted under
section 665(b) and the regulations thereunder. In the case of a foreign
trust created by a U.S. person, the distribution, regardless of the
amount, would qualify as an accumulation distribution for the purposes
of subpart D. For the purposes only of such subpart D, the trust would
be treated as subject to the provisions of such subpart C for the
preceding taxable year in which the extraordinary or taxable stock
dividends were received and in computing undistributed net income for
such preceding year, the extraordinary or taxable stock dividends would
be included in distributable net income under section 643(a). The rule
stated in the preceding sentence would also apply if the distribution in
the later year were made out of corpus without regard to a determination
that the extraordinary dividends or taxable stock dividends in question
were currently distributable to the beneficiary.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
735, Jan. 17, 1969. Redesignated by T.D. 6989, 34 FR 735, Jan. 17, 1969]
Sec. 1.665(e)-2 Application of separate share rule.
In trusts to which the separate share rule of section 663(c) is
applicable for any taxable year, subpart D (section 665 and following),
part I, subchapter J, of the Code, is applied as if each share were a
separate trust. Thus, ``undistributed net income'' and the amount of an
``accumulation distribution'' are computed separately for each share.
The ``taxes imposed on the trust'' are allocated as follows:
(a) There is first allocated to each separate share that portion of
the ``taxes imposed on the trust'', computed before the allowance of
credits under section 642(a), which bears the same relation to the total
that the distributable net income of the separate share bears to the
distributable net income of the trust, adjusted for this purpose as
follows:
(1) There is excluded from distributable net income of the trust and
of each separate share any tax-exempt interest, foreign income of a
foreign trust, and excluded dividends, to the extent such amounts are
included in distributable net income pursuant to section 643(a) (5),
(6), and (7); and
(2) The distributable net income of the trust is reduced by any
deductions allowable under section 661 for amounts paid, credited, or
required to be distributed during the taxable year, and the
distributable net income of each separate share is reduced by any such
deduction allocable to that share.
[[Page 223]]
(b) The taxes so determined for each separate share are then reduced
by that portion of the credits against tax allowable to the trust under
section 642(a) in computing the ``taxes imposed on the trust'' which
bear the same relation to the total that the items of income allocable
to the separate share with respect to which the credit is allowed bear
to the total of such items of the trust. The amount of taxes imposed on
the trust allocable to a separate share as so determined is then reduced
by the amount of the taxes allowed under sections 667 and 668 as a
credit to a beneficiary of the separate share on account of any
accumulation distribution determined for any taxable year intervening
between the year for which the determination is made and the year of an
accumulation distribution with respect to which the determination is
made. See paragraph (b) of Sec. 1.665(d)-1.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
741, Jan. 17, 1969. Redesignated by T.D. 6989, 34 FR 736, Jan. 17, 1969]
Sec. 1.666(a)-1A Amount allocated.
(a) In general. In the case of a trust that is subject to subpart C
of part I of subchapter J of chapter 1 of the Code (relating to estates
and trusts that may accumulate income or that distribute corpus),
section 666(a) prescribes rules for determining the taxable years from
which an accumulation distribution will be deemed to have been made and
the extent to which the accumulation distribution is considered to
consist of undistributed net income. In general, an accumulation
distribution made in taxable years beginning after December 31, 1969, is
deemed to have been made first from the earliest preceding taxable year
of the trust for which there is undistributed net income. An
accumulation distribution made in a taxable year beginning before
January 1, 1970, is deemed to have been made first from the most recent
preceding taxable year of the trust for which there is undistributed net
income. See Sec. 1.665(e)-1A for the definition of ``preceding taxable
year.''
(b) Distributions by domestic trusts--(1) Taxable years beginning
after December 31, 1973. An accumulation distribution made by a trust
(other than a foreign trust created by a U.S. person) in any taxable
year beginning after December 31, 1973, is allocated to the preceding
taxable years of the trust (defined in Sec. 1.665(e)-1A(a)(1)(ii) as
those beginning after December 31, 1968) according to the amount of
undistributed net income of the trust for such years. For this purpose,
an accumulation distribution is first to be allocated to the earliest
such preceding taxable year in which there is undistributed net income
and shall then be allocated, beginning with the next earliest, to any
remaining preceding taxable years of the trust. The portion of the
accumulation distribution allocated to the earliest preceding taxable
year is the amount of the undistributed net income for that preceding
taxable year. The portion of the accumulation distribution allocated to
any preceding taxable year subsequent to the earliest such preceding
taxable year is the excess of the accumulation distribution over the
aggregate of the undistributed net income for all earlier preceding
taxable years. See paragraph (d) of this section for adjustments to
undistributed net income for prior distributions. The provisions of this
subparagraph may be illustrated by the following example:
Example. In 1977, a domestic trust reporting on the calendar year
basis makes an accumulation distribution of $33,000. Therefore, years
before 1969 are ignored. In 1969, the trust had $6,000 of undistributed
net income; in 1970, $4,000; in 1971, none; in 1972, $7,000; in 1973,
$5,000; in 1974, $8,000; in 1975, $6,000; and $4,000 in 1976. The
accumulation distribution is deemed distributed $6,000 in 1969, $4,000
in 1970, none in 1971, $7,000 in 1972, $5,000 in 1973, $8,000 in 1974,
and $3,000 in 1975.
(2) Taxable years beginning after December 31, 1969, and before
January 1, 1974. If a trust (other than a foreign trust created by a
U.S. person) makes an accumulation distribution in a taxable year
beginning after December 31, 1969, and before January 1, 1974, the
distribution will be deemed distributed in the same manner as
accumulation distributions qualifying under subparagraph (1) of this
paragraph, except that the first year to which the distribution may be
thrown back cannot be earlier than the fifth taxable year of the trust
[[Page 224]]
preceding the year in which the accumulation distribution is made. Thus,
for example, in the case of an accumulation distribution made in the
taxable year of a domestic trust which begins on January 1, 1972, the
taxable year of the trust beginning on January 1, 1967, would be the
first year in which the distribution was deemed made, assuming that
there was undistributed net income for 1967. See also Sec. 1.665(e)-
1A(a)(1). The provisions of this subparagraph may be illustrated by the
following example:
Example. In 1973, a domestic trust, reporting on the calendar year
basis, makes an accumulation distribution of $25,000. In 1968, the fifth
year preceding 1973, the trust had $7,000 of undistributed net income;
in 1969, none; in 1970, $12,000; in 1971, $4,000; in 1972, $4,000. The
accumulation distribution is deemed distributed in the amounts of $7,000
in 1968, none in 1969, $12,000 in 1970, $4,000 in 1971, and $2,000 in
1972.
(3) Taxable years beginning after December 31, 1968, and before
January 1, 1970. Accumulation distributions made in taxable years of the
trust beginning after December 31, 1968, and before January 1, 1970, are
allocated to prior years according to Sec. 1.666(a)-1.
(c) Distributions by foreign trusts--(1) Foreign trusts created
solely by U.S. persons--(i) Taxable years beginning after December 31,
1969. If a foreign trust created by a U.S. person makes an accumulation
distribution in any taxable year beginning after December 31, 1969, the
distribution is allocated to the trust's preceding taxable years
(defined in Sec. 1.665(e)-1A(a)(2) as those beginning after Dec. 31,
1953, and ending after Aug. 16, 1954) according to the amount of
undistributed net income of the trust for such years. For this purpose,
an accumulation distribution is first allocated to the earliest such
preceding taxable year in which there is undistributed net income and
shall then be allocated in turn, beginning with the next earliest, to
any remaining preceding taxable years of the trust. The portion of the
accumulation distribution allocated to the earliest preceding taxable
year is the amount of the undistributed net income for that preceding
taxable year. The portion of the accumulation distribution allocated to
any preceding taxable year subsequent to the earliest such preceding
taxable year is the excess of the accumulation distribution over the
aggregate of the undistributed net income for all earlier preceding
taxable years. See paragraph (d) of this section for adjustments to
undistributed net income for prior distributions. The provisions of this
subdivision may be illustrated by the following example:
Example. In 1971, a foreign trust created by a U.S. person,
reporting on the calendar year basis, makes an accumulation distribution
of $50,000. In 1961, the trust had $12,000 of undistributed net income;
in 1962, none; in 1963, $10,000; in 1964, $8,000; in 1965, $5,000; in
1966, $14,000; in 1967, none; in 1968, $3,000; in 1969, $2,000; and in
1970, $1,000. The accumulation distribution is deemed distributed in the
amounts of $12,000 in 1961, none in 1962, $10,000 in 1963, $8,000 in
1964, $5,000 in 1965, $14,000 in 1966, none in 1967, and $1,000 in 1968.
(ii) Taxable years beginning after December 31, 1968, and before
January 1, 1970. Accumulation distributions made in taxable years of the
trust beginning after December 31, 1968, and before January 1, 1970, are
allocated to prior years according to Sec. 1.666(a)-1.
(2) Foreign trusts created partly by U.S. persons--(i) Taxable years
beginning after December 31, 1969. If a trust that is in part a foreign
trust created by a U.S. person and in part a foreign trust created by a
person other than a U.S. person makes an accumulation distribution in
any year after December 31, 1969, the distribution is deemed made from
the undistributed net income of the foreign trust created by a U.S.
person in the proportion that the total undistributed net income for all
preceding years of the foreign trust created by the U.S. person bears to
the total undistributed net income for all years of the entire foreign
trust. In addition, such distribution is deemed made from the
undistributed net income of the foreign trust created by a person other
than a U.S. person in the proportion that the total undistributed net
income for all preceding years of the foreign trust created by a person
other than a U.S. person bears to the total undistributed net income for
all years of the entire foreign trust. Accordingly, an accumulation
distribution of such a trust is composed of two portions with one
portion relating to the undistributed net income of the
[[Page 225]]
foreign trust created by the U.S. person and the other portion relating
to the undistributed net income of the foreign trust created by the
person other than a U.S. person. For these purposes, each portion of an
accumulation distribution made in any taxable year is first allocated to
each of such preceding taxable years in turn, beginning with the
earliest preceding taxable year, as defined in Sec. 1.665(e)-1A(a), of
the applicable foreign trusts, to the extent of the undistributed net
income for the such trust for each of those years. Thus, each portion of
an accumulation distribution is deemed to have been made from the
earliest accumulated income of the applicable trust. If the foreign
trust created by a U.S. person makes an accumulation distribution in any
year beginning after December 31, 1969, the distribution is included in
the beneficiary's income for that year to the extent of the
undistributed net income of the trust for the trust's preceding taxable
years which began after December 31, 1953, and ended after August 16,
1954. The provisions of this subdivision may be illustrated by the
following example:
Example. A trust is created in 1962 under the laws of Country X by
the transfer to a trustee in Country X of property by both a U.S. person
and a person other than a U.S. person. Both the trust and the only
beneficiary of the trust (who is a U.S. person) report their taxable
income on a calendar year basis. On March 31, 1974, the trust makes an
accumulation distribution of $150,000 to the beneficiary. The
distributable net income of both the portion of the trust which is a
foreign trust created by a U.S. person and the portion of the trust
which is a foreign trust created by a person other than a U.S. person
for each year is computed in accordance with the provisions of paragraph
(b)(3) of Sec. 1.643(d)-1 and the undistributed net income for each
portion of the trust for each year is computed as described in paragraph
(b) of Sec. 1.665(a)-1A. For taxable years 1962 through 1973, the
portion of the trust which is a foreign trust created by a U.S. person
and the portion of the trust which is a foreign trust created by a
person other than a U.S. person had the following amounts of
undistributed net income:
----------------------------------------------------------------------------------------------------------------
Undistributed net
Undistributed net income-portion of the
Year income-portion of the trust created by a
trust created by a person other than a
U.S. person U.S. person
----------------------------------------------------------------------------------------------------------------
1962............................................................ $7,000 $4,000
1963............................................................ 12,000 7,000
1964............................................................ None None
1965............................................................ 11,000 5,000
1966............................................................ 8,000 3,000
1967............................................................ None None
1968............................................................ 4,000 2,000
1969............................................................ 17,000 8,000
1970............................................................ 16,000 9,000
1971............................................................ None None
1972............................................................ 25,000 12,000
1973............................................................ 20,000 10,000
-----------------------------------------------
Totals......................................................... 120,000 60,000
----------------------------------------------------------------------------------------------------------------
The accumulation distribution in the amount of $150,000 is deemed to
have been distributed in the amount of $100,000 (120,000/
180,000x$150,000) from the portion of the trust which is a foreign trust
created by a U.S. person and in the amount of $39,000, which is less
than $50,000 (60,000/180,000x$150,000), from the portion of the trust
which is a foreign trust created by a person other than a U.S. person
computed as follows:
----------------------------------------------------------------------------------------------------------------
Throwback to preceding
Throwback to years of portion of the
preceding years of entire foreign trust
Year foreign trust which is not a foreign
created by a U.S. trust created by a U.S.
person person
----------------------------------------------------------------------------------------------------------------
1962.............................................................. $7,000 None
1963.............................................................. 12,000 None
1964.............................................................. None None
1965.............................................................. $11,000 None
1966.............................................................. 8,000 None
1967.............................................................. None None
1968.............................................................. 4,000 None
1969.............................................................. 17,000 $8,000
1970.............................................................. 16,000 9,000
1971.............................................................. None None
1972.............................................................. $25,000 $12,000
1973.............................................................. None 10,000
---------------------------------------------
Totals........................................................... 100,000 39,000
----------------------------------------------------------------------------------------------------------------
Pursuant to this paragraph, the accumulation distribution in the amount
of $100,000 from the portion of the trust which is a foreign trust
created by a U.S. person is included in the beneficiary's income for
1974, as the amount represents undistributed net income of the trust for
the trust's preceding taxable years which began after December 31, 1953,
and ended after August 16, 1954. The accumulation distribution in the
amount of $50,000 from the portion of the trust which is a foreign trust
created by a person other than a U.S. person is included in the
beneficiary's income for 1974 to the extent of the undistributed net
income of the trust for the preceding years beginning after December 31,
1968. Accordingly, with respect to the portion of the trust which is a
foreign trust created by a person other than a U.S. person, only the
undistributed net income for the years 1969 through 1973, which totals
$39,000,
[[Page 226]]
is includible in the beneficiary's income for 1974. Thus, of the
$150,000 distribution made in 1974, the beneficiary is required to
include a total of $139,000 in his income for 1974. The balance of
$11,000 is deemed to represent a distribution of corpus.
(ii) Taxable years beginning after December 31, 1968, and before
January 1, 1970. Accumulation distributions made in taxable years of the
trust beginning after December 31, 1968, and before January 1, 1970, are
allocated to prior years according to Sec. 1.666(a)-1.
(3) Foreign trusts created by non-U.S. persons. To the extent that a
foreign trust is a foreign trust created by a person other than a U.S.
person, an accumulation distribution is included in the beneficiary's
income for the year paid, credited, or required to be distributed to the
extent provided under paragraph (b) of this section.
(d) Reduction of undistributed net income for prior accumulation
distributions. For the purposes of allocating to any preceding taxable
year an accumulation distribution of the taxable year, the undistributed
net income of such preceding taxable year is reduced by the amount from
such year deemed distributed in any accumulation distribution of
undistributed net income made in any taxable year intervening between
such preceding taxable year and the taxable year. Accordingly, for
example, if a trust has undistributed net income for 1974 and makes
accumulation distributions during the taxable years 1978 and 1979, in
determining that part of the 1979 accumulation distribution that is
thrown back to 1974 the undistributed net income for 1974 is first
reduced by the amount of the undistributed net income for 1974 deemed
distributed in the 1978 accumulation distribution.
(e) Rule when no undistributed net income. If, before the
application of the provisions of subpart D to an accumulation
distribution for the taxable year, there is no undistributed net income
for a preceding taxable year, then no portion of the accumulation
distribution is undistributed net income deemed distributed on the last
day of such preceding taxable year. Thus, if an accumulation
distribution is made during the taxable year 1975 from a trust whose
earliest preceding taxable year is taxable year 1970, and the trust had
no undistributed net income for 1970, then no portion of the 1975
accumulation distribution is undistributed net income deemed distributed
on the last day of 1970.
[T.D. 7204, 37 FR 17143, Aug. 25, 1972]
Sec. 1.666(b)-1A Total taxes deemed distributed.
(a) If an accumulation distribution is deemed under Sec. 1.666(a)-
1A to be distributed on the last day of a preceding taxable year and the
amount is not less than the undistributed net income for such preceding
taxable year, then an additional amount equal to the ``taxes imposed on
the trust attributable to the undistributed net income'' (as defined in
Sec. 1.665(d)-1A(b)) for such preceding taxable year is also deemed
distributed under section 661(a)(2). For example, a trust has
undistributed net income of $8,000 for the taxable year 1974. The taxes
imposed on the trust attributable to the undistributed net income are
$3,032. During the taxable year 1977, an accumulation distribution of
$8,000 is made to the beneficiary, which is deemed under Sec. 1.666(a)-
1A to have been distributed on the last day of 1974. The 1977
accumulation distribution is not less than the 1974 undistributed net
income. Accordingly, the taxes of $3,032 imposed on the trust
attributable to the undistributed net income for 1974 are also deemed to
have been distributed on the last day of 1974. Thus, a total of $11,032
will be deemed to have been distributed on the last day of 1974.
(b) For the purpose of paragraph (a) of this section, the
undistributed net income of any preceding taxable year and the taxes
imposed on the trust for such preceding taxable year attributable to
such undistributed net income are computed after taking into account any
accumulation distributions of taxable years intervening between such
preceding taxable year and the taxable year. See paragraph (d) of Sec.
1.666(a)-1A.
[T.D. 7204, 37 FR 17145, Aug. 25, 1972]
[[Page 227]]
Sec. 1.666(c)-1A Pro rata portion of taxes deemed distributed.
(a) If an accumulation distribution is deemed under Sec. 1.666(a)-
1A to be distributed on the last day of a preceding taxable year and the
amount is less than the undistributed net income for such preceding
taxable year, then an additional amount is also deemed distributed under
section 661(a)(2). The additional amount is equal to the ``taxes imposed
on the trust attributable to the undistributed net income'' (as defined
in Sec. 1.665(a)-1A(b)) for such preceding taxable year, multiplied by
a fraction, the numerator of which is the amount of the accumulation
distribution allocated to such preceding taxable year and the
denominator of which is the undistributed net income for such preceding
taxable year. See paragraph (b) of example 1 and paragraphs (c) and (f)
of example 2 in Sec. 1.666(c)-2A for illustrations of this paragraph.
(b) For the purpose of paragraph (a) of this section, the
undistributed net income of any preceding taxable year and the taxes
imposed on the trust for such preceding taxable year attributable to
such undistributed net income are computed after taking into account any
accumulation distributions of any taxable years intervening between such
preceding taxable year and the taxable year. See paragraph (d) of Sec.
1.666(a)-1A and paragraph (c) of example 1 and paragraphs (e) and (h) of
example 2 in Sec. 1.666(c)-2A.
[T.D. 7204, 37 FR 17145, Aug. 25, 1972]
Sec. 1.666(c)-2A Illustration of the provisions of section 666 (a),
(b), and (c).
The application of the provisions of Sec. Sec. 1.666(a)-1A,
1.666(b)-1A, and 1.666(c)-1A may be illustrated by the following
examples:
Example 1. (a) A trust created on January 1, 1974, makes
accumulation distributions as follows:
1979..............................................................$7,000
1980..............................................................26,000
For 1974 through 1978, the undistributed portion of distributable net
income, taxes imposed on the trust attributable to the undistributed net
income, and undistributed net income are as follows:
----------------------------------------------------------------------------------------------------------------
Taxes imposed on
Undistributed the trust
Year portion of attributable to Undistributed
distributable the undistributed net income
net income net income
----------------------------------------------------------------------------------------------------------------
1974.......................................................... $12,100 $3,400 $8,700
1975.......................................................... 16,100 5,200 10,900
1976.......................................................... 6,100 1,360 4,740
1977.......................................................... None None None
1978.......................................................... 10,100 2,640 7,460
----------------------------------------------------------------------------------------------------------------
The trust has no undistributed capital gain.
(b) Since the entire amount of the accumulation distribution for
1979 ($7,000) is less than the undistributed net income for 1974
($8,700), an additional amount of $2,736 (7,000/8,700x$3,400) is deemed
distributed under section 666(c).
(c) In allocating the accumulation distribution for 1980, the amount
of undistributed net income for 1974 will reflect the accumulation
distribution for 1979. The undistributed net income for 1974 will then
be $1,700 and the taxes imposed on the trust for 1974 will be $664,
determined as follows:
Undistributed net income as of the close of 1974............ $8,700
Less: Accumulation distribution (1979)...................... 7,000
-----------
Balance (undistributed net income as of the close of 1,700
1979)..................................................
===========
Taxes imposed on the trust attributable to the undistributed 664
net income as of the close of 1979 (1,700/8,700x$3,400)....
(d) The accumulation distribution of $26,000 for 1980 is deemed to
have been made on the last day of the preceding taxable years of the
trust to the extent of $24,800, the total of the undistributed net
income for such years, as shown in the tabulation below. In addition,
$9,864, the total taxes imposed on the trust attributable to the
undistributed net income for such years is also deemed to have been
distributed on the last day of such years, as shown below:
------------------------------------------------------------------------
Undistributed net Taxes imposed on the
Year income trust
------------------------------------------------------------------------
1974........................ $1,700 $664
1975........................ 10,900 5,200
1976........................ 4,740 1,360
1977........................ None None
1978........................ 7,460 2,640
1979........................ None None
------------------------------------------------------------------------
Example 2. (a) Under the terms of a trust instrument, the trustee
has discretion to accumulate or distribute the income to X and to invade
corpus for the benefit of X. The entire income of the trust is from
royalties. Both X and the trust report on the calendar year basis. All
of the income for 1974 was accumulated. The distributable net income of
the trust for the taxable year 1974 is $20,100 and the income taxes paid
by the trust for 1974 attributable to the undistributed net income are
$7,260. All of the income for 1975 and 1976 was distributed and in
addition the trustee made accumulation distributions
[[Page 228]]
within the meaning of section 665(b) of $5,420 for each year.
(b) The undistributed net income of the trust determined under
section 665(a) as of the close of 1974, is $12,840, computed as follows:
Distributable net income.................................... $20,100
Less: Taxes imposed on the trust attributable to the 7,260
undistributed net income...................................
-----------
Undistributed net income as of the close of 1974........ 12,840
(c) The accumulation distribution of $5,420 made during the taxable
year 1975 is deemed under section 666(a) to have been made on December
31, 1974. Since this accumulation distribution is less than the 1974
undistributed net income of $12,840, a portion of the taxes imposed on
the trust for 1974 is also deemed under section 666(c) to have been
distributed on December 31, 1974. The total amount deemed to have been
distributed to X on December 31, 1974 is $8,484, computed as follows:
Accumulation distribution................................... $5,420
Taxes deemed distributed (5,420/ 12,840x$7,260)............. 3,064
-----------
Total................................................... 8,484
(d) After the application of the provisions of subpart D to the
accumulation distribution of 1975, the undistributed net income of the
trust for 1974 is $7,420, computed as follows:
Undistributed net income as of the close of 1974............ $12,840
Less: 1975 accumulation distribution deemed distributed on 5,420
December 31, 1974 (paragraph (c) of this example)..........
-----------
Undistributed net income for 1974 as of the close of 7,420
1975...................................................
(e) The taxes imposed on the trust attributable to the undistributed
net income for the taxable year 1974, as adjusted to give effect to the
1975 accumulation distribution, amount to $4,196, computed as follows:
Taxes imposed on the trust attributable to undistributed net $7,260
income as of the close of 1974.............................
Less: Taxes deemed distributed in 1974...................... 3,064
-----------
Taxes attributable to the undistributed net income 4,196
determined as of the close of 1975.....................
(f) The accumulation distribution of $5,420 made during the taxable
year 1976 is, under section 666(a), deemed a distribution to X on
December 31, 1974, within the meaning of section 661(a)(2). Since the
accumulation distribution is less than the 1974 adjusted undistributed
net income of $7,420, the trust is deemed under section 666(c) also to
have distributed on December 31, 1974, a portion of the taxes imposed on
the trust for 1974. The total amount deemed to be distributed on
December 31, 1974, with respect to the accumulation distribution made in
1976, is $8,484, computed as follows:
Accumulation distribution................................... $5,420
Taxes deemed distributed (5,420/ 7,420x$4,196).............. 3,064
-----------
Total................................................... 8,484
(g) After the application of the provisions of subpart D to the
accumulation distribution of 1976, the undistributed net income of the
trust for 1974 is $2,000, computed as follows:
Undistributed net income for 1974 as of the close of 1975... $7,420
Less: 1976 accumulation distribution deemed distributed on 5,420
December 31, 1974 (paragraph (f) of this example)..........
-----------
Undistributed net income for 1974 as of the close of 2,000
1976...................................................
(h) The taxes imposed on the trust attributable to the undistributed
net income of the trust for the taxable year 1974, determined as of the
close of the taxable year 1976, amount to $1,132 ($4,196 less $3,064).
[T.D. 7204, 37 FR 17145, Aug. 25, 1972]
Sec. 1.666(d)-1A Information required from trusts.
(a) Adequate records required. For all taxable years of a trust, the
trustee must retain copies of the trust's income tax return as well as
information pertaining to any adjustments in the tax shown as due on the
return. The trustee shall also keep the records of the trust required to
be retained by section 6001 and the regulations thereunder for each
taxable year as to which the period of limitations on assessment of tax
under section 6501 has not expired. If the trustee fails to produce such
copies and records, and such failure is due to circumstances beyond the
reasonable control of the trustee or any predecessor trustee, the
trustee may reconstruct the amount of corpus, accumulated income, etc.,
from competent sources (including, to the extent permissible, Internal
Revenue Service records). To the extent that an accurate reconstruction
can be made for a taxable year, the requirements of this paragraph shall
be deemed satisfied for such year.
(b) Rule when information is not available--(1) Accumulation
distributions. If adequate records (as required by paragraph (a) of this
section) are not available to determine the proper application of
subpart D to an accumulation distribution made in a taxable year by a
trust, such accumulation distribution
[[Page 229]]
shall be deemed to consist of undistributed net income earned during the
earliest preceding taxable year (as defined in Sec. 1.665(e)-1A) of the
trust in which it can be established that the trust was in existence. If
adequate records are available for some years, but not for others, the
accumulation distribution shall be allocated first to the earliest
preceding taxable year of the trust for which there are adequate records
and then to each subsequent preceding taxable year for which there are
adequate records. To the extent that the distribution is not allocated
in such manner to years for which adequate records are available, it
will be deemed distributed on the last day of the earliest preceding
taxable year of the trust in which it is established that the trust was
in existence and for which the trust has no records. The provisions of
this subparagraph may be illustrated by the following example:
Example. A trust makes a distribution in 1975 of $100,000. The
trustee has adequate records for 1973, 1974, and 1975. The records show
that the trust is on the calendar year basis, had distributable net
income in 1975 of $20,000, and undistributed net income in 1974 of
$15,000, and in 1973 of $16,000. The trustee has no other records of the
trust except for a copy of the trust instrument showing that the trust
was established on January 1, 1965. He establishes that the loss of the
records was due to circumstances beyond his control. Since the
distribution is made in 1975, the earliest ``preceding taxable year'',
as defined in Sec. 1.665(e)-1A, is 1969. Since $80,000 of the
distribution is an accumulation distribution, and $31,000 thereof is
allocated to 1974 and 1973, $49,000 is deemed to have been distributed
on the last day of 1969.
(2) Taxes. (i) If an amount is deemed under this paragraph to be
undistributed net income allocated to a preceding taxable year for which
adequate records are not available, there shall be deemed to be ``taxes
imposed on the trust'' for such preceding taxable year an amount equal
to the taxes that the trust would have paid if the deemed undistributed
net income were the amount remaining when the taxes were subtracted from
taxable income of the trust for such year. For example, assume that an
accumulation distribution in 1975 of $100,000 is deemed to be
undistributed net income from 1971, and that the taxable income required
to produce $100,000 after taxes in 1971 would be $284,966. Therefore the
amount deemed to be ``taxes imposed on the trust'' for such preceding
taxable year is $184,966.
(ii) The credit allowed by section 667(b) shall not be allowed for
any amount deemed under this subparagraph to be ``taxes imposed on the
trust.''
[T.D. 7204, 37 FR 17146, Aug. 25, 1972]
Sec. 1.666(a)-1 Amount allocated.
(a)(1) If a trust other than a foreign trust created by a U.S.
person makes an accumulation distribution in any taxable year, the
distribution is included in the beneficiary's gross income for that year
to the extent of the undistributed net income of the trust for the
preceding 5 years. It is therefore necessary to determine the extent to
which there is undistributed net income for the preceding 5 years. For
this purpose, an accumulation distribution made in any taxable year is
allocated to each of the 5 preceding taxable years in turn, beginning
with the most recent year, to the extent of the undistributed net income
of each of those years. Thus, an accumulation distribution is deemed to
have been made from the most recently accumulated income of the trust.
(2) If a foreign trust created by a U.S. person makes an
accumulation distribution in any year after December 31, 1962, the
distribution is included in the beneficiary's gross income for that year
to the extent of the undistributed net income of the trust for the
trust's preceding taxable years which began after December 31, 1953, and
ended after August 16, 1954. It is therefore necessary to determine the
extent to which there is undistributed net income for such preceding
taxable years. For this purpose, an accumulation distribution made in
any taxable year is first allocated to each of such preceding taxable
years in turn, beginning with the most recent year, to the extent of the
undistributed net income of each of those years. Thus, an accumulation
distribution is deemed to have been made from the most recently
accumulated income of the trust.
(3) If a trust that is in part a foreign trust created by a U.S.
person and in
[[Page 230]]
part a foreign trust created by a person other than a U.S. person makes
an accumulation distribution in any year after December 31, 1962, the
distribution is deemed made from the undistributed net income of the
foreign trust created by a U.S. person in the proportion that the total
undistributed net income for all preceding years of the foreign trust
created by the U.S. person bears to the total undistributed net income
for all years of the entire foreign trust. In addition, such
distribution is deemed made from the undistributed net income of the
foreign trust created by a person other than a U.S. person in the
proportion that the total undistributed net income for all preceding
years of the foreign trust created by a person other than a U.S. person
bears to the total undistributed net income for all years of the entire
foreign trust. Accordingly, an accumulation distribution of such a trust
is composed of two portions with one portion relating to the
undistributed net income of the foreign trust created by the U.S. person
and the other portion relating to the undistributed net income of the
foreign trust created by the person other than a U.S. person. For these
purposes, each portion of an accumulation distribution made in any
taxable year is first allocated to each of such preceding taxable years
in turn, beginning with the most recent year, to the extent of the
undistributed net income for the applicable foreign trust for each of
those years. Thus, each portion of an accumulation distribution is
deemed to have been made from the most recently accumulated income of
the applicable trust. If the foreign trust created by a U.S. person
makes an accumulation distribution in any year after December 31, 1962,
the distribution is included in the beneficiary's gross income for that
year to the extent of the undistributed net income of the trust for the
trust's preceding taxable years which began after December 31, 1953, and
ended after August 16, 1954. If the foreign trust created by a person
other than a U.S. person makes an accumulation distribution in any
taxable year, the distribution is included in the beneficiary's gross
income for that year to the extent of the undistributed net income of
the trust for the preceding 5 years.
(b) If, before the application of the provisions of subpart D
(section 665 and following), part I, subchapter J, chapter 1 of the
Code, to an accumulation distribution for the taxable year, there is no
undistributed net income for a preceding taxable year, then no portion
of the accumulation distribution is deemed distributed on the last day
of such preceding taxable year. Thus, if an accumulation distribution is
made during the taxable year 1960 and the trust had no undistributed net
income for the taxable year 1959, then no portion of the 1960
accumulation distribution is deemed distributed on the last day of 1959.
For purposes of subpart D, the term 5 preceding taxable years includes
only the 5 taxable years immediately preceding the taxable year in which
the accumulation distribution is made and which are subject to part I
(section 641 and following) of such subchapter J even though the trust
has no undistributed net income during one or more of those years.
(c) Paragraphs (a) and (b) of this section may be illustrated by the
following examples:
Example 1. In 1964, a domestic trust, reporting on the calendar year
basis, makes an accumulation distribution of $25,000. In 1963, the trust
had $7,000 of undistributed net income; in 1962, none; in 1961, $12,000;
in 1960, $4,000; in 1959, $4,000. The accumulation distribution is
deemed distributed $7,000 in 1963, none in 1962, $12,000 in 1961, $4,000
in 1960, and $2,000 in 1959.
Example 2. In 1964, a foreign trust created by a U.S. person,
reporting on the calendar year basis, makes an accumulation distribution
of $50,000. In 1963, the trust had $12,000 of undistributed net income;
in 1962, none; in 1961, $10,000; in 1960, $8,000; in 1959, $5,000; in
1958, $14,000; in 1957, none; in 1956, $3,000; in 1955, $2,000; and in
1954, $1,000. The accumulation distribution is deemed distributed
$12,000 in 1963, none in 1962, $10,000 in 1961, $8,000 in 1960, $5,000
in 1959, $14,000 in 1958, none in 1957, $1,000 in 1956.
Example 3. A trust is created in 1952 under the laws of Country X by
the transfer to a trustee in Country X of money and property by both a
U.S. person and a person other than a U.S. person. Both the trust and
the only beneficiary of the trust (who is a U.S. person) report their
taxable income on a calendar year basis. On March 31, 1964, the trust
makes an accumulation distribution of
[[Page 231]]
$150,000 to the U.S. beneficiary. The distributable net income of both
the portion of the trust which is a foreign trust created by a U.S.
person and the portion of the trust which is a foreign trust created by
a person other than a U.S. person for each year is computed in
accordance with the provisions of paragraph (b)(3) of Sec. 1.643(d)-1
and the undistributed net income for each portion of the trust for each
year is computed as described in paragraph (b) of Sec. 1.665(a)-1. For
the taxable years 1952 through 1963, the portion of the trust which is a
foreign trust created by a U.S. person and the portion of the trust
which is a foreign trust created by a person other than a U.S. person
had the following amounts of undistributed net income:
----------------------------------------------------------------------------------------------------------------
Undistributed net
Undistributed net income--portion of
Year income--portion of the trust created by
the trust created by a person other than a
a U.S. person U.S. person
----------------------------------------------------------------------------------------------------------------
1963.............................................................. $20,000 $10,000
1962.............................................................. 25,000 12,000
1961.............................................................. None None
1960.............................................................. 16,000 9,000
1959.............................................................. 17,000 8,000
1958.............................................................. 4,000 2,000
1957.............................................................. None None
1956.............................................................. 8,000 3,000
1955.............................................................. 11,000 5,000
1954.............................................................. None None
1953.............................................................. 12,000 7,000
1952.............................................................. 7,000 4,000
---------------------------------------------
Totals.......................................................... 120,000 60,000
----------------------------------------------------------------------------------------------------------------
The accumulation distribution in the amount of $150,000 is deemed to
have been distributed in the amount of $100,000 (120,000/
180,000x$150,000) from the portion of the trust which is a foreign trust
created by a U.S. person, and in the amount of $50,000 (60,000/
180,000x$150,000) from the portion of the trust which is a foreign trust
created by a person other than a U.S. person computed as follows:
----------------------------------------------------------------------------------------------------------------
Throwback to
preceding years of
Throwback to portion of the entire
Year preceding years of foreign trust which
foreign trust created is not a foreign
by a U.S. person trust created by a
U.S. person
----------------------------------------------------------------------------------------------------------------
1963.............................................................. $20,000 $10,000
1962.............................................................. 25,000 12,000
1961.............................................................. None None
1960.............................................................. 16,000 9,000
1959.............................................................. 17,000 8,000
1958.............................................................. 4,000 2,000
1957.............................................................. None None
1956.............................................................. 8,000 3,000
1955.............................................................. 10,000 5,000
1954.............................................................. None None
1953.............................................................. None 1,000
1952.............................................................. None None
---------------------------------------------
Totals.......................................................... 100,000 50,000
----------------------------------------------------------------------------------------------------------------
Pursuant to paragraph (a)(3) of this section, the accumulation
distribution in the amount of $100,000 from the portion of the trust
which is a foreign trust created by a U.S. person is included in the
beneficiary's gross income for 1964, as this amount represents
undistributed net income of the trust for the trust's preceding taxable
years which began after December 31, 1953, and ended after August 16,
1954. The accumulation distribution in the amount of $50,000 from the
portion of the trust which is a foreign trust created by a person other
than a U.S. person is included in the beneficiary's gross income for
1964 to the extent of the undistributed net income of the trust for the
preceding 5 years. Accordingly, with respect to the portion of the trust
which is a foreign trust created by a person other than a U.S. person
only the undistributed net income for the years 1959 through 1963 which
totals $39,000 is includible in the beneficiary's gross income for 1964.
Thus, of the $150,000 distribution made in 1964, the beneficiary is
required to include a total of $139,000 in his gross income for 1964.
Example 4. Assume the same facts as in example 3 and, in addition,
that by December 31, 1964, the undistributed net income for 1964 is
determined to be $20,000, and that in accordance with the provisions of
paragraph (b)(3) of Sec. 1.643(d)-1 and paragraph (b) of Sec.
1.665(a)-1, $10,000 is allocated to the portion of the trust which is a
foreign trust created by a U.S. person and $10,000 is allocated to the
portion of the trust which is a foreign trust created by a person other
than a U.S. person. On March 31, 1965, the trust makes an accumulation
distribution of $25,000 to the U.S. beneficiary. For the taxable years
1952 through 1964, the portion of the trust which is a foreign trust
created by a U.S. person and the portion of the trust which is a foreign
trust created by a person other than a U.S. person had the following
amounts of undistributed net income:
----------------------------------------------------------------------------------------------------------------
Undistributed net
Undistributed net income--portion of
Year income--portion of the trust created by
the trust created by a person other than a
a U.S. person U.S. person
----------------------------------------------------------------------------------------------------------------
1964.............................................................. $10,000 $10,000
1963.............................................................. None None
1962.............................................................. None None
1961.............................................................. None None
1960.............................................................. None None
1959.............................................................. None None
1958.............................................................. None None
1957.............................................................. None None
1956.............................................................. None None
1955.............................................................. 1,000 None
1954.............................................................. None None
1953.............................................................. 12,000 6,000
1952.............................................................. 7,000 4,000
---------------------------------------------
Totals.......................................................... 30,000 20,000
----------------------------------------------------------------------------------------------------------------
The accumulation distribution is deemed to have been distributed in the
amount of
[[Page 232]]
$15,000 (30,000/50,000x$25,000), from the portion of the trust which is
a foreign trust created by a U.S. person, and in the amount of $10,000
(20,000/50,000x$25,000) from the portion of the trust which is a foreign
trust created by a person other than a U.S. person computed as follows:
----------------------------------------------------------------------------------------------------------------
Throwback to
preceding years of
Throwback to portion of the entire
Year preceding years of foreign trust which
foreign trust created is not a foreign
by U.S. person trust created by a
U.S. person
----------------------------------------------------------------------------------------------------------------
1964.............................................................. $10,000 $10,000
1963.............................................................. None None
1962.............................................................. None None
1961.............................................................. None None
1960.............................................................. None None
1959.............................................................. None None
1958.............................................................. None None
1957.............................................................. None None
1956.............................................................. None None
1955.............................................................. 1,000 None
1954.............................................................. None None
1953.............................................................. 4,000 None
1952.............................................................. None None
---------------------------------------------
Totals.......................................................... 15,000 10,000
----------------------------------------------------------------------------------------------------------------
Pursuant to paragraph (a)(3) of this section, only $11,000 of the
accumulation distribution in the amount of $15,000 from the portion of
the trust which is a foreign trust created by a U.S. person is
includible in the beneficiary's gross income for 1965 as the $11,000
amount represents undistributed net income of the trust for the trust's
preceding taxable years which began after December 31, 1953, and ended
after August 16, 1954. The accumulation distribution in the amount of
$10,000 from the portion of the trust which is a foreign trust created
by a person other than a U.S. person is included in the beneficiary's
gross income for 1965 to the extent of the undistributed net income of
the trust for the preceding 5 years. Accordingly, the entire $10,000
(representing the undistributed net income for the year 1964) is
includible in the beneficiary's gross income for 1965. Thus, of the
$25,000 distribution made in 1965, the beneficiary is required to
include a total of $21,000 in his gross income for 1965.
(d) For the purposes of allocating to any preceding taxable year an
accumulation distribution of the taxable year, the undistributed net
income of such preceding taxable year is computed without regard to the
accumulation distribution of the taxable year or of taxable years
following the taxable year. However, accumulation distributions of any
taxable years intervening between such preceding taxable year and the
taxable year are taken into account. Accordingly, if a trust has
undistributed net income for the taxable year 1954 and makes an
accumulation distribution during the taxable year 1955, the
undistributed net income for 1954 is computed without regard to the
accumulation distribution for 1955 or any subsequent year. If the trust
makes a further accumulation distribution for 1956, the undistributed
net income for 1954 is computed without regard to the accumulation
distribution for 1956 or subsequent years; but in determining the
undistributed net income for 1954 for purposes of the 1956 accumulation
distribution the accumulation distribution for 1955 will be taken into
account.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
736, Jan. 17, 1969]
Sec. 1.666(b)-1 Total taxes deemed distributed.
(a) If an accumulation distribution is deemed under Sec. 1.666(a)-1
to be distributed on the last day of a preceding taxable year and the
amount is not less than the undistributed net income for such preceding
taxable year, then an additional amount equal to the ``taxes imposed on
the trust'' (as defined in Sec. 1.665(d)-1) for such preceding taxable
year is likewise deemed distributed under section 661(a)(2). For
example, a trust has taxable income of $11,032 (not including any
capital gains) and undistributed net income of $8,000 for the taxable
year 1954. The taxes imposed on the trust are $3,032. During the taxable
year 1955, an accumulation distribution of $8,000 is made to the
beneficiary, which is deemed under Sec. 1.666(a)-1 to have been
distributed on the last day of 1954. The taxes imposed on the trust for
1954 of $3,032 are also deemed to have been distributed on the last day
of 1954 since the 1955 accumulation distribution is not less than the
1954 undistributed net income. Thus, a total of $11,032 will be deemed
to have been distributed on the last day of 1954 because of the
accumulation distribution of $8,000 made in 1955.
(b) For the purpose of paragraph (a) of this section, the
undistributed net income of any preceding taxable year is computed
without regard to the accumulation distribution of the taxable year or
any taxable year following such
[[Page 233]]
taxable year. However, any accumulation distribution of taxable years
intervening between such preceding taxable year and the taxable year are
taken into account. See paragraph (d) of Sec. 1.666(a)-1 and paragraphs
(f)(5) and (g)(1) of Sec. 1.668(b)-2.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
741, Jan. 17, 1969]
Sec. 1.666(c)-1 Pro rata portion of taxes deemed distributed.
(a) If an accumulation distribution is deemed under Sec. 1.666(a)-1
to be distributed on the last day of a preceding taxable year and the
amount is less than the undistributed net income for such preceding
taxable year, then an additional amount is likewise deemed distributed
under section 661(a)(2). The additional amount is equal to the taxes
imposed on the trust, as defined in Sec. 1.665(d)-1, for such preceding
taxable year, multiplied by the fraction of which the numerator is the
amount of the accumulation distribution and the denominator is the
undistributed net income for such preceding taxable year. See paragraph
(b) of example 1 and paragraphs (c) and (f) of example 2 in Sec.
1.666(c)-2, and paragraph (f)(2) of Sec. 1.668(b)-2 for illustrations
of this paragraph.
(b) For the purpose of paragraph (a) of this section, the
undistributed net income of any preceding taxable year is computed
without regard to the accumulation distribution of the taxable year or
any taxable year following the taxable year. However, accumulation
distributions of any taxable years intervening between such preceding
taxable year and the taxable year are taken into account. See paragraph
(d) of Sec. 1.666(a)-1, paragraph (c) of example 1 and paragraphs (e)
and (h) of example 2 in Sec. 1.666(c)-2 and paragraph (f)(5)(iii) of
Sec. 1.668(b)-2.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
741, Jan. 17, 1969]
Sec. 1.666(c)-2 Illustration of the provisions of section 666.
The application of the provisions of Sec. Sec. 1.666(a)-1,
1.666(b)-1, and 1.666(c)-1 may be illustrated by the following examples:
Example 1. (a) A trust makes accumulation distributions as follows:
1959.............................................................$7,000
1960.............................................................25,000
For 1954 through 1958, the undistributed portion of distributable net
income taxes imposed on the trust, and undistributed net income are as
follows:
----------------------------------------------------------------------------------------------------------------
Undistributed
portion of Taxes Undistributed
Year distributable imposed on net income
net income the trust
----------------------------------------------------------------------------------------------------------------
1958............................................................... $12,100 $3,400 $8,700
1957............................................................... 16,100 5,200 10,900
1956............................................................... 6,100 1,360 4,740
1955............................................................... None None None
1954............................................................... 10,100 2,640 7,460
----------------------------------------------------------------------------------------------------------------
(b) Since the entire amount of the accumulation distribution for
1959 ($7,000), determined without regard to the accumulation
distribution for 1960, is less than the undistributed net income for
1958 ($8,700), an additional amount of $2,736 (7,000/ 8,700x$3,400) is
likewise deemed distributed under section 666(c).
(c) In allocating the accumulation distribution for 1960, the
undistributed net income for 1958 will take into account the
accumulation distribution for 1959, and the additional amount of taxes
imposed on the trust for 1958 deemed distributed. The undistributed net
income for 1958 will then be $1,906; and the taxes imposed on the trust
for 1958 will then be $458, determined as follows:
Undistributed portion of distributable net income as of the $12,100
close of 1958...............................................
Less:
Accumulation distribution (1959)................ $7,000
Taxes deemed distributed under section 666(c) 2,736
(7,000/8,700x$3,400)...........................
-----------
9,736
------------
Balance (undistributed portion of distributable net 2,364
income as of the close of 1959).........................
Less: Personal exemption..................................... 100
------------
Balance.................................................. 2,264
Taxes imposed on the trust (income taxes on $2,264).......... 458
------------
Undistributed portion of distributable net income as of the 2,364
close of 1959...............................................
Less: Income taxes attributable thereto...................... 458
------------
Undistributed net income for 1958 as of the close of 1959 1,906
(d) The accumulation distribution of $25,000 for 1960 is deemed to
have been made on the last day of the 5 preceding taxable years of the
trust to the extent of $17,546, the total of the undistributed net
income for such years, as shown in the tabulation below. In addition,
$7,018, the total taxes imposed on the trust for such years is also
deemed to
[[Page 234]]
have been distributed on the last day of such years, as shown below:
------------------------------------------------------------------------
Undistributed Taxes imposed on
Year net income the trust
------------------------------------------------------------------------
1959................................ None None
1958................................ $1,906 $458
1957................................ 10,900 5,200
1956................................ 4,740 1,360
1955................................ None None
------------------------------------------------------------------------
(e) No portion of the 1960 accumulation distribution is deemed made
on the last day of 1954 because, as to 1960, 1954 is the sixth preceding
taxable year.
Example 2. (a) Under the terms of a trust instrument, the trustee
has discretion to accumulate or distribute the income to X and to invade
corpus for the benefit of X. The entire income of the trust is from
royalties. Both X and the trust report on the calendar year basis. All
of the income for 1954 was accumulated. The distributable net income of
the trust for the taxable year 1954 is $20,100 and the income taxes paid
by the trust for 1954 with respect to its distributable net income are
$7,260. All of the income for 1955 and 1956 was distributed and in
addition the trustee made accumulation distributions within the meaning
of section 665(b) of $6,420 for each year.
(b) The undistributed net income of the trust determined under
section 665(a) as of the close of 1954, is $12,840, computed as follows:
Distributable net income.................................... $20,100
Less: Taxes imposed on the trust............................ 7,260
-----------
Undistributed net income as of the close of 1954........ 12,840
(c) The accumulation distribution of $6,420 made during the taxable
year 1955 is deemed under section 666(a) to have been made on December
31, 1954. Since this accumulation distribution is less than the 1954
undistributed net income of $12,840, a portion of the taxes imposed on
the trust for 1954 is also deemed under section 666(c) to have been
distributed on December 31, 1954. The total amount deemed to have been
distributed to X on December 31, 1954, is $10,050, computed as follows:
Accumulation distribution................................... $6,420
Taxes deemed distributed (6,420/ 12,840x$7,260)............. 3,630
-----------
Total................................................... 10,050
(d) After the application of the provisions of subpart D (section
665 and following), part I, subchapter J, chapter 1 of the Code, to the
accumulation distribution of 1955, the undistributed portion of the
distributable net income of the trust for 1954, is $10,050, and the
taxes imposed with respect thereto are $2,623, computed as follows:
Distributable net income as of the close of 1954............ $20,100
Less: 1955 accumulation distribution and taxes deemed 10,050
distributed on December 31, 1954 (paragraph (c) of this
example)...................................................
-----------
Undistributed portion of the 1954 distributable net 10,050
income adjusted as of the close of 1955................
Less: Personal exemption.................................... 100
-----------
Balance................................................. 9,950
Income taxes on $9,950...................................... 2,623
(e) The undistributed net income of the trust for the taxable year
1954, as adjusted to give effect to the 1955 accumulation distribution,
is $7,427, computed as follows:
Undistributed portion of distributable net income as of the $10,050
close of 1955..............................................
Less: Income taxes applicable thereto....................... 2,623
-----------
Undistributed net income determined as of the close of 7,427
1955...................................................
(f) Inasmuch as all of the income of the trust for the taxable year
1955 was distributed to X, the trust had no undistributed net income for
that year. Accordingly, the accumulation distribution of $6,420 made
during the taxable year 1956 is, under section 666(a), deemed a
distribution to X on December 31, 1954, within the meaning of section
661(a)(2). Since this accumulation distribution is less than the 1954
adjusted undistributed net income of $7,427, the trust is deemed under
section 666(c) also to have distributed on December 31, 1954, a portion
of the taxes imposed on the trust for 1954. The total amount deemed to
be distributed on December 31, 1954, with respect to the accumulation
distribution made in 1956, is $8,687, computed as follows:
Accumulation distribution................................... $6,420
Taxes deemed distributed (6,420/ 7,427x$2,623).............. 2,267
-----------
Total................................................... 8,687
(g) After the application of the provisions of subpart D to the
accumulation distribution of 1956, the undistributed portion of the
distributable net income of the trust for 1954, is $1,363, and the taxes
imposed on the trust with respect thereto are $253, computed as follows:
Undistributed portion of distributable net income as of the $10,050
close of 1955..............................................
Less: 1956 accumulation distribution and taxes deemed 8,687
distributed on December 31, 1954 (paragraph (f) of this
example)...................................................
-----------
Undistributed portion of distributable net income as of 1,363
the close of 1956......................................
Less: Personal exemption.................................... 100
-----------
Balance................................................. 1,263
Income taxes on $1,263...................................... 253
(h) The undistributed net income of the trust for the taxable year
1954, determined as of the close of the taxable year 1956, is $1,110
($1,363 less $253).
[[Page 235]]
Sec. 1.667-1 Denial of refund to trusts.
(a) If an amount is deemed under section 666 to be an amount paid,
credited, or required to be distributed on the last day of a preceding
taxable year, the trust is not allowed a refund or credit of the amount
of ``taxes imposed on the trust'', as defined in Sec. 1.665(d)-1, which
would not have been payable for the preceding taxable year had the trust
in fact made such distribution on the last day of such year. However,
such taxes are allowed as a credit under section 668(b) against the tax
of the beneficiaries who are treated as having received the
distributions in the preceding taxable year. The amount of taxes which
may not be refunded or credited to the trust under this paragraph and
which are allowed as a credit under section 668(b) against the tax of
the beneficiaries, is an amount equal to the excess of:
(1) The taxes imposed on the trust (as defined in section 665(d) and
Sec. 1.655(d)-1) for any preceding taxable year (computed without
regard to the accumulation distribution for the taxable year) over
(2) The amount of taxes for such preceding taxable year which would
be imposed on the undistributed portion of distributable net income of
the trust for such preceding taxable year after the application of
subpart D (section 665 and following), part I, subchapter J, chapter 1
of the Code, on account of the accumulation distribution determined for
the taxable year.
It should be noted that the credit under section 667 is computed by the
use of a different ratio from that used for computing the amount of
taxes deemed distributed under section 666(c).
(b) Paragraph (a) of this section may be illustrated by the
following examples:
Example 1. In 1954, a trust of which A is the sole beneficiary has
taxable income of $20,000 (including capital gains of $5,100 allocable
to corpus less a personal exemption of $100), on which a tax of $7,260
is paid.
The undistributed portion of distributable net income is $15,000, to
which $6,160 of the tax is allocable under section 665. The
undistributed net income is therefore $8,840 ($15,000 minus $6,160). In
1955, the trust makes an accumulation distribution of $8,840. Under
section 666(b), the total taxes for 1954 attributable to the
undistributed net income are deemed distributed, so $15,000 is deemed
distributed. The amount of the tax which may not be refunded to the
trust under section 667 and the credit to which A is entitled under
section 668(b) is the excess of $6,160 over zero, since after the
distribution and the application of subpart D there is no remaining
undistributed portion of distributable net income for 1954.
Example 2. The same trust as in example 1 of this paragraph
distributes $5,000 in 1955, rather than $8,840. The amount of the tax
which may not be refunded to the trust but which is available to A as a
credit is $4,044, computed as follows:
Accumulation distribution in 1955............................ $5,000
Taxes deemed distributed under section 666(c) (5,000/ 3,484
8,840x$6,160)...............................................
------------
Total amount deemed distributed out of the undistributed 8,484
portion of distributable net income.....................
============
Tax attributable to the undistributed portion of 6,160
distributable net income ($15,000) before 1955 distribution
(see example 1 of this paragraph)...........................
Tax on $11,516 (taxable income of $20,000 minus $3,216
$8,484, amount deemed distributed)...............
Tax on $5,000 (capital gains of $5,100, less 1,100
personal exemption of $100, allocable to corpus).
-----------
Tax attributable to undistributed portion of distributable 2,116
net income after 1955 distribution..........................
------------
Refund disallowed to the trust and credit available to A 4,044
in 1955.................................................
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
741, Jan. 17, 1969]
Sec. 1.667(a)-1A Denial of refund to trusts.
If an amount is deemed under section 666 or 669 to be an amount
paid, credited, or required to be distributed on the last day of a
preceding taxable year, the trust is not allowed a refund or credit of
the amount of ``taxes imposed on the trust'', as defined in Sec.
1.665(d)-1A. However, such taxes imposed on the trust are allowed as a
credit under section 667(b) against the tax of certain beneficiaries who
are treated as having received the distributions in the preceding
taxable year.
[T.D. 7204, 37 FR 17147, Aug. 25, 1972]
Sec. 1.667(b)-1A Authorization of credit to beneficiary for taxes
imposed on the trust.
(a) Determination of credit--(1) In general. Section 667(b) allows
under certain
[[Page 236]]
circumstances a credit (without interest) against the tax imposed by
subtitle A of the Code on the beneficiary for the taxable year in which
the accumulation distribution is required to be included in income under
section 668(a). In the case of an accumulation distribution consisting
only of undistributed net income, the amount of such credit is the total
of the taxes deemed distributed to such beneficiary under section 666
(b) and (c) as a result of such accumulation distribution for preceding
taxable years of the trust on the last day of which such beneficiary was
in being, less the amount of such taxes for such preceding taxable years
taken into account in reducing the amount of partial tax determined
under Sec. 1.668(b)-1A. In the case of an accumulation distribution
consisting only of undistributed capital gain, the amount of such credit
is the total of the taxes deemed distributed as a result of the
accumulation distribution to such beneficiary under section 669 (d) and
(e) for preceding taxable years of the trust on the last day of which
such beneficiary was in being, less the amount of such taxes for such
preceding taxable years taken into account in reducing the amount of
partial tax determined under Sec. 1.669(b)-1A. In the case of an
accumulation distribution consisting of both undistributed net income
and undistributed capital gain, a credit will not be available unless
the total taxes deemed distributed to the beneficiary for all preceding
taxable years as a result of the accumulation distribution exceeds the
beneficiary's partial tax determined under Sec. Sec. 1.668(b)-1A and
1.669(b)-1A without reference to the taxes deemed distributed. A credit
is not allowed for any taxes deemed distributed as a result of an
accumulation distribution to a beneficiary by reason of sections 666 (b)
and (c) or sections 669 (d) and (e) for a preceding taxable year of the
trust before the beneficiary was born or created. However, if as a
result of an accumulation distribution the total taxes deemed
distributed under sections 668(a)(2) and 668(a)(3) in preceding taxable
years before the beneficiary was born or created exceed the partial
taxes attributable to amounts deemed distributed in such years, such
excess may be used to offset any liability for partial taxes
attributable to amounts deemed distributed as a result of the same
accumulation distribution in preceding taxable years after the
beneficiary was born or created.
(2) Exact method. In the case of the tax computed under the exact
method provided in Sec. Sec. 1.668(b)-1A(b) and 1.669(b)-1A(b), the
credit allowed by this section is computed as follows:
(i) Compute the total taxes deemed distributed under Sec. Sec.
1.666(b)-1A and 1.666(c)-1A or Sec. Sec. 1.669(d)-1A and 1.669(e)-1A,
whichever are appropriate, for the preceding taxable years of the trust
on the last day of which the beneficiary was in being.
(ii) Compute the total of the amounts of tax determined under Sec.
1.668(b)-1A(b)(1) or Sec. 1.669(b)-1A(b) (1), whichever is appropriate,
for the prior taxable years of the beneficiary in which he was in being.
If the amount determined under subdivision (i) of this subparagraph does
not exceed the amount determined under subdivision (ii) of this
subparagraph, no credit is allowable. If the amount determined under
subdivision (i) of this subparagraph exceeds the amount determined under
subdivision (ii) of this subparagraph, the credit allowable is the
lesser of the amount of such excess or the amount of taxes deemed
distributed to the beneficiary for all preceding taxable years to the
extent that such taxes are not used in Sec. 1.668(b)-1A(b)(2) or Sec.
1.669(b)-1A(b)(2) in determining the beneficiary's partial tax under
section 668(a)(2) or 668(a)(3). The application of this subparagraph may
be illustrated by the following example:
Example. An accumulation distribution made in 1975 is deemed
distribution in 1973 and 1974, years in which the beneficiary was in
being. The taxes deemed distributed in such years are $4,000 and $2,000,
respectively, totaling $6,000. The amounts of tax computed under Sec.
1.668(b)-1A(b)(1) attributable to the amounts thrown back are $3,000 and
$2,000, respectively, totaling $5,000. The credit allowable under this
subparagraph is therefore $1,000 ($6,000 less $5,000).
(3) Short-cut method. In the case of the tax computed under the
short-cut method provided in Sec. 1.668(b)-1A(c) or
[[Page 237]]
Sec. 1.669(b)-1A(c), the credit allowed by this section is computed as
follows:
(i) Compute the total taxes deemed distributed in all preceding
taxable years of the trust under Sec. Sec. 1.666(b)-1A and 1.666(c)-1A
or Sec. Sec. 1.669(d)-1A and 1.669(e)-1A, whichever are appropriate.
(ii) Compute the beneficiary's partial tax determined under either
Sec. 1.668(b)- 1A(c)(1)(v) or Sec. 1.669(b)-1A (c)(1)(v), whichever is
appropriate.
If the amount determined under subdivision (i) of this subparagraph does
not exceed the amount determined under subdivision (ii) of this
subparagraph, no credit is allowable. If the amount determined under
subdivision (i) of this subparagraph exceeds the amount determined under
subdivision (ii) of this subparagraph,
(iii) Compute the total taxes deemed distributed under Sec. Sec.
1.666(b)-1A and 1.666(c)-1A or Sec. Sec. 1.669(d)-1A and 1.669(e)-1A,
which are appropriate, for the preceding taxable years of the trust on
the last day of which the beneficiary was in being.
(iv) Multiply the amount by which subdivision (i) of this
subparagraph exceeds subdivision (ii) of this subparagraph by a
fraction, the numerator of which is the amount determined under
subdivision (iii) of this subparagraph and the denominator of which is
the amount determined under subdivision (i) of this subparagraph. The
result is the allowable credit. The application of this subparagraph may
be illustrated by the following example:
Example. An accumulation distribution that consists only of
undistributed net income is made in 1975. The taxes deemed distributed
in the preceding years under Sec. Sec. 1.666(b)-1A and 1.666(c)-1A are
$15,000. The amount determined under Sec. 1.668(b)-1A(c)(1)(v) is
$12,000. The beneficiary was in being on the last day of all but one
preceding taxable year in which the accumulation distribution was deemed
made, and the taxes deemed distributed in those years was $10,000.
Therefore, the excess of the subdivision (i) amount over the subdivision
(ii) amount is $3,000, and is multiplied by 10,000/15,000, resulting in
an answer of $2,000, which is the credit allowable when computed under
the short-cut method.
(b) Year of credit. The credit to which a beneficiary is entitled
under this section is allowed for the taxable year in which the
accumulation distribution (to which the credit relates) is required to
be included in the income of the beneficiary under section 668(a). Any
excess over the total tax liability of the beneficiary for such year is
treated as an overpayment of tax by the beneficiary. See section 6401(b)
and the regulations thereunder.
[T.D. 7204, 37 FR 17147, Aug. 25, 1972]
Sec. 1.668(a)-1A Amounts treated as received in prior taxable years;
inclusion in gross income.
(a) Section 668(a) provides that the total of the amounts treated
under sections 666 and 669 as having been distributed by the trust on
the last day of a preceding taxable year of the trust shall be included
in the income of the beneficiary or beneficiaries receiving them. The
total of such amounts is includable in the income of each beneficiary to
the extent the amounts would have been included under section 662 (a)(2)
and (b) as if the total had actually been an amount properly paid by the
trust under section 661 (a)(2) on the last day of such preceding taxable
year. The total is included in the income of the beneficiary for the
taxable year of the beneficiary in which such amounts are in fact paid,
credited, or required to be distributed unless the taxable year of the
beneficiary differs from the taxable year of the trust (see section
662(c) and the regulations thereunder). The character of the amounts
treated as received by a beneficiary in prior taxable years, including
taxes deemed distributed, in the hands of the beneficiary is determined
by the rules set forth in section 662(b) and the regulations thereunder.
(b) Any deduction allowed to the trust in computing distributable
net income for a preceding taxable year (such as depreciation,
depletion, etc.) is not deemed allocable to a beneficiary because of
amounts included in a beneficiary's gross income under this section
since the deduction has already been utilized in reducing the amount
included in the beneficiary's income.
(c) For purposes of applying section 668(a)(3), a trust shall be
considered to be other than a ``trust which is not required to
distribute all of its income currently'' for each taxable year prior to
the first taxable year beginning
[[Page 238]]
after December 31, 1968, and ending after November 30, 1969, in which
income is accumulated. Income will not be deemed to have been
accumulated for purposes of applying section 668(a)(3) in a year if the
trustee makes a determination, as evidenced by a statement on the
return, to distribute all of the trust's income for such year and also
makes a good faith determination as to the amount of such income and
actually distributed for such year the entire amount so determined. The
term ``income,'' as used in the preceding two sentences, is defined in
Sec. Sec. 1.643(b)-1 and 1.643(b)-2. Since, under such definitions,
certain items may be included in distributable net income but are not,
under applicable local law, ``income'' (as, for example, certain
extraordinary dividends), a trust that has undistributed net income from
such sources might still qualify as a trust that has not accumulated
income. Also, for example, if a trust establishes a reserve for
depreciation or depletion and applicable local law permits the deduction
for such reserve in the computation of ``income,'' amounts so added to
the reserve do not constitute an accumulation of income. If a trust has
separate shares, and any share accumulates income, all shares of the
trust will be considered to have accumulated income for purposes of
section 668(a)(3). Amounts retained by a trust or a portion of a trust
that is subject to subpart E (sections 671-678) shall not be considered
accumulated income.
(d) See section 1302(a)(2)(B) to the effect that amounts included in
the income of a beneficiary of a trust under section 668(a) are not
eligible for income averaging.
[T.D. 7204, 37 FR 17148, Aug. 25, 1972]
Sec. 1.668(a)-2A Allocation among beneficiaries; in general.
The portion of the total amount includible in income under Sec.
1.668(a)-1A which is includible in the income of a particular
beneficiary is based upon the ratio determined under the second sentence
of section 662(a)(2) for the taxable year (and not for the preceding
taxable year). This section may be illustrated by the following example:
Example. (a) Under the terms of a trust instrument, the trustee may
accumulate the income or make distributions to A and B. The trustee may
also invade corpus for the benefit of A and B. The distributable net
income of the trust for taxable year 1975 is $10,000. The trust had
undistributed net income for taxable year 1973, the first year of the
trust, of $5,000, to which a tax of $1,100 was allocable. On May 1,
1975, the trustee distributes $10,000 to A, and on November 29, 1975, he
distributes $5,000 to B. Thus, of the total distribution of $15,000, A
received two-thirds and B receives one-third.
(b) For the purposes of determining the amounts includible in the
beneficiaries' gross income for 1975, the trust is deemed to have made
the following distributions:
Amount distributed out of 1975 income (distributable net $10,000
income).....................................................
Accumulation distribution deemed distributed by the trust on 5,000
the last day of 1973 under section 666(a)...................
Taxes imposed on the trust attributable to the undistributed 1,100
net income deemed distributed under section 666(b)..........
(c) A will include in his income for 1975 two-thirds of each item
shown in paragraph (b) of this example. Thus, he will include in gross
income $6,666.67 (10,000/15,000x $10,000) of the 1975 distributable net
income of the trust as provided in section 662(a)(2) (which is not an
amount includable in his income under Sec. 1.668(a)-1A(a)). He will
include in his income $3,333.33 (10,000/15,000x$5,000) of the
accumulation distribution and $733.33 (10,000/15,000x $1,100) of the
taxes imposed on the trust, as provided in section 668(a).
(d) B will include in his income for 1975 one-third of each item
shown in paragraph (b) of this example, computed in the manner shown in
paragraph (c) of this example.
(e) To the extent the total accumulation distribution consists of
undistributed net income and undistributed capital gain, A and B shall
be treated as receiving a pro rata share of each for the preceding
taxable year 1973.
[T.D. 7204, 37 FR 17148, Aug. 25, 1972]
Sec. 1.668(a)-3A Determination of tax.
In a taxable year in which an amount is included in a beneficiary's
income under Sec. 1.668(a)-1A(a), the tax on the beneficiary for such
taxable year is determined only as provided in section 668 and consists
of the sum of:
(a) A partial tax computed on (1) the beneficiary's taxable income
reduced by (2) an amount equal to the total amounts includible in his
income under Sec. 1.668(a)-1A(a), at the rate and in the manner as if
section 668 had not been enacted,
[[Page 239]]
(b) A partial tax determined as provided in Sec. 1.668(b)-1A, and
(c) In the case of a beneficiary of a trust which is not required to
distribute all of its income currently, a partial tax determined as
provided in Sec. 1.669(b)-1A.
[T.D. 7204, 37 FR 17148, Aug. 25, 1972]
Sec. 1.668(b)-1A Tax on distribution.
(a) In general. The partial tax imposed on the beneficiary by
section 668(a)(2) shall be the lesser of:
(1) The tax computed under paragraph (b) of this section (the
``exact'' method), or
(2) The tax computed under paragraph (c) of this section (the
``short-cut'' method),
except as provided in Sec. 1.668(b)-4A (relating to failure to furnish
proper information) and paragraph (d) of this section (relating to
disallowance of short-cut method). For purposes of this paragraph, the
method used in the return shall be accepted as the method that produces
the lesser tax. The beneficiary's choice of the two methods is not
dependent upon the method that he uses to compute his partial tax
imposed by section 668(a)(3).
(b) Computation of partial tax by the exact method. The partial tax
referred to in paragraph (a)(1) of this section is computed as follows:
(1) First, compute the tax attributable to the section 666 amounts
for each of the preceding taxable years. For purposes of this paragraph,
the ``section 666 amounts'' for a preceding taxable year are the amounts
deemed distributed under section 666(a) on the last day of the preceding
taxable year, plus the amount of taxes deemed distributed on such day
under section 666 (b) or (c). The tax attributable to such amounts in
each prior taxable year of the beneficiary is the difference between the
tax for such year computed with the inclusion of the section 666 amounts
in the beneficiary's gross income and the tax for such year computed
without including them in such gross income. Tax computations for each
such year shall reflect a taxpayer's marital, dependency, exemption, and
filing status for such year. To the extent the undistributed net income
of a trust deemed distributed in an accumulation distribution includes
amounts received as an accumulation distribution from another trust, for
purposes of this paragraph they shall be considered as amounts deemed
distributed by the trust under section 666(a) on the last day of each of
the preceding taxable years in which such amounts were accumulated by
such other trust. For example, assume trust Z, a calendar year trust,
received in its taxable year 1975 an accumulation distribution from
trust Y, a calendar year trust, that included undistributed net income
and taxes of trust Y for the taxable years 1972, 1973, and 1974. To the
extent an accumulation distribution made by trust Z in its taxable year
1976 includes such undistributed net income and taxes, it shall be
considered an accumulation distribution by trust Z in the taxable year
1976 and under section 666(a) will be deemed distributed on the last day
of the preceding taxable years 1972, 1973, and 1974.
(2) From the sum of the taxes for the prior taxable years
attributable to the section 666 amounts (computed in accordance with
subparagraph (1) of this paragraph), subtract so much of the amount of
taxes deemed distributed to the beneficiary under Sec. Sec. 1.666(b)-1A
and 1.666(c)-1A as does not exceed such sum. The resulting amount, if
any, is the partial tax, computed under the exact method, for the
taxable year in which the accumulation distribution is paid, credited,
or required to be distributed to the beneficiary.
(3) The provisions of this paragraph may be illustrated by the
following example:
Example. (i) Assume that in 1979 a trust makes an accumulation
distribution of $15,000 to A. The accumulation distribution is allocated
under section 666(a) in the amounts of $5,000 to 1971, $4,000 to 1972,
and $6,000 to 1973. Under section 666 (b) and (c), taxes in the amounts
of $935, $715, and $1,155 (totaling $2,805) are deemed distributed in
1971, 1972, and 1973, respectively.
(ii) A, the beneficiary, had taxable income and paid income tax in
1971-73 as follows:
------------------------------------------------------------------------
Year Taxable income Tax
------------------------------------------------------------------------
1971.............................. $10,000 $2,190
1972.............................. 12,000 2,830
1973.............................. 14,000 3,550
------------------------------------------------------------------------
[[Page 240]]
(iii) Taxes attributable to the section 666 amounts (paragraph (i)
of this example) are $6,979, computed as follows:
1971
Taxable income including section 666 amounts $15,935
($10,000 + $5,000 + $935)........................
Tax on $15,935............................................... $4,305
Less: Tax paid by A in 1971.................................. 2,190
------------
Tax attributable to 1971 section 666 amounts................. 2,115
1972
Taxable income including section 666 amounts $16,715
($12,000 + $4,000 + $715)........................
Tax on $16,715............................................... $4,620
Less: Tax paid by A in 1972.................................. 2,830
------------
Tax attributable to 1972 section 666 amounts................. 1,790
1973
Taxable income including section 666 amounts $21,155
($14,000 + $6,000 + $1,155)......................
Tax on $21,155............................................... $6,624
Less: Tax paid by A in 1973.................................. 3,550
------------
Tax attributable to 1973 section 666 amounts................. 3,074
Total tax attributable to section 666 amounts:
1971............................................ $2,115
1972............................................ 1,790
1973............................................ 3,074
-----------
Total......................................... 6,979
(iv) The partial tax computed under the exact method is $4,174,
computed by subtracting the taxes deemed distributed ($2,805) from the
tax attributable to the section 666 amounts ($6,979).
(c) Computation of tax by the short- cut method. (1) The tax
referred to in paragraph (a)(2) of this section is computed as follows:
(i) First, determine the number of preceding taxable years of the
trust on the last day of which an amount is deemed under section 666(a)
to have been distributed. For purposes of the preceding sentence, the
preceding taxable years of a trust that has received an accumulation
distribution from another trust shall include the taxable years of such
other trust in which an amount was deemed distributed in such
accumulation distribution. For example, assume trust Z, a calendar year
trust, received in its taxable year 1975 an accumulation distribution
from trust Y, a calendar year trust, that included undistributed net
income of trust Y for the taxable years 1972, 1973, and 1974. To the
extent an accumulation distribution made by trust Z in its taxable year
1976 includes such undistributed net income, it shall be considered an
accumulation distribution by trust Z in the taxable year 1976 and under
section 666(a) will be deemed distributed on the last day of the
preceding taxable years 1972, 1973, and 1974. For purposes of this
subparagraph, such number of preceding taxable years of the trust shall
not include any preceding taxable year of the trust in which the
undistributed net income deemed distributed is less than 25 percent of
(a) the total amounts deemed under section 666(a) to be undistributed
net income from preceding taxable years divided by (b) the number of
such preceding taxable years of the trust on the last day of which an
amount is deemed under section 666(a) to have been distributed without
application of this sentence. For example, assume that an accumulation
distribution of $90,000 made to a beneficiary in 1979 is deemed
distributed in the amounts of $29,000 in each of the years 1972, 1973,
and 1974, and $3,000 in 1975. The number of preceding taxable years on
the last day of which an amount was deemed distributed without reference
to the second sentence of this subparagraph is four. However, the
distribution deemed made in 1975 ($3,000) is less than $5,625, which is
25 percent of (a) the total undistributed net income deemed distributed
under section 666(a) ($90,000) divided by (b) the number of such
preceding taxable years (4), or $22,500. Therefore, for purposes of this
subparagraph the accumulation distribution is deemed distributed in only
3 preceding taxable years (1972, 1973, and 1974).
(ii) Second, divide the amount (representing the accumulation
distribution and taxes deemed distributed) required under section 668(a)
to be included in the income of the beneficiary for the taxable year by
the number of preceding taxable years of the trust on the last day of
which an amount is deemed under section 666(a) to have been distributed
(determined as provided in subdivision (i) of this subparagraph). The
amount determined under this subdivision, including taxes deemed
distributed, consists of the same proportion of each class of income as
the total of each class of income deemed distributed in the accumulation
distribution bears to the total undistributed net income from such
preceding taxable years deemed
[[Page 241]]
distributed in the accumulation distribution. For example, assume that
an amount of $50,000 is deemed distributed under section 666(a) from
undistributed net income of 5 preceding taxable years of the trust, and
consists of $25,000 of interest, $15,000 of dividends, and $10,000 of
net rental income. Taxes attributable to such amounts in the amount of
$10,000 are also deemed distributed. The amount determined under this
subdivision, $12,000 ($50,000 income plus $10,000 tax divided by 5
years), is deemed to consist of $6,000 in interest, $3,600 in dividends,
and $2,400 in net rental income.
(iii) Third, compute the tax of the beneficiary for each of the 3
taxable years immediately preceding the year in which the accumulation
distribution is paid, credited, or required to be distributed to him,
(a) With the inclusion in gross income of the beneficiary for each
of such 3 years of the amount determined under subdivision (ii) of this
subparagraph, and
(b) Without such inclusion.
The difference between the amount of tax computed under (a) of this
subdivision for each year and the amount computed under (b) of this
subdivision for that year is the additional tax resulting from the
inclusion in gross income for that year of the amount determined under
subdivision (ii) of this subparagraph. For example, assume that a
distribution of $12,000, is includible in the income of each of the
beneficiary's 3 preceding taxable years when his income (without the
inclusion of the accumulation distribution) was $20,000, $30,000, and
$40,000. The inclusion of $12,000 in income would produce taxable income
of $32,000, $42,000, and $52,000, and the tax attributable to such
increases would be $4,000, $5,000, and $6,000, respectively.
(iv) Fourth, add the additional taxes resulting from the application
of subdivision (iii) of this subparagraph and then divide this amount by
3. For example, if these additional taxes are $4,000, $5,000, and $6,000
for the 3 preceding taxable years, this amount would be $5,000
($4,000+$5,000+ $6,000 divided by 3).
(v) Fifth, the resulting amount is then multiplied by the number of
preceding taxable years of the trust on the last day of which an amount
is deemed under section 666(a) to have been distributed (previously
determined under subdivision (i) of this subparagraph). For example, if
an amount is deemed distributed for 5 preceding taxable years, the
resulting amount would be five times the $5,000 amount.
(vi) Sixth, the resulting amount, less so much of the amount of
taxes deemed distributed to the beneficiary under Sec. Sec. 1.666(b)-1A
and 1.666(c)-1A as does not exceed such resulting amount, is the tax
under the short-cut method provided in section 668(b)(1)(B).
(2) The computation of the tax by the short-cut method may be
illustrated by the following example:
Example. In 1971, X creates a trust which is to accumulate its
income and pay the income to Y when Y reaches 30. Y is 19. Over the 11
years of the trust, the trust earns $1,200 of interest income annually
and has expenses each year of $100 allocable to the production of
income. The trust pays a total tax of $1,450 on the accumulated income.
In 1981, when Y reaches 30, the $9,550 of accumulated undistributed net
income and the $1,100 of current net income are distributed to Y. Y is
treated as having received a total distribution of $11,000 (the $9,550
accumulation distribution plus the taxes paid by the trust which are
deemed to have been distributed to Y). The income of the current year
(1981) is taxed directly to Y. The computation is as follows: $11,000
(accumulation distribution plus taxes) divided by 10 (number of years
out of which distribution was made) equals $1,100. The $1,100 added to
the income of the beneficiary's preceding 3 years produces increases in
tax as follows:
1980................................................ $350
1979................................................ 300
1978................................................ 250
-----------------
Total............................................. 900
$900 (total additional tax) divided by 3 equals $300 (average annual
increase in tax). $300 (average annual increase in tax) times 10 equals
$3,000, from which is deducted the amount of taxes ($1,450) paid by the
trust attributable to the undistributed net income deemed distributed.
The amount of tax to be paid currently under the short-cut method is
therefore $1,550.
(d) Disallowance of short-cut method. If, in any prior taxable year
of the beneficiary in which any part of the accumulation distribution of
undistributed net income is deemed to have been distributed under
section 666(a) to such
[[Page 242]]
beneficiary, any part of prior accumulation distributions of
undistributed net income by each of two or more other trusts is deemed
under section 666(a) to have been distributed to such beneficiary, then
the short-cut method under paragraph (c) of this section may not be used
and the partial tax imposed by section 668(a)(2) shall be computed only
under the exact method under paragraph (b) of this section. For example,
assume that, in 1978, trust X makes an accumulation distribution of
undistributed net income to A, who is on the calendar year basis, and
part of the accumulation distribution is deemed under section 666(a) to
have been distributed on March 31, 1974. In 1977, A had received an
accumulation distribution of undistributed net income from both trust Y
and trust Z. Part of the accumulation distribution from trust Y was
deemed under section 666(a) to have been distributed to A on June 30,
1974, and part of the accumulation distribution from trust Z was deemed
under section 666(a) to have been distributed to A on December 31, 1974.
Because there were portions of accumulation distributions of
undistributed net income from two other trusts deemed distributed within
the same prior taxable year of A (1974), the 1978 accumulation
distribution from trust X may not be computed under the short-cut method
provided in paragraph (c) of this section. Therefore the exact method
under paragraph (b) of this section must be used to compute the tax
imposed by section 666(a)(2).
[T.D. 7204, 37 FR 17149, Aug. 25, 1972]
Sec. 1.668(b)-2A Special rules applicable to section 668.
(a) Rule when beneficiary not in existence on the last day of a
taxable year. If a beneficiary was not in existence on the last day of a
preceding taxable year of the trust with respect to which a distribution
is deemed made under section 666(a), it shall be assumed, for purposes
of the computations under paragraphs (b) and (c) of Sec. 1.668(b)-1A,
that the beneficiary:
(1) Was in existence on such last day,
(2) Was a calendar year taxpayer,
(3) Had no gross income other than the amounts deemed distributed to
him from such trust in his calendar year in which such last day occurred
and from all other trusts from which amounts are deemed to have been
distributed to him in such calendar year,
(4) If an individual, was unmarried and had no dependents,
(5) Had no deductions other than the standard deduction, if
applicable, under section 141 for such calendar year, and
(6) Was entitled to the personal exemption under section 151 or
642(b).
For example, assume that part of an accumulation distribution made in
1980 is deemed under section 666(a) to have been distributed to the
beneficiary, A, in 1973; $10,000 of a prior accumulation distribution
was deemed distributed in 1973. A was born on October 9, 1975. It will
be assumed for purposes of Sec. 1.668(b)-1A that A was alive in 1973,
was on the calendar year basis, had no income other than (i) the $10,000
from the earlier accumulation distribution deemed distributed in 1973,
and (ii) the part of the 1980 distribution deemed distributed in 1973,
and had no deductions other than the personal exemption provided in
section 151. It should be noted that the standard deduction for 1973
will be available to A with respect to the distribution only to the
extent it qualifies as ``earned income'' in the hands of the trust. See
section 141(e) and the regulations thereunder and Sec. 1.652(b)-1. If A
were a trust or estate created after 1973, the same assumptions would
apply, except that the trust or estate would not be entitled to the
standard deduction and would receive the personal exemption provided
under section 642(b) in the same manner as allowed under such section
for A's first actual taxable year.
(b) Effect of other distributions. The income of the beneficiary,
for any of his prior taxable years for which a tax is being recomputed
under Sec. 1.668(b)-1A, shall include any amounts of prior accumulation
distributions (including prior capital gain distributions) deemed
distributed under sections 666 and 669 in such prior taxable year. For
purposes of the preceding sentence, a ``prior accumulation
distribution'' is a distribution from the same or another trust which
was paid, credited, or required to be distributed in a prior taxable
year of the beneficiary. The term ``prior accumulation distribution''
also
[[Page 243]]
includes accumulation distributions of other trusts which were paid,
credited, or required to be distributed to the beneficiary in the same
taxable year and which the beneficiary has determined under paragraph
(c) of this section to treat as having been distributed before the
accumulation distribution for which tax is being computed under Sec.
1.668(b)-1A. Any capital gain distribution from the same trust paid,
credited, or required to be distributed in the same taxable year of the
beneficiary shall not be considered under this paragraph to be a ``prior
capital gain distribution.''
(c) Multiple distributions in the same taxable year. For purposes of
paragraph (b) of this section, accumulation distributions made from more
than one trust in the same taxable year of the beneficiary, regardless
of when in the taxable year they were actually made, shall be treated as
having been made consecutively, in whichever order the beneficiary may
determine. However, the beneficiary must treat them as having been made
in the same order for the purpose of computing the partial tax on the
several accumulation distributions. The beneficiary shall indicate the
order he has determined to deem the accumulation distributions to have
been received by him on his return for the taxable year. A failure by
him so to indicate, however, shall not affect his right to make such
determination. The purpose of this rule is to assure that the tax
resulting from the later (as so deemed under this paragraph)
distribution is computed with the inclusion of the earlier distribution
in the taxable base and that the tax resulting from the earlier (as so
deemed under this paragraph) distribution is computed with the later
distribution excluded from the taxable base.
(d) Examples. The provisions of paragraphs (b) and (c) of this
section may be illustrated by the following examples:
Example 1. In 1978, trust X made an accumulation distribution of
undistributed net income to A, a calendar year taxpayer, of which $3,000
was deemed to have been distributed in 1974. In 1980, trust X makes
another accumulation distribution of undistributed net income to A,
$10,000 of which is deemed under section 666 to have been distributed in
1974. Also in 1980, trust Y makes an accumulation distribution of
undistributed net income to A, of which $5,000 is deemed under section
666 to have been distributed in 1974. A determines to treat the 1980
distribution from trust Y as having been made prior to the 1980
distribution from trust X. In computing the tax on the 1980 trust Y
distribution, A's gross income for 1974 includes (i) the $3,000 deemed
distributed from the 1978 distribution, and (ii) the $5,000 deemed
distributed in 1974 from the 1980 trust Y accumulation distribution. To
compute A's tax under the exact method for 1974 on the $10,000 from the
1980 trust X accumulation distribution deemed distributed in 1974, A's
gross income for 1974 includes (i) the $10,000, (ii) the $3,000
previously deemed distributed in 1974 from the 1978 trust X accumulation
distribution, and (iii) the $5,000 deemed distribution in 1974 from the
1980 trust Y accumulation distribution.
Example 2. In 1978, trust T makes an accumulation distribution of
undistributed net income to B, a calendar year taxpayer. Determination
of the tax on the accumulation distribution under the short-cut method
requires the use of B's gross income for 1975, 1976, and 1977. In 1977,
B received an accumulation distribution of undistributed net income from
trust U, of which $2,000 was deemed to have been distributed in 1975,
and $3,000 in 1976. B's gross income for 1975, for purposes of using the
short-cut method to determine the tax from the trust T accumulation
distribution, will be deemed to include the $2,000 deemed distributed in
1975 by trust U, and his gross income for 1976 will be deemed to include
the $3,000 deemed distributed by trust U in 1976.
[T.D. 7204, 37 FR 17151, Aug. 25, 1972]
Sec. 1.668(b)-3A Computation of the beneficiary's income and tax for a
prior taxable year.
(a) Basis for computation. (1) The beneficiary's income and tax paid
for any prior taxable year for which a recomputation is involved under
either the exact method or the short-cut method shall be determined by
reference to the information required to be furnished by him under Sec.
1.668(b)- 4A(a). The gross income, related deductions, and taxes paid
for a prior taxable year of the beneficiary as finally determined shall
be used for computation purposes. The term ``as finally determined'' has
reference to the final status of the gross income, deductions, credits,
and taxes of the taxable year after the expiration of the period of
limitations or after completion of any
[[Page 244]]
court action regarding the tax for the taxable year.
(2) If any computations rely on the beneficiary's return for a prior
taxable year for which the applicable period of limitations on
assessment under section 6501 has expired, and such return shows a
mathematical error on its face which resulted in the wrong amount of tax
being paid for such year, the determination of both the tax for such
year computed with the inclusion of the section 666 amount in the
beneficiary's gross income and the tax for such year computed without
including such amounts in such gross income shall be based upon the
return after the correction of such mathematical errors, and the
beneficiary shall be credited for the correct amount of tax that should
have been properly paid.
(b) Effect of allocation of undistributed net income on items based
on amount of income and with respect to a net operating loss, a
charitable contributions carryover, or a capital loss carryover. (1) In
computing the tax for any taxable year under either the exact method or
the short-cut method, any item which depends upon the amount of gross
income, adjusted gross income, or taxable income shall be recomputed to
take into consideration the amount of undistributed net income allocated
to such year. For example, if $1,000 of undistributed net income is
allocated to 1970, adjusted gross income for 1970 is increased from
$5,000 to $6,000. The allowable 50 percent charitable deduction under
section 170(b)(1)(A) is then increased and the amount of the
nondeductible medical expenses under section 213 (3 percent of adjusted
gross income) is also increased.
(2) In computing the tax attributable to the undistributed net
income deemed distributed to the beneficiary in any of his prior taxable
years under either the exact method or the short-cut method, the effect
of amounts of undistributed net income on a net operating loss carryback
or carryover, a charitable contributions carryover, or a capital loss
carryback or carryover, shall be taken into account. In determining the
amount of tax attributable to such deemed distribution, a computation
shall also be made for any taxable year which is affected by a net
operating loss carryback or carryover, by a charitable contributions
carryover, or by a capital loss carryback or carryover determined by
reference to the taxable year to which amounts are allocated under
either method and which carryback or carryover is reduced or increased
by such amounts so allocated. The provisions of this subparagraph may be
illustrated by the following example:
Example. In 1978, a trust makes an accumulation distribution of
undistributed net income to X of $50,000 that is deemed under section
666(a) to have been distributed in 1972. X had income in 1972, 1973, and
1973, and had a net operating loss in 1975 that offset his taxable
income (computed as provided in Sec. 1.172-5) for those years, as
follows:
------------------------------------------------------------------------
Income after net
Actual income operating loss
Year (or loss) carryback
(n.o.l.c.b.)
------------------------------------------------------------------------
1972.............................. $10,000 $0
1973.............................. 50,000 0
1974.............................. 50,000 10,000
1975.............................. (100,000) 0
------------------------------------------------------------------------
As a result of the allocation of the 1973 accumulation distribution
to 1972, X's income for 1972, 1973, 1974, and 1975, after taking into
account the 1975 n.o.l.c.b., is deemed to be as follows:
------------------------------------------------------------------------
Income deemed to have been
earned after consideration of
Year n.o.l.c.b., and accumulation
distribution
------------------------------------------------------------------------
1972.................................. 0 ($10,000+$50,000-$60,000
n.o.l.c.b.).
1973.................................. $10,000 ($50,000-$40,000 balance
of n.o.l.c.b.).
1974.................................. $50,000.
1975.................................. 0.
------------------------------------------------------------------------
Therefore, the tax on the 1978 accumulation distribution to X is the
tax X would have paid in 1973 and 1974 had he had the above income in
such years.
(c) Averaging. A beneficiary who uses the exact method may recompute
his tax for a prior taxable year by using income averaging for all of
his actual income for that year, plus the amount deemed distributed in
that year under section 666, even though he may not have actually used
section 1301 to determine his income tax for such taxable year. For
purposes of such recomputation, the beneficiary's income for all other
taxable years involved must include any amounts deemed distributed in
such years from the current and all prior accumulation distributions.
See Sec. 1.668(b)-4A(c)(3) for additional information requirements. The
[[Page 245]]
beneficiary may not apply the provisions of this paragraph to a taxable
year in which an amount is deemed to be income by reason of Sec.
1.666(d)-1A(b). The accumulation distribution itself is not eligible for
income averaging in the years in which it is paid, credited, or required
to be distributed. See section 1302 (a)(2)(B) and the regulations
thereunder.
[T.D. 7204, 37 FR 17151, Aug. 25, 1972]
Sec. 1.668(b)-4A Information requirements with respect to beneficiary.
(a) Information to be supplied by beneficiary--(1) In general. The
beneficiary must supply the information required by subparagraph (3) of
this paragraph for any prior taxable year for which a recomputation is
required under either the exact method or the short-cut method. Such
information shall be filed with the beneficiary's return for the year in
which the tax under section 668(a)(2) is imposed.
(2) Failure to furnish. If the beneficiary fails to furnish the
information required by this paragraph for any prior year involved in
the exact method, he may not use such method and the tax computed under
paragraph (c) of Sec. 1.668(b)-1A (the short-cut method) shall be
deemed to be the amount of partial tax imposed by section 668(a)(2).
See, however, paragraph (b) of this section for an exception to this
rule where the short-cut method is not permitted. If he cannot furnish
the information required for a prior year involved in the short-cut
method, such year will be recomputed on the basis of the best
information available.
(3) Information required. The beneficiary shall file the following
items with his income tax return for the taxable year in which the
accumulation distribution is included in income:
(i) A statement showing the gross income, adjustments, deductions,
credits, taxes paid, and computations for each of his taxable years for
which a computation is required under the method by which he computes
his partial tax imposed by section 668(a)(2). Such statement shall
include such amounts for the taxable year as adjusted by any events
subsequent to such year, such as any adjustment resulting from the
determination of a deficiency or an overpayment, or from a court action
regarding the tax.
(ii) A copy of the statement required by this subparagraph to be
furnished by the beneficiary for any prior taxable year in which an
accumulation distribution was received by him which was also deemed
distributed in whole or in part in the prior taxable year for which the
statement under subdivision (i) of this subparagraph is required.
(iii) A copy of any statements furnished the beneficiary by the
trustee (such as schedules E and J of Form 1041, etc.) with regard to
the current taxable year or any prior taxable year for which a statement
is furnished under subdivision (i) of this subparagraph.
(b) Exception. If by reason of Sec. 1.668(b)-1A(e) the beneficiary
may not compute the partial tax on the accumulation distribution under
Sec. 1.668(b)-1A(c) (the short-cut method), the provisions of
subparagraph (2) of paragraph (a) of this section shall not apply. In
such case, if the beneficiary fails to provide the information required
by subparagraph (3) of paragraph (a) of this section for any prior
taxable year, the district director shall, by utilizing whatever
information is available to him (including information supplied by the
beneficiary), determine the beneficiary's income and related expenses
for such prior taxable year.
(c) Records to be supplied by the beneficiary--(1) Year when return
was filed. If the beneficiary filed an income tax return for a taxable
year for which a recomputation is necessary, and the period of
limitations on assessment under section 6501 for such year has expired
as of the filing of the return for the year in which the accumulation
distribution was made, then a copy of such return, plus proof of any
changes of liability for such year due to the determination of a
deficiency or an overpayment, court action, etc., shall, to the extent
they verify the statements required under paragraph (a) of this section,
serve as proof of such statements. If the period of limitations on
assessment under section 6501 for a prior taxable year has not expired
as of the filing of the beneficiary's return for the year in which the
accumulation distribution was received, then the
[[Page 246]]
records required by section 6001 to be retained by the beneficiary for
such prior taxable year shall serve as the basis of proof of the
statements required to be filed under paragraph (a) of this section.
(2) Year for which no return was filed. If the beneficiary did not
file a return for a taxable year for which a recomputation is necessary,
he shall be deemed to have had in such year, in the absence of proof to
the contrary, gross income in the amount equal to the maximum amount of
gross income that he could have received without having had to file a
return under section 6012 for such year.
(3) Distributions deemed averaged. In order for a beneficiary to use
income averaging with respect to a prior taxable year (see Sec.
1.668(b)-3A(c)), he must furnish all the information that would support
the computation under section 1301 as if the distribution were actually
received and averaged in such prior taxable year, even if a portion of
the information relates to years in which no amount was deemed
distributed to the beneficiary.
[T.D. 7204, 37 FR 17152, Aug. 25, 1972]
Sec. 1.668(a)-1 Amounts treated as received in prior taxable years;
inclusion in gross income.
(a) Section 668(a) provides that the total of the amounts treated
under section 666 as having been distributed by the trust on the last
day of a preceding taxable year of the trust shall be included in the
gross income of the beneficiary or beneficiaries receiving them. The
total of such amounts is includible in the gross income of each
beneficiary to the extent the amounts would have been included under
section 662 (a)(2) and (b) if the total had actually been paid by the
trust on the last day of such preceding taxable year. The total is
included in the gross income of the beneficiary for the taxable year of
the beneficiary in which such amounts are in fact paid, credited, or
required to be distributed unless the taxable year of the beneficiary
differs from the taxable year of the trust (see section 662(c) and the
regulations thereunder). The character of the amounts treated as
received by a beneficiary in prior taxable years, including taxes deemed
distributed, in the hands of the beneficiary is determined by the rules
set forth in section 662(b) and the regulations thereunder. See
paragraphs (h)(1)(ii) and (j)(1)(ii) of Sec. 1.668(b)-2.
(b) The total of the amounts treated under section 666 as having
been distributed by the trust on the last day of a preceding taxable
year of the trust are included as prescribed in paragraph (a) of this
section in the gross income of the beneficiary even though as of that
day the beneficiary would not have been entitled to receive them had
they actually been distributed on that day.
(c) Any deduction allowed to the trust in computing distributable
net income for a preceding taxable year (such as depreciation,
depletion, etc.) is not deemed allocable to a beneficiary because of
amounts included in a beneficiary's gross income under this section
since the deduction has already been utilized in reducing the amount
included in the beneficiary's income.
Sec. 1.668(a)-2 Allocation among beneficiaries; in general.
The portion of the total amount includible in gross income under
Sec. 1.668 (a)-1 which is includible in the gross income of a
particular beneficiary is based upon the ratio determined under the
second sentence of section 662(a)(2) for the taxable year (and not for
the preceding taxable year). This section may be illustrated by the
following example:
Example. (a) Under the terms of a trust instrument, the trustee may
accumulate the income or make distributions to A and B. The trustee may
also invade corpus for the benefit of A and B. The distributable net
income of the trust for the taxable year 1955 is $10,000. The trust had
undistributed net income for the taxable year 1954 of $5,000, to which a
tax of $1,100 was allocable. During the taxable year 1955, the trustee
distributes $10,000 to A and $5,000 to B. Thus, of the total
distribution of $15,000, A received two-thirds and B received one-third.
(b) For the purposes of determining the amounts includible in the
beneficiaries' gross income for 1955, the trust is deemed to have made
the following distributions:
Amount distributed out of 1955 income (distributable net $10,000
income).....................................................
Accumulation distribution deemed distributed by the trust on 5,000
the last day of 1954 under section 666(a)...................
[[Page 247]]
Taxes imposed on the trust deemed distributed under section 1,100
666(b)......................................................
(c) A will include in his gross income for 1955 two-thirds of each
item shown in paragraph (b) of this example. Thus, he will include in
gross income $6,666.67 (10,000/ 15,000x$10,000) of the 1955
distributable net income of the trust as provided in section 662(a)(2),
and $3,333.33 (10,000/ 15,000x$5,000) of the accumulation distribution
and $733.33 (10,000/15,000x$1,100) of the taxes imposed on the trust as
provided in section 668(a).
(d) B will include in his gross income for 1955 one-third of each
item shown in paragraph (b) of this example, computed in the manner
shown in paragraph (c) of this example.
Sec. 1.668(a)-3 Excluded amounts.
When a trust pays, credits, or is required to distribute to a
beneficiary amounts which are excluded under section 665(b) (1), (2),
(3), or (4) from the computation of an accumulation distribution, the
amount includible under subpart D (section 665 and following), part I,
subchapter J, chapter 1 of the Code, in the gross income of the
beneficiaries pursuant to Sec. 1.668(a)-1 is first allocated to the
beneficiaries as provided in Sec. 1.668(a)-2 and, second, the amount
allocable to the beneficiary receiving amounts which are excluded under
section 665(b) (1), (2), (3), or (4) is reduced by the excluded amounts.
This section may be illustrated by the following examples, in which it
is assumed the trusts and beneficiaries report on the calendar year
basis and the income of the trusts was derived entirely from taxable
interest:
Example 1. (a) A trust in 1957 has income as defined in section
643(b) of $35,000 and expenses allocable to corpus of $5,000. Its
distributable net income is, therefore, $30,000 ($35,000-$5,000). The
undistributed net income of the trust and the taxes imposed on the trust
were $12,840 and $7,260, respectively, for each of the years 1956, 1955,
and 1954. The terms of the trust instrument provide for the accumulation
of income during the minority of beneficiaries A and B. However, the
trustee may make discretionary distributions to either beneficiary after
he becomes 21 years of age. Also, the trustee may invade corpus for the
benefit of A and B. B became 21 years of age on January 1, 1957, and, as
of that date, A was 25 years old. The trustee distributed $50,000 each
to A and B during 1957.
(b) Since each beneficiary received one-half of the total amount
distributed by the trust, each must include in gross income under
section 662(a)(2) one-half ($15,000) of the distributable net income
($30,000) of the trust for 1957.
(c) The excess distribution of $35,000 ($50,000-$15,000) received by
B is excluded from the determination of an accumulation distribution
under section 665(b)(1) and accordingly is not includible in B's gross
income under section 668(a). Nor is such amount treated as an
accumulation distribution for the purpose of determining the amount
includible in A's gross income under section 668(a).
(d) The accumulation distribution of the trust is $35,000, computed
as follows:
Total distribution by the trust................. .......... $100,000
Less:
Distributable net income for 1957............. $30,000
Excess distribution to B...................... 35,000
------------
65,000
-------------
Accumulation distribution to A.......................... 35,000
(e) The accumulation distribution of $35,000 will be allocated to
the preceding taxable years 1956, 1955, and 1954, and the trust will be
deemed to have made the following distributions to A on the last day of
those years:
------------------------------------------------------------------------
1956 1955 1954 Total
------------------------------------------------------------------------
Undistributed net income........ $12,840 $12,840 $9,320 $35,000
Taxes imposed on the trust...... 7,260 7,260 5,270 19,790
---------------------------------------
Total........................... 20,100 20,100 14,590 54,790
------------------------------------------------------------------------
Thus, A will include $54,790 in his gross income for 1957 under section
668(a). A will, however, receive credit against his tax under section
668(b).
Example 2. (a) Under the terms of a trust the trustee may make
discretionary distributions out of income to A during her life. The
balance of the income is to be accumulated during the minority of her
son, B, and is to be distributed to him when he becomes 21 years of age.
Thereafter the trustee may also make discretionary payments of income to
B. Also, the trustee may invade corpus for the benefit of A and B. B
became 21 years of age on December 31, 1955. The distributable net
income of the trust for 1955 is $30,000. It had undistributed net income
of $12,840 for the preceding taxable year 1954 and the taxes imposed on
the trust for such year were $7,260. The trustee distributed $15,000 to
A during 1955 and on December 31, 1955, he distributed $60,000 to B,
which represented income accumulated during his minority.
(b) Since B received four-fifths of the total amount ($75,000)
distributed by the trust during 1955, he must include in his gross
income under section 662(a)(2) four-fifths ($24,000) of the
distributable net income ($30,000) of the
[[Page 248]]
trust for 1955. A will include in her gross income under section
662(a)(2) one-fifth ($6,000) of the distributable net income ($30,000)
of the trust for 1955.
(c) The excess distribution of $36,000 ($60,000-$24,000) received by
B is excluded from the determination of an accumulation distribution
under section 665(b)(1) and accordingly is not includible in his gross
income under section 668(a).
(d) The amount treated as an accumulation distribution for the
purpose of determining the amount includible in A's gross income for
1955 under section 668(a) is $9,000, computed as follows:
Total distribution by the trust................. .......... $75,000
Less:
Distributable net income for 1955............. $30,000
Excess distribution to B...................... 36,000
-------------
66,000
-------------
Amount treated as an accumulation distribution.......... 9,000
(e) Inasmuch as the amount of $9,000 is less than the total
undistributed net income of the trust ($12,840) for the preceding
taxable year 1954, a pro rata portion of the taxes imposed on the trust
for that year are also deemed distributed by the trust. Thus, A will
include $14,089 in her gross income for 1955 under section 668 (a)
computed as follows:
1954
Accumulation distribution................................... $9,000
Taxes imposed on the trust (9,000/ 12,840x$7,260)........... 5,089
-------------
Total................................................... 14,089
A will, however, receive credit against her tax under section 668(b).
Sec. 1.668(a)-4 Tax attributable to throwback.
(a) The tax attributable to amounts deemed distributed under section
666 is imposed on the beneficiary for the taxable year of the
beneficiary in which the accumulation distribution is made unless the
taxable year of the beneficiary is different from that of the trust (see
section 662(c) and the regulations thereunder). In the case of a trust
(other than a foreign trust created by a U.S. person), the tax cannot be
greater than the aggregate of the taxes attributable to those amounts
had they been included, in accordance with the provisions of section 662
(a)(2) and (b), in the gross income of the beneficiary for the preceding
taxable year or years in which they were deemed distributed. In the case
of a foreign trust created by a U.S. person, the tax on the beneficiary
shall be computed in accordance with the provisions of section 669 and
the regulations thereunder. The tax liability of the beneficiary of a
trust (other than a foreign trust created by a U.S. person), including
the portion of an entire foreign trust which does not constitute a
foreign trust created by a U.S. person (see Sec. 1.643(d)-1), for the
taxable year is computed in the following manner:
(1) First, compute the amount of tax for the taxable year
attributable to the section 666 amounts which are included in the gross
income of the beneficiary for the year. The tax attributable to those
amounts is the difference between the tax for the taxable year computed
with the inclusion of the section 666 amounts in gross income and the
tax computed without including them in gross income.
(2) Next, compute the tax attributable to the section 666 amounts
for each of the preceding taxable years as if they had been included in
gross income for those years. The tax attributable to such amounts in
each such preceding taxable year is the difference between the tax for
such preceding year computed with the inclusion of the section 666
amounts in gross income and the tax for such year computed without
including them in gross income. The tax computation for each preceding
year shall reflect the taxpayer's marital and dependency status for that
year.
(3) The total tax for the taxable year is the tax for that year
computed without including the section 666 amounts, plus:
(i) The amount of the tax for the taxable year attributable to the
section 666 amounts (computed in accordance with subparagraph (1) of
this paragraph), or (ii) The sum of the taxes for the preceding taxable
years attributable to the section 666 amounts (computed in accordance
with subparagraph (2) of this paragraph),
whichever is the smaller.
(b) The provisions of paragraph (a) of this section may be
illustrated by the following example:
Example. (1) During the taxable year 1956, $10,000 is deemed
distributed under section 666 to a beneficiary, of which $6,000 is
deemed distributed by the trust on the last day of
[[Page 249]]
1955 and $4,000 on the last day of 1954. The beneficiary had taxable
income (after deductions) from other sources of $5,000 for 1956, $10,000
for 1955, and $10,000 for 1954. The beneficiary's tax liability for 1956
is $4,730 determined as follows:
Year 1956
Tax on $15,000 (taxable income including section 666 amounts) $4,730
Tax on $5,000 (taxable income excluding section 666 amounts). 1,100
------------
Tax attributable to section 666 amounts.................. 3,630
============
Year 1955
Tax on $16,000 (taxable income including section 666 amounts) $5,200
Tax on $10,000 (taxable income excluding section 666 amounts) 2,640
------------
Tax attributable to section 666 amounts.................. 2,560
============
Year 1954
Tax on $14,000 (taxable income including section 666 amounts) $4,260
Tax on $10,000 (taxable income excluding section 666 amounts) 2,640
------------
Tax attributable to section 666 amounts.................. 1,620
============
(2) Inasmuch as the tax of $3,630 attributable to the section 666
amounts as computed at 1956 rates is less than the aggregate of the
taxes of $4,180 ($2,560 plus $1,620) determined for the preceding
taxable years the amount of $3,630 is added to the tax ($1,100) computed
for 1956 without including the section 666 amounts.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
737, Jan. 17, 1969]
Sec. 1.668(b)-1 Credit for taxes paid by the trust.
(a) The taxes imposed on a complex trust for a taxable year which
would not have been payable by the trust if amounts deemed under section
666 to have been distributed in the year had in fact been distributed in
the year are not allowable as a refund to the trust but are allowable as
a credit against the tax of the beneficiaries to whom the amounts
described in section 666(a) are distributed.
(b) The credit to which a beneficiary is entitled under section
668(b) is allowed for the taxable year in which the accumulation
distribution (to which the credit relates) is required to be included in
the gross income of the beneficiary. Any excess over the total tax
liability of the beneficiary is treated as an overpayment of tax by the
beneficiary.
(c) The beneficiary is entitled to a portion of the credit described
in paragraph (a) of this section in the ratio which the amount of the
accumulation distribution to him bears to the accumulation distributions
to all the beneficiaries.
Sec. 1.668(b)-2 Illustration of the provisions of subpart D.
The provisions of subpart D (section 665 and following), part I,
subchapter J, chapter 1 of the Code, other than provisions relating to a
foreign trust created by a U.S. person, may be illustrated by the
following example:
Example. (a) Facts. (1) Under the terms of a trust instrument, one-
half of the trust income is required to be distributed currently to
beneficiary A. The trustee may in his discretion accumulate the balance
of the income of the trust or he may make distributions to B out of
income or corpus. The trust is to terminate upon the death of A and the
corpus is to be distributed to B. Capital gains are allocable to corpus.
All of the expenses of the trust are charges against income. The trust
instrument provides for a reserve for depreciation, so that depreciation
is deductible in computing distributable net income. The trust and both
beneficiaries report on the calendar year basis. The trust had long-term
capital gains of $20,000 for 1954, and $10,000 for 1955, which were
allocated to corpus. The distributable net income of the trust as
determined under section 643(a) for 1954, 1955, 1956, and 1957 is deemed
to consist of the following items of income:
----------------------------------------------------------------------------------------------------------------
Interest Interest
Dividends Rents (taxable) (exempt) Total
----------------------------------------------------------------------------------------------------------------
1954....................................................... $15,000 $20,000 $10,000 $5,000 $50,000
1955....................................................... 10,000 15,000 10,000 5,000 40,000
1956....................................................... 10,000 20,000 15,000 5,000 50,000
1957....................................................... 10,000 15,000 15,000 5,000 45,000
----------------------------------------------------------------------------------------------------------------
(2) One-half ($7,500) of the dividends for 1954 was received by the
trust on or before July 31, 1954, and the balance was received after
that date.
(3) The following distributions were made by the trustee to A and B
during the taxable years 1954 through 1957:
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
1954.................................... $25,000 None
1955.................................... 20,000 None
1956.................................... 25,000 $45,000
1957.................................... 22,500 29,550
------------------------------------------------------------------------
(b) Distributions to A. A is deemed to have received one-half of
each item of income entering into the computation of distributable
[[Page 250]]
net income as shown in paragraph (a)(1) of this example. See Sec.
1.662(a)-2 for rules for the treatment of currently distributable income
in the hands of the beneficiary.
(c) Tax liability of the trust--(1) 1954. (i) The tax liability of
the trust for the taxable year 1954 is $13,451, computed as follows:
Distributable net income under section 643(a) (paragraph $50,000
(a)(1) of this example).....................................
Less amounts not includible in gross income:
Tax-exempt interest............................. $5,000
Dividend exclusion.............................. 50
-----------
5,050
------------
Distributable net income as adjusted..................... 44,950
Add: Capital gains (long-term)............................... 20,000
------------
Total.................................................... 64,950
Deductions:
Distributions to A.............................. $22,475
Capital gain deduction.......................... $10,000
Personal exemption.............................. 100
-----------
32,575
------------
Taxable income........................................... 32,375
Alternative tax.............................................. 13,601
Dividend received credit..................................... 150
------------
Tax liability............................................ 13,451
(ii) See paragraph (b) of this example for character of income
deemed distributed to A and section 661 for rules for computing the
amount deductible by a trust for distributions to beneficiaries.
Inasmuch as one-half of the dividends of the trust is deemed to be
distributed to A, $25 of such distribution is deemed to be made from the
dividend exclusion of $50, and the balance from dividends included in
the gross income of the trust (that is, since the year 1954 is involved,
$3,725 from dividends received on or before July 31, 1954, and $3,750
from dividends received after July 31, 1954). The trust is entitled to a
dividend received credit attributable to the dividends of $3,750
received after July 31, 1954, which were not distributed to any
beneficiary during the taxable year.
(2) 1955. (i) The tax liability of the trust for the taxable year
1955 is $8,189, computed as follows:
Distributable net income under section 643(a) (paragraph $40,000
(a)(1) of this example).....................................
Less amounts not includible in gross income:
Tax-exempt interest............................. $5,000
Dividend exclusion.............................. 50
-----------
5,050
------------
Distributable net income as adjusted..................... 34,950
Add: Capital gains (long-term)............................... 10,000
------------
Total.................................................... 44,950
Deductions:
Distributions to A.............................. $17,475
Capital gain deduction.......................... 5,000
Personal exemption.............................. 100
-----------
22,575
------------
Taxable income........................................... 22,375
Alternative tax.............................................. 8,388
Dividend received credit..................................... 199
------------
Tax liability............................................ 8,189
(ii) See paragraph (b) of this example for character of income
deemed distributed to A and section 661 for rules for computing the
amount deductible by a trust for distributions to beneficiaries.
Inasmuch as one-half ($4,975) of the dividends of $9,950 ($10,000 less
dividend exclusion of $50) included in the gross income of the trust is
deemed distributed to A, the trust is entitled to a dividend received
credit with respect to the dividends of $4,975 which were not
distributed to any beneficiary during the taxable year.
(3) 1956 and 1957. The trust had no tax liability for the taxable
years 1956 and 1957 since all of its income was distributed during such
years.
(d) Accumulation distributions. (1) Accumulation distributions of
$20,000 and $7,050, as defined in section 665(b), were made to B during
the years 1956 and 1957, respectively, computed as shown below:
------------------------------------------------------------------------
1956 1957
------------------------------------------------------------------------
Distributable net income of the trust as computed $50,000 $45,000
under section 643(a)...............................
Less. Income currently distributable to A........... 25,000 22,500
-------------------
Balance of income............................... 25,000 22,500
Other amounts distributed to B...................... 45,000 29,550
-------------------
Accumulation distributions to B................. 20,000 7,050
------------------------------------------------------------------------
(2) B is deemed to have received one-half of each item of income
entering into the computation of distributable net income (shown in
paragraph (a)(1) of this example) for the years 1956 and 1957.
(3) The accumulation distribution for 1956 must first be allocated
to the preceding taxable years as provided in section 666. After the
application of the provisions of subpart D to the 1956 accumulation
distribution and to the undistributed net incomes of the preceding
taxable years, a similar allocation must be made of the 1957
accumulation distribution.
(e) Throwback of 1956 accumulation distribution to 1955. The
accumulation distribution of $20,000 for 1956 must be allocated to the
first preceding taxable year 1955, before allocation is made to the
second preceding taxable year 1954.
(1) 1955 Undistributed net income. (i) The undistributed net income
of the trust for 1955, determined as of the close of 1955, is $12,885,
computed as follows:
Distributable net income as computed under section 643(a) $40,000
(paragraph (a)(1) of this example)
Less:
Distributions to A.............................. $20,000
Taxes imposed on the trust...................... 7,115
-----------
[[Page 251]]
27,115
------------
Undistributed net income as of the close of 12,885
1955.........................................
(ii) The taxes imposed on the trust of $7,115 are that portion of
the taxes paid by the trust for 1955 which is attributable to the
undistributed portion of distributable net income included in the
taxable income of the trust (the ``balance'' in the computation below)
and is determined as follows:
Taxable income (paragraph (c)(2)(i) of this example.......... $22,375
Capital gains allocable to corpus................. $10,000
Less:
Capital gain deduction............... $5,000
Personal exemption................... 100
-----------
5,100
-----------
Portion of taxable income allocable to corpus................ 4,900
------------
Balance.................................................. 17,475
============
Total taxes paid by the trust................................ 8,189
Taxes on income ($4,900) allocable to corpus................. 1,074
------------
Taxes imposed on the trust (section 665(c)).............. 7,115
(iii) The amount of $1,074 is the taxes which the trust would have
paid for 1955 had all of the distributable net income been distributed
during the year.
(2) Allocation of 1956 accumulation distribution to the preceding
taxable year 1955. The portion of the 1956 accumulation distribution
which is deemed under section 666(a) to be distributed to B on the last
day of 1955 (the first preceding taxable year) is $12,885, an amount
equal to the undistributed net income for 1955. An additional amount
equal to the taxes imposed on the trust ($7,115) is, under section
666(b), also deemed to be distributed to B on the last day of 1955.
Thus, a total of $20,000 ($12,885 plus $7,115) is deemed to be
distributed to B on December 31, 1955, by reason of the allocation of
the 1956 accumulation distribution to the first preceding taxable year.
See paragraph (h) of this example for the treatment of the amount of
$20,000 in the hands of B.
(3) Character of amounts deemed distributed. Inasmuch as one-half of
the 1955 distributable net income of the trust as determined under
section 643(a) was currently distributable to A and the balance of such
income is deemed under section 666 to be distributed to B on December
31, 1955, the distribution to B is deemed to consist of one-half of each
item of income entering into the computation of the 1955 distributable
net income; that is, dividends of $5,000, rents of $7,500, taxable
interest of $5,000, and tax-exempt interest of $2,500.
(4) Credit for taxes paid by the trust. The amount of the taxes for
the year 1955 which may not be refunded or credited to the trust under
section 667 and which is allowed as a credit against the tax of B for
1956 under section 668(b) is $7,115. See also paragraph (h)(3) of this
example.
(5) Effect of application of provisions of subpart D to the year
1955. After the allocation of the 1956 accumulation distribution to the
preceding taxable year 1955, the undistributed portion of the
distributable net income, the undistributed net income, and the taxes
imposed on the trust for 1955 are zero. The portion of the 1956
accumulation distribution which is unabsorbed by the 1955 undistributed
net income is $7,115, determined as follows:
1956 accumulation distribution (paragraph (d)(1) of this $20,000
example)....................................................
Less: Amount allocable to 1955............................... 12,885
------------
Balance allocable to second preceding taxable year 1954.. 7,115
(f) Throwback of 1956 accumulation distribution to 1954. The
unabsorbed portion of the 1956 accumulation distribution of $7,115 is
allocable to the second preceding taxable year 1954 and is treated under
section 666 as a distribution to B on the last day of such year.
(1) 1954 Undistributed net income. (i) The undistributed net income
of the trust for 1954, determined as of the close of 1954, is $14,155,
computed as follows:
Distributable net income as computed under section 643(a) $50,000
(paragraph (a)(1) of this example)..........................
Less:
Distributions to A.............................. $25,000
Taxes imposed on the trust...................... 10,845
-----------
35,845
------------
Undistributed net income as of the close of 1954......... 14,155
(ii) The taxes imposed on the trust of $10,845 are that portion of
the taxes paid by the trust for 1954 which is attributable to the
undistributed portion of distributable net income included in the
taxable income of the trust (the ``balance'' in the computation below in
this subdivision) and is determined as follows:
Taxable income (paragraph (c)(1)(i) of this example)......... $32,375
Capital gains allocable to corpus................. $20,000
Less:
Capital gain deduction............... $10,000
Personal exemption................... 100
-----------
10,100
-----------
Portion of taxable income allocable to corpus............ 9,900
------------
Balance.................................................. 22,475
============
Total taxes paid by the trust................................ 13,451
Taxes on income ($9,900) allocable to corpus................. 2,606
------------
Taxes imposed on the trust (section 665(c)).............. 10,845
(iii) The amount of $2,606 is the taxes which the trust would have
paid for 1954 had all of the distributable net income been distributed
during that year.
[[Page 252]]
(2) Allocation of 1956 accumulation distribution to the second
preceding taxable year 1954. Since the unabsorbed portion of the 1956
accumulation distribution of $7,115 is less than the 1954 undistributed
net income of $14,155, the trust is deemed under section 666(c) to have
also distributed an additional amount ($5,451) equal to a pro rata
portion (7,115/14,155x$10,845) of the taxes imposed on the trust for
1954. Thus, a total of $12,566 ($7,115 plus $5,451) is deemed to be
distributed to B on December 31, 1954, by reason of the throwback of the
1956 accumulation distribution. See paragraph (h) of this example for
the treatment of the amount of $12,566 in the hands of B.
(3) Character of amounts deemed distributed to B. The amount of
$12,566 which, under section 666, is deemed to be distributed to B on
December 31, 1954, is deemed to be composed of the following items of
income of the trust: Dividends, $3,770 (15,000/50,000x$12,566); rents,
$5,026 (20,000/50,000x$12,566); taxable interest, $2,513 (10,000/
50,000x$12,566); and tax-exempt interest, $1,257 (5,000/50,000x$12,566).
One-half of the dividends of $3,770 is considered as distributed from
the dividends received by the trust on or before July 31, 1954, of which
$13 (3,770/15,000x$50) is deemed distributed from the dividends excluded
under section 116, and the other half as distributed from the dividends
received after July 31, 1954. Thus, of the total of $12,566 deemed
distributed to B, $11,296 is considered as made from income included in
the gross income of the trust and $1,270 from non-taxable income of the
trust.
(4) Credit for taxes paid by the trust. The amount of the taxes for
the year 1954 which may not be refunded or credited to the trust under
section 667 and which is allowed as a credit against the tax of B for
1956 under section 668(b), because of the allocation of the 1956
accumulation distribution to 1954, is $5,401, computed as follows:
Taxable income of the trust as of the close of 1954 $32,375
(paragraph (c)(1) of this example)..........................
Less: Amount deemed distributed to B under section 666 from 11,296
the taxable income of the trust.............................
------------
Taxable income adjusted as of the close of 1956.......... 21,079
------------
(Taxes on $21,079 (alternative tax).......................... $8,050
Taxes on income allocable to corpus (subparagraph (1)(ii) of $2,606
this paragraph).............................................
------------
Taxes imposed on the trust determined as of the close of 5,444
1956....................................................
============
Taxes imposed on the trust determined as of the close of 1954 $10,845
Taxes imposed on the trust determined as of the close of 1956 5,444
------------
Amount of taxes allowed as a credit to B under section 5,401
668(b)..................................................
(5) Effect of application of provisions of subpart D to the year
1954. (i) The undistributed portion of the distributable net income of
the trust for the year 1954, determined as of the close of 1956, is
$12,434, computed as follows:
Distributable net income (section 643(a)).................... $50,000
Less:
Amount currently distributable to A............. $25,000
Amount deemed distributed to B under section 666 12,566
-------- 37,566
------------
Undistributed portion of distributable net income as of 12,434
the close of 1956.......................................
(ii) The amount of $12,434 is deemed to consist of dividends of
$3,730, rents of $4,974, taxable interest of $2,487, and tax-exempt
interest of $1,243, determined as follows:
----------------------------------------------------------------------------------------------------------------
Interest Interest
Dividends Rents (taxable) (exempt) Total
----------------------------------------------------------------------------------------------------------------
Trust income............................... $15,000 $20,000 $10,000 $5,000 \1\ $50,000
====================================================================
Distributions:
To A..................................... 7,500 10,000 5,000 2,500 \2\ 25,000
To B..................................... 3,770 5,026 2,513 1,257 \3\ 12,566
====================================================================
Total.................................. 11,270 15,026 7,513 3,757 37,566
====================================================================
Balance.................................... 3,730 4,974 2,487 1,243 12,434
----------------------------------------------------------------------------------------------------------------
\1\ See paragraph (a)(1) of this example.
\2\ See paragraph (b) of this example.
\3\ See paragraph (f)(3) of this example.
(iii) The undistributed net income of the trust for 1954, determined
as of the close of 1956, is $6,990, computed as follows:
Undistributed portion of distributable net income as of the $12,434
close of 1956..............................................
Less: Taxes imposed on the trust determined as of the close 5,444
of 1956 (subparagraph (4) of this paragraph)...............
-----------
Undistributed net income as of the close of 1956.......... 6,990
(g) Throwback of 1957 accumulation distribution. Inasmuch as all of
the income of the trust for the first preceding taxable year 1956 was
distributed during such year and the trust had no undistributed net
income for the second preceding taxable year 1955 after
[[Page 253]]
the application of subpart D to the accumulation distribution made
during 1956, the 1957 accumulation distribution of $7,050 is allocable
to the third preceding taxable year 1954. See paragraph (d)(1) of this
example for computation of the accumulation distribution.
(1) Allocation of 1957 accumulation distribution to the preceding
taxable year 1954. The portion of the 1957 accumulation distribution
which is deemed under section 666(a) to be distributed to B on the last
day of 1954 is $6,990, an amount equal to the undistributed net income
of the trust for 1954, determined as of the close of 1956. An additional
amount equal to the taxes imposed on the trust ($5,444), determined as
of the close of 1956, is under section 666(b) also deemed to be
distributed to B on the last day of 1954. See paragraph (f) (4) and (5)
of this example. Thus, a total of $12,434 ($6,990 plus $5,444) is deemed
to be distributed to B on December 31, 1954, by reason of the allocation
of the 1957 accumulation distribution to the taxable year 1954. See
paragraph (j) of this example for the treatment of the amount of $12,434
in the hands of B.
(2) Character of amounts deemed distributed. Inasmuch as the balance
of the 1954 distributable net income of the trust is deemed under
section 666 to be distributed to B on December 31, 1954, the
distribution is deemed to consist of dividends of $3,730, rents of
$4,974, taxable interest of $2,487, and tax-exempt interest of $1,243.
See paragraph (f)(5)(ii) of this example.
(3) Credit for taxes paid by the trust. The amount of taxes for the
year 1954 which may not be refunded or credited to the trust under
section 667 and which is allowed as a credit against the tax of B under
section 668(b) is $5,444, the amount of taxes imposed on the trust
determined as of the close of 1956. See paragraph (f)(4) of this
example.
(4) Effect of application of provisions of subpart D to the year
1954. After the allocation of the 1957 accumulation distribution to the
preceding taxable year 1954, the undistributed portion of the
distributable net income, the undistributed net income, and the taxes
imposed on the trust for 1954 are zero. The balance of $60 ($7,050 less
$6,990) of the 1957 accumulation distribution remaining after the
allocation of the accumulation distribution to the year 1954, may not be
allocated to the year 1953 since that year is not subject to the
provisions of the Internal Revenue Code of 1954.
(h) Determination of B's tax liability; taxable year 1956--(1)
Amount of trust income includible in gross income. (i) Of the amount of
$45,000 distributed by the trust to B during the taxable year 1956,
$25,000 is treated as a distribution out of trust income for that year
within the meaning of section 662(a)(2), and $20,000 as an accumulation
distribution within the meaning of section 665(b) (see paragraph (d) of
this example). However, $12,885 plus taxes of $7,115 is deemed
distributed to B on December 31, 1955, and $7,115 plus taxes of $5,451
on December 31, 1954, under section 666 by reason of the accumulation
distribution made during 1956, and these amounts are includible in B's
gross income for 1956 to the extent that they would have been includible
in his gross income under section 662 (a)(2) and (b) for 1955 and 1954,
respectively, had they been distributed on the last day of those years.
(ii) The amounts distributed to B out of trust income for the year
1956, and the amounts deemed distributed out of income for the preceding
taxable years 1955 and 1954 have the following character for the purpose
of determining the amount includible in B's gross income for 1956:
----------------------------------------------------------------------------------------------------------------
Interest Interest
Year Dividends Rents (taxable) (exempt) Total
----------------------------------------------------------------------------------------------------------------
1956....................................................... $5,000 $10,000 $7,500 $2,500 \1\
$25,000
1955....................................................... 5,000 7,500 5,000 2,500 \2\
20,000
1954....................................................... 3,770 5,026 2,513 1,257 \3\
12,566
----------------------------------------------------
Total...................................................... 13,770 22,526 15,013 6,257 57,566
----------------------------------------------------------------------------------------------------------------
\1\ See paragraph (d)(2) of this example.
\2\ See paragraph (e)(3) of this example.
\3\ See paragraph (f)(3) of this example.
Thus, B will include in gross income for 1956 dividends of $13,770
(subject to the dividend exclusion), rents of $22,526, and taxable
interest of $15,013, and will exclude the tax-exempt interest of $6,257.
(2) Computation of tax. (i) For the purpose of computing B's tax
liability, it is assumed that he was single during the taxable years
1954, 1955, and 1956, and that his taxable income (derived from salary)
for each of the years 1954 and 1955 amounted to $13,400 on which a tax
of $4,002 was paid for each year. It is also assumed that his income
(other than distributions from the trust) for 1956 was $15,000 derived
from salary, and he had allowable deductions of $10,600, which included
the deduction for personal exemption.
(ii) The computation of the tax for the taxable year 1956
attributable to the section 666 amounts which are included in B's gross
income for such year, as provided in paragraph (a)(1) of Sec. 1.668(a)-
4, is as follows:
------------------------------------------------------------------------
(1) (2)
Section Section
666 666
amounts amounts
excluded included
------------------------------------------------------------------------
Salary.......................................... $15,000 $15,000
Income from trust:
Dividends ($50 excluded)...................... 4,950 13,720
Rents......................................... 10,000 22,526
Taxable interest.............................. 7,500 15,013
-----------------------
Total....................................... 37,450 66,259
Less: Allowable deductions...................... 10,600 10,600
-----------------------
Taxable income.............................. 26,850 55,659
=======================
[[Page 254]]
Total tax....................................... 11,267 31,064
Less: Dividend received credit.................. 198 475
-----------------------
Tax liability............................... $11,069 30,589
Tax on income from which section 666 amounts are .......... 11,069
excluded.......................................
-----------------------
1956 tax attributable to section 666 amounts .......... 19,520
------------------------------------------------------------------------
Only that portion of the dividends received by the trust after July 31,
1954, and deemed distributed to B under section 666, on the last day of
such year is included in computing the dividend received credit shown in
column (2). See paragraph (f)(3) of this example.
(iii) The computation of the taxes for the preceding taxable years
attributable to the section 666 amounts which are deemed distributed by
the trust on the last day of these years, as provided in paragraph
(a)(2) of Sec. 1.668(a)-4, is as follows:
------------------------------------------------------------------------
Preceding taxable
years
-----------------------
Second
First 1955 1954
------------------------------------------------------------------------
Taxable income previously reported.............. $13,400 $13,400
Section 666 amounts:
Dividends ($50 excluded)...................... 4,950 3,720
Rents......................................... 7,500 5,026
Taxable interest.............................. 5,000 2,513
-----------------------
Taxable income as adjusted.................. 30,850 24,659
=======================
Total tax....................................... 13,747 9,949
Less: Dividend received credit.................. 198 75
-----------------------
Balance of tax.............................. 13,549 9,874
Tax liability................................... 4,002 4,002
-----------------------
Tax attributable to section 666 amounts..... 9,547 5,872
------------------------------------------------------------------------
Only that portion ($1,885) of the dividends received by the trust after
July 31, 1954, and deemed distributed under section 666 on the last day
of that year, is included in computing the dividend received credit of
$75 for the year 1954. See paragraph (f)(3) of this example.
(iv) Inasmuch as the aggregate of the taxes of $15,419 ($9,547 plus
$5,872) attributable to the section 666 amounts as determined for the
preceding taxable years is less than the tax of $19,520 determined for
the taxable year 1956, the amount of $15,419 shall be added to the tax
computed for 1956 without including the section 666 amounts. Thus, B's
tax liability for 1956 is $26,488 ($11,069 plus $15,419).
(3) Credits against the tax. B is allowed under section 668(b) a
credit of $12,516 ($5,401 for 1954 and $7,115 for 1955) against his 1956
tax liability for the taxes paid by the trust for the preceding taxable
years and which may not be refunded or credited to the trust under
section 667. See paragraphs (e)(4) and (f)(4) of this example.
(i) [Reserved]
(j) Taxable year 1957--(1) Amount of trust income includible in
gross income. (i) Of the amount of $29,550 distributed by the trust to B
during the taxable year 1957, $22,500 is treated as a distribution out
of trust income for that year within the meaning of section 662(a)(2),
and $7,050 as an accumulation distribution within the meaning of section
665(b) (see paragraph (d) of this example). However, $6,990 plus taxes
of $5,444 is deemed distributed to B on December 31, 1954, under section
666 by reason of the accumulation distribution made during 1957, and
that amount is includible in B's gross income for 1957, to the extent
that it would have been includible in his gross income under section 662
(a)(2) and (b) for 1954, had it been distributed on the last day of that
year.
(ii) The amounts deemed distributed to B out of trust income for the
year 1957 and the preceding taxable year 1954 are deemed to have the
following character for the purpose of determining the amount includible
in B's gross income for 1957:
----------------------------------------------------------------------------------------------------------------
Interest Interest
Year Dividends Rents (taxable) (exempt) Total
----------------------------------------------------------------------------------------------------------------
1957........................................................ $5,000 $7,500 $7,500 $2,500 \1\
$22,500
1954........................................................ 3,730 4,974 2,487 1,243 \2\
12,434
---------------------------------------------------
Total....................................................... 8,730 12,474 9,987 3,743 34,934
----------------------------------------------------------------------------------------------------------------
\1\ See paragraph (d)(2) of this example.
\2\ See paragraph (g)(2) of this example.
Thus, B will include in gross income for the year 1957 dividends of
$8,730 (subject to the dividend exclusion), rents of $12,474, and
taxable interest of $9,987 and will exclude the tax-exempt interest of
$3,743.
(2) Computation of tax. (i) For the purpose of computing B's tax
liability for 1957, it is assumed that he was single for the entire year
and had income (other than distributions from the trust) of $15,000 from
salary. Also, he had allowable deductions of $8,100, which included the
deductions for personal exemption.
(ii) The computation of the tax for the taxable year 1957
attributable to the section 666 amounts which are included in B's gross
income for that year, as provided in paragraph (a)(1) of Sec. 1.668(a)-
4, is as follows:
------------------------------------------------------------------------
Section Section
666 666
amounts amounts
excluded included
------------------------------------------------------------------------
Salary.......................................... $15,000 $15,000
Trust income:
Dividends ($50 excluded)...................... 4,950 8,680
Rents......................................... 7,500 12,474
[[Page 255]]
Taxable interest.............................. 7,500 9,987
-----------------------
Total....................................... 34,950 46,141
Less: Allowable deductions 8,100 8,100
-----------------------
Taxable income.............................. 26,850 38,041
=======================
Total tax..................................... 11,267 18,388
Less: Dividends received credit................. 198 275
-----------------------
Tax liability............................... 11,069 18,113
Tax on income from which section 666 amounts are .......... 11,069
excluded.......................................
-----------------------
1957 tax attributable to section 666 amounts .......... 7,044
------------------------------------------------------------------------
See explanation following computation in paragraph (h)(2)(ii) of this
example with respect to the computation of the dividend received credit
on dividends received by the trust in 1954.
(iii) The amount of tax, computed at 1954 rates, attributable to the
section 666 amounts which are deemed to have been distributed by the
trust on the last day of 1954, is $6,939, computed as follows:
1954 taxable income as adjusted (paragraph (h)(2)(iii) of $24,659
this example)..............................................
Section 666 amounts:
Dividends................................................. 3,730
Rents..................................................... 4,974
Taxable interest.......................................... 2,487
-------------
Taxable income as adjusted.............................. 35,850
=============
Total tax................................................... 16,963
Less: Dividends received credit............................. 150
-------------
Balance of tax.......................................... 16,813
Tax liability for 1954.......................... $4,002
Tax attributable to 1956 accumulation 5,872
distribution this example).....................
------------
9,874
-------------
Tax attributable to the section 666 amounts distributed in 6,939
1957.....................................................
Only that portion ($3,750) of the dividends received by the trust after
July 31, 1954, and deemed distributed under section 666 on the last day
of that year, is included in computing the dividend received credit of
$150. See paragraphs (f)(3) and (g)(2) of this example.
(iv) Inasmuch as the tax of $6,939 attributable to the section 666
amounts as determined for the preceding taxable year 1954 is less than
the tax of $7,044 attributable to these amounts for the year 1957, the
amount of $6,939 shall be added to the tax computed for 1957 without
including in gross income the section 666 amounts. Thus, B's tax
liability for 1957 is $18,008 ($11,069 plus $6,939).
(3) Credit against the tax. B is allowed under section 668(b) a
credit of $5,444 against his 1957 tax liability for the balance of the
taxes paid by the trust for 1954 and which may not be refunded or
credited to the trust under section 667. See paragraph (g)(3) of this
example.
(Sec. 669(a) as amended by sec. 331(a), Tax Reform Act 1969 (83 Stat.
592))
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
738, Jan. 17, 1969]
Sec. 1.669(a)-1A Amount allocated.
(a) In general. After a trust has distributed all of its
undistributed net income, the rules concerning the treatment of capital
gain distributions (prescribed under section 669) may become applicable
to an accumulation distribution. This section prescribes rules to
determine from which years capital gain distributions are considered to
be made. For the definition of ``capital gain distribution,'' see Sec.
1.665(g)-1A. Section 669 does not apply to a trust that has distributed
all of its income currently since its inception. See Sec. 1.668(a)-
1A(c). Capital gain retains its character in the hands of the
beneficiary. See Sec. 1.669(f)-1A. A capital gain distribution to more
than one beneficiary will be allocated among them. See Sec. 16.668(a)-
2A.
(b) First-in, first-out rule. A capital gain distribution is
allocated to the preceding taxable years of the trust (as defined in
Sec. 1.665(e)-1A(a)(1)(iii)), according to the undistributed capital
gain of the trust for such years. For this purpose, a capital gain
distribution is first allocated to the earliest such preceding taxable
year in which there is undistributed capital gain and shall then be
allocated in turn, beginning with the next earliest, to any remaining
preceding taxable years of the trust. The portion of the capital gain
distribution allocated to the earliest preceding taxable year is the
amount of undistributed capital gain for that preceding taxable year.
The portion of the capital gain distribution allocated to any preceding
taxable year subsequent to the earliest such preceding taxable year is
the excess of the capital gain distribution over the aggregate of the
undistributed capital gain for all earlier preceding taxable years. See
paragraph (c) of this section for adjustments to undistributed capital
gain for prior distributions.
[[Page 256]]
(c) Reduction of undistributed capital gain for prior capital gain
distributions. For the purposes of allocating to any preceding taxable
year a capital gain distribution of the taxable year, the undistributed
capital gain of such preceding taxable year is reduced by the amount
from such year deemed distributed in any capital gain distribution made
in any taxable year intervening between such preceding taxable year and
the taxable year. Accordingly, for example, if a trust subject to the
capital gain throwback has no undistributed net income but has
undistributed capital gain for 1974, and makes capital gain
distributions during the taxable years 1978 and 1979, then in
determining that part of the 1979 capital gain distribution that is
thrown back to 1974, the undistributed capital gain for 1974 is reduced
by the amount of such undistributed capital gain for 1974 deemed
distributed in the 1978 capital gain distribution.
(d) Rule when no undistributed capital gain. If, before the
application of the provisions of subpart D to a capital gain
distribution for the taxable year, there is no undistributed capital
gain for a preceding taxable year, then no portion of the capital gain
distribution is deemed distributed on the last day of such preceding
taxable year. Thus, for example, if a capital gain distribution is made
during the taxable year 1975 from a trust whose earliest preceding
taxable year is taxable year 1970, and the trust had no undistributed
capital gain for 1970, then no portion of the 1975 capital gain
distribution is deemed distributed on the last day of 1970.
(e) Example. The provisions of this section may be illustrated by
the following example:
Example. In 1977, a trust reporting on the calendar year basis makes
a capital gain distribution of $33,000. In 1969, the trust had $6,000 of
undistributed capital gain; in 1970, $4,000; in 1971, none; in 1972,
$7,000; in 1973, $5,000; in 1974, $8,000; in 1975, $6,000; in 1976,
$4,000; and $6,000 in 1977. The capital gain distribution is deemed
distributed $6,000 in 1969, $4,000 in 1970, none in 1971, $7,000 in
1972, $5,000 in 1973, $8,000 in 1974, and $3,000 in 1975.
[T.D. 7204, 37 FR 17153, Aug. 25, 1972]
Sec. 1.669(b)-1A Tax on distribution.
(a) In general. The partial tax imposed on the beneficiary by
section 668(a)(3) shall be the lesser of:
(1) The tax computed under paragraph (b) of this section (the
``exact'' method), or
(2) The tax computed under paragraph (c) of this section (the
``short-cut'' method),
except as provided in Sec. 1.669(c)-3A (relating to failure to furnish
proper information) and paragraph (d) of this section (relating to
disallowance of short-cut method). For purposes of this paragraph, the
method used in the return shall be accepted as the method that produces
the lesser tax. The beneficiary's choice of the two methods is not
dependent upon the method that he uses to compute his partial tax
imposed by section 668(a)(2).
(b) Computation of partial tax by the exact method. The partial tax
referred to in paragraph (a)(1) of this section is computed as follows:
(1) First, compute the tax attributable to the section 669 amounts
for each of the preceding taxable years. For purposes of this paragraph,
the ``section 669 amounts'' for a preceding taxable year are the amounts
deemed distributed under section 669(a) on the last day of such
preceding taxable year, plus the amount of taxes deemed distributed on
such day under section 669 (d) or (e). The tax attributable to such
amounts in each prior taxable year of the beneficiary is the difference
between the tax for such year computed with the inclusion of the section
669 amounts in the beneficiary's gross income and the tax for such year
computed with the inclusion of them in such gross income. Tax
computations for each such year shall reflect a taxpayer's marital,
dependency, exemption, and filing status for such year. To the extent
the undistributed capital gain of a trust deemed distributed in a
capital gain distribution includes amounts received as a capital gain
distribution from another trust, for purposes of this paragraph they
shall be considered as amounts deemed distributed by the trust under
section 669(a) on the last day of each of the preceding taxable years in
which such amounts were accumulated by such other trust.
[[Page 257]]
For example, assume trust Z, a calendar year trust received in its
taxable year 1975 a capital gain distribution from trust Y, a calendar
year trust, that included undistributed capital gain of trust Y for the
taxable years 1972, 1973, and 1974. To the extent a capital gain
distribution made by trust Z in its taxable year 1976 includes such
undistributed capital gain, it shall be considered a capital gain
distribution by trust Z in the taxable year 1976 and under section
669(a) will be deemed distributed on the last day of the preceding
taxable years 1972, 1973, and 1974.
(2) From the sum of the taxes for the prior taxable years
attributable to the section 669(a) amounts (computed in accordance with
subparagraph (1) of this paragraph), subtract so much of the amount of
taxes deemed distributed to the beneficiary under Sec. Sec. 1.669(d)-1A
and 1.669(e)-1A as does not exceed such sum. The resulting amount, if
any, is the partial tax on the beneficiary, computed under the exact
method, for the taxable year in which the capital gain distribution is
paid, credited, or required to be distributed to the beneficiary.
(c) Computation of tax by the short-cut method. (1) The tax referred
to in paragraph (a)(2) of this section is computed as follows:
(i) First, determine the number of preceding taxable years of the
trust on the last day of which an amount is deemed under section 669(a)
to have been distributed. For purposes of the preceding sentence, the
preceding taxable years of a trust that has received a capital gain
distribution from another trust shall include the taxable years of such
other trust in which an amount was deemed distributed in such capital
gain distribution. For example, assume trust Z, a calendar year trust,
received in its taxable year 1975 a capital gain distribution from trust
Y, a calendar year trust, that included undistributed capital gain of
trust Y for the taxable years 1972, 1973, and 1974. To the extent a
capital gain distribution made by trust Z in its taxable year 1976
includes such undistributed capital gain, it shall be considered a
capital gain distribution by trust Z in the taxable year 1976 and under
section 669(a) will be deemed distributed on the last day of the
preceding taxable years 1972, 1973, and 1974. For purposes of this
subparagraph, such number of preceding taxable years of the trust shall
not include any preceding taxable year of the trust in which the
undistributed capital gain deemed distributed is less than 25 percent of
(a) the total amounts deemed under section 669(a) to be undistributed
capital gain from preceding taxable years, divided by (b) the number of
such preceding taxable years of the trust on the last day of which an
amount is deemed under section 669(a) to have been distributed without
application of this sentence. For example, assume that a capital gain
distribution of $90,000 made to a beneficiary in 1979 is deemed
distributed in the amounts of $29,000 in each of the years 1972, 1973,
and 1974, and $3,000 in 1975. The number of preceding taxable years on
the last day of which an amount was deemed distributed without reference
to the second sentence of this subparagraph is 4. However, the
distribution deemed made in 1975 ($3,000) is less than $5,625, which is
25 percent of (a) the total undistributed capital gain deemed
distributed under section 669(a) ($90,000) divided by (b) the number of
such preceding taxable years (4), or $22,500. Therefore, for purposes of
this subparagraph, the capital gain distribution is deemed distributed
in only 3 preceding taxable years (1972, 1973, and 1974).
(ii) Second, divide the amount (representing the capital gain
distribution and taxes deemed distributed) required under section 668(a)
to be included in the income of the beneficiary for the taxable year by
the number of preceding taxable years of the trust on the last day of
which an amount is deemed under section 669(a) to have been distributed
(determined as provided in subdivision (i) of this paragraph). The
amount determined under this subdivision, including taxes deemed
distributed, consists of the same proportion of long-term and short-term
capital gain as the total of each type of capital gain deemed
distributed in the capital gain distribution bears to the total
undistributed capital gain from such preceding taxable years deemed
distributed in the capital gain distribution. For example, assume that
an amount
[[Page 258]]
of $50,000 is deemed distributed under section 669(a) from undistributed
capital gain of 5 preceding taxable years of the trust, and consists of
$30,000 of long-term capital gain and $20,000 of short-term capital
gain. Taxes attributable to such amounts in the amount of $10,000 are
also deemed distributed. The amount determined under this subdivision,
$12,000 ($50,000 income plus $10,000 tax, divided by 5 years), is deemed
to consist of $7,200 of long-term capital gain and $4,800 in short-term
capital gain.
(iii) Third, compute the tax of the beneficiary for each of the 3
taxable years immediately preceding the year in which the capital gain
distribution is paid, credited, or required to be distributed to him,
(a) With the inclusion in gross income of the beneficiary for each
of such 3 years of the amount determined under subdivision (ii) of this
subparagraph, and
(b) Without such inclusion.
The difference between the amount of tax computed under (a) of this
subdivision for each year and the amount computed under (b) of this
subdivision for that year is the additional tax resulting from the
inclusion in gross income for that year of the amount determined under
subdivision (ii) of this subparagraph.
(iv) Fourth, add the additional taxes resulting from the application
of subdivision (iii) of this subparagraph and then divide this amount by
3.
(v) Fifth, the resulting amount is then multiplied by the number of
preceding taxable years of the trust on the last day of which an amount
is deemed under section 669(a) to have been distributed (previously
determined under subdivision (i) of this subparagraph).
(vi) The resulting amount, less so much of the amount of taxes
deemed distributed to the beneficiary under Sec. Sec. 1.669(d)-1A and
1.669(e)-1A as does not exceed such resulting amount, is the tax under
the short-cut method provided in section 669(b)(1)(B).
(2) See Sec. 1.668(b)-1A(c) for examples of the short-cut method in
the context of an accumulation distribution.
(d) Disallowance of short-cut method. If, in any prior taxable year
of the beneficiary in which any part of the capital gain distribution is
deemed to have been distributed under section 669(a) to such
beneficiary, any part of prior capital gain distributions by each of two
or more other trusts is deemed under section 669(a) to have been
distributed to such beneficiary, then the short-cut method under
paragraph (c) of this section may not be used and the partial tax
imposed by section 668(a)(3) shall be computed only under the exact
method under paragraph (b) of this section. For example, assume that, in
1978, trust X makes a capital gain distribution to A, who is on the
calendar year basis, and part of the distribution is deemed under
section 669(a) to have been distributed on March 31, 1974. In 1977, A
had received a capital gain distribution from both trust Y and trust Z.
Part of the capital gain distribution from trust Y was deemed under
section 669(a) to have been distributed to A on June 30, 1974, and part
of the capital gain distribution from trust Z was deemed under section
669(a) to have been distributed to A on December 31, 1974. Because there
were portions of capital gain distributions from two other trusts deemed
distributed within the same prior taxable year of A (1974), the 1978
capital gain distribution from trust X may not be computed under the
short-cut method provided in paragraph (c) of this section. Therefore
the exact method under paragraph (b) of this section must be used to
compute the tax imposed by section 668(a)(3).
[T.D. 7204, 37 FR 17153, Aug. 25, 1972]
Sec. 1.669(c)-1A Special rules applicable to section 669.
(a) Effect of other distributions. The income of the beneficiary,
for any of his prior taxable years for which a tax is being recomputed
under Sec. 1.669(b)-1A, shall include any amounts of prior accumulation
distributions (including prior capital gain distributions) deemed
distributed under sections 666 and 669 in such prior taxable year. For
purposes of the preceding sentence, a prior accumulation distribution is
a distribution from the same or another trust which was paid, credited,
or required to be distributed in a prior taxable year of the
beneficiary. The term prior accumulation distribution also includes
accumulation distributions of
[[Page 259]]
the same or other trusts which were distributed to the beneficiary in
the same taxable year. The term ``prior capital gain distribution'' also
includes capital gain distributions of other trusts which were paid,
credited, or required to be distributed to the beneficiary in the same
taxable year and which the beneficiary has determined under paragraph
(b) of this section to treat as having been distributed before the
capital gain distribution for which tax is being computed under Sec.
1.669(b)-1A.
(b) Multiple distributions in the same taxable year. For purposes of
paragraph (a) of this section, capital gain distributions made from more
than one trust in the same taxable year of the beneficiary, regardless
of when in the taxable year they were actually made, shall be treated as
having been made consecutively, in whichever order the beneficiary may
determine. However, the beneficiary must treat them as having been made
in the same order for the purpose of computing the partial tax on the
several capital gain distributions. The beneficiary shall indicate the
order he has determined to deem the capital gain distributions to have
been received by him on his return for the taxable year. A failure by
him so to indicate, however, shall not affect his right to make such
determination. The purpose of this rule is to assure that the tax
resulting from the later (as so deemed under this paragraph)
distribution is computed with the inclusion of the earlier distribution
in the taxable base and that the tax resulting from the earlier (as so
deemed under this paragraph) distribution is computed with the later
distribution excluded from the taxable base.
(c) Rule when beneficiary not in existence on the last day of a
taxable year. If a beneficiary was not in existence on the last day of a
preceding taxable year of the trust with respect to which a distribution
is deemed made under section 669(a), it shall be assumed, for purposes
of the computations under paragraphs (b) and (c) of Sec. 1.669(b)-1A,
that the beneficiary:
(1) Was in existence on such last day,
(2) Was a calendar year taxpayer,
(3) Had no gross income other than the amounts deemed distributed to
him from such trust in his calendar year in which such last day occurred
and from all other trusts from which amounts are deemed to have been
distributed to him in such calendar year,
(4) If an individual, was unmarried and had no dependents,
(5) Had no deductions other than the standard deduction, if
applicable, under section 141 for such calendar year, and
(6) Was entitled to the personal exemption under section 151 or
642(b).
For example, assume that part of a capital gain distribution made in
1980 is deemed under section 669(a) to have been distributed to the
beneficiary, A, in 1973. $10,000 of a prior accumulation distribution
was deemed distributed in 1973. A was born on October 9, 1975. It will
be assumed for purposes of Sec. 1.669(b)-1A that A was alive in 1973,
was on the calendar year basis, had no income other than (i) the $10,000
from the accumulation distribution deemed distributed in 1973 and (ii)
the part of the 1980 distribution deemed distributed in 1973, and had no
deductions other than the personal exemption provided in section 151. If
A were a trust or estate created after 1973, the same assumptions would
apply, except that the trust or estate would not be entitled to the
standard deduction and would receive the personal exemption provided
under section 642(b) in the same manner as allowed under such section
for A's first actual taxable year.
(d) Examples. The provisions of paragraphs (a) and (b) of this
section may be illustrated by the following examples:
Example 1. In 1978, trust X made a capital gain distribution to A, a
calendar year taxpayer, of which $3,000 was deemed to have been
distributed in 1974. In 1980, trust X makes another capital gain
distribution to A, $10,000 of which is deemed under section 669(a) to
have been distributed in 1974. Also in 1980, trust Y makes a capital
gain distribution to A, of which $5,000 is deemed under section 669(a)
to have been distributed in 1974. A determines to treat the 1980
distribution from trust Y as having been made prior to the 1980
distribution from trust X. In computing the tax on the 1980 trust Y
distribution, A's gross income for 1974 includes (i) the $3,000 deemed
distributed from the 1978 distribution, and (ii) the $5,000 deemed
distributed in 1974 from the 1980 Trust Y capital gain distribution. To
compute A's tax under the exact method for 1974 on the
[[Page 260]]
$10,000 from the 1980 trust X capital gain distribution deemed
distributed in 1974. A's gross income for 1974 includes (i) the $10,000,
(ii) the $3,000 previously deemed distributed in 1974 from the 1978
trust X capital gain distribution, and (iii) the $5,000 deemed
distributed in 1974 from the 1980 trust Y capital gain distribution.
Example 2. In 1978, trust T makes a capital gain distribution to B,
a calendar year taxpayer. Determination of the tax on the distribution
under the short-cut method requires the use of B's gross income for
1975, 1976, and 1977. In 1977, B received an accumulation distribution
from trust U, of which $2,000 was deemed to have been distributed in
1975, and $3,000 in 1976. B's gross income for 1975, for purposes of
using the short-cut method to determine the tax from the trust T capital
gain distribution, will be deemed to include the $2,000 deemed
distributed in 1975 by trust U, and his gross income for 1976 will be
deemed to include the $3,000 deemed distributed by trust U in 1976.
[T.D. 7204, 37 FR 17155, Aug. 25, 1972]
Sec. 1.669(c)-2A Computation of the beneficiary's income and tax for a
prior taxable year.
(a) Basis for computation. (1) The beneficiary's income and tax paid
for any prior taxable year for which a recomputation is involved under
either the exact method or the short-cut method shall be determined by
reference to the information required to be furnished by him under Sec.
1.669(c)-3A(a). The gross income, related deductions, and taxes paid for
a prior taxable year of the beneficiary as finally determined shall be
used for recomputation purposes. The term as finally determined shall
have the same meaning for purposes of this section as in Sec. 1.668(b)-
3A(a).
(2) If any computations rely on the beneficiary's return for a prior
taxable year for which the applicable period of limitations on
assessment under section 6501 has expired, and such return shows a
mathematical error on its face which resulted in the wrong amount of tax
being paid for such year, the determination of both the tax for such
year computed with the inclusion of the section 669 amounts in the
beneficiary's gross income, and the tax for such year computed without
including such amounts in such gross income, shall be based upon the
return after the correction of such mathematical errors.
(b) Effect of allocation of undistributed capital gain on items
based on amount of income and with respect to a net operating loss, a
charitable contributions carryover, or a capital loss carryover. (1) In
computing the tax for any taxable year under either the exact method or
the short-cut method, any item which depends upon the amount of gross
income, adjusted gross income, or taxable income shall be recomputed to
take into consideration the amount of undistributed capital gain
allocated to such year. For example, if $2,000 of undistributed long-
term capital gain is allocated to 1970, adjusted gross income for 1970
is increased from $5,000 to $6,000. The allowable 50 percent charitable
deduction under section 170(b)(1)(A) is then increased and the amount of
the nondeductible medical expenses under section 213 (3 percent of
adjusted gross income) is also increased.
(2) In computing the tax attributable to the undistributed capital
gain deemed distributed to the beneficiary in any of his prior taxable
years under either the exact method or the short-cut method, the effect
of amounts of undistributed capital gain on a net operating loss
carryback or carryover, a charitable contributions carryover, or a
capital loss carryback or carryover, shall be taken into account. In
determining the amount of tax attributable to such deemed distribution,
a computation shall also be made for any taxable year which is affected
by a net operating loss carryback or carryover, by a charitable
contributions carryover, or by a capital loss carryback or carryover
determined by reference to the taxable year to which amounts are
allocated under either method and which carryback or carryover is
reduced or increased by such amounts so allocated.
[T.D. 7204, 37 FR 17155, Aug. 25, 1972]
Sec. 1.669(c)-3A Information requirements with respect to beneficiary.
(a) Information to be supplied by beneficiary--(1) Use of exact
method. The beneficiary must supply the information required by
subparagraph (3) of Sec. 1.668(b)-4A(a) for any prior taxable year for
which a recomputation is required under either the exact method
[[Page 261]]
or the short-cut method. Such information shall be filed with the
beneficiary's return for the year in which the tax under section
668(a)(3) is imposed.
(2) Failure to furnish. If the beneficiary fails to furnish the
information required by this paragraph for any prior year involved in
the exact method, he may not use such method and the tax computed under
paragraph (c) of Sec. 1.669(b)-1A (the short-cut method) shall be
deemed to be the amount of partial tax imposed by section 668(a)(3).
See, however, paragraph (b) of this section for an exception to this
rule where the short-cut method is not permitted. If he cannot furnish
the information required for a prior year involved in the short-cut
method, such year will be recomputed on the basis of the best
information available.
(b) Exception. If, by reason of Sec. 1.669(b)-1A(e), the
beneficiary may not compute the partial tax on the capital gain
distribution under Sec. 1.669(b)-1A(c) (the short-cut method), the
provisions of subparagraph (2) of paragraph (a) of this section shall
not apply. In such case, if the beneficiary fails to provide the
information required by Sec. 1.668(b)-4A(a)(3) for any prior taxable
year, the district director shall, by utilizing whatever information is
available to him (including information supplied by the beneficiary),
determine the beneficiary's income and related expenses for such prior
taxable year.
[T.D. 7204, 37 FR 17156, Aug. 25, 1972]
Sec. 1.669(d)-1A Total taxes deemed distributed.
(a) If a capital gain distribution is deemed under Sec. 1.669(a)-1A
to be distributed on the last day of a preceding taxable year and the
amount is not less than the undistributed capital gain for such
preceding taxable year, then an additional amount equal to the ``taxes
imposed on the trust attributable to the undistributed capital gain''
(as defined in Sec. 1.665(d)-1A(c)) for such preceding taxable year is
also deemed to have been properly distributed. For example, assume a
trust has no distributable net income and has undistributed capital gain
of $18,010 for the taxable year 1974. The taxes imposed on the trust
attributable to the undistributed capital gain are $2,190. During the
taxable year 1977, a capital gain distribution of $18,010 is made to the
beneficiary which is deemed under Sec. 1.669(a)-1A to have been
distributed on the last day of 1974. The 1977 capital gain distribution
is not less than the 1974 undistributed capital gain. Accordingly, taxes
of $2,190 imposed on the trust attributable to the undistributed capital
gain for 1974 are also deemed to have been distributed on the last day
of 1974. Thus, a total of $20,200 will be deemed to have been
distributed on the last day of 1974.
(b) For the purpose of paragraph (a) of this section, the
undistributed capital gain of any preceding taxable year and the taxes
imposed on the trust for such preceding taxable year attributable to
such undistributed capital gain are computed after taking into account
any capital gain distributions of taxable years intervening between such
preceding taxable year and the taxable year. See paragraph (c) of Sec.
1.669(a)-1A.
[T.D. 7204, 37 FR 17156, Aug. 25, 1972]
Sec. 1.669(e)-1A Pro rata portion of taxes deemed distributed.
(a) If a capital gain distribution is deemed under Sec. 1.669(a)-1A
to be distributed on the last day of a preceding taxable year and the
amount is less than the undistributed capital gain for such preceding
taxable year, then an additional amount is also deemed to have been
properly distributed. The additional amount is equal to the ``taxes
imposed on the trust attributable to the undistributed capital gain''
(as defined in Sec. 1.665(d)-1A(c)) for such preceding taxable year,
multiplied by a fraction, the numerator of which is the amount of the
capital gain distribution allocated to such preceding taxable year and
the denominator of which is the undistributed capital gain for such
preceding taxable year. See paragraph (b) of example 1 and paragraphs
(c) and (f) of example 2 in Sec. 1.669(e)-2A for illustrations of this
paragraph.
(b) For the purpose of paragraph (a) of this section, the
undistributed capital gain of any preceding taxable year and the taxes
imposed on the trust for such preceding taxable year attributable to
such undistributed capital
[[Page 262]]
gain are computed after taking into account any capital gain
distributions of any taxable years intervening between such preceding
taxable year and the taxable year. See paragraph (c) of Sec. 1.669(a)-
1A, paragraph (c) of example 1 and paragraphs (e) and (h) of example 2
in Sec. 1.669(e)-2A.
[T.D. 7204, 37 FR 17156, Aug. 25, 1972]
Sec. 1.669(e)-2A Illustration of the provisions of section 669.
The application of the provisions of Sec. Sec. 1.669(a)-1A,
1.669(d)-1A, and 1.669(e)-1A may be illustrated by the following
examples:
Example 1. (a) A trust created on January 1, 1974, makes capital
gain distributions as follows:
1979.............................................................$14,000
1980..............................................................60,000
The trust had accumulated income in 1974.
For 1974 through 1978, the undistributed portion of capital gain, taxes
imposed on the trust attributable to the undistributed capital gain, and
undistributed capital gain are as follows:
----------------------------------------------------------------------------------------------------------------
Taxes imposed on
Undistributed the trust
Year portion of attributable to Undistributed
capital gain the undistributed capital gain
capital gain
----------------------------------------------------------------------------------------------------------------
1974........................................................... $24,200 $2,830 $21,370
1975........................................................... 32,200 4,330 27,870
1976........................................................... 12,200 1,130 11,070
1977........................................................... None None None
1978........................................................... 10,200 910 9,290
----------------------------------------------------------------------------------------------------------------
(b) Since the entire amount of the capital gain distribution for
1979 ($14,000), determined without regard to the capital gain
distribution for 1980, is less than the undistributed capital gain for
1974 ($21,370), an additional amount of $1,854 (14,000/21,370x $2,830)
is deemed distributed under section 669(e).
(c) In allocating the capital gain distribution for 1980, the amount
of undistributed capital gain for 1974 will reflect the capital gain
distribution for 1979. The undistributed capital gain for 1974 will then
be $7,370 and the taxes imposed on the trust for 1974 will be $976,
determined as follows:
Undistributed capital gain as of the close of 1974.......... $21,370
Less: Capital gain distribution (1979)...................... 14,000
-----------
Balance (undistributed capital gain as of the close of 7,370
1979)..................................................
Taxes imposed on the trust attributable to the undistributed 976
capital gain as of the close of 1979 (7,370/ 21,370x2,830).
(d) The capital gain distribution of $60,000 for 1980 is deemed to
have been made on the last day of the preceding taxable years of the
trust to the extent of $55,600, the total of the undistributed capital
gain for such years, as shown in the tabulation below. In addition,
$7,346, the total taxes imposed on the trust attributable to the
undistributed capital gain for such years is also deemed to have been
distributed on the last day of such years, as shown below:
------------------------------------------------------------------------
Taxes imposed on
the trust
Year Undistributed attributable to
capital gain the undistributed
capital gain
------------------------------------------------------------------------
1974................................. $7,370 $976
1975................................. 27,870 4,330
1976................................. 11,070 1,130
1977................................. None None
1978................................. 9,290 910
1979................................. None None
----------------------------------
Total............................ 55,600 7,346
------------------------------------------------------------------------
Example 2. (a) Under the terms of a trust instrument, the trustee
has discretion to accumulate or distribute the income to X and to invade
corpus for the benefit of X. The trust is subject to capital gain
throwback. Both X and the trust report on the calendar year basis. All
of the income for 1974 was distributed and the capital gain was
accumulated. The capital gain of the trust for the taxable year 1974 is
$40,200 and the income taxes paid by the trust for 1974 attributable to
the undistributed capital gain are $6,070. All of the income and capital
gains for 1975 and 1976 were distributed and in addition the trustee
made capital gain distributions within the meaning of section 665(g) of
$8,000 for each year.
(b) The undistributed capital gain of the trust determined under
section 665(f) as of the close of 1974 is $34,130, computed as follows:
Capital gain................................................ $40,200
Less: Taxes imposed on the trust attributable to the 6,070
undistributed capital gain.............................
-----------
Undistributed capital gain as of the close of 1974...... 34,130
(c) The capital gain distribution of $8,000 made during the taxable
year 1975 is deemed under section 669(a) to have been made on December
31, 1974. Since this capital gain distribution is less than the 1974
undistributed capital gain of $34,130, a portion of the taxes imposed on
the trust for 1974 is also deemed under section 669(e) to have been
distributed on December 31, 1974. The total amount deemed to have been
distributed to X on December 31, 1974, is $9,486, computed as follows:
Capital gain distribution................................... $8,000
Taxes deemed distributed (8,000/ 34,130x$6,070)............. 1,423
-----------
Total................................................... 9,423
[[Page 263]]
(d) After the application of the provisions of subpart D to the
capital gain distribution of 1975, the undistributed capital gain of the
trust for 1974 is $26,130, computed as follows:
Undistributed capital gain as of the close of 1974.......... $34,130
Less: 1975 capital gain distribution deemed distributed 8,000
on December 31, 1974 (paragraph (c) of this example)...
-----------
Undistributed capital gain for 1974 as of the close of 26,130
1975...................................................
(e) The taxes imposed on the trust attributable to the undistributed
capital gain for the taxable year 1974, as adjusted to give effective to
the 1975 capital gain distribution, amount to $4,647, computed as
follows:
Taxes imposed on the trust attributable to undistributed $6,070
capital gain as of the close of 1974.......................
Less: Taxes deemed distributed in 1974.................. 1,423
-----------
Taxes attributable to the undistributed capital gain 4,647
determined as of the close of 1975.....................
(f) The capital gain distribution of $8,000 made during the taxable
year 1976 is, under section 669(a), deemed an amount properly
distributed to X on December 31, 1974. Since the capital gain
distribution is less than the 1974 adjusted undistributed capital gain
of $26,130, the trust is deemed under section 669(e) also to have
distributed on December 31, 1974, a portion of the taxes imposed on the
trust for 1974. The total amount deemed to be distributed on December
31, 1974, with respect to the capital gain distribution made in 1976, is
$9,423, computed as follows:
Capital gain distribution................................... $8,000
Taxes deemed distributed (8,000/ 26,130x$4,647)............. 1,423
-----------
Total................................................... 9,423
(g) After the application of the provisions of subpart D to the
capital gain distribution of 1976, the undistributed capital gain of the
trust for 1974 is $18,130, computed as follows:
Undistributed capital gain for 1974 as of the close of 1975. $26,130
Less:
1976 capital gain distribution deemed distributed on 8,000
December 31, 1974 (paragraph (f) of this example)........
-----------
Undistributed capital gain for 1974 as of the close of 18,130
1976.....................................................
(h) The taxes imposed on the trust attributable to the undistributed
capital gain of the trust for the taxable year 1974, determined as of
the close of the taxable year 1976, amount to $3,224 ($4,647 less
$1,423).
[T.D. 7204, 37 FR 17156, Aug. 25, 1972]
Sec. 1.669(f)-1A Character of capital gain.
Amounts distributed as a capital gain distribution and the taxes
attributable thereto (determined under Sec. 1.665(d)-1A(c)) retain the
character that the gain had with respect to the trust. Thus, a capital
gain that was taxed to the trust as a ``long-term'' capital gain and the
pro rata amount of taxes attributable to such long-term gain shall be
treated to the beneficiary as a ``long-term'' capital gain when they are
deemed distributed as part of a capital gain distribution. If a trust
has different types of capital gain for the same taxable year, and all
of the capital gains are not deemed distributed for such year under
section 669(a), the amount deemed distributed from such year (including
taxes deemed distributed) shall be treated as consisting of the
different types of gains in the ratio that the total of each such type
of gains of the trust bears to the total of all such gains for the
taxable year. For example, assume that in 1975 a trust had net long-term
capital gains of $4,000 and net short-term capital gains of $2,000.
Taxes attributable to such undistributed capital gain were $700.
Therefore, undistributed capital gain for 1975 is $5,300. In 1980, the
trust distributes $2,650 that is deemed to be undistributed capital gain
from 1975. Such distribution is deemed to consist of long-term gain of
$1,766.67 and short-term gain of $883.33. The taxes deemed distributed
of $350 consist of long-term gain of $233.33 and short-term gain of
$116.67.
[T.D. 7204, 37 FR 17157, Aug. 25, 1972]
Sec. 1.669(f)-2A Exception for capital gain distributions from certain
trusts.
(a) General rule. If a capital gain distribution is paid, credited,
or required to be distributed before January 1, 1973, from a trust that
was in existence on December 31, 1969, section 669 shall not apply and
no tax shall be imposed on such capital gain distribution under section
668(a)(3). If capital gain distributions from more than one such trust
are paid, credited, or required to be distributed to a beneficiary
before January 1, 1973, the exception under the preceding sentence shall
apply only to the capital gain distributions from one of the trusts. The
beneficiary shall indicate on his income tax return for the taxable year
in which the distribution would otherwise be included in income under
section 668(a) the trust to
[[Page 264]]
which the exception provided by this section shall apply.
(b) Special rule for section 2056(b)(5) trust. A capital gain
distribution paid, credited, or required to be distributed by a trust
that qualifies under section 2056(b)(5) of the Code (commonly known as a
``marital deduction trust'') to a surviving spouse shall, in general,
not be taxed under section 668(a)(3) since such a trust is required to
distribute all of its income annually or more often. See section
2056(b)(5) and the regulations thereunder.
(c) Effect of exception. If this section applies to a capital gain
distribution from a trust, such distribution shall reduce the
undistributed capital gain of the trust. Since section 669 does not
apply to such capital gain distribution, no amount of taxes paid by the
trust attributable to such capital gain distribution are deemed
distributed under section 669 (d) and (e).
[T.D. 7204, 37 FR 17157, Aug. 25, 1972]
Sec. 1.669(a)-1 Limitation on tax.
(a) In general. Section 669 provides that, at the election of a
beneficiary who is a U.S. person (as defined in section 7701(a)(30)) and
who satisfies the requirements of section 669(b) (that certain
information with respect to the operation and accounts of the trust be
supplied), the tax attributable to the amounts treated under section
668(a) as having been received by him, from a foreign trust created by a
U.S. person, on the last day of a preceding taxable year of the trust
shall not be greater than the tax computed under section 669(a)(1)(A)
(the computation under this provision will hereinafter be referred to as
the ``exact throwback'' method) or under section 669(a)(1)(B) (the
computation under this provision will hereinafter be referred to as the
``short-cut throwback'' method). This election of the beneficiary with
respect to the taxable year of the beneficiary in which the distribution
is made shall be made with the district director before the expiration
of the period of limitations for assessment provided in section 6501 for
such taxable year.
(b) Where no election is made. If the beneficiary does not make the
election provided in section 669(a) in the manner required in section
669(b) and Sec. 1.669(b)-2, or furnish the information with respect to
the operation and accounts of the foreign trust created by a U.S. person
required by section 669(b) and Sec. 1.669(b)-1, the tax on an
accumulation distribution treated under section 668(a) as having been
received by him from such foreign trust on the last day of a preceding
taxable year of the trust shall be computed without reference to section
668 or 669. In such case, the entire accumulation distribution will be
included in the gross income of the beneficiary in the year in which it
is paid, credited, or required to be distributed, and tax for such year
will be computed on the basis of the beneficiary's total taxable income
for the year after taking into account such inclusion in gross income.
(c) Year for which tax is payable. The tax, regardless of the manner
in which computed, of the beneficiary which is attributable to an
accumulation distribution is imposed on the beneficiary for the taxable
year of the beneficiary in which the accumulation distribution is made
to him unless the taxable year of the beneficiary is different from that
of the trust. See section 662(c) and Sec. 1.662(c)-1.
[T.D. 6989, 34 FR 738, Jan. 17, 1969]
Sec. 1.669(a)-2 Rules applicable to section 669 computations.
(a) In general. (1) Section 668(a) provides that the total of the
amounts treated under section 666 as having been distributed by the
foreign trust created by a U.S. person on the last day of a preceding
taxable year of such trust shall be included in the gross income of the
beneficiary or the beneficiaries who are U.S. persons receiving them.
The total of such amounts is includible in the gross income of each
beneficiary to the extent the amount would have been included in his
gross income under section 662 (a)(2) and (b) if the total had actually
been paid by the trust on the last day of such preceding taxable year.
The total is included in the gross income of the beneficiary for the
taxable year of the beneficiary in which such amounts are in fact paid,
credited, or required to be distributed unless the taxable year of the
beneficiary differs from the taxable year of the trust (see section
662(c) and
[[Page 265]]
Sec. 1.662(c)-1). The character of the amounts treated as received by a
beneficiary in prior taxable years, including taxes deemed distributed,
in the hands of the beneficiary is determined by the rules contained in
section 662(b) and Sec. Sec. 1.662(b)-1 and 1.662(b)-2.
(2) The total of the amounts treated under section 666 as having
been distributed by the trust on the last day of a preceding taxable
year of the trust are included as prescribed in subparagraph (1) of this
paragraph in the gross income of the beneficiary even though as of that
day the beneficiary would not have been entitled to receive them had
they actually been distributed on that day.
(3) Any deduction allowed to the trust in computing distributable
net income for a preceding taxable year (such as depreciation,
depletion, etc.) is not deemed allocable to a beneficiary because of the
amounts included in a beneficiary's gross income under this section
since the deduction has already been utilized in reducing the amount
included in the beneficiary's income.
(b) Allocation among beneficiaries of a foreign trust. Where there
is more than one beneficiary the portion of the total amount includible
in gross income under paragraph (a) of this section which is includible
in the gross income of a beneficiary who is a U.S. person is based upon
the ratio determined under the second sentence of section 662(a)(2) for
the taxable year in which distributed (and not for the preceding taxable
year). This paragraph may be illustrated by the example in Sec.
1.668(a)-2.
(c) Treatment of income taxes paid by the trust--(1) Current
distributions. The income taxes imposed by the provisions of section 871
on the income of a foreign trust created by a U.S. person shall be
included in the gross income of the beneficiary, who is a U.S. person,
for the taxable year in which such income is paid, credited, or required
to be distributed to the beneficiary.
(2) Accumulation distribution. (i) If an accumulation distribution
is deemed under Sec. 1.666(a)-1 to be distributed on the last day of a
preceding taxable year and the amount is not less than the undistributed
net income for such preceding taxable year, then an additional amount
equal to the taxes imposed on the trust pursuant to the provisions of
section 871 for such preceding taxable year is likewise deemed
distributed under section 661(a)(2).
(ii) If an accumulation distribution is deemed under Sec. 1.666(a)-
1 to be distributed on the last day of a preceding taxable year and the
amount is less than the undistributed net income for such preceding
taxable year, then an additional amount (representing taxes) is likewise
deemed distributed under section 661(a)(2). The additional amount is
equal to the taxes imposed on the trust pursuant to the provisions of
section 871 for such preceding taxable year, multiplied by the fraction
the numerator of which is the amount of the accumulation distribution
attributable to such preceding taxable year and the denominator of which
is the undistributed net income for such preceding taxable year.
(3) Credits under sections 32 and 668(b). Credit under section 32 is
allowable to the beneficiary for income taxes withheld at source under
subchapters A and B of chapter 3 and which are deemed distributed to
him. Credit under section 668(b) is allowable to the beneficiary for
income taxes imposed upon the foreign trust by section 871(b). These
credits shall be allowed against the tax of the beneficiary for the
taxable year of the beneficiary in which the income is paid, credited,
or required to be distributed to him, or in which the accumulation
distribution to which such taxes relate is made to him.
(d) Credit for foreign income taxes paid by the trust. To the extent
provided in section 901, credit under section 33 is allowable to the
beneficiary for the foreign taxes paid or accrued by the trust to a
foreign country.
[T.D. 6989, 34 FR 738, Jan. 17, 1969]
Sec. 1.669(a)-3 Tax computed by the exact throwback method.
(a) Tax attributable to amounts treated as received in preceding
taxable years. If a taxpayer elects to compute the tax, on amounts
deemed distributed under section 666, by the exact throwback method
provided in section 669(a)(1)(A), the tax liability of the beneficiary
for the taxable year in which the accumulation distribution is paid,
credited, or
[[Page 266]]
required to be distributed is computed as provided in paragraph (b) of
this section. The beneficiary may not elect to use the exact throwback
method of computing his tax on an accumulation distribution as provided
in section 669(a)(1)(A) if he were not alive on the last day of each
preceding taxable year of the foreign trust created by a U.S. person
with respect to which a distribution is deemed made under section
666(a). Thus, if a portion of an amount received as an accumulation
distribution was accumulated by the trust during years before the
beneficiary was born, the beneficiary is not permitted to elect the
exact throwback method provided in section 669(a)(1)(A). See Sec.
1.669(a)-4 for the computation of the tax on an accumulation
distribution by the short-cut throwback method provided in section
669(a)(1)(B) under these circumstances.
(b) Computation of tax. The tax referred to in paragraph (a) of this
section is computed as follows:
(1) First, compute the tax attributable to the section 666 amounts
for each of the preceding taxable years. To determine the section 666
amounts attributable to each of the preceding taxable years, see Sec.
1.666(a)-1. The tax attributable to such amounts in each such preceding
taxable year is the difference between the tax for such preceding
taxable year computed with the inclusion of the section 666 amounts in
gross income, and the tax for such year computed without including them
in gross income. Tax computations for each preceding year shall reflect
the taxpayer's marital and dependency status for that year.
(2) Second, add
(i) The sum of the taxes for the preceding taxable years
attributable to the section 666 amounts (computed in accordance with
subparagraph (1) of this paragraph), and
(ii) The tax for the taxable year of the beneficiary in which the
accumulation distribution is paid, credited, or required to be
distributed to him, computed without including the section 666 amounts
in gross income.
The total of these amounts is the beneficiary's tax, computed under
section 669(a)(1)(A) for the taxable year in which the accumulation
distribution is paid, credited, or required to be distributed to him.
(c) Effect of prior election. In computing the tax attributable to
an accumulation distribution for the taxable year in which such
accumulation distribution is paid, credited, or required to be
distributed to him, the beneficiary in computing the tax attributable to
section 666 amounts for each of the preceding taxable years, must
include in his gross income for each such year the section 666 amounts
deemed distributed to him in such year resulting from prior accumulation
distributions made to him in taxable years prior to the current taxable
year. These section 666 amounts resulting from such prior accumulation
distributions must be included in the gross income for such preceding
taxable year even though the tax on the accumulation distribution of
such prior taxable year was computed by the short-cut throwback method
provided in section 669(a)(1)(B) and Sec. 1.669(a)-4.
[T.D. 6989, 34 FR 739, Jan. 17, 1969]
Sec. 1.669(a)-4 Tax attributable to short-cut throwback method.
(a) Manner of computing tax. If a beneficiary has elected under
section 669(a) to compute the tax on the amounts deemed distributed
under section 666 by the short-cut throwback method provided in section
669(a)(1)(B), the tax liability of the beneficiary for the taxable year
is computed in the following manner:
(1) First, determine the number of preceding taxable years of the
trust, on the last day of which an amount is deemed under section 666(a)
to have been distributed. In any case where there has been a prior
accumulation distribution with respect to which the beneficiary has
elected to compute his tax either by the exact throwback method or by
the short-cut throwback method, or to which the next to the last
sentence of section 668(a) has applied, for purposes of an election to
use the short-cut throwback method with respect to a subsequent
accumulation distribution, in determining the number of preceding
taxable years of the trust with respect to which an amount of the
subsequent accumulation distribution is deemed distributed to a
[[Page 267]]
beneficiary under section 666(a), there shall be excluded any preceding
taxable year during which any part of the prior accumulation
distribution was deemed distributed to the beneficiary. For example,
assume that an accumulation distribution of $90,000 made to a
beneficiary in 1963 is deemed distributed in the amounts of $25,000 in
each of the years 1962, 1961, and 1960, and in the amount of $15,000 in
1959, and a subsequent accumulation distribution of $85,000 made to the
same beneficiary in 1964 is deemed distributed in the amount of $10,000
during 1959, and $25,000 during each of the years 1958, 1957, and 1956.
The accumulation distribution made in 1963 is deemed distributed in 4
preceding taxable years of the trust (1962, 1961, 1960, and 1959).
Inasmuch as the year 1959 was a year during which part of the 1963
accumulation distribution was deemed distributed, for purposes of
determining the number of preceding taxable years in which the
accumulation distribution of $85,000 made in 1964 is deemed distributed,
the year 1959 is excluded and the $85,000 accumulation distribution is
deemed distributed in three preceding taxable years (1958, 1957, and
1956),
(2) Second, divide the number of preceding taxable years of the
trust, on the last day of which an amount is deemed under section 666(a)
to have been distributed (determined as provided in subparagraph (1) of
this paragraph) into the amount (representing an accumulation
distribution made by a foreign trust created by a U.S. person) required
to be included under section 669(a) in the gross income of the
beneficiary for the taxable year,
(3) Third, compute the tax of the beneficiary for the current
taxable year (the year in which the accumulation distribution is paid,
credited, or required to be distributed to him) and for each of the 2
taxable years immediately preceding such year,
(i) With the inclusion in gross income of the beneficiary for each
of such 3 years of the amount determined under subparagraph (2) of this
paragraph, and
(ii) Without such inclusion.
The difference between the amount of tax computed under subdivision (i)
of this subparagraph for each year and the amount computed under
subdivision (ii) of this subparagraph for that year is the additional
tax resulting from the inclusion in gross income for that year of the
amount determined under subparagraph (2) of this paragraph. If the
number of preceding taxable years of the trust, on the last day of which
an amount is deemed under section 666(a) to have been distributed, is
less than three, the taxable years of the beneficiary for which this
recomputation is made shall equal the number of years in which an amount
is deemed under section 666(a) to have been distributed, commencing with
the taxable year of the beneficiary in which the accumulation
distribution is paid, credited, or required to be distributed to him. If
the beneficiary was not alive during one of the two taxable years
immediately preceding the taxable year, the tax resulting from the
inclusion of the amount determined in subparagraph (2) of this paragraph
in the gross income of the beneficiary will be computed only for the
taxable year in which the accumulation distribution was paid, credited,
or required to be distributed to him and the preceding year during which
the beneficiary was alive. In the event the beneficiary was not alive
during either of the 2 years immediately preceding the taxable year in
which the accumulation distribution was paid, credited, or required to
be distributed, the tax shall be computed on the basis of the
beneficiary's taxable year without regard to the inclusion in income
required by section 668(a) of any amount other than pursuant to section
669(a)(1)(B). For example, assume that a foreign trust created by a U.S.
person accumulates $3,000 of income in 1964 and $7,000 in 1963 and then
distributes the accumulated income on January 1, 1965, to a beneficiary
who is a U.S. person. The limitation on tax is determined by recomputing
the beneficiary's gross income for 1964 and 1965 by adding $5,000 to his
gross income for each year. If the same distribution were made to an
infant who was born in 1965, the limitation on tax would be computed by
adding $5,000 to his gross income for such year. In the case of the
infant, the resulting increase in tax would be multiplied by two to
arrive at the limitation
[[Page 268]]
on the increase in his tax for 1965 attributable to such distribution.
(4) Fourth, add the additional taxes resulting from the application
of subparagraph (3) of this paragraph for the taxable year and the 2
taxable years (or the 1 taxable year, where applicable) immediately
preceding the year in which the accumulation distribution is paid,
credited, or required to be distributed and then divide this amount by
three (or two, where applicable). The resulting amount is then
multiplied by the number of preceding taxable years of the trust on the
last day of which an amount is deemed under section 666(a) to have been
distributed (previously determined under subparagraph (1) of this
paragraph). The resulting amount is the tax, under the short-cut
throwback method provided in section 669(a)(1)(B), which is attributable
to the amounts treated under section 668(a) as having been received by
the beneficiary from a foreign trust created by a U.S. person on the
last day of the preceding taxable year.
(5) Fifth, add the amount determined under subparagraph (4) of this
paragraph to the beneficiary's tax for the taxable year in which the
accumulation distribution was paid, credited, or required to be
distributed to him, computed without inclusion of the accumulation
distribution in gross income for that year. The total is the
beneficiary's income tax for such year.
(b) Credit for tax paid by trust. The income taxes deemed
distributed to a beneficiary in the manner described in paragraphs (c)
and (d) of Sec. 1.669(a)-2 are included in the beneficiary's gross
income for purposes of the computations required by this section. To the
extent provided in Sec. 1.669(a)-2, credits for such taxes are
allowable to the beneficiary. In the computations under the short-cut
throwback method provided in section 669(a)(1)(B), the rules set forth
in section 662(b) and Sec. 1.662(b)-1 shall be applied in determining
the character, in the hands of the beneficiary, of the amounts,
including taxes includible in the distribution or deemed distributed,
treated as received by a beneficiary in prior taxable years. For
example, if one-fifth of such amounts represents tax-free income, then
one-fifth of the amount determined under paragraph (a)(2) of this
section shall be treated as tax-free income.
[T.D. 6989, 34 FR 739, Jan. 17, 1969]
Sec. 1.669(b)-1 Information requirements.
The election of a beneficiary who is a U.S. person to apply the
limitations on tax provided in section 669(a) shall not be effective
unless the beneficiary, at or before the time the election is made,
supplies, in a letter addressed to the district director for the
internal revenue district in which the taxpayer files his return (or the
Director of International Operations where appropriate), or in a
statement attached to his return, the following information with respect
to the operation and accounts of the foreign trust created by a U.S.
person for each of the preceding taxable years, on the last day of which
an amount is deemed distributed under section 666(a):
(a) The gross income of the trust: The gross income should be
separated to show the amount of each type of income received by the
trust and to identify its source. For example, the beneficiary should
list separately, by type (dividends, rents, capital gains, taxable
interest, exempt interest, etc.) and source (name and country of payor),
each item of income included in the gross income of the trust. For this
purpose, the gross income of the trust includes gross income from U.S.
sources which is exempt from taxation under section 894.
(b) The amount of tax withheld under section 1441 by the United
States on income from sources within the United States.
(c) The amount of the tax paid to each foreign country by the trust.
(d) The expenses of the trust attributable to each type of income
disclosed in paragraph (b) of this section, and the general expenses of
the trust.
(e) The distributions, if any, made by the trust to the
beneficiaries (including those who are not U.S. persons). These
distributions should be separated into amounts of income required to be
distributed currently within the meaning of section 661(a)(1), and any
other amounts properly paid, credited, or required to be distributed
within the meaning of section 661(a)(2).
[[Page 269]]
(f) Any other information which is necessary for the computation of
tax on the accumulation distribution as provided in section 669(a).
(g) If the foreign trust created by a U.S. person is less than the
entire foreign trust, the information listed in paragraphs (a) through
(f) of this section shall also be furnished with respect to that portion
of the entire foreign trust which is not a foreign trust created by a
U.S. person.
[T.D. 6989, 34 FR 740, Jan. 17, 1969]
Sec. 1.669(b)-2 Manner of exercising election.
(a) By whom election is to be made. Except as otherwise provided in
this paragraph, a taxpayer whose tax liability is affected by the
election shall make the election provided in section 669(a). In the case
of a partnership, or a corporation electing under the provisions of
subchapter S, chapter 1 of the Code, the election shall be exercised by
the partnership or such corporation.
(b) Time and manner of making election. The election under section
669(a) may be made, or revoked, at any time before the expiration of the
period provided in section 6501 for assessment of the tax. If an
election is revoked, a new election may be made at any time before the
expiration of such period. The election (or a revocation of an election)
may be made in a letter addressed to the district director of internal
revenue for the district in which the taxpayer files his tax return (or
the Director of International Operations where appropriate) or may be
made in a statement attached to the return. In any case where all the
information described in Sec. 1.669(b)-1 is not furnished at or before
the time the beneficiary signifies his intention of making an election
and by reason thereof an election has not been made, and subsequent
thereto, but before the expiration of the period provided in section
6501 for the assessment of the tax, there is furnished the required
information not previously furnished, the election will be considered as
made at the time such additional information is furnished.
[T.D. 6989, 34 FR 740, Jan. 17, 1969]
unitrust actuarial tables applicable before may 1, 2009
Sec. 1.664-4A Valuation of charitable remainder interests for which
the valuation date is before May 1, 2009.
(a) Valuation of charitable remainder interests for which the
valuation date is before January 1, 1952. There was no provision for the
qualification of a charitable remainder unitrust under section 664 until
1969. See Sec. 20.2031-7A(a) of this chapter (Estate Tax Regulations)
for the determination of the present value of a charitable interest for
which the valuation date is before January 1, 1952.
(b) Valuation of charitable remainder interests for which the
valuation date is after December 31, 1951, and before January 1, 1971.
No charitable deduction is allowable for a transfer to a unitrust for
which the valuation date is after the effective dates of the Tax Reform
Act of 1969 unless the unitrust meets the requirements of section 664.
See Sec. 20.2031-7A(b) of this chapter (Estate Tax Regulations) for the
determination of the present value of a charitable remainder interest
for which the valuation date is after December 31, 1951, and before
January 1, 1971.
(c) Valuation of charitable remainder unitrusts having certain
payout sequences for transfers for which the valuation date is after
December 31, 1970, and before December 1, 1983. For the determination of
the present value of a charitable remainder unitrust for which the
valuation date is after December 31, 1970, and before December 1, 1983,
see Sec. 20.2031-7A(c) of this chapter (Estate Tax Regulations) and
former Sec. 1.664-4(d) (as contained in the 26 CFR part 1 edition
revised as of April 1, 1994).
(d) Valuation of charitable remainder unitrusts having certain
payout sequences for transfers for which the valuation date is after
November 30, 1983, and before May 1, 1989--(1) In general. Except as
otherwise provided in paragraph (d)(2) of this section, in the case of
transfers made after November 30, 1983, for which the valuation date is
before May 1, 1989, the present value of a remainder interest that is
dependent on a term of years or the termination of the life of one
individual is determined under
[[Page 270]]
paragraphs (d)(3) through (d)(6) of this section, provided that the
amount of the payout as of any payout date during any taxable year of
the trust is not larger than the amount that the trust could distribute
on such date under Sec. 1.664-3(a)(1)(v) if the taxable year of the
trust were to end on such date. The present value of the remainder
interest in the trust is determined by computing the adjusted payout
rate (as defined in paragraph (d)(3) of this section) and following the
procedure outlined in paragraph (d)(4) or (d)(5) of this section,
whichever is applicable. The present value of a remainder interest that
is dependent on a term of years is computed under paragraph (d)(4) of
this section. The present value of a remainder interest that is
dependent on the termination of the life of one individual is computed
under paragraph (d)(5) of this section. See paragraph (d)(2) of this
section for testamentary transfers for which the valuation date is after
November 30, 1983, and before August 9, 1984.
(2) Rules for determining the present value for testamentary
transfers where the decedent dies after November 30, 1983, and before
August 9, 1984. For purposes of section 2055 or 2106, if--
(i) The decedent dies after November 30, 1983, and before August 9,
1984; or
(ii) On December 1, 1983, the decedent was mentally incompetent so
that the disposition of the property could not be changed, and the
decedent died after November 30, 1983, without regaining competency to
dispose of the decedent's property, or died within 90 days of the date
on which the decedent first regained competency, the present value
determined under this section of a remainder interest is determined in
accordance with paragraph (d)(1) and paragraphs (d)(3) through (d)(6) of
this section, or Sec. 1.664-4A(c), at the option of the taxpayer.
(3) Adjusted payout rate. The adjusted payout rate is determined by
multiplying the fixed percentage described in paragraph (a)(1)(i)(a) of
Sec. 1.664-3 by the figure in column (2) of Table F(1) which describes
the payout sequence of the trust opposite the number in column (1) of
Table F(1) which corresponds to the number of months by which the
valuation date for the first full taxable year of the trust precedes the
first payout date for such taxable year. If the governing instrument
does not prescribe when the distribution shall be made during the
taxable year of the trust, see Sec. 1.664-4(a). In the case of a trust
having a payout sequence for which no figures have been provided by
Table F (1) and in the case of a trust which determines the fair market
value of the trust assets by taking the average of valuations on more
than one date during the taxable year, see Sec. 1.664-4(b).
(4) Period is a term of years. If the period described in Sec.
1.664-3(a)(5) is a term of years, the factor which is used in
determining the present value of the remainder interest is the factor
under the appropriate adjusted payout rate in Table D in Sec. 1.664-
4(e)(6) that corresponds to the number of years in the term. If the
adjusted payout rate is an amount which is between adjusted payout rates
for which factors are provided in Table D, a linear interpolation must
be made. The present value of the remainder interest is determined by
multiplying the net fair market value (as of the appropriate valuation
date) of the property placed in trust by the factor determined under
this paragraph (d)(4). For purposes of this section, the term
appropriate valuation date means the date on which the property is
transferred to the trust by the donor except that, for purposes of
section 2055 or 2106, it means the date of death unless the alternate
valuation date is elected in accordance with section 2032 and the
regulations thereunder in which event it means the alternate valuation
date. If the adjusted payout rate is greater than 14 percent, see Sec.
1.664-4(b). The application of this paragraph (d)(4) may be illustrated
by the following example:
Example. D transfers $100,000 to a charitable remainder unitrust on
January 1, 1985. The trust instrument requires that the trust pay to D
semiannually (on June 30 and December 31) 10 percent of the fair market
value of the trust assets as of June 30th for a term of 15 years. The
adjusted payout rate is 9.767 percent (10%x0.976731). The present value
of the remainder interest is $21,404.90, computed as follows:
Factor at 9.6 percent for 15 years............................ 0.220053
Factor at 9.8 percent for 15 years............................ .212862
---------
Difference................................................ .007191
[[Page 271]]
[GRAPHIC] [TIFF OMITTED] TC14NO91.134
9.767% - 9.6 / 0.2% == / .007191
X === .006004
Factor at 9.6 percent for 15 years........................... 0.220053
Less: X...................................................... .006004
Interpolated factor...................................... .214049
Present value of remainder
interest===$100,000x0.214049===$21,404.90
(5) Period is the life of one individual. If the period described in
paragraph (a)(5) of Sec. 1.664-3 is the life of one individual, the
factor that is used in determining the present value of the remainder
interest is the factor under the appropriate adjusted payout rate in
column (2) of Table E in paragraph (d)(6) of this section opposite the
number in column (1) that corresponds to the age of the individual whose
life measures the period. For purposes of the computations described in
this paragraph (b)(5), the age of an individual is to be taken as the
age of that individual at the individual's nearest birthday. If the
adjusted payout rate is an amount which is between adjusted payout rates
for which factors are provided for in Table E, a linear interpolation
must be made. The present value of the remainder interest is determined
by multiplying the net fair market value (as of the appropriate
valuation date) of the property placed in trust by the factor determined
under this paragraph (b)(5). If the adjusted payout rate is greater than
14 percent, see Sec. 1.664-4(b). The application of this paragraph may
be illustrated by the following example:
Example. A, who will be 50 years old on April 15, 1985, transfers
$100,000 to a charitable remainder unitrust on January 1, 1985. The
trust instrument requires that the trust pay to A at the end of each
taxable year of the trust 10 percent of the fair market value of the
trust assets as of the beginning of each taxable year of the trust. The
adjusted payout rate is 9.091 percent (10 percentx.909091). The present
value of the remainder interest is $15,259.00 computed as follows:
Factor at 9 percent at age 50................................. 0.15472
Factor at 9.2 percent at age 50............................... .15003
---------
Difference................................................ .00469
9.091%-9%/0.2%=X/0.00469
x=0.00213
Factor at 9 percent at age 50................................. .15472
Less: X....................................................... .00213
---------
Interpolated factor....................................... .15259
Present value of remainder interest=
$100,000x0.15259=$15,259.00
(6) Actuarial tables for transfers for which the valuation date is
after November 30, 1983, and before May 1, 1989. Table D in Sec. 1.664-
4(e)(6) and the following tables shall be used in the application of the
provisions of this section:
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
2.2% 2.4% 2.6% 2.8% 3.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .23253 .20635 .18364 .16394 .14683
1............................................................. .22196 .19506 .17170 .15139 .13372
2............................................................. .22597 .19884 .17523 .15468 .13676
3............................................................. .23039 .20304 .17920 .15840 .14024
4............................................................. .23503 .20747 .18340 .16237 .14397
5............................................................. .23988 .21211 .18783 .16656 .14793
6............................................................. .24489 .21693 .19243 .17094 .15207
7............................................................. .25004 .22189 .19718 .17546 .15637
8............................................................. .25534 .22701 .20209 .18016 .16084
9............................................................. .26080 .23230 .20718 .18503 .16549
10............................................................ .26640 .23774 .21243 .19008 .17031
11............................................................ .27217 .24335 .21786 .19530 .17532
12............................................................ .27807 .24911 .22344 .20068 .18049
13............................................................ .28407 .25497 .22913 .20618 .18579
14............................................................ .29013 .26089 .23489 .21175 .19115
15............................................................ .29621 .26684 .24067 .21735 .19655
16............................................................ .30229 .27279 .24647 .22296 .20196
17............................................................ .30838 .27876 .25228 .22859 .20739
18............................................................ .31451 .28477 .25813 .23427 .21287
19............................................................ .32070 .29085 .26407 .24003 .21844
20............................................................ .32699 .29704 .27012 .24591 .22413
21............................................................ .33339 .30335 .27629 .25192 .22996
22............................................................ .33991 .30977 .28259 .25807 .23592
23............................................................ .34655 .31634 .28904 .26437 .24205
24............................................................ .35334 .32306 .29566 .27085 .24836
25............................................................ .36031 .32998 .30248 .27754 .25490
26............................................................ .36746 .33710 .30952 .28446 .26167
27............................................................ .37481 .34443 .31678 .29161 .26869
28............................................................ .38236 .35197 .32427 .29901 .27596
29............................................................ .39006 .35968 .33194 .30660 .28344
30............................................................ .39793 .36757 .33980 .31439 .29113
31............................................................ .40594 .37561 .34783 .32237 .29902
32............................................................ .41410 .38383 .35605 .33054 .30711
33............................................................ .42240 .39220 .36444 .33890 .31541
34............................................................ .43084 .40072 .37299 .34744 .32389
35............................................................ .43942 .40941 .38172 .35617 .33258
36............................................................ .44813 .41824 .39061 .36508 .34146
37............................................................ .45696 .42720 .39966 .37416 .35053
38............................................................ .46591 .43630 .40885 .38339 .35977
39............................................................ .47496 .44552 .41818 .39278 .36917
40............................................................ .48412 .45486 .42765 .40232 .37875
41............................................................ .49338 .46432 .43725 .41201 .38849
42............................................................ .50275 .47391 .44700 .42187 .39840
43............................................................ .51221 .48360 .45686 .43186 .40847
44............................................................ .52175 .49340 .46685 .44199 .41870
45............................................................ .53136 .50327 .47693 .45223 .42905
46............................................................ .54104 .51323 .48712 .46259 .43953
47............................................................ .55077 .52327 .49739 .47305 .45013
48............................................................ .56058 .53339 .50777 .48363 .46087
49............................................................ .57043 .54358 .51823 .49432 .47173
50............................................................ .58035 .55384 .52879 .50510 .48271
51............................................................ .59029 .56415 .53940 .51597 .49379
52............................................................ .60027 .57450 .55008 .52692 .50496
[[Page 272]]
53............................................................ .61026 .58488 .56080 .53793 .51620
54............................................................ .62025 .59528 .57154 .54897 .52750
55............................................................ .63022 .60567 .58230 .56004 .53884
56............................................................ .64018 .61606 .59306 .57113 .55021
57............................................................ .65012 .62644 .60384 .58225 .56163
58............................................................ .66004 .63681 .61461 .59337 .57306
59............................................................ .66993 .64717 .62538 .60452 .58453
60............................................................ .67979 .65751 .63615 .61567 .59602
61............................................................ .68963 .66784 .64692 .62683 .60754
62............................................................ .69944 .67815 .65769 .63801 .61908
63............................................................ .70922 .68844 .66843 .64918 .63063
64............................................................ .71893 .69868 .67915 .66032 .64217
65............................................................ .72859 .70886 .68982 .67144 .65369
66............................................................ .73817 .71897 .70043 .68250 .66517
67............................................................ .74766 .72901 .71096 .69350 .67660
68............................................................ .75706 .73896 .72142 .70443 .68796
69............................................................ .76637 .74882 .73181 .71530 .69928
70............................................................ .77559 .75861 .74212 .72610 .71053
71............................................................ .78475 .76833 .75237 1.73685 1.72176
72............................................................ .79383 .77799 .76257 .74756 .73294
73............................................................ .80279 .78753 .77266 .75816 .74403
74............................................................ .81158 .79689 .78256 .76858 .75494
75............................................................ .82013 .80602 .79223 .77876 .76561
76............................................................ .82844 .81488 .80163 .78867 .77599
77............................................................ .83648 .82347 .81075 .79829 .78609
78............................................................ .84428 .83182 .81961 .80764 .79592
79............................................................ .85187 .83994 .82824 .81677 .80552
80............................................................ .85927 .84787 .83668 .82569 .81491
81............................................................ .86645 .85556 .84487 .83437 .82404
82............................................................ .87336 .86299 .85278 .84275 .83288
83............................................................ .88003 .87014 .86042 .85084 .84142
84............................................................ .88648 .87708 .86782 .85870 .84971
85............................................................ .89273 .88381 .87501 .86633 .85778
86............................................................ .89868 .89021 .88185 .87360 .86547
87............................................................ .90417 .89613 .88818 .88034 .87260
88............................................................ .90923 .90158 .89402 .88655 .87917
89............................................................ .91396 .90668 .89948 .89237 .88533
90............................................................ .91849 .91156 .90471 .89794 .89124
91............................................................ .92278 .91620 .90968 .90324 .89686
92............................................................ .92673 .92046 .91426 .90812 .90204
93............................................................ .93027 .92429 .91837 .91251 .90670
94............................................................ .93341 .92768 .92201 .91639 .91082
95............................................................ .93612 .93062 .92516 .91976 .91440
96............................................................ .93841 .93309 .92782 .92259 .91740
97............................................................ .94044 .93529 .93018 .92512 .92009
98............................................................ .94223 .93723 .93226 .92733 .92244
99............................................................ .94392 .93905 .93421 .92942 .92466
100........................................................... .94559 .94086 .93615 .93149 .92685
101........................................................... .94709 .94248 .93790 .93334 .92882
102........................................................... .94873 .94424 .93979 .93536 .93096
103........................................................... .95077 .94645 .94216 .93789 .93365
104........................................................... .95278 .94862 .94449 .94037 .93628
105........................................................... .95570 .95178 .94787 .94399 .94012
106........................................................... .96017 .95662 .95309 .94957 .94607
107........................................................... .96616 .96313 .96010 .95709 .95408
108........................................................... .97515 .97291 .97067 .96843 .96620
109........................................................... .98900 .98800 .98700 .98600 .98500
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Years -------------------------------------------------
3.2% 3.4% 3.6% 3.8% 4.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .13196 .11901 .10774 .09791 .08933
1............................................................. .11834 .10493 .09324 .08303 .07410
2............................................................. .12113 .10749 .09557 .08514 .07601
3............................................................. .12437 .11050 .09835 .08770 .07837
4............................................................. .12787 .11376 .10138 .09052 .08098
5............................................................. .13159 .11725 .10465 .09357 .08382
6............................................................. .13549 .12092 .10810 .09680 .08684
7............................................................. .13956 .12476 .11171 .10019 .09002
8............................................................. .14380 .12877 .11549 .10376 .09337
9............................................................. .14822 .13296 .11946 .10751 .09691
10............................................................ .15282 .13734 .12361 .11144 .10063
11............................................................ .15761 .14190 .12795 .11556 .10454
12............................................................ .16257 .14663 .13247 .11986 .10863
13............................................................ .16764 .15149 .13711 .12428 .12283
14............................................................ .17279 .15643 .14182 .12878 .11712
15............................................................ .17798 .16140 .14657 .13331 .12143
16............................................................ .18318 .16638 .15133 .13785 .12576
17............................................................ .18840 .17138 .15611 .14241 .13010
18............................................................ .19367 .17643 .16094 .14702 .13449
19............................................................ .19903 .18157 .16586 .15172 .13897
20............................................................ .20452 .18685 .17092 .15655 .14358
21............................................................ .21014 .19226 .17612 .16153 .14833
22............................................................ .21591 .19783 .18146 .16665 .15324
23............................................................ .22185 .20356 .18698 .17195 .15832
24............................................................ .22798 .20949 .19270 .17746 .16361
25............................................................ .23434 .21565 .19866 .18321 .16914
26............................................................ .24094 .22207 .20489 .18922 .17494
27............................................................ .24780 .22875 .21138 .19551 .18102
28............................................................ .25492 .23570 .21814 .20208 .18739
29............................................................ .26226 .24288 .22514 .20889 .19400
30............................................................ .26982 .25029 .23239 .21596 .20088
31............................................................ .27759 .25792 .23985 .22324 .20798
32............................................................ .28557 .26577 .24755 .23078 .21533
33............................................................ .29377 .27385 .25548 .23855 .22293
34............................................................ .30217 .28214 .26364 .24656 .23077
35............................................................ .31079 .29065 .27203 .25481 .23887
36............................................................ .31961 .29939 .28065 .26330 .24721
37............................................................ .32863 .30833 .28950 .27202 .25579
38............................................................ .33784 .31747 .29855 .28096 .26460
39............................................................ .34722 .32680 .30780 .29011 .27363
40............................................................ .35679 .33633 .31727 .29948 .28290
41............................................................ .36654 .34606 .32693 .30908 .29239
42............................................................ .37648 .35599 .33683 .31890 .30213
43............................................................ .38659 .36610 .34691 .32894 .31209
44............................................................ .39687 .37640 .35720 .33918 .32227
45............................................................ .40728 .38685 .36765 .34961 .33265
46............................................................ .41785 .39746 .37828 .36023 .34323
47............................................................ .42856 .40823 .38908 .37103 .35400
48............................................................ .43941 .41917 .40006 .38202 .36499
49............................................................ .45040 .43025 .41121 .39320 .37617
50............................................................ .46153 .44149 .42252 .40457 .38756
51............................................................ .47277 .45286 .43398 .41609 .39911
52............................................................ .48412 .46435 .44558 .42776 .41084
53............................................................ .49556 .47595 .45731 .43958 .42272
54............................................................ .50707 .48763 .46913 .45151 .43473
55............................................................ .51864 .49939 .48104 .46354 .44685
56............................................................ .53026 .51121 .49303 .47567 .45908
57............................................................ .54192 .52310 .50510 .48789 .47143
58............................................................ .55363 .53503 .51723 .50019 .48387
59............................................................ .56538 .54703 .52945 .51258 .49642
60............................................................ .57717 .55909 .54173 .52506 .50906
61............................................................ .58901 .57120 .55408 .53763 .52181
62............................................................ .60087 .58336 .56650 .55028 .53466
63............................................................ .61277 .59556 .57898 .56300 .54760
64............................................................ .62467 .60778 .59149 .57577 .56060
65............................................................ .63655 .62000 .60402 .58857 .57365
[[Page 273]]
66............................................................ .64842 .63221 .61654 .60139 .58672
67............................................................ .66023 .64439 .62905 .61420 .59980
68............................................................ .67200 .65653 .64154 .62699 .61289
69............................................................ .68373 .66865 .65400 .63978 .62598
70............................................................ .69541 .68072 .66645 .65257 .63908
71............................................................ .70708 .69279 .67890 .66538 .65222
72............................................................ .71870 .70484 .69134 .67819 .66538
73............................................................ .73025 .71682 .70372 .69095 .67850
74............................................................ .74163 .72863 .71595 .70356 .69147
75............................................................ .75275 .74019 .72792 .71593 .70421
76............................................................ .76360 .75147 .73962 .72802 .71667
77............................................................ .77415 .76246 .75102 .73981 .72883
78............................................................ .78443 .77318 .76214 .75133 .74073
79............................................................ .79448 .78365 .77303 .76261 .75238
80............................................................ .80432 .79392 .78371 .77369 .76384
81............................................................ .81390 .80393 .79413 .78450 .77504
82............................................................ .82317 .81362 .80423 .79499 .78590
83............................................................ .83214 .82301 .81402 .80517 .79645
84............................................................ .84086 .83214 .82355 .81508 .80674
85............................................................ .84935 .84104 .83284 .82476 .81679
86............................................................ .85745 .84953 .84172 .83401 .82640
87............................................................ .86496 .85741 .84996 .84260 .83533
88............................................................ .87189 .86468 .85757 .85054 .84359
89............................................................ .87838 .87150 .86471 .85799 .85135
90............................................................ .88461 .87806 .87157 .86516 .85881
91............................................................ .89055 .88430 .87812 .87200 .86594
92............................................................ .89602 .89006 .88416 .87831 .87252
93............................................................ .90094 .89524 .88959 .88400 .87846
94............................................................ .90530 .89983 .89441 .88904 .88372
95............................................................ .90908 .90381 .89359 .89341 .88828
96............................................................ .91226 .90716 .90211 .89709 .89212
97............................................................ .91510 .91015 .90525 .90038 .89555
98............................................................ .91759 .91277 .90800 .90326 .89855
99............................................................ .91993 .91524 .91058 .90596 .90137
100........................................................... .92225 .91768 .91315 .90865 .90417
101........................................................... .92433 .91987 .91544 .91104 .90667
102........................................................... .92659 .92225 .91793 .91364 .90938
103........................................................... .92943 .92524 .92107 .91692 .91280
104........................................................... .93221 .92816 .92413 .92012 .91614
105........................................................... .93627 .93244 .92863 .92483 .92105
106........................................................... .94257 .93909 .93562 .93217 .92872
107........................................................... .95107 .94808 .94509 .94211 .93914
108........................................................... .96396 .96173 .95950 .95728 .95505
109........................................................... .98400 .98300 .98200 .98100 .98000
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .08183 .07527 .06952 .06448 .06005
1............................................................. .06629 .05945 .05344 .04817 .04354
2............................................................. .06801 .06098 .05481 .04939 .04460
3............................................................. .07017 .06297 .05663 .05104 .04611
4............................................................. .07259 .06520 .05868 .05294 .04786
5............................................................. .07523 .06765 .06096 .05505 .04982
6............................................................. .07805 .07029 .06342 .05734 .05195
7............................................................. .08103 .07307 .06603 .05978 .05423
8............................................................. .08418 .07603 .06880 .06238 .05666
9............................................................. .08752 .07917 .07175 .06516 .05928
10............................................................ .09103 .08249 .07488 .06811 .06206
11............................................................ .09473 .08600 .07820 .07125 .06503
12............................................................ .09861 .08968 .08169 .07456 .06817
13............................................................ .10261 .09348 .08530 .07799 .07142
14............................................................ .10669 .09735 .08899 .08148 .07474
15............................................................ .11080 .10126 .09269 .08500 .07808
16............................................................ .11491 .10516 .09640 .08852 .08142
17............................................................ .11903 .10908 .10012 .09204 .08475
18............................................................ .12321 .11304 .10387 .09560 .08812
19............................................................ .12747 .11709 .10771 .09923 .09156
20............................................................ .13186 .12126 .11168 .10300 .09513
21............................................................ .13639 .12558 .11578 .10690 .09883
22............................................................ .14108 .13005 .12004 .11094 .10268
23............................................................ .14594 .13469 .12446 .11516 .10669
24............................................................ .15101 .13954 .12910 .11958 .11091
25............................................................ .15632 .14464 .13398 .12426 .11537
26............................................................ .16191 .15001 .13914 .12920 .12011
27............................................................ .16778 .15567 .14459 .13444 .12514
28............................................................ .17394 .16162 .15032 .13997 .13046
29............................................................ .18035 .16782 .15632 .14575 .13604
30............................................................ .18702 .17429 .16259 .15181 .14189
31............................................................ .19393 .18100 .16909 .15811 .14799
32............................................................ .20109 .18797 .17586 .16468 .15436
33............................................................ .20851 .19520 .18290 .17152 .16100
34............................................................ .21618 .20268 .19018 .17861 .16789
35............................................................ .22411 .21043 .19775 .18599 .17508
36............................................................ .23228 .21844 .20558 .19363 .18253
37............................................................ .24071 .22670 .21367 .20154 .19026
38............................................................ .24938 .23521 .22201 .20971 .19825
39............................................................ .25827 .24396 .23060 .21814 .20650
40............................................................ .26741 .25295 .23945 .22682 .21502
41............................................................ .27679 .26220 .24855 .23577 .22381
42............................................................ .28642 .27172 .25793 .24501 .23289
43............................................................ .29629 .28147 .26756 .25450 .24224
44............................................................ .30639 .29147 .27745 .26426 .25186
45............................................................ .31669 .30169 .28756 .27426 .26173
46............................................................ .32722 .31213 .29791 .28450 .27185
47............................................................ .33795 .32280 .30849 .29498 .28222
48............................................................ .34890 .33370 .31932 .30573 .29287
49............................................................ .36007 .34482 .33039 .31672 .30377
50............................................................ .37144 .35617 .34170 .32797 .31494
51............................................................ .38301 .36773 .35322 .33944 .32635
52............................................................ .39476 .37948 .36495 .35113 .33799
53............................................................ .40668 .39141 .37688 .36304 .34986
54............................................................ .41874 .40350 .38897 .37512 .36191
55............................................................ .43093 .41574 .40123 .38739 .37416
56............................................................ .44324 .42811 .41364 .39980 .38657
57............................................................ .45568 .44062 .42620 .41240 .39918
58............................................................ .46823 .45325 .43890 .42514 .41194
59............................................................ .48091 .46603 .45175 .43805 .42489
60............................................................ .49370 .47893 .46475 .45112 .43802
61............................................................ .50661 .49198 .47790 .46436 .45133
62............................................................ .51963 .50515 .49120 .47776 .46481
63............................................................ .53275 .51844 .50463 .49131 .47846
64............................................................ .54596 .53182 .51817 .50498 .49225
65............................................................ .55922 .54528 .53180 .51877 .50616
66............................................................ .57253 .55880 .54551 .53264 .52018
67............................................................ .58586 .57235 .55926 .54657 .53427
68............................................................ .59921 .58594 .57306 .56057 .54845
69............................................................ .61258 .59956 .58692 .57463 .56270
70............................................................ .62597 .61322 .60082 .58877 .57704
71............................................................ .63941 .62695 .61481 .60300 .59149
72............................................................ .65289 .64073 .62887 .61731 .60605
73............................................................ .66635 .65449 .64293 .63165 .62064
74............................................................ .67976 .66814 .65688 .64588 .63514
[[Page 274]]
75............................................................ .69275 .68156 .67061 .65990 .64944
76............................................................ .70557 .69470 .68407 .67366 .66348
77............................................................ .71809 .70756 .69724 .68714 .67724
78............................................................ .73033 .72014 .71015 .70036 .69075
79............................................................ .74235 .73251 .72284 .71336 .70405
80............................................................ .75417 .74468 .73535 .72619 .71718
81............................................................ .76573 .75659 .74759 .73875 .73006
82............................................................ .77696 .76816 .75951 .75099 .74261
83............................................................ .78787 .77942 .77110 .76291 .75484
84............................................................ .79852 .79042 .78243 .77457 .76681
85............................................................ .80893 .80118 .79353 .78599 .77856
86............................................................ .81889 .81148 .80417 .79695 .78983
87............................................................ .82816 .82107 .81408 .80716 .80034
88............................................................ .83673 .82994 .82324 .81662 .81007
89............................................................ .84478 .83828 .83186 .82551 .81923
90............................................................ .85253 .84632 .84018 .83410 .82808
91............................................................ .85994 .85401 .84813 .84232 .83656
92............................................................ .86679 .86111 .85549 .84993 .84441
93............................................................ .87296 .86752 .86213 .85679 .85150
94............................................................ .87844 .87321 .86803 .86289 .85780
95............................................................ .88319 .87815 .87314 .86818 .86327
96............................................................ .88719 .88230 .87745 .87264 .86787
97............................................................ .89076 .88601 .88129 .87661 .87197
98............................................................ .89388 .88925 .88465 .88009 .87556
99............................................................ .89682 .89230 .88781 .88336 .87894
100........................................................... .89973 .89533 .89095 .88660 .88228
101........................................................... .90233 .89802 .89374 .88948 .88526
102........................................................... .90515 .90094 .89676 .89260 .88848
103........................................................... .90871 .90464 .90059 .89656 .89256
104........................................................... .91217 .90823 .90431 .90040 .89652
105........................................................... .91729 .91354 .90981 .90610 .90240
106........................................................... .92529 .92187 .91846 .91507 .91169
107........................................................... .93617 .93322 .93027 .92732 .92439
108........................................................... .95283 .95062 .94840 .94619 .94398
109........................................................... .97900 .97800 .97700 .97600 .97500
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
5.2% 5.4% 5.6% 5.8% 6.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .05615 .05272 .04969 .04701 .04464
1............................................................. .03945 .03585 .03268 .02986 .02737
2............................................................. .04039 .03667 .03337 .03046 .02787
3............................................................. .04176 .03791 .03450 .03147 .02879
4............................................................. .04336 .03938 .03585 .03272 .02993
5............................................................. .04518 .04107 .03741 .03416 .03127
6............................................................. .04717 .04292 .03914 .03577 .03276
7............................................................. .04929 .04490 .04099 .03750 .03438
8............................................................. .05158 .04704 .04300 .03938 .03615
9............................................................. .05404 .04936 .04518 .04143 .03808
10............................................................ .05666 .05183 .04751 .04364 .04016
11............................................................ .05947 .05449 .05003 .04602 .04242
12............................................................ .06245 .05731 .05271 .04856 .04484
13............................................................ .06554 .06025 .05549 .05121 .04735
14............................................................ .06869 .06324 .05834 .05391 .04992
15............................................................ .07186 .06625 .06119 .05662 .05250
16............................................................ .07502 .06924 .06403 .05931 .05504
17............................................................ .07817 .07223 .06685 .06199 .05757
18............................................................ .08136 .07524 .06970 .06468 .06012
19............................................................ .08462 .07832 .07261 .06743 .06272
20............................................................ .08800 .08152 .07564 .07029 .06542
21............................................................ .09151 .08485 .07879 .07327 .06824
22............................................................ .09516 .08831 .08207 .07638 .07119
23............................................................ .09897 .09193 .08551 .07964 .07428
24............................................................ .10299 .09576 .08915 .08310 .07756
25............................................................ .10725 .09982 .09302 .08679 .08108
26............................................................ .11179 .10416 .09717 .09075 .08486
27............................................................ .11661 .10878 .10160 .09500 .08892
28............................................................ .12173 .11370 .10632 .09953 .09328
29............................................................ .12710 .11888 .11130 .10432 .09788
30............................................................ .13276 .12433 .11656 .10938 .10276
31............................................................ .13865 .13002 .12205 .11469 .10787
32............................................................ .14482 .13599 .12783 .12026 .11326
33............................................................ .15126 .14223 .13387 .12612 .11892
34............................................................ .15796 .14874 .14018 .13223 .12485
35............................................................ .16494 .15553 .14678 .13864 .13107
36............................................................ .17221 .16260 .15366 .14533 .13757
37............................................................ .17975 .16996 .16082 .15231 .14435
38............................................................ .18756 .17758 .16826 .15955 .15142
39............................................................ .19563 .18547 .17597 .16708 .15875
40............................................................ .20397 .19364 .18395 .17488 .16638
41............................................................ .21259 .20209 .19223 .18298 .17430
42............................................................ .22152 .21084 .20082 .19140 .18254
43............................................................ .23071 .21988 .20969 .20010 .19107
44............................................................ .24019 .22920 .21885 .20910 .19991
45............................................................ .24992 .23878 .22828 .21837 .20902
46............................................................ .25991 .24864 .23799 .22793 .21842
47............................................................ .27016 .25876 .24798 .23777 .22812
48............................................................ .28070 .26918 .25826 .24792 .23812
49............................................................ .29150 .27987 .26883 .25837 .24843
50............................................................ .30258 .29084 .27970 .26911 .25905
51............................................................ .31391 .30208 .29084 .28014 .26996
52............................................................ .32548 .31358 .30224 .29144 .28115
53............................................................ .33729 .32532 .31390 .30302 .29263
54............................................................ .34931 .33728 .32579 .31482 .30434
55............................................................ .36152 .34945 .33790 .32686 .31631
56............................................................ .37392 .36181 .35022 .33912 .32850
57............................................................ .38652 .37438 .36276 .35162 .34093
58............................................................ .39929 .38715 .37550 .36432 .35359
59............................................................ .41226 .40013 .38847 .37727 .36650
60............................................................ .42542 .41331 .40165 .39044 .37965
61............................................................ .43878 .42670 .41506 .40386 .39306
62............................................................ .45233 .44029 .42869 .41750 .40671
63............................................................ .46606 .45409 .44253 .43138 .42060
64............................................................ .47994 .46805 .45656 .44545 .43471
65............................................................ .49397 .48217 .47076 .45971 .44902
66............................................................ .50811 .49642 .48510 .47413 .46350
67............................................................ .52235 .51079 .49957 .48869 .47814
68............................................................ .53668 .52525 .51416 .50339 .49293
69............................................................ .55110 .53983 .52888 .51823 .50788
70............................................................ .56563 .55453 .54373 .53322 .52299
71............................................................ .58029 .56938 .55875 .54839 .53830
72............................................................ .59507 .58436 .57392 .56374 .55380
73............................................................ .60990 .59941 .58917 .57918 .56942
74............................................................ .62465 .61439 .60437 .59458 .58502
75............................................................ .63920 .62919 .61940 .60983 .60046
76............................................................ .65351 .64375 .63419 .62484 .61568
77............................................................ .66755 .65804 .64873 .63961 .63066
78............................................................ .68133 .67209 .66303 .65414 .64542
79............................................................ .69492 .68595 .67714 .66850 .66001
80............................................................ .70834 .69965 .69111 .68272 .67448
81............................................................ .72151 .71311 .70484 .69671 .68872
82............................................................ .73436 .72624 .71825 .71039 .70265
83............................................................ .74689 .73906 .73135 .72376 .71627
[[Page 275]]
84............................................................ .75917 .75163 .74421 .73688 .72967
85............................................................ .77122 .76398 .75685 .74980 .74286
86............................................................ .78280 .77586 .76901 .76224 .75556
87............................................................ .79359 .78693 .78036 .77386 .76744
88............................................................ .80360 .79720 .79088 .78463 .77846
89............................................................ .81302 .80688 .80081 .79480 .78886
90............................................................ .82213 .81624 .81041 .80465 .79894
91............................................................ .83086 .82522 .81963 .81410 .80862
92............................................................ .83895 .83354 .82818 .82287 .81762
93............................................................ .84626 .84106 .83591 .83081 .82575
94............................................................ .85275 .84774 .84278 .83787 .83299
95............................................................ .85839 .85355 .84876 .84400 .83929
96............................................................ .86313 .85844 .85378 .84916 .84458
97............................................................ .86737 .86280 .85826 .85377 .84930
98............................................................ .87107 .86661 .86218 .85779 .85343
99............................................................ .87455 .87019 .86586 .86157 .85730
100........................................................... .87800 .87374 .86951 .86532 .86115
101........................................................... .88106 .87689 .87275 .86863 .86455
102........................................................... .88437 .88030 .87625 .87222 .86822
103........................................................... .88858 .88463 .88070 .87679 .87290
104........................................................... .89266 .88882 .88500 .88120 .87741
105........................................................... .89872 .89506 .89141 .88778 .88417
106........................................................... .90832 .90496 .90161 .89828 .89496
107........................................................... .92146 .91854 .91562 .91271 .90981
108........................................................... .94177 .93956 .93736 .93516 .93296
109........................................................... .97400 .97300 .97200 .97100 .97000
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted Payout Rate
(1) Age -------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .04253 .04066 .03899 .03751 .03618
1............................................................. .02516 .02320 .02145 .01989 .01850
2............................................................. .02557 .02353 .02171 .02008 .01862
3............................................................. .02640 .02427 .02237 .02067 .01915
4............................................................. .02744 .02523 .02325 .02147 .01988
5............................................................. .02868 .02638 .02431 .02246 .02080
6............................................................. .03008 .02767 .02552 .02359 .02185
7............................................................. .03159 .02909 .02685 .02483 .02302
8............................................................. .03325 .03065 .02831 .02621 .02432
9............................................................. .03507 .03236 .02993 .02774 .02576
10............................................................ .03704 .03423 .03170 .02941 .02735
11............................................................ .03918 .03626 .03363 .03125 .02910
12............................................................ .04148 .03845 .03571 .03323 .03099
13............................................................ .04387 .04073 .03788 .03531 .03297
14............................................................ .04632 .04305 .04010 .03742 .03499
15............................................................ .04876 .04538 .04231 .03953 .03699
16............................................................ .05118 .04767 .04449 .04159 .03896
17............................................................ .05357 .04994 .04663 .04362 .04088
18............................................................ .05598 .05221 .04878 .04565 .04280
19............................................................ .05843 .05453 .05097 .04772 .04476
20............................................................ .06099 .05694 .05325 .04988 .04679
21............................................................ .06365 .05946 .05564 .05213 .04893
22............................................................ .06644 .06210 .05813 .05449 .05116
23............................................................ .06937 .06488 .06076 .05699 .05352
24............................................................ .07249 .06784 .06357 .05965 .05605
25............................................................ .07584 .07103 .06660 .06254 .05879
26............................................................ .07945 .07447 .06989 .06567 .06178
27............................................................ .08334 .07819 .07345 .06907 .06503
28............................................................ .08751 .08219 .07729 .07275 .06856
29............................................................ .09194 .08645 .98137 .07667 .07233
30............................................................ .09663 .09096 .08572 .08086 .07635
31............................................................ .10156 .09572 .09030 .08527 .08060
32............................................................ .10677 .10074 .09515 .08995 .08512
33............................................................ .11224 .10604 .10027 .09490 .08990
34............................................................ .11798 .11159 .10564 .10010 .09494
35............................................................ .12401 .11744 .11131 .10560 .10026
36............................................................ .13033 .12357 .11727 .11137 .10586
37............................................................ .13693 .12999 .12350 .11743 .11175
38............................................................ .14380 .13668 .13002 .12377 .11791
39............................................................ .15096 .14366 .13681 .13038 .12436
40............................................................ .15841 .15092 .14390 .13729 .13109
41............................................................ .16615 .15848 .15128 .14450 .13812
42............................................................ .17421 .16637 .15899 .15204 .14549
43............................................................ .18257 .17456 .16700 .15988 .15316
44............................................................ .19124 .18306 .17533 .16804 .16115
45............................................................ .20018 .19184 .18395 .17649 .16943
46............................................................ .20943 .20092 .19287 .18524 .17802
47............................................................ .21897 .21030 .20209 .19431 .18692
48............................................................ .22883 .22001 .21165 .20371 .19616
49............................................................ .23900 .23004 .22152 .21343 .20573
50............................................................ .24948 .24039 .23173 .22349 .21565
51............................................................ .26027 .25104 .24225 .23387 .22589
52............................................................ .27135 .26200 .25308 .24457 .23645
53............................................................ .28271 .27325 .26421 .25558 .24733
54............................................................ .29433 .28476 .27561 .26686 .25848
55............................................................ .30621 .29654 .28728 .27842 .26993
56............................................................ .31832 .30856 .29921 .29025 .28165
57............................................................ .33068 .32085 .31142 .30236 .29367
58............................................................ .34329 .33339 .32388 .31474 .30595
59............................................................ .35615 .34620 .33662 .32741 .31855
60............................................................ .36927 .35927 .34964 .34037 .33143
61............................................................ .38265 .37262 .36295 .35362 .34463
62............................................................ .39630 .38625 .37655 .36718 .35814
63............................................................ .41020 .40014 .39043 .38104 .37196
64............................................................ .42432 .41428 .40456 .39516 .38606
65............................................................ .43866 .42864 .41893 .40953 .40042
66............................................................ .45320 .44321 .43353 .42414 .41503
67............................................................ .46790 .45796 .44832 .43896 .42987
68............................................................ .48277 .47289 .46330 .45398 .44492
69............................................................ .49781 .48802 .47849 .46923 .46021
70............................................................ .51303 .50333 .49389 .48470 .47574
71............................................................ .52847 .51888 .50954 .50044 .49156
72............................................................ .54412 .53466 .52544 .51644 .50766
73............................................................ .55990 .55059 .54151 .52363 .52396
74............................................................ .57566 .56652 .55758 .54885 .54030
75............................................................ .59129 .58232 .57354 .56496 .55655
76............................................................ .60671 .59792 .58932 .58089 .57263
77............................................................ .62189 .61330 .60487 .59661 .58851
78............................................................ .63687 .62847 .62024 .61215 .60422
79............................................................ .65168 .64349 .63546 .62756 .61981
80............................................................ .66637 .65841 .65058 .64289 .63532
81............................................................ .68085 .67312 .66551 .65802 .65066
82............................................................ .69503 .68753 .68014 .67287 .66571
83............................................................ .70890 .70164 .69448 .68743 .68048
84............................................................ .72255 .71553 .70861 .70179 .69506
85............................................................ .73600 .72924 .72257 .71598 .70948
86............................................................ .74897 .7446 .73693 .72969 .72342
87............................................................ .76109 .75483 .74864 .74252 .73647
88............................................................ .77235 .76631 .76035 .75445 .74862
89............................................................ .78298 .77717 .77142 .76573 .76011
90............................................................ .79329 .78770 .78217 .77669 .77127
91............................................................ .80320 .79783 .79252 .78725 .78204
92............................................................ .81241 .80725 .80214 .79708 .79206
[[Page 276]]
93............................................................ .82074 .81578 .81086 .80598 .80115
94............................................................ .82816 .82337 .81862 .81391 .80924
95............................................................ .83461 .82997 .82537 .82081 .81629
96............................................................ .84003 .83552 .82105 .82661 .82221
97............................................................ .84487 .84048 .83612 .82179 .82750
98............................................................ .84910 .84481 .84054 .83631 .83211
99............................................................ .85307 .84887 .84469 .84055 .83644
100........................................................... .85701 .85290 .84882 .84476 .84073
101........................................................... .86049 .85645 .85244 .84846 .84451
102........................................................... .86424 .86029 .85637 .85247 .84859
103........................................................... .86904 .86520 .86138 .85758 .85381
104........................................................... .87365 .86991 .86619 .86249 .85880
105........................................................... .88058 .87700 .87343 .86988 .86635
106........................................................... .89165 .88835 .88506 .88179 .87852
107........................................................... .90692 .90404 .90116 .89829 .89542
108........................................................... .93077 .92858 .92639 .92420 .92201
109........................................................... .96900 .96800 .96700 .96600 .96500
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
7.2% 7.4% 7.6% 7.8% 8.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .03499 .03392 .03296 .03209 .03130
1............................................................. .01725 .01613 .01513 .01422 .01340
2............................................................. .01732 .01615 .01509 .01414 .01329
3............................................................. .01778 .01656 .01545 .01446 .01356
4............................................................. .01846 .01717 .01601 .01497 .01402
5............................................................. .01930 .01796 .01674 .01574 .01465
6............................................................. .02029 .01888 .01761 .01645 .01541
7............................................................. .02138 .01991 .01857 .01736 .01627
8............................................................. .02261 .02106 .01966 .01839 .01724
9............................................................. .02397 .02236 .02089 .01956 .01835
10............................................................ .02548 .02379 .02225 .02086 .01959
11............................................................ .02715 .02538 .02377 .02231 .02098
12............................................................ .02895 .02710 .02542 .02389 .02250
13............................................................ .03085 .02892 .02716 .02556 .02410
14............................................................ .03278 .03076 .02893 .02725 .02572
15............................................................ .03469 .03259 .03067 .02892 .02732
16............................................................ .03656 .03437 .03237 .03054 .02886
17............................................................ .03938 .03610 .03401 .03210 .03035
18............................................................ .04020 .03782 .03564 .03364 .03181
19............................................................ .04204 .03956 .03729 .03520 .03328
20............................................................ .04397 .04138 .03901 .03683 .03483
21............................................................ .04599 .04329 .04081 .03853 .03644
22............................................................ .04810 .04529 .04270 .04032 .03813
23............................................................ .05033 .04740 .04470 .04222 .03992
24............................................................ .05273 .04968 .04686 .04427 .04187
25............................................................ .05534 .05216 .04922 .04651 .04400
26............................................................ .05819 .05488 .05182 .04898 .04636
27............................................................ .06130 .05785 .05466 .05170 .04896
28............................................................ .06468 .06109 .05777 .05468 .05182
29............................................................ .06830 .06457 .06110 .05789 .05490
30............................................................ .07217 .06829 .06469 .06134 .05822
31............................................................ .07627 .07224 .06849 .06500 .06174
32............................................................ .08062 .07644 .07254 .06891 .06552
33............................................................ .08524 .08090 .07686 .07308 .06955
34............................................................ .09012 .08562 .08142 .07749 .07382
35............................................................ .09528 .09062 .08626 .08218 .07836
36............................................................ .10071 .09589 .09137 .08714 .08317
37............................................................ .10643 .10144 .09676 .09237 .08825
38............................................................ .11242 .10727 .10243 .09788 .09361
39............................................................ .11869 .11337 .10837 .10366 .09923
40............................................................ .12526 .11977 .11460 .10973 .10514
41............................................................ .13212 .12646 .12113 .11609 .11135
42............................................................ .13931 .13349 .12799 .12279 .11789
43............................................................ .14681 .14082 .13515 .12980 .12473
44............................................................ .15463 .14847 .14264 .13712 .13189
45............................................................ .16274 .15642 .15042 .14474 .13935
46............................................................ .17117 .16468 .15853 .15268 .14713
47............................................................ .17991 .17326 .16694 .16094 .15523
48............................................................ .18900 .18219 .17571 .16955 .16368
49............................................................ .19841 .19145 .18481 .17850 .17248
50............................................................ .20818 .20106 .19428 .18781 .18163
51............................................................ .21827 .21101 .20407 .19745 .19113
52............................................................ .22869 .22129 .21421 .20745 .20098
53............................................................ .23944 .23190 .22468 .21778 .21117
54............................................................ .25047 .24280 .23545 .22841 .22167
55............................................................ .26180 .25400 .24653 .23936 .23249
56............................................................ .27341 .26550 .25790 .25061 .24361
57............................................................ .28532 .27729 .26959 .26218 .25505
58............................................................ .29751 .28938 .28157 .27405 .26681
59............................................................ .31001 .30180 .29388 .28626 .27892
60............................................................ .32282 .31452 .30652 .29880 .29136
61............................................................ .33595 .32758 .31950 .31169 .30416
62............................................................ .34941 .34097 .33282 .32494 .31733
63............................................................ .36318 .35469 .34648 .33854 .33085
64............................................................ .37725 .36872 .36046 .35246 .34472
65............................................................ .39159 .38304 .37474 .36670 .35891
66............................................................ .40620 .39763 .38931 .38124 .37340
67............................................................ .42104 .41247 .40414 .39605 .38819
68............................................................ .43611 .42755 .41923 .41113 .40326
69............................................................ .45144 .44290 .43459 .42650 .41863
70............................................................ .46702 .45852 .45025 .44218 .43432
71............................................................ .48291 .47447 .46623 .45820 .45037
72............................................................ .49909 .49072 .48255 .47458 .46679
73............................................................ .51549 .50721 .49912 .49912 .48349
74............................................................ .53195 .52377 .51578 .50796 .50031
75............................................................ .54832 .54027 .53238 .52466 .51710
76............................................................ .56454 .55661 .54884 .54123 .53377
77............................................................ .58057 .57278 .56514 .55765 .55030
78............................................................ .59644 .58879 .58129 .58393 .56670
79............................................................ .61219 .60471 .59736 .59013 .58304
80............................................................ .62788 .62057 .61338 .60632 .59936
81............................................................ .64341 .63628 .62926 .62236 .61556
82............................................................ .65866 .65172 .64488 .63815 .63151
83............................................................ .67364 .66689 .66024 .65369 .64723
84............................................................ .68843 .68189 .67544 .66907 .66279
85............................................................ .70307 .69674 .69050 .68433 .67825
86............................................................ .71723 .71112 .70508 .69912 .69323
87............................................................ .73050 .72460 .71877 .71300 .70731
88............................................................ .74285 .73715 .73151 .72593 .72042
89............................................................ .75454 .74903 .74358 .73819 .73286
90............................................................ .76591 .76060 .75534 .75014 .74499
91............................................................ .77688 .77176 .76670 .76169 .75672
92............................................................ .78709 .78217 .77729 .77245 .76766
93............................................................ .79635 .79160 .78690 .78223 .77761
94............................................................ .80461 .80002 .79547 .79096 .78648
95............................................................ .81180 .80735 .80394 .79856 .79421
96............................................................ .81784 .81351 .80921 .80494 .80071
97............................................................ .82324 .81901 .81481 .81065 .80651
98............................................................ .82794 .82380 .81969 .81562 .81157
99............................................................ .83235 .82830 .83427 .82028 .81631
100........................................................... .83674 .83276 .82882 .82490 .82101
101........................................................... .84058 .83668 .83280 .82895 .82512
[[Page 277]]
102........................................................... .84474 .84091 .83710 .83332 .82956
103........................................................... .85006 .84633 .84262 .83893 .83526
104........................................................... .85514 .85150 .84787 .84427 .84068
105........................................................... .86284 .85934 .85585 .85239 .84893
106........................................................... .87527 .87204 .86881 .86559 .86239
107........................................................... .89257 .88972 .88688 .88404 .88121
108........................................................... .91983 .91765 .91547 .91330 .91113
109........................................................... .96400 .96300 .96200 .96100 .96000
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .03059 .02995 .02936 .02882 .02833
1............................................................. .01267 .01200 .01139 .01084 .01033
2............................................................. .01251 .01181 .01117 .01059 .01006
3............................................................. .01274 .01200 .01133 .01072 .01016
4............................................................. .01316 .01239 .01168 .01103 .01044
5............................................................. .01375 .01293 .01218 .01150 .01088
6............................................................. .01446 .01360 .01281 .01209 .01144
7............................................................. .01527 .01436 .01353 .01277 .01208
8............................................................. .01619 .01523 .01436 .01356 .01283
9............................................................. .01725 .01624 .01532 .01448 .01370
10............................................................ .01843 .01737 .01640 .01551 .01470
11............................................................ .01976 .01865 .01763 .01669 .01583
12............................................................ .02122 .02005 .01898 .01800 .01709
13............................................................ .02276 .02153 .02041 .01937 .01842
14............................................................ .02432 .02303 .02185 .02077 .01977
15............................................................ .02585 .02451 .02327 .02213 .02108
16............................................................ .02732 .02591 .02462 .02342 .02232
17............................................................ .02874 .02726 .02590 .02465 .02349
18............................................................ .03013 .02858 .02715 .02584 .02462
19............................................................ .03152 .02990 .02841 .02703 .02575
20............................................................ .03298 .03128 .02971 .02826 .02692
21............................................................ .03451 .03272 .03108 .02956 .02815
22............................................................ .03611 .03424 .03251 .03091 .02944
23............................................................ .03781 .03585 .03404 .03236 .03081
24............................................................ .03965 .03760 .03570 .03393 .03230
25............................................................ .04168 .03953 .03753 .03568 .03396
26............................................................ .04393 .04168 .03958 .03764 .03583
27............................................................ .04642 .04406 .04186 .03982 .03792
28............................................................ .04916 .04669 .04439 .04224 .04025
29............................................................ .05212 .04953 .04712 .04487 .04277
30............................................................ .05531 .05260 .05008 .04772 .04552
31............................................................ .05871 .05588 .05324 .05077 .04846
32............................................................ .06236 .05940 .05663 .05405 .05163
33............................................................ .06625 .06316 .06027 .05756 .05502
34............................................................ .07038 .06716 .06414 .06131 .05865
35............................................................ .07478 .07142 .06827 .06531 .06253
36............................................................ .07944 .07595 .07266 .06957 .06667
37............................................................ .08438 .08074 .07732 .07410 .07106
38............................................................ .08958 .08580 .08223 .07888 .07571
39............................................................ .09506 .09112 .08742 .08392 .08061
40............................................................ .10081 .09673 .09288 .08924 .08580
41............................................................ .10687 .10263 .09863 .09484 .09126
42............................................................ .11325 .10886 .10471 .10078 .09705
43............................................................ .11993 .11539 .11109 .10701 .10314
44............................................................ .12694 .12224 .11779 .11356 .10955
45............................................................ .13424 .12939 .12478 .12040 .11624
46............................................................ .14186 .13686 .13210 .12757 .12326
47............................................................ .14980 .14464 .13973 .13505 .13059
48............................................................ .15810 .15278 .14772 .14289 .13828
49............................................................ .16674 .16127 .15605 .15107 .14631
50............................................................ .17574 .17012 .16475 .15962 .15472
51............................................................ .18510 .17932 .17381 .16853 .16348
52............................................................ .19480 .18888 .18322 .17779 .17260
53............................................................ .20484 .19878 .19298 .18741 .18208
54............................................................ .21520 .20901 .20306 .19735 .19188
55............................................................ .22589 .21955 .21347 .20763 .20202
56............................................................ .23688 .23041 .22420 .21822 .21248
57............................................................ .24820 .24161 .23527 .22917 .22329
58............................................................ .25984 .25313 .24667 .24044 .23444
59............................................................ .27184 .26501 .25843 .25209 .24596
60............................................................ .28417 .27724 .27055 .26409 .25786
61............................................................ .29688 .28985 .28306 .27650 .27015
62............................................................ .30996 .30284 .29596 .28929 .28285
63............................................................ .32341 .31621 .30924 .30249 .29595
64............................................................ .33721 .32994 .32289 .31605 .30943
65............................................................ .35134 .34401 .33689 .32999 .32329
66............................................................ .36580 .35841 .35124 .34427 .33750
67............................................................ .38055 .37312 .36590 .35889 .35206
68............................................................ .39559 .38814 .38089 .37383 .36696
69............................................................ .41096 .40349 .39622 .38913 .38222
70............................................................ .42665 .41918 .41190 .40480 .39787
71............................................................ .44273 .43527 .42799 .42089 .41395
72............................................................ .45919 .45176 .44450 .43741 .43049
73............................................................ .47594 .46856 .46134 .45428 .44738
74............................................................ .49283 .48550 .47834 .47132 .46446
75............................................................ .50969 .50244 .49534 .48838 .48157
76............................................................ .52646 .51929 .51226 .50537 .49862
77............................................................ .54309 .53601 .52907 .52226 .51558
78............................................................ .55960 .55263 .54579 .53907 .53247
79............................................................ .57606 .56921 .56248 .55586 .54935
80............................................................ .59253 .58580 .57919 .57269 .56629
81............................................................ .60887 .60229 .59581 .58943 .58315
82............................................................ .62498 .61855 .61221 .60597 .59982
83............................................................ .64086 .63459 .62840 .62230 .61629
84............................................................ .65660 .65049 .64447 .63852 .63266
85............................................................ .67224 .66631 .66046 .65468 .64898
86............................................................ .68742 .68167 .67600 .67040 .66486
87............................................................ .70168 .69611 .69061 .68518 .67980
88............................................................ .71497 .70958 .70425 .69897 .69376
89............................................................ .72758 .72236 .71720 .71208 .70702
90............................................................ .73989 .73484 .72985 .72490 .72000
91............................................................ .75180 .74693 .74210 .73732 .73259
92............................................................ .76292 .75821 .75355 .74894 .74436
93............................................................ .77302 .76848 .76397 .75951 .75508
94............................................................ .78204 .77764 .77328 .76895 .76466
95............................................................ .78991 .78563 .78139 .77719 .77302
96............................................................ .79651 .79234 .78821 .78411 .78003
97............................................................ .80241 .79834 .79430 .79029 .78630
98............................................................ .80755 .80356 .79960 .79567 .79176
99............................................................ .81236 .80845 .80456 .80071 .79687
100........................................................... .81715 .81331 .80949 .80571 .80195
101........................................................... .82132 .81754 .81379 .81006 .80636
102........................................................... .82582 .82211 .81842 .81476 .81111
103........................................................... .83162 .82799 .82439 .82080 .81724
104........................................................... .83711 .83356 .83003 .82652 .82302
105........................................................... .84550 .84208 .83867 .83528 .83191
106........................................................... .85920 .85602 .85285 .84969 .84655
107........................................................... .87839 .87558 .87277 .86997 .86718
108........................................................... .90896 .90679 .90463 .90246 .90030
109........................................................... .95900 .95800 .95700 .95600 .95500
----------------------------------------------------------------------------------------------------------------
[[Page 278]]
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout Rate
(1) Age -------------------------------------------------
9.2% 9.4% 9.6% 9.8% 10.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02788 .02747 .02709 .02673 .02641
1............................................................. .00987 .00945 .00906 .00871 .00838
2............................................................. .00957 .00913 .00872 .00835 .00800
3............................................................. .00965 .00918 .00875 .00836 .00799
4............................................................. .00991 .00941 .00896 .00854 .00815
5............................................................. .01031 .00979 .00931 .00887 .00846
6............................................................. .01084 .01028 .00978 .00931 .00888
7............................................................. .01144 .01086 .01032 .00983 .00937
8............................................................. .01216 .01154 .01097 .01044 .00996
9............................................................. .01299 .01234 .01174 .01118 .01067
10............................................................ .01395 .01326 .01262 .01204 .01149
11............................................................ .01504 .01432 .01364 .01302 .01245
12............................................................ .01626 .01549 .01478 .01413 .01352
13............................................................ .01755 .01674 .01599 .01530 .01466
14............................................................ .01885 .01800 .01721 .01648 .01581
15............................................................ .02011 .01922 .01839 .01762 .01691
16............................................................ .02130 .02036 .01949 .01869 .01794
17............................................................ .02243 .02144 .02052 .01967 .01888
18............................................................ .02350 .02246 .02150 .02061 .01978
19............................................................ .02457 .02348 .02247 .02153 .02065
20............................................................ .02569 .02454 .02347 .02248 .02156
21............................................................ .02685 .02564 .02452 .02347 .02250
22............................................................ .02806 .02679 .02561 .02451 .02348
23............................................................ .02936 .02802 .02677 .02561 .02453
24............................................................ .03078 .02937 .02805 .02683 .02569
25............................................................ .03236 .03087 .02949 .02820 .02699
26............................................................ .03415 .03258 .03112 .02975 .02848
27............................................................ .03615 .03450 .03295 .03151 .03017
28............................................................ .03838 .03664 .03502 .03350 .03208
29............................................................ .04081 .03898 .03727 .03567 .03416
30............................................................ .04346 .04154 .03973 .03804 .03646
31............................................................ .04630 .04427 .04237 .04059 .03892
32............................................................ .04936 .04723 .04523 .04335 .04159
33............................................................ .05264 .05041 .04831 .04633 .04448
34............................................................ .05615 .05381 .05160 .04952 .04757
35............................................................ .05992 .05746 .05514 .05296 .05090
36............................................................ .06393 .06135 .05892 .05663 .05447
37............................................................ .06820 .06550 .06295 .06055 .05828
38............................................................ .07272 .06990 .06723 .06471 .06233
39............................................................ .07749 .07454 .07175 .06912 .06662
40............................................................ .08254 .07946 .07655 .07379 .07117
41............................................................ .08787 .08466 .08162 .07073 .07599
42............................................................ .09352 .09018 .08700 .08399 .08112
43............................................................ .09947 .09599 .09268 .08953 .08654
44............................................................ .10573 .10211 .09866 .09539 .09227
45............................................................ .11229 .10852 .10494 .10152 .09827
46............................................................ .11916 .11525 .11153 .10798 .10459
47............................................................ .12634 .12229 .11843 .11474 .11122
48............................................................ .13388 .12969 .12568 .12186 .11820
49............................................................ .14177 .13743 .13329 .12932 .12553
50............................................................ .15003 .14555 .14126 .13716 .13322
51............................................................ .15865 .15402 .14959 .14534 .14127
52............................................................ .16763 .16286 .15828 .15390 .14969
53............................................................ .17696 .17205 .16734 .16281 .15847
54............................................................ .18662 .18157 .17672 .17206 .16758
55............................................................ .19662 .19144 .18645 .18165 .17703
56............................................................ .20695 .20163 .19651 .19157 .18682
57............................................................ .21763 .21218 .20693 .20186 .19698
58............................................................ .22865 .22307 .21769 .21250 .20749
59............................................................ .24005 .23435 .22885 .22353 .21839
60............................................................ .25183 .24601 .24038 .23494 .22969
61............................................................ .26401 .25808 .25234 .24678 .24141
62............................................................ .27661 .27056 .26471 .25905 .25356
63............................................................ .28961 .28347 .27752 .27175 .26615
64............................................................ .30300 .29677 .29072 .28486 .27916
65............................................................ .31678 .31046 .30433 .29837 .29259
66............................................................ .33093 .32454 .31832 .31228 .30641
67............................................................ .34542 .33897 .33268 .32657 .32062
68............................................................ .36027 .35376 .34742 .34124 .33522
69............................................................ .37550 .36894 .36255 .35632 .35024
70............................................................ .39111 .38452 .37809 .37182 .36570
71............................................................ .40719 .40058 .39412 .38782 .38166
72............................................................ .42372 .41710 .41064 .40432 .39814
73............................................................ .44062 .43402 .42756 .42124 .41506
74............................................................ .45774 .45116 .44471 .43840 .43223
75............................................................ .47489 .46834 .46193 .45565 .44949
76............................................................ .49199 .48550 .47913 .47288 .46675
77............................................................ .50902 .50258 .49626 .49006 .48397
78............................................................ .52598 .51962 .51336 .50721 .50117
79............................................................ .54295 .53667 .53049 .52441 .51843
80............................................................ .55999 .55380 .54771 .54171 .53581
81............................................................ .57697 .57088 .56489 .55899 .55317
82............................................................ .59375 .58778 .58190 .57610 .57039
83............................................................ .61036 .60451 .59875 .59306 .58746
84............................................................ .62687 .62116 .61553 .60997 .60448
85............................................................ .64335 .63779 .63230 .62688 .62152
86............................................................ .65939 .65398 .64864 .64337 .63816
87............................................................ .67449 .66924 .66405 .65892 .65384
88............................................................ .68860 .68350 .67845 .67346 .66852
89............................................................ .70202 .69706 .69216 .68731 .68250
90............................................................ .71515 .71035 .70559 .70088 .69622
91............................................................ .72790 .72325 .71865 .71409 .70957
92............................................................ .73982 .73533 .73087 .72646 .72208
93............................................................ .75069 .74634 .74202 .73774 .73350
94............................................................ .76040 .75618 .75199 .74784 .74372
95............................................................ .76888 .76477 .76070 .75666 .75265
96............................................................ .77599 .77199 .76801 .76406 .76014
97............................................................ .78235 .77843 .77454 .77067 .76684
98............................................................ .78789 .78404 .78022 .77642 .77266
99............................................................ .79307 .78929 .78554 .78181 .77811
100........................................................... .79821 .79450 .79081 .78715 .78351
101........................................................... .80268 .79902 .79539 .79178 .78819
102........................................................... .80749 .80389 .80031 .79676 .79322
103........................................................... .81370 .81018 .80668 .80319 .79973
104........................................................... .81955 .81609 .81265 .80923 .80582
105........................................................... .82855 .82520 .82187 .81856 .81526
106........................................................... .84341 .84029 .83718 .83408 .83099
107........................................................... .86439 .86162 .85884 .85608 .85332
108........................................................... .89815 .89599 .89384 .89169 .88955
109........................................................... .95400 .95300 .95200 .95100 .95000
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02610 .02582 .02556 .02531 .02508
1............................................................. .00807 .00779 .00753 .00729 .00707
2............................................................. .00769 .00739 .00712 .00686 .00663
3............................................................. .00766 .00735 .00706 .00679 .00654
4............................................................. .00780 .00747 .00716 .00688 .00662
5............................................................. .00808 .00773 .00741 .00711 .00683
6............................................................. .00848 .00811 .00776 .00744 .00715
7............................................................. .00894 .00855 .00819 .00785 .00753
8............................................................. .00951 .00909 .00871 .00835 .00801
[[Page 279]]
9............................................................. .01019 .00975 .00934 .00896 .00860
10............................................................ .01099 .01052 .01008 .00967 .00930
11............................................................ .01191 .01142 .01095 .01052 .01012
12............................................................ .01295 .01243 .01194 .01148 .01106
13............................................................ .01406 .01351 .01299 .01251 .01206
14............................................................ .01518 .01459 .01405 .01354 .01306
15............................................................ .01625 .01563 .01506 .01452 .01402
16............................................................ .01724 .01659 .01599 .01542 .01489
17............................................................ .01815 .01747 .01683 .01624 .01568
18............................................................ .01901 .01829 .01761 .01699 .01640
19............................................................ .01984 .01908 .01837 .01771 .01709
20............................................................ .02070 .01990 .01915 .01846 .01780
21............................................................ .02160 .02075 .01996 .01923 .01854
22............................................................ .02253 .02164 .02080 .02003 .01930
23............................................................ .02352 .02258 .02170 .02088 .02010
24............................................................ .02462 .02362 .02269 .02182 .02100
25............................................................ .02586 .02481 .02382 .02289 .02203
26............................................................ .02729 .02617 .02512 .02414 .02322
27............................................................ .02891 .02772 .02662 .02558 .02460
28............................................................ .03074 .02949 .02832 .02722 .02618
29............................................................ .03276 .03143 .03019 .02902 .02792
30............................................................ .03497 .03357 .03225 .03102 .02985
31............................................................ .03735 .03587 .03448 .03317 .03193
32............................................................ .03993 .03837 .03690 .03551 .03420
33............................................................ .04273 .04108 .03952 .03806 .03667
34............................................................ .04572 .04399 .04234 .04079 .03933
35............................................................ .04896 .04713 .04539 .04376 .04221
36............................................................ .05243 .05049 .04867 .04694 .04530
37............................................................ .05613 .05410 .05217 .05035 .04862
38............................................................ .06007 .05793 .05591 .05399 .05217
39............................................................ .06425 .06200 .05987 .05785 .05593
40............................................................ .06869 .06633 .06409 .06197 .05995
41............................................................ .07339 .07092 .06857 .06634 .06421
42............................................................ .07840 .07581 .07335 .07101 .06878
43............................................................ .08370 .08099 .07841 .07595 .07361
44............................................................ .08930 .08646 .08377 .08119 .07874
45............................................................ .09517 .09222 .08940 .08670 .08413
46............................................................ .10136 .09828 .09533 .09252 .08983
47............................................................ .10786 .10464 .10157 .09864 .09582
48............................................................ .11470 .11136 .10816 .10510 .10216
49............................................................ .12189 .11842 .11509 .11190 .10884
50............................................................ .12946 .12585 .12239 .11907 .11588
51............................................................ .13737 .13363 .13003 .12659 .12327
52............................................................ .14565 .14177 .13805 .13447 .13103
53............................................................ .15429 .15028 .14642 .14271 .13914
54............................................................ .16327 .15912 .15513 .15129 .14759
55............................................................ .17259 .16831 .16419 .16022 .15639
56............................................................ .18225 .17784 .17358 .16948 .16553
57............................................................ .19227 .18773 .18335 .17912 .17503
58............................................................ .20265 .19798 .19347 .18911 .18490
59............................................................ .21343 .20863 .20400 .19951 .19518
60............................................................ .22460 .21968 .21492 .21032 .20586
61............................................................ .23620 .23117 .22629 .22156 .21698
62............................................................ .24824 .24309 .23810 .23325 .22856
63............................................................ .26073 .25546 .25036 .24540 .24060
64............................................................ .27364 .26827 .26306 .25800 .25308
65............................................................ .28696 .28150 .27619 .27103 .26601
66............................................................ .30070 .29515 .28974 .28449 .27937
67............................................................ .31483 .30919 .30371 .29836 .29316
68............................................................ .32936 .32365 .31808 .31266 .30737
69............................................................ .34432 .33854 .33290 .32741 .32204
70............................................................ .35972 .35389 .34820 .34264 .33721
71............................................................ .37565 .36977 .36403 .35842 .35294
72............................................................ .39210 .38619 .38042 .37477 .36924
73............................................................ .40900 .40308 .39728 .39161 .38605
74............................................................ .42618 .42025 .41444 .40876 .40318
75............................................................ .44345 .43753 .43173 .42604 .42046
76............................................................ .46073 .45483 .44904 .44336 .43779
77............................................................ .47799 .47212 .46635 .46069 .45513
78............................................................ .49524 .48941 .48368 .47805 .47252
79............................................................ .51256 .50678 .50110 .49551 .49001
80............................................................ .53001 .52429 .51867 .51313 .50769
81............................................................ .54745 .54181 .53626 .53079 .52541
82............................................................ .56476 .55921 .55374 .54835 .54303
83............................................................ .58193 .57648 .57110 .56579 .56056
84............................................................ .59907 .59373 .58845 .58325 .57811
85............................................................ .61624 .61102 .60586 .60077 .59574
86............................................................ .63300 .62791 .62289 .61791 .61300
87............................................................ .64883 .64387 .63896 .63411 .62932
88............................................................ .66363 .65880 .65402 .64929 .64461
89............................................................ .67775 .67304 .66838 .66377 .65921
90............................................................ .69160 .68703 .68250 .67802 .67357
91............................................................ .70509 .70066 .69626 .69191 .68760
92............................................................ .71775 .71345 .70919 .70496 .70078
93............................................................ .72929 .72512 .72099 .71689 .71282
94............................................................ .73964 .73559 .73157 .72758 .72362
95............................................................ .74867 .74472 .74081 .73692 .73306
96............................................................ .75625 .75239 .74856 .74476 .74099
97............................................................ .76303 .75925 .75550 .75177 .74807
98............................................................ .76892 .76521 .76152 .75786 .75422
99............................................................ .77443 .77078 .76715 .76355 .75998
100........................................................... .77990 .77631 .77275 .76921 .76569
101........................................................... .78463 .78109 .77757 .77407 .77060
102........................................................... .78971 .78622 .78275 .77930 .77587
103........................................................... .79629 .79287 .78947 .78608 .78272
104........................................................... .80244 .79907 .79572 .79239 .78907
105........................................................... .81198 .80871 .80546 .88222 .79900
106........................................................... .82792 .82485 .82180 .81876 .81572
107........................................................... .85057 .84783 .84509 .84237 .83964
108........................................................... .88740 .88526 .88312 .88098 .87885
109........................................................... .94900 .94800 .94700 .94600 .94500
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
11.2% 11.4% 11.6% 11.8% 12.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02487 .02466 .02447 .02429 .02412
1............................................................. .00686 .00666 .00648 .00631 .00615
2............................................................. .00641 .00620 .00601 .00583 .00566
3............................................................. .00631 .00609 .00589 .00570 .00552
4............................................................. .00637 .00614 .00593 .00573 .00554
5............................................................. .00657 .00633 .00610 .00588 .00568
6............................................................. .00687 .00661 .00637 .00614 .00593
7............................................................. .00724 .00696 .00670 .00646 .00623
8............................................................. .00770 .00740 .00713 .00687 .00663
9............................................................. .00827 .00795 .00766 .00739 .00713
10............................................................ .00894 .00861 .00830 .00800 .00773
11............................................................ .00974 .00939 .00906 .00875 .00846
12............................................................ .01066 .01029 .00993 .00961 .00929
13............................................................ .01164 .01124 .01087 .01052 .01019
14............................................................ .01262 .01220 .01181 .01144 .01109
15............................................................ .01355 .01311 .01270 .01231 .01194
16............................................................ .01440 .01394 .01350 .01309 .01271
17............................................................ .01516 .01467 .01421 .01378 .01337
[[Page 280]]
18............................................................ .01585 .01534 .01485 .01440 .01397
19............................................................ .01651 .01597 .01546 .01498 .01453
20............................................................ .01719 .01662 .01608 .01557 .01510
21............................................................ .01789 .01728 .01672 .01618 .01568
22............................................................ .01861 .01797 .01737 .01680 .01627
23............................................................ .01938 .01870 .01806 .01746 .01689
24............................................................ .02023 .01951 .01883 .01819 .01759
25............................................................ .02121 .02045 .01973 .01905 .01841
26............................................................ .02236 .02155 .02078 .02006 .01938
27............................................................ .02368 .02282 .02200 .02124 .02051
28............................................................ .02521 .02429 .02342 .02261 .02183
29............................................................ .02689 .02591 .02499 .02412 .02330
30............................................................ .02875 .02772 .02674 .02581 .02494
31............................................................ .03076 .02966 .02863 .02764 .02671
32............................................................ .03297 .03180 .03070 .02965 .02866
33............................................................ .03536 .03412 .03295 .03184 .03079
34............................................................ .03794 .03663 .03539 .03421 .03309
35............................................................ .04074 .03935 .03803 .03678 .03559
36............................................................ .04375 .04228 .04089 .03956 .03830
37............................................................ .04699 .04543 .04395 .04255 .04122
38............................................................ .05044 .04879 .04723 .04575 .04433
39............................................................ .05411 .05238 .5073 .04916 .04766
40............................................................ .05802 .05620 .05445 .05279 .05121
41............................................................ .06219 .06026 .05843 .05668 .05550
42............................................................ .06665 .06462 .06269 .06084 .05908
43............................................................ .07138 .06924 .06721 .06526 .06341
44............................................................ .07639 .07415 .07202 .06997 .06801
45............................................................ .08168 .07933 .07708 .07493 .07287
46............................................................ .08726 .08480 .08244 .08018 .07802
47............................................................ .09313 .09056 .08809 .08572 .08345
48............................................................ .09935 .09666 .09408 .09160 .08922
49............................................................ .10591 .10309 .10039 .09780 .09531
50............................................................ .11282 .10989 .10707 .10436 .10176
51............................................................ .12009 .11703 .11409 .11127 .10855
52............................................................ .12772 .12454 .12147 .11853 .11569
53............................................................ .13571 .13340 .12922 .12615 .12319
54............................................................ .14403 .14060 .13729 .13410 .13102
55............................................................ .15270 .14914 .14571 .14240 .13920
56............................................................ .16171 .15802 .15447 .15103 .14771
57............................................................ .17109 .16728 .16360 .16004 .15660
58............................................................ .18083 .17690 .17309 .16941 .16585
59............................................................ .19098 .18692 .18299 .17919 .17551
60............................................................ .20154 .19736 .19331 .18938 .18558
61............................................................ .21254 .20824 .20407 .20003 .19610
62............................................................ .22400 .21958 .21530 .21113 .20709
63............................................................ .23593 .23139 .22699 .22272 .21856
64............................................................ .24830 .24366 .23915 .23476 .23050
65............................................................ .26113 .25638 .25176 .24727 .24290
66............................................................ .27439 .26955 .26483 .26023 .25576
67............................................................ .28808 .28314 .27833 .27364 .26906
68............................................................ .30221 .29718 .29228 .28750 .28283
69............................................................ .31681 .31170 .30672 .30185 .29710
70............................................................ .33190 .32673 .32167 .31672 .31189
71............................................................ .34758 .34234 .33721 .33220 .32731
72............................................................ .36384 35855 .35337 .34831 .34335
73............................................................ .38061 .37529 .37007 .36496 .35996
74............................................................ .39772 .39237 .38713 .38199 .37695
75............................................................ .41499 .40962 .40436 .39920 .39413
76............................................................ .43232 .42695 .42168 .41650 .41142
77............................................................ .44967 .44431 .43904 .43386 .42878
78............................................................ .46708 .46173 .45647 .45130 .44622
79............................................................ .48460 .47928 .47405 .46890 .46383
80............................................................ .50232 .49705 .49185 .48673 .48169
81............................................................ .52010 .51487 .50973 .50465 .49965
82............................................................ .53779 .53263 .52754 .52252 .51757
83............................................................ .55540 .55031 .54529 .54033 .53544
84............................................................ .57304 .56804 .56309 .55822 .55340
85............................................................ .59077 .58586 .58102 .57623 .57150
86............................................................ .60815 .60335 .59860 .59392 .58928
87............................................................ .62458 .61989 .61525 .61066 .60613
88............................................................ .63998 .63540 .63086 .62638 .62194
89............................................................ .65469 .65022 .64579 .64141 .63707
90............................................................ .66918 .66482 .66050 .65623 .65199
91............................................................ .68332 .67909 .67489 .67073 .66661
92............................................................ .69662 .69251 .68843 .68439 .68038
93............................................................ .70879 .70479 .70082 .69689 .69299
94............................................................ .71970 .71581 .71195 .70812 .70432
95............................................................ .72924 .72544 .72167 .71793 .71422
96............................................................ .73724 .73353 .72984 .72618 .72254
97............................................................ .74440 .74076 .73714 .73354 .72998
98............................................................ .75061 .74703 .74347 .73994 .73643
99............................................................ .75642 .75290 .74939 .74591 .74245
100........................................................... .76219 .75872 .75527 .75184 .74844
101........................................................... .76715 .76372 .76031 .75692 .75356
102........................................................... .77246 .76908 .76571 .76236 .75904
103........................................................... .77937 .77605 .77274 .76945 .76618
104........................................................... .78577 .78249 .77923 .77598 .77275
105........................................................... .79579 .79259 .78941 .78625 .78310
106........................................................... .81270 .80969 .80670 .80371 .80073
107........................................................... .83693 .83422 .83152 .82883 .82614
108........................................................... .87672 .87459 .87246 .87034 .86822
109........................................................... .94400 .94300 .94200 .94100 .94000
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02396 .02380 .02366 .02352 .02338
1............................................................. .00600 .00585 .00572 .00559 .00547
2............................................................. .00550 .00535 .00521 .00508 .00495
3............................................................. .00536 .00520 .00505 .00491 .00478
4............................................................. .00536 .00519 .00504 .00489 .00475
5............................................................. .00549 .00532 .00515 .00499 .00484
6............................................................. .00572 .00554 .00536 .00519 .00503
7............................................................. .00602 .00582 .00563 .00545 .00528
8............................................................. .00640 .00618 .00598 .00579 .00561
9............................................................. .00688 .00665 .00644 .00623 .00604
10............................................................ .00747 .00723 .00699 .00678 .00657
11............................................................ .00818 .00792 .00767 .00744 .00722
12............................................................ .00900 .00873 .00846 .00822 .00798
13............................................................ .00988 .00959 .00931 .00905 .00880
14............................................................ .01077 .01046 .01017 .00989 .00963
15............................................................ .01160 .01127 .01097 .01067 .01040
16............................................................ .01234 .01200 .01167 .01137 .01108
17............................................................ .01299 .01263 .01229 .01197 .01166
18............................................................ .01357 .01319 .01283 .01249 .01217
19............................................................ .01410 .01370 .01332 .01297 .01263
20............................................................ .01465 .01422 .01382 .01345 .01309
21............................................................ .01520 .01475 .01433 .01393 .01355
22............................................................ .01576 .01529 .01484 .01442 .01402
23............................................................ .01636 .01586 .01538 .01493 .01450
24............................................................ .01703 .01649 .01599 .01551 .01505
25............................................................ .01781 .01724 .01670 .01619 .01571
26............................................................ .01874 .01813 .01756 .01701 .01650
[[Page 281]]
27............................................................ .01983 .01918 .01857 .01799 .01744
28............................................................ .02111 .02042 .01976 .01915 .01856
29............................................................ .02253 .02179 .02110 .02044 .01981
30............................................................ .02411 .02333 .02259 .02188 .02121
31............................................................ .02583 .02500 .02421 .02345 .02274
32............................................................ .02772 .02683 .02599 .02519 .02443
33............................................................ .02979 .02885 .02795 .02709 .02628
34............................................................ .03203 .03102 .03006 .02915 .02829
35............................................................ .03447 .03340 .03238 .03141 .03048
36............................................................ .03710 .03597 .03488 .03385 .03286
37............................................................ .03995 .03874 .03758 .03649 .03544
38............................................................ .04299 .04170 .04048 .03931 .03820
39............................................................ .04623 .04487 .04358 .04234 .04115
40............................................................ .04970 .04826 .04689 .04558 .04432
41............................................................ .05341 .05189 .05043 .04904 .04771
42............................................................ .05739 .05578 .05424 .05277 .05136
43............................................................ .06163 .05993 .05830 .05674 .05525
44............................................................ .06614 .06435 .06263 .06099 .05941
45............................................................ .07090 .06901 .06720 .06547 .06380
46............................................................ .07595 .07396 .07206 .07023 .06847
47............................................................ .08128 .07919 .07718 .07525 .07340
48............................................................ .08693 .08474 .08263 .08061 .07866
49............................................................ .09291 .09061 .08840 .08627 .08423
50............................................................ .09925 .09684 .09452 .09229 .09014
51............................................................ .10593 .10341 .10098 .09864 .09638
52............................................................ .11296 .11032 .10778 .10534 .10297
53............................................................ .12034 .11759 .11494 .11238 .10991
54............................................................ .12805 .12519 .12243 .11976 .11718
55............................................................ .13611 .13313 .13025 .12747 .12478
56............................................................ .14451 .14141 .13841 .13551 .13271
57............................................................ .15327 .15005 .14694 .14393 .14101
58............................................................ .16240 .15906 .15583 .15270 .14967
59............................................................ .17194 .16848 .16513 .16189 .15874
60............................................................ .18189 .17831 .17485 .17148 .16822
61............................................................ .19230 .18860 .18502 .18154 .17816
62............................................................ .20317 .19936 .19566 .19207 .18857
63............................................................ .21453 .21060 .20679 .20308 .19947
64............................................................ .22635 .22231 .21839 .21457 .21085
65............................................................ .23864 .23450 .23046 .22653 .22271
66............................................................ .25140 .24715 .24301 .23898 .23505
67............................................................ .26461 .26026 .25602 .25188 .24785
68............................................................ .27828 .27384 .26950 .26527 .26114
69............................................................ .29246 .28793 .28350 .27918 .27496
70............................................................ .30718 .30256 .29805 .29364 .28933
71............................................................ .32251 .31783 .31324 .30876 .30437
72............................................................ .33850 .33375 .32910 .32455 .32009
73............................................................ .35506 .35026 .34555 .34094 .33642
74............................................................ .37201 .36716 .36241 .35776 .35319
75............................................................ .38916 .38429 .37950 .37481 .37020
76............................................................ .40644 .40154 .39673 .39200 .38737
77............................................................ .42378 .41887 .41404 .40930 .40464
78............................................................ .44123 .43631 .43148 .42673 .42205
79............................................................ .45885 .45394 .44911 .44436 .43969
80............................................................ .47673 .47184 .46703 .46229 .45763
81............................................................ .49473 .48987 .48509 .48037 .47573
82............................................................ .51269 .50787 .50313 .49845 .49383
83............................................................ .53062 .52586 .52116 .51653 .51195
84............................................................ .54864 .54395 .53931 .53473 .53021
85............................................................ .56683 .56221 .55765 .55314 .54869
86............................................................ .58470 .58017 .57570 .57127 .56689
87............................................................ .60164 .59720 .59281 .58847 .58417
88............................................................ .61754 .61320 .60889 .60464 .60042
89............................................................ .63277 .62851 .62430 .62013 .61600
90............................................................ .64780 .64364 .63953 .63545 .63141
91............................................................ .66252 .65848 .65446 .65049 .64655
92............................................................ .67640 .67246 .66856 .66468 .66084
93............................................................ .68912 .68528 .68148 .67770 .67396
94............................................................ .70055 .69680 .69309 .68941 .68576
95............................................................ .71054 .70689 .70326 .69966 .69609
96............................................................ .71893 .71535 .71180 .70827 .70476
97............................................................ .72643 .72292 .71943 .71596 .71252
98............................................................ .73294 .72948 .72604 .72263 .71924
99............................................................ .73902 .73561 .73222 .72886 .72551
100........................................................... .74506 .74170 .73836 .73504 .73174
101........................................................... .75021 .74689 .74359 .74030 .73704
102........................................................... .75573 .75244 .74918 .74593 .74270
103........................................................... .76293 .75970 .75649 .75329 .75011
104........................................................... .76954 .76634 .76316 .76000 .75685
105........................................................... .77996 .77684 .77373 .77064 .76756
106........................................................... .79777 .79481 .79187 .78894 .78602
107........................................................... .82346 .82078 .81812 .81546 .81281
108........................................................... .86610 .86398 .86187 .85976 .85765
109........................................................... .93900 .93800 .93700 .93600 .93500
----------------------------------------------------------------------------------------------------------------
Table E
Table E--Single Life, Unisex--Table Showing the Present Worth of the Remainder Interest in Property Transferred
to a Unitrust Having the Adjusted Payout Rate Shown--Applicable for Transfers After November 30, 1983, and
Before May 1, 1989
----------------------------------------------------------------------------------------------------------------
(2) Adjusted payout rate
(1) Age -------------------------------------------------
13.2% 13.4% 13.6% 13.8% 14.0%
----------------------------------------------------------------------------------------------------------------
0............................................................. .02325 .02313 .02301 .02290 .02279
1............................................................. .00536 .00525 .00514 .00505 .00495
2............................................................. .00484 .00472 .00462 .00451 .00442
3............................................................. .00465 .00453 .00442 .00431 .00421
4............................................................. .00461 .00449 .00437 .00426 .00415
5............................................................. .00470 .00457 .00444 .00432 .00421
6............................................................. .00488 .00474 .00460 .00447 .00435
7............................................................. .00512 .00496 .00482 .00468 .00455
8............................................................. .00543 .00527 .00512 .00497 .00483
9............................................................. .00585 .00568 .00551 .00536 .00521
10............................................................ .00637 .00619 .00601 .00584 .00568
11............................................................ .00701 .00681 .00662 .00644 .00627
12............................................................ .00776 .00755 .00735 .00716 .00697
13............................................................ .00857 .00734 .00813 .00793 .00773
14............................................................ .00938 .00914 .00892 .00870 .00850
15............................................................ .01014 .00989 .00965 .00942 .00921
16............................................................ .01080 .01054 .01029 .01005 .00983
17............................................................ .01137 .01109 .01083 .01058 .01035
18............................................................ .01186 .01157 .01130 .01103 .01078
19............................................................ .01230 .01300 .01171 .01143 .01117
20............................................................ .01275 .01243 .01212 .01183 .01155
21............................................................ .01319 .01285 .01253 .01222 .01193
22............................................................ .01364 .01328 .01293 .01261 .01230
23............................................................ .01410 .01372 .01336 .01301 .01268
24............................................................ .01463 .01422 .01383 .01347 .01312
25............................................................ .01525 .01482 .01441 .01401 .01364
26............................................................ .01601 .01555 .01511 .01469 .01430
27............................................................ .01692 .01643 .01596 .01551 .01509
28............................................................ .01800 .01748 .01697 .01650 .01604
29............................................................ .01922 .01865 .01812 .01760 .01712
30............................................................ .02058 .01998 .01940 .01886 .01833
31............................................................ .02206 .02142 .02080 .02022 .01966
32............................................................ .02370 .02301 .02236 .02173 .02113
33............................................................ .02550 .02477 .02407 .02340 .02276
34............................................................ .02746 .02667 .02592 .02521 .02452
35............................................................ .02960 .02876 .02796 .02719 .02646
[[Page 282]]
36............................................................ .03193 .03103 .03017 .02936 .02858
37............................................................ .03444 .03348 .03257 .03170 .03087
38............................................................ .03714 .03612 .03515 .03422 .03333
39............................................................ .04002 .03894 .03791 .03692 .03597
40............................................................ .04312 .04197 .04087 .03891 .03880
41............................................................ .04643 .04521 .04404 .04292 .04185
42............................................................ .05001 .04871 .04747 .04628 .04514
43............................................................ .05382 .05245 .05113 .04987 .04865
44............................................................ .05789 .05644 .05505 .05371 .05242
45............................................................ .06220 .06067 .05919 .05777 .05641
46............................................................ .06678 .06516 .06360 .06210 .06065
47............................................................ .07162 .06991 .06826 .06668 .06515
48............................................................ .07678 .07498 .07324 .07157 .06996
49............................................................ .08225 .08035 .07852 .07676 .07506
50............................................................ .08807 .08607 .08415 .08229 .08050
51............................................................ .09421 .09211 .09009 .08814 .08625
52............................................................ .10070 .09850 .09637 .09432 .09234
53............................................................ .10753 .10523 .10300 .10085 .09877
54............................................................ .11468 .11227 .10994 .10769 .10551
55............................................................ .12218 .11966 .11722 .11487 .11258
56............................................................ .12999 .12737 .12483 .12236 .11998
57............................................................ .13818 .13545 .13279 .13022 .12773
58............................................................ .14673 .14388 .14112 .13844 .13584
59............................................................ .15568 .15272 .14985 .14706 .14435
60............................................................ .16505 .16198 .15899 .15609 .15327
61............................................................ .17488 .17169 .16859 .16558 .16265
62............................................................ .18518 .18187 .17866 .17554 .17251
63............................................................ .19596 .19255 .18923 .18600 .18285
64............................................................ .20723 .20371 .20028 .19694 .19368
65............................................................ .21898 .21535 .21181 .20836 .20500
66............................................................ .23121 .22748 .22383 .22028 .21681
67............................................................ .24392 .24008 .23633 .23267 .22910
68............................................................ .25711 .25317 .24932 .24556 .24189
69............................................................ .27083 .26680 .26285 .25900 .25523
70............................................................ .28512 .28100 .27697 .27302 .26916
71............................................................ .30007 .29587 .29176 .28773 .28378
72............................................................ .31572 .31145 .30726 .30315 .29913
73............................................................ .33199 .32765 .32340 .31923 .31514
74............................................................ .34871 .34431 .34000 .33577 .33162
75............................................................ .36568 .36124 .35688 .35260 .34840
76............................................................ .38281 .37833 .37393 .36961 .36537
77............................................................ .40006 .39555 .39113 .38677 .38249
78............................................................ .41745 .41293 .40848 .40410 .39980
79............................................................ .43508 .43055 .42609 .42170 .41737
80............................................................ .45303 .44850 .44404 .43964 .43531
81............................................................ .47115 .46663 .46218 .45779 .45347
82............................................................ .48928 .48479 .48036 .47599 .47168
83............................................................ .50744 .50298 .49858 .49424 .48995
84............................................................ .52575 .52134 .51698 .51268 .50843
85............................................................ .54429 .53994 .53564 .53139 .52720
86............................................................ .56257 .55829 .55406 .54988 .54574
87............................................................ .57993 .57572 .57156 .56745 .56338
88............................................................ .59625 .59212 .58804 .58399 .57999
89............................................................ .61191 .60786 .60384 .59987 .59594
90............................................................ .62741 .62344 .61952 .61562 .61177
91............................................................ .64264 .63877 .63493 .63113 .62736
92............................................................ .65703 .65326 .64951 .64580 .64212
93............................................................ .67024 .66656 .66291 .65928 .65568
94............................................................ .68213 .67854 .67497 .67142 .66791
95............................................................ .69255 .68903 .68554 .68207 .67863
96............................................................ .70128 .69783 .69440 .69100 .68762
97............................................................ .70910 .70570 .70233 .69899 .69566
98............................................................ .71587 .71252 .70920 .70590 .70263
99............................................................ .72219 .71889 .71562 .71236 .70913
100........................................................... .72847 .72522 .72189 .71877 .71558
101........................................................... .73380 .73058 .72738 .72420 .72104
102........................................................... .73949 .73630 .73313 .72998 .72685
103........................................................... .74695 .74381 .74068 .73758 .73449
104........................................................... .75372 .75060 .74751 .74442 .74136
105........................................................... .76449 .76144 .75840 .75538 .75237
106........................................................... .78311 .78021 .77732 .77444 .77157
107........................................................... .81016 .80752 .80489 .80227 .79965
108........................................................... .85554 .85344 .85134 .84924 .84715
109........................................................... .93400 .93300 .93200 .93100 .93000
----------------------------------------------------------------------------------------------------------------
Table F(1)
Table F(1)--10 Percent--Table Showing Factors for Computations of the
Adjusted Payout Rate for Certain Valuations and Payout Sequences--
Applicable for Transfers After November 30, 1983, and Before May 1, 1989
------------------------------------------------------------------------
(1) Number of months (2) Factors for payout at the end of each
by which the valuation -------------------------------------------------
date precedes the
first payout
----------------------- Annual Semiannual Quarterly Monthly
But less period period period period
At least than
------------------------------------------------------------------------
1 .......... .976731 .965232 .957616
1 2 .992089 .969004 .957596 .950041
2 3 .984240 .961338 .950021
3 4 .976454 .953733 .942505
4 5 .968729 .946188
5 6 .961066 .938703
6 7 .953463 .931277
7 8 .945920
8 9 .938436
9 10 .931012
10 11 .923647
11 12 .916340
12 .......... .909091
------------------------------------------------------------------------
[[Page 283]]
(e) Valuation of charitable remainder unitrusts having certain
payout sequences for transfers for which the valuation date is after
April 30, 1989, and before May 1, 1999--(1) In general. Except as
otherwise provided in paragraph (e)(2) of this section, in the case of
transfers for which the valuation date is after April 30, 1989, and
before May 1, 1999, the present value of a remainder interest is
determined under paragraphs (e)(3) through (e)(6) of this section,
provided that the amount of the payout as of any payout date during any
taxable year of the trust is not larger than the amount that the trust
could distribute on such date under Sec. 1.664-3(a)(1)(v) if the
taxable year of the trust were to end on such date. See, however, Sec.
1.7520-3(b) (relating to exceptions to the use of the prescribed tables
under certain circumstances).
(2) Transitional rules for valuation of charitable remainder
unitrusts. (i) If the valuation date of a transfer to a charitable
remainder unitrust is after April 30, 1989, and before June 10, 1994, a
transferor can rely upon Notice 89-24, 1989-1 C.B. 660, or Notice 89-60,
1989-1 C.B. 700, in valuing the transferred interest. (See Sec.
601.601(d)(2)(ii)(b) of this chapter.)
(ii) For purposes of sections 2055, 2106, or 2624, if on May 1,
1989, the decedent was mentally incompetent so that the disposition of
the property could not be changed, and the decedent died after April 30,
1989, without having regained competency to dispose of the decedent's
property, or the decedent died within 90 days of the date that the
decedent first regained competency after April 30, 1989, the present
value of a remainder interest determined under this section is
determined as if the valuation date with respect to the decedent's gross
estate is either before May 1, 1989, or after April 30, 1989, at the
option of the decedent's executor.
(3) Adjusted payout rate. For transfers for which the valuation date
is after April 30, 1989, and before May 1, 1999, the adjusted payout
rate is determined by using the appropriate Table F, contained in Sec.
1.664-4(e)(6), for the section 7520 interest rate applicable to the
transfer. If the interest rate is between 4.2 and 14 percent, see Sec.
1.664-4(e)(6). If the interest rate is below 4.2 percent or greater than
14 percent, see Sec. 1.664-4(b). See Sec. 1.664-4(e) for rules
applicable in determining the adjusted payout rate.
(4) Period is a term of years. If the period described in Sec.
1.664-3(a)(5) is a term of years, the factor that is used in determining
the present value of the remainder interest for transfers for which the
valuation date is after April 30, 1989, and before May 1, 1999, is the
factor under the appropriate adjusted payout rate in Table D in Sec.
1.664-4(e)(6) corresponding to the number of years in the term. If the
adjusted payout rate is an amount that is between adjusted payout rates
for which factors are provided in Table D, a linear interpolation must
be made. The present value of the remainder interest is determined by
multiplying the net fair market value (as of the appropriate valuation
date) of the property placed in trust by the factor determined under
this paragraph. Generally, for purposes of this section, the valuation
date is, in the case of an inter vivos transfer, the date on which the
property is transferred to the trust by the donor, and, in the case of a
testamentary transfer under sections 2055, 2106, or 2624, the valuation
date is the date of death. See Sec. 1.664-4(e)(4) for additional rules
regarding the valuation date. See Sec. 1.664-4(e)(4) for an example
that illustrates the application of this paragraph (e)(4).
(5) Period is the life of one individual. If the period described in
Sec. 1.664-3(a)(5) is the life of one individual, the factor that is
used in determining the present value of the remainder interest for
transfers for which the valuation date is after April 30, 1989, and
before May 1, 1999, is the factor in Table U(1) in paragraph (e)(6) of
this section under the appropriate adjusted payout. For purposes of the
computations described in this paragraph (e)(5), the age of an
individual is the age of that individual at the individual's nearest
birthday. If the adjusted payout rate is an amount that is between
adjusted payout rates for which factors are provided in the appropriate
table, a linear interpolation must be made. The rules provided in Sec.
1.664-4(e)(5) apply for determining the
[[Page 284]]
present value of the remainder interest. See Sec. 1.664-4(e)(5) for an
example illustrating the application of this paragraph (e)(5)(using
current actuarial tables).
(6) Actuarial tables for transfers for which the valuation date is
after April 30, 1989, and before May 1, 1999. For transfers for which
the valuation date is after April 30, 1989, and before May 1, 1999, the
present value of a charitable remainder unitrust interest that is
dependent on a term of years or the termination of a life interest is
determined by using the section 7520 rate and Table D, Tables F(4.2)
through F(14.0) in Sec. 1.664-4(e)(6) and Table U(1) of this paragraph
(e)(6), as applicable. See, however, Sec. 1.7520-3(b) (relating to
exceptions to the use of prescribed tables under certain circumstances).
Many actuarial factors not contained in the following tables are
contained in Internal Revenue Service Publication 1458, ``Actuarial
Values, Beta Volume,'' (8-89). Publication 1458 is no longer available
for purchase from the Superintendent of Documents, United States
Government Printing Office, Washington, DC 20402. However, pertinent
factors in this publication may be obtained by a written request to:
CC:DOM:CORP:R (IRS Publication 1458), room 5226, Internal Revenue
Service, POB 7604, Ben Franklin Station, Washington, DC 20044.
Table U(1)--Unitrust Single Life Remainder Factors--Based on Life Table 80CNSMT
[Applicable for Transfers After April 30, 1989, and Before May 1, 1999]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Age ---------------------------------------------------------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .06797 .06181 .05645 .05177 .04768 .04410 .04096 .03820 .03578 .03364
1................................................... .05881 .05243 .04686 .04199 .03773 .03400 .03072 .02784 .02531 .02308
2................................................... .06049 .05394 .04821 .04319 .03880 .03494 .03155 .02856 .02593 .02361
3................................................... .06252 .05579 .04990 .04473 .04020 .03621 .03270 .02961 .02688 .02446
4................................................... .06479 .05788 .05182 .04650 .04183 .03771 .03408 .03087 .02804 .02553
5................................................... .06724 .06016 .05393 .04845 .04363 .03937 .03562 .03230 .02936 .02675
6................................................... .06984 .06257 .05618 .05054 .04557 .04117 .03729 .03385 .03080 .02809
7................................................... .07259 .06513 .05856 .05276 .04764 .04310 .03909 .03552 .03236 .02954
8................................................... .07548 .06784 .06109 .05513 .04985 .04517 .04102 .03733 .03405 .03113
9................................................... .07854 .07071 .06378 .05765 .05221 .04738 .04310 .03928 .03588 .03285
10.................................................. .08176 .07374 .06663 .06033 .05473 .04976 .04533 .04138 .03786 .03471
11.................................................. .08517 .07695 .06966 .06319 .05743 .05230 .04772 .04364 .04000 .03673
12.................................................. .08872 .08031 .07284 .06619 .06026 .05498 .05026 .04604 .04227 .03889
13.................................................. .09238 .08378 .07612 .06929 .06320 .05776 .05289 .04853 .04463 .04113
14.................................................. .09608 .08728 .07943 .07243 .06616 .06056 .05554 .05104 .04701 .04338
15.................................................. .09981 .09081 .08276 .07557 .06914 .06337 .05820 .05356 .04938 .04563
16.................................................. .10356 .09435 .08612 .07874 .07213 .06619 .06086 .05607 .05176 .04787
17.................................................. .10733 .09792 .08949 .08192 .07513 .06902 .06353 .05858 .05413 .05010
18.................................................. .11117 .10155 .09291 .08515 .07817 .07189 .06623 .06113 .05652 .05236
19.................................................. .11509 .10526 .09642 .08847 .08130 .07484 .06901 .06375 .05899 .05469
20.................................................. .11913 .10908 .10003 .09188 .08452 .07788 .07188 .06645 .06154 .05708
21.................................................. .12326 .11300 .10375 .09539 .08784 .08101 .07483 .06923 .06416 .05955
22.................................................. .12753 .11705 .10758 .09902 .09127 .08426 .07789 .07212 .06688 .06212
23.................................................. .13195 .12125 .11156 .10279 .09484 .08763 .08109 .07514 .06973 .06481
24.................................................. .13655 .12563 .11573 .10675 .09860 .09119 .08446 .07833 .07274 .06766
25.................................................. .14136 .13022 .12010 .11091 .10255 .09495 .08802 .08171 .07595 .07069
26.................................................. .14640 .13504 .12471 .11530 .10674 .09893 .09181 .08531 .07937 .07394
27.................................................. .15169 .14011 .12956 .11994 .11117 .10316 .09584 .08915 .08302 .07742
28.................................................. .15721 .14542 .13465 .12482 .11583 .10762 .10010 .09322 .08691 .08112
29.................................................. .16299 .15097 .13999 .12994 .12075 .11233 .10461 .09753 .09104 .08507
30.................................................. .16901 .15678 .14559 .13533 .12592 .11729 .10937 .10210 .09541 .08926
31.................................................. .17531 .16287 .15146 .14099 .13137 .12254 .11441 .10694 .10006 .09372
32.................................................. .18186 .16921 .15759 .14691 .13709 .12804 .11972 .11205 .10497 .09844
33.................................................. .18869 .17584 .16401 .15312 .14309 .13384 .12531 .11744 .11017 .10345
34.................................................. .19578 .18273 .17070 .15961 .14937 .13992 .13119 .12312 .11565 .10874
35.................................................. .20315 .18990 .17767 .16637 .15593 .14628 .13735 .12908 .12142 .11431
36.................................................. .21076 .19732 .18490 .17340 .16276 .15291 .14377 .13531 .12745 .12016
37.................................................. .21863 .20501 .19239 .18071 .16987 .15982 .15049 .14182 .13377 .12628
38.................................................. .22676 .21296 .20016 .18828 .17725 .16701 .15748 .14862 .14037 .13269
39.................................................. .23515 .22118 .20820 .19614 .18492 .17448 .16476 .15571 .14727 .13940
40.................................................. .24379 .22967 .21652 .20428 .19288 .18225 .17234 .16310 .15447 .14641
41.................................................. .25270 .23842 .22511 .21270 .20112 .19031 .18021 .17078 .16197 .15372
42.................................................. .26184 .24742 .23395 .22137 .20962 .19864 .18836 .17875 .16975 .16132
43.................................................. .27123 .25666 .24305 .23031 .21840 .20724 .19679 .18700 .17782 .16921
44.................................................. .28085 .26616 .25241 .23952 .22745 .21613 .20551 .19554 .18618 .17739
[[Page 285]]
45.................................................. .29072 .27591 .26203 .24901 .23678 .22530 .21452 .20438 .19485 .18589
46.................................................. .30082 .28591 .27191 .25875 .24639 .23476 .22381 .21352 .20382 .19468
47.................................................. .31116 .29616 .28204 .26877 .25626 .24449 .23340 .22295 .21309 .20379
48.................................................. .32171 .30663 .29241 .27902 .26640 .25449 .24326 .23265 .22264 .21318
49.................................................. .33245 .31730 .30300 .28950 .27676 .26473 .25336 .24262 .23246 .22285
50.................................................. .34338 .32816 .31379 .30020 .28735 .27521 .26371 .25283 .24253 .23277
51.................................................. .35449 .33923 .32479 .31112 .29818 .28593 .27431 .26331 .25287 .24297
52.................................................. .36582 .35053 .33603 .32230 .30927 .29692 .28520 .27408 .26352 .25349
53.................................................. .37736 .36205 .34751 .33372 .32063 .30819 .29637 .28514 .27446 .26431
54.................................................. .38909 .37376 .35921 .34537 .33221 .31970 .30780 .29647 .28569 .27542
55.................................................. .40099 .38568 .37111 .35724 .34404 .33146 .31949 .30807 .29719 .28681
56.................................................. .41308 .39779 .38322 .36934 .35610 .34348 .33143 .31994 .30898 .29851
57.................................................. .42536 .41011 .39555 .38167 .36841 .35575 .34366 .33210 .32106 .31051
58.................................................. .43781 .42262 .40810 .39422 .38096 .36828 .35615 .34454 .33344 .32281
59.................................................. .45043 .43530 .42083 .40698 .39373 .38104 .36888 .35724 .34609 .33540
60.................................................. .46318 .44813 .43372 .41992 .40668 .39400 .38183 .37017 .35898 .34824
61.................................................. .47602 .46107 .44674 .43299 .41979 .40713 .39497 .38329 .37207 .36129
62.................................................. .48893 .47410 .45986 .44617 .43303 .42039 .40825 .39657 .38534 .37454
63.................................................. .50190 .48720 .47306 .45946 .44638 .43379 .42168 .41001 .39878 .38796
64.................................................. .51494 .50038 .48636 .47286 .45986 .44733 .43526 .42362 .41240 .40158
65.................................................. .52808 .51368 .49980 .48641 .47350 .46104 .44903 .43743 .42624 .41544
66.................................................. .54134 .52711 .51338 .50013 .48733 .47496 .46302 .45148 .44033 .42956
67.................................................. .55471 .54068 .52712 .51401 .50134 .48908 .47723 .46577 .45467 .44394
68.................................................. .56820 .55437 .54100 .52805 .51552 .50339 .49165 .48027 .46925 .45858
69.................................................. .58172 .56812 .55495 .54219 .52982 .51783 .50620 .49494 .48401 .47341
70.................................................. .59526 .58190 .56894 .55637 .54417 .53234 .52086 .50971 .49889 .48838
71.................................................. .60874 .59564 .58291 .57055 .55854 .54687 .53554 .52453 .51382 .50342
72.................................................. .62218 .60934 .59685 .58471 .57291 .56143 .55026 .53939 .52882 .51854
73.................................................. .63557 .62301 .61078 .59887 .58728 .57600 .56501 .55431 .54389 .53373
74.................................................. .64896 .63669 .62472 .61307 .60171 .59064 .57985 .56932 .55906 .54906
75.................................................. .66237 .65040 .63872 .62733 .61622 .60538 .59480 .58447 .57439 .56455
76.................................................. .67581 .66416 .65279 .64168 .63083 .62023 .60988 .59977 .58989 .58023
77.................................................. .68925 .67793 .66688 .65606 .64550 .63516 .62506 .61517 .60551 .59605
78.................................................. .70263 .69166 .68093 .67044 .66016 .65010 .64026 .63062 .62119 .61195
79.................................................. .71585 .70525 .69486 .68468 .67471 .66495 .65538 .64600 .63681 .62780
80.................................................. .72885 .71860 .70856 .69872 .68906 .67959 .67031 .66120 .65227 .64350
81.................................................. .74150 .73162 .72193 .71242 .70308 .69392 .68492 .67609 .66742 .65890
82.................................................. .75376 .74425 .73490 .72572 .71671 .70785 .69915 .69059 .68219 .67393
83.................................................. .76559 .75643 .74744 .73859 .72989 .72134 .71293 .70466 .69652 .68852
84.................................................. .77700 .76821 .75955 .75104 .74266 .73441 .72629 .71831 .71044 .70270
85.................................................. .78805 .77961 .77130 .76311 .75505 .74711 .73929 .73158 .72399 .71652
86.................................................. .79866 .79056 .78258 .77472 .76697 .75933 .75180 .74438 .73707 .72985
87.................................................. .80870 .80094 .79329 .78574 .77829 .77095 .76370 .75656 .74951 .74255
88.................................................. .81825 .81081 .80348 .79623 .78908 .78202 .77506 .76818 .76139 .75469
89.................................................. .82746 .82035 .81332 .80638 .79952 .79275 .78606 .77945 .77292 .76647
90.................................................. .83643 .82963 .82291 .81627 .80971 .80322 .79681 .79047 .78420 .77801
91.................................................. .84503 .83854 .83212 .82578 .81950 .81330 .80716 .80109 .79509 .78915
92.................................................. .85308 .84689 .84076 .83470 .82870 .82276 .81689 .81107 .80532 .79963
93.................................................. .86052 .85460 .84875 .84295 .83721 .83152 .82590 .82033 .81481 .80935
94.................................................. .86729 .86163 .85602 .85046 .84496 .83951 .83412 .82877 .82348 .81823
95.................................................. .87338 .86795 .86257 .85723 .85195 .84672 .84153 .83639 .83129 .82624
96.................................................. .87877 .87354 .86836 .86323 .85814 .85309 .84809 .84313 .83822 .83334
97.................................................. .88365 .87861 .87362 .86867 .86375 .85888 .85405 .84926 .84450 .83979
98.................................................. .88805 .88318 .87835 .87356 .86880 .86409 .85941 .85477 .85016 .84559
99.................................................. .89210 .88739 .88271 .87807 .87347 .86890 .86436 .85986 .85539 .85095
100................................................. .89588 .89131 .88678 .88227 .87780 .87337 .86896 .86459 .86024 .85593
101................................................. .89949 .89506 .89066 .88629 .88195 .87764 .87336 .86911 .86488 .86069
102................................................. .90325 .89897 .89471 .89047 .88627 .88209 .87794 .87381 .86971 .86564
103................................................. .90724 .90311 .89900 .89491 .89085 .88681 .88279 .87880 .87484 .87089
104................................................. .91167 .90770 .90376 .89983 .89593 .89205 .88819 .88435 .88053 .87673
105................................................. .91708 .91333 .90959 .90587 .90217 .89848 .89481 .89116 .88752 .88391
106................................................. .92470 .92126 .91782 .91440 .91100 .90760 .90422 .90085 .89749 .89414
107................................................. .93545 .93246 .92948 .92650 .92353 .92057 .91762 .91467 .91173 .90880
108................................................. .95239 .95016 .94792 .94569 .94346 .94123 .93900 .93678 .93456 .93234
109................................................. .97900 .97800 .97700 .97600 .97500 .97400 .97300 .97200 .97100 .97000
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 286]]
Table U(1)--Based on Life Table 80CNSMT Unitrust Single Life Remainder Factors
[Applicable After April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Age ---------------------------------------------------------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .03176 .03009 .02861 .02730 .02613 .02509 .02416 .02333 .02258 .02191
1................................................... .02110 .01936 .01781 .01644 .01522 .01413 .01316 .01229 .01150 .01080
2................................................... .02156 .01974 .01812 .01669 .01541 .01427 .01325 .01234 .01152 .01078
3................................................... .02233 .02043 .01875 .01725 .01591 .01471 .01364 .01268 .01182 .01105
4................................................... .02330 .02132 .01956 .01800 .01660 .01535 .01422 .01322 .01231 .01149
5................................................... .02443 .02237 .02054 .01890 .01743 .01612 .01494 .01389 .01293 .01208
6................................................... .02568 .02353 .02162 .01990 .01837 .01700 .01576 .01465 .01365 .01275
7................................................... .02704 .02480 .02280 .02102 .01941 .01798 .01668 .01552 .01446 .01351
8................................................... .02852 .02619 .02411 .02224 .02057 .01906 .01770 .01648 .01537 .01437
9................................................... .03014 .02772 .02554 .02360 .02184 .02027 .01885 .01756 .01640 .01535
10.................................................. .03190 .02938 .02711 .02508 .02325 .02160 .02012 .01877 .01755 .01645
11.................................................. .03381 .03119 .02883 .02672 .02481 .02308 .02153 .02012 .01884 .01768
12.................................................. .03585 .03313 .03068 .02847 .02648 .02468 .02305 .02157 .02023 .01902
13.................................................. .03798 .03515 .03260 .03030 .02822 .02635 .02464 .02310 .02170 .02042
14.................................................. .04012 .03718 .03453 .03213 .02997 .02801 .02623 .02462 .02315 .02181
15.................................................. .04225 .03919 .03644 .03395 .03169 .02965 .02779 .02611 .02457 .02317
16.................................................. .04436 .04120 .03833 .03574 .03339 .03126 .02932 .02756 .02595 .02449
17.................................................. .04647 .04319 .04021 .03752 .03507 .03285 .03082 .02898 .02730 .02577
18.................................................. .04860 .04519 .04210 .03930 .03675 .03443 .03232 .03040 .02864 .02703
19.................................................. .05079 .04725 .04404 .04113 .03847 .03606 .03386 .03185 .03001 .02833
20.................................................. .05304 .04938 .04604 .04301 .04025 .03773 .03543 .03333 .03141 .02965
21.................................................. .05537 .05157 .04811 .04495 .04208 .03945 .03705 .03486 .03285 .03101
22.................................................. .05779 .05385 .05025 .04698 .04398 .04125 .03874 .03645 .03435 .03242
23.................................................. .06032 .05623 .05250 .04910 .04598 .04313 .04052 .03812 .03592 .03390
24.................................................. .06302 .05878 .05491 .05136 .04812 .04515 .04242 .03992 .03762 .03550
25.................................................. .06589 .06150 .05748 .05380 .05042 .04733 .04448 .04187 .03946 .03725
26.................................................. .06897 .06442 .06025 .05643 .05292 .04969 .04673 .04400 .04148 .03916
27.................................................. .07228 .06757 .06325 .05928 .05563 .05227 .04917 .04632 .04369 .04126
28.................................................. .07582 .07094 .06646 .06234 .05854 .05504 .05182 .04884 .04609 .04355
29.................................................. .07958 .07454 .06990 .06562 .06167 .05804 .05468 .05157 .04870 .04604
30.................................................. .08360 .07838 .07357 .06913 .06504 .06125 .05775 .05452 .05152 .04874
31.................................................. .08788 .08249 .07751 .07291 .06866 .06472 .06108 .05771 .05457 .05167
32.................................................. .09242 .08685 .08170 .07694 .07252 .06844 .06465 .06113 .05786 .05483
33.................................................. .09724 .09149 .08617 .08124 .07666 .07242 .06848 .06482 .06141 .05824
34.................................................. .10234 .09641 .09091 .08581 .08107 .07667 .07257 .06876 .06521 .06191
35.................................................. .10773 .10161 .09594 .09066 .08575 .08119 .07694 .07298 .06928 .06583
36.................................................. .11338 .10708 .10122 .09577 .09070 .08597 .08156 .07744 .07360 .07001
37.................................................. .11932 .11283 .10680 .10117 .09592 .09102 .08645 .08217 .07818 .07444
38.................................................. .12554 .11887 .11265 .10685 .10142 .09636 .09162 .08719 .08304 .07915
39.................................................. .13206 .12521 .11880 .11282 .10722 .10198 .09708 .09249 .08818 .08414
40.................................................. .13888 .13184 .12526 .11909 .11332 .10791 .10284 .09808 .09361 .08942
41.................................................. .14601 .13878 .13201 .12567 .11972 .11414 .10890 .10398 .09935 .09499
42.................................................. .15342 .14601 .13906 .13254 .12641 .12066 .11525 .11016 .10537 .10086
43.................................................. .16112 .15353 .14640 .13970 .13340 .12747 .12189 .11663 .11168 .10701
44.................................................. .16913 .16136 .15406 .14718 .14070 .13460 .12885 .12342 .11830 .11347
45.................................................. .17745 .16951 .16202 .15497 .14832 .14204 .13612 .13053 .12525 .12025
46.................................................. .18608 .17796 .17030 .16308 .15625 .14981 .14372 .13796 .13251 .12735
47.................................................. .19501 .18673 .17890 .17150 .16451 .15790 .15164 .14571 .14010 .13478
48.................................................. .20425 .19579 .18780 .18024 .17308 .16630 .15987 .15378 .14800 .14252
49.................................................. .21375 .20514 .19698 .18926 .18193 .17499 .16840 .16214 .15620 .15056
50.................................................. .22352 .21476 .20644 .19856 .19107 .18396 .17721 .17080 .16470 .15890
51.................................................. .23358 .22467 .21620 .20816 .20051 .19325 .18634 .17976 .17350 .16755
52.................................................. .24396 .23490 .22628 .21809 .21030 .20288 .19581 .18908 .18267 .17655
53.................................................. .25465 .24545 .23670 .22836 .22042 .21285 .20563 .19875 .19218 .18592
54.................................................. .26563 .25631 .24742 .23895 .23086 .22315 .21579 .20876 .20204 .19562
55.................................................. .27692 .26747 .25846 .24986 .24164 .23379 .22628 .21911 .21225 .20568
56.................................................. .28850 .27895 .26982 .26109 .25275 .24476 .23712 .22981 .22281 .21611
57.................................................. .30041 .29076 .28152 .27267 .26421 .25610 .24833 .24089 .23376 .22691
58.................................................. .31263 .30288 .29355 .28460 .27602 .26780 .25991 .25234 .24508 .23811
59.................................................. .32515 .31532 .30590 .29685 .28817 .27984 .27184 .26416 .25677 .24968
60.................................................. .33793 .32803 .31853 .30940 .30062 .29219 .28409 .27630 .26880 .26159
61.................................................. .35093 .34098 .33141 .32220 .31335 .30483 .29663 .28873 .28113 .27381
62.................................................. .36414 .35414 .34451 .33524 .32631 .31771 .30942 .30144 .29374 .28631
63.................................................. .37754 .36750 .35783 .34850 .33951 .33084 .32247 .31440 .30661 .29910
64.................................................. .39115 .38108 .37137 .36200 .35296 .34422 .33579 .32765 .31978 .31217
65.................................................. .40500 .39493 .38519 .37579 .36670 .35792 .34943 .34122 .33328 .32560
66.................................................. .41914 .40906 .39932 .38990 .38079 .37197 .36343 .35517 .34717 .33943
67.................................................. .43355 .42350 .41376 .40434 .39521 .38636 .37780 .36950 .36145 .35365
68.................................................. .44824 .43822 .42851 .41909 .40996 .40111 .39252 .38419 .37611 .36827
[[Page 287]]
69.................................................. .46313 .45316 .44348 .43409 .42498 .41613 .40754 .39919 .39109 .38322
70.................................................. .47818 .46827 .45864 .44929 .44020 .43137 .42279 .41445 .40634 .39845
71.................................................. .49331 .48348 .47391 .46461 .45557 .44677 .43821 .42988 .42177 .41388
72.................................................. .50853 .49879 .48930 .48007 .47108 .46233 .45380 .44550 .43741 .42952
73.................................................. .52384 .51421 .50482 .49566 .48674 .47805 .46957 .46130 .45324 .44538
74.................................................. .53930 .52979 .52050 .51145 .50261 .49399 .48557 .47736 .46934 .46152
75.................................................. .55495 .54557 .53641 .52747 .51873 .51020 .50187 .49372 .48577 .47799
76.................................................. .57079 .56157 .55256 .54374 .53513 .52670 .51847 .51041 .50253 .49483
77.................................................. .58680 .57775 .56890 .56024 .55176 .54346 .53534 .52739 .51960 .51198
78.................................................. .60291 .59405 .58537 .57687 .56855 .56040 .55241 .54458 .53691 .52940
79.................................................. .61898 .61032 .60184 .59353 .58537 .57738 .56954 .56185 .55431 .54691
80.................................................. .63491 .62647 .61819 .61007 .60210 .59428 .58660 .57907 .57167 .56441
81.................................................. .65054 .64234 .63427 .62636 .61858 .61094 .60344 .59606 .58882 .58170
82.................................................. .66582 .65784 .65000 .64229 .63472 .62727 .61994 .61274 .60566 .59870
83.................................................. .68065 .67291 .66530 .65781 .65044 .64319 .63605 .62903 .62212 .61532
84.................................................. .69508 .68758 .68020 .67293 .66577 .65872 .65178 .64495 .63821 .63158
85.................................................. .70915 .70190 .69475 .68770 .68076 .67392 .66718 .66054 .65399 .64754
86.................................................. .72274 .71573 .70882 .70200 .69528 .68865 .68212 .67567 .66931 .66304
87.................................................. .73569 .72892 .72224 .71565 .70915 .70273 .69639 .69014 .68397 .67788
88.................................................. .74807 .74154 .73509 .72872 .72243 .71622 .71009 .70403 .69805 .69214
89.................................................. .76010 .75381 .74759 .74144 .73537 .72937 .72344 .71758 .71179 .70607
90.................................................. .77189 .76584 .75985 .75394 .74809 .74230 .73659 .73093 .72534 .71981
91.................................................. .78327 .77746 .77171 .76603 .76040 .75484 .74933 .74388 .73850 .73316
92.................................................. .79399 .78841 .78289 .77743 .77202 .76667 .76137 .75613 .75093 .74579
93.................................................. .80394 .79858 .79328 .78803 .78283 .77768 .77258 .76753 .76252 .75757
94.................................................. .81303 .80788 .80278 .79773 .79272 .78776 .78284 .77797 .77315 .76837
95.................................................. .82124 .81628 .81136 .80649 .80166 .79687 .79213 .78742 .78276 .77814
96.................................................. .82851 .82372 .81897 .81426 .80959 .80496 .80036 .79581 .79129 .78682
97.................................................. .83512 .83048 .82588 .82132 .81679 .81230 .80785 .80343 .79905 .79471
98.................................................. .84106 .83656 .83210 .82767 .82328 .81892 .81459 .81030 .80604 .80181
99.................................................. .84655 .84218 .83785 .83354 .82927 .82503 .82082 .81664 .81249 .80837
100................................................. .85165 .84740 .84318 .83899 .83483 .83070 .82660 .82252 .81848 .81446
101................................................. .85652 .85238 .84827 .84419 .84013 .83611 .83210 .82813 .82418 .82026
102................................................. .86159 .85757 .85358 .84960 .84566 .84174 .83784 .83397 .83012 .82630
103................................................. .86697 .86307 .85920 .85535 .85152 .84771 .84392 .84016 .83642 .83270
104................................................. .87295 .86919 .86544 .86172 .85802 .85434 .85068 .84704 .84341 .83981
105................................................. .88030 .87672 .87315 .86959 .86605 .86253 .85903 .85554 .85207 .84861
106................................................. .89081 .88749 .88418 .88088 .87760 .87433 .87106 .86782 .86458 .86135
107................................................. .90588 .90296 .90005 .89715 .89425 .89137 .88849 .88561 .88275 .87989
108................................................. .93013 .92791 .92570 .92350 .92129 .91909 .91689 .91469 .91250 .91031
109................................................. .96900 .96800 .96700 .96600 .96500 .96400 .96300 .96200 .96100 .96000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 80CNSMT Unitrust Single Life Remainder Factors
[Applicable after APRIL 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Age ---------------------------------------------------------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .02130 .02075 .02025 .01980 .01939 .01901 .01867 .01835 .01806 .01779
1................................................... .01017 .00960 .00908 .00861 .00819 .00780 .00745 .00712 .00683 .00655
2................................................... .01011 .00951 .00897 .00848 .00803 .00762 .00725 .00690 .00659 .00630
3................................................... .01035 .00971 .00914 .00862 .00815 .00771 .00732 .00696 .00663 .00632
4................................................... .01076 .01009 .00948 .00894 .00843 .00798 .00756 .00718 .00683 .00650
5................................................... .01130 .01059 .00996 .00938 .00885 .00836 .00792 .00752 .00714 .00680
6................................................... .01193 .01119 .01051 .00990 .00934 .00883 .00836 .00793 .00754 .00717
7................................................... .01265 .01187 .01116 .01051 .00992 .00938 .00888 .00842 .00800 .00762
8................................................... .01347 .01264 .01189 .01121 .01058 .01001 .00948 .00900 .00856 .00815
9................................................... .01440 .01353 .01274 .01201 .01135 .01075 .01019 .00968 .00921 .00877
10.................................................. .01544 .01453 .01369 .01293 .01223 .01159 .01101 .01046 .00997 .00950
11.................................................. .01662 .01566 .01478 .01398 .01324 .01257 .01195 .01137 .01085 .01036
12.................................................. .01791 .01690 .01597 .01513 .01435 .01364 .01298 .01238 .01182 .01131
13.................................................. .01926 .01820 .01722 .01634 .01552 .01477 .01408 .01344 .01285 .01231
14.................................................. .02059 .01948 .01846 .01752 .01667 .01588 .01515 .01448 .01386 .01328
15.................................................. .02189 .02072 .01965 .01867 .01777 .01694 .01617 .01547 .01481 .01421
16.................................................. .02315 .02192 .02080 .01977 .01882 .01795 .01714 .01640 .01572 .01508
17.................................................. .02436 .02308 .02190 .02082 .01982 .01891 .01806 .01728 .01656 .01589
[[Page 288]]
18.................................................. .02556 .02422 .02298 .02184 .02080 .01983 .01894 .01812 .01736 .01665
19.................................................. .02679 .02537 .02408 .02288 .02178 .02077 .01983 .01897 .01817 .01742
20.................................................. .02804 .02656 .02519 .02394 .02278 .02172 .02073 .01982 .01898 .01819
21.................................................. .02932 .02776 .02633 .02501 .02380 .02268 .02164 .02068 .01979 .01896
22.................................................. .03065 .02902 .02751 .02613 .02485 .02367 .02258 .02157 .02063 .01976
23.................................................. .03204 .03033 .02876 .02730 .02595 .02471 .02356 .02249 .02150 .02058
24.................................................. .03356 .03176 .03010 .02857 .02716 .02585 .02463 .02351 .02246 .02149
25.................................................. .03520 .03332 .03158 .02997 .02848 .02710 .02582 .02463 .02352 .02249
26.................................................. .03702 .03504 .03321 .03152 .02995 .02850 .02714 .02589 .02472 .02363
27.................................................. .03902 .03695 .03502 .03324 .03159 .03006 .02863 .02730 .02607 .02492
28.................................................. .04120 .03902 .03700 .03513 .03339 .03178 .03027 .02887 .02757 .02635
29.................................................. .04358 .04129 .03917 .03720 .03537 .03367 .03208 .03061 .02923 .02794
30.................................................. .04616 .04376 .04154 .03947 .03754 .03575 .03408 .03251 .03106 .02969
31.................................................. .04897 .04646 .04413 .04195 .03993 .03804 .03627 .03463 .03309 .03165
32.................................................. .05200 .04938 .04693 .04465 .04252 .04053 .03867 .03693 .03531 .03378
33.................................................. .05529 .05254 .04998 .04758 .04534 .04325 .04130 .03946 .03775 .03614
34.................................................. .05883 .05595 .05326 .05075 .04840 .04620 .04414 .04221 .04040 .03870
35.................................................. .06262 .05961 .05680 .05417 .05170 .04939 .04723 .04520 .04329 .04149
36.................................................. .06665 .06351 .06057 .05781 .05523 .05280 .05053 .04839 .04638 .04449
37.................................................. .07094 .06766 .06459 .06171 .05900 .05646 .05407 .05182 .04971 .04771
38.................................................. .07550 .07208 .06888 .06586 .06303 .06037 .05786 .05550 .05327 .05118
39.................................................. .08034 .07678 .07344 .07029 .06733 .06454 .06191 .05943 .05709 .05489
40.................................................. .08547 .08177 .07828 .07499 .07190 .06898 .06623 .06363 .06118 .05886
41.................................................. .09090 .08704 .08341 .07998 .07675 .07371 .07083 .06811 .06553 .06310
42.................................................. .09661 .09260 .08882 .08525 .08188 .07870 .07569 .07284 .07015 .06760
43.................................................. .10260 .09844 .09451 .09080 .08729 .08397 .08083 .07785 .07503 .07236
44.................................................. .10891 .10459 .10051 .09666 .09300 .08954 .08626 .08316 .08021 .07741
45.................................................. .11553 .11106 .10683 .10282 .09902 .09542 .09201 .08876 .08568 .08276
46.................................................. .12247 .11784 .11346 .10930 .10536 .10161 .09806 .09468 .09146 .08841
47.................................................. .12974 .12496 .12042 .11611 .11202 .10813 .10443 .10091 .09756 .09438
48.................................................. .13732 .13238 .12769 .12323 .11899 .11495 .11111 .10745 .10397 .10065
49.................................................. .14520 .14011 .13526 .13064 .12625 .12207 .11809 .11429 .11066 .10721
50.................................................. .15338 .14812 .14312 .13836 .13381 .12948 .12535 .12141 .11765 .11405
51.................................................. .16187 .15646 .15130 .14639 .14169 .13721 .13294 .12885 .12495 .12121
52.................................................. .17072 .16516 .15985 .15478 .14993 .14531 .14088 .13665 .13261 .12873
53.................................................. .17993 .17422 .16876 .16353 .15854 .15377 .14920 .14482 .14064 .13662
54.................................................. .18949 .18362 .17801 .17264 .16750 .16258 .15787 .15335 .14902 .14486
55.................................................. .19940 .19339 .18763 .18212 .17683 .17176 .16690 .16224 .15777 .15348
56.................................................. .20968 .20353 .19762 .19196 .18654 .18132 .17632 .17152 .16691 .16247
57.................................................. .22035 .21406 .20802 .20222 .19665 .19129 .18615 .18121 .17646 .17189
58.................................................. .23142 .22499 .21881 .21287 .20717 .20168 .19640 .19132 .18643 .18172
59.................................................. .24286 .23630 .23000 .22393 .21809 .21247 .20705 .20184 .19682 .19198
60.................................................. .25465 .24797 .24154 .23534 .22938 .22363 .21808 .21274 .20759 .20262
61.................................................. .26676 .25996 .25341 .24710 .24101 .23513 .22946 .22399 .21871 .21361
62.................................................. .27916 .27225 .26559 .25916 .25295 .24695 .24117 .23557 .23017 .22495
63.................................................. .29184 .28483 .27806 .27152 .26520 .25909 .25319 .24748 .24196 .23661
64.................................................. .30483 .29772 .29085 .28421 .27779 .27157 .26555 .25973 .25409 .24863
65.................................................. .31817 .31098 .30402 .29729 .29076 .28444 .27832 .27240 .26665 .26108
66.................................................. .33192 .32466 .31762 .31079 .30418 .29777 .29155 .28552 .27968 .27400
67.................................................. .34609 .33876 .33164 .32474 .31805 .31156 .30525 .29913 .29319 .28742
68.................................................. .36066 .35328 .34610 .33914 .33238 .32581 .31943 .31323 .30720 .30134
69.................................................. .37558 .36815 .36093 .35391 .34709 .34045 .33400 .32773 .32163 .31569
70.................................................. .39078 .38332 .37606 .36900 .36213 .35545 .34894 .34260 .33643 .33042
71.................................................. .40620 .39872 .39144 .38435 .37744 .37071 .36415 .35776 .35153 .34547
72.................................................. .42184 .41435 .40706 .39994 .39301 .38625 .37965 .37322 .36694 .36082
73.................................................. .43771 .43023 .42293 .41581 .40886 .40207 .39545 .38899 .38267 .37651
74.................................................. .45387 .44641 .43912 .43201 .42505 .41826 .41163 .40514 .39881 .39261
75.................................................. .47039 .46296 .45570 .44861 .44167 .43488 .42824 .42175 .41541 .40920
76.................................................. .48729 .47991 .47269 .46563 .45872 .45196 .44534 .43886 .43251 .42630
77.................................................. .50452 .49722 .49006 .48305 .47619 .46946 .46287 .45642 .45009 .44389
78.................................................. .52203 .51481 .50773 .50079 .49399 .48732 .48078 .47437 .46808 .46191
79.................................................. .53966 .53254 .52556 .51870 .51198 .50538 .49891 .49255 .48632 .48019
80.................................................. .55728 .55028 .54340 .53665 .53002 .52351 .51712 .51083 .50466 .49860
81.................................................. .57471 .56784 .56109 .55445 .54792 .54151 .53521 .52901 .52292 .51692
82.................................................. .59186 .58512 .57850 .57199 .56558 .55927 .55307 .54697 .54097 .53506
83.................................................. .60863 .60204 .59556 .58918 .58289 .57671 .57062 .56462 .55872 .55290
84.................................................. .62505 .61862 .61228 .60604 .59989 .59383 .58786 .58198 .57618 .57047
85.................................................. .64118 .63491 .62873 .62263 .61663 .61070 .60486 .59911 .59343 .58783
[[Page 289]]
86.................................................. .65685 .65075 .64473 .63879 .63294 .62716 .62145 .61583 .61027 .60479
87.................................................. .67187 .66594 .66008 .65430 .64859 .64296 .63739 .63190 .62647 .62112
88.................................................. .68631 .68054 .67485 .66923 .66367 .65818 .65276 .64740 .64211 .63688
89.................................................. .70042 .69483 .68930 .68384 .67845 .67311 .66784 .66262 .65747 .65237
90.................................................. .71434 .70894 .70359 .69830 .69307 .68790 .68278 .67772 .67271 .66775
91.................................................. .72789 .72266 .71750 .71239 .70733 .70232 .69736 .69246 .68760 .68280
92.................................................. .74070 .73567 .73068 .72574 .72085 .71601 .71121 .70647 .70176 .69711
93.................................................. .75266 .74780 .74298 .73821 .73348 .72880 .72417 .71957 .71502 .71051
94.................................................. .76363 .75893 .75428 .74967 .74510 .74057 .73608 .73163 .72722 .72285
95.................................................. .77356 .76901 .76451 .76005 .75562 .75123 .74688 .74257 .73829 .73405
96.................................................. .78237 .77797 .77360 .76927 .76497 .76071 .75648 .75229 .74813 .74401
97.................................................. .79039 .78612 .78187 .77766 .77348 .76934 .76523 .76115 .75710 .75308
98.................................................. .79762 .79345 .78932 .78522 .78115 .77711 .77310 .76913 .76518 .76126
99.................................................. .80429 .80023 .79620 .79220 .78823 .78429 .78038 .77649 .77264 .76881
100................................................. .81047 .80651 .80258 .79867 .79479 .79094 .78712 .78332 .77955 .77580
101................................................. .81636 .81249 .80865 .80483 .80104 .79727 .79352 .78981 .78611 .78244
102................................................. .82250 .81872 .81497 .81124 .80754 .80386 .80020 .79656 .79295 .78936
103................................................. .82900 .82532 .82167 .81804 .81442 .81083 .80726 .80371 .80018 .79667
104................................................. .83622 .83266 .82911 .82558 .82207 .81858 .81510 .81165 .80821 .80479
105................................................. .84517 .84174 .83833 .83494 .83156 .82819 .82485 .82151 .81820 .81489
106................................................. .85814 .85494 .85175 .84857 .84540 .84225 .83911 .83598 .83286 .82975
107................................................. .87704 .87420 .87136 .86853 .86571 .86290 .86009 .85729 .85450 .85171
108................................................. .90812 .90593 .90375 .90156 .89939 .89721 .89504 .89286 .89070 .88853
109................................................. .95900 .95800 .95700 .95600 .95500 .95400 .95300 .95200 .95100 .95000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 80CNSMT Unitrust Single Life Remainder Factors
[Applicable after APRIL 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Age ---------------------------------------------------------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0% 11.2% 11.4% 11.6% 11.8% 12.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .01754 .01731 .01710 .01690 .01671 .01654 .01638 .01622 .01608 .01594
1................................................... .00630 .00607 .00585 .00565 .00547 .00530 .00514 .00499 .00485 .00472
2................................................... .00604 .00579 .00557 .00536 .00516 .00498 .00481 .00465 .00451 .00437
3................................................... .00604 .00578 .00554 .00532 .00511 .00492 .00474 .00458 .00442 .00427
4................................................... .00621 .00593 .00568 .00544 .00522 .00502 .00483 .00465 .00448 .00433
5................................................... .00648 .00619 .00592 .00567 .00544 .00522 .00502 .00483 .00465 .00449
6................................................... .00684 .00653 .00624 .00597 .00572 .00549 .00528 .00507 .00489 .00471
7................................................... .00726 .00693 .00663 .00634 .00608 .00583 .00560 .00539 .00518 .00499
8................................................... .00777 .00742 .00709 .00679 .00651 .00624 .00600 .00577 .00555 .00535
9................................................... .00837 .00800 .00765 .00733 .00703 .00675 .00649 .00625 .00602 .00580
10.................................................. .00908 .00868 .00832 .00797 .00765 .00736 .00708 .00682 .00657 .00634
11.................................................. .00991 .00949 .00910 .00874 .00840 .00808 .00779 .00751 .00725 .00700
12.................................................. .01083 .01039 .00997 .00959 .00923 .00890 .00858 .00829 .00801 .00775
13.................................................. .01181 .01134 .01090 .01049 .01012 .00976 .00943 .00912 .00883 .00855
14.................................................. .01275 .01226 .01180 .01137 .01097 .01060 .01025 .00992 .00961 .00932
15.................................................. .01365 .01313 .01264 .01219 .01177 .01138 .01101 .01066 .01034 .01003
16.................................................. .01449 .01394 .01343 .01295 .01251 .01209 .01171 .01134 .01100 .01068
17.................................................. .01526 .01469 .01415 .01365 .01318 .01274 .01233 .01195 .01159 .01125
18.................................................. .01600 .01539 .01482 .01430 .01380 .01334 .01291 .01251 .01213 .01177
19.................................................. .01673 .01609 .01550 .01494 .01442 .01393 .01348 .01305 .01265 .01227
20.................................................. .01747 .01679 .01616 .01557 .01502 .01451 .01403 .01358 .01316 .01276
21.................................................. .01820 .01748 .01682 .01620 .01562 .01508 .01457 .01409 .01365 .01323
22.................................................. .01895 .01819 .01749 .01683 .01622 .01565 .01511 .01461 .01414 .01369
23.................................................. .01972 .01893 .01818 .01749 .01684 .01624 .01567 .01514 .01464 .01417
24.................................................. .02058 .01974 .01895 .01822 .01753 .01689 .01629 .01572 .01519 .01469
25.................................................. .02154 .02064 .01981 .01903 .01830 .01762 .01698 .01638 .01582 .01529
26.................................................. .02262 .02167 .02079 .01996 .01919 .01847 .01779 .01715 .01655 .01599
27.................................................. .02385 .02284 .02191 .02103 .02021 .01944 .01872 .01804 .01740 .01680
28.................................................. .02521 .02415 .02316 .02222 .02135 .02053 .01977 .01904 .01836 .01772
29.................................................. .02673 .02561 .02455 .02357 .02264 .02177 .02095 .02018 .01946 .01877
30.................................................. .02842 .02723 .02611 .02506 .02407 .02315 .02227 .02146 .02068 .01996
31.................................................. .03030 .02903 .02784 .02673 .02568 .02470 .02377 .02290 .02207 .02130
32.................................................. .03235 .03101 .02976 .02857 .02746 .02641 .02543 .02450 .02362 .02279
33.................................................. .03463 .03321 .03188 .03062 .02944 .02833 .02728 .02629 .02535 .02447
34.................................................. .03711 .03561 .03419 .03286 .03161 .03043 .02931 .02826 .02726 .02632
[[Page 290]]
35.................................................. .03981 .03822 .03672 .03531 .03398 .03273 .03154 .03042 .02936 .02836
36.................................................. .04271 .04103 .03945 .03796 .03655 .03522 .03396 .03277 .03164 .03057
37.................................................. .04584 .04407 .04239 .04081 .03932 .03791 .03657 .03531 .03411 .03297
38.................................................. .04920 .04733 .04556 .04389 .04231 .04082 .03940 .03806 .03679 .03558
39.................................................. .05280 .05083 .04897 .04721 .04554 .04396 .04246 .04103 .03968 .03840
40.................................................. .05667 .05459 .05263 .05077 .04901 .04733 .04575 .04424 .04280 .04144
41.................................................. .06080 .05861 .05655 .05459 .05272 .05096 .04928 .04768 .04617 .04472
42.................................................. .06518 .06289 .06071 .05864 .05668 .05482 .05305 .05136 .04975 .04822
43.................................................. .06982 .06742 .06513 .06296 .06089 .05893 .05706 .05528 .05358 .05196
44.................................................. .07475 .07223 .06983 .06754 .06537 .06330 .06133 .05945 .05766 .05595
45.................................................. .07998 .07733 .07481 .07242 .07014 .06796 .06588 .06390 .06202 .06021
46.................................................. .08550 .08273 .08010 .07758 .07519 .07290 .07072 .06864 .06665 .06474
47.................................................. .09134 .08845 .08569 .08306 .08055 .07815 .07586 .07367 .07157 .06957
48.................................................. .09748 .09446 .09158 .08882 .08619 .08368 .08128 .07898 .07678 .07467
49.................................................. .10391 .10076 .09775 .09487 .09212 .08949 .08697 .08456 .08225 .08003
50.................................................. .11062 .10734 .10420 .10120 .09832 .09557 .09293 .09041 .08798 .08566
51.................................................. .11764 .11423 .11096 .10783 .10483 .10195 .09919 .09655 .09401 .09158
52.................................................. .12503 .12148 .11807 .11481 .11168 .10868 .10581 .10304 .10039 .09784
53.................................................. .13278 .12909 .12556 .12216 .11891 .11578 .11278 .10989 .10712 .10445
54.................................................. .14088 .13706 .13339 .12986 .12648 .12322 .12009 .11709 .11419 .11141
55.................................................. .14936 .14540 .14159 .13793 .13442 .13103 .12778 .12464 .12163 .11872
56.................................................. .15821 .15412 .15018 .14639 .14274 .13923 .13584 .13258 .12944 .12642
57.................................................. .16749 .16326 .15918 .15526 .15148 .14784 .14433 .14094 .13768 .13453
58.................................................. .17719 .17282 .16862 .16456 .16065 .15688 .15324 .14973 .14634 .14306
59.................................................. .18731 .18281 .17847 .17429 .17025 .16634 .16258 .15894 .15543 .15203
60.................................................. .19782 .19319 .18872 .18440 .18023 .17621 .17231 .16855 .16491 .16139
61.................................................. .20869 .20393 .19934 .19489 .19060 .18644 .18242 .17854 .17477 .17113
62.................................................. .21990 .21502 .21029 .20573 .20131 .19703 .19289 .18887 .18499 .18123
63.................................................. .23144 .22644 .22159 .21690 .21236 .20796 .20370 .19956 .19556 .19167
64.................................................. .24335 .23823 .23326 .22845 .22379 .21927 .21489 .21063 .20651 .20250
65.................................................. .25568 .25045 .24537 .24044 .23566 .23103 .22653 .22216 .21791 .21379
66.................................................. .26850 .26316 .25797 .25293 .24804 .24329 .23868 .23420 .22984 .22560
67.................................................. .28182 .27637 .27108 .26594 .26095 .25609 .25137 .24678 .24231 .23797
68.................................................. .29565 .29011 .28472 .27949 .27439 .26943 .26461 .25991 .25534 .25089
69.................................................. .30991 .30429 .29882 .29349 .28830 .28325 .27833 .27354 .26887 .26432
70.................................................. .32457 .31887 .31332 .30791 .30264 .29750 .29249 .28760 .28284 .27820
71.................................................. .33955 .33378 .32816 .32267 .31732 .31210 .30701 .30204 .29719 .29246
72.................................................. .35485 .34902 .34333 .33778 .33236 .32707 .32190 .31686 .31193 .30711
73.................................................. .37049 .36461 .35887 .35326 .34778 .34242 .33719 .33207 .32707 .32218
74.................................................. .38656 .38064 .37485 .36920 .36366 .35825 .35296 .34778 .34272 .33776
75.................................................. .40312 .39717 .39136 .38566 .38009 .37464 .36930 .36407 .35895 .35394
76.................................................. .42022 .41426 .40842 .40271 .39711 .39163 .38625 .38099 .37583 .37077
77.................................................. .43782 .43187 .42603 .42031 .41470 .40920 .40380 .39851 .39332 .38823
78.................................................. .45586 .44992 .44410 .43839 .43278 .42728 .42188 .41658 .41138 .40627
79.................................................. .47418 .46828 .46248 .45679 .45120 .44572 .44033 .43503 .42983 .42472
80.................................................. .49264 .48679 .48103 .47538 .46982 .46436 .45900 .45372 .44853 .44343
81.................................................. .51103 .50524 .49954 .49394 .48843 .48301 .47768 .47243 .46727 .46219
82.................................................. .52925 .52352 .51789 .51235 .50690 .50153 .49624 .49104 .48591 .48087
83.................................................. .54718 .54154 .53598 .53051 .52512 .51981 .51459 .50943 .50436 .49936
84.................................................. .56484 .55930 .55383 .54844 .54313 .53789 .53273 .52764 .52262 .51767
85.................................................. .58231 .57686 .57149 .56619 .56096 .55581 .55072 .54571 .54076 .53588
86.................................................. .59939 .59405 .58878 .58358 .57845 .57339 .56839 .56346 .55858 .55377
87.................................................. .61583 .61061 .60545 .60035 .59532 .59035 .58545 .58060 .57581 .57108
88.................................................. .63171 .62661 .62156 .61658 .61165 .60678 .60196 .59721 .59251 .58786
89.................................................. .64733 .64235 .63742 .63255 .62774 .62298 .61827 .61361 .60900 .60444
90.................................................. .66285 .65801 .65321 .64847 .64377 .63913 .63453 .62998 .62548 .62103
91.................................................. .67804 .67334 .66868 .66407 .65950 .65498 .65050 .64607 .64169 .63735
92.................................................. .69250 .68793 .68341 .67893 .67450 .67011 .66575 .66144 .65718 .65295
93.................................................. .70604 .70162 .69723 .69288 .68858 .68431 .68008 .67589 .67174 .66762
94.................................................. .71852 .71422 .70997 .70575 .70156 .69742 .69331 .68923 .68519 .68119
95.................................................. .72984 .72567 .72154 .71744 .71337 .70934 .70534 .70137 .69744 .69354
96.................................................. .73992 .73586 .73183 .72784 .72388 .71995 .71605 .71218 .70835 .70454
97.................................................. .74910 .74514 .74122 .73733 .73346 .72963 .72582 .72205 .71830 .71458
98.................................................. .75737 .75351 .74967 .74587 .74209 .73835 .73463 .73093 .72727 .72363
99.................................................. .76501 .76123 .75748 .75376 .75007 .74640 .74276 .73914 .73555 .73198
100................................................. .77208 .76838 .76471 .76107 .75745 .75385 .75028 .74673 .74321 .73971
101................................................. .77879 .77517 .77157 .76800 .76444 .76092 .75741 .75392 .75046 .74702
102................................................. .78579 .78224 .77871 .77521 .77173 .76827 .76483 .76141 .75801 .75463
[[Page 291]]
103................................................. .79318 .78971 .78626 .78283 .77942 .77604 .77266 .76931 .76598 .76267
104................................................. .80139 .79801 .79464 .79129 .78796 .78465 .78136 .77808 .77482 .77157
105................................................. .81161 .80834 .80508 .80184 .79861 .79540 .79220 .78902 .78585 .78270
106................................................. .82665 .82357 .82049 .81743 .81438 .81134 .80831 .80530 .80229 .79930
107................................................. .84893 .84616 .84340 .84064 .83789 .83515 .83241 .82969 .82696 .82425
108................................................. .88637 .88421 .88205 .87989 .87774 .87559 .87344 .87129 .86915 .86701
109................................................. .94900 .94800 .94700 .94600 .94500 .94400 .94300 .94200 .94100 .94000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 80CNSMT Unitrust Single Life Remainder Factors
[Applicable after April 30, 1989]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted payout rate
Age ---------------------------------------------------------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0% 13.2% 13.4% 13.6% 13.8% 14.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................................... .01581 .01569 .01557 .01546 .01536 .01526 .01516 .01507 .01499 .01490
1................................................... .00459 .00448 .00437 .00426 .00417 .00407 .00399 .00390 .00382 .00375
2................................................... .00424 .00412 .00400 .00389 .00379 .00369 .00360 .00352 .00343 .00335
3................................................... .00414 .00401 .00389 .00377 .00366 .00356 .00346 .00337 .00328 .00320
4................................................... .00418 .00404 .00391 .00379 .00368 .00357 .00347 .00337 .00327 .00319
5................................................... .00433 .00418 .00405 .00391 .00379 .00368 .00357 .00346 .00336 .00327
6................................................... .00454 .00439 .00424 .00410 .00397 .00384 .00372 .00361 .00351 .00341
7................................................... .00482 .00465 .00449 .00434 .00420 .00407 .00394 .00382 .00371 .00360
8................................................... .00516 .00498 .00481 .00465 .00450 .00436 .00422 .00410 .00397 .00386
9................................................... .00560 .00541 .00523 .00505 .00489 .00474 .00459 .00446 .00433 .00420
10.................................................. .00613 .00592 .00573 .00555 .00537 .00521 .00505 .00491 .00477 .00463
11.................................................. .00677 .00655 .00635 .00615 .00597 .00580 .00563 .00547 .00532 .00518
12.................................................. .00751 .00728 .00706 .00685 .00666 .00647 .00629 .00613 .00597 .00581
13.................................................. .00829 .00805 .00782 .00760 .00739 .00719 .00701 .00683 .00666 .00650
14.................................................. .00905 .00879 .00854 .00831 .00809 .00789 .00769 .00750 .00732 .00715
15.................................................. .00974 .00947 .00921 .00897 .00874 .00852 .00831 .00811 .00793 .00775
16.................................................. .01037 .01009 .00982 .00956 .00932 .00909 .00887 .00866 .00846 .00827
17.................................................. .01093 .01063 .01034 .01007 .00982 .00958 .00935 .00913 .00892 .00873
18.................................................. .01143 .01112 .01082 .01053 .01027 .01001 .00977 .00954 .00933 .00912
19.................................................. .01192 .01159 .01127 .01097 .01069 .01043 .01017 .00993 .00970 .00949
20.................................................. .01239 .01204 .01170 .01139 .01109 .01081 .01055 .01029 .01005 .00983
21.................................................. .01283 .01246 .01211 .01178 .01147 .01117 .01089 .01063 .01037 .01013
22.................................................. .01328 .01288 .01251 .01216 .01183 .01152 .01122 .01094 .01067 .01042
23.................................................. .01372 .01331 .01292 .01254 .01219 .01186 .01155 .01125 .01097 .01070
24.................................................. .01422 .01378 .01336 .01297 .01260 .01225 .01191 .01160 .01130 .01101
25.................................................. .01479 .01432 .01388 .01346 .01306 .01269 .01233 .01200 .01168 .01138
26.................................................. .01545 .01495 .01448 .01404 .01362 .01322 .01284 .01248 .01214 .01182
27.................................................. .01623 .01570 .01520 .01472 .01427 .01385 .01344 .01306 .01270 .01235
28.................................................. .01712 .01655 .01601 .01551 .01503 .01457 .01414 .01373 .01334 .01298
29.................................................. .01813 .01752 .01695 .01641 .01589 .01541 .01494 .01451 .01409 .01370
30.................................................. .01927 .01862 .01801 .01743 .01688 .01635 .01586 .01539 .01495 .01452
31.................................................. .02056 .01987 .01922 .01859 .01801 .01745 .01692 .01642 .01594 .01548
32.................................................. .02201 .02127 .02057 .01990 .01927 .01868 .01811 .01757 .01706 .01657
33.................................................. .02363 .02284 .02209 .02138 .02071 .02007 .01946 .01888 .01833 .01781
34.................................................. .02543 .02458 .02378 .02302 .02230 .02162 .02096 .02034 .01975 .01919
35.................................................. .02741 .02651 .02565 .02484 .02407 .02333 .02264 .02197 .02134 .02073
36.................................................. .02956 .02859 .02768 .02681 .02599 .02520 .02446 .02374 .02307 .02242
37.................................................. .03189 .03087 .02990 .02897 .02809 .02725 .02645 .02569 .02496 .02427
38.................................................. .03443 .03334 .03230 .03131 .03037 .02948 .02862 .02781 .02703 .02628
39.................................................. .03718 .03602 .03491 .03386 .03285 .03190 .03099 .03011 .02928 .02849
40.................................................. .04015 .03891 .03774 .03662 .03555 .03453 .03355 .03262 .03173 .03088
41.................................................. .04335 .04204 .04079 .03959 .03846 .03737 .03633 .03534 .03439 .03348
42.................................................. .04677 .04538 .04405 .04278 .04157 .04042 .03931 .03825 .03724 .03627
43.................................................. .05042 .04894 .04754 .04619 .04491 .04368 .04250 .04138 .04030 .03926
44.................................................. .05432 .05276 .05127 .04984 .04848 .04718 .04593 .04473 .04358 .04248
45.................................................. .05849 .05684 .05526 .05375 .05231 .05092 .04960 .04832 .04710 .04593
46.................................................. .06292 .06118 .05952 .05792 .05639 .05492 .05352 .05217 .05087 .04963
47.................................................. .06765 .06581 .06405 .06237 .06075 .05920 .05771 .05628 .05491 .05359
48.................................................. .07265 .07071 .06886 .06708 .06537 .06373 .06216 .06064 .05919 .05779
49.................................................. .07791 .07587 .07392 .07204 .07024 .06851 .06685 .06525 .06371 .06223
50.................................................. .08343 .08129 .07923 .07726 .07536 .07354 .07178 .07009 .06847 .06690
51.................................................. .08924 .08699 .08483 .08276 .08076 .07884 .07699 .07520 .07349 .07183
[[Page 292]]
52.................................................. .09539 .09303 .09076 .08858 .08648 .08446 .08251 .08064 .07883 .07708
53.................................................. .10189 .09942 .09704 .09475 .09255 .09043 .08838 .08640 .08450 .08266
54.................................................. .10872 .10614 .10365 .10126 .09894 .09672 .09456 .09249 .09049 .08855
55.................................................. .11592 .11322 .11062 .10811 .10569 .10335 .10110 .09892 .09682 .09478
56.................................................. .12350 .12068 .11796 .11534 .11281 .11036 .10800 .10571 .10350 .10137
57.................................................. .13148 .12855 .12572 .12298 .12033 .11777 .11530 .11291 .11060 .10836
58.................................................. .13990 .13685 .13389 .13104 .12828 .12561 .12303 .12053 .11811 .11576
59.................................................. .14875 .14557 .14250 .13953 .13665 .13387 .13118 .12856 .12604 .12359
60.................................................. .15799 .15469 .15150 .14841 .14542 .14253 .13972 .13700 .13436 .13180
61.................................................. .16761 .16419 .16088 .15768 .15457 .15156 .14864 .14580 .14305 .14039
62.................................................. .17758 .17404 .17062 .16729 .16407 .16094 .15791 .15496 .15210 .14932
63.................................................. .18791 .18425 .18071 .17726 .17392 .17068 .16753 .16447 .16150 .15861
64.................................................. .19862 .19484 .19118 .18762 .18417 .18081 .17754 .17437 .17129 .16829
65.................................................. .20979 .20590 .20212 .19845 .19487 .19140 .18802 .18474 .18154 .17843
66.................................................. .22149 .21748 .21359 .20980 .20612 .20253 .19904 .19564 .19233 .18911
67.................................................. .23374 .22962 .22562 .22172 .21792 .21423 .21062 .20712 .20370 .20037
68.................................................. .24656 .24234 .23822 .23422 .23031 .22651 .22280 .21919 .21566 .21222
69.................................................. .25988 .25556 .25134 .24724 .24323 .23932 .23551 .23179 .22816 .22461
70.................................................. .27367 .26925 .26493 .26073 .25662 .25261 .24870 .24488 .24115 .23750
71.................................................. .28784 .28333 .27892 .27462 .27042 .26631 .26230 .25839 .25456 .25082
72.................................................. .30241 .29781 .29332 .28893 .28464 .28044 .27634 .27233 .26841 .26457
73.................................................. .31740 .31272 .30815 .30368 .29930 .29502 .29084 .28674 .28273 .27880
74.................................................. .33291 .32817 .32352 .31897 .31452 .31016 .30589 .30171 .29762 .29361
75.................................................. .34903 .34422 .33951 .33490 .33038 .32595 .32161 .31735 .31318 .30909
76.................................................. .36581 .36095 .35619 .35152 .34694 .34245 .33805 .33373 .32949 .32533
77.................................................. .38324 .37835 .37354 .36883 .36420 .35966 .35520 .35083 .34654 .34232
78.................................................. .40126 .39634 .39150 .38676 .38210 .37752 .37302 .36861 .36427 .36001
79.................................................. .41970 .41476 .40992 .40515 .40047 .39587 .39135 .38690 .38253 .37823
80.................................................. .43842 .43348 .42864 .42387 .41918 .41456 .41002 .40556 .40117 .39685
81.................................................. .45719 .45228 .44744 .44267 .43799 .43337 .42883 .42436 .41996 .41562
82.................................................. .47590 .47101 .46619 .46145 .45677 .45217 .44764 .44317 .43877 .43443
83.................................................. .49443 .48957 .48478 .48007 .47542 .47084 .46632 .46187 .45748 .45315
84.................................................. .51279 .50798 .50324 .49856 .49394 .48939 .48490 .48048 .47611 .47180
85.................................................. .53106 .52630 .52161 .51698 .51241 .50790 .50345 .49906 .49473 .49045
86.................................................. .54902 .54434 .53971 .53514 .53062 .52616 .52176 .51741 .51312 .50888
87.................................................. .56640 .56178 .55722 .55271 .54826 .54386 .53951 .53521 .53097 .52677
88.................................................. .58326 .57872 .57423 .56979 .56541 .56107 .55678 .55254 .54834 .54420
89.................................................. .59994 .59548 .59107 .58671 .58240 .57813 .57391 .56973 .56560 .56152
90.................................................. .61662 .61226 .60794 .60367 .59944 .59526 .59112 .58702 .58296 .57894
91.................................................. .63305 .62879 .62457 .62040 .61627 .61217 .60812 .60411 .60013 .59619
92.................................................. .64876 .64461 .64050 .63643 .63239 .62839 .62443 .62051 .61662 .61277
93.................................................. .66355 .65950 .65550 .65153 .64759 .64369 .63983 .63600 .63220 .62843
94.................................................. .67722 .67328 .66938 .66551 .66167 .65786 .65409 .65035 .64664 .64296
95.................................................. .68967 .68583 .68203 .67825 .67451 .67079 .66711 .66345 .65983 .65623
96.................................................. .70076 .69701 .69330 .68961 .68595 .68231 .67871 .67513 .67158 .66806
97.................................................. .71089 .70722 .70359 .69998 .69640 .69284 .68931 .68581 .68234 .67888
98.................................................. .72001 .71642 .71286 .70933 .70582 .70233 .69887 .69544 .69203 .68864
99.................................................. .72844 .72492 .72143 .71796 .71452 .71110 .70770 .70433 .70098 .69765
100................................................. .73623 .73278 .72935 .72594 .72256 .71920 .71586 .71254 .70924 .70597
101................................................. .74361 .74021 .73684 .73349 .73016 .72685 .72356 .72029 .71704 .71382
102................................................. .75128 .74794 .74463 .74133 .73806 .73480 .73157 .72835 .72515 .72198
103................................................. .75938 .75610 .75284 .74961 .74639 .74319 .74000 .73684 .73369 .73056
104................................................. .76835 .76514 .76194 .75877 .75561 .75246 .74934 .74623 .74313 .74005
105................................................. .77956 .77643 .77332 .77023 .76714 .76408 .76102 .75798 .75496 .75195
106................................................. .79632 .79334 .79038 .78743 .78449 .78157 .77865 .77575 .77285 .76997
107................................................. .82154 .81884 .81615 .81346 .81079 .80811 .80545 .80279 .80014 .79750
108................................................. .86487 .86274 .86061 .85848 .85635 .85423 .85210 .84998 .84787 .84575
109................................................. .93900 .93800 .93700 .93600 .93500 .93400 .93300 .93200 .93100 .93000
--------------------------------------------------------------------------------------------------------------------------------------------------------
(f) Valuation of charitable remainder unitrusts having certain
payout sequences for transfers for which the valuation date is after
April 30, 1999, and before May 1, 2009--(1) In general. Except as
otherwise provided in paragraph (f)(2) of this section, in the case of
transfers for which the valuation date is after April 30,
[[Page 293]]
1999, and before May 1, 2009, the present value of a remainder interest
is determined under paragraphs (f)(3) through (f)(6) of this section,
provided that the amount of the payout as of any payout date during any
taxable year of the trust is not larger than the amount that the trust
could distribute on such date under Sec. 1.664-3(a)(1)(v) if the
taxable year of the trust were to end on such date. See, however, Sec.
1.7520-3(b) (relating to exceptions to the use of the prescribed tables
under certain circumstances).
(2) Transitional rules for valuation of charitable remainder
unitrusts. (i) For purposes of sections 2055, 2106, or 2624, if on May
1, 1999, the decedent was mentally incompetent so that the disposition
of the property could not be changed, and the decedent died after April
30, 1999, without having regained competency to dispose of the
decedent's property, or the decedent died within 90 days of the date
that the decedent first regained competency after April 30, 1999, the
present value of a remainder interest under this section is determined
as if the valuation date with respect to the decedent's gross estate is
either before May 1, 1999, or after April 30, 1999, at the option of the
decedent's executor.
(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the
case of transfers to a charitable remainder unitrust for which the
valuation date is after April 30, 1999, and before July 1, 1999, the
present value of a remainder interest based on one or more measuring
lives is determined under this section by use of the section 7520
interest rate for the month in which the valuation date occurs (see
Sec. Sec. 1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial
tables under either paragraph (e)(6) or (f)(6) of this section, at the
option of the donor or the decedent's executor, as the case may be.
(iii) For purposes of paragraphs (f)(2)(i) and (f)(2)(ii) of this
section, where the donor or decedent's executor is given the option to
use the appropriate actuarial tables under either paragraph (e)(6) or
(f)(6) of this section, the donor or decedent's executor must use the
same actuarial table with respect to each individual transaction and
with respect to all transfers occurring on the valuation date (for
example, gift and income tax charitable deductions with respect to the
same transfer must be determined based on the same tables, and all
assets includible in the gross estate and/or estate tax deductions
claimed must be valued based on the same tables).
(3) Adjusted payout rate. For transfers for which the valuation date
is after April 30, 1999, and before May 1, 2009, the adjusted payout
rate is determined by using the appropriate Table F, contained in Sec.
1.664-4(e)(6), for the section 7520 interest rate applicable to the
transfer. If the interest rate is between 4.2 and 14 percent, see Sec.
1.664-4(e)(6). If the interest rate is below 4.2 percent or greater than
14 percent, see Sec. 1.664-4(b). See Sec. 1.664-4(e) for rules
applicable in determining the adjusted payout rate.
(4) Period is a term of years. If the period described in Sec.
1.664-3(a)(5) is a term of years, the factor that is used in determining
the present value of the remainder interest for transfers for which the
valuation date is after April 30, 1999, and before May 1, 2009, is the
factor under the appropriate adjusted payout rate in Table D in Sec.
1.664-4(e)(6) corresponding to the number of years in the term. If the
adjusted payout rate is an amount that is between adjusted payout rates
for which factors are provided in Table D, a linear interpolation must
be made. The present value of the remainder interest is determined by
multiplying the net fair market value (as of the appropriate valuation
date) of the property placed in trust by the factor determined under
this paragraph. Generally, for purposes of this section, the valuation
date is, in the case of an inter vivos transfer, the date on which the
property is transferred to the trust by the donor, and, in the case of a
testamentary transfer under sections 2055, 2106, or 2624, the valuation
date is the date of death. See Sec. 1.664-4(e)(4) for additional rules
regarding the valuation date. See Sec. 1.664-4(e)(4) for an example
that illustrates the application of this paragraph (f)(4).
(5) Period is the life of one individual. If the period described in
Sec. 1.664-3(a)(5) is the life of one individual, the factor that is
used in determining the present value of the remainder interest for
transfers for which the valuation date
[[Page 294]]
is after April 30, 1999, and before May 1, 2009, is the factor in Table
U(1) in paragraph (f)(6) of this section under the appropriate adjusted
payout. For purposes of the computations described in this paragraph
(f)(5), the age of an individual is the age of that individual at the
individual's nearest birthday. If the adjusted payout rate is an amount
that is between adjusted payout rates for which factors are provided in
the appropriate table, a linear interpolation must be made. The rules
provided in Sec. 1.664-4(e)(5) apply for determining the present value
of the remainder interest. See Sec. 1.664-4(e)(5) for an example
illustrating the application of this paragraph (f)(5) (using current
actuarial tables).
(6) Actuarial Table U(1) for transfers for which the valuation date
is after April 30, 1999, and before May 1, 2009. For transfers for which
the valuation date is after April 30, 1999, and before May 1, 2009, the
present value of a charitable remainder unitrust interest that is
dependent on the termination of a life interest is determined by using
the section 7520 rate, Table U(1) in this paragraph (f)(6), and Tables
F(4.2) through F(14.0) in Sec. 1.664-4(e)(6). See, however, Sec.
1.7520-3(b) (relating to exceptions to the use of prescribed tables
under certain circumstances). Many actuarial factors not contained in
the following tables are contained in Internal Revenue Service
Publication 1458, ``Actuarial Values, Book Beth,'' (7-1999). Publication
1458 is no longer available for purchase from the Superintendent of
Documents, United States Government Printing Office. However, pertinent
factors in this publication may be obtained by a written request to:
CC:PA:LPD:PR (IRS Publication 1458), Room 5205, Internal Revenue
Service, P.O.Box 7604, Ben Franklin Station, Washington, DC 20044.
Table U(1)--Based on Life Table 90CM Unitrust Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% .8% 6.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .06177 .05580 .05061 .04609 .04215 .03871 .03570 .03307 .03075 .02872
1............................................................. .05543 .04925 .04388 .03919 .03509 .03151 .02838 .02563 .02321 .02109
2............................................................. .05716 .05081 .04528 .04045 .03622 .03252 .02927 .02642 .02391 .02170
3............................................................. .05920 .05268 .04699 .04201 .03765 .03382 .03046 .02750 .02490 .02260
4............................................................. .06143 .05475 .04889 .04376 .03926 .03530 .03182 .02876 .02605 .02366
5............................................................. .06384 .05697 .05095 .04567 .04103 .03694 .03334 .03016 .02735 .02487
6............................................................. .06637 .05933 .05315 .04771 .04292 .03870 .03497 .03168 .02876 .02618
7............................................................. .06905 .06183 .05547 .04987 .04494 .04058 .03673 .03332 .03029 .02761
8............................................................. .07186 .06445 .05792 .05216 .04708 .04258 .03859 .03506 .03192 .02914
9............................................................. .07482 .06722 .06052 .05460 .04936 .04471 .04060 .03694 .03369 .03079
10............................................................ .07793 .07015 .06327 .05718 .05179 .04700 .04274 .03896 .03559 .03259
11............................................................ .08120 .07323 .06617 .05991 .05435 .04942 .04502 .04111 .03762 .03450
12............................................................ .08461 .07645 .06920 .06277 .05706 .05197 .04744 .04339 .03978 .03655
13............................................................ .08812 .07976 .07234 .06574 .05985 .05461 .04993 .04576 .04202 .03867
14............................................................ .09168 .08313 .07552 .06874 .06269 .05729 .05247 .04815 .04428 .04081
15............................................................ .09527 .08652 .07872 .07176 .06554 .05999 .05501 .05055 .04655 .04296
16............................................................ .09886 .08991 .08192 .07478 .06839 .06267 .05754 .05294 .04880 .04508
17............................................................ .10249 .09334 .08515 .07782 .07126 .06537 .06008 .05533 .05105 .04720
18............................................................ .10616 .09680 .08842 .08090 .07415 .06809 .06264 .05774 .05332 .04933
19............................................................ .10994 .10037 .09178 .08407 .07714 .07091 .06529 .06023 .05566 .05153
20............................................................ .11384 .10406 .09527 .08737 .08025 .07383 .06805 .06283 .05811 .05384
21............................................................ .11790 .10790 .09891 .09080 .08349 .07690 .07094 .06555 .06068 .05626
22............................................................ .12208 .11188 .10267 .09436 .08686 .08008 .07395 .06839 .06336 .05879
23............................................................ .12643 .11601 .10659 .09808 .09038 .08342 .07710 .07138 .06618 .06146
24............................................................ .13095 .12031 .11069 .10197 .09408 .08692 .08042 .07452 .06915 .06427
25............................................................ .13567 .12481 .11497 .10605 .09795 .09060 .08392 .07784 .07230 .06726
26............................................................ .14058 .12950 .11945 .11032 .10202 .09447 .08760 .08134 .07563 .07042
27............................................................ .14571 .13442 .12415 .11481 .10631 .09856 .09149 .08505 .07916 .07379
28............................................................ .15104 .13953 .12904 .11949 .11078 .10284 .09558 .08895 .08288 .07733
29............................................................ .15656 .14484 .13414 .12438 .11546 .10731 .09986 .09304 .08679 .08106
30............................................................ .16229 .15034 .13943 .12946 .12034 .11198 .10433 .09732 .09089 .08498
31............................................................ .16821 .15605 .14493 .13474 .12541 .11685 .10900 .10179 .09517 .08909
32............................................................ .17433 .16196 .15063 .14023 .13069 .12193 .11387 .10647 .09966 .09339
33............................................................ .18068 .16810 .15655 .14595 .13620 .12723 .11897 .11137 .10437 .09791
34............................................................ .18724 .17446 .16270 .15189 .14193 .13275 .12430 .11650 .10930 .10265
35............................................................ .19405 .18107 .16910 .15808 .14791 .13853 .12987 .12187 .11448 .10764
36............................................................ .20109 .18791 .17574 .16451 .15414 .14456 .13569 .12749 .11990 .11287
37............................................................ .20838 .19500 .18263 .17120 .16062 .15083 .14177 .13337 .12558 .11835
[[Page 295]]
38............................................................ .21593 .20236 .18979 .17816 .16739 .15739 .14813 .13953 .13154 .12412
39............................................................ .22374 .20998 .19723 .18540 .17443 .16423 .15477 .14597 .13779 .13017
40............................................................ .23183 .21789 .20496 .19294 .18177 .17138 .16172 .15272 .14434 .13653
41............................................................ .24021 .22611 .21299 .20079 .18943 .17885 .16899 .15980 .15123 .14322
42............................................................ .24889 .23463 .22134 .20896 .19741 .18665 .17660 .16721 .15845 .15025
43............................................................ .25786 .24344 .23000 .21744 .20572 .19477 .18453 .17496 .16601 .15762
44............................................................ .26712 .25257 .23896 .22625 .21435 .20322 .19281 .18305 .17391 .16534
45............................................................ .27665 .26196 .24821 .23534 .22328 .21198 .20139 .19145 .18213 .17338
46............................................................ .28644 .27163 .25774 .24472 .23251 .22105 .21028 .20018 .19068 .18174
47............................................................ .29647 .28155 .26754 .25438 .24201 .23040 .21947 .20919 .19952 .19041
48............................................................ .30676 .29173 .27760 .26431 .25181 .24004 .22896 .21852 .20868 .19941
49............................................................ .31729 .30217 .28794 .27453 .26190 .24999 .23876 .22817 .21817 .20873
50............................................................ .32808 .31289 .29856 .28505 .27229 .26026 .24889 .23814 .22799 .21839
51............................................................ .33912 .32387 .30946 .29585 .28299 .27083 .25933 .24845 .23815 .22840
52............................................................ .35038 .33507 .32060 .30691 .29395 .28168 .27005 .25904 .24861 .23872
53............................................................ .36185 .34651 .33198 .31821 .30517 .29280 .28106 .26993 .25937 .24934
54............................................................ .37352 .35815 .34358 .32976 .31664 .30418 .29234 .28110 .27042 .26026
55............................................................ .38539 .37002 .35542 .34155 .32836 .31583 .30390 .29256 .28177 .27149
56............................................................ .39746 .38209 .36748 .35358 .34034 .32774 .31574 .30431 .29342 .28303
57............................................................ .40971 .39437 .37976 .36584 .35257 .33992 .32785 .31634 .30536 .29488
58............................................................ .42212 .40682 .39222 .37829 .36500 .35231 .34019 .32862 .31756 .30699
59............................................................ .43464 .41939 .40482 .39090 .37759 .36488 .35272 .34109 .32996 .31932
60............................................................ .44726 .43207 .41754 .40364 .39034 .37761 .36542 .35375 .34257 .33186
61............................................................ .45999 .44488 .43041 .41655 .40326 .39053 .37833 .36662 .35540 .34463
62............................................................ .47286 .45785 .44345 .42964 .41639 .40367 .39146 .37974 .36848 .35767
63............................................................ .48589 .47098 .45667 .44293 .42972 .41703 .40484 .39311 .38184 .37100
64............................................................ .49903 .48426 .47005 .45638 .44324 .43060 .41843 .40671 .39544 .38458
65............................................................ .51229 .49766 .48357 .47001 .45694 .44435 .43223 .42054 .40927 .39841
66............................................................ .52568 .51121 .49726 .48381 .47084 .45833 .44626 .43461 .42337 .41252
67............................................................ .53924 .52495 .51115 .49784 .48498 .47256 .46056 .44898 .43778 .42696
68............................................................ .55293 .53883 .52521 .51205 .49932 .48701 .47511 .46360 .45246 .44169
69............................................................ .56671 .55283 .53940 .52640 .51382 .50165 .48985 .47844 .46738 .45666
70............................................................ .58052 .56687 .55365 .54084 .52843 .51639 .50473 .49342 .48245 .47181
71............................................................ .59431 .58091 .56791 .55529 .54306 .53118 .51966 .50847 .49761 .48707
72............................................................ .60804 .59490 .58213 .56973 .55768 .54598 .53461 .52357 .51283 .50239
73............................................................ .62168 .60881 .59629 .58411 .57227 .56076 .54955 .53866 .52806 .51774
74............................................................ .63528 .62268 .61042 .59848 .58686 .57555 .56453 .55380 .54335 .53316
75............................................................ .64887 .63657 .62458 .61290 .60151 .59041 .57959 .56904 .55875 .54872
76............................................................ .66249 .65049 .63880 .62739 .61625 .60538 .59478 .58443 .57432 .56446
77............................................................ .67612 .66446 .65307 .64194 .63108 .62046 .61009 .59995 .59005 .58037
78............................................................ .68975 .67843 .66736 .65654 .64596 .63561 .62548 .61558 .60590 .59643
79............................................................ .70330 .69233 .68160 .67109 .66081 .65074 .64088 .63123 .62178 .61253
80............................................................ .71666 .70605 .69566 .68548 .67550 .66573 .65615 .64676 .63755 .62853
81............................................................ .72975 .71950 .70946 .69961 .68995 .68047 .67117 .66205 .65310 .64433
82............................................................ .74250 .73263 .72293 .71342 .70407 .69490 .68589 .67705 .66837 .65984
83............................................................ .75493 .74542 .73608 .72690 .71788 .70902 .70031 .69175 .68333 .67506
84............................................................ .76712 .75798 .74900 .74016 .73147 .72292 .71451 .70624 .69810 .69010
85............................................................ .77913 .77037 .76175 .75326 .74491 .73668 .72859 .72061 .71276 .70503
86............................................................ .79086 .78248 .77423 .76610 .75808 .75019 .74241 .73474 .72719 .71974
87............................................................ .80218 .79418 .78628 .77850 .77083 .76326 .75580 .74844 .74118 .73402
88............................................................ .81307 .80544 .79790 .79047 .78313 .77589 .76874 .76169 .75473 .74786
89............................................................ .82355 .81628 .80909 .80200 .79500 .78808 .78125 .77450 .76783 .76125
90............................................................ .83360 .82668 .81985 .81309 .80642 .79982 .79330 .78685 .78048 .77418
91............................................................ .84308 .83650 .83000 .82357 .81721 .81092 .80470 .79855 .79246 .78645
92............................................................ .85182 .84556 .83937 .83325 .82718 .82119 .81525 .80937 .80356 .79780
93............................................................ .85985 .85390 .84800 .84215 .83637 .83064 .82497 .81936 .81379 .80829
94............................................................ .86732 .86164 .85601 .85044 .84491 .83944 .83402 .82865 .82333 .81806
95............................................................ .87437 .86895 .86359 .85827 .85300 .84778 .84260 .83746 .83237 .82733
96............................................................ .88097 .87582 .87070 .86563 .86060 .85561 .85066 .84575 .84088 .83605
97............................................................ .88708 .88216 .87727 .87243 .86762 .86285 .85811 .85341 .84875 .84413
98............................................................ .89280 .88810 .88343 .87880 .87420 .86964 .86511 .86061 .85614 .85171
99............................................................ .89836 .89388 .88943 .88501 .88062 .87626 .87193 .86763 .86336 .85911
100........................................................... .90375 .89948 .89525 .89103 .88685 .88269 .87856 .87445 .87037 .86632
101........................................................... .90905 .90500 .90097 .89696 .89298 .88902 .88509 .88118 .87729 .87342
102........................................................... .91424 .91040 .90658 .90278 .89900 .89524 .89150 .88778 .88408 .88040
103........................................................... .91939 .91575 .91214 .90854 .90496 .90139 .89785 .89432 .89081 .88732
104........................................................... .92485 .92144 .91805 .91467 .91131 .90796 .90463 .90131 .89800 .89471
105........................................................... .93020 .92701 .92383 .92067 .91751 .91437 .91125 .90813 .90502 .90193
[[Page 296]]
106........................................................... .93701 .93411 .93122 .92834 .92546 .92260 .91974 .91689 .91405 .91122
107........................................................... .94522 .94268 .94013 .93760 .93507 .93254 .93002 .92750 .92499 .92249
108........................................................... .95782 .95583 .95385 .95187 .94989 .94791 .94593 .94396 .94199 .94002
109........................................................... .97900 .97800 .97700 .97600 .97500 .97400 .97300 .97200 .97100 .97000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 90CM Unitrust Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .02693 .02534 .02395 .02271 .02161 .02063 .01976 .01898 .01828 .01765
1............................................................. .01922 .01756 .01610 .01480 .01365 .01263 .01171 .01090 .01017 .00951
2............................................................. .01975 .01802 .01650 .01514 .01393 .01286 .01190 .01104 .01028 .00959
3............................................................. .02056 .01876 .01717 .01575 .01449 .01336 .01235 .01145 .01064 .00992
4............................................................. .02155 .01967 .01800 .01652 .01520 .01401 .01296 .01201 .01116 .01039
5............................................................. .02266 .02071 .01896 .01741 .01603 .01479 .01368 .01269 .01179 .01098
6............................................................. .02389 .02184 .02003 .01841 .01696 .01566 .01450 .01345 .01251 .01166
7............................................................. .02522 .02309 .02120 .01950 .01799 .01663 .01540 .01431 .01332 .01242
8............................................................. .02665 .02444 .02246 .02069 .01910 .01768 .01640 .01524 .01420 .01326
9............................................................. .02821 .02590 .02384 .02199 .02033 .01884 .01750 .01629 .01520 .01421
10............................................................ .02990 .02750 .02535 .02342 .02169 .02013 .01872 .01745 .01631 .01526
11............................................................ .03172 .02922 .02698 .02497 .02316 .02153 .02006 .01872 .01752 .01643
12............................................................ .03365 .03106 .02872 .02663 .02474 .02303 .02149 .02010 .01884 .01769
13............................................................ .03566 .03297 .03054 .02835 .02638 .02460 .02299 .02154 .02021 .01901
14............................................................ .03770 .03490 .03237 .03010 .02804 .02619 .02450 .02298 .02159 .02033
15............................................................ .03973 .03682 .03419 .03182 .02968 .02775 .02599 .02439 .02294 .02162
16............................................................ .04173 .03871 .03598 .03352 .03129 .02926 .02743 .02576 .02424 .02286
17............................................................ .04372 .04059 .03775 .03519 .03287 .03076 .02884 .02710 .02551 .02406
18............................................................ .04573 .04248 .03953 .03686 .03444 .03224 .03024 .02842 .02676 .02524
19............................................................ .04780 .04443 .04137 .03859 .03607 .03378 .03169 .02978 .02804 .02646
20............................................................ .04997 .04647 .04329 .04040 .03778 .03539 .03321 .03122 .02940 .02773
21............................................................ .05226 .04862 .04532 .04232 .03958 .03709 .03481 .03274 .03083 .02909
22............................................................ .05465 .05088 .04745 .04432 .04148 .03888 .03650 .03433 .03234 .03052
23............................................................ .05716 .05325 .04969 .04645 .04348 .04077 .03830 .03603 .03394 .03203
24............................................................ .05983 .05578 .05208 .04871 .04562 .04280 .04021 .03784 .03566 .03367
25............................................................ .06266 .05846 .05463 .05112 .04791 .04497 .04227 .03980 .03752 .03543
26............................................................ .06566 .06131 .05734 .05369 .05035 .04729 .04448 .04189 .03951 .03732
27............................................................ .06887 .06436 .06024 .05646 .05298 .04979 .04686 .04416 .04168 .03939
28............................................................ .07225 .06758 .06331 .05938 .05577 .05245 .04940 .04658 .04398 .04159
29............................................................ .07581 .07099 .06656 .06248 .05873 .05528 .05210 .04916 .04645 .04394
30............................................................ .07956 .07457 .06998 .06575 .06186 .05827 .05495 .05189 .04906 .04644
31............................................................ .08348 .07833 .07358 .06920 .06515 .06142 .05797 .05478 .05182 .04908
32............................................................ .08761 .08228 .07736 .07282 .06863 .06475 .06116 .05783 .05475 .05189
33............................................................ .09195 .08645 .08136 .07666 .07231 .06828 .06454 .06108 .05786 .05488
34............................................................ .09651 .09082 .08557 .08070 .07619 .07200 .06812 .06452 .06117 .05805
35............................................................ .10131 .09545 .09002 .08498 .08030 .07596 .07193 .06818 .06469 .06144
36............................................................ .10635 .10031 .09470 .08949 .08465 .08015 .07596 .07206 .06842 .06503
37............................................................ .11165 .10542 .09963 .09424 .08923 .08457 .08022 .07617 .07238 .06885
38............................................................ .11722 .11081 .10484 .09927 .09409 .08926 .08475 .08054 .07661 .07293
39............................................................ .12308 .11648 .11032 .10458 .09922 .09422 .08955 .08518 .08109 .07726
40............................................................ .12925 .12246 .11612 .11020 .10466 .09949 .09465 .09011 .08587 .08189
41............................................................ .13575 .12877 .12225 .11614 .11043 .10508 .10007 .09537 .09097 .08683
42............................................................ .14259 .13542 .12871 .12243 .11654 .11101 .10583 .10097 .09640 .09210
43............................................................ .14977 .14242 .13552 .12905 .12298 .11729 .11193 .10690 .10217 .09771
44............................................................ .15731 .14976 .14269 .13604 .12979 .12391 .11838 .11318 .10828 .10367
45............................................................ .16516 .15743 .15017 .14334 .13691 .13086 .12516 .11979 .11472 .10994
46............................................................ .17334 .16544 .15800 .15099 .14438 .13816 .13228 .12674 .12150 .11656
47............................................................ .18184 .17375 .16613 .15895 .15217 .14576 .13972 .13400 .12860 .12349
48............................................................ .19066 .18240 .17461 .16724 .16029 .15371 .14749 .14161 .13604 .13077
49............................................................ .19981 .19138 .18342 .17588 .16875 .16201 .15562 .14956 .14383 .13839
50............................................................ .20931 .20072 .19259 .18489 .17759 .17067 .16412 .15790 .15199 .14639
51............................................................ .21917 .21042 .20212 .19426 .18679 .17971 .17299 .16660 .16054 .15477
52............................................................ .22933 .22043 .21198 .20395 .19633 .18909 .18220 .17566 .16943 .16350
53............................................................ .23981 .23076 .22216 .21399 .20621 .19881 .19176 .18506 .17867 .17258
54............................................................ .25060 .24141 .23267 .22434 .21642 .20886 .20166 .19480 .18826 .18201
[[Page 297]]
55............................................................ .26171 .25239 .24351 .23504 .22697 .21927 .21192 .20491 .19821 .19182
56............................................................ .27313 .26369 .25468 .24608 .23787 .23003 .22254 .21538 .20854 .20199
57............................................................ .28487 .27531 .26618 .25746 .24912 .24114 .23351 .22621 .21923 .21254
58............................................................ .29688 .28722 .27798 .26914 .26067 .25257 .24481 .23738 .23025 .22343
59............................................................ .30913 .29937 .29002 .28107 .27249 .26427 .25639 .24882 .24157 .23461
60............................................................ .32159 .31175 .30231 .29325 .28457 .27623 .26823 .26055 .25317 .24608
61............................................................ .33429 .32437 .31485 .30571 .29692 .28848 .28037 .27257 .26507 .25786
62............................................................ .34728 .33730 .32770 .31847 .30960 .30106 .29285 .28495 .27734 .27001
63............................................................ .36057 .35053 .34087 .33157 .32262 .31400 .30569 .29769 .28998 .28255
64............................................................ .37412 .36404 .35433 .34498 .33596 .32726 .31887 .31078 .30298 .29545
65............................................................ .38794 .37783 .36809 .35868 .34961 .34085 .33239 .32422 .31633 .30871
66............................................................ .40205 .39193 .38216 .37272 .36361 .35479 .34628 .33804 .33008 .32238
67............................................................ .41650 .40639 .39661 .38715 .37800 .36915 .36059 .35230 .34428 .33651
68............................................................ .43126 .42117 .41139 .40193 .39277 .38390 .37530 .36697 .35890 .35108
69............................................................ .44628 .43622 .42648 .41703 .40787 .39898 .39037 .38201 .37391 .36604
70............................................................ .46150 .45149 .44178 .43236 .42321 .41433 .40571 .39735 .38922 .38132
71............................................................ .47683 .46689 .45723 .44785 .43873 .42987 .42126 .41290 .40476 .39685
72............................................................ .49225 .48238 .47279 .46346 .45439 .44556 .43697 .42862 .42048 .41257
73............................................................ .50770 .49793 .48841 .47915 .47013 .46135 .45280 .44447 .43635 .42844
74............................................................ .52324 .51358 .50416 .49498 .48603 .47731 .46880 .46051 .45242 .44454
75............................................................ .53894 .52939 .52008 .51100 .50214 .49349 .48505 .47681 .46877 .46092
76............................................................ .55483 .54543 .53624 .52728 .51852 .50996 .50160 .49344 .48546 .47766
77............................................................ .57091 .56167 .55263 .54380 .53516 .52671 .51845 .51038 .50247 .49475
78............................................................ .58716 .57809 .56922 .56053 .55203 .54372 .53557 .52760 .51980 .51216
79............................................................ .60346 .59459 .58590 .57738 .56904 .56086 .55286 .54501 .53732 .52978
80............................................................ .61969 .61102 .60252 .59419 .58601 .57800 .57014 .56243 .55487 .54745
81............................................................ .63571 .62726 .61897 .61082 .60283 .59499 .58729 .57974 .57232 .56503
82............................................................ .65146 .64324 .63515 .62722 .61942 .61176 .60423 .59683 .58957 .58242
83............................................................ .66693 .65893 .65108 .64335 .63575 .62828 .62093 .61371 .60660 .59962
84............................................................ .68222 .67447 .66684 .65934 .65195 .64468 .63753 .63049 .62356 .61674
85............................................................ .69742 .68993 .68255 .67528 .66812 .66106 .65411 .64727 .64053 .63389
86............................................................ .71241 .70517 .69805 .69102 .68410 .67727 .67054 .66390 .65736 .65091
87............................................................ .72696 .72000 .71313 .70635 .69967 .69307 .68656 .68014 .67381 .66756
88............................................................ .74108 .73438 .72777 .72125 .71480 .70845 .70217 .69597 .68985 .68380
89............................................................ .75475 .74832 .74198 .73571 .72951 .72339 .71734 .71137 .70547 .69963
90............................................................ .76796 .76180 .75572 .74971 .74376 .73788 .73207 .72633 .72065 .71503
91............................................................ .78049 .77460 .76878 .76302 .75732 .75168 .74610 .74058 .73512 .72972
92............................................................ .79211 .78647 .78089 .77537 .76990 .76449 .75913 .75383 .74858 .74338
93............................................................ .80283 .79743 .79208 .78679 .78154 .77634 .77119 .76610 .76105 .75604
94............................................................ .81283 .80765 .80253 .79744 .79240 .78741 .78247 .77756 .77270 .76789
95............................................................ .82233 .81737 .81245 .80757 .80274 .79795 .79320 .78849 .78382 .77918
96............................................................ .83126 .82651 .82180 .81712 .81248 .80788 .80332 .79880 .79431 .78985
97............................................................ .83953 .83498 .83046 .82597 .82152 .81710 .81271 .80836 .80404 .79976
98............................................................ .84731 .84294 .83860 .83429 .83002 .82577 .82155 .81737 .81321 .80908
99............................................................ .85490 .85071 .84656 .84243 .83832 .83425 .83020 .82618 .82219 .81822
100........................................................... .86229 .85828 .85431 .85035 .84642 .84252 .83864 .83478 .83095 .82714
101........................................................... .86958 .86575 .86195 .85818 .85442 .85069 .84698 .84329 .83962 .83597
102........................................................... .87674 .87310 .86947 .86587 .86229 .85873 .85518 .85166 .84815 .84466
103........................................................... .88384 .88038 .87694 .87351 .87010 .86671 .86334 .85998 .85663 .85331
104........................................................... .89143 .88817 .88492 .88169 .87847 .87526 .87207 .86889 .86573 .86258
105........................................................... .89885 .89578 .89272 .88967 .88664 .88361 .88060 .87760 .87461 .87163
106........................................................... .90840 .90559 .90278 .89999 .89720 .89442 .89165 .88888 .88613 .88338
107........................................................... .91999 .91750 .91501 .91253 .91005 .90758 .90511 .90265 .90019 .89774
108........................................................... .93805 .93609 .93412 .93216 .93020 .92824 .92629 .92434 .92239 .92044
109........................................................... .96900 .96800 .96700 .96600 .96500 .96400 .96300 .96200 .96100 .96000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 90CM Unitrust Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
8.2% 8.4% 8.6% 8.8% 9.0% 9.2% 9.4% 9.6% 9.8% 10.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .01709 .01658 .01612 .01570 .01532 .01497 .01466 .01437 .01410 .01386
1............................................................. .00892 .00839 .00791 .00747 .00708 .00672 .00639 .00609 .00582 .00557
2............................................................. .00896 .00840 .00790 .00744 .00702 .00664 .00629 .00598 .00569 .00542
3............................................................. .00926 .00867 .00814 .00765 .00721 .00681 .00644 .00611 .00580 .00552
[[Page 298]]
4............................................................. .00970 .00908 .00851 .00800 .00753 .00711 .00672 .00636 .00604 .00574
5............................................................. .01026 .00960 .00900 .00846 .00796 .00751 .00710 .00672 .00637 .00606
6............................................................. .01089 .01019 .00956 .00899 .00846 .00799 .00755 .00715 .00678 .00644
7............................................................. .01161 .01088 .01021 .00960 .00905 .00854 .00808 .00765 .00726 .00690
8............................................................. .01241 .01163 .01093 .01029 .00970 .00917 .00867 .00822 .00781 .00743
9............................................................. .01331 .01249 .01175 .01107 .01045 .00988 .00936 .00889 .00845 .00804
10............................................................ .01432 .01346 .01268 .01196 .01131 .01071 .01016 .00965 .00918 .00875
11............................................................ .01543 .01453 .01370 .01295 .01226 .01162 .01104 .01051 .01001 .00956
12............................................................ .01664 .01569 .01482 .01403 .01330 .01263 .01202 .01145 .01093 .01045
13............................................................ .01791 .01691 .01600 .01516 .01440 .01369 .01304 .01245 .01190 .01139
14............................................................ .01918 .01813 .01717 .01629 .01548 .01474 .01406 .01343 .01285 .01231
15............................................................ .02041 .01931 .01831 .01738 .01653 .01576 .01504 .01437 .01376 .01320
16............................................................ .02160 .02044 .01938 .01841 .01752 .01670 .01595 .01525 .01460 .01401
17............................................................ .02274 .02152 .02041 .01940 .01846 .01760 .01680 .01607 .01539 .01476
18............................................................ .02386 .02258 .02142 .02035 .01936 .01846 .01762 .01685 .01613 .01547
19............................................................ .02500 .02367 .02245 .02132 .02029 .01933 .01845 .01764 .01689 .01619
20............................................................ .02621 .02481 .02353 .02235 .02126 .02025 .01933 .01847 .01768 .01694
21............................................................ .02749 .02603 .02468 .02344 .02229 .02124 .02026 .01936 .01852 .01774
22............................................................ .02884 .02730 .02589 .02458 .02338 .02227 .02124 .02029 .01940 .01859
23............................................................ .03028 .02867 .02718 .02581 .02454 .02337 .02229 .02128 .02035 .01949
24............................................................ .03183 .03013 .02857 .02713 .02580 .02456 .02342 .02236 .02138 .02047
25............................................................ .03350 .03172 .03008 .02857 .02717 .02587 .02467 .02355 .02251 .02155
26............................................................ .03530 .03344 .03172 .03013 .02865 .02729 .02602 .02484 .02375 .02273
27............................................................ .03727 .03532 .03351 .03183 .03028 .02885 .02751 .02627 .02511 .02404
28............................................................ .03937 .03732 .03543 .03367 .03204 .03052 .02911 .02780 .02658 .02545
29............................................................ .04162 .03947 .03748 .03564 .03392 .03233 .03084 .02946 .02818 .02698
30............................................................ .04401 .04176 .03967 .03773 .03593 .03425 .03269 .03124 .02988 .02861
31............................................................ .04654 .04419 .04200 .03996 .03807 .03630 .03466 .03312 .03169 .03035
32............................................................ .04923 .04676 .04447 .04233 .04034 .03849 .03676 .03514 .03363 .03221
33............................................................ .05210 .04952 .04711 .04487 .04278 .04083 .03901 .03731 .03571 .03422
34............................................................ .05515 .05245 .04993 .04758 .04538 .04333 .04142 .03962 .03794 .03637
35............................................................ .05841 .05558 .05295 .05048 .04818 .04603 .04401 .04212 .04035 .03869
36............................................................ .06187 .05892 .05616 .05358 .05116 .04890 .04678 .04480 .04293 .04118
37............................................................ .06555 .06247 .05958 .05688 .05435 .05198 .04975 .04766 .04570 .04385
38............................................................ .06949 .06627 .06325 .06043 .05777 .05528 .05295 .05075 .04868 .04674
39............................................................ .07368 .07032 .06717 .06421 .06143 .05882 .05637 .05406 .05189 .04984
40............................................................ .07816 .07465 .07137 .06827 .06537 .06263 .06006 .05764 .05535 .05320
41............................................................ .08295 .07930 .07587 .07264 .06960 .06674 .06405 .06150 .05910 .05683
42............................................................ .08807 .08427 .08069 .07733 .07415 .07116 .06833 .06567 .06315 .06077
43............................................................ .09352 .08957 .08585 .08233 .07902 .07589 .07294 .07014 .06750 .06500
44............................................................ .09932 .09521 .09134 .08768 .08423 .08096 .07787 .07495 .07218 .06956
45............................................................ .10543 .10117 .09715 .09334 .08974 .08634 .08311 .08005 .07716 .07441
46............................................................ .11189 .10747 .10329 .09933 .09559 .09204 .08867 .08548 .08245 .07958
47............................................................ .11866 .11408 .10974 .10564 .10174 .09805 .09454 .09121 .08805 .08504
48............................................................ .12577 .12103 .11654 .11228 .10823 .10439 .10074 .09727 .09397 .09083
49............................................................ .13323 .12833 .12368 .11926 .11506 .11107 .10728 .10366 .10022 .09695
50............................................................ .14107 .13601 .13120 .12663 .12228 .11813 .11419 .11043 .10685 .10344
51............................................................ .14928 .14407 .13910 .13437 .12987 .12558 .12149 .11758 .11386 .11031
52............................................................ .15785 .15248 .14735 .14247 .13781 .13337 .12913 .12508 .12122 .11752
53............................................................ .16678 .16124 .15597 .15093 .14612 .14153 .13714 .13294 .12893 .12509
54............................................................ .17606 .17037 .16493 .15974 .15478 .15004 .14550 .14116 .13700 .13302
55............................................................ .18570 .17986 .17428 .16893 .16382 .15893 .15424 .14976 .14546 .14134
56............................................................ .19573 .18974 .18400 .17851 .17325 .16821 .16338 .15875 .15430 .15004
57............................................................ .20613 .20000 .19412 .18848 .18307 .17789 .17291 .16814 .16355 .15914
58............................................................ .21688 .21060 .20458 .19880 .19325 .18792 .18280 .17788 .17316 .16861
59............................................................ .22793 .22151 .21535 .20943 .20374 .19827 .19301 .18795 .18309 .17840
60............................................................ .23927 .23272 .22642 .22036 .21454 .20893 .20354 .19834 .19334 .18851
61............................................................ .25092 .24425 .23782 .23163 .22567 .21993 .21440 .20907 .20393 .19898
62............................................................ .26295 .25616 .24961 .24329 .23721 .23134 .22568 .22021 .21494 .20985
63............................................................ .27538 .26847 .26180 .25537 .24916 .24316 .23738 .23179 .22639 .22117
64............................................................ .28817 .28116 .27438 .26783 .26150 .25539 .24949 .24377 .23825 .23291
65............................................................ .30134 .29423 .28735 .28069 .27426 .26803 .26201 .25618 .25054 .24508
66............................................................ .31493 .30772 .30075 .29399 .28746 .28113 .27500 .26906 .26331 .25774
67............................................................ .32899 .32170 .31464 .30780 .30118 .29475 .28852 .28248 .27663 .27095
68............................................................ .34349 .33614 .32901 .32209 .31538 .30887 .30256 .29643 .29047 .28469
69............................................................ .35841 .35100 .34381 .33683 .33005 .32346 .31707 .31085 .30481 .29894
70............................................................ .37366 .36620 .35896 .35193 .34509 .33844 .33197 .32568 .31957 .31362
71............................................................ .38916 .38167 .37440 .36732 .36043 .35372 .34720 .34084 .33466 .32864
[[Page 299]]
72............................................................ .40486 .39736 .39006 .38295 .37602 .36927 .36270 .35629 .35005 .34396
73............................................................ .42074 .41323 .40591 .39878 .39182 .38504 .37843 .37198 .36568 .35955
74............................................................ .43685 .42934 .42202 .41488 .40791 .40110 .39446 .38798 .38165 .37547
75............................................................ .45326 .44577 .43846 .43132 .42435 .41754 .41088 .40438 .39802 .39181
76............................................................ .47004 .46259 .45530 .44818 .44122 .43442 .42776 .42125 .41488 .40865
77............................................................ .48718 .47979 .47255 .46547 .45853 .45175 .44511 .43861 .43225 .42601
78............................................................ .50467 .49735 .49017 .48314 .47626 .46951 .46290 .45643 .45008 .44386
79............................................................ .52239 .51515 .50806 .50110 .49427 .48758 .48102 .47459 .46828 .46209
80............................................................ .54018 .53304 .52603 .51916 .51242 .50580 .49930 .49292 .48666 .48052
81............................................................ .55788 .55085 .54396 .53718 .53053 .52399 .51757 .51126 .50507 .49898
82............................................................ .57540 .56851 .56173 .55506 .54851 .54207 .53574 .52951 .52339 .51737
83............................................................ .59274 .58598 .57933 .57279 .56635 .56001 .55378 .54765 .54161 .53567
84............................................................ .61002 .60341 .59690 .59049 .58418 .57796 .57184 .56582 .55988 .55403
85............................................................ .62734 .62090 .61454 .60828 .60211 .59603 .59004 .58414 .57832 .57258
86............................................................ .64455 .63828 .63210 .62600 .61999 .61406 .60821 .60244 .59675 .59113
87............................................................ .66139 .65531 .64930 .64337 .63752 .63175 .62605 .62043 .61488 .60939
88............................................................ .67783 .67194 .66612 .66037 .65469 .64908 .64354 .63807 .63267 .62733
89............................................................ .69387 .68817 .68254 .67698 .67148 .66605 .66068 .65537 .65012 .64493
90............................................................ .70947 .70398 .69855 .69318 .68786 .68261 .67742 .67228 .66719 .66217
91............................................................ .72437 .71908 .71385 .70867 .70354 .69847 .69345 .68848 .68357 .67870
92............................................................ .73823 .73314 .72810 .72310 .71816 .71326 .70841 .70361 .69886 .69415
93............................................................ .75109 .74618 .74132 .73650 .73173 .72700 .72232 .71768 .71308 .70852
94............................................................ .76312 .75839 .75370 .74905 .74445 .73988 .73536 .73087 .72643 .72202
95............................................................ .77459 .77004 .76552 .76104 .75660 .75220 .74783 .74350 .73920 .73494
96............................................................ .78543 .78105 .77670 .77238 .76810 .76386 .75964 .75546 .75131 .74720
97............................................................ .79550 .79128 .78709 .78293 .77880 .77470 .77063 .76659 .76258 .75860
98............................................................ .80498 .80091 .79687 .79286 .78888 .78492 .78099 .77709 .77322 .76937
99............................................................ .81428 .81036 .80647 .80261 .79877 .79496 .79117 .78741 .78367 .77995
100........................................................... .82336 .81959 .81586 .81214 .80845 .80478 .80113 .79751 .79390 .79032
101........................................................... .83234 .82873 .82515 .82158 .81804 .81451 .81101 .80753 .80406 .80062
102........................................................... .84119 .83774 .83431 .83089 .82750 .82412 .82076 .81742 .81409 .81078
103........................................................... .84999 .84670 .84342 .84016 .83691 .83368 .83046 .82726 .82408 .82091
104........................................................... .85944 .85632 .85321 .85011 .84703 .84396 .84090 .83786 .83483 .83182
105........................................................... .86866 .86570 .86276 .85982 .85690 .85399 .85109 .84820 .84532 .84245
106........................................................... .88065 .87792 .87520 .87248 .86978 .86708 .86440 .86172 .85905 .85638
107........................................................... .89530 .89286 .89042 .88799 .88557 .88315 .88073 .87833 .87592 .87352
108........................................................... .91849 .91654 .91460 .91266 .91072 .90879 .90685 .90492 .90299 .90106
109........................................................... .95900 .95800 .95700 .95600 .95500 .95400 .95300 .95200 .95100 .95000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 90CM Unitrust Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
10.2% 10.4% 10.6% 10.8% 11.0% 11.2% 11.4% 11.6% 11.8% 12.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .01363 .01342 .01323 .01305 .01288 .01272 .01258 .01244 .01231 .01219
1............................................................. .00534 .00512 .00493 .00474 .00458 .00442 .00427 .00414 .00401 .00389
2............................................................. .00518 .00495 .00474 .00455 .00437 .00421 .00405 .00391 .00377 .00365
3............................................................. .00526 .00502 .00480 .00459 .00440 .00422 .00406 .00391 .00376 .00363
4............................................................. .00546 .00521 .00497 .00475 .00455 .00436 .00419 .00402 .00387 .00373
5............................................................. .00576 .00549 .00524 .00501 .00479 .00459 .00440 .00423 .00406 .00391
6............................................................. .00613 .00584 .00557 .00532 .00509 .00488 .00468 .00449 .00432 .00415
7............................................................. .00657 .00626 .00598 .00571 .00547 .00524 .00502 .00482 .00464 .00446
8............................................................. .00707 .00675 .00644 .00616 .00590 .00565 .00542 .00521 .00501 .00482
9............................................................. .00766 .00732 .00699 .00669 .00641 .00615 .00591 .00568 .00547 .00527
10............................................................ .00835 .00798 .00764 .00732 .00702 .00675 .00649 .00624 .00602 .00580
11............................................................ .00913 .00874 .00838 .00804 .00772 .00743 .00715 .00689 .00665 .00642
12............................................................ .01000 .00959 .00920 .00884 .00851 .00819 .00790 .00762 .00737 .00712
13............................................................ .01091 .01048 .01007 .00969 .00933 .00900 .00869 .00840 .00813 .00787
14............................................................ .01181 .01135 .01092 .01052 .01014 .00979 .00947 .00916 .00887 .00860
15............................................................ .01267 .01218 .01173 .01130 .01091 .01054 .01019 .00987 .00956 .00928
16............................................................ .01345 .01294 .01246 .01201 .01160 .01121 .01084 .01050 .01018 .00988
17............................................................ .01418 .01364 .01313 .01266 .01222 .01181 .01143 .01107 .01073 .01041
18............................................................ .01486 .01429 .01375 .01326 .01279 .01236 .01196 .01158 .01122 .01088
19............................................................ .01554 .01494 .01438 .01385 .01336 .01291 .01248 .01208 .01170 .01135
20............................................................ .01626 .01562 .01503 .01448 .01396 .01348 .01303 .01260 .01220 .01183
[[Page 300]]
21............................................................ .01702 .01635 .01573 .01514 .01460 .01409 .01361 .01316 .01274 .01235
22............................................................ .01782 .01711 .01645 .01584 .01526 .01472 .01422 .01374 .01330 .01288
23............................................................ .01868 .01793 .01724 .01658 .01597 .01540 .01487 .01437 .01390 .01345
24............................................................ .01962 .01883 .01809 .01740 .01675 .01615 .01558 .01505 .01455 .01408
25............................................................ .02065 .01981 .01903 .01830 .01762 .01698 .01638 .01581 .01528 .01478
26............................................................ .02178 .02089 .02006 .01929 .01856 .01789 .01725 .01665 .01609 .01556
27............................................................ .02303 .02209 .02122 .02040 .01963 .01891 .01824 .01760 .01700 .01644
28............................................................ .02439 .02339 .02247 .02160 .02079 .02002 .01931 .01863 .01800 .01740
29............................................................ .02585 .02480 .02382 .02290 .02204 .02123 .02047 .01976 .01908 .01845
30............................................................ .02742 .02631 .02527 .02430 .02339 .02253 .02172 .02096 .02025 .01957
31............................................................ .02910 .02793 .02683 .02579 .02482 .02391 .02306 .02225 .02149 .02077
32............................................................ .03089 .02965 .02849 .02739 .02636 .02540 .02449 .02363 .02282 .02206
33............................................................ .03282 .03151 .03028 .02912 .02803 .02701 .02604 .02513 .02427 .02346
34............................................................ .03489 .03350 .03220 .03097 .02982 .02873 .02771 .02674 .02583 .02497
35............................................................ .03713 .03567 .03429 .03299 .03177 .03061 .02953 .02850 .02753 .02661
36............................................................ .03953 .03798 .03653 .03515 .03386 .03263 .03148 .03039 .02936 .02838
37............................................................ .04211 .04048 .03894 .03748 .03611 .03481 .03359 .03243 .03134 .03030
38............................................................ .04490 .04318 .04155 .04001 .03856 .03719 .03589 .03466 .03350 .03239
39............................................................ .04791 .04609 .04437 .04274 .04120 .03975 .03837 .03707 .03583 .03466
40............................................................ .05116 .04924 .04742 .04571 .04408 .04254 .04108 .03970 .03839 .03714
41............................................................ .05469 .05267 .05075 .04894 .04722 .04559 .04405 .04258 .04119 .03987
42............................................................ .05851 .05638 .05436 .05245 .05063 .04891 .04728 .04573 .04425 .04285
43............................................................ .06263 .06039 .05827 .05625 .05433 .05252 .05079 .04915 .04759 .04610
44............................................................ .06707 .06472 .06248 .06035 .05834 .05642 .05459 .05286 .05121 .04963
45............................................................ .07180 .06933 .06698 .06474 .06262 .06059 .05867 .05684 .05509 .05342
46............................................................ .07685 .07425 .07178 .06943 .06720 .06507 .06304 .06110 .05926 .05750
47............................................................ .08218 .07946 .07687 .07440 .07205 .06981 .06768 .06564 .06369 .06183
48............................................................ .08784 .08499 .08228 .07969 .07722 .07487 .07262 .07047 .06842 .06646
49............................................................ .09382 .09085 .08801 .08530 .08271 .08024 .07788 .07562 .07346 .07140
50............................................................ .10018 .09707 .09410 .09127 .08856 .08597 .08349 .08112 .07885 .07667
51............................................................ .10691 .10367 .10057 .09761 .09477 .09206 .08946 .08697 .08459 .08231
52............................................................ .11399 .11061 .10738 .10429 .10132 .09849 .09577 .09316 .09066 .08826
53............................................................ .12142 .11791 .11454 .11132 .10823 .10526 .10242 .09969 .09707 .09456
54............................................................ .12921 .12556 .12206 .11870 .11548 .11239 .10942 .10657 .10383 .10120
55............................................................ .13738 .13359 .12995 .12646 .12311 .11989 .11679 .11382 .11096 .10820
56............................................................ .14595 .14202 .13824 .13462 .13113 .12778 .12456 .12146 .11847 .11560
57............................................................ .15491 .15084 .14693 .14317 .13955 .13607 .13272 .12949 .12638 .12338
58............................................................ .16424 .16004 .15599 .15209 .14834 .14473 .14125 .13789 .13465 .13153
59............................................................ .17390 .16955 .16537 .16134 .15746 .15371 .15010 .14662 .14325 .14001
60............................................................ .18387 .17939 .17507 .17091 .16689 .16302 .15927 .15566 .15217 .14880
61............................................................ .19420 .18958 .18513 .18084 .17669 .17268 .16881 .16506 .16145 .15795
62............................................................ .20494 .20020 .19561 .19119 .18691 .18277 .17877 .17490 .17115 .16753
63............................................................ .21613 .21126 .20654 .20199 .19758 .19331 .18918 .18518 .18131 .17757
64............................................................ .22774 .22274 .21791 .21322 .20869 .20429 .20004 .19592 .19192 .18805
65............................................................ .23979 .23467 .22971 .22490 .22025 .21573 .21135 .20710 .20299 .19899
66............................................................ .25233 .24709 .24202 .23709 .23231 .22767 .22318 .21881 .21457 .21045
67............................................................ .26543 .26009 .25489 .24985 .24496 .24021 .23560 .23111 .22676 .22252
68............................................................ .27908 .27363 .26833 .26319 .25819 .25332 .24860 .24400 .23954 .23519
69............................................................ .29324 .28769 .28230 .27705 .27195 .26699 .26216 .25746 .25288 .24843
70............................................................ .30783 .30219 .29671 .29137 .28618 .28112 .27619 .27139 .26672 .26216
71............................................................ .32277 .31706 .31150 .30608 .30079 .29564 .29063 .28573 .28096 .27631
72............................................................ .33803 .33225 .32661 .32112 .31575 .31052 .30542 .30044 .29559 .29084
73............................................................ .35356 .34772 .34201 .33645 .33101 .32571 .32053 .31547 .31053 .30571
74............................................................ .36943 .36354 .35778 .35215 .34666 .34129 .33604 .33091 .32590 .32100
75............................................................ .38574 .37980 .37400 .36833 .36278 .35735 .35205 .34686 .34178 .33681
76............................................................ .40256 .39660 .39076 .38505 .37947 .37400 .36864 .36340 .35827 .35324
77............................................................ .41991 .41394 .40808 .40235 .39674 .39124 .38585 .38056 .37539 .37032
78............................................................ .43777 .43180 .42594 .42020 .41457 .40906 .40365 .39834 .39314 .38803
79............................................................ .45602 .45007 .44422 .43849 .43287 .42735 .42193 .41661 .41139 .40627
80............................................................ .47449 .46856 .46275 .45704 .45143 .44592 .44051 .43519 .42997 .42484
81............................................................ .49300 .48712 .48134 .47566 .47008 .46460 .45921 .45391 .44870 .44357
82............................................................ .51145 .50563 .49990 .49427 .48873 .48328 .47792 .47265 .46746 .46235
83............................................................ .52983 .52407 .51841 .51284 .50735 .50195 .49663 .49139 .48624 .48116
84............................................................ .54828 .54261 .53702 .53151 .52609 .52075 .51549 .51030 .50519 .50015
85............................................................ .56693 .56135 .55586 .55044 .54510 .53983 .53464 .52952 .52447 .51949
86............................................................ .58560 .58013 .57474 .56943 .56418 .55901 .55390 .54886 .54389 .53898
87............................................................ .60398 .59864 .59337 .58817 .58303 .57795 .57294 .56799 .56310 .55828
88............................................................ .62206 .61685 .61170 .60662 .60159 .59663 .59173 .58688 .58209 .57736
[[Page 301]]
89............................................................ .63980 .63474 .62972 .62477 .61987 .61503 .61024 .60551 .60083 .59620
90............................................................ .65719 .65227 .64741 .64259 .63783 .63312 .62846 .62385 .61928 .61477
91............................................................ .67388 .66912 .66440 .65973 .65511 .65053 .64600 .64152 .63708 .63269
92............................................................ .68949 .68487 .68030 .67577 .67129 .66685 .66245 .65809 .65378 .64950
93............................................................ .70401 .69954 .69511 .69072 .68637 .68205 .67778 .67355 .66935 .66519
94............................................................ .71765 .71332 .70902 .70477 .70055 .69636 .69222 .68810 .68403 .67998
95............................................................ .73072 .72653 .72237 .71825 .71416 .71010 .70608 .70209 .69813 .69421
96............................................................ .74311 .73906 .73504 .73105 .72709 .72316 .71926 .71539 .71155 .70774
97............................................................ .75465 .75073 .74684 .74297 .73914 .73533 .73155 .72780 .72407 .72037
98............................................................ .76555 .76175 .75798 .75424 .75052 .74683 .74317 .73953 .73591 .73232
99............................................................ .77626 .77260 .76895 .76534 .76174 .75817 .75462 .75109 .74759 .74411
100........................................................... .78676 .78323 .77971 .77622 .77274 .76929 .76586 .76245 .75906 .75569
101........................................................... .79719 .79379 .79040 .78703 .78368 .78035 .77704 .77375 .77048 .76722
102........................................................... .80749 .80422 .80096 .79772 .79450 .79130 .78811 .78494 .78178 .77864
103........................................................... .81775 .81461 .81149 .80838 .80529 .80221 .79914 .79609 .79306 .79003
104........................................................... .82881 .82582 .82284 .81988 .81693 .81399 .81106 .80815 .80525 .80236
105........................................................... .83959 .83674 .83391 .83108 .82826 .82546 .82267 .81988 .81711 .81435
106........................................................... .85373 .85108 .84844 .84581 .84319 .84058 .83797 .83537 .83278 .83020
107........................................................... .87113 .86875 .86636 .86399 .86161 .85925 .85689 .85453 .85218 .84984
108........................................................... .89913 .89721 .89529 .89337 .89145 .88953 .88762 .88571 .88380 .88189
109........................................................... .94900 .94800 .94700 .94600 .94500 .94400 .94300 .94200 .94100 .94000
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table U(1)--Based on Life Table 90CM Unitrust Single Life Remainder Factors
[Applicable After April 30, 1999, and Before May 1, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest rate
Age -----------------------------------------------------------------------------------------
12.2% 12.4% 12.6% 12.8% 13.0% 13.2% 13.4% 13.6% 13.8% 14.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................. .01208 .01197 .01187 .01177 .01168 .01159 .01151 .01143 .01135 .01128
1............................................................. .00378 .00367 .00358 .00348 .00340 .00331 .00323 .00316 .00309 .00302
2............................................................. .00353 .00342 .00331 .00322 .00312 .00304 .00295 .00288 .00280 .00273
3............................................................. .00350 .00339 .00327 .00317 .00307 .00298 .00289 .00281 .00273 .00265
4............................................................. .00359 .00347 .00335 .00324 .00313 .00303 .00294 .00285 .00276 .00268
5............................................................. .00377 .00363 .00351 .00339 .00327 .00317 .00306 .00297 .00288 .00279
6............................................................. .00400 .00386 .00372 .00359 .00347 .00335 .00325 .00314 .00305 .00295
7............................................................. .00430 .00414 .00400 .00386 .00373 .00360 .00349 .00338 .00327 .00317
8............................................................. .00465 .00448 .00432 .00417 .00403 .00390 .00378 .00366 .00354 .00344
9............................................................. .00508 .00490 .00473 .00457 .00442 .00428 .00414 .00402 .00389 .00378
10............................................................ .00560 .00541 .00523 .00506 .00490 .00475 .00460 .00446 .00433 .00421
11............................................................ .00620 .00600 .00581 .00563 .00546 .00529 .00514 .00499 .00485 .00472
12............................................................ .00689 .00668 .00647 .00628 .00610 .00593 .00576 .00560 .00545 .00531
13............................................................ .00763 .00740 .00718 .00698 .00678 .00660 .00642 .00626 .00610 .00595
14............................................................ .00834 .00810 .00787 .00766 .00745 .00726 .00707 .00689 .00673 .00657
15............................................................ .00901 .00875 .00851 .00828 .00807 .00786 .00767 .00748 .00730 .00714
16............................................................ .00959 .00932 .00907 .00883 .00860 .00839 .00818 .00799 .00780 .00762
17............................................................ .01011 .00983 .00956 .00930 .00907 .00884 .00862 .00842 .00822 .00804
18............................................................ .01057 .01027 .00999 .00972 .00947 .00923 .00900 .00879 .00858 .00839
19............................................................ .01101 .01070 .01040 .01012 .00985 .00960 .00936 .00914 .00892 .00871
20............................................................ .01148 .01115 .01083 .01054 .01026 .00999 .00974 .00950 .00927 .00905
21............................................................ .01197 .01162 .01129 .01098 .01068 .01040 .01014 .00988 .00964 .00941
22............................................................ .01249 .01211 .01176 .01143 .01112 .01082 .01054 .01027 .01002 .00978
23............................................................ .01304 .01264 .01227 .01192 .01159 .01127 .01098 .01069 .01042 .01017
24............................................................ .01364 .01322 .01283 .01246 .01210 .01177 .01145 .01115 .01087 .01060
25............................................................ .01431 .01387 .01345 .01306 .01268 .01233 .01199 .01168 .01137 .01109
26............................................................ .01506 .01459 .01415 .01373 .01333 .01295 .01260 .01226 .01194 .01163
27............................................................ .01591 .01541 .01494 .01449 .01407 .01367 .01329 .01293 .01259 .01226
28............................................................ .01684 .01631 .01580 .01533 .01488 .01445 .01405 .01367 .01330 .01296
29............................................................ .01785 .01728 .01675 .01624 .01577 .01531 .01488 .01447 .01408 .01372
30............................................................ .01893 .01833 .01776 .01723 .01672 .01623 .01578 .01534 .01493 .01453
31............................................................ .02010 .01946 .01885 .01828 .01773 .01722 .01673 .01627 .01582 .01540
32............................................................ .02134 .02066 .02002 .01940 .01883 .01828 .01776 .01726 .01679 .01634
33............................................................ .02270 .02197 .02128 .02063 .02002 .01943 .01887 .01835 .01784 .01736
34............................................................ .02415 .02338 .02265 .02195 .02130 .02067 .02008 .01951 .01897 .01846
35............................................................ .02574 .02492 .02414 .02340 .02270 .02203 .02140 .02080 .02022 .01967
36............................................................ .02746 .02658 .02575 .02496 .02422 .02350 .02283 .02218 .02157 .02098
[[Page 302]]
37............................................................ .02932 .02838 .02750 .02666 .02586 .02510 .02438 .02369 .02303 .02241
38............................................................ .03135 .03035 .02941 .02851 .02766 .02685 .02608 .02534 .02464 .02397
39............................................................ .03355 .03249 .03149 .03053 .02962 .02876 .02793 .02715 .02640 .02568
40............................................................ .03596 .03484 .03377 .03275 .03178 .03086 .02998 .02914 .02833 .02757
41............................................................ .03861 .03742 .03628 .03520 .03416 .03318 .03224 .03134 .03048 .02966
42............................................................ .04152 .04025 .03903 .03788 .03678 .03573 .03473 .03377 .03285 .03198
43............................................................ .04468 .04333 .04205 .04082 .03965 .03853 .03746 .03644 .03546 .03453
44............................................................ .04813 .04670 .04533 .04403 .04278 .04159 .04045 .03936 .03832 .03732
45............................................................ .05183 .05032 .04887 .04748 .04616 .04489 .04368 .04252 .04141 .04034
46............................................................ .05582 .05421 .05267 .05121 .04980 .04846 .04717 .04593 .04475 .04362
47............................................................ .06006 .05836 .05673 .05518 .05369 .05226 .05089 .04958 .04832 .04711
48............................................................ .06459 .06279 .06107 .05943 .05785 .05634 .05488 .05349 .05216 .05087
49............................................................ .06942 .06752 .06571 .06397 .06230 .06070 .05916 .05768 .05626 .05490
50............................................................ .07459 .07259 .07068 .06884 .06708 .06538 .06376 .06219 .06069 .05924
51............................................................ .08012 .07801 .07599 .07406 .07220 .07041 .06869 .06703 .06544 .06391
52............................................................ .08596 .08375 .08163 .07959 .07763 .07574 .07392 .07218 .07049 .06887
53............................................................ .09214 .08982 .08759 .08544 .08338 .08139 .07948 .07763 .07586 .07415
54............................................................ .09867 .09623 .09389 .09164 .08946 .08737 .08536 .08342 .08154 .07974
55............................................................ .10556 .10301 .10055 .09819 .09591 .09371 .09159 .08955 .08757 .08567
56............................................................ .11283 .11016 .10759 .10511 .10272 .10042 .09819 .09605 .09397 .09197
57............................................................ .12050 .11771 .11502 .11243 .10993 .10751 .10518 .10293 .10075 .09864
58............................................................ .12852 .12562 .12281 .12011 .11749 .11496 .11252 .11016 .10787 .10567
59............................................................ .13687 .13385 .13092 .12810 .12537 .12273 .12017 .11770 .11531 .11299
60............................................................ .14554 .14240 .13935 .13641 .13356 .13080 .12813 .12555 .12305 .12063
61............................................................ .15457 .15130 .14813 .14507 .14210 .13923 .13644 .13375 .13113 .12860
62............................................................ .16402 .16063 .15734 .15415 .15107 .14808 .14518 .14237 .13964 .13699
63............................................................ .17393 .17042 .16700 .16370 .16049 .15738 .15437 .15144 .14860 .14584
64............................................................ .18429 .18065 .17712 .17369 .17036 .16714 .16400 .16096 .15800 .15513
65............................................................ .19511 .19135 .18769 .18415 .18070 .17735 .17410 .17094 .16787 .16488
66............................................................ .20645 .20257 .19880 .19513 .19157 .18810 .18473 .18146 .17827 .17517
67............................................................ .21841 .21441 .21052 .20673 .20305 .19947 .19599 .19259 .18929 .18608
68............................................................ .23096 .22685 .22284 .21895 .21515 .21146 .20786 .20436 .20094 .19762
69............................................................ .24409 .23987 .23575 .23175 .22784 .22404 .22033 .21672 .21320 .20976
70............................................................ .25772 .25339 .24918 .24507 .24106 .23715 .23333 .22961 .22598 .22244
71............................................................ .27178 .26735 .26304 .25882 .25471 .25070 .24679 .24296 .23923 .23559
72............................................................ .28622 .28170 .27729 .27298 .26877 .26467 .26065 .25673 .25290 .24915
73............................................................ .30100 .29639 .29189 .28749 .28320 .27899 .27489 .27087 .26694 .26310
74............................................................ .31621 .31152 .30694 .30246 .29807 .29378 .28959 .28548 .28146 .27753
75............................................................ .33195 .32719 .32253 .31797 .31351 .30914 .30486 .30067 .29657 .29255
76............................................................ .34832 .34350 .33877 .33415 .32961 .32517 .32082 .31656 .31238 .30828
77............................................................ .36535 .36047 .35570 .35101 .34642 .34192 .33750 .33317 .32892 .32475
78............................................................ .38302 .37811 .37329 .36856 .36392 .35937 .35490 .35051 .34621 .34198
79............................................................ .40124 .39630 .39145 .38669 .38201 .37742 .37291 .36848 .36413 .35985
80............................................................ .41980 .41485 .40998 .40520 .40050 .39588 .39134 .38688 .38249 .37818
81............................................................ .43854 .43358 .42871 .42392 .41921 .41457 .41001 .40553 .40112 .39678
82............................................................ .45733 .45238 .44752 .44273 .43802 .43338 .42881 .42431 .41989 .41553
83............................................................ .47616 .47123 .46638 .46161 .45690 .45227 .44770 .44320 .43877 .43441
84............................................................ .49519 .49030 .48548 .48073 .47604 .47143 .46688 .46239 .45797 .45361
85............................................................ .51458 .50974 .50496 .50025 .49560 .49102 .48650 .48204 .47763 .47329
86............................................................ .53413 .52935 .52463 .51998 .51538 .51084 .50636 .50194 .49758 .49327
87............................................................ .55351 .54881 .54416 .53957 .53503 .53055 .52613 .52176 .51744 .51317
88............................................................ .57268 .56806 .56349 .55898 .55451 .55010 .54574 .54144 .53718 .53296
89............................................................ .59162 .58710 .58262 .57819 .57382 .56949 .56520 .56097 .55678 .55263
90............................................................ .61030 .60588 .60151 .59718 .59290 .58866 .58447 .58032 .57621 .57214
91............................................................ .62834 .62403 .61977 .61554 .61136 .60722 .60312 .59907 .59505 .59107
92............................................................ .64527 .64107 .63692 .63280 .62872 .62468 .62068 .61672 .61279 .60890
93............................................................ .66107 .65699 .65294 .64893 .64495 .64101 .63711 .63323 .62940 .62559
94............................................................ .67597 .67200 .66806 .66415 .66027 .65643 .65262 .64884 .64509 .64138
95............................................................ .69031 .68645 .68262 .67881 .67504 .67130 .66759 .66390 .66025 .65662
96............................................................ .70396 .70021 .69648 .69279 .68912 .68548 .68186 .67828 .67471 .67118
97............................................................ .71670 .71305 .70943 .70584 .70227 .69872 .69520 .69171 .68824 .68480
98............................................................ .72875 .72521 .72169 .71819 .71472 .71127 .70784 .70444 .70106 .69770
99............................................................ .74065 .73721 .73379 .73040 .72703 .72368 .72035 .71704 .71375 .71048
100........................................................... .75234 .74901 .74570 .74241 .73914 .73589 .73265 .72944 .72625 .72307
101........................................................... .76399 .76077 .75757 .75438 .75122 .74807 .74494 .74183 .73873 .73565
102........................................................... .77552 .77241 .76932 .76625 .76319 .76015 .75712 .75411 .75111 .74813
103........................................................... .78703 .78404 .78106 .77809 .77514 .77221 .76929 .76638 .76348 .76060
104........................................................... .79948 .79662 .79377 .79093 .78810 .78528 .78248 .77969 .77691 .77414
[[Page 303]]
105........................................................... .81159 .80885 .80612 .80340 .80069 .79799 .79530 .79262 .78995 .78729
106........................................................... .82763 .82506 .82250 .81995 .81741 .81488 .81235 .80983 .80732 .80482
107........................................................... .84749 .84516 .84283 .84051 .83819 .83587 .83356 .83126 .82896 .82666
108........................................................... .87999 .87808 .87618 .87428 .87238 .87049 .86859 .86670 .86481 .86293
109........................................................... .93900 .93800 .93700 .93600 .93500 .93400 .93300 .93200 .93100 .93000
--------------------------------------------------------------------------------------------------------------------------------------------------------
(7) Effective/applicability dates. Paragraphs (f)(1) through (f)(6)
apply after April 30, 1999, and before May 1, 2009.
[T.D. 8540, 59 FR 30102, 30116, 30117, 30148, June 10, 1994, as amended
by T.D. 8819, 64 FR 23199, 23209, Apr. 30, 1999; T.D. 8886, 65 FR 36943,
June 12, 2000; T.D. 9448, 74 FR 21465, 21482, May 7, 2009; T.D. 9540, 76
FR 49612, Aug. 10, 2011]
treatment of excess distributions of trusts applicable to taxable years
beginning on or after january 1, 1969
Sec. 1.665(a)-0A Excess distributions by trusts; scope of subpart D.
(a) In general. (1) Subpart D (section 665 and following), part I,
subchapter J, chapter 1 of the Code as amended by the Tax Reform Act of
1969, is designed to tax the beneficiary of a trust that accumulates,
rather than distributes, all or part of its income currently (i.e., an
accumulation trust), in most cases, as if the income had been currently
distributed to the beneficiary instead of accumulated by the trusts.
Accordingly, subpart D provides special rules for the treatment of
amounts paid, credited, or required to be distributed by a complex trust
(one that is subject to subpart C (section 661 and following) of such
part I) in any year in excess of ``distributable net income'' (as
defined in section 643 (a)) for that year. Such an excess distribution
is an ``accumulation distribution'' (as defined in section 665(b)). The
special rules of subpart D are generally inapplicable to amounts paid,
credited, or required to be distributed by a trust in a taxable year in
which it qualifies as a simple trust (one that is subject to subpart B
(section 651 and following) of such part I). However, see Sec.
1.665(e)-1A(b) for rules relating to the treatment of a simple trust as
a complex trust.
(2) An accumulation distribution is deemed to consist of, first,
``undistributed net income'' (as defined in section 665(a)) of the trust
from preceding taxable years, and, after all the undistributed net
income for all preceding taxable years has been deemed distributed,
``undistributed capital gain'' (as defined in section 665(f)) of the
trust for all preceding taxable years commencing with the first year
such amounts were accumulated. An accumulation distribution of
undistributed capital gain is a ``capital gain distribution'' (as
defined in section 665(g)). To the extent an accumulation distribution
exceeds the ``undistributed net income'' and ``undistributed capital
gain'' so determined, it is deemed to consist of corpus.
(3) The accumulation distribution is ``thrown back'' to the earliest
``preceding taxable year'' of the trust, which, in the case of
distributions made for a taxable year beginning after December 31, 1973,
from a trust (other than a foreign trust created by a U.S. person), is
any taxable year beginning after December 31, 1968. Special transitional
rules apply for distributions made in taxable years beginning before
January 1, 1974. In the case of a foreign trust created by a U.S.
person, a ``preceding taxable year'' is any year of the trust to which
the Code applies.
(4) A distribution of undistributed net income (included in an
accumulation distribution) and a capital gain distribution will be
included in the income of the beneficiary in the year they are actually
paid, credited, or required to be distributed to him. The
[[Page 304]]
tax on the distribution will be approximately the amount of tax the
beneficiary would have paid with respect to the distribution had the
income and capital gain been distributed to the beneficiary in the year
earned by the trust. An additional amount equal to the ``taxes imposed
on the trust'' for the preceding year is also deemed distributed. To
prevent double taxation, however, the beneficiary receives a credit for
such taxes.
(b) Effective dates. All regulations sections under subpart D
(sections 665 through 669) which have an ``A'' suffix (such as Sec.
1.665(a)A and Sec. 1.666(b)-1A) are applicable to taxable years
beginning on or after January 1, 1969, and all references therein to
sections 665 through 669 are references to such sections as amended by
the Tax Reform Act of 1969. Sections without the ``A'' suffix (such as
Sec. 1.666(b)-1) are applicable only to taxable years beginning before
January 1, 1969, and all references therein to sections 665 through 669
are references to such sections before amendment by the Tax Reform Act
of 1969.
(c) Examples. Where examples contained in the regulations under
subpart D refer to tax rates for years after 1968, such tax rates are
not necessarily the actual rates for such years, but are only used for
example purposes.
(d) Applicability to estates. Subpart D does not apply to any
estate.
[T.D. 7204, 37 FR 17135, Aug. 25, 1972]
Sec. 1.665(a)-1A Undistributed net income.
(a) Domestic trusts. The term undistributed net income, in the case
of a trust (other than a foreign trust created by a U.S. person) means,
for any taxable year beginning after December 31, 1968, the
distributable net income of the trust for that year (as determined under
section 643(a)), less:
(1) The amount of income required to be distributed currently and
any other amounts properly paid or credited or required to be
distributed to beneficiaries in the taxable year as specified in section
661(a), and
(2) The amount of taxes imposed on the trust attributable to such
distributable net income, as defined in Sec. 1.665 (d)-1A. The
application of the rule in this paragraph to a taxable year of a trust
in which income is accumulated may be illustrated by the following
example:
Example. Under the terms of the trust, $10,000 of income is required
to be distributed currently to A and the trustee has discretion to make
additional distributions to A. During the taxable year 1971 the trust
had distributable net income of $30,100 derived from royalties and the
trustee made distributions of $20,000 to A. The taxable income of the
trust is $10,000 on which a tax of $2,190 is paid. The undistributed net
income of the trust for the taxable year 1971 is $7,910, computed as
follows:
Distributable net income.......................... $30,100
Less:
Income currently distributable to A............. $10,000
Other amounts distributed to A.................. 10,000
Taxes imposed on the trust attributable to the 2,190
undistributed net income (see Sec. 1.665(d)-
1A)............................................
------------
Total......................................... 22,190
------------
Undistributed net income...................... 7,910
(b) Foreign trusts. The undistributed net income of a foreign trust
created by a U.S. person for any taxable year is the distributable net
income of such trust (see Sec. 1.643(a)-6 and the examples set forth in
paragraph (b) thereof), less:
(1) The amount of income required to be distributed currently and
any other amounts properly paid or credited or required to be
distributed to beneficiaries in the taxable year as specified in section
661(a), and
(2) The amount of taxes imposed on such trust by chapter 1 of the
Internal Revenue Code, which are attributable to items of income which
are required to be included in such distributable net income.
For purposes of subparagraph (2) of this paragraph, the amount of taxes
imposed on the trust for any taxable year by chapter 1 of the Internal
Revenue Code is the amount of taxes imposed pursuant to section 871
(relating to tax on non-resident alien individuals) which is properly
allocable to the undistributed portion of the distributable net income.
See Sec. 1.665(d)-1A. The amount of taxes imposed pursuant to section
871 is the difference between the total tax imposed pursuant to that
section on the foreign trust created by a U.S. person for the year and
the
[[Page 305]]
amount which would have been imposed on such trust had all the
distributable net income, as determined under section 643(a), been
distributed. The application of the rule in this paragraph may be
illustrated by the following examples:
Example 1. A trust was created in 1952 under the laws of Country X
by the transfer to a trustee in Country X of property by a U.S. person.
The entire trust constitutes a foreign trust created by a U.S. person.
The governing instrument of the trust provides that $7,000 of income is
required to be distributed currently to a U.S. beneficiary and gives the
trustee discretion to make additional distributions to the beneficiary.
During the taxable year 1973 the trust had income of $10,000 from
dividends of a U.S. corporation (on which Federal income taxes of $3,000
were imposed pursuant to section 871 and withheld under section 1441,
resulting in the receipt by the trust of cash in the amount of $7,000),
$20,000 in capital gains from the sale of stock of a Country Y
corporation and $30,000 from dividends of a Country X corporation, none
of the gross income of which was derived from sources within the United
States. No income taxes were required to be paid to Country X or Country
Y in 1973. The trustee did not file a U.S. income tax return for the
taxable year 1973. The distributable net income of the trust before
distributions to the beneficiary for 1973 is $60,000 ($57,000 of which
is cash). During 1973 the trustee made distributions to the U.S.
beneficiary equaling one-half of the trust's distributable net income.
Thus, the U.S. beneficiary is treated as having had distributed to him
$5,000 (composed of $3,500 as a cash distribution and $1,500 as the tax
imposed pursuant to section 871 and withheld under section 1441),
representing one-half of the income from U.S. sources; $10,000 in cash,
representing one-half of the capital gains from the sale of stock of the
Country Y corporation; and $15,000 in cash, representing one-half of the
income from Country X sources for a total of $30,000. The undistributed
net income of the trust at the close of taxable year 1973 is $28,500
computed as follows:
Distributable net income.......................... $60,000
Less:
(1) Amounts distributed to the beneficiary:
Income currently distributed to the beneficiary. $7,000
Other amounts distributed to the beneficiary.... 21,500
Taxes under sec. 871 deemed distributed to the 1,500
beneficiary....................................
-----------
Total amounts distributed to the beneficiary.. 80,000
(2) Amount of taxes imposed on the trust under $1,500
chapter 1 of the Code attributable to the
undistributed net income (See Sec. 1.665 (d)-
1A) $3,000 less $1,500)........................
-----------
Total......................................... $31,500
------------
Undistributed net income...................... 28,500
Example 2. The facts are the same as in example 1 except that
property has been transferred to the trust by a person other than a U.S.
person, and during 1973 the foreign trust created by a U.S. person was
60 percent of the entire foreign trust. The trustee paid no income taxes
to Country X or Country Y in 1973.
(1) The undistributed net income of the portion of the entire trust
which is a foreign trust created by a U.S. person for 1973 is $17,100,
computed as follows:
Distributable net income (60% of each item of gross income of
entire trust):
60% of $10,000 U.S. dividends.............................. $6,000
60% of $20,000 Country X capital gains..................... 12,000
60% of $30,000 Country X dividends......................... 18,000
------------
Total.................................................... 36,000
Less:
(i) Amounts distributed to the beneficiary--
Income currently distributed to the beneficiary $4,200
(60% of $7,000)................................
Other amounts distributed to the beneficiary 12,900
(60% of $21,500)...............................
Taxes under sec. 871 deemed distributed to the 900
beneficiary (60% of $1,500)....................
-----------
Total amounts distributed to the beneficiary.. 18,000
(ii) Amount of taxes imposed on the trust under 900
chapter 1 of the Code attributable to the
undistributed net income (see Sec. 1.665 (d)-
1A) (60% of $1,500)............................
-----------
Total.................................................... 18,900
------------
Undistributed net income................................. 17,100
(2) The undistributed net income of the portion of the entire trust
which is not a foreign trust created by a U.S. person for 1973 is
$11,400, computed as follows:
Distributable net income (40% of each item of gross income of
entire trust)
40% of $10,000 U.S. dividends.............................. $4,000
40% of $20,000 Country X capital gains..................... 8,000
40% of $30,000 Country X dividends......................... 12,000
------------
Total.................................................... 24,000
Less:
(i) Amounts distributed to the beneficiary--
Income currently distributed to the beneficiary $2,800
(40% of $7,000)................................
Other amounts distributed to the beneficiary 8,600
(40% of $21,500)...............................
[[Page 306]]
Taxes under sec. 871 deemed distributed to the 600
beneficiary (40% of $1,500)....................
-----------
Total amounts distributed to the beneficiary.. 12,000
(ii) Amount of taxes imposed on the trust under 600
chapter 1 of the Code attributable to the
undistributed net income (See Sec. 1.665 (d)-
1A) (40% of $1,500)............................
-----------
Total.................................................... 12,600
------------
Undistributed net income................................. 11,400
(c) Effect of prior distributions. The undistributed net income for
any year to which an accumulation distribution for a later year may be
thrown back will be reduced by accumulation distributions in intervening
years that are required to be thrown back to such year. For example, if
a trust has undistributed net income for 1975, and an accumulation
distribution is made in 1980, there must be taken into account the
effect on undistributed net income for 1975 of any accumulation
distribution made in 1976, 1977, 1978, or 1979. However, undistributed
net income for any year will not be reduced by any distributions in any
intervening years that are excluded under section 663(a)(1), relating to
gifts, bequests, etc. See paragraph (d) of Sec. 1.666(a)-1A for an
illustration of the reduction of undistributed net income for any year
by a subsequent accumulation distribution.
(d) Distributions made in taxable years beginning before January 1,
1974. For special rules relating to accumulation distributions of
undistributed net income made in taxable years of the trust beginning
before January 1, 1974, see Sec. 1.665(b)-2A.
[T.D. 7204, 37 FR 17136, Aug. 25, 1972]
Sec. 1.665(b)-1A Accumulation distributions.
(a) In general. (1) For any taxable year of a trust the term
accumulation distribution means an amount by which the amounts properly
paid, credited, or required to be distributed within the meaning of
section 661(a)(2) (i.e., all amounts properly paid, credited, or
required to be distributed to the beneficiary other than income required
to be distributed currently within the meaning of section 661(a)(1)) for
that year exceed the distributable net income (determined under section
643(a)) of the trust, reduced (but not below zero) by the amount of
income required to be distributed currently. To the extent provided in
section 663(b) and the regulations thereunder, distributions made within
the first 65 days following a taxable year may be treated as having been
distributed on the last day of such taxable year.
(2) An accumulation distribution also includes, for a taxable year
of the trust, any amount to which section 661(a)(2) and the preceding
paragraph are inapplicable and which is paid, credited, or required to
be distributed during the taxable year of the trust by reason of the
exercise of a power to appoint, distribute, consume, or withdraw corpus
of the trust or income of the trust accumulated in a preceding taxable
year. No accumulation distribution is deemed to be made solely because
the grantor or any other person is treated as owner of a portion of the
trust by reason of an unexercised power to appoint, distribute, consume,
or withdraw corpus or accumulated income of the trust. Nor will an
accumulation distribution be deemed to have been made by reason of the
exercise of a power that may affect only taxable income previously
attributed to the holders of such power under subpart E (section 671 and
following). See example 4 of paragraph (d) of this section for an
example of an accumulation distribution occurring as a result of the
exercise of a power of withdrawal.
(3) Although amounts properly paid or credited under section 661(a)
do not exceed the income of the trust during the taxable year, an
accumulation distribution may result if the amounts properly paid or
credited under section 661(a)(2) exceed distributable net income reduced
(but not below zero) by the amount required to be distributed currently
under section 661(a)(1). This may occur, for example, when expenses,
interest, taxes, or other items allocable to corpus are taken into
account in determining taxable income and hence causing distributable
net income to be less than the trust's income.
[[Page 307]]
(b) Payments that are accumulation distributions. The following are
some instances in which an accumulation distribution may arise:
(1) One trust to another. A distribution from one trust to another
trust is generally an accumulation distribution. See Sec. 1.643(c)-1.
This general rule will apply regardless of whether the distribution is
to an existing trust or to a newly created trust and regardless of
whether the trust to which the distribution is made was created by the
same person who created the trust from which the distribution is made or
a different person. However, a distribution made from one trust to a
second trust will be deemed an accumulation distribution by the first
trust to an ultimate beneficiary of the second trust if the primary
purpose of the distribution to the second trust is to avoid the capital
gain distribution provisions (see section 669 and the regulations
thereunder). An amount passing from one separate share of a trust to
another separate share of the same trust is not an accumulation
distribution. See Sec. 1.665(g)-2A. For rules relating to the
computation of the beneficiary's tax under section 668 by reason of an
accumulation distribution from the second trust, see paragraphs (b)(1)
and (c)(1)(i) of Sec. 1.668(b)-1A and paragraphs (b)(1) and (c)(1)(i)
of Sec. 1.669(b)-1A.
(2) Income accumulated during minority. A distribution of income
accumulated during the minority of the beneficiary is generally an
accumulation distribution. For example, if a trust accumulates income
until the beneficiary's 21st birthday, and then distributes the income
to the beneficiary, such a distribution is an accumulation distribution.
However, see Sec. 1.665(b)-2A for rules governing income accumulated in
taxable years beginning before January 1, 1969.
(3) Amounts paid for support. To the extent that amounts forming all
or part of an accumulation distribution are applied or distributed for
the support of a dependent under the circumstances specified in section
677(b) or section 678(c) or are used to discharge or satisfy any
person's legal obligation as that term is used in Sec. 1.662(a)-4, such
amounts will be considered as having been distributed directly to the
person whose obligation is being satisfied.
(c) Payments that are not accumulation distributions--(1) Gifts,
bequests, etc., described in section 663(a)(1). A gift or bequest of a
specific sum of money or of specific property described in section
663(a)(1) is not an accumulation distribution.
(2) Charitable payments. Any amount paid, permanently set aside, or
used for the purposes specified in section 642(c) is not an accumulation
distribution, even though no charitable deduction is allowed under such
section with respect to such payment.
(3) Income required to be distributed currently. No accumulation
distribution will arise by reason of a payment of income required to be
distributed currently even though such income exceeds the distributable
net income of the trust because the payment is an amount specified in
section 661(a)(1).
(d) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. A trustee properly makes a distribution to a beneficiary
of $20,000 during the taxable year 1976, of which $10,000 is income
required to be distributed currently to the beneficiary. The
distributable net income of the trust is $15,000. There is an
accumulation distribution of $5,000 computed as follows.
Total distribution........................................... $20,000
Less: Income required to be distributed currently (section 10,000
661(a)(1))..................................................
------------
Other amounts distributed (section 661(a)(2))............ 10,000
Distributable net income.......................... $15,000
Less: Income required to be distributed currently. 10,000
-----------
Balance of distributable net income.......................... 5,000
------------
Accumulation distribution................................ 5,000
Example 2. Under the terms of the trust instrument, an annuity of
$15,000 is required to be paid to A out of income each year and the
trustee may in his discretion make distributions out of income or corpus
to B. During the taxable year the trust had income of $18,000, as
defined in section 643(b), and expenses allocable to corpus of $5,000.
Distributable net income amounted to $13,000. The trustee distributed
$15,000 of income to A and, in the exercise of his discretion, paid
$5,000 to B. There is an accumulation distribution of $5,000 computed as
follows:
Total distribution........................................... $20,000
[[Page 308]]
Less: Income required to be distributed currently to A 15,000
(section 661(a)(1)).........................................
------------
Other amounts distributed (section 661(a)(2))............ 5,000
Distributable net income.......................... $13,000
Less: Income required to be distributed currently 15,000
to A.............................................
-----------
Balance of distributable net income.......................... 0
------------
Accumulation distribution to B........................... 5,000
Example 3. Under the terms of a trust instrument, the trustee may
either accumulate the trust income or make distributions to A and B. The
trustee may also invade corpus for the benefit of A and B. During the
taxable year, the trust had income as defined in section 643(b) of
$22,000 and expenses of $5,000 allocable to corpus. Distributable net
income amounts to $17,000. The trustee distributed $10,000 each to A and
B during the taxable year. There is an accumulation distribution of
$3,000 computed as follows:
Total distribution........................................... $20,000
Less: Income required to be distributed currently............ 0
------------
Other amounts distributed (section 661(a)(2))............ 20,000
Distributable net income.......................... $17,000
Less: Income required to be distributed currently. 0
-----------
Balance of distributable net income.......................... 17,000
------------
Accumulation distribution................................ 3,000
Example 4. A dies in 1974 and bequeaths one-half the residue of his
estate in trust. His widow, W, is given a power, exercisable solely by
her, to require the trustee to pay her each year of the trust $5,000
from corpus. W's right to exercise such power was exercisable at any
time during the year but was not cumulative, so that, upon her failure
to exercise it before the end of any taxable year of the trust, her
right as to that year lapsed. The trust's taxable year is the calendar
year. During the calendar years 1975 and 1976, W did not exercise her
right and it lapsed as to those years. In the calendar years 1977 and
1978, in which years the trust had not distributable net income, she
exercised her right and withdrew $4,000 in 1977 and $5,000 in 1978. No
accumulation distribution was made by the trust in the calendar years
1975 and 1976. An accumulation distribution of $4,000 was made in 1977
and an accumulation distribution of $5,000 was made in 1978. The
accumulation distribution for the years 1977 and 1978 is not reduced by
any amount of income of the trust attributable to her under section 678
by reason of her power of withdrawal.
[T.D. 7204, 37 FR 17137, Aug. 25, 1972]
Sec. 1.665(b)-2A Special rules for accumulation distributions made in
taxable years beginning before January 1, 1974.
(a) General rule. Section 331(d)(2)(A) of the Tax Reform Act of 1969
excludes certain accumulated income from the tax imposed by section
668(a)(2) by providing certain exceptions from the definition of an
``accumulation distribution.'' Any amount paid, credited, or required to
be distributed by a trust (other than a foreign trust created by a U.S.
person) during a taxable year of the trust beginning after December 31,
1968, and before January 1, 1974, shall not be subject to the tax
imposed by section 668(a)(2) to the extent of the portion of such amount
that (1) would be allocated under section 666(a) to a preceding taxable
year of the trust beginning before January 1, 1969, and (2) would not
have been deemed an accumulation distribution because of the provisions
of paragraphs (1), (2), (3), or (4) of section 665(b) as in effect on
December 31, 1968, had the trust distributed such amounts on the last
day of its last taxable year beginning before January 1, 1969. However,
the $2,000 de minimis exception formerly in section 665(b) does not
apply in the case of any distribution made in a taxable year of a trust
beginning after December 31, 1968. Amounts to which this exclusion
applies shall reduce the undistributed net income of the trust for the
preceding taxable year or years to which such amounts would be allocated
under section 666(a). However, since section 668(a)(2) does not apply to
such amounts, no amount of taxes imposed on the trust allocable to such
undistributed net income is deemed distributed under section 666 (b) and
(c).
(b) Application of general rule. The rule expressed in paragraph (a)
of this section is applied to the exceptions formerly in section 665(b)
as follows:
(1) Distributions from amounts accumulated while beneficiary is
under 21. (i) Paragraph (1) of section 665(b) as in effect on December
31, 1968, provided that amounts paid, credited, or required to be
distributed to a beneficiary as income accumulated before the birth of
such beneficiary or before such beneficiary attains the age of 21 were
not to
[[Page 309]]
be considered to be accumulation distributions. If an accumulation
distribution is made in a taxable year of the trust beginning after
December 31, 1968, and before January 1, 1974, and under section 666(a)
such accumulation distribution would be allocated to a preceding taxable
year beginning before January 1, 1969, no tax shall be imposed under
section 668(a)(2) to the extent the income earned by the trust for such
preceding taxable year would be deemed under Sec. 1.665(b)-2(b)(1) to
have been accumulated before the beneficiary's birth or before his 21st
birthday. The provisions of this subparagraph may be illustrated by the
following example:
Example. A trust on the calendar year basis was established on
January 1, 1965, to accumulate the income during the minority of B, and
to pay the accumulated income over to B upon his attaining the age of
21. B's 21st birthday is January 1, 1973. On January 2, 1973, the
trustee pays over to B all the accumulated income of the trust. The
distribution is an accumulation distribution that may be allocated under
section 666(a) to 1968, 1969, 1970, 1971, and 1972 (the 5 preceding
taxable years as defined in Sec. 1.665(e)-1A). To the extent the
distribution is allocated to 1968, no tax is imposed under section
668(a)(2).
(ii) As indicated in paragraph (a) of this section, a distribution
of an amount excepted from the tax otherwise imposed under section
668(a)(2) will reduce undistributed net income for the purpose of
determining the effect of a future distribution. Thus, under the facts
of the example in subdivision (i) of this subparagraph, the
undistributed net income for the trust's taxable year 1968 would be
reduced by the amount of the distribution allocated to that year under
section 666(a).
(2) Emergency distributions. Paragraph (2) of section 665(b) as in
effect on December 31, 1968, provided an exclusion from the definition
of an accumulation distribution for amounts properly paid or credited to
a beneficiary to meet his emergency needs. Therefore, if an accumulation
distribution is made from a trust in a taxable year beginning before
January 1, 1974, and under section 666(a) such accumulation distribution
would be allocated to a preceding taxable year of the trust beginning
before January 1, 1969, no tax shall be imposed under section 668(a)(2)
if such distribution would have been considered an emergency
distribution under Sec. 1.665(b)-2(b)(2) had it been made in a taxable
year of the trust beginning before January 1, 1969. For example, assume
a trust on a calendar year basis in 1972 makes an accumulation
distribution which under Sec. 1.665(b)-2(b) (2) would be considered an
emergency distribution and under section 666(a) the distribution would
be allocated to the years 1967, 1968, and 1969. To the extent such
amount is allocated to 1967 and 1968, no tax would be imposed under
section 668(a)(2).
(3) Certain distributions at specified ages. Paragraph (3) of
section 665(b) as in effect on December 31, 1968, provided an exclusion
(in the case of certain trusts created before January 1, 1954) from the
definition of an accumulation distribution for amounts properly paid or
credited to a beneficiary upon his attaining a specified age or ages,
subject to certain restrictions (see Sec. 1.665(b)-2(b)(3)). Therefore,
a distribution from a trust in a taxable year beginning after December
31, 1968, will not be subject to the tax imposed under section 668(a)(2)
to the extent such distribution would be allocated to a preceding
taxable year of the trust beginning before January 1, 1969, if such
distribution would have qualified under the provisions of Sec.
1.665(b)-2(b)(3) had it been made in a taxable year of the trust to
which such section was applicable.
(4) Certain final distributions. Paragraph (4) of section 665(b) as
in effect on December 31, 1968, provided an exclusion from the
definition of an accumulation distribution for amounts properly paid or
credited to a beneficiary as a final distribution of the trust if such
final distribution was made more than 9 years after the date of the last
transfer to such trust. Therefore, amounts properly paid or credited to
a beneficiary as a final distribution of a trust in a taxable year of a
trust beginning after December 31, 1968, and before January 1, 1974,
will not be subject to the tax imposed under section 668(a)(2) to the
extent such distribution would be allocated to a preceding taxable year
of the trust beginning before January 1, 1969, if such
[[Page 310]]
final distribution was made more than 9 years after the date of the last
transfer to such trust. The provisions of this subparagraph may be
illustrated by the following example:
Example. A trust on a calendar year basis was established on January
1, 1958, and no additional transfers were made to it. On January 1,
1973, the trustee terminates the trust and on the same day he makes a
final distribution to the beneficiary, B. The distribution is an
accumulation distribution that may be allocated under section 666(a) to
1968, 1969, 1970, 1971, and 1972 (the 5 preceding taxable years as
defined in Sec. 1.665(e)-1A). Because more than 9 years elapsed between
the date of the last transfer to the trust and the date of final
distribution, the distribution is not taxed under section 668 (a) (2) to
the extent it would be allocated to 1968 under section 666(a).
[T.D. 7204, 37 FR 17138, Aug. 25, 1972]
Sec. 1.665(c)-1A Special rule applicable to distributions by certain
foreign trusts.
(a) In general. Except as provided in paragraph (b) of this section,
for purposes of section 665 any amount paid to a U.S. person which is
from a payor who is not a U.S. person and which is derived directly or
indirectly from a foreign trust created by a U.S. person shall be deemed
in the year of payment to the U.S. person to have been directly paid to
the U.S. person by the trust. For example, if a nonresident alien
receives a distribution from a foreign trust created by a U.S. person
and then pays the amount of the distribution over to a U.S. person, the
payment of such amount to the U.S. person represents an accumulation
distribution to the U.S. person from the trust to the extent that the
amount received would have been an accumulation distribution had the
trust paid the amount directly to the U.S. person in the year in which
the payment was received by the U.S. person. This section also applies
in a case where a nonresident alien receives indirectly an accumulation
distribution from a foreign trust created by a U.S. person and then pays
it over to a U.S. person. An example of such a transaction is one where
the foreign trust created by a U.S. person makes the distribution to an
intervening foreign trust created by either a U.S. person or a person
other than a U.S. person and the intervening trust distributes the
amount received to a nonresident alien who in turn pays it over to a
U.S. person. Under these circumstances, it is deemed that the payment
received by the U.S. person was received directly from a foreign trust
created by a U.S. person.
(b) Limitation. In the case of a distribution to a beneficiary who
is a U.S. person, paragraph (a) of this section does not apply if the
distribution is received by such beneficiary under circumstances
indicating lack of intent on the part of the parties to circumvent the
purposes for which section 7 of the Revenue Act of 1962 (76 Stat. 985)
was enacted.
[T.D. 7204, 37 FR 17139 Aug. 25, 1972]
Sec. 1.665(d)-1A Taxes imposed on the trust.
(a) In general. (1) For purposes of subpart D, the term taxes
imposed on the trust means the amount of Federal income taxes properly
imposed for any taxable year on the trust that are attributable to the
undistributed portions of distributable net income and gains in excess
of losses from the sales or exchanges of capital assets. Except as
provided in paragraph (c)(2) of this section, the minimum tax for tax
preferences imposed by section 56 is not a tax attributable to the
undistributed portions of distributable net income and gains in excess
of losses from the sales or exchanges of capital assets. See section 56
and the regulations thereunder.
(2) In the case of a trust that has received an accumulation
distribution from another trust, the term taxes imposed on the trust
also includes the amount of taxes deemed distributed under Sec. Sec.
1.666(b)-1A, 1.666(c)-1A, 1.669(d)-1A, and 1.669(e)-1A (whichever are
applicable) as a result of such accumulation distribution, to the extent
that they were taken into account under paragraphs (b)(2) or (c)(1)(vi)
of Sec. 1.668 (b)-1A and (b)(2) or (c)(1)(vi) of Sec. 1.669(b)-1A in
computing the partial tax on such accumulation distribution. For
example, assume that trust A, a calendar year trust, makes an
accumulation distribution in 1975 to trust B, also on the calendar year
basis, in connection with which $500 of taxes are
[[Page 311]]
deemed under Sec. 1.666(b)-1A to be distributed to trust B. The partial
tax on the accumulation distribution is computed under paragraph (b) of
Sec. 1.668(b)-1A (the exact method) to be $600 and all of the $500 is
used under paragraph (b)(2) of Sec. 1.668(b)-1A to reduce the partial
tax to $100. The taxes imposed on trust B for 1975 will, in addition to
the $100 partial tax, also include the $500 used to reduce the partial
tax.
(b) Taxes imposed on the trust attributable to undistributed net
income. (1) For the purpose of subpart D, the term taxes imposed on the
trust attributable to the undistributed net income means the amount of
Federal income taxes for the taxable year properly allocable to the
undistributed portion of the distributable net income for such taxable
year. This amount is (i) an amount that bears the same relationship to
the total taxes of the trust for the year (other than the minimum tax
for tax preferences imposed by section 56), computed after the allowance
of credits under section 642(a), as (a) the taxable income of the trust,
other than the capital gains not included in distributable net income
less their share of section 1202 deduction, bears to (b) the total
taxable income of the trust for such year or, (ii) if the alternative
tax computation under section 1201(b) is used and there are no net
short-term gains, an amount equal to such total taxes less the amount of
the alternative tax imposed on the trust and attributable to the capital
gain. Thus, for the purposes of subpart D, in determining the amount of
taxes imposed on the trust attributable to the undistributed net income,
that portion of the taxes paid by the trust attributable to capital gain
allocable to corpus is excluded. The rule stated in this subparagraph
may be illustrated by the following example, which assumes that the
alternative tax computation is not used:
Example. (1) Under the terms of a trust, which reports on the
calendar year basis, the income may be accumulated or distributed to A
in the discretion of the trustee and capital gains are allocable to
corpus. During the taxable year 1974, the trust had income of $20,000
from royalties, long-term capital gains of $10,000, and expenses of
$2,000. The trustee in his discretion made a distribution of $10,000 to
A. The taxes imposed on the trust for such year attributable to the
undistributed net income are $2,319, determined as shown below.
(2) The distributable net income of the trust computed under section
643(a) is $18,000 (royalties of $20,000 less expenses of $2,000). The
total taxes paid by the trust are $3,787, computed as follows:
Royalties.................................................... $20,000
Capital gain allocable to corpus............................. 10,000
------------
Gross income............................................. 30,000
Deductions:
Expenses........................................ $2,000
Distributions to A.............................. 10,000
Capital gain deduction.......................... 5,000
Personal exemption.............................. 100
-----------
17,100
------------
Taxable income............................................... 12,900
Total income taxes....................................... 3,787
(3) Taxable income other than capital gains less the section 1202
deduction is $7,900 ($12,900-($10,000-$5,000)). Therefore, the amount of
taxes imposed on the trust attributable to the undistributed net income
is $2,319, computed as follows:
$3,787 (total taxes) x $7,900 (taxable income other than $2,319
capital gains not included in d.n.i. less the 1202
deduction) divided by $12,900 (taxable income)..............
(2) If in any taxable year an accumulation distribution of
undistributed net income is made by the trust which results in a
throwback to a prior year, the taxes of the prior year imposed on the
trust attributable to any remaining undistributed net income of such
prior year are the taxes prescribed in subparagraph (1) of this
paragraph reduced by the taxes of the prior year deemed distributed
under section 666 (b) or (c). The provisions of this subparagraph may be
illustrated by the following example:
Example. Assume the same facts as in the example in subparagraph (1)
of this paragraph. In 1975 the trust makes an accumulation distribution,
of which an amount of undistributed net income is deemed distributed in
1974. Taxes imposed on the trust (in the amount of $1,000) attributable
to the undistributed net income are therefore deemed distributed in such
year. Consequently, the taxes imposed on the trust subsequent to the
1975 distribution attributable to the remaining undistributed net income
are $1,319 ($2,319 less $1,000).
(c) Taxes imposed on the trust attributable to undistributed capital
gain--(1) Regular tax. For the purpose of subpart D the term taxes
imposed on the trust attributable to undistributed capital gain
[[Page 312]]
means the amount of Federal income taxes for the taxable year properly
attributable to that portion of the excess of capital gains over capital
losses of the trust that is allocable to corpus for such taxable year.
Such amount is the total of:
(i) The amount computed under subparagraph (2) of this paragraph
(the minimum tax), plus
(ii) The amount that bears the same relationship to the total taxes
of the trust for the year (other than the minimum tax), computed after
the allowance of credits under section 642(a), as (a) the excess of
capital gains over capital losses for such year that are not included in
distributable net income, computed after its share of the deduction
under section 1202 (relating to the deduction for capital gains) has
been taken into account, bears to the greater of (b) the total taxable
income of the trust for such year, or (c) the amount of capital gains
computed under (a) of this subdivision.
However, if the alternative tax computation under section 1201(b) is
used and there are no net short-term gains, the amount is the amount of
the alternative tax imposed on the trust and attributable to the capital
gain. The application of this subparagraph may be illustrated by the
following example, which assumes that the alternative tax computation is
not used:
Example. Assume the same facts as in the example in paragraph
(b)(1). The capital gains not included in d.n.i. are $10,000, and the
deduction under section 1202 is $5,000. The amount of taxes imposed on
the trust attributable to undistributed capital gain is $1,468, computed
as follows:
$3,787 (total taxes) x $5,000 (capital gains not included in $1,468
d.n.i. less section 1202 deductions) divided by $12,900
(taxable income)............................................
(2) Minimum tax. The term taxes imposed on the trust attributable to
the undistributed capital gain also includes the minimum tax for tax
preferences imposed on the trust by section 56 with respect to the
undistributed capital gain. The amount of such minimum tax so included
bears the same relation to the total amount of minimum tax imposed on
the trust by section 56 for the taxable year as one-half the net capital
gain (net section 1201 gain for taxable years beginning before January
1, 1977) (as defined in section 1222(11)) from such taxable year bears
to the sum of the items of tax preference of the trust for such taxable
year which are apportioned to the trust in accordance with Sec. 1.58-
3(a) (1).
(3) Reduction for prior distribution. If in any taxable year a
capital gain distribution is made by the trust which results in a
throwback to a prior year, the taxes of the prior year imposed on the
trust attributable to any remaining undistributed capital gain of the
prior year are the taxes prescribed in subparagraph (1) of this
paragraph reduced by the taxes of the prior year deemed distributed
under section 669 (d) or (e). The provisions of this subparagraph may be
illustrated by the following example:
Example. Assume the same facts as in the example in subparagraph (1)
of this paragraph. In 1976, the trust makes a capital gain distribution,
of which an amount of undistributed capital gain is deemed distributed
in 1974. Taxes imposed on the trust (in the amount of $500) attributable
to the undistributed capital gain are therefore deemed distributed in
such year. Consequently, the taxes imposed on the trust attributable to
the remaining undistributed capital gain are $968 ($1,468 less $500).
[T.D. 7204, 37 FR 17139, Aug. 25, 1972, as amended by T.D. 7728, 45 FR
72650, Nov. 3, 1980]
Sec. 1.665(e)-1A Preceding taxable year.
(a) Definition--(1) Domestic trusts--(i) In general. For purposes of
subpart D, in the case of a trust other than a foreign trust created by
a U.S. person, the term preceding taxable year serves to identify and
limit the taxable years of a trust to which an accumulation distribution
consisting of undistributed net income or undistributed capital gain may
be allocated (or ``thrown back'') under section 666(a) and 669(a). An
accumulation distribution consisting of undistributed net income or
undistributed capital gain may not be allocated or ``thrown back'' to a
taxable year of a trust if such year is not a ``preceding taxable
year.''
(ii) Accumulation distributions. In the case of an accumulation
distribution consisting of undistributed net income made in a taxable
year beginning before January 1, 1974, any taxable year of the trust
that precedes by more than
[[Page 313]]
5 years the taxable year of the trust in which such accumulation
distribution was made is not a ``preceding taxable year.'' Thus, for a
domestic trust on a calendar year basis, calendar year 1967 is not a
``preceding taxable year'' with respect to an accumulation distribution
made in calendar year 1973, whereas calendar year 1968 is a ``preceding
taxable year.'' In the case of an accumulation distribution made during
a taxable year beginning after December 31, 1973, any taxable year of
the trust that begins before January 1, 1969, is not a ``preceding
taxable year.'' Thus, for a domestic trust on a calendar year basis,
calendar year 1968 is not a ``preceding taxable year'' with respect to
an accumulation distribution made in calendar year 1975, whereas
calendar year 1969 is a ``preceding taxable year.''
(iii) Capital gain distributions. In the case of an accumulation
distribution that is a capital gain distribution, any taxable year of
the trust that (a) begins before January 1, 1969, or (b) is prior to the
first year in which income is accumulated, whichever occurs later, is
not a ``preceding taxable year.'' Thus, for the purpose of capital gain
distributions and section 669, only taxable years beginning after
December 31, 1968, can be ``preceding taxable years.'' See Sec.
1.688(a)-1A(c).
(2) Foreign trusts created by U.S. persons. For purposes of subpart
D, in the case of a foreign trust created by a U.S. person, the term
``preceding taxable year'' does not include any taxable year to which
part I of subchapter J does not apply. See section 683 and regulations
thereunder. Accordingly, the provisions of subpart D may not, in the
case of a foreign trust created by a U.S. person, be applied to any
taxable year which begins before 1954 or ends before August 17, 1954.
For example, if a foreign trust created by a U.S. person (reporting on
the calendar year basis) makes a distribution during the calendar year
1970 of income accumulated during prior years, the earliest year of the
trust to which the accumulation distribution may be allocated under such
subpart D is 1954, but it may not be allocated to 1953 and prior years,
since the Internal Revenue Code of 1939 applies to those years.
(b) Simple trusts. A taxable year of a trust during which the trust
was a simple trust (that is, was subject to subpart B) for the entire
year shall not be considered a ``preceding taxable year'' unless during
such year the trust received ``outside income'' or unless the trustee
did not distribute all of the income of the trust that was required to
be distributed currently for such year. In such event, undistributed net
income for such year shall not exceed the greater of the ``outside
income'' or income not distributed during such year. For purposes of
this paragraph, the term outside income means amounts that are included
in distributable net income of the trust for the year but that are not
``income'' of the trust as that term is defined in Sec. 1.643(b)-1.
Some examples of ``outside income'' are:
(1) Income taxable to the trust under section 691;
(2) Unrealized accounts receivable that were assigned to the trust;
and
(3) Distributions from another trust that include distributable net
income or undistributed net income of such other trust.
The term outside income, however, does not include amounts received as
distributions from an estate, other than income specified in (1) and
(2), for which the estate was allowed a deduction under section 661(a).
The application of this paragraph may be illustrated by the following
examples:
Example 1. By his will D creates a trust for his widow W. The terms
of the trust require that the income be distributed currently (i.e., it
is a simple trust), and authorize the trustee to make discretionary
payments of corpus to W. Upon W's death the trust corpus is to be
distributed to D's then living issue. The executor of D's will makes a
$10,000 distribution of corpus to the trust that carries out estate
income consisting of dividends and interest to the trust under section
662(a)(2). The trust reports this income as its only income on its
income tax return for its taxable year in which ends the taxable year of
the estate in which the $10,000 distribution was made, and pays a tax
thereon of $2,106. Thus, the trust has undistributed net income of
$7,894 ($10,000 -$2,106). Several years later the trustee makes a
discretionary corpus payment of $15,000 to W. This payment is an
accumulation distribution under section
[[Page 314]]
665(b). However, since the trust had no ``outside income'' in the year
of the estate distribution, such year is not a preceding taxable year.
Thus, W is not treated as receiving undistributed net income of $7,894
and taxes thereon of $2,106 for the purpose of including the same in her
gross income under section 668. The result would be the same if the
invasion power were not exercised and the accumulation distribution
occurred as a result of the distribution of the corpus to D's issue upon
the death of W.
Example 2. Trust A, a simple trust on the calendar year basis,
received in 1972 extraordinary dividends or taxable stock dividends that
the trustee in good faith allocated to corpus, but that are determined
in 1974 to have been currently distributable to the beneficiary. See
section 643(a)(4) and Sec. 1.643(a)-4. Trust A would qualify for
treatment under subpart C for 1974, the year of distribution of the
extraordinary dividends or taxable stock dividends, because the
distribution is not out of income of the current taxable year and is
treated as another amount properly paid or credited or required to be
distributed for such taxable year within the meaning of section 661(a)
(2). Also, the distribution in 1974 qualifies as an accumulation
distribution for the purposes of subpart D. For purposes only of such
subpart D, trust A would be treated as subject to the provisions of such
subpart C for 1972, the preceding taxable year in which the
extraordinary or taxable stock dividends were received, and, in
computing undistributed net income for 1972, the extraordinary or
taxable stock dividends would be included in distributable net income
under section 643(a). The rule stated in the preceding sentence would
also apply if the distribution in 1974 was made out of corpus without
regard to a determination that the extraordinary dividends or taxable
stock dividends in question were currently distributable to the
beneficiary.
[T.D. 7204, 37 FR 17141, Aug. 25, 1972]
Sec. 1.665(f)-1A Undistributed capital gain.
(a) Domestic trusts. (1) The term undistributed capital gain means
(in the case of a trust other than a foreign trust created by a U.S.
person), for any taxable year of the trust beginning after December 31,
1968, the gains in excess of losses for that year from the sale or
exchange of capital assets of the trust less:
(i) The amount of such gains that are included in distributable net
income under section 643(a)(3) and Sec. 1.643(a)-3.
(ii) The amount of taxes imposed on the trust for such year
attributable to such gains, as defined in Sec. 1.665(d)-1A, and
(iii) In the case of a trust that does not use the alternative
method for computing taxes on capital gains of the taxable year, the
excess of deductions (other than deductions allowed under section 642(b)
relating to personal exemption or section 642(c) relating to charitable
contributions) over distributable net income for such year to the extent
such excess deductions are properly allowable in determining taxable
income for such year.
For purposes of computing the amount of capital gain under this
paragraph, no deduction under section 1202, relating to deduction for
excess of capital gains over capital losses, shall be taken into
account. The application of this subparagraph may be illustrated by the
following example:
Example. Under the terms of the trust, the trustee must distribute
all income currently and has discretion to distribute capital gain to A
or to allocate it to corpus. During the taxable year 1971 the trust
recognized capital gain in the amount of $15,000, and capital losses of
$5,000, and had interest income (after expenses) of $6,000. The trustee
distributed $8,000 to A, consisting of $6,000 of interest and $2,000 of
capital gain. The $2,000 of gain distributed to A is included in the
computation of distributable net income under Sec. 1.643(a)-3. The
balance of the capital gain is not included in distributable net income
since it is allocated to corpus and not paid, credited, or required to
be distributed to any beneficiary. The trust paid taxes of $671, all of
which are attributable under Sec. 1.665(d)-1A to the undistributed
capital gain. The amount of undistributed capital gain of the trust for
1971 is therefore $7,329, computed as follows:
Total capital gains.......................................... $15,000
Less: Capital losses......................................... 5,000
------------
Gains in excess of losses.................................... 10,000
============
Less:
Amount of capital gain included in distributable net income.. 2,000
Taxes imposed on the trust attributable to the 671
undistributed capital gain (see Sec. 1.665(d)-1A).......
------------
2,671
------------
Undistributed capital gain................................... 7,329
============
(2) For purposes of subparagraph (1) of this paragraph, the term
losses for that year includes losses of the trusts
[[Page 315]]
from the sale or exchange of capital assets in preceding taxable years
not included in the computation of distributable net income of any year,
reduced by such losses taken into account in a subsequent preceding
taxable year in computing undistributed capital gain but not reduced by
such losses taken into account in determining the deduction under
section 1211. See section 1212(b)(2) and the regulations thereunder. For
example, assume that a trust had a net long-term capital loss in 1970 of
$5,000. During the years 1971 through 1975, the trust had no capital
gains or capital losses. In 1976, it has a long-term capital gain of
$8,000, which it allocates to corpus and does not distribute to a
beneficiary, but has no taxes attributable to such gain. The
undistributed capital gain for 1976 is $8,000-$5,000, or $3,000, even
though all or a part of the $5,000 loss was claimed under section 1211
as a deduction in years 1970 through 1975.
(b) Foreign trusts. Distributable net income for a taxable year of a
foreign trust created by a U.S. person includes capital gains in excess
of capital losses for such year (see Sec. 1.643(a)-6(a)(3)). Thus, a
foreign trust created by a U.S. person can never have any undistributed
capital gain.
[T.D. 7204, 37 FR 17142, Aug. 25, 1972]
Sec. 1.665(g)-1A Capital gain distribution.
For any taxable year of a trust, the term capital gain distribution
means, to the extent of the undistributed capital gain of the trust,
that portion of an accumulation distribution that exceeds the amount of
such accumulation distribution deemed under section 666(a) to be
undistributed net income of the trust for all preceding taxable years.
See Sec. 1.665(b)-1A for the definition of ``accumulation
distribution''. For any such taxable year the undistributed capital gain
includes the total undistributed capital gain for all years of the trust
beginning with the first taxable year beginning after December 31, 1968,
in which income (as determined under section 643(b)) is accumulated, and
ending before such taxable year. See Sec. 1.665(g)-2A for application
of the separate share rule. The application of this section may be
illustrated by the following example:
Example. A trust on the calendar year basis made the following
accumulations. For purposes of this example, the undistributed net
income is the same as income under applicable local law. No income was
accumulated prior to 1970.
------------------------------------------------------------------------
Undistributed Undistributed
Year net income capital gain
------------------------------------------------------------------------
1969................................ None $10,000
1970................................ $1,000 3,000
1971................................ None 4,000
------------------------------------------------------------------------
The trust has distributable net income in 1972 of $2,000 and
recognizes capital gains of $4,500 that are allocable to corpus. On
December 31, 1972, the trustee makes a distribution of $20,000 to the
beneficiary. There is an accumulation distribution of $18,000 $20,000
distribution less $2,000 d.n.i.) that consists of undistributed net
income of $1,000 (see Sec. 1.666(a)-1A) and a capital gain distribution
of $7,000. The capital gain distribution is computed as follows:
Accumulation distribution.................................... $18,000
Less: Undistributed net income............................... 1,000
----------
Balance.................................................. 17,000
==========
Capital gain distribution (undistributed capital gain of the 7,000
trust for 1972 ($3,000 from 1970 and $4,000 from 1971)).....
----------
Balance (corpus)......................................... 10,000
No undistributed capital gain is deemed distributed from 1969 because
1969 is a year prior to the first year in which income is accumulated
(1970). The accumulation distribution is not deemed to consist of any
part of the capital gains recognized in 1972.
[T.D. 7204, 37 FR 17142, Aug. 25, 1972]
Sec. 1.665(g)-2A Application of separate share rule.
(a) In general. If the separate share rule of section 663(c) is
applicable for any taxable year of a trust, subpart D is applied as if
each share were a separate trust except as provided in paragraph (c) of
this section and in Sec. 1.668(a)-1A(c). Thus, the amounts of an
``accumulation distribution'', ``undistributed net income'',
``undistributed capital gain'', and ``capital gain distribution'' are
computed separately for each share.
(b) Allocation of taxes--undistributed net income. The ``taxes
imposed on the trust attributable to the undistributed net income'' are
allocated as follows:
(1) There is first allocated to each separate share that portion of
the
[[Page 316]]
``taxes imposed on the trust attributable to the undistributed net
income'' (as defined in Sec. 1.665(d)-1A(b)), computed before the
allowance of any credits under section 642(a), that bears the same
relation to the total of such taxes that the distributable net income of
the separate share bears to the distributable net income of the trust,
adjusted for this purpose as follows:
(i) There is excluded from distributable net income of the trust and
of each separate share any tax-exempt interest, foreign income of a
foreign trust, and excluded dividends, to the extent such amounts are
included in distributable net income pursuant to section 643(a) (5),
(6), and (7); and
(ii) The distributable net income of the trust is reduced by any
deductions allowable under section 661 for amounts paid, credited, or
required to be distributed during the taxable year, and the
distributable net income of each separate share is reduced by any such
deduction allocable to that share.
(2) The taxes so determined for each separate share are then reduced
by that portion of the credits against tax allowable to the trust under
section 642(a) in computing the ``taxes imposed on the trust'' that
bears the same relation to the total of such credits that the items of
distributable net income allocable to the separate share with respect to
which the credit is allowed bear to the total of such items of the
trust.
(c) Allocation of taxes--undistributed capital gain. The ``taxes
imposed on the trust attributable to undistributed capital gain'' are
allocated as follows:
(1) There is first allocated to each separate share that portion of
the ``taxes imposed on the trust attributable to undistributed capital
gain'' (as defined in Sec. 1.665(d)-1A(c)), computed before the
allowance of any credits under section 642(a), that bears the same
relation to the total of such taxes that the undistributed capital gain
(prior to the deduction of taxes under section 665(c)(2)) of the
separate share bears to the total such undistributed capital gain of the
trust.
(2) The taxes so determined for each separate share are then reduced
by that portion of the credits against tax allowable to the trust under
section 642(a) in computing the ``taxes imposed on the trust'' that
bears the same relation to the total of such credits that the capital
gain allocable to the separate share with respect to which the credit is
allowed bear to the total of such capital gain of the trust.
(d) Termination of a separate share. (1) If upon termination of a
separate share, an amount is properly paid, credited, or required to be
distributed by the trust under section 661(a)(2) to a beneficiary from
such share, an accumulation distribution will be deemed to have been
made to the extent of such amount. In determining the distributable net
income of such share, only those items of income and deduction for the
taxable year of the trust in which such share terminates, properly
allocable to such share, shall be taken into consideration.
(2) No accumulation distribution will be deemed to have been made
upon the termination of a separate share to the extent that the property
constituting such share, or a portion thereof, continues to be held as a
part of the same trust. The undistributed net income, undistributed
capital gain, and the taxes imposed on the trust attributable to such
items, if any, for all preceding taxable years (reduced by any amounts
deemed distributed under sections 666(a) and 669(a) by reason of any
accumulation distribution of undistributed net income or undistributed
capital gain in prior years or the current taxable year), which were
allocable to the terminating share, shall be treated as being applicable
to the trust itself. However, no adjustment will be made to the amounts
deemed distributed under sections 666 and 669 by reason of an
accumulation distribution of undistributed net income or undistributed
capital gain from the surviving share or shares made in years prior to
the year in which the terminating share was added to such surviving
share or shares.
(3) The provisions of this paragraph may be illustrated by the
following example:
Example. A trust was established under the will of X for the benefit
of his wife and upon her death the property was to continue in the same
trust for his two sons, Y and Z. The separate share rule is applicable
to this
[[Page 317]]
trust. The trustee had discretion to pay or accumulate the income to the
wife, and after her death was to pay each son's share to him after he
attained the age of 25. When the wife died, Y was 23 and Z was 28.
(1) Upon the death of X's widow, there is no accumulation
distribution. The entire trust is split into two equal shares, and
therefore the undistributed net income and the undistributed capital
gain of the trust are split into two shares.
(2) The distribution to Z of his share after his mother's death is
an accumulation distribution of his separate share of one-half of the
undistributed net income and undistributed capital gain.
[T.D. 7204, 37 FR 17142, Aug. 25, 1972]
grantors and others treated as substantial owners
Sec. 1.671-1 Grantors and others treated as substantial owners; scope.
(a) Subpart E (section 671 and following), part I, subchapter J,
chapter 1 of the Code, contains provisions taxing income of a trust to
the grantor or another person under certain circumstances even though he
is not treated as a beneficiary under subparts A through D (section 641
and following) of such part I. Sections 671 and 672 contain general
provisions relating to the entire subpart. Sections 673 through 677
define the circumstances under which income of a trust is taxed to a
grantor. These circumstances are in general as follows:
(1) If the grantor has retained a reversionary interest in the
trust, within specified time limits (section 673);
(2) If the grantor or a nonadverse party has certain powers over the
beneficial interests under the trust (section 674);
(3) If certain administrative powers over the trust exist under
which the grantor can or does benefit (section 675).
(4) If the grantor or a nonadverse party has a power to revoke the
trust or return the corpus to the grantor (section 676); or
(5) If the grantor or a nonadverse party has the power to distribute
income to or for the benefit of the grantor or the grantor's spouse
(section 677).
Under section 678, income of a trust is taxed to a person other than the
grantor to the extent that he has the sole power to vest corpus or
income in himself.
(b) Sections 671 through 677 do not apply if the income of a trust
is taxable to a grantor's spouse under section 71 or 682 (relating
respectively to alimony and separate maintenance payments, and the
income of an estate or trust in the case of divorce, etc.).
(c) Except as provided in such subpart E, income of a trust is not
included in computing the taxable income and credits of a grantor or
another person solely on the grounds of his dominion and control over
the trust. However, the provisions of subpart E do not apply in
situations involving an assignment of future income, whether or not the
assignment is to a trust. Thus, for example, a person who assigns his
right to future income under an employment contract may be taxed on that
income even though the assignment is to a trust over which the assignor
has retained none of the controls specified in sections 671 through 677.
Similarly, a bondholder who assigns his right to interest may be taxed
on interest payments even though the assignment is to an uncontrolled
trust. Nor are the rules as to family partnerships affected by the
provisions of subpart E, even though a partnership interest is held in
trust. Likewise, these sections have no application in determining the
right of a grantor to deductions for payments to a trust under a
transfer and leaseback arrangement. In addition, the limitation of the
last sentence of section 671 does not prevent any person from being
taxed on the income of a trust when it is used to discharge his legal
obligation. See Sec. 1.662 (a)-4. He is then treated as a beneficiary
under subparts A through D or treated as an owner under section 677
because the income is distributed for his benefit, and not because of
his dominion or control over the trust.
(d) The provisions of subpart E are not applicable with respect to a
pooled income fund as defined in paragraph (5) of section 642(c) and the
regulations thereunder, a charitable remainder annuity trust as defined
in paragraph (1) of section 664(d) and the regulations thereunder, or a
charitable remainder unitrust as defined in paragraph (2) of
[[Page 318]]
section 664(d) and the regulations thereunder.
(e) For the effective date of subpart E see section 683 and the
regulations thereunder.
(f) For rules relating to the treatment of liabilities resulting on
the sale or other disposition of encumbered trust property due to a
renunciation of powers by the grantor or other owner, see Sec. 1.1001-
2.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7148, 36 FR
20749, Oct. 29, 1971; T.D. 7741, 45 FR 81745, Dec. 12, 1980]
Sec. 1.671-2 Applicable principles.
(a) Under section 671 a grantor or another person includes in
computing his taxable income and credits those items of income,
deduction, and credit against tax which are attributable to or included
in any portion of a trust of which he is treated as the owner. Sections
673 through 678 set forth the rules for determining when the grantor or
another person is treated as the owner of any portion of a trust. The
rules for determining the items of income, deduction, and credit against
tax that are attributable to or included in a portion of the trust are
set forth in Sec. 1.671-3.
(b) Since the principle underlying subpart E (section 671 and
following), part I, subchapter J, chapter 1 of the Code, is in general
that income of a trust over which the grantor or another person has
retained substantial dominion or control should be taxed to the grantor
or other person rather than to the trust which receives the income or to
the beneficiary to whom the income may be distributed, it is ordinarily
immaterial whether the income involved constitutes income or corpus for
trust accounting purposes. Accordingly, when it is stated in the
regulations under subpart E that ``income'' is attributed to the grantor
or another person, the reference, unless specifically limited, is to
income determined for tax purposes and not to income for trust
accounting purposes. When it is intended to emphasize that income for
trust accounting purposes (determined in accordance with the provisions
set forth in Sec. 1.643(b)-1 is meant, the phrase ``ordinary income''
is used.
(c) An item of income, deduction, or credit included in computing
the taxable income and credits of a grantor or another person under
section 671 is treated as if it had been received or paid directly by
the grantor or other person (whether or not an individual). For example,
a charitable contribution made by a trust which is attributed to the
grantor (an individual) under sections 671 through 677 will be
aggregated with his other charitable contributions to determine their
deductibility under the limitations of section 170(b)(1). Likewise,
dividends received by a trust from sources in a particular foreign
country which are attributed to a grantor or another person under
subpart E will be aggregated with his other income from sources within
that country to determine whether the taxpayer is subject to the
limitations of section 904 with respect to credit for the tax paid to
that country.
(d) Items of income, deduction, and credit not attributed to or
included in any portion of a trust of which the grantor or another
person is treated as the owner under subpart E are subject to the
provisions of subparts A through D (section 641 and following), of such
part I.
(e)(1) For purposes of part I of subchapter J, chapter 1 of the
Internal Revenue Code, a grantor includes any person to the extent such
person either creates a trust, or directly or indirectly makes a
gratuitous transfer (within the meaning of paragraph (e)(2) of this
section) of property to a trust. For purposes of this section, the term
property includes cash. If a person creates or funds a trust on behalf
of another person, both persons are treated as grantors of the trust.
(See section 6048 for reporting requirements that apply to grantors of
foreign trusts.) However, a person who creates a trust but makes no
gratuitous transfers to the trust is not treated as an owner of any
portion of the trust under sections 671 through 677 or 679. Also, a
person who funds a trust with an amount that is directly reimbursed to
such person within a reasonable period of time and who makes no other
transfers to the trust that constitute gratuitous transfers is not
treated as an owner of any portion of the trust under sections 671
through 677 or 679. See also Sec. 1.672(f)-5(a).
[[Page 319]]
(2)(i) A gratuitous transfer is any transfer other than a transfer
for fair market value. A transfer of property to a trust may be
considered a gratuitous transfer without regard to whether the transfer
is treated as a gift for gift tax purposes.
(ii) For purposes of this paragraph (e), a transfer is for fair
market value only to the extent of the value of property received from
the trust, services rendered by the trust, or the right to use property
of the trust. For example, rents, royalties, interest, and compensation
paid to a trust are transfers for fair market value only to the extent
that the payments reflect an arm's length price for the use of the
property of, or for the services rendered by, the trust. For purposes of
this determination, an interest in the trust is not property received
from the trust. In addition, a person will not be treated as making a
transfer for fair market value merely because the transferor recognizes
gain on the transaction. See, for example, section 684 regarding the
recognition of gain on certain transfers to foreign trusts.
(iii) For purposes of this paragraph (e), a gratuitous transfer does
not include a distribution to a trust with respect to an interest held
by such trust in either a trust described in paragraph (e)(3) of this
section or an entity other than a trust.
For example, a distribution to a trust by a corporation with respect
to its stock described in section 301 is not a gratuitous transfer.
(3) A grantor includes any person who acquires an interest in a
trust from a grantor of the trust if the interest acquired is an
interest in certain investment trusts described in Sec. 301.7701-4(c)
of this chapter, liquidating trusts described in Sec. 301.7701-4(d) of
this chapter, or environmental remediation trusts described in Sec.
301.7701-4(e) of this chapter.
(4) If a gratuitous transfer is made by a partnership or corporation
to a trust and is for a business purpose of the partnership or
corporation, the partnership or corporation will generally be treated as
the grantor of the trust. For example, if a partnership makes a
gratuitous transfer to a trust in order to secure a legal obligation of
the partnership to a third party unrelated to the partnership, the
partnership will be treated as the grantor of the trust. However, if a
partnership or a corporation makes a gratuitous transfer to a trust that
is not for a business purpose of the partnership or corporation but is
for the personal purposes of one or more of the partners or
shareholders, the gratuitous transfer will be treated as a constructive
distribution to such partners or shareholders under federal tax
principles and the partners or the shareholders will be treated as the
grantors of the trust. For example, if a partnership makes a gratuitous
transfer to a trust that is for the benefit of a child of a partner, the
gratuitous transfer will be treated as a distribution to the partner
under section 731 and a subsequent gratuitous transfer by the partner to
the trust.
(5) If a trust makes a gratuitous transfer of property to another
trust, the grantor of the transferor trust generally will be treated as
the grantor of the transferee trust. However, if a person with a general
power of appointment over the transferor trust exercises that power in
favor of another trust, then such person will be treated as the grantor
of the transferee trust, even if the grantor of the transferor trust is
treated as the owner of the transferor trust under subpart E of part I,
subchapter J, chapter 1 of the Internal Revenue Code.
(6) The following examples illustrate the rules of this paragraph
(e). Unless otherwise indicated, all trusts are domestic trusts, and all
other persons are United States persons. The examples are as follows:
Example 1. A creates and funds a trust, T, for the benefit of her
children. B subsequently makes a gratuitous transfer to T. Under
paragraph (e)(1) of this section, both A and B are grantors of T.
Example 2. A makes an investment in a fixed investment trust, T,
that is classified as a trust under Sec. 301.7701-4(c)(1) of this
chapter. A is a grantor of T. B subsequently acquires A's entire
interest in T. Under paragraph (e)(3) of this section, B is a grantor of
T with respect to such interest.
Example 3. A, an attorney, creates a foreign trust, FT, on behalf of
A's client, B, and transfers $100 to FT out of A's funds. A is
reimbursed by B for the $100 transferred to FT. The trust instrument
states that the trustee has discretion to distribute the income or
[[Page 320]]
corpus of FT to B and B's children. Both A and B are treated as grantors
of FT under paragraph (e)(1) of this section. In addition, B is treated
as the owner of the entire trust under section 677. Because A is
reimbursed for the $100 transferred to FT on behalf of B, A is not
treated as transferring any property to FT. Therefore, A is not an owner
of any portion of FT under sections 671 through 677 regardless of
whether A retained any power over or interest in FT described in
sections 673 through 677. Furthermore, A is not treated as an owner of
any portion of FT under section 679. Both A and B are responsible
parties for purposes of the requirements in section 6048.
Example 4. A creates and funds a trust, T. A does not retain any
power or interest in T that would cause A to be treated as an owner of
any portion of the trust under sections 671 through 677. B holds an
unrestricted power, exercisable solely by B, to withdraw certain amounts
contributed to the trust before the end of the calendar year and to vest
those amounts in B. B is treated as an owner of the portion of T that is
subject to the withdrawal power under section 678(a)(1). However, B is
not a grantor of T under paragraph (e)(1) of this section because B
neither created T nor made a gratuitous transfer to T.
Example 5. A transfers cash to a trust, T, through a broker, in
exchange for units in T. The units in T are not property for purposes of
determining whether A has received fair market value under paragraph
(e)(2)(ii) of this section. Therefore, A has made a gratuitous transfer
to T, and, under paragraph (e)(1) of this section, A is a grantor of T.
Example 6. A borrows cash from T, a trust. A has not made any
gratuitous transfers to T. Arm's length interest payments by A to T will
not be treated as gratuitous transfers under paragraph (e)(2)(ii) of
this section. Therefore, under paragraph (e)(1) of this section, A is
not a grantor of T with respect to the interest payments.
Example 7. A, B's brother, creates a trust, T, for B's benefit and
transfers $50,000 to T. The trustee invests the $50,000 in stock of
Company X. C, B's uncle, purportedly sells property with a fair market
value of $1,000,000 to T in exchange for the stock when it has
appreciated to a fair market value of $100,000. Under paragraph
(e)(2)(ii) of this section, the $900,000 excess value is a gratuitous
transfer by C. Therefore, under paragraph (e)(1) of this section, A is a
grantor with respect to the portion of the trust valued at $100,000, and
C is a grantor of T with respect to the portion of the trust valued at
$900,000. In addition, A or C or both will be treated as the owners of
the respective portions of the trust of which each person is a grantor
if A or C or both retain powers over or interests in such portions under
sections 673 through 677.
Example 8. G creates and funds a trust, T1, for the benefit of G's
children and grandchildren. After G's death, under authority granted to
the trustees in the trust instrument, the trustees of T1 transfer a
portion of the assets of T1 to another trust, T2, and retain a power to
revoke T2 and revest the assets of T2 in T1. Under paragraphs (e)(1) and
(5) of this section, G is the grantor of T1 and T2. In addition, because
the trustees of T1 have retained a power to revest the assets of T2 in
T1, T1 is treated as the owner of T2 under section 678(a).
Example 9. G creates and funds a trust, T1, for the benefit of B. G
retains a power to revest the assets of T1 in G within the meaning of
section 676. Under the trust agreement, B is given a general power of
appointment over the assets of T1. B exercises the general power of
appointment with respect to one-half of the corpus of T1 in favor of a
trust, T2, that is for the benefit of C, B's child. Under paragraph
(e)(1) of this section, G is the grantor of T1, and under paragraphs
(e)(1) and (5) of this section, B is the grantor of T2.
(7) The rules of this section are applicable to any transfer to a
trust, or transfer of an interest in a trust, on or after August 10,
1999.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as
amended by T.D. 8831, 64 FR 43274, Aug. 10, 1999; T.D. 8890, 65 FR
41333, July 5, 2000]
Sec. 1.671-3 Attribution or inclusion of income, deductions, and
credits against tax.
(a) When a grantor or another person is treated under subpart E
(section 671 and following) as the owner of any portion of a trust,
there are included in computing his tax liability those items of income,
deduction, and credit against tax attributable to or included in that
portion. For example:
(1) If a grantor or another person is treated as the owner of an
entire trust (corpus as well as ordinary income), he takes into account
in computing his income tax liability all items of income, deduction,
and credit (including capital gains and losses) to which he would have
been entitled had the trust not been in existence during the period he
is treated as owner.
(2) If the portion treated as owned consists of specific trust
property and its income, all items directly related to that property are
attributable to the portion. Items directly related to trust property
not included in the portion
[[Page 321]]
treated as owned by the grantor or other person are governed by the
provisions of subparts A through D (section 641 and following), part I,
subchapter J, chapter 1 of the Code. Items that relate both to the
portion treated as owned by the grantor and to the balance of the trust
must be apportioned in a manner that is reasonable in the light of all
the circumstances of each case, including the terms of the governing
instrument, local law, and the practice of the trustee if it is
reasonable and consistent.
(3) If the portion of a trust treated as owned by a grantor or
another person consists of an undivided fractional interest in the
trust, or of an interest represented by a dollar amount, a pro rata
share of each item of income, deduction, and credit is normally
allocated to the portion. Thus, where the portion owned consists of an
interest in or a right to an amount of corpus only, a fraction of each
item (including items allocated to corpus, such as capital gains) is
attributed to the portion. The numerator of this fraction is the amount
which is subject to the control of the grantor or other person and the
denominator is normally the fair market value of the trust corpus at the
beginning of the taxable year in question. The share not treated as
owned by the grantor or other person is governed by the provisions of
subparts A through D. See the last three sentences of paragraph (c) of
this section for the principles applicable if the portion treated as
owned consists of an interest in part of the ordinary income in contrast
to an interest in corpus alone.
(b) If a grantor or another person is treated as the owner of a
portion of a trust, that portion may or may not include both ordinary
income and other income allocable to corpus. For example:
(1) Only ordinary income is included by reason of an interest in or
a power over ordinary income alone. Thus, if a grantor is treated under
section 673 as an owner by reason of a reversionary interest in ordinary
income only, items of income allocable to corpus will not be included in
the portion he is treated as owning. Similarly, if a grantor or another
person is treated under sections 674-678 as an owner of a portion by
reason of a power over ordinary income only, items of income allocable
to corpus are not included in that portion. (See paragraph (c) of this
section to determine the treatment of deductions and credits when only
ordinary income is included in the portion.)
(2) Only income allocable to corpus is included by reason of an
interest in or a power over corpus alone, if satisfaction of the
interest or an exercise of the power will not result in an interest in
or the exercise of a power over ordinary income which would itself cause
that income to be included. For example, if a grantor has a reversionary
interest in a trust which is not such as to require that he be treated
as an owner under section 673, he may nevertheless be treated as an
owner under section 677(a)(2) since any income allocable to corpus is
accumulated for future distribution to him, but items of income included
in determining ordinary income are not included in the portion he is
treated as owning. Similarly, he may have a power over corpus which is
such that he is treated as an owner under section 674 or 676 (a), but
ordinary income will not be included in the portion he owns, if his
power can only affect income received after a period of time such that
he would not be treated as an owner of the income if the power were a
reversionary interest. (See paragraph (c) of this section to determine
the treatment of deductions and credits when only income allocated to
corpus is included in the portion.)
(3) Both ordinary income and other income allocable to corpus are
included by reason of an interest in or a power over both ordinary
income and corpus, or an interest in or a power over corpus alone which
does not come within the provisions of subparagraph (2) of this
paragraph. For example, if a grantor is treated under section 673 as the
owner of a portion of a trust by reason of a reversionary interest in
corpus, both ordinary income and other income allocable to corpus are
included in the portion. Further, a grantor includes both ordinary
income and other income allocable to corpus in the portion he is treated
as owning if he is treated under section 674 or 676 as an owner because
of a power over corpus which can affect income received within a period
such that he would be treated as an owner
[[Page 322]]
under section 673 if the power were a reversionary interest. Similarly,
a grantor or another person includes both ordinary income and other
income allocable to corpus in the portion he is treated as owning if he
is treated as an owner under section 675 or 678 because of a power over
corpus.
(c) If only income allocable to corpus is included in computing a
grantor's tax liability, he will take into account in that computation
only those items of income, deductions, and credit which would not be
included under subparts A through D in the computation of the tax
liability of the current income beneficiaries if all distributable net
income had actually been distributed to those beneficiaries. On the
other hand, if the grantor or another person is treated as an owner
solely because of his interest in or power over ordinary income alone,
he will take into account in computing his tax liability those items
which would be included in computing the tax liability of a current
income beneficiary, including expenses allocable to corpus which enter
into the computation of distributable net income. If the grantor or
other person is treated as an owner because of his power over or right
to a dollar amount of ordinary income, he will first take into account a
portion of those items of income and expense entering into the
computation of ordinary income under the trust instrument or local law
sufficient to produce income of the dollar amount required. There will
then be attributable to him a pro rata portion of other items entering
into the computation of distributable net income under subparts A
through D, such as expenses allocable to corpus, and a pro rata portion
of credits of the trust. For examples of computations under this
paragraph, see paragraph (g) of Sec. 1.677(a)-1.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR
742, Jan. 17, 1969]
Sec. 1.671-4 Method of reporting.
(a) Portion of trust treated as owned by the grantor or another
person. Except as otherwise provided in paragraph (b) of this section
and Sec. 1.671-5, items of income, deduction, and credit attributable
to any portion of a trust that, under the provisions of subpart E
(section 671 and following), part I, subchapter J, chapter 1 of the
Internal Revenue Code, is treated as owned by the grantor or another
person, are not reported by the trust on Form 1041, ``U.S. Income Tax
Return for Estates and Trusts,'' but are shown on a separate statement
to be attached to that form. Section 1.671-5 provides special reporting
rules for widely held fixed investment trusts. Section 301.7701-4(e)(2)
of this chapter provides guidance regarding the application of the
reporting rules in this paragraph (a) to an environmental remediation
trust.
(b) A trust all of which is treated as owned by one or more grantors
or other persons--(1) In general. In the case of a trust all of which is
treated as owned by one or more grantors or other persons, and which is
not described in paragraph (b)(6) or (7) of this section, the trustee
may, but is not required to, report by one of the methods described in
this paragraph (b) rather than by the method described in paragraph (a)
of this section. A trustee may not report, however, pursuant to
paragraph (b)(2)(i)(A) of this section unless the grantor or other
person treated as the owner of the trust provides to the trustee a
complete Form W-9 or acceptable substitute Form W-9 signed under
penalties of perjury. See section 3406 and the regulations thereunder
for the information to include on, and the manner of executing, the Form
W-9, depending upon the type of reportable payments made.
(2) A trust all of which is treated as owned by one grantor or by
one other person--(i) In general. In the case of a trust all of which is
treated as owned by one grantor or one other person, the trustee
reporting under this paragraph (b) must either--
(A) Furnish the name and taxpayer identification number (TIN) of the
grantor or other person treated as the owner of the trust, and the
address of the trust, to all payors during the taxable year, and comply
with the additional requirements described in paragraph (b)(2)(ii) of
this section; or
(B) Furnish the name, TIN, and address of the trust to all payors
during the taxable year, and comply with the additional requirements
described in paragraph (b)(2)(iii) of this section.
[[Page 323]]
(ii) Additional obligations of the trustee when name and TIN of the
grantor or other person treated as the owner of the trust and the
address of the trust are furnished to payors. (A) Unless the grantor or
other person treated as the owner of the trust is the trustee or a co-
trustee of the trust, the trustee must furnish the grantor or other
person treated as the owner of the trust with a statement that--
(1) Shows all items of income, deduction, and credit of the trust
for the taxable year;
(2) Identifies the payor of each item of income;
(3) Provides the grantor or other person treated as the owner of the
trust with the information necessary to take the items into account in
computing the grantor's or other person's taxable income; and
(4) Informs the grantor or other person treated as the owner of the
trust that the items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the income
tax return of the grantor or other person.
(B) The trustee is not required to file any type of return with the
Internal Revenue Service.
(iii) Additional obligations of the trustee when name, TIN, and
address of the trust are furnished to payors--(A) Obligation to file
Forms 1099. The trustee must file with the Internal Revenue Service the
appropriate Forms 1099, reporting the income or gross proceeds paid to
the trust during the taxable year, and showing the trust as the payor
and the grantor or other person treated as the owner of the trust as the
payee. The trustee has the same obligations for filing the appropriate
Forms 1099 as would a payor making reportable payments, except that the
trustee must report each type of income in the aggregate, and each item
of gross proceeds separately. See paragraph (b)(5) of this section
regarding the amounts required to be included on any Forms 1099 filed by
the trustee.
(B) Obligation to furnish statement. (1) Unless the grantor or other
person treated as the owner of the trust is the trustee or a co-trustee
of the trust, the trustee must also furnish to the grantor or other
person treated as the owner of the trust a statement that--
(i) Shows all items of income, deduction, and credit of the trust
for the taxable year;
(ii) Provides the grantor or other person treated as the owner of
the trust with the information necessary to take the items into account
in computing the grantor's or other person's taxable income; and
(iii) Informs the grantor or other person treated as the owner of
the trust that the items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the income
tax return of the grantor or other person.
(2) By furnishing the statement, the trustee satisfies the
obligation to furnish statements to recipients with respect to the Forms
1099 filed by the trustee.
(iv) Examples. The following examples illustrate the provisions of
this paragraph (b)(2):
Example 1. G, a United States citizen, creates an irrevocable trust
which provides that the ordinary income is to be payable to him for life
and that on his death the corpus shall be distributed to B, an unrelated
person. Except for the right to receive income, G retains no right or
power which would cause him to be treated as an owner under sections 671
through 679. Under the applicable local law, capital gains must be added
to corpus. Since G has a right to receive income, he is treated as an
owner of a portion of the trust under section 677. The tax consequences
of any items of capital gain of the trust are governed by the provisions
of subparts A, B, C, and D (section 641 and following), part I,
subchapter J, chapter 1 of the Internal Revenue Code. Because not all of
the trust is treated as owned by the grantor or another person, the
trustee may not report by the methods described in paragraph (b)(2) of
this section.
Example 2. (i)(A) On January 2, 1996, G, a United States citizen,
creates a trust all of which is treated as owned by G. The trustee of
the trust is T. During the 1996 taxable year the trust has the following
items of income and gross proceeds:
Interest..........................................................$2,500
Dividends..........................................................3,205
Proceeds from sale of B stock......................................2,000
(B) The trust has no items of deduction or credit.
[[Page 324]]
(ii)(A) The payors of the interest paid to the trust are X ($2,000),
Y ($300), and Z ($200). The payors of the dividends paid to the trust
are A ($3,200), and D ($5). The payor of the gross proceeds paid to the
trust is D, a brokerage firm, which held the B stock as the nominee for
the trust. The B stock was purchased by T for $1,500 on January 3, 1996,
and sold by T on November 29, 1996. T chooses to report pursuant to
paragraph (b)(2)(i)(B) of this section, and therefore furnishes the
name, TIN, and address of the trust to X, Y, Z, A, and D. X, Y, and Z
each furnish T with a Form 1099-INT showing the trust as the payee. A
furnishes T with a Form 1099-DIV showing the trust as the payee. D does
not furnish T with a Form 1099-DIV because D paid a dividend of less
than $10 to T. D furnishes T with a Form 1099-B showing the trust as the
payee.
(B) On or before February 28, 1997, T files a Form 1099-INT with the
Internal Revenue Service on which T reports interest attributable to G,
as the owner of the trust, of $2,500; a Form 1099-DIV on which T reports
dividends attributable to G, as the owner of the trust, of $3,205; and a
Form 1099-B on which T reports gross proceeds from the sale of B stock
attributable to G, as the owner of the trust, of $2,000. On or before
April 15, 1997, T furnishes a statement to G which lists the following
items of income and information necessary for G to take the items into
account in computing G's taxable income:
Interest..........................................................$2,500
Dividends..........................................................3,205
Gain from sale of B stock............................................500
Information regarding sale of B stock:
Proceeds..........................................................$2,000
Basis..............................................................1,500
Date acquired....................................................1/03/96
Date sold.......................................................11/29/96
(C) T informs G that any items of income, deduction and credit and
other information shown on the statement must be included in computing
the taxable income and credits of the grantor or other person on the
income tax return of the grantor or other person.
(D) T has complied with T's obligations under this section.
(iii)(A) Same facts as paragraphs (i) and (ii) of this Example 2,
except that G contributed the B stock to the trust on January 2, 1996.
On or before April 15, 1997, T furnishes a statement to G which lists
the following items of income and information necessary for G to take
the items into account in computing G's taxable income:
Interest..........................................................$2,500
Dividends..........................................................3,205
Information regarding sale of B stock:
Proceeds..........................................................$2,000
Date sold.......................................................11/29/96
(B) T informs G that any items of income, deduction and credit and
other information shown on the statement must be included in computing
the taxable income and credits of the grantor or other person on the
income tax return of the grantor or other person.
(C) T has complied with T's obligations under this section.
Example 3. On January 2, 1996, G, a United States citizen, creates a
trust all of which is treated as owned by G. The trustee of the trust is
T. The only asset of the trust is an interest in C, a common trust fund
under section 584(a). T chooses to report pursuant to paragraph
(b)(2)(i)(B) of this section and therefore furnishes the name, TIN, and
address of the trust to C. C files a Form 1065 and a Schedule K-1
(Partner's Share of Income, Credits, Deductions, etc.) showing the name,
TIN, and address of the trust with the Internal Revenue Service and
furnishes a copy to T. Because the trust did not receive any amounts
described in paragraph (b)(5) of this section, T does not file any type
of return with the Internal Revenue Service. On or before April 15,
1997, T furnishes G with a statement that shows all items of income,
deduction, and credit of the trust for the 1996 taxable year. In
addition, T informs G that any items of income, deduction and credit and
other information shown on the statement must be included in computing
the taxable income and credits of the grantor or other person on the
income tax return of the grantor or other person. T has complied with
T's obligations under this section.
(3) A trust all of which is treated as owned by two or more grantors
or other persons--(i) In general. In the case of a trust all of which is
treated as owned by two or more grantors or other persons, the trustee
must furnish the name, TIN, and address of the trust to all payors for
the taxable year, and comply with the additional requirements described
in paragraph (b)(3)(ii) of this section.
(ii) Additional obligations of trustee--(A) Obligation to file Forms
1099. The trustee must file with the Internal Revenue Service the
appropriate Forms 1099, reporting the items of income paid to the trust
by all payors during the taxable year attributable to the portion of the
trust treated as owned by each grantor or other person, and showing the
trust as the payor and each grantor or other person treated as an owner
of the trust as the payee. The trustee has the same obligations for
filing the appropriate Forms 1099 as would a payor making reportable
payments, except that the trustee must report each type of income in the
aggregate, and each item of gross proceeds
[[Page 325]]
separately. See paragraph (b)(5) of this section regarding the amounts
required to be included on any Forms 1099 filed by the trustee.
(B) Obligation to furnish statement. (1) The trustee must also
furnish to each grantor or other person treated as an owner of the trust
a statement that--
(i) Shows all items of income, deduction, and credit of the trust
for the taxable year attributable to the portion of the trust treated as
owned by the grantor or other person;
(ii) Provides the grantor or other person treated as an owner of the
trust with the information necessary to take the items into account in
computing the grantor's or other person's taxable income; and
(iii) Informs the grantor or other person treated as the owner of
the trust that the items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the income
tax return of the grantor or other person.
(2) Except for the requirements pursuant to section 3406 and the
regulations thereunder, by furnishing the statement, the trustee
satisfies the obligation to furnish statements to recipients with
respect to the Forms 1099 filed by the trustee.
(4) Persons treated as payors--(i) In general. For purposes of this
section, the term payor means any person who is required by any
provision of the Internal Revenue Code and the regulations thereunder to
make any type of information return (including Form 1099 or Schedule K-
1) with respect to the trust for the taxable year, including persons who
make payments to the trust or who collect (or otherwise act as middlemen
with respect to) payments on behalf of the trust.
(ii) Application to brokers and customers. For purposes of this
section, a broker, within the meaning of section 6045, is considered a
payor. A customer, within the meaning of section 6045, is considered a
payee.
(5) Amounts required to be included on Forms 1099 filed by the
trustee--(i) In general. The amounts that must be included on any Forms
1099 required to be filed by the trustee pursuant to this section do not
include any amounts that are reportable by the payor on an information
return other than Form 1099. For example, in the case of a trust which
owns an interest in a partnership, the trust's distributive share of the
income and gain of the partnership is not includible on any Forms 1099
filed by the trustee pursuant to this section because the distributive
share is reportable by the partnership on Schedule K-1.
(ii) Example. The following example illustrates the provisions of
this paragraph (b)(5):
Example. (i)(A) On January 2, 1996, G, a United States citizen,
creates a trust all of which is treated as owned by G. The trustee of
the trust is T. The assets of the trust during the 1996 taxable year are
shares of stock in X, an S corporation, a limited partnership interest
in P, shares of stock in M, and shares of stock in N. T chooses to
report pursuant to paragraph (b)(2)(i)(B) of this section and therefore
furnishes the name, TIN, and address of the trust to X, P, M, and N. M
furnishes T with a Form 1099-DIV showing the trust as the payee. N does
not furnish T with a Form 1099-DIV because N paid a dividend of less
than $10 to T. X and P furnish T with Schedule K-1 (Shareholder's Share
of Income, Credits, Deductions, etc.) and Schedule K-1 (Partner's Share
of Income, Credits, Deductions, etc.), respectively, showing the trust's
name, TIN, and address.
(B) For the 1996 taxable year the trust has the following items of
income and deduction:
Dividends paid by M..................................................$12
Dividends paid by N....................................................6
Administrative expense...............................................$20
Items reported by X on Schedule K-1 attributable to trust's shares
of stock in X:
Interest.............................................................$20
Dividends.............................................................35
Items reported by P on Schedule K-1 attributable to trust's limited
partnership interest in P:
Ordinary income.....................................................$300
(ii)(A) On or before February 28, 1997, T files with the Internal
Revenue Service a Form 1099-DIV on which T reports dividends
attributable to G as the owner of the trust in the amount of $18. T does
not file any other returns.
(B) T has complied with T's obligation under paragraph
(b)(2)(iii)(A) of this section to file the appropriate Forms 1099.
(6) Trusts that cannot report under this paragraph (b). The
following trusts cannot use the methods of reporting described in this
paragraph (b)--
[[Page 326]]
(i) A common trust fund as defined in section 584(a);
(ii) A trust that has its situs or any of its assets located outside
the United States;
(iii) A trust that is a qualified subchapter S trust as defined in
section 1361(d)(3);
(iv) A trust all of which is treated as owned by one grantor or one
other person whose taxable year is a fiscal year;
(v) A trust all of which is treated as owned by one grantor or one
other person who is not a United States person; or
(vi) A trust all of which is treated as owned by two or more
grantors or other persons, one of whom is not a United States person.
(7) Grantors or other persons who are treated as owners of the trust
and are exempt recipients for information reporting purposes--(i) Trust
treated as owned by one grantor or one other person. The trustee of a
trust all of which is treated as owned by one grantor or one other
person may not report pursuant to this paragraph (b) if the grantor or
other person is an exempt recipient for information reporting purposes.
(ii) Trust treated as owned by two or more grantors or other
persons. The trustee of a trust, all of which is treated as owned by two
or more grantors or other persons, may not report pursuant to this
paragraph (b) if one or more grantors or other persons treated as owners
are exempt recipients for information reporting purposes unless--
(A) At least one grantor or one other person who is treated as an
owner of the trust is a person who is not an exempt recipient for
information reporting purposes; and
(B) The trustee reports without regard to whether any of the
grantors or other persons treated as owners of the trust are exempt
recipients for information reporting purposes.
(8) Husband and wife who make a single return jointly. A trust all
of which is treated as owned by a husband and wife who make a single
return jointly of income taxes for the taxable year under section 6013
is considered to be owned by one grantor for purposes of this paragraph
(b).
(c) Due date for Forms 1099 required to be filed by trustee. The due
date for any Forms 1099 required to be filed with the Internal Revenue
Service by a trustee pursuant to this section is the due date otherwise
in effect for filing Forms 1099.
(d) Due date and other requirements with respect to statement
required to be furnished by trustee--(1) In general. The due date for
the statement required to be furnished by a trustee to the grantor or
other person treated as an owner of the trust pursuant to this section
is the date specified by section 6034A(a). The trustee must maintain in
its records a copy of the statement furnished to the grantor or other
person treated as an owner of the trust for a period of three years from
the due date for furnishing such statement specified in this paragraph
(d).
(2) Statement for the taxable year ending with the death of the
grantor or other person treated as the owner of the trust. If a trust
ceases to be treated as owned by the grantor, or other person, by reason
of the death of that grantor or other person (decedent), the due date
for the statement required to be furnished for the taxable year ending
with the death of the decedent shall be the date specified by section
6034A(a) as though the decedent had lived throughout the decedent's last
taxable year. See paragraph (h) of this section for special reporting
rules for a trust or portion of the trust that ceases to be treated as
owned by the grantor or other person by reason of the death of the
grantor or other person.
(e) Backup withholding requirements--(1) Trustee reporting under
paragraph (b)(2)(i)(A) of this section. In order for the trustee to be
able to report pursuant to paragraph (b)(2)(i)(A) of this section and to
furnish to all payors the name and TIN of the grantor or other person
treated as the owner of the trust, the grantor or other person must
provide a complete Form W-9 to the trustee in the manner provided in
paragraph (b)(1) of this section, and the trustee must give the name and
TIN shown on that Form W-9 to all payors. In addition, if the Form W-9
indicates that the grantor or other person is subject to backup
withholding, the trustee must notify all payors of reportable interest
and dividend payments of the requirement to backup withhold. If the
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Form W-9 indicates that the grantor or other person is not subject to
backup withholding, the trustee does not have to notify the payors that
backup withholding is not required. The trustee should not give the Form
W-9, or a copy thereof, to a payor because the Form W-9 contains the
address of the grantor or other person and paragraph (b)(2)(i)(A) of
this section requires the trustee to furnish the address of the trust to
all payors and not the address of the grantor or other person. The
trustee acts as the agent of the grantor or other person for purposes of
furnishing to the payors the information required by this paragraph
(e)(1). Thus, a payor may rely on the name and TIN provided to the payor
by the trustee, and, if given, on the trustee's statement that the
grantor is subject to backup withholding.
(2) Other backup withholding requirements. Whether a trustee is
treated as a payor for purposes of backup withholding is determined
pursuant to section 3406 and the regulations thereunder.
(f) Penalties for failure to file a correct Form 1099 or furnish a
correct statement. A trustee who fails to file a correct Form 1099 or to
furnish a correct statement to a grantor or other person treated as an
owner of the trust as required by paragraph (b) of this section is
subject to the penalties provided by sections 6721 and 6722 and the
regulations thereunder.
(g) Changing reporting methods--(1) Changing from reporting by
filing Form 1041 to a method described in paragraph (b) of this section.
If the trustee has filed a Form 1041 for any taxable year ending before
January 1, 1996 (and has not filed a final Form 1041 pursuant to Sec.
1.671-4(b)(3) (as contained in the 26 CFR part 1 edition revised as of
April 1, 1995)), or files a Form 1041 for any taxable year thereafter,
the trustee must file a final Form 1041 for the taxable year which ends
after January 1, 1995, and which immediately precedes the first taxable
year for which the trustee reports pursuant to paragraph (b) of this
section, on the front of which form the trustee must write: ``Pursuant
to Sec. 1.671-4(g), this is the final Form 1041 for this grantor
trust.''.
(2) Changing from reporting by a method described in paragraph (b)
of this section to the filing of a Form 1041. The trustee of a trust who
reported pursuant to paragraph (b) of this section for a taxable year
may report pursuant to paragraph (a) of this section for subsequent
taxable years. If the trustee reported pursuant to paragraph
(b)(2)(i)(A) of this section, and therefore furnished the name and TIN
of the grantor to all payors, the trustee must furnish the name, TIN,
and address of the trust to all payors for such subsequent taxable
years. If the trustee reported pursuant to paragraph (b)(2)(i)(B) or
(b)(3)(i) of this section, and therefore furnished the name and TIN of
the trust to all payors, the trustee must indicate on each Form 1096
(Annual Summary and Transmittal of U.S. Information Returns) that it
files (or appropriately on magnetic media) for the final taxable year
for which the trustee so reports that it is the final return of the
trust.
(3) Changing between methods described in paragraph (b) of this
section--(i) Changing from furnishing the TIN of the grantor to
furnishing the TIN of the trust. The trustee of a trust who reported
pursuant to paragraph (b)(2)(i)(A) of this section for a taxable year,
and therefore furnished the name and TIN of the grantor to all payors,
may report pursuant to paragraph (b)(2)(i)(B) of this section, and
furnish the name and TIN of the trust to all payors, for subsequent
taxable years.
(ii) Changing from furnishing the TIN of the trust to furnishing the
TIN of the grantor. The trustee of a trust who reported pursuant to
paragraph (b)(2)(i)(B) of this section for a taxable year, and therefore
furnished the name and TIN of the trust to all payors, may report
pursuant to paragraph (b)(2)(i)(A) of this section, and furnish the name
and TIN of the grantor to all payors, for subsequent taxable years. The
trustee, however, must indicate on each Form 1096 (Annual Summary and
Transmittal of U.S. Information Returns) that it files (or appropriately
on magnetic media) for the final taxable year for which the trustee
reports pursuant to paragraph (b)(2)(i)(B) of this section that it is
the final return of the trust.
[[Page 328]]
(4) Example. The following example illustrates the provisions of
paragraph (g) of this section:
Example. (i) On January 3, 1994, G, a United States citizen, creates
a trust all of which is treated as owned by G. The trustee of the trust
is T. On or before April 17, 1995, T files with the Internal Revenue
Service a Form 1041 with an attached statement for the 1994 taxable year
showing the items of income, deduction, and credit of the trust. On or
before April 15, 1996, T files with the Internal Revenue Service a Form
1041 with an attached statement for the 1995 taxable year showing the
items of income, deduction, and credit of the trust. On the Form 1041, T
states that ``pursuant to Sec. 1.671-4(g), this is the final Form 1041
for this grantor trust.'' T may report pursuant to paragraph (b) of this
section for the 1996 taxable year.
(ii) T reports pursuant to paragraph (b)(2)(i)(B) of this section,
and therefore furnishes the name, TIN, and address of the trust to all
payors, for the 1996 and 1997 taxable years. T chooses to report
pursuant to paragraph (a) of this section for the 1998 taxable year. On
each Form 1096 (Annual Summary and Transmittal of U.S. Information
Returns) which T files for the 1997 taxable year (or appropriately on
magnetic media), T indicates that it is the trust's final return. On or
before April 15, 1999, T files with the Internal Revenue Service a Form
1041 with an attached statement showing the items of income, deduction,
and credit of the trust. On the Form 1041, T uses the same TIN which T
used on the Forms 1041 and Forms 1099 it filed for previous taxable
years. T has complied with T's obligations under paragraph (g)(2) of
this section.
(h) Reporting rules for a trust, or portion of a trust, that ceases
to be treated as owned by a grantor or other person by reason of the
death of the grantor or other person--(1) Definition of decedent. For
purposes of this paragraph (h), the decedent is the grantor or other
person treated as the owner of the trust, or portion of the trust, under
subpart E, part I, subchapter J, chapter 1 of the Internal Revenue Code
on the date of death of that person.
(2) In general. The provisions of this section apply to a trust, or
portion of a trust, treated as owned by a decedent for the taxable year
that ends with the decedent's death. Following the death of the
decedent, the trust or portion of a trust that ceases to be treated as
owned by the decedent, by reason of the death of the decedent, may no
longer report under this section. A trust, all of which was treated as
owned by the decedent, must obtain a new TIN upon the death of the
decedent, if the trust will continue after the death of the decedent.
See Sec. 301.6109-1(a)(3)(i) of this chapter for rules regarding
obtaining a TIN upon the death of the decedent.
(3) Special rules--(i) Trusts reporting pursuant to paragraph (a) of
this section for the taxable year ending with the decedent's death. The
due date for the filing of a return pursuant to paragraph (a) of this
section for the taxable year ending with the decedent's death shall be
the due date provided for under Sec. 1.6072-1(a)(2). The return filed
under this paragraph for a trust all of which was treated as owned by
the decedent must indicate that it is a final return.
(ii) Trust reporting pursuant to paragraph (b)(2)(B) of this section
for the taxable year of the decedent's death. A trust that reports
pursuant to paragraph (b)(2)(B) of this section for the taxable year
ending with the decedent's death must indicate on each Form 1096
``Annual Summary and Transmittal of the U.S. Information Returns'' that
it files (or appropriately on magnetic media) for the taxable year
ending with the death of the decedent that it is the final return of the
trust.
(iii) Trust reporting under paragraph (b)(3) of this section. If a
trust has been reporting under paragraph (b)(3) of this section, the
trustee may not report under that paragraph if any portion of the trust
has a short taxable year by reason of the death of the decedent and the
portion treated as owned by the decedent does not terminate on the death
of the decedent.
(i) Effective date and transition rule--(1) Effective date. The
trustee of a trust any portion of which is treated as owned by one or
more grantors or other persons must report pursuant to paragraphs (a),
(b), (c), (d)(1), (e), (f), and (g) of this section for taxable years
beginning on or after January 1, 1996.
(2) Transition rule. For taxable years beginning prior to January 1,
1996, the Internal Revenue Service will not challenge the manner of
reporting of--
(i) A trustee of a trust all of which is treated as owned by one or
more grantors or other persons who did not report in accordance with
Sec. 1.671-4(a)
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(as contained in the 26 CFR part 1 edition revised as of April 1, 1995)
as in effect for taxable years beginning prior to January 1, 1996, but
did report in a manner substantially similar to one of the reporting
methods described in paragraph (b) of this section; or
(ii) A trustee of two or more trusts all of which are treated as
owned by one or more grantors or other persons who filed a single Form
1041 for all of the trusts, rather than a separate Form 1041 for each
trust, provided that the items of income, deduction, and credit of each
trust were shown on a statement attached to the single Form 1041.
(3) Effective date for paragraphs (d)(2) and (h) of this section.
Paragraphs (d)(2) and (h) of this section apply for taxable years ending
on or after December 24, 2002.
(j) Cross-reference. For rules relating to employer identification
numbers, and to the obligation of a payor of income or proceeds to the
trust to furnish to the payee a statement to recipient, see Sec.
301.6109-1(a)(2) of this chapter.
[T.D. 8633, 60 FR 66087, Dec. 21, 1995, as amended by T.D. 8668, 61 FR
19191, May 1, 1996; T.D. 9032, 67 FR 78381, Dec. 24, 2002; T.D. 9241, 71
FR 4009, Jan. 24. 2006]
Sec. 1.671-5 Reporting for widely held fixed investment trusts.
(a) Table of contents. This table of contents lists the major
paragraph headings for this section.
(a) Table of contents.
(b) Definitions.
(c) Trustee's obligation to report information.
(1) In general.
(i) Calculation.
(ii) Calculation period.
(iii) Accounting method.
(iv) Gross income requirement.
(2) Information to be reported by all WHFITs.
(i) Trust identification and calculation period chosen.
(ii) Items of income, expense, and credit.
(iii) Non pro-rata partial principal payments.
(iv) Asset sales and dispositions.
(v) Redemptions and sales of WHFIT interests.
(vi) Information regarding bond premium.
(vii) Information regarding market discount.
(viii) Other information.
(3) Identifying the representative who will provide trust information.
(4) Time and manner of providing information.
(i) Time.
(ii) Manner.
(iii) Inclusion of information with respect to all calculation periods.
(5) Requesting information from a WHFIT.
(i) In general.
(ii) Manner of requesting information.
(iii) Period of time during which a requesting person may request WHFIT
information.
(6) Trustee's requirement to retain records.
(d) Form 1099 requirement for trustees and middlemen.
(1) Obligation to file Form 1099 with the IRS.
(i) In general.
(ii) Forms 1099 not required for exempt recipients.
(iii) Reporting and withholding with respect to foreign persons.
(2) Information to be reported.
(i) Determining amounts to be provided on Forms 1099.
(ii) Information to be provided on Forms 1099.
(3) Time and manner of filing Forms 1099.
(i) Time and place.
(ii) Reporting trust sales proceeds, redemption asset proceeds,
redemption proceeds, sales asset proceeds, sales proceeds, and
non pro-rata partial principal payments.
(e) Requirement to furnish a written tax information statement to the
TIH.
(1) In general.
(2) Information required.
(i) WHFIT information.
(ii) Identification of the person furnishing the statement.
(iii) Items of income, expense, and credit.
(iv) Non pro-rata partial principal payments.
(v) Asset sales and dispositions.
(vi) Redemption or sale of a trust interest.
(vii) Information regarding market discount and bond premium.
(viii) Other information.
(ix) Required statement.
(3) Due date and other requirements.
(4) Requirement to retain records.
(f) Safe harbor for providing information for certain NMWHFITs.
(1) Safe harbor for trustee reporting of NMWHFIT information.
(i) In general.
(ii) Reporting NMWHFIT income and expenses.
(iii) Reporting non pro-rata partial principal payments under the safe
harbor.
(iv) Reporting sales and dispositions of NMWHFIT assets under the safe
harbor.
(v) Reporting redemptions under the safe harbor.
(vi) Reporting the sale of a trust interest under the safe harbor.
(vii) Reporting OID information under the safe harbor.
(viii) Reporting market discount information under the safe harbor.
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(ix) Reporting bond premium information under the safe harbor.
(x) Reporting additional information.
(2) Use of information provided by trustees under the safe harbor for
NMWHFITs.
(i) In general.
(ii) Determining NMWHFIT income and expenses under the safe harbor.
(iii) Reporting non pro-rata partial principal payments under the safe
harbor.
(iv) Reporting sales and dispositions of NMWHFIT assets under the safe
harbor.
(v) Reporting redemptions under the safe harbor.
(vi) Reporting sales of trust interests under the safe harbor.
(vii) Reporting OID information under the safe harbor.
(viii) Reporting market discount information under the safe harbor.
(ix) Reporting bond premium information under the safe harbor.
(3) Example of the use of the safe harbor for NMWHFITs.
(i) Facts.
(ii) Trustee reporting.
(iii) Brokers' use of information provided by Trustee.
(g) Safe Harbor for certain WHMTs.
(1) Safe harbor for trustees of certain WHMTs for reporting information.
(i) In general.
(ii) Requirements.
(iii) Reporting WHMT income, expenses, non pro-rata partial principal
payments, and sales and dispositions under the safe harbor.
(iv) Reporting OID information under the safe harbor.
(v) Reporting market discount information under the safe harbor.
(vi) Reporting bond premium information under the safe harbor.
(2) Use of information provided by a trustee under the safe harbor.
(i) In general.
(ii) Reporting WHMT income, expenses, non pro-rata partial principal
payments, and sales and dispositions under the safe harbor.
(iii) Reporting OID information under the safe harbor.
(iv) Requirement to provide market discount information under the safe
harbor.
(v) Requirement to provide bond premium information under the safe
harbor.
(3) Example of safe harbor in paragraph (g)(1) of this section.
(i) Facts.
(ii) Trustee reporting.
(iii) Broker's use of the information provided by Trustee.
(h) Additional safe harbors.
(1) Temporary safe harbors.
(2) Additional safe harbors provided by other published guidance.
(i) Reserved.
(j) Requirement that middlemen furnish information to beneficial owners
that are exempt recipients and non calendar year beneficial
owners.
(1) In general.
(2) Time for providing information.
(3) Manner of providing information.
(4) Clearing organization.
(k) Coordination with other information reporting rules.
(l) Backup withholding requirements.
(m) Penalties for failure to comply.
(n) Effective date.
(b) Definitions. Solely for purposes of this section:
(1) An asset includes any real or personal, tangible or intangible
property held by the trust, including an interest in a contract.
(2) An affected expense is an expense described in Sec. 1.67-
2T(i)(1).
(3) A beneficial owner is a trust interest holder (TIH) (as defined
in paragraph (b)(20) of this section) that holds a beneficial interest
in a widely held fixed investment trust (WHFIT) (as defined in paragraph
(b)(22) of this section.)
(4) The calculation period is the period the trustee chooses under
paragraph (c)(1)(ii) of this section for calculating the trust
information required to be provided under paragraph (c) of this section.
(5) The cash held for distribution is the amount of cash held by the
WHFIT (other than trust sales proceeds and proceeds from sales described
in paragraphs (c)(2)(iv)(D)(4), (G), and (H) of this section) less
reasonably required reserve funds as of the date that the amount of a
distribution is required to be determined under the WHFIT's governing
document.
(6) A clean-up call is the redemption of all trust interests in
termination of the WHFIT when the administrative costs of the WHFIT
outweigh the benefits of maintaining the WHFIT.
(7) An exempt recipient is--
(i) Any person described in Sec. 1.6049-4(c)(1)(ii);
(ii) A middleman (as defined in paragraph (b)(10) of this section);
(iii) A real estate mortgage investment conduit (as defined in
section 860(D)(a)) (REMIC);
(iv) A WHFIT; or
(v) A trust or an estate for which the trustee or middleman of the
WHFIT is
[[Page 331]]
also required to file a Form 1041, ``U.S. Income Tax Return for Estates
and Trusts,'' in its capacity as a fiduciary of that trust or estate.
(8) An in-kind redemption is a redemption in which a beneficial
owner receives a pro-rata share of each of the assets of the WHFIT that
the beneficial owner is deemed to own under section 671. For example,
for purposes of this paragraph (b)(8), if beneficial owner A owns a one
percent interest in a WHFIT that holds 100 shares of X corporation
stock, so that A is considered to own a one percent interest in each of
the 100 shares, A's pro-rata share of the X corporation stock for this
purpose is one share of X corporation stock.
(9) An item refers to an item of income, expense, or credit as well
as any trust event (for example, the sale of an asset) or any
characteristic or attribute of the trust that affects the income,
deductions, and credits reported by a beneficial owner in any taxable
year that the beneficial owner holds an interest in the trust. An item
may refer to an individual item or a group of items depending on whether
the item must be reported separately under paragraphs (c)(1)(i) and
(e)(1) of this section.
(10) A middleman is any TIH, other than a qualified intermediary as
defined in Sec. 1.1031(k)-1(g), who, at any time during the calendar
year, holds an interest in a WHFIT on behalf of, or for the account of,
another TIH, or who otherwise acts in a capacity as an intermediary for
the account of another person. A middleman includes, but is not limited
to--
(i) A custodian of a person's account, such as a bank, financial
institution, or brokerage firm acting as custodian of an account;
(ii) A nominee;
(iii) A joint owner of an account or instrument other than--
(A) A joint owner who is the spouse of the other owner; and
(B) A joint owner who is the beneficial owner and whose name appears
on the Form 1099 filed with respect to the trust interest under
paragraph (d) of this section; and
(iv) A broker (as defined in section 6045(c)(1) and Sec. 1.6045-
1(a)(1)), holding an interest for a customer in street name.
(11) A mortgage is an obligation that is principally secured by an
interest in real property within the meaning of Sec. 1.860G-2(a)(5),
except that a mortgage does not include an interest in another WHFIT or
mortgages held by another WHFIT.
(12) A non-mortgage widely held fixed investment trust (NMWHFIT) is
a WHFIT other than a widely held mortgage trust (as defined in paragraph
(b)(23) of this section).
(13) A non pro-rata partial principal payment is any partial payment
of principal received on a debt instrument which does not retire the
debt instrument and which is not a pro-rata prepayment described in
Sec. 1.1275-2(f)(2).
(14) The redemption asset proceeds equal the redemption proceeds (as
defined in paragraph (b)(15) of this section) less the cash held for
distribution with respect to the redeemed trust interest.
(15) The redemption proceeds equal the total amount paid to a
redeeming TIH as the result of a redemption of a trust interest.
(16) A requesting person is--
(i) A middleman;
(ii) A beneficial owner who is a broker;
(iii) A beneficial owner who is an exempt recipient who holds a
trust interest directly and not through a middleman;
(iv) A noncalendar-year beneficial owner who holds a trust interest
directly and not through a middleman; or
(v) A representative or agent of a person specified in this
paragraph (b)(16).
(17) The sales asset proceeds equal the sales proceeds (as defined
in paragraph (b)(18) of this section) less the cash held for
distribution with respect to the sold trust interest at the time of the
sale.
(18) The sales proceeds equal the total amount paid to a selling TIH
in consideration for the sale of a trust interest.
(19) The start-up date is the date on which substantially all of the
assets have been deposited with the trustee of the WHFIT.
(20) A trust interest holder (TIH) is any person who holds a direct
or indirect
[[Page 332]]
interest, including a beneficial interest, in a WHFIT at any time during
the calendar year.
(21) Trust sales proceeds equal the amount paid to a WHFIT for the
sale or disposition of an asset held by the WHFIT, including principal
payments received by the WHFIT that completely retire a debt instrument
(other than a final scheduled principal payment) and pro-rata partial
principal prepayments described under Sec. 1.1275-2(f)(2). Trust sales
proceeds do not include amounts paid for any interest income that would
be required to be reported under Sec. 1.6045-1(d)(3). Trust sales
proceeds also do not include amounts paid to a NMWHFIT as the result of
pro-rata sales of trust assets to effect a redemption described in
paragraph (c)(2)(iv)(G) of this section or the value of assets received
as a result of a tax-free corporate reorganization as described in
paragraph (c)(2)(iv)(H) of this section.
(22) A widely held fixed investment trust (WHFIT) is an arrangement
classified as a trust under Sec. 301.7701-4(c) of this chapter,
provided that--
(i) The trust is a United States person under section
7701(a)(30)(E);
(ii) The beneficial owners of the trust are treated as owners under
subpart E, part I, subchapter J, chapter 1 of the Internal Revenue Code;
and
(iii) At least one interest in the trust is held by a middleman.
(23) A widely held mortgage trust (WHMT) is a WHFIT, the assets of
which consist only of one or more of the following--
(i) Mortgages;
(ii) Regular interests in a REMIC;
(iii) Interests in another WHMT;
(iv) Reasonably required reserve funds;
(v) Amounts received on the assets described in paragraphs
(b)(23)(i), (ii), (iii), and (iv) of this section pending distribution
to TIHs; and
(vi) During a brief initial funding period, cash and short-term
contracts for the purchase of the assets described in paragraphs
(b)(23)(i), (ii), and (iii).
(c) Trustee's obligation to report information--(1) In general. Upon
the request of a requesting person (as defined in paragraph (b)(16) of
this section), a trustee of a WHFIT must report the information
described in paragraph (c)(2) of this section to the requesting person.
The trustee must determine such information in accordance with the
following rules--
(i) Calculation. WHFIT information may be calculated in any manner
that enables a requesting person to determine with reasonable accuracy
the WHFIT items described in paragraph (c)(2) of this section that are
attributable (or, if permitted under paragraphs (c)(2)(iv)(B) or
(f)(2)(iii) of this section, distributed) to a beneficial owner for the
taxable year of that owner. The manner of calculation must generally
conform with industry practice for calculating the WHFIT items described
in paragraph (c)(2) of this section for the type of asset or assets held
by the WHFIT, and must enable a requesting person to separately state
any WHFIT item that, if taken into account separately by a beneficial
owner, would result in an income tax liability different from that which
would result if the owner did not take the item into account separately.
(ii) Calculation period--WHFIT information may be calculated on the
basis of a calendar month, calendar quarter, or half or full calendar
year, provided that a trustee uses the same calculation period for the
life of the WHFIT and the information provided by the trustee meets the
requirements of paragraph (c)(1)(i) of this section. Regardless of the
calculation period chosen by the trustee, the trustee must provide
information requested by a requesting person under paragraph (c)(5) on a
calendar year basis. The trustee may provide additional information to
requesting persons throughout the calendar year at the trustee's
discretion.
(iii) Accounting method--(A) General rule. WHFIT information must be
calculated and reported using the cash receipts and disbursements method
of accounting unless another method is required by the Internal Revenue
Code or regulations with respect to a specific trust item. Accordingly,
a trustee must provide information necessary for TIHs to comply with the
rules of subtitle A, chapter 1, subchapter P, part V, subpart A of the
Internal Revenue Code, which require the inclusion of accrued
[[Page 333]]
amounts with respect to OID, and section 860B(b), which requires the
inclusion of accrued amounts with respect to a REMIC regular interest.
(B) Exception for WHFITs marketed predominantly to taxpayers on the
accrual method. If the trustee or the trust's sponsor knows or
reasonably should know that a WHFIT is marketed primarily to accrual
method TIHs and the WHFIT holds assets for which the timing of the
recognition of income is materially affected by the use of the accrual
method of accounting, the trustee must calculate and report trust
information using the accrual method of accounting.
(iv) Gross income requirement. The amount of income required to be
reported by the trustee is the gross income (as defined in section 61)
generated by the WHFIT's assets. Thus, in the case of a WHFIT that
receives a payment of income from which an expense (or expenses) has
been deducted, the trustee, in calculating the income to be reported
under paragraph (c)(2)(ii) of this section, must report the income
earned on the trusts assets unreduced by the deducted expense or
expenses and separately report the deducted expense or expenses. See
paragraph (c)(2)(iv) of this section regarding reporting with respect to
sales and dispositions.
(2) Information to be reported by all WHFITs. With respect to all
WHFITs--
(i) Trust identification and calculation period chosen. The trustee
must report information identifying the WHFIT, including--
(A) The name of the WHFIT;
(B)The employer identification number of the WHFIT;
(C) The name and address of the trustee;
(D) The Committee on Uniform Security Identification Procedure
(CUSIP) number, account number, serial number, or other identifying
number of the WHFIT;
(E) The classification of the WHFIT as either a WHMT or NMWHFIT; and
(F) The calculation period used by the trustee.
(ii) Items of income, expense, and credit. The trustee must report
information detailing--
(A) All items of gross income (including OID, except that OID is not
required to be included for a WHMT that has a start-up date (as defined
in paragraph (b)(19) of this section) prior to August 13, 1998).
(B) All items of expense (including affected expenses); and
(C) All items of credit.
(iii) Non pro-rata partial principal payments. The trustee must
report information detailing non pro-rata partial principal payments (as
defined in paragraph (b)(13) of this section) received by the WHFIT.
(iv) Asset sales and dispositions. The trustee must report
information regarding sales and dispositions of WHFIT assets as required
in this paragraph (c)(2)(iv). For purposes of this paragraph (c)(2)(iv),
a payment (other than a final scheduled payment) that completely retires
a debt instrument (including a mortgage held by a WHMT) or a pro-rata
prepayment on a debt instrument (see Sec. 1.1275-2(f)(2)) held by a
WHFIT must be reported as a full or partial sale or disposition of the
debt instrument. Pro-rata sales of trust assets to effect redemptions,
as defined in paragraph (c)(2)(iv)(G) of this section, or exchanges of
trust assets as the result of a corporate reorganization under paragraph
(c)(2)(iv)(H) of this section, are not reported as sales or dispositions
under this paragraph (c)(2)(iv).
(A) General rule. Except as provided in paragraph (c)(2)(iv)(B)
(regarding the exception for certain NMWHFITs) or paragraph
(c)(2)(iv)(C) (regarding the exception for certain WHMTs) of this
section, the trustee must report with respect to each sale or
disposition of a WHFIT asset--
(1) The date of each sale or disposition;
(2) Information that enables a requesting person to determine the
amount of trust sales proceeds (as defined in paragraph (b)(21) of this
section) attributable to a beneficial owner as a result of each sale or
disposition; and
(3) Information that enables a beneficial owner to allocate, with
reasonable accuracy, a portion of the owner's basis in its trust
interest to each sale or disposition.
[[Page 334]]
(B) Exception for certain NMWHFITs. If a NMWHFIT meets paragraph
(c)(2)(iv)(D)(1)(regarding the general de minimis test), paragraph
(c)(2)(iv)(E) (regarding the qualified NMWHFIT exception), or paragraph
(c)(2)(iv)(F) (regarding the NMWHFIT final calendar year exception) of
this section, the trustee is not required to report under paragraph
(c)(2)(iv)(A) of this section. Instead, the trustee must report
sufficient information to enable a requesting person to determine the
amount of trust sales proceeds distributed to a beneficial owner during
the calendar year with respect to each sale or disposition of a trust
asset. The trustee also must provide requesting persons with a statement
that the NMWHFIT is permitted to report under this paragraph
(c)(2)(iv)(B).
(C) Exception for certain WHMTs. If a WHMT meets either the general
or the special de minimis test of paragraph (c)(2)(iv)(D) of this
section for the calendar year, the trustee is not required to report
under paragraph (c)(2)(iv)(A) of this section. Instead, the trustee must
report information to enable a requesting person to determine the amount
of trust sales proceeds attributable to a beneficial owner as a result
of the sale or disposition. The trustee also must provide requesting
persons with a statement that the WHMT is permitted to report under this
paragraph (c)(2)(iv)(C).
(D) De minimis tests--(1) General WHFIT de minimis test. The general
WHFIT de minimis test is satisfied if trust sales proceeds for the
calendar year are not more than five percent of the net asset value of
the trust (aggregate fair market value of the trust's assets less the
trust's liabilities) as of the later of January 1 and the start-up date
(as defined paragraph (b)(19) of this section); or, if the trustee
chooses, the later of January 1 and the measuring date. The measuring
date is the date of the last deposit of assets into the WHFIT (not
including any deposit of assets into the WHFIT pursuant to a
distribution reinvestment program), not to exceed 90 days after the date
the registration statement of the WHFIT becomes effective under the
Securities Act of 1933.
(2) Special WHMT de minimis test. A WHMT that meets the asset
requirement of paragraph (g)(1)(ii)(E) of this section satisfies the
special WHMT de minimis test in this paragraph (c)(2)(iv)(D)(2) if trust
sales proceeds for the calendar year are not more than five percent of
the aggregate outstanding principal balance of the WHMT (as defined in
paragraph (g)(1)(iii)(D) of this section) as of the later of January 1
of that year or the trust's start-up date. For purposes of applying the
special WHMT de minimis test in this paragraph (c)(2)(iv)(D)(2), amounts
that result from the complete or partial payment of the outstanding
principal balance of the mortgages held by the trust are not included in
the amount of trust sales proceeds. The IRS and the Treasury Department
may provide by revenue ruling, or by other published guidance, that the
special de minimis test of this paragraph (c)(2)(iv)(D)(2) may be
applied to WHFITs holding debt instruments other than those described in
paragraph (g)(1)(ii)(E) of this section.
(3) Effect of clean-up call. If a WHFIT fails to meet either de
minimis test described in this paragraph (c)(2)(iv)(D) solely as the
result of a clean-up call, as defined in paragraph (b)(6) of this
section, the WHFIT will be treated as having met the de minimis test.
(4) Exception for certain fully reported sales--(i) Rule. If a
trustee of a NMWHFIT reports the sales described in paragraph
(c)(2)(iv)(D)(4)(ii) of this section as provided under paragraph
(c)(2)(iv)(A) of this section (regardless of whether the general minimis
test in paragraph (c)(2)(iv)(D)(1) of this section is satisfied for a
particular calendar year) consistently throughout the life of the WHFIT,
a trustee may exclude the trust sales proceeds received by the WHFIT as
a result of those sales from the trust sales proceeds used to determine
whether a WHFIT has satisfied the general de minimis test in paragraph
(c)(2)(iv)(D)(1) of this section.
(ii) Applicable sales and dispositions. This paragraph
(c)(2)(iv)(D)(4) applies to sales and dispositions resulting from
corporate reorganizations and restructurings for which the trust
receives cash, the sale of assets received
[[Page 335]]
by the trust in corporate reorganizations and restructurings (including
conversions of closed-end investment companies to open-end investment
companies), principal prepayments, bond calls, bond maturities, and the
sale of securities by the trustee as required by the governing document
or applicable law governing fiduciaries in order to maintain the sound
investment character of the trust, and any other nonvolitional
dispositions of trust assets.
(iii) Certain small sales and dispositions. If the amount of trust
sales proceeds from a sale or disposition described in paragraph
(c)(2)(iv)(D)(4)(ii) of this section is less than .01 percent of the net
fair market value of the WHFIT as determined for applying the de minimis
test for the calendar year, the trustee is not required to report the
sale or disposition under paragraph (c)(2)(iv)(A) of this section
provided the trustee includes the trust sales proceeds, received for
purposes of determining whether the trust has met the general de minimis
test of paragraph (c)(2)(iv)(D)(1) of this section.
(E) Qualified NMWHFIT exception. The qualified NMWHFIT exception is
satisfied if--
(1) The NMWHFIT has a start-up date (as defined in paragraph (b)(19)
of this section) before February 23, 2006;
(2) The registration statement of the NMWHFIT becomes effective
under the Securities Act of 1933, as amended (15 U.S.C. 77a, et seq.)
and trust interests are offered for sale to the public before February
23, 2006; or
(3) The registration statement of the NMWHFIT becomes effective
under the Securities Act of 1933 and trust interests are offered for
sale to the public on or after February 23, 2006, and before July 31,
2006, and the NMWHFIT is fully funded before October 1, 2006. For
purposes of determining whether a NMWHFIT is fully funded under this
paragraph (c)(2)(iv)(E), deposits to the NMWHFIT after October 1, 2006,
that are made pursuant to a distribution reinvestment program that is
consistent with the requirements of Sec. 301.7701-4(c) of this chapter
are disregarded.
(F) NMWHFIT final calendar year exception. The NMWHFIT final
calendar year exception is satisfied if--
(1) The NMWHFIT terminates on or before December 31 of the year for
which the trustee is reporting;
(2) Beneficial owners exchange their interests for cash or are
treated as having exchanged their interests for cash upon termination of
the trust; and
(3) The trustee makes reasonable efforts to engage in pro-rata sales
of trust assets to effect redemptions.
(G) Pro-rata sales of trust assets to effect a redemption--(1) Rule.
Pro-rata sales of trust assets to effect redemptions are not required to
be reported under this paragraph (c)(2)(iv).
(2) Definition. Pro-rata sales of trust assets to effect redemptions
occur when--
(i) One or more trust interests are tendered for redemption;
(ii) The trustee identifies the pro-rata shares of the trust assets
that are deemed to be owned by the trust interest or interests tendered
for redemption (See paragraph (b)(8) of this section for a description
of how pro-rata is to be applied for purposes of this paragraph
(c)(2)(iv)(G)) and sells those assets as soon as practicable;
(iii) Proceeds from the sales of the assets identified in paragraph
(c)(2)(iv)(G)(2)(ii) of this section are used solely to effect
redemptions; and
(iv) The redemptions are reported as required under paragraph
(c)(2)(v) of this section by the trustee.
(3) Additional rules--(i) Calendar month aggregation. The trustee
may compare the aggregate pro-rata share of the assets deemed to be
owned by the trust interests tendered for redemption during the calendar
month with the aggregate sales of assets to effect redemptions for the
calendar month to determine the pro-rata sales of trust assets to effect
redemptions for the calendar month. If the aggregate pro-rata share of
an asset deemed to be owned by the trust interests tendered for
redemption for the month is a fractional amount, the trustee may round
that number up to the next whole number for the purpose of determining
the pro-rata sales to effect redemptions for the calendar month;
(ii) Sales of assets to effect redemptions may be combined with
sales of assets for other purposes. Sales of assets to effect
redemptions may be combined with the
[[Page 336]]
sales of assets to obtain cash for other purposes but the proceeds from
the sales of assets to effect redemptions must be used solely to provide
cash for redemptions and the sales of assets to obtain cash for other
purposes must be reported as otherwise provided in this paragraph
(c)(2)(iv). For example, if a trustee sells assets and the proceeds are
used by the trustee to pay trust expenses, these amounts are to be
included in the amounts reported under paragraph (c)(2)(iv)(A) or (B),
as appropriate.
(4) Example--(i) January 1, 2008. Trust has one million trust
interests and all interests have equal value and equal rights. The
number of shares of stock in corporations A through J and the pro-rata
share of each stock that a trust interest is deemed to own as of January
1, 2008, is as follows:
------------------------------------------------------------------------
Total Per trust
Stock shares interest
------------------------------------------------------------------------
A............................................. 24,845 .024845
B............................................. 28,273 .028273
C............................................. 35,575 .035575
D............................................. 13,866 .013866
E............................................. 25,082 .025082
F............................................. 39,154 .039154
G............................................. 16,137 .016137
H............................................. 14,704 .014704
I............................................. 17,436 .017436
J............................................. 31,133 .031133
------------------------------------------------------------------------
(ii) Transactions of January 2, 2008. On January 2, 2008, 50,000
trust interests are tendered for redemption. The deemed pro-rata
ownership of stocks A through J represented by the 50,000 redeemed trust
interests and the stocks sold to provide cash for the redemptions are
set out in the following table:
------------------------------------------------------------------------
Deemed pro-
Stock rata Shares sold
ownership
------------------------------------------------------------------------
A............................................. 1,242.25 1,242
B............................................. 1,413.65 1,413
C............................................. 1,778.75 1,779
D............................................. 693.30 694
E............................................. 1,254.10 1,254
F............................................. 1,957.70 1,957
G............................................. 806.85 807
H............................................. 735.20 735
I............................................. 871.80 872
J............................................. 1,556.65 1,557
------------------------------------------------------------------------
(iii) Transactions on January 15 through 17, 2008. On January 15,
2008, 10,000 trust interests are tendered for redemption. Trustee lends
money to Trust for redemptions. On January 16, B merges into C at a rate
of .55 per share. On January 17, Trustee sells stock to obtain cash to
be reimbursed the cash loaned to Trust to effect the redemptions. The
pro-rata share of the stock deemed to be owned by the 10,000 redeemed
trust interests and the stock sold by the trustee to effect the
redemptions are set out in the following table:
------------------------------------------------------------------------
Deemed pro-
Stock rata Shares sold
ownership
------------------------------------------------------------------------
A............................................ 248.45 249
B............................................ 00 00
C............................................ 511.25 512
D............................................ 138.66 138
E............................................ 250.82 251
F............................................ 391.54 392
G............................................ 161.37 162
H............................................ 147.04 148
I............................................ 174.36 174
J............................................ 311.33 311
------------------------------------------------------------------------
(iv) Transactions on January 28 and 29, 2008. On January 28, 2008,
the value of the H stock is $30.00 per share and Trustee, pursuant to
Trust's governing document, sells the H stock to preserve the financial
integrity of Trust and receives $414,630. Trustee intends to report this
sale under paragraph (c)(2)(iv)(A) of this section and to distribute the
proceeds of the sale pro-rata to trust interest holders on Trust's next
scheduled distribution date. On January 29, 2008, while trustee still
holds the proceeds from the January 28 sale, 10,000 trust interests are
tendered for redemption. The pro-rata share of the stock deemed to be
owned by the 10,000 redeemed trust interests and the stock sold by the
trustee to effect the redemptions are set out in the following table:
------------------------------------------------------------------------
Deemed pro-
Stock rata Shares sold
ownership
------------------------------------------------------------------------
A............................................ 248.45 248
B............................................ 0 0
C............................................ 511.25 511
D............................................ 138.66 139
E............................................ 250.82 251
F............................................ 391.54 391
G............................................ 161.37 161
H............................................ \1\ 0 0
I............................................ 174.36 175
J............................................ 311.33 312
------------------------------------------------------------------------
\1\Share of cash proceeds: $4,458.39.
(v) Monthly amounts. To determine the pro-rata sales to effect
redemptions
[[Page 337]]
for January, trustee compares the aggregate pro-rata share of stocks A
through J (rounded to the next whole number) deemed to be owned by the
trust interests tendered for redemption during the month of January with
the sales of stocks A through J to effect redemptions:
------------------------------------------------------------------------
Deemed pro-
Stock rata Shares sold
ownership
------------------------------------------------------------------------
A............................................. 1740 1739
B............................................. 0 0
C............................................. 3579 3579
D............................................. 971 971
E............................................. 1756 1756
F............................................. 2741 2741
G............................................. 1130 1130
H............................................. 883 883
I............................................. 1221 1221
J............................................. 2180 2180
------------------------------------------------------------------------
(vi) Pro-rata sales to effect redemptions for the month of January.
For the month of January, the deemed pro-rata ownership of shares of
stocks A through J equal or exceed the sales of stock to effect
redemptions for the month. Accordingly, all of the sales to effect
redemptions during the month of January are considered to be pro-rata
and are not required to be reported under this paragraph (c)(2)(iv).
(H) Corporate Reorganizations. The exchange of trust assets for
other assets of equivalent value pursuant to a tax free corporate
reorganization is not required to be reported as a sale or disposition
under this paragraph (c)(2)(iv).
(v) Redemptions and sales of WHFIT interests--(A) Redemptions--(1)
In general. Unless paragraph (c)(2)(v)(C) of this section applies, for
each date on which the amount of a redemption proceeds for the
redemption of a trust interest is determined, the trustee must provide
information to enable a requesting person to determine--
(i) The redemption proceeds (as defined in paragraph (b)(15) of this
section) per trust interest on that date;
(ii) The redemption asset proceeds (as defined in paragraph (b)(14)
of this section) per trust interest on that date; and
(iii) The gross income that is attributable to the redeeming
beneficial owner for the portion of the calendar year that the redeeming
beneficial owner held its interest (including income earned by the WHFIT
after the date of the last income distribution.
(2) In kind redemptions. The value of the assets received with
respect to an in-kind redemption (as defined in paragraph (b)(8) of this
section) is not required to be reported under this paragraph
(c)(2)(v)(A). Information regarding the income attributable to a
redeeming beneficial owner must, however, be reported under paragraph
(c)(2)(v)(A)(1)(iii) of this section.
(B) Sale of a trust interest. Under paragraph (c)(2)(v)(C) of this
section applies, if a secondary market for interests in the WHFIT is
established, the trustee must provide, for each day of the calendar
year, information to enable requesting persons to determine--
(1) The sale assets proceeds (as defined in paragraph (b)(17) of
this section) per trust interest on that date; and
(2) The gross income that is attributable to a selling beneficial
owner and to a purchasing beneficial owner for the portion of the
calendar year that each held the trust interest.
(C) Simplified Reporting for Certain NMWHFITs--(1) In general. The
trustee of an NMWHFIT described in paragraph (c)(2)(v)(C)(2) of this
section is not required to report the information described in paragraph
(c)(2)(v)(A) of this section (regarding redemptions) or (c)(2)(v)(B) of
this section (regarding sales). However, the trustee must report to
requesting persons, for each date on which the amount of redemption
proceeds to be paid for the redemption of a trust interest is
determined, information that will enable requesting persons to determine
the redemption proceeds per trust interest on that date. The trustee
also must provide requesting persons with a statement that this
paragraph applies to the NMWHFIT.
(2) NMWHFITs that qualify for the exception. This paragraph
(c)(2)(v)(C) applies to a NMWHFIT if--
(i) Substantially all the assets of the NMWHFIT produce income that
is treated as interest income (but only if these assets trade on a
recognized exchange or securities market without a price component
attributable to accrued interest) or produce dividend income (as defined
in section 6042(b) and
[[Page 338]]
the regulations under that section). (Trust sales proceeds and gross
proceeds from sales described in paragraphs (c)(2)(iv)(G) and (H) of
this section are ignored for the purpose of determining if substantially
all of a NMWHFIT's assets produce dividend or the interest income
described in this paragraph); and
(ii) The qualified NMWHFIT exception of paragraph (c)(2)(iv)(E) of
this section is satisfied, or the trustee is required by the governing
document of the NMWHFIT to determine and distribute all cash held for
distribution (as defined in paragraph (b)(5) of this section) no less
frequently than monthly. A NMWHFIT will be considered to have satisfied
this paragraph (c)(2)(v)(C)(2)(i) notwithstanding that the governing
document of the NMWHFIT permits the trustee to forego making a required
monthly or more frequent distribution, if the cash held for distribution
is less than 0.1 percent of the aggregate net asset value of the trust
as of the date specified in the governing document for calculating the
amount of the monthly distribution.
(vi) Information regarding bond premium. The trustee generally must
report information that enables a beneficial owner to determine, in any
manner that is reasonably consistent with section 171, the amount of the
beneficial owner's amortizable bond premium, if any, for each calendar
year. However, if a NMWHFIT meets the general de minimis test in
paragraph (c)(2)(iv)(D)(1) of this section, the qualified NMWHFIT
exception of paragraph (c)(2)(iv)(E) of this section, or the NMWHFIT
final calendar year exception of paragraph (c)(2)(iv)(F) of this
section, the trustee of the NMWHFIT is not required to report
information regarding bond premium.
(vii) Information regarding market discount. The trustee generally
must report information that enables a beneficial owner to determine, in
any manner reasonably consistent with section 1276 (including section
1276(a)(3)), the amount of market discount that has accrued during the
calendar year. However, if a NMWHFIT meets the general de minimis test
in paragraph (c)(2)(iv)(D) of this section, the qualified NMWHFIT
exception of paragraph (c)(2)(iv)(E) of this section, or the NMWHFIT
final calendar year exception of paragraph (c)(2)(iv)(F) of this
section, the trustee of such NMWHFIT is not required to provide
information regarding market discount.
(viii) Other information. The trustee must provide any other
information necessary for a beneficial owner of a trust interest to
report, with reasonable accuracy, the items (as defined in paragraph
(b)(9) of this section) attributable to the portion of the trust treated
as owned by the beneficial owner under section 671.
(3) Identifying the representative who will provide trust
information. The trustee must identify a representative of the WHFIT who
will provide the information specified in this paragraph (c). The
trustee also may identify an Internet website at which the trustee will
provide the information specified in this paragraph (c). This
information must be--
(i) Printed in a publication generally read by, and available to,
requesting persons;
(ii) Stated in the trust's prospectus; or
(iii) Posted at the trustee's Internet website.
(4) Time and manner of providing information--(i) Time--(A) In
general. Except as provided in paragraph (c)(4)(i)(B) of this section, a
trustee must provide the information specified in this paragraph (c) to
requesting persons on or before the later of--
(1) The 30th day after the close of the calendar year to which the
request relates; or
(2) The day that is 14 days after the receipt of the request.
(B) Trusts holding interests in other WHFITs or in REMICs. If the
WHFIT holds an interest in one or more other WHFITs or holds one or more
REMIC regular interests, or holds both, a trustee must provide the
information specified in this paragraph (c) to requesting persons on or
before the later of--
(1) The 44th day after the close of the calendar year to which the
request relates; or
(2) The day that is 28 days after the receipt of the request.
[[Page 339]]
(ii) Manner. The information specified in this paragraph (c) must be
provided--
(A) By written statement sent by first class mail to the address
provided by the requesting person;
(B) By causing it to be printed in a publication generally read by
and available to requesting persons and by notifying requesting persons
in writing of the publication in which it will appear, the date on which
it will appear, and, if possible, the page on which it will appear;
(C) By causing it to be posted at an Internet website, provided the
trustee identifies the website under paragraph (c)(3) of this section;
(D) By electronic mail provided that the requesting person requests
that the trustee furnish the information by electronic mail and the
person furnishes an electronic address; or
(E) By any other method agreed to by the trustee and the requesting
person.
(iii) Inclusion of information with respect to all calculation
periods. If a trustee calculates WHFIT information using a calculation
period other than a calendar year, the trustee must provide information
for each calculation period that falls within the calendar year
requested.
(5) Requesting information from a WHFIT--(i) In general. Requesting
persons may request the information specified in this paragraph (c) from
a WHFIT.
(ii) Manner of requesting information. In requesting WHFIT
information, a requesting person must specify the WHFIT and the calendar
year for which information is requested.
(iii) Period of time during which a requesting person may request
WHFIT information. For the life of the WHFIT and for five years
following the date of the WHFIT's termination, a requesting person may
request the information specified in this paragraph (c) for any calendar
year of the WHFIT's existence beginning with the 2007 calendar year.
(6) Trustee's requirement to retain records. For the life of the
WHFIT and for five years following the date of termination of the WHFIT,
the trustee must maintain in its records a copy of the information
required to be provided to requesting persons this paragraph (c) for
each calendar year beginning with the 2007 calendar year. For a period
of five years following the close of the calendar year to which the data
pertains, the trustee also must maintain in its records such
supplemental data as may be necessary to establish that the information
provided to requesting persons is correct and meets the requirements of
this paragraph (c).
(d) Form 1099 requirement for trustees and middlemen--(1) Obligation
to file Form 1099 with the IRS--(i) In general. Except as provided in
paragraphs (d)(1)(ii) and (iii) of this section--
(A) The trustee must file with the IRS the appropriate Forms 1099,
reporting the information specified in paragraph (d)(2) of this section
with respect to any TIH who holds an interest in the WHFIT directly and
not through a middleman; and
(B) Every middleman must file with the IRS the appropriate Forms
1099, reporting the information specified in paragraph (d)(2) of this
section with respect to any TIH on whose behalf or account the middleman
holds an interest in the WHFIT or acts as an intermediary.
(ii) Forms 1099 not required for exempt recipients--(A) In general.
A Form 1099 is not required with respect to a TIH who is an exempt
recipient (as defined in paragraph (b)(7) of this section), unless the
trustee or middleman backup withholds under section 3406 on payments
made to an exempt recipient (because, for example, the exempt recipient
has failed to furnish a Form W-9 on request). If the trustee or
middleman backup withholds, then the trustee or middleman is required to
file a Form 1099 under this paragraph (d) unless the trustee or
middleman refunds the amount withheld in accordance with Sec.
31.6413(a)-3 of this chapter.
(B) Exempt recipients must include WHFIT information in computing
taxable income. A beneficial owner who is an exempt recipient must
obtain WHFIT information and must include the items (as defined in
paragraph (b)(9) of this section) of the WHFIT in computing its taxable
income on its federal income tax return. Paragraphs (c)(3) and (h) of
this section provide rules for exempt recipients to obtain information
from a WHFIT.
[[Page 340]]
(iii) Reporting and withholding with respect to foreign persons. The
items of the WHFIT attributable to a TIH who is not a United States
person must be reported, and amounts must be withheld, as provided under
subtitle A, chapter 3 of the Internal Revenue Code (sections 1441
through 1464) and the regulations thereunder and not reported under this
paragraph (d).
(2) Information to be reported--(i) Determining amounts to be
provided on Forms 1099. The amounts reported to the IRS for a calendar
year by a trustee or middleman on the appropriate Form 1099 must be
consistent with the information provided by the trustee under paragraph
(c) of this section and must reflect with reasonable accuracy the amount
of each item required to be reported on a Form 1099 that is attributable
(or if permitted under paragraphs (d)(2)(ii)(D) and (E) of this section,
distributed) to the TIH. If the trustee, in providing WHFIT information,
uses the safe harbors in paragraph (f)(1) or (g)(1) of this section,
then the trustee or middleman must calculate the information to be
provided to the IRS on the Forms 1099 in accordance with paragraph
(f)(2) or (g)(2) of this section, as appropriate.
(ii) Information to be provided on Forms 1099. The trustee or
middleman must include on the appropriate Forms 1099:
(A) Taxpayer information. The name, address, and taxpayer
identification number of the TIH;
(B) Information regarding the person filing the Form 1099. The name,
address, taxpayer identification number, and telephone number of the
person required to file the Form 1099;
(C) Gross income. All items of gross income of the WHFIT
attributable to the TIH for the calendar year (including OID (unless the
exception for certain WHMTs applies (see paragraph (c)(2)(ii)(A) of this
section)) and all amounts of income attributable to a selling,
purchasing, or redeeming TIH for the portion of the calendar year that
the TIH held its interest (unless paragraph (c)(2)(v)(C) of this section
(regarding an exception for certain NMWHFITs) applies));
(D) Non pro-rata partial principal payments. All non pro-rata
partial principal payments (as defined in paragraph (b)(13) of this
section) received by the WHFIT that are attributable (or distributed, in
the case of a trustee or middleman reporting under paragraph (f)(2)(iii)
of this section) to the TIH;
(E) Trust sales proceeds. All trust sales proceeds (as defined in
paragraph (b)(21) of this section) that are attributable to the TIH for
the calendar year, if any, or, if paragraph (c)(2)(iv)(B) of this
section (regarding certain NMWHFITs) applies, the amount of trust sales
proceeds distributed to the TIH for the calendar year;
(F) Reporting Redemptions. All redemption asset proceeds (as defined
in paragraph (b)(14) of this section) paid to the TIH for the calendar
year, if any, or, if paragraph (c)(2)(v)(C) of this section (regarding
an exception for certain NMWHFITs) applies, all redemption proceeds (as
defined in paragraph (b)(15) of this section) paid to the TIH for the
calendar year;
(G) Reporting sales of a trust interest on a secondary market. All
sales asset proceeds (as defined in paragraph (b)(17) of this section)
paid to the TIH for the sale of a trust interest or interests on a
secondary market established for the NMWHFIT for the calendar year, if
any, or, if paragraph (c)(2)(v)(C) of this section (regarding an
exception for certain NMWHFITs) applies, all sales proceeds (as defined
in paragraph (b)(18) of this section) paid to the TIH for the calendar
year; and
(H) Other information. Any other information required by the Form
1099.
(3) Time and manner of filing Forms 1099--(i) Time and place. The
Forms 1099 required to be filed under this paragraph (d) must be filed
on or before February 28 (March 31, if filed electronically) of the year
following the year for which the Forms 1099 are being filed. The returns
must be filed with the appropriate Internal Revenue Service Center, at
the address listed in the instructions for the Forms 1099. For
extensions of time for filing returns under this section, see Sec.
1.6081-1, the instructions for the Forms 1099, and applicable revenue
procedures (see Sec. 601.601(d)(2) of this chapter). For magnetic media
filing requirements, see Sec. 301.6011-2 of this chapter.
[[Page 341]]
(ii) Reporting trust sales proceeds, redemption asset proceeds,
redemption proceeds, sale asset proceeds, sales proceeds and non pro-
rata partial principal payments--(A) Form to be used. Trust sales
proceeds, redemption asset proceeds, redemption proceeds, sale asset
proceeds, sales proceeds, and non pro-rata partial principal payments
are to be reported on the same type of Form 1099 as that required for
reporting gross proceeds under section 6045.
(B) Appropriate reporting for in-kind redemptions. The value of the
assets distributed with respect to an in-kind redemption is not required
to be reported to the IRS. Unless paragraph (c)(2)(v)(C) of this section
applies, the trustee or middleman must report the gross income
attributable to the redeemed trust interest for the calendar year up to
the date of the redemption under paragraph (d)(2)(ii)(C) of this
section.
(e) Requirement to furnish a written tax information statement to
the TIH--(1) In general. Every trustee or middleman required to file
appropriate Forms 1099 under paragraph (d) of this section with respect
to a TIH must furnish to that TIH (the person whose identifying number
is required to be shown on the form) a written tax information statement
showing the information described in paragraph (e)(2) of this section.
The amount of a trust item reported to a TIH under this paragraph (e)
must be consistent with the information reported to the IRS with respect
to the TIH under paragraph (d) of this section. Information provided in
this written statement must be determined in accordance with the rules
provided in paragraph (d)(2)(i) of this section (regardless of whether
the information was required to be provided on a Form 1099). Further,
the trustee or middleman must separately state on the written tax
information statement any items that, if taken into account separately
by that TIH, would result in an income tax liability that is different
from the income tax liability that would result if the items were not
taken into account separately.
(2) Information required. For the calendar year, the written tax
information statement must meet the following requirements:
(i) WHFIT information. The written tax information statement must
include the name of the WHFIT and the identifying number of the WHFIT ;
(ii) Identification of the person furnishing the statement. The
written tax information statement must include the name, address, and
taxpayer identification number of the person required to furnish the
statement;
(iii) Items of income, expense, and credit. The written tax
information statement must include information regarding the items of
income (that is, the information required to be reported to the IRS on
Forms 1099), expense (including affected expenses), and credit that are
attributable to the TIH for the calendar year;
(iv) Non pro-rata partial principal payments. The written tax
information statement must include the information required to be
reported to the IRS on Forms 1099 under paragraph (d)(2)(ii)(D) of this
section (regarding the non pro-rata partial principal payments that are
attributable (or distributed, in the case of a trustee or middleman
reporting under paragraph (f)(2)(iii) of this section) to the TIH for
the calendar year).
(v) Asset sales and dispositions--(A) General rule. Unless paragraph
(c)(2)(iv)(B) (regarding the exception for certain NMWHFITs) or
(c)(2)(iv)(C) (regarding the exception for certain WHMTs) of this
section applies, the written tax information statement must include,
with respect to each sale or disposition of a WHFIT asset for the
calendar year--
(1) The date of sale or disposition;
(2) Information regarding the trust sales proceeds that are
attributable to the TIH as a result of the sale or disposition; and
(3) Information that will enable the TIH to allocate with reasonable
accuracy a portion of the TIH's basis in the TIH's trust interest to the
sale or disposition.
(B) Special rule for certain NMWHFITs and WHMTs. In the case of a
NMWHFIT to which paragraph (c)(2)(iv)(B) of this section applies or in
the case of a WHMT to which paragraph (c)(2)(iv)(C) of this section
applies, the written tax information statement must include,
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with respect to asset sales and dispositions, only the information
required to be reported to the IRS on Form 1099 under paragraph
(d)(2)(ii)(E) of this section.
(vi) Redemption or sale of a trust interest. The written tax
information statement must include the information required to be
reported to the IRS on Forms 1099 under paragraphs (d)(2)(ii)(F) and (G)
of this section (regarding the sales and redemptions of trust interests
made by the TIH for the calendar year);
(vii) Information regarding market discount and bond premium. The
written tax information statement must include the information required
to be reported by the trustee under paragraphs (c)(2)(vi) and (vii) of
this section (regarding bond premium and market discount);
(viii) Other information. The written tax information statement must
include any other information necessary for the TIH to report, with
reasonable accuracy for the calendar year, the items (as defined in
paragraph (b)(9) of this section) attributable to the portion of the
trust treated as owned by the TIH under section 671. The written tax
information statement may include information with respect to a trust
item on a per trust interest basis if the trustee has reported (or
calculated) the information with respect to that item on a per trust
interest basis and information with respect to that item is not required
to be reported on a Form 1099; and
(ix) Required statement. The written tax information statement must
inform the TIH that the items of income, deduction, and credit, and any
other information shown on the statement must be taken into account in
computing the taxable income and credits of the TIH on the Federal
income tax return of the TIH. If the written tax information statement
reports that an amount of qualified dividend income is attributable to
the TIH, the written tax information statement also must inform the TIH
that the TIH must meet the requirements of section 1(h)(11)(B)(iii) to
treat the dividends as qualified dividends.
(3) Due date and other requirements. The written tax information
statement must be furnished to the TIH on or before March 15 of the year
following the calendar year for which the statement is being furnished.
(4) Requirement to retain records. For a period of no less than five
years from the due date for furnishing the written tax information
statement, a trustee or middleman must maintain in its records a copy of
any written tax information statement furnished to a TIH, and such
supplemental data as may be required to establish the correctness of the
statement.
(f) Safe harbor for providing information for certain NMWHFITs--(1)
Safe harbor for trustee reporting of NMWHFIT information. The trustee of
a NMWHFIT that meets the requirements of paragraph (f)(1)(i) of this
section is deemed to satisfy paragraph (c)(1)(i) of this section, if the
trustee calculates and provides WHFIT information in the manner
described in this paragraph (f) and provides a statement to a requesting
person giving notice that information has been calculated in accordance
with this paragraph (f)(1).
(i) In general--(A) Eligibility to report under this safe harbor.
Only NMWHFITs that meet the requirements set forth in paragraphs
(f)(1)(i)(A)(1) and (2) of this section may report under this safe
harbor. For purposes of determining whether the requirements of
paragraph (f)(1)(i)(A)(1) of this section are met, trust sales proceeds
and gross proceeds from sales described in paragraphs (c)(2)(iv)(G) and
(H) of this section are ignored.
(1) Substantially all of the NMWHFIT's income is from dividends or
interest; and
(2) All trust interests have identical value and rights.
(B) Consistency requirements. The trustee must--
(1) Calculate all trust items subject to the safe harbor consistent
with the safe harbor; and, (2) Report under this paragraph (f)(1) for
the life of the NMWHFIT; or, if the NMWHFIT has a start-up date before
January 1, 2007, the NMWHFIT must begin reporting under this paragraph
(f)(1) as of January 1, 2007 and must continue to report under this
paragraph for the life of the NMWHFIT.
[[Page 343]]
(ii) Reporting NMWHFIT income and expenses. A trustee must first
determine the total amount of NMWHFIT distributions (both actual and
deemed) for the calendar year and then express each income or expense
item as a fraction of the total amount of NMWHFIT distributions. These
fractions (hereinafter referred to as factors) must be accurate to at
least four decimal places.
(A) Step One: Determine the total amount of NMWHFIT distributions
for the calendar year. The trustee must determine the total amount of
NMWHFIT distributions (actual and deemed) for the calendar year. If the
calculation of the total amount of NMWHFIT distributions under this
paragraph (f)(1)(ii)(A) results in a zero or a negative number, the
trustee may not determine income and expense information under this
paragraph (f)(1)(ii)(A) (but may report all other applicable items under
this paragraph (f)(1)). The total amount of NMWHFIT distributions equals
the amount of NMWHFIT funds paid out to all TIHs (including all trust
sales proceeds, all principal receipts, and all redemption proceeds) for
the calendar year--
(1) Increased by--
(i) All amounts that would have been distributed during the calendar
year, but were instead reinvested pursuant to a reinvestment plan; and
(ii) All cash held for distribution to TIHs as of December 31 of the
year for which the trustee is reporting; and
(2) Decreased by--
(i) All cash distributed during the current year that was included
in a year-end cash allocation factor (see paragraph (f)(1)(ii)(C)(1) of
this section) for a prior year;
(ii) All redemption asset proceeds paid for the calendar year, or if
paragraph (c)(2)(v)(C) of this section applies to the NMWHFIT, all
redemption proceeds paid for the calendar year;
(iii) All trust sales proceeds distributed during the calendar year;
and
(iv) All non pro-rata partial principal payments distributed during
the calendar year.
(3) For the purpose of determining the amount of all redemption
asset proceeds or redemption proceeds paid for the calendar year with
respect to paragraph (f)(1)(ii)(A)(2)(ii) of this section, the value of
the assets (not including cash) distributed with respect to an in-kind
redemption is disregarded. Any cash distributed as part of the
redemption must be included in the total amount of NMWHFIT
distributions.
(B) Step Two: Determine factors that express the ratios of NMWHFIT
income and expenses to the total amount of NMWHFIT distributions. The
trustee must determine factors that express the ratios of NMWHFIT income
and expenses to the total amount of NMWHFIT distributions as follows:
(1) Income factors. For each item of income generated by the
NMWHFIT's assets for the calendar year, the trustee must determine the
ratio of the gross amount of that item of income to the total amount of
NMWHFIT distributions for the calendar year; and
(2) Expense factors. For each item of expense paid by a NMWHFIT
during the calendar year, the trustee must determine the ratio of the
gross amount of that item of expense to the total amount of NMWHFIT
distributions for the calendar year.
(C) Step Three: Determine adjustments for reconciling the total
amount of NMWHFIT distributions (determined under Step One) with amounts
actually paid to TIHs. Paragraph (f)(1)(ii)(B) of this section (Step
Two) requires an item of income or expense to be expressed as a ratio of
that item to the total amount of NMWHFIT distributions as determined in
paragraph (f)(1)(ii)(A) of this section (Step One). A TIH's share of the
total amount of NMWHFIT distributions may differ from the amount
actually paid to that TIH. A trustee, therefore, must provide
information that can be used to compute a TIH's share of the total
amount of NMWHFIT distributions based on the amount actually paid to the
TIH. A trustee satisfies this requirement by providing a current year-
end cash allocation factor, a prior year cash allocation factor, and the
date on which the prior year cash was distributed to TIHs (prior year
cash distribution date).
(1) The current year-end cash allocation factor. The current year-
end cash allocation factor is the amount of cash held for distribution
to TIHs by the NMWHFIT as of December 31 of the
[[Page 344]]
calendar year for which the trustee is reporting, divided by the number
of trust interests outstanding as of that date.
(2) The prior year cash allocation factor. The prior year cash
allocation factor is the amount of the distribution during the calendar
year for which the trustee is reporting that was included in determining
a year-end cash allocation factor for a prior year, divided by the
number of trust interests outstanding on the date of the distribution.
(iii) Reporting non pro-rata partial principal payments under the
safe harbor. The trustee must provide a list of dates on which non pro-
rata partial principal payments were distributed by the trust, and the
amount distributed, per trust interest.
(iv) Reporting sales and dispositions of NMWHFIT assets under the
safe harbor--(A) NMWHFITs that must report under the general rule--(1)
In general. If a NMWHFIT must report under the general rule of paragraph
(c)(2)(iv)(A) of this section, the trustee must provide a list of dates
(from earliest to latest) on which sales or dispositions of NMWHFIT
assets occurred during the calendar year for which the trustee is
reporting and, for each date identified, provide--
(i) The trust sales proceeds received by the trust, per trust
interest, with respect to the sales and dispositions, on that date;
(ii) The trust sales proceeds distributed to TIHs, per trust
interest, with respect to the sales and dispositions on that date, and
the date that the trust sales proceeds were distributed to the TIHs; and
(iii) The ratio (expressed as a percentage) of the assets sold or
disposed of on that date to all assets held by the NMWHFIT.
(2) Determination of the portion of all assets held by the NMWHFIT
that the assets sold or disposed of represented--
(i) If a NMWHFIT terminates within twenty-four months of its start-
up date, the ratio of the assets sold or disposed of on that date to all
assets held by the NMWHFIT is based on the fair market value of the
NMWHFIT's assets as of the start-up date; or
(ii) If a NMWHFIT terminates more than twenty-four months after its
start-up date, the ratio of the assets sold or disposed of on that date
to all assets held by the NMWHFIT is based on the fair market value of
the NMWHFIT's assets as of the date of the sale or disposition.
(B) NMWHFITs excepted from the general rule. If paragraph
(c)(2)(iv)(B) of this section applies to the NMWHFIT, the trustee must
provide a list of dates on which trust sales proceeds were distributed,
and the amount of trust sales proceeds, per trust interest, that were
distributed on that date. The trustee also must also provide requesting
persons with the statement required by paragraph (c)(2)(iv)(B) of this
section.
(v) Reporting redemptions under the safe harbor--(A) In general. The
trustee must:
(1) Provide a list of dates on which the amount of redemption
proceeds paid for the redemption of a trust interest was determined and
the amount of the redemption asset proceeds determined per trust
interest on that date, or if paragraph (c)(2)(v)(C) of this section
applies to the NMWHFIT, the amount of redemption proceeds determined on
that date; or
(2) Provide to each requesting person that held (either for its own
behalf or for the behalf of a TIH) a trust interest that was redeemed
during the calendar year, the date of the redemption and the amount of
the redemption asset proceeds per trust interest determined on that
date, or if paragraph (c)(2)(v)(C) of this section applies to the
NMWHFIT, the amount of the redemption proceeds determined for that date;
and
(B) Paragraph (c)(2)(v)(C) statement. If paragraph (c)(2)(v)(C) of
this section applies to the NMWHFIT, the trustee must provide a
statement to requesting persons to the effect that the trustee is
providing information consistent with paragraph (c)(2)(v)(C) of this
section.
(vi) Reporting the sale of a trust interest under the safe harbor.
If paragraph (c)(2)(v)(C) of this section does not apply to the NMWHFIT,
the trustee must provide, for each day of the calendar year, the amount
of cash held for distribution, per trust interest, by the NMWHFIT on
that date. If the trustee
[[Page 345]]
is able to identify the date on which trust interests were sold on the
secondary market, the trustee alternatively may provide information for
each day on which sales of trust interests occurred rather than for each
day during the calendar year. If paragraph (c)(2)(v)(C) of this section
applies to the NMWHFIT, the trustee is not required to provide any
information under this paragraph (f)(1)(vi), other than a statement that
the NMWHFIT meets the requirements to report under paragraph
(c)(2)(v)(C) of this section.
(vii) Reporting OID information under the safe harbor. The trustee
must provide, for each calculation period, the average aggregate daily
accrual of OID per $1,000 of original principal amount.
(viii) Reporting market discount information under the safe harbor--
(A) In general--(1) Trustee required to provide market discount
information. If the trustee is required to provide information regarding
market discount under paragraph (c)(2)(vii) of this section, the trustee
must provide--
(i) The information required to be provided under paragraph
(f)(1)(iv)(A)(1)(iii) of this section; and
(ii) If the NMWHFIT holds debt instruments with OID, a list of the
aggregate adjusted issue prices of the debt instruments per trust
interest calculated as of the start-up date or measuring date (see
paragraph (c)(2)(iv)(D)(4) of this section) (whichever provides more
accurate information) and as of January 1 for each subsequent year of
the NMWHFIT.
(2) Trustee not required to provide market discount information. If
the trustee is not required to provide market discount information under
paragraph (c)(2)(vii) of this section (because the NMWHFIT meets the
general de minimis test of paragraph (c)(2)(iv)(D)(1) of this section,
the qualified NMWHFIT exception of paragraph (c)(2)(iv)(E) of this
section, or the NMWHFIT final year exception of paragraph (c)(2)(iv)(F)
of this section), the trustee is not required under this paragraph (f)
to provide any information regarding market discount.
(B) Reporting market discount information under the safe harbor when
the yield of the debt obligations held by the WHFIT is expected to be
affected by prepayments. [Reserved]
(ix) Reporting bond premium information under the safe harbor.
[Reserved]
(x) Reporting additional information. If a requesting person cannot
use the information provided by the trustee under paragraphs (f)(1)(ii)
through (ix) of this section to determine with reasonable accuracy the
trust items that are attributable to a TIH, the requesting person must
request, and the trustee must provide, additional information to enable
the requesting person to determine the trust items that are attributable
to the TIH. See, for example, paragraph (f)(2)(ii)(A)(4) of this section
which requires a middleman to request additional information from the
trustee when the total amount of WHFIT distributions attributable to a
TIH equals zero or less.
(2) Use of information provided by trustees under the safe harbor
for NMWHFITs--(i) In general. If a trustee reports NMWHFIT items in
accordance with paragraph (f)(1) of this section, the information
provided with respect to those items on the Forms 1099 required under
paragraph (d) of this section to be filed with the IRS and on the
statement required under paragraph (e) of this section to be furnished
to the TIH must be determined as provided in this paragraph (f)(2).
(ii) Determining NMWHFIT income and expense under the safe harbor.
The trustee or middleman must determine the amount of each item of
income and expense attributable to a TIH as follows--
(A) Step One: Determine the total amount of NMWHFIT distributions
attributable to the TIH. To determine the total amount of NMWHFIT
distributions attributable to a TIH for the calendar year, the total
amount paid to, or credited to the account of, the TIH during the
calendar year (including amounts paid as trust sales proceeds or partial
non-pro rata principal payments, redemption proceeds, and sales
proceeds) is--
(1) Increased by--
(i) All amounts that would have been distributed during the calendar
year to the TIH, but that were reinvested pursuant to a reinvestment
plan (unless
[[Page 346]]
another person (for example, the custodian of the reinvestment plan) is
responsible for reporting these amounts under paragraph (d) of this
section); and
(ii) An amount equal to the current year-end cash allocation factor
(provided by the trustee in accordance with paragraph (f)(1)(ii)(C)(1)
of this section) multiplied by the number of trust interests held by the
TIH as of December 31 of the calendar year for which the trustee is
reporting; and
(2) Decreased by--
(i) An amount equal to the prior year cash allocation factor
(provided by the trustee in accordance with paragraph (f)(1)(ii)(C)(2)
of this section) multiplied by the number of trust interests held by the
TIH on the date of the distribution;
(ii) An amount equal to all redemption asset proceeds paid to the
TIH for the calendar year, or if paragraph (c)(2)(v)(C) of this section
applies to the NMWHFIT, an amount equal to all redemption proceeds paid
to the TIH for the calendar year;
(iii) An amount equal to all sale asset proceeds paid to the TIH for
the calendar year, or if paragraph (c)(2)(v)(C) of this section applies
to the NMWHFIT, the amount of sales proceeds paid to the TIH for the
calendar year;
(iv) In the case of a TIH that purchased a trust interest in a
NMWHFIT to which paragraph (c)(2)(v)(C) of this section does not apply,
an amount equal to the cash held for distribution per trust interest on
the date that the TIH acquired its interest, multiplied by the trust
interests acquired on that date;
(v) The amount of the trust sales proceeds distributed to the TIH,
calculated as provided in paragraph (f)(2)(iv)(A)(3) of this section;
and
(vi) The amount of non pro-rata partial principal prepayments
distributed to the TIH during the calendar year, calculated as provided
in paragraph (f)(2)(iii) of this section.
(3) Treatment of in-kind distributions under this paragraph
(f)(2)(i). The value of the assets (not including cash) received with
respect to an in-kind redemption is not included in the amount used in
paragraph (f)(2)(ii)(A)(2)(ii) of this section. The cash distributed as
part of the redemption, however, must be included in the total amount of
NMWHFIT distributions paid to the TIH.
(4) The total amount of distributions attributable to a TIH
calculated under this paragraph (f)(2)(i)(A) equals zero or less. If the
total amount of distributions attributable to a TIH, calculated under
this paragraph (f)(2)(i)(A), equals zero or less, the trustee or
middleman may not report the income and expense attributable to the TIH
under this paragraph (f)(2)(i). The trustee or middleman must request
additional information from the trustee of the NMWHFIT to enable the
trustee or middleman to determine with reasonable accuracy the items of
income and expense that are attributable to the TIH. The trustee or
middleman must report the other items subject to paragraph (f)(1) of
this section in accordance with this paragraph (f)(2).
(B) Step Two: Apply the factors provided by the trustee to determine
the items of income and expense that are attributable to the TIH. The
amount of each item of income (other than OID) and each item of expense
attributable to a TIH is determined as follows--
(1) Application of income factors. For each income factor, the
trustee or middleman must multiply the income factor by the total amount
of NMWHFIT distributions attributable to the TIH for the calendar year
(as determined in paragraph (f)(2)(i)(A) of this section).
(2) Application of expense factors. For each expense factor, the
trustee or middleman must multiply the expense factor by the total
amount of NMWHFIT distributions attributable to the TIH for the calendar
year (as determined in paragraph (f)(2)(i)(A) of this section).
(iii) Reporting non pro-rata partial principal payments under the
safe harbor. To determine the amount of non pro-rata partial principal
payments that are distributed to a TIH for the calendar year, the
trustee or middleman must aggregate the amount of non pro-rata partial
principal payments distributed to a TIH for each day that non pro-rata
principal payments were distributed. To determine the amount of non pro-
rata principal payments that
[[Page 347]]
are distributed to a TIH on each distribution date, the trustee or
middleman must multiply the amount of non-pro rata principal payments
per trust interest distributed on that date by the number of trust
interests held by the TIH.
(iv) Reporting sales and dispositions of NMWHFIT assets under the
safe harbor--(A) Reporting under the safe harbor if the general rules
apply to the NMWHFIT. Unless paragraph (c)(2)(iv)(B) of this section
applies, the trustee or middleman must comply with paragraphs
(f)(2)(iv)(A)(1), (2), and (3) of this section.
(1) Form 1099. The trustee or middleman must report the amount of
trust sales proceeds attributable to the TIH for the calendar year on
Form 1099. To determine the amount of trust sales proceeds attributable
to a TIH for the calendar year, the trustee or middleman must aggregate
the total amount of trust sales proceeds attributable to the TIH for
each date on which the NMWHFIT sold or disposed of an asset or assets.
To determine the total amount of trust sales proceeds attributable to a
TIH for each date that the NMWHFIT sold or disposed of an asset or
assets, the trustee or middleman multiplies the amount of trust sales
proceeds received by the NMWHFIT per trust interest on that date by the
number of trust interests held by the TIH on that date.
(2) The written tax information statement furnished to the TIH. The
written tax information statement required to be furnished to the TIH
under paragraph (e) of this section must include a list of dates (in
order, from earliest to latest) on which sales or dispositions of trust
assets occurred during the calendar year and provide, for each date
identified--
(i) The trust sales proceeds received by the trust, per trust
interest, with respect to the sales or dispositions of trust assets on
that date; and
(ii) The information provided by the trustee under paragraph
(f)(1)(iv)(B)(2) of this section regarding the ratio of the assets sold
or disposed of on that date to all the assets of the NMWHFIT held on
that date, prior to such sale or disposition.
(3) Calculating the total amount of trust sales proceeds distributed
to the TIH. To determine the total amount of NMWHFIT distributions
attributable to a TIH, the trustee or middleman must calculate the
amount of trust sales proceeds distributed to the TIH for the calendar
year. (See paragraph (f)(2)(ii)(A)(2)(v) of this section.) To determine
the amount of trust sales proceeds distributed to a TIH for the calendar
year, the trustee or middleman must aggregate the total amount of trust
sales proceeds distributed to the TIH for each date on which the NMWHFIT
distributed trust sales proceeds. To determine the total amount of trust
sales proceeds distributed to a TIH for each date that the NMWHFIT
distributed trust sales proceeds, the trustee or middleman must multiply
the amount of trust sales proceeds distributed by the NMWHFIT per trust
interest on that date by the number of trust interests held by the TIH
on that date.
(B) Reporting under the safe harbor if paragraph (c)(2)(iv)(B) of
this section applies to the NMWHFIT. If paragraph (c)(2)(iv)(B) of this
section applies, the trustee or middleman must calculate, in the manner
provided in paragraph (f)(2)(iv)(A)(3) of this section, the amount of
trust sales proceeds distributed to the TIH for the calendar year. The
trustee or middleman must report this amount on the Form 1099 filed for
the TIH and on the written tax information statement furnished to the
TIH.
(v) Reporting redemptions under the safe harbor--(A) Except as
provided in paragraph (f)(2)(v)(B) or (C) of this section, if the
trustee has provided a list of dates for which the amount of the
redemption proceeds to be paid for the redemption of a trust interest
was determined and the redemption asset proceeds paid for that date, the
trustee or middleman must multiply the redemption asset proceeds
determined per trust interest for that date by the number of trust
interests redeemed by the TIH on that date.
(B) If paragraph (c)(2)(v)(C) of this section applies, and the
trustee has provided a list of dates for which the amount of the
redemption proceeds to be paid for the redemption of a trust
[[Page 348]]
interest was determined and the redemption proceeds determined per trust
interest on each date, the trustee or middleman must multiply the
redemption proceeds per trust interest for each date by the number of
trust interests redeemed by the TIH on that date.
(C) If the trustee has provided the requesting person with
information regarding the redemption asset proceeds paid for each
redemption of a trust interest held by the middleman for the calendar
year, or if paragraph (c)(2)(v)(C) of this section applies and the
trustee has provided the amount of redemption proceeds paid for each
redemption of a trust interest held by the middleman during the calendar
year, the requesting person may use this information to determine the
amount of the redemption asset proceeds or redemption proceeds paid to
the TIH for the calendar year.
(vi) Reporting sales of trust interests under the safe harbor--(A)
Except as provided in paragraph (f)(2)(vi)(B) of this section, the
trustee or middleman must subtract the amount of cash held for
distribution per trust interest on the date of the sale from the sales
proceeds paid to the TIH to determine the sale asset proceeds that are
to be reported to the TIH for each sale of a trust interest.
(B) If paragraph (c)(2)(v)(C) of this section applies, the trustee
or middleman must report the sales proceeds paid to the TIH as a result
of each sale of a trust interest.
(vii) Reporting OID information under the safe harbor--The trustee
or middleman must aggregate the amounts of OID that are allocable to
each trust interest held by a TIH for each calculation period. The
amount of OID that is allocable to a trust interest, with respect to
each calculation period, is determined by multiplying--
(A) The product of the OID factor and the original principal balance
of the trust interest, divided by 1,000; by
(B) The number of days during the OID calculation period in that
calendar year that the TIH held the trust interest.
(viii) Reporting market discount information under the safe harbor--
(A) Except as provided in paragraph (f)(2)(viii)(B) of this section, the
trustee or middleman must provide the TIH with the information provided
under paragraph (f)(1)(viii) of this section.
(B) If paragraph (c)(2)(iv)(B) of this section applies, the trustee
and middleman are not required under this paragraph (f)(2) to provide
any information regarding market discount.
(ix) Reporting bond premium information under the safe harbor.
[Reserved]
(3) Example of the use of the safe harbor for NMWHFITs. The
following example illustrates the use of the factors in this paragraph
(f) to calculate and provide NMWHFIT information:
Example. (i) Facts--(A) In general--(1) Trust is a NMWHFIT that
holds common stock in ten different corporations and has 100 trust
interests outstanding. The start-up date for Trust is December 15, 2006,
and Trust's registration statement under the Securities Act of 1933
became effective after July 31, 2006. Trust terminates on March 15,
2008. The agreement governing Trust requires Trust to distribute cash
held by Trust reduced by accrued but unpaid expenses on April 15, July
15, and October 15 of the 2007 calendar year. The agreement also
provides that the trust interests will be redeemed by the Trust for an
amount equal to the value of the trust interest, as of the close of
business, on the day the trust interest is tendered for redemption.
There is no reinvestment plan. A secondary market for interests in Trust
will be created by Trust's sponsor and Trust's sponsor will provide
Trustee with a list of dates on which sales occurred on this secondary
market.
(2) As of December 31, 2006, Trust holds $12x for distribution to
TIHs on the next distribution date and has no accrued but unpaid
expenses. Trustee includes the $12x in determining the year-end cash
allocation factor for December 31, 2006.
(B) Events occurring during the 2007 calendar year--(1) As of
January 1, 2007, Broker1 holds ten trust interests in Trust in street
name for each of J and A and Broker2 holds ten trust interests in Trust
in street name for S. J, A, and S; are individual, cash method
taxpayers.
(2) As of January 1, 2007, the fair market value of the Trust's
assets equals $10,000x.
(3) During 2007, Trust receives $588x in dividend income. Trustee
determines that $400x of the dividend income received during 2007 meets
the definition of a qualified dividend in section 1(h)(11)(B)(i) and the
holding period requirement in section 1(h)(11)(B)(iii) with respect to
the Trust. During 2007, Trust also receives $12x in interest income from
investment of Trust's funds pending distribution to TIHs, and pays $45x
in expenses, all of which are affected expenses.
[[Page 349]]
(4) On April 15, 2007, Trustee distributes $135x, which includes the
$12x included in determining the year-end cash allocation factor for
December 31, 2006. As a result of the distribution, Broker1 credits J's
account and A's account for $13.50x each. Broker2 credits S's account
for $13.50x.
(5) On June 1, 2007, Trustee sells shares of stock for $1000x to
preserve the soundness of the trust. The stock sold on June 1, 2007,
equaled 20% of the aggregate fair market value of the assets held by
Trust on the start-up date of Trust. Trustee has chosen not to report
sales described in paragraph (c)(2)(iv)(4)(ii) of Trust's assets under
paragraph (c)(2)(iv)(D)(4) of this section.
(6) On July 15, 2007, Trustee distributes $1,135x, which includes
the $1,000x of trust sales proceeds received by Trust for the sale of
assets on June 1, 2007. As a result of the distribution, Broker1 credits
J's account and A's account for $113.50x each. Broker 2 credits S's
account for $113.50x.
(7) On September 30 2007, J, through Trust's sponsor, sells a trust
interest to S for $115.35x. Trustee determines that the cash held for
distribution per trust interest on September 30 is $1.35x. As a result
of the sale, Broker1 credits J's account for $115.35x.
(8) On October 15, 2007, Trustee distributes $123x. As a result of
the distribution, Broker1 credits J's account for $11.07x and A's
account for $12.30x. Broker2 credits S's account for $13.53x.
(9) On December 10, 2007, J tenders a trust interest to Trustee for
redemption through Broker1. Trustee determines that the amount of the
redemption proceeds to be paid for a trust interest that is tendered for
redemption on December 10, 2007 is $116x, of which $115x represents the
redemption asset proceeds. Trustee pays this amount to Broker1 on J's
behalf. On December 12, 2007, trustee engages in a non pro-rata sale of
shares of common stock for $115x to effect J's redemption of a trust
interest. The stock sold on December 12, 2007, equals 2% of the
aggregate fair market value of all the assets of Trust as of the start-
up date.
(10) On December 10, 2007, J, through Trust's sponsor, also sells a
trust interest to S for $116x. Trustee determines that the cash held for
distribution per trust interest on that date is $1x. As a result of the
sale, Broker1 credits J's account for $116x.
(11) As of December 31, 2007, Trust holds cash of $173x and has
incurred $15x in expenses that Trust has not paid. J is the only TIH to
redeem a trust interest during the calendar year. The sale of two trust
interests in Trust by J to S are the only sales that occurred on the
secondary market established by Trust's sponsor during 2007.
(ii) Trustee reporting--(A) Summary of information provided by
Trustee. Trustee meets the requirements of paragraph (f)(1) of this
section if Trustee provides the following information to requesting
persons:
(1) Income and expense information:
Factor for ordinary dividend income........ 0.3481
Factor for qualified dividend income....... 0.7407
Factor for interest income................. 0.0222
Factor for affected expenses............... 0.0833
Current year-end cash allocation factor.... 1.5960
Prior year cash allocation factor.......... 0.1200
Prior year cash distribution date.......... April 15
(2) Information regarding asset sales and distributions:
------------------------------------------------------------------------
Trust sales
Trust sales proceeds Percent
Date of sale proceeds distributed and of trust
received date sold
distributed
------------------------------------------------------------------------
June 1...................... $10.0000x...... $10.0000x (July 20
15).
December 12................. 1.1616x........ 0.0000x........ 2
------------------------------------------------------------------------
(3) Information regarding redemptions:
------------------------------------------------------------------------
Redemption
Date asset proceeds
------------------------------------------------------------------------
December 10............................................. $115x
------------------------------------------------------------------------
(4) Information regarding sales of trust interests
------------------------------------------------------------------------
Cash held for
distribution
Date per trust
interest
------------------------------------------------------------------------
September 30............................................ $1.35x
December 10............................................. 1.00x
------------------------------------------------------------------------
(B) Trustee determines this information as follows:
(1) Step One: Trustee determines the total amount of NMWHFIT
distributions for the calendar year. The total amount of NMWHFIT
distributions (actual and deemed) for the calendar year for purposes of
determining the safe harbor factors is $540x. This amount consists of
the amounts paid on each scheduled distribution date during the calendar
year ($1135x, $135x, and $123x), plus the total amount paid to J as a
result of J's redemption of a trust interest ($116x) ($1,135x + $135x +
$123x + $116x = $1,509x)--
(i) Increased by all cash held for distribution to TIHs as of
December 31, 2007 ($158x), which is the cash held as of December 31,
2007 ($173x) reduced by the accrued but unpaid expenses as of December
31, 2007 ($15x), and
(ii) Decreased by all amounts distributed during the calendar year
but included in the year-end cash allocation factor from a prior year
($12x); all redemption asset proceeds paid for the calendar year
($115x); and all trust sales proceeds distributed during the calendar
year ($1,000x).
(2) Step Two: Trustee determines factors that express the ratio of
NMWHFIT income (other than OID) and expenses to the total amount of
NMWHFIT distributions. Trustee determines the factors for each item of
income earned by Trust and each item of expense as follows:
[[Page 350]]
(i) Ordinary dividend income factor. The ordinary dividend income
factor is 0.3481, which represents the ratio of the gross amount of
ordinary dividends ($188x) to the total amount of NMWHFIT distributions
for the calendar year ($540x).
(ii) Qualified dividend income factor. The qualified dividend income
factor is 0.7407 which represents the ratio of the gross amount of
qualified dividend income ($400x) to the total amount of NMWHFIT
distributions for the calendar year ($540x).
(iii) Interest income factor. The interest income factor is 0.0222,
which represents the ratio of the gross amount of interest income ($12x)
to the total amount of NMWHFIT distributions for the calendar year
($540x).
(iv) Expense factor. The affected expenses factor is 0.0833, which
represents the ratio of the gross amount of affected expenses paid by
Trust for the calendar year ($45x) to the total amount of NMWHFIT
distributions for the calendar year ($540x).
(3) Step Three: Trustee determines adjustments for reconciling the
total amount of NMWHFIT distributions with amounts paid to TIHs. To
enable requesting persons to determine the total amount of NMWHFIT
distributions that are attributable to a TIH based on amounts actually
paid to the TIH, the trustee must provide both a current year-end cash
allocation factor and a prior year cash allocation factor.
(i) Current year-end cash allocation factor. The adjustment factor
for cash held by Trust at year end is 1.5960, which represents the cash
held for distribution as of December 31, 2007 ($158x) (the amount of
cash held by Trust on December 31, 2007 ($173x) reduced by accrued, but
unpaid, expenses ($15x)), divided by the number of trust interests
outstanding at year-end (99).
(ii) Prior Year Cash Allocation Factor. The adjustment factor for
distributions of year-end cash from the prior year is 0.1200, which
represents the amount of the distribution during the current calendar
year that was included in a year-end cash allocation factor for a prior
year ($12x), divided by the number of trust interests outstanding at the
time of the distribution (100). The prior year cash distribution date is
April 15, 2007.
(4) Reporting sales and dispositions of trust assets--(i)
Application of the de minimis test. The aggregate fair market value of
the assets of Trust as of January 1, 2007, was $10,000x. During the 2007
calendar year, Trust received trust sales proceeds of $1115x. The trust
sales proceeds received by Trust for the 2007 calendar year equal 11.15%
of Trust's fair market value as of January 1, 2007. Accordingly, the de
minimis test is not satisfied for the 2007 calendar year. The qualified
NMWHFIT exception in paragraph (c)(2)(iv)(E) of this section and the
NMWHFIT final calendar year exception in (c)(2)(iv)(F) of this section
also do not apply to Trust for the 2007 calendar year.
(ii) Information to be provided. To satisfy the requirements of
paragraph (f)(1) of this section with respect to sales and dispositions
of Trust's assets, Trustee provides a list of dates on which trust
assets were sold during the calendar year, and provides, for each date:
the trust sales proceeds (per trust interest) received on that date; the
trust sales proceeds distributed to TIHs (per trust interest) with
respect to sales or dispositions on that date; the date those trust
sales proceeds were distributed, and the ratio of the assets sold or
disposed of on that day to all the assets held by Trust. Because Trust
will terminate within 15 months of its start-up date, Trustee must use
the fair market value of the assets as of the start-up date to determine
the portion of Trust sold or disposed of on any particular date.
(5) Reporting redemptions. Because Trust is not required to make
distributions at least as frequently as monthly, and Trust does not
satisfy the qualified NMWHFIT exception in paragraph (c)(2)(iv)(E) of
this section, the exception in paragraph (c)(2)(v)(C) does not apply to
Trust. To satisfy the requirements of paragraph (f)(1) of this section,
Trustee provides a list of dates for which the redemption proceeds to be
paid for the redemption of a trust interest was determined for the 2007
calendar year and the redemptions asset proceeds paid for each date.
During 2007, Trustee only determined the amount of redemption proceeds
paid for the redemption of a trust interest once, for December 10, 2007
and the redemption asset proceeds determined for that date was $115x.
(6) Reporting sales of trust interests. Because trust is not
required to make distributions at least as frequently as monthly, and
Trust does not satisfy the qualified NMWHFIT exception in paragraph
(c)(2)(iv)(E) of this section, the exception in paragraph (c)(2)(v)(C)
of this section does not apply to Trust. Sponsor, in accordance with the
trust agreement, provides Trustee with a list of dates on which sales on
the secondary market occurred. To satisfy the requirements of paragraph
(f)(1) of this section, Trustee provides requesting persons with a list
of dates on which sales on the secondary market occurred and the amount
of cash held for distribution, per trust interest, on each date. The
first sale during the 2007 calendar year occurred on September 30, 2007,
and the amount of cash held for distribution, per trust interest, on
that date is $1.35x. The second sale occurred on December 10, 2007, and
the amount of cash held for distribution, per trust interest, on that
date is $1.00x.
(iii) Brokers' use of information provided by Trustee. (A) Broker1
and Broker2 use the information furnished by Trustee under the safe
harbor to determine that the following items are attributable to J, A,
and S--
[[Page 351]]
With respect to J
Ordinary Dividend Income............................ $17.89x
Qualified Dividend Income........................... 38.07x
Interest Income..................................... 1.14x
Affected Expenses................................... 4.28x
Trust sales proceeds reported on Form 1099.......... 108.13x
Redemption asset proceeds
For redemption on December 10................... 115.00x
Sale asset proceeds
For sale on September 30........................ 114.00x
For sale on December 10......................... 115.00x
With respect to A
Ordinary Dividend Income............................ 18.82x
Qualified Dividend Income........................... 40.04x
Interest Income..................................... 1.20x
Affected Expenses................................... 4.50x
Trust sales proceeds reported on Form 1099.......... 11.62x
With respect to S
Ordinary Dividend Income............................ 19.54x
Qualified Dividend Income........................... 41.58x
Interest Income..................................... 1.25x
Affected Expenses................................... 4.68x
Trust sales proceeds reported on Form 1099.......... 113.94x
With respect to J, A, and S (regarding the sales and dispositions
executed by Trust during the calendar year)
------------------------------------------------------------------------
Trust sales proceeds
Date received per trust Percent of
interest trust sold
------------------------------------------------------------------------
June 15............................ $10.0000x............. 20
December 12........................ 1.1616x............... 2
------------------------------------------------------------------------
(B) The brokers determine the information provided to J, A, and S as
follows--
(1) Step One: Brokers determine the total amount of NMWHFIT
distributions attributable to J, A, and S. Broker1 determines that the
total amount of NMWHFIT distributions attributable to J is $51.39x and
the total amount of NMWHFIT distributions attributable to A is $54.06x.
Broker2 determines that the total amount of NMWHFIT distributions
attributable to S is $56.13x.
(i) To calculate these amounts the brokers begin by determining the
total amount paid to J, A, and S for the calendar year--
(A) The total amount paid to J for the calendar year equals $485.42x
and includes the April 15, 2007, distribution of $13.50x, the July 15,
2007, distribution of $113.50x, the sales proceeds for the September 30,
2007, sale of $115.35x, the October 15, 2007, distribution of $11.07x,
and the redemption proceeds of $116x and sales proceeds of $116x for the
redemption and sale on December 10, 2007.
(B) The total amount paid to A for the calendar year equals $139.30x
and includes the April 15, 2007, distribution of $13.50x, the July 15,
2007, distribution of $113.50x and the October 15, 2007, distribution of
$12.30x.
(C) The total amount paid to S for the calendar year equals $140.53x
and includes the April 15, 2007, distribution of $13.50x, the July 15,
2007, distribution of $113.50x and the October 15, 2007, distribution of
$13.53x.
(ii) The brokers increase the total amount paid to J, A, and S by an
amount equal to the current year-end cash allocation factor (1.5960)
multiplied by the number of trust interests held by J (7), A (10), and S
(12) as of December 31, 2007; that is for J, $11.17x; for A, $15.96x;
and for S, $19.15x.
(iii) The brokers reduce the amount paid to J, A, and S as follows--
(A) An amount equal to the prior year cash allocation factor
(0.1200), multiplied by the number of trust interests held by J (10), A
(10), and S (10) on the date of the prior year cash distribution; that
is for J, A, and S, $1.20x, each;
(B) An amount equal to all redemption asset proceeds paid to a TIH
for the calendar year; that is, for J, $115x;
(C) An amount equal to all sales asset proceeds attributable to the
TIH for the calendar year; that is for J, $229x (for the September 30,
2007, sale: $115.35x-1.35x (cash held for distribution per trust
interest on that date)-$114x; and for the December 10, 2007, sale:
$116x-1.00 (cash held for distribution per trust interest on that
date)=$115x));
(D) In the case of a purchasing TIH, an amount equal to the amount
of cash held for distribution per trust interest at the time the TIH
purchased its trust interest, multiplied by the number of trust
interests purchased; that is for S, $2.35x ($1.35x with respect to the
September 30, 2007, sale and $1x with respect to the December 10, 2007,
sale);
(E) All amounts of trust sales proceeds distributed to the TIH for
the calendar year; that is for J, A, and S, $100. ($100 each, with
respect to the June 15, 2007, sale of assets by Trust, and $0 each, with
respect to the December 12, 2007, sale of assets by Trust).
(2) Step two: The brokers apply the factors provided by Trustee to
determine the Trust's income and expenses that are attributable to J, A,
and S. The amounts of each item of income
[[Page 352]]
(other than OID) and expense that are attributable to J, A, and S are
determined by multiplying the factor for that type of income or expense
by the total amount of NMWHFIT distributions attributable to J, A, and S
as follows:
(i) Application of factor for ordinary dividends. The amount of
ordinary dividend income attributable to J is $17.89x, to A is $18.82x,
and to S is $19.54x. The brokers determine these amounts by multiplying
the total amount of NMWHFIT distributions attributable to J, A, and S
($51.39x, $54.06x, and $56.13x, respectively) by the factor for ordinary
dividends (0.3481).
(ii) Application of factor for qualified dividend income. The amount
of qualified dividend income attributable to J is $38.07x, to A is
$40.04x, and to S is $41.58x. The brokers determine these amounts by
multiplying the total amount of NMWHFIT distributions attributable to J,
A, and S ($51.39x, $54.06x, and $56.13x, respectively) by the factor for
qualified dividends (0.7407).
(iii) Application of factor for interest income. The amount of
interest income attributable to J is $1.14x, to A is $1.20x, and to S is
$1.25x. The brokers determine these amounts by multiplying the total
amount of NMWHFIT distributions attributable to J, A, and S ($51.39x,
$54.06x, and $56.13x, respectively) by the factor for interest (0.0222).
(iv) Application of factor for affected expenses. The amount of
affected expenses attributable to J is $4.28x, to A is $4.50x, and to S
is $4.68x. The brokers determine these amounts by multiplying the total
amount of NMWHFIT distributions attributable to J, A, and S ($51.39x,
$54.06x, and $56.13x, respectively) by the factor for affected expenses
(0.0833).
(3) Brokers reporting of sales and dispositions of trust assets--(i)
Determining the amount of trust sales proceeds to be reported on Form
1099 for J, A, and S. The amount of trust sales proceeds to be reported
on Form 1099 with respect to J is $108.13x, to A is $111.62x, and to S
is $113.94x. To determine these amounts, the brokers aggregate the
amount of trust sales proceeds attributable to J, A, and S for each date
on which Trust sold or disposed of assets. The brokers determine the
amount of trust sales proceeds to be reported with respect to the June
15, 2007, asset sale by multiplying the number of trust interests held
by J (10), A (10) and S (10) on that date by the trust sales proceeds
received per trust interest on that date ($10x). The brokers determine
the amount of trust sales proceeds to be reported with respect to the
December 12, 2007, asset sale by multiplying the number of trust
interests held by J (7), A (10) and S (12) on that date by the trust
sales proceeds received per trust interest on that date ($1.1616x).
(ii) Information provided on the tax information statements
furnished to J, A, and S. The tax information statements furnished to J,
A, and S must include the dates of each sale or disposition (June 15,
2007, and December 12, 2007); the amount of trust sales proceeds per
trust interest received on those dates ($10.00x and $1.1616x,
respectively); and, the percentage of Trust sold or disposed of on that
date (20% and 2%, respectively).
(4) Reporting redemptions. Broker1 reports on Form 1099 and on the
written tax information statement furnished to J that J received $115x
in redemption asset proceeds for the calendar year.
(5) Reporting sales of trust interests on the secondary market.
Broker1 reports on J's two sales of trust interests. With respect to the
sale on September 30, 2007, the sale asset proceeds equals $114x
($115.35x sale proceeds--$1.35x cash held for distribution on that date)
and with respect to the sale on December 10, 2007, the sale asset
proceeds equal $115x ($116x sale proceeds--$1x cash held for
distribution on that date). Broker1 reports these amounts on Form 1099
and on the tax information statement furnished to J.
(g) Safe Harbor for certain WHMTs--(1) Safe harbor for trustee of
certain WHMTs for reporting information--(i) In general. The trustee of
a WHMT that meets the requirements of paragraph (g)(1)(ii) of this
section is deemed to satisfy paragraph (c)(1)(i) of this section, if the
trustee calculates and provides WHFIT information in the manner
described in this paragraph (g) and provides a statement to the
requesting person giving notice that information has been calculated in
accordance with this paragraph (g)(1).
(ii) Requirements. A WHMT must meet the following requirements--
(A) The WHMT must make monthly distributions of the income and
principal payments received by the WHMT to its TIHs;
(B) All trust interests in the WHMT must represent the right to
receive an equal pro-rata share of both the income and the principal
payments received by the WHMT on the mortgages it holds (for example, a
WHMT that holds or issues trust interests that qualify as stripped
interests under section 1286 may not report under this safe harbor);
(C) The WHMT must--
(1) Report under this paragraph (g)(1)(ii) for the life of the WHMT;
or
(2) If the WHMT has a start-up date before January 1, 2007, the WHMT
must begin reporting under this paragraph (g)(1)(ii) as of January 1,
2007, and must
[[Page 353]]
continue to report under this paragraph for the life of the WHMT;
(D) The WHMT must calculate all items subject to the safe harbor
consistent with the safe harbor;
(E) The assets of the WHMT must be limited to--
(1) Mortgages with uniform characteristics;
(2) Reasonably required reserve funds; and
(3) Amounts received on mortgages or reserve funds and held for
distribution to TIHs; and
(F) The aggregate outstanding principal balance (as defined in
paragraph (g)(1)(iii)(D) of this section) as of the WHMT's start-up date
must equal the aggregate of the original face amounts of all issued
trust interests.
(iii) Reporting WHMT income, expenses, non pro-rata partial
principal payments, and sales and dispositions under the safe harbor. A
trustee must comply with each step provided in this paragraph
(g)(1)(iii).
(A) Step One: Determine monthly pool factors. The trustee must, for
each month of the calendar year and for January of the following
calendar year, calculate and provide the ratio (expressed as a decimal
carried to at least eight places and called a pool factor) of--
(1) The amount of the aggregate outstanding principal balance of the
WHMT as of the first business day of the month; to
(2) The amount of the aggregate outstanding principal balance of the
WHMT as of the start-up date.
(B) Step Two: Determine monthly expense factors. For each month of
the calendar year and for each item of expense paid by the WHMT during
that month, the trustee must calculate and provide the ratio (expressed
as a decimal carried to at least eight places and called an expense
factor) of--
(1) The gross amount, for the month, of each item of expense; to
(2) The amount that represents the aggregate outstanding principal
balance of the WHMT as of the start-up date, divided by 1,000.
(C) Step Three: Determine monthly income factors. For each month of
the calendar year and for each item of gross income earned by the WHMT
during that month, the trustee must calculate and provide the ratio
(expressed as a decimal carried to at least eight places and called an
income factor) of--
(1) The gross amount, for the month, of each item of income, to
(2) The amount that represents the aggregate outstanding principal
balance of the WHMT as of the start-up date, divided by 1,000.
(D) Definition of aggregate outstanding principal balance. For
purposes of this paragraph (g)(1)(iii), the amount of the aggregate
outstanding principal balance of a WHMT is the aggregate of--
(1) The outstanding principal balance of all mortgages held by the
WHMT;
(2) The amounts received on mortgages as principal payments and held
for distribution by the WHMT; and
(3) The amount of the reserve fund (exclusive of undistributed
income).
(iv) Reporting OID information under the safe harbor--(A) Reporting
OID prior to the issuance of final regulations under section
1272(a)(6)(C)(iii)--(1) For calendar years prior to the effective date
of final regulations under section 1272(a)(6)(C)(iii), the trustee must
provide, for each month during the calendar year, the aggregate daily
accrual of OID per $1,000 of aggregate outstanding principal balance as
of the start-up date (daily portion). For purposes of this paragraph
(g)(1)(iv), the daily portion of OID is determined by allocating to each
day of the month its ratable portion of the excess (if any) of--
(i) The sum of the present value (determined under section
1272(a)(6)(B)) of all remaining payments under the mortgages held by the
WHMT at the close of the month, and the payments during the month of
amounts included in the stated redemption price of the mortgages, over
(ii) The aggregate of each mortgage's adjusted issue price as of the
beginning of the month.
(2) In calculating the daily portion of OID, the trustee must use
the prepayment assumption used in pricing the original issue of trust
interests. If the WHMT has a start-up date prior to January 24, 2006,
and the trustee, after a good faith effort to ascertain that
information, does not know the prepayment assumption used in pricing the
[[Page 354]]
original issue of trust interests, the trustee may use any reasonable
prepayment assumption to calculate OID provided it continues to use the
same prepayment assumption consistently thereafter.
(B) Reporting OID after the issuance of final regulations under
section 1272(a)(6)(C)(iii). [Reserved]
(v) Reporting market discount information under the safe harbor--(A)
Reporting market discount information prior to the issuance of final
regulations under sections 1272(a)(6)(C)(iii) and 1276(b)(3). For
calendar years prior to the effective date of final regulations under
sections 1272(a)(6)(C)(iii) and 1276(b)(3), the trustee must provide--
(1) In the case of a WHMT holding mortgages issued with OID, the
ratio (expressed as a decimal carried to at least eight places) of--
(i) The OID accrued during the month (calculated in accordance with
paragraph (g)(1)(iv) of this section); to
(ii) The total remaining OID as of the beginning of the month (as
determined under paragraph (g)(1)(v)(A)(3) of this section); or
(2) In the case of a WHMT holding mortgages issued without OID, the
ratio (expressed as a decimal carried to at least eight places) of--
(i) The amount of stated interest paid to the WHMT during the month;
to
(ii) The total amount of stated interest remaining to be paid to the
WHMT as of the beginning of the month (as determined under paragraph
(g)(1)(v)(A)(3) of this section).
(3) Computing the total amount of stated interest remaining to be
paid and the total remaining OID at the beginning of the month. To
compute the total amount of stated interest remaining to be paid to the
WHMT as of the beginning of the month and the total remaining OID as of
the beginning of the month, the trustee must use the prepayment
assumption used in pricing the original issue of trust interests. If the
WHMT has a start-up date prior to January 24, 2006, and the trustee,
after a good faith effort to ascertain that information, does not know
the prepayment assumption used in pricing the original issue of trust
interests, the trustee may use any reasonable prepayment assumption to
calculate these amounts provided it continues to use the same prepayment
assumption consistently thereafter.
(vi) Reporting bond premium information under the safe harbor.
[Reserved]
(2) Use of information provided by a trustee under the safe harbor--
(i) In general. If a trustee reports WHMT items in accordance with
paragraph (g)(1) of this section, the information provided with respect
to those items on the Forms 1099 required to be filed with the IRS under
paragraph (d) of this section and on the statement required to be
furnished to the TIH under paragraph (e) of this section must be
determined as provided in this paragraph (g)(2).
(ii) Reporting WHMT income, expenses, non pro-rata partial principal
payments, and sales and dispositions under the safe harbor. The amount
of each item of income, the amount of each item of expense, and the
combined amount of non pro-rata partial principal payments and trust
sales proceeds that are attributable to a TIH for each month of the
calendar year must be computed as follows:
(A) Step One: Determine the aggregate of the non pro-rata partial
principal payments and trust sales proceeds that are attributable to the
TIH for the calendar year. For each month of the calendar year that a
trust interest was held on the record date--
(1) Determine the monthly amounts per trust interest. The trustee or
middleman must determine the aggregate amount of non pro-rata partial
principal payments and the trust sales proceeds that are attributable to
each trust interest for each month by multiplying--
(i) The original face amount of the trust interest; by
(ii) The difference between the pool factor for the current month
and the pool factor for the following month.
(2) Determine the amount for the calendar year. The trustee or
middleman must multiply the monthly amount per trust interest by the
number of trust interests held by the TIH on the record date of each
month. The trustee or middleman then must aggregate these monthly
amounts, and report the aggregate amount on the Form 1099 filed with the
IRS and on the tax information statement furnished to the TIH as
[[Page 355]]
trust sales proceeds. No other information is required to be reported to
the IRS or the TIH to satisfy the requirements of paragraphs (d) and (e)
of this section under this paragraph (g) with respect to sales and
dispositions and non pro-rata partial principal payments.
(B) Step Two: Determine the amount of each item of expense that is
attributable to a TIH--(1) Determine the monthly amounts per trust
interest. For each month of the calendar year that a trust interest was
held on the record date, the trustee or middleman must determine the
amount of each item of expense that is attributable to each trust
interest by multiplying--
(i) The original face amount of the trust interest, divided by 1000;
by
(ii) The expense factor for that month and that item of expense.
(2) Determine the amount for the calendar year. The trustee or
middleman must multiply the monthly amount of each item of expense per
trust interest by the number of trust interests held by the TIH on the
record date of each month. The trustee or middleman then must aggregate
the monthly amounts for each item of expense to determine the total
amount of each item of expense that is attributable to the TIH for the
calendar year.
(C) Step Three: Determine the amount of each item of income that is
attributable to the TIH for the calendar year--(1) Determine the monthly
amounts per trust interest. For each month of the calendar year that a
trust interest was held on the record date, the trustee or middleman
must determine the amount of each item of income that is attributable to
each trust interest by multiplying--
(i) The original face amount of the trust interest, divided by
1,000; by
(ii) The income factor for that month and that item of income.
(2) Determine the amount for the calendar year. The trustee or
middleman must multiply the monthly amount of each item of income per
trust interest by the number of trust interests held by the TIH on the
record date of each month. The trustee or middleman then must aggregate
the monthly amounts for each item of income to determine the total
amount of each item of income that is attributable to the TIH for the
calendar year.
(D) Definitions for this paragraph (g)(2). For purposes of this
paragraph (g)(2)(ii)--
(1) The record date is the date used by the WHMT to determine the
owner of the trust interest for the purpose of distributing the payment
for the month.
(2) The original face amount of the trust interest is the original
principal amount of a trust interest on its issue date.
(iii) Reporting OID information under the safe harbor. With respect
to each month, trustee or middleman must determine the amount of OID
that is attributable to each trust interest held by a TIH by
multiplying--
(A) The product of the OID factor multiplied by the original face
amount of the trust interest, divided by 1,000; by
(B) The number of days during the month that the TIH held the trust
interest.
(iv) Requirement to provide market discount information under the
safe harbor. The trustee or middleman must provide the market discount
information in accordance with paragraph (g)(1)(v) of this section to
the TIH in, or with, the written statement required to be furnished to
the TIH under paragraph (e) of this section.
(v) Requirement to provide bond premium information under the safe
harbor. [Reserved]
(3) Example of safe harbor in paragraph (g)(1) of this section. The
following example illustrates the use of the factors in this paragraph
(g) to calculate and provide WHMT information:
Example. (i) Facts--(A) In general. X is a WHMT. X's start-up date
is January 1, 2007. As of that date, X's assets consist of 100 15-year
mortgages, each having an unpaid principal balance of $125,000 and a
fixed, annual interest rate of 7.25 percent. None of the mortgages were
issued with OID. X's TIHs are entitled to monthly, pro-rata
distributions of the principal payments received by X. X's TIHs are also
entitled to monthly, pro-rata distributions of the interest earned on
the mortgages held by X, reduced by expenses. Trust interests are issued
in increments of $5,000 with a $25,000 minimum. The prepayment
assumption used in pricing the original issue of trust interests is six
percent. Broker holds a trust interest in X, with
[[Page 356]]
an original face amount of $25,000, in street name, for C during the
entire 2007 calendar year.
(B) Trust events during the 2007 calendar year. During the 2007
calendar year, X collects all interest and principal payments when due
and makes all monthly distributions when due. One mortgage is
repurchased from X in July 2007 for $122,249, the mortgage's unpaid
principal balance plus accrued, but unpaid, interest at the time. During
November 2007, another mortgage is prepaid in full. X earns $80 interest
income each month from the temporary investment of X's funds pending
distribution to the TIHs. All of X's expenses are affected expenses. The
aggregate outstanding principal balance of X's mortgages, X's interest
income, and X's expenses, for each month of the 2007 calendar year,
along with the aggregate outstanding principal balance of X as of
January 2008, are as follows:
------------------------------------------------------------------------
Principal
Month balance Income Expenses
------------------------------------------------------------------------
January........................... $12,500,000 $75,601 $5,288
February.......................... 12,461,413 75,368 5,273
March............................. 12,422,593 75,133 5,256
April............................. 12,383,538 74,897 5,240
May............................... 12,344,247 74,660 5,244
June.............................. 12,304,719 74,421 5,207
July.............................. 12,264,952 74,181 5,191
August............................ 12,102,696 73,200 5,122
September......................... 12,062,849 72,960 5,106
October........................... 12,022,762 72,718 5,089
November.......................... 11,982,432 72,474 5,073
December.......................... 11,821,234 71,500 5,006
January........................... 11,780,829 ......... .........
------------------------------------------------------------------------
(ii) Trustee reporting. (A) Trustee, X's fiduciary, comes within the
safe harbor of paragraph (g)(1)(ii) of this section by providing the
following information to requesting persons:
------------------------------------------------------------------------
Income
Month Pool factor factor Expense factor
------------------------------------------------------------------------
January...................... 1.00000000 6.04806667 0.42304000
February..................... 0.99691304 6.02941628 0.42184000
March........................ 0.99380744 6.01065328 0.42048000
April........................ 0.99068304 5.99177670 0.41920000
May.......................... 0.98753976 5.97278605 0.41952000
June......................... 0.98437752 5.95368085 0.41656000
July......................... 0.98119616 5.93446013 0.41528000
August....................... 0.96821564 5.85603618 0.40976000
September.................... 0.96502792 5.83677704 0.40848000
October...................... 0.96182096 5.81740161 0.40712000
November..................... 0.95859459 5.79790896 0.40584000
December..................... 0.94569875 5.71999659 0.40048000
January...................... 0.94246631 ............ ..............
------------------------------------------------------------------------
(B) Trustee determines this information as follows:
(1) Step One: Trustee determines monthly pool factors. Trustee
calculates and provides X's pool factor for each month of the 2007
calendar year. For example, for the month of January 2007 the pool
factor is 1.0, which represents the ratio of --
(i) The amount that represents the aggregate outstanding principal
balance of X ($12,500,000) as of the first business day of January;
divided by
(ii) The amount that represents the aggregate outstanding principal
balance of X ($12,500,000) as of the start-up day.
(2) Step Two: Trustee determines monthly expense factors. Trustee
calculates and provides the expense factors for each month of the 2007
calendar year. During 2007, X has only affected expenses, and therefore,
will have only one expense factor for each month. For example, the
expense factor for the month of January 2007 is 0.42304000, which
represents the ratio of--
(i) The gross amount of expenses paid during January by X ($5,288);
divided by
(ii) The amount that represents the aggregate outstanding principal
balance of X as of the start-up date ($12,500,000) divided by 1,000
($12,500).
(3) Step Three: Trustee determines monthly income factors. Trustee
calculates and provides the income factors for each month of the 2007
calendar year. During 2007, X has only interest income, and therefore,
will have only one income factor for each month. For example, the income
factor for the month of January 2007 is 6.04806667, which represents the
ratio of--
(i) The gross amount of interest income earned by X during January
($75,601); divided by
(ii) The amount that represents that aggregate outstanding principal
balance of X as of the start-up date ($12,500,000), divided by 1,000
($12,500).
(4) Step Four: Trustee calculates and provides monthly market
discount fractions. Trustee calculates and provides a market discount
fraction for each month of the 2007 calendar year using a prepayment
assumption of 6% and a stated interest rate of 7.25%.
(iii) Broker's use of the information provided by Trustee. (A)
Broker uses the information provided by Trustee under paragraph (g) of
this section to determine that the following trust items are
attributable to C:
------------------------------------------------------------------------
Aggregate trust
sales proceeds Gross
Month and non pro-rata Affected interest
partial principal expenses income
payments
------------------------------------------------------------------------
January........................ $77.17 $10.58 $151.20
February....................... 77.64 10.55 150.74
March.......................... 78.11 10.51 150.27
April.......................... 78.58 10.48 149.79
May............................ 79.06 10.49 149.32
June........................... 79.53 10.41 148.84
July........................... 324.51 10.38 148.36
August......................... 79.69 10.24 146.40
September...................... 80.17 10.21 145.92
October........................ 80.66 10.18 145.43
November....................... 322.40 10.15 144.95
December....................... 80.81 10.01 143.00
----------------------------------------
Total...................... 1438.33 124.19 1774.22
------------------------------------------------------------------------
[[Page 357]]
(B) Broker determines this information as follows:
(1) Step One: Broker determines the amount of the non pro-rata
partial principal payments and trust sales proceeds received by X that
are attributable to C for the 2007 calendar year. Broker determines the
amount of the non pro-rata partial principal payments and trust sales
proceeds received by X that are attributable to C for each month of the
2007 calendar year. For example, for the month of January, Broker
determines that the amount of principal receipts and the amount of trust
sales proceeds that are attributable to C is $77.17. Broker determines
this by multiplying the original face amount of C's trust interest
($25,000) by 0.00308696, the difference between the pool factor for
January 2007 (1.00000000) and the pool factor for the following month of
February 2007 (0.99691304). Broker reports the aggregate of the monthly
amounts of non pro-rata partial principal payments and trust sales
proceeds that are attributable to C for the 2007 calendar year as trust
sales proceeds on the Form 1099 filed with the IRS.
(2) Step Two: Broker applies the expense factors provided by Trustee
to determine the amount of expenses that are attributable to C for the
2007 calendar year. Broker determines the amount of X's expenses that
are attributable to C for each month of the calendar year. For example,
for the month of January 2007, Broker determines that the amount of
expenses attributable to C is $10.58. Broker determines this by
multiplying the original face amount of C's trust interest ($25,000),
divided by 1,000 ($25) by the expense factor for January 2007
(0.42304000). Broker determines the expenses that are attributable to C
for the 2007 calendar year by aggregating the monthly amounts.
(3) Step Three: Broker applies the income factors provided by
Trustee to determine the amount of gross interest income attributable to
C for the 2007 calendar year. Broker determines the amount of gross
interest income that is attributable to C for each month of the calendar
year. For example, for the month of January 2007, Broker determines that
the amount of gross interest income attributable to C is $151.20. Broker
determines this by multiplying the original face amount of C's trust
interest ($25,000), divided by 1,000 ($25), by the income factor for
January 2007 (6.04806667). Broker determines the amount of the gross
interest income that is attributable to C for the 2007 calendar year by
aggregating the monthly amounts.
(4) Step Four: Broker provides market discount information to C.
Broker provides C with the market discount fractions calculated and
provided by the trustee of X under paragraph (g)(3)(ii)(D) of this
section.
(h) Additional safe harbors--(1) Temporary safe harbor for WHMTs--
(i) Application. Pending the issuance of additional guidance, the safe
harbor in this paragraph applies to trustees and middlemen of WHMTs that
are not eligible to report under the WHMT safe harbor in paragraph (g)
of this section because they hold interests in another WHFIT, in a
REMIC, or hold or issue stripped interests.
(ii) Safe harbor. A trustee is deemed to satisfy the requirements of
paragraph (c) of this section, if the trustee calculates and provides
trust information in a manner that enables a requesting person to
provide trust information to a beneficial owner of a trust interest that
enables the owner to reasonably accurately report the tax consequences
of its ownership of a trust interest on its federal income tax return.
Additionally, to be deemed to satisfy the requirements of paragraph (c)
of this section, the trustee must calculate and provide trust
information regarding market discount and OID by any reasonable manner
consistent with section 1272(a)(6). A middleman or a trustee may satisfy
its obligation to furnish information to the IRS under paragraph (d) of
this section and to the trust interest holder under paragraph (e) of
this section by providing information consistent with the information
provided under this paragraph by the trustee.
(2) Additional safe harbors provided by other published guidance.
The IRS and the Treasury Department may provide additional safe harbor
reporting procedures for complying with this section or a specific
paragraph of this section by other published guidance (see Sec.
601.601(d)(2) of this chapter).
(i) [Reserved]
(j) Requirement that middlemen furnish information to beneficial
owners that are exempt recipients and noncalendar-year beneficial
owners--(1) In general. A middleman that holds a trust interest on
behalf of, or for the account of, either a beneficial owner that is an
exempt recipient defined in paragraph (b)(7) of this section or a
noncalendar-year beneficial owner, must provide to such beneficial
owner, upon request, the information provided by the trustee to the
middleman under paragraph (c) of this section.
[[Page 358]]
(2) Time for providing information. The middleman must provide the
requested information to any beneficial owner making a request under
paragraph (h)(1) of this section on or before the later of the 44th day
after the close of the calendar year for which the information was
requested, or the day that is 28 days after the receipt of the request.
A middleman must provide information with respect to a WHFIT holding an
interest in another WHFIT, or a WHFIT holding an interest in a REMIC, on
or before the later of the 58th day after the close of the calendar year
for which the information was requested, or the 42nd day after the
receipt of the request.
(3) Manner of providing information. The requested information must
be provided--
(i) By written statement sent by first class mail to the address
provided by the person requesting the information;
(ii) By electronic mail provided that the person requesting the
information requests that the middleman furnish the information by
electronic mail and the person furnishes an electronic address;
(iii) At an Internet website of the middleman or the trustee,
provided that the beneficial owner requesting the information is
notified that the requested information is available at the Internet
website and is furnished the address of the site; or
(iv) Any other manner agreed to by the middleman and the beneficial
owner requesting the information.
(4) Clearing organization. A clearing organization described in
Sec. 1.163-5(c)(2)(i)(D)(8) is not required to furnish information to
exempt recipients or non-calendar-year TIHs under this paragraph (h).
(k) Coordination with other information reporting rules. In general,
in cases in which reporting is required for a WHFIT under both this
section and subpart B, part III, subchapter A, chapter 61 of the
Internal Revenue Code (Sections 6041 through 6050S) (Information
Reporting Sections), the reporting rules for WHFITs under this section
must be applied. The provisions of the Information Reporting Sections
and the regulations thereunder are incorporated into this section as
applicable, but only to the extent that such provisions are not
inconsistent with the provisions of this section.
(l) Backup withholding requirements. Every trustee and middleman
required to file a Form 1099 under this section is a payor within the
meaning of Sec. 31.3406(a)-2, and must backup withhold as required
under section 3406 and any regulations thereunder.
(m) Penalties for failure to comply--(1) In general. Every trustee
or middleman who fails to comply with the reporting obligations imposed
by this section is subject to penalties under sections 6721, 6722, and
any other applicable penalty provisions.
(2) Penalties not imposed on trustees and middlemen of certain WHMTs
for failure to report OID. Penalties will not be imposed as a result of
a failure to provide OID information for a WHMT that has a start-up date
on or after August 13, 1998 and on or before January 24, 2006, if the
trustee of the WHMT does not have the historic information necessary to
provide this information and the trustee demonstrates that it has
attempted in good faith, but without success, to obtain this
information. For purposes of calculating a market discount fraction
under paragraph (g)(1)(v) of this section, for a WHMT described in this
paragraph, it may be assumed that the WHMT is holding mortgages that
were issued without OID. A trustee availing itself of this paragraph
must include a statement to that effect when providing information to
requesting persons under paragraph (c) of these regulations.
(n) Effective date. These regulations are applicable January 1,
2007. Trustees must calculate and provide trust information with respect
to the 2007 calendar year and all subsequent years consistent with these
regulations. Information returns required to be filed with the IRS and
the tax information statements required to be furnished to trust
interest holders after December 31, 2007 must be consistent with these
regulations.
[T.D. 9241, 71 FR 4009, Jan. 24, 2006, as amended by T.D. 9279, 71 FR
43971, Aug. 3, 2006; T.D. 9308, 71 FR 78356, Dec. 29, 2006]
[[Page 359]]
Sec. 1.672(a)-1 Definition of adverse party.
(a) Under section 672(a) an adverse party is defined as any person
having a substantial beneficial interest in a trust which would be
adversely affected by the exercise or nonexercise of a power which he
possesses respecting the trust. A trustee is not an adverse party merely
because of his interest as trustee. A person having a general power of
appointment over the trust property is deemed to have a beneficial
interest in the trust. An interest is a substantial interest if its
value in relation to the total value of the property subject to the
power is not insignificant.
(b) Ordinarily, a beneficiary will be an adverse party, but if his
right to share in the income or corpus of a trust is limited to only a
part, he may be an adverse party only as to that part. Thus, if A, B, C,
and D are equal income beneficiaries of a trust and the grantor can
revoke with A's consent, the grantor is treated as the owner of a
portion which represents three-fourths of the trust; and items of
income, deduction, and credit attributable to that portion are included
in determining the tax of the grantor.
(c) The interest of an ordinary income beneficiary of a trust may or
may not be adverse with respect to the exercise of a power over corpus.
Thus, if the income of a trust is payable to A for life, with a power
(which is not a general power of appointment) in A to appoint the corpus
to the grantor either during his life or by will, A's interest is
adverse to the return of the corpus to the grantor during A's life, but
is not adverse to a return of the corpus after A's death. In other
words, A's interest is adverse as to ordinary income but is not adverse
as to income allocable to corpus. Therefore, assuming no other relevant
facts exist, the grantor would not be taxable on the ordinary income of
the trust under section 674, 676, or 677, but would be taxable under
section 677 on income allocable to corpus (such as capital gains), since
it may in the discretion of a nonadverse party be accumulated for future
distribution to the grantor. Similarly, the interest of a contingent
income beneficiary is adverse to a return of corpus to the grantor
before the termination of his interest but not to a return of corpus
after the termination of his interest.
(d) The interest of a remainderman is adverse to the exercise of any
power over the corpus of a trust, but not to the exercise of a power
over any income interest preceding his remainder. For example, if the
grantor creates a trust which provides for income to be distributed to A
for 10 years and then for the corpus to go to X if he is then living, a
power exercisable by X to revest corpus in the grantor is a power
exercisable by an adverse party; however, a power exercisable by X to
distribute part or all of the ordinary income to the grantor may be a
power exercisable by a nonadverse party (which would cause the ordinary
income to be taxed to the grantor).
Sec. 1.672(b)-1 Nonadverse party.
A nonadverse party is any person who is not an adverse party.
Sec. 1.672(c)-1 Related or subordinate party.
Section 672(c) defines the term ``related or subordinate party''.
The term, as used in sections 674(c) and 675(3), means any nonadverse
party who is the grantor's spouse if living with the grantor; the
grantor's father, mother, issue, brother or sister; an employee of the
grantor; a corporation or any employee of a corporation in which the
stock holdings of the grantor and the trust are significant from the
viewpoint of voting control; or a subordinate employee of a corporation
in which the grantor is an executive. For purposes of sections 674(c)
and 675(3), these persons are presumed to be subservient to the grantor
in respect of the exercise or nonexercise of the powers conferred on
them unless shown not to be subservient by a preponderance of the
evidence.
Sec. 1.672(d)-1 Power subject to condition precedent.
Section 672(d) provides that a person is considered to have a power
described in subpart E (section 671 and following), part I, subchapter
J, chapter 1 of the Code, even though the exercise of the power is
subject to a precedent giving of notice or takes effect only
[[Page 360]]
after the expiration of a certain period of time. However, although a
person may be considered to have such a power, the grantor will
nevertheless not be treated as an owner by reason of the power if its
exercise can only affect beneficial enjoyment of income received after
the expiration of a period of time such that, if the power were a
reversionary interest, he would not be treated as an owner under section
673. See sections 674(b)(2), 676(b), and the last sentence of section
677(a). Thus, for example, if a grantor creates a trust for the benefit
of his son and retains a power to revoke which takes effect only after
the expiration of 2 years from the date of exercise, he is treated as an
owner from the inception of the trust. However, if the grantor retains a
power to revoke, exercisable at any time, which can only affect the
beneficial enjoyment of the ordinary income of a trust received after
the expiration of 10 years commencing with the date of the transfer in
trust, or after the death of the income beneficiary, the power does not
cause him to be treated as an owner with respect to ordinary income
during the first 10 years of the trust or during the income
beneficiary's life, as the case may be. See section 676(b).
Sec. 1.672(f)-1 Foreign persons not treated as owners.
(a) General rule--(1) Application of the general rule. Section
672(f)(1) provides that subpart E of part I, subchapter J, chapter 1 of
the Internal Revenue Code (the grantor trust rules) shall apply only to
the extent such application results in an amount (if any) being
currently taken into account (directly or through one or more entities)
in computing the income of a citizen or resident of the United States or
a domestic corporation. Accordingly, the grantor trust rules apply to
the extent that any portion of the trust, upon application of the
grantor trust rules without regard to section 672(f), is treated as
owned by a United States citizen or resident or domestic corporation.
The grantor trust rules do not apply to any portion of the trust to the
extent that, upon application of the grantor trust rules without regard
to section 672(f), that portion is treated as owned by a person other
than a United States citizen or resident or domestic corporation, unless
the person is described in Sec. 1.672(f)-2(a) (relating to certain
foreign corporations treated as domestic corporations), or one of the
exceptions set forth in Sec. 1.672(f)-3 is met, (relating to: trusts
where the grantor can revest trust assets; trusts where the only amounts
distributable are to the grantor or the grantor's spouse; and
compensatory trusts). Section 672(f) applies to domestic and foreign
trusts. Any portion of the trust that is not treated as owned by a
grantor or another person is subject to the rules of subparts A through
D (section 641 and following), part I, subchapter J, chapter 1 of the
Internal Revenue Code.
(2) Determination of portion based on application of the grantor
trust rules. The determination of the portion of a trust treated as
owned by the grantor or other person is to be made based on the terms of
the trust and the application of the grantor trust rules and section 671
and the regulations thereunder.
(b) Example. The following example illustrates the rules of this
section:
Example. (i) A, a nonresident alien, funds an irrevocable domestic
trust, DT, for the benefit of his son, B, who is a United States
citizen, with stock of Corporation X. A's brother, C, who also is a
United States citizen, contributes stock of Corporation Y to the trust
for the benefit of B. A has a reversionary interest within the meaning
of section 673 in the X stock that would cause A to be treated as the
owner of the X stock upon application of the grantor trust rules without
regard to section 672(f). C has a reversionary interest within the
meaning of section 673 in the Y stock that would cause C to be treated
as the owner of the Y stock upon application of the grantor trust rules
without regard to section 672(f). The trustee has discretion to
accumulate or currently distribute income of DT to B.
(ii) Because A is a nonresident alien, application of the grantor
trust rules without regard to section 672(f) would not result in the
portion of the trust consisting of the X stock being treated as owned by
a United States citizen or resident. None of the exceptions in Sec.
1.672(f)-3 applies because A cannot revest the X stock in A, amounts may
be distributed during A's lifetime to B, who is neither a grantor nor a
spouse of a grantor, and the trust is not a compensatory trust.
Therefore, pursuant to paragraph (a)(1) of this section, A is not
treated as an owner under subpart E
[[Page 361]]
of part I, subchapter J, chapter 1 of the Internal Revenue Code, of the
portion of the trust consisting of the X stock. Any distributions from
such portion of the trust are subject to the rules of subparts A through
D (641 and following), part I, subchapter J, chapter 1 of the Internal
Revenue Code.
(iii) Because C is a United States citizen, paragraph (a)(1) of this
section does not prevent C from being treated under section 673 as the
owner of the portion of the trust consisting of the Y stock.
(c) Effective date. The rules of this section are applicable to
taxable years of a trust beginning after August 10, 1999.
[T.D. 8831, 64 FR 43275, Aug. 10, 1999]
Sec. 1.672(f)-2 Certain foreign corporations.
(a) Application of general rule. Subject to the provisions of
paragraph (b) of this section, if the owner of any portion of a trust
upon application of the grantor trust rules without regard to section
672(f) is a controlled foreign corporation (as defined in section 957),
a passive foreign investment company (as defined in section 1297), or a
foreign personal holding company (as defined in section 552), the
corporation will be treated as a domestic corporation for purposes of
applying the rules of Sec. 1.672(f)-1.
(b) Gratuitous transfers to United States persons--(1) Transfer from
trust to which corporation made a gratuitous transfer. If a trust (or
portion of a trust) to which a controlled foreign corporation, passive
foreign investment company, or foreign personal holding company has made
a gratuitous transfer (within the meaning of Sec. 1.671-2(e)(2)), makes
a gratuitous transfer to a United States person, the controlled foreign
corporation, passive foreign investment company, or foreign personal
holding company, as the case may be, is treated as a foreign corporation
for purposes of Sec. 1.672(f)-4(c), relating to gratuitous transfers
from trusts (or portions of trusts) to which a partnership or foreign
corporation has made a gratuitous transfer.
(2) Transfer from trust over which corporation has a section 678
power. If a trust (or portion of a trust) that a controlled foreign
corporation, passive foreign investment company, or foreign personal
holding company is treated as owning under section 678 makes a
gratuitous transfer to a United States person, the controlled foreign
corporation, passive foreign investment company, or foreign personal
holding company, as the case may be, is treated as a foreign corporation
that had made a gratuitous transfer to the trust (or portion of a trust)
and the rules of Sec. 1.672(f)-4(c) apply.
(c) Special rules for passive foreign investment companies--(1)
Application of section 1297. For purposes of determining whether a
foreign corporation is a passive foreign investment company as defined
in section 1297, the grantor trust rules apply as if section 672(f) had
not come into effect.
(2) References to renumbered Internal Revenue Code section. For
taxable years of shareholders beginning on or before December 31, 1997,
and taxable years of passive foreign investment companies ending with or
within such taxable years of the shareholders, all references in this
Sec. 1.672(f)-2 to section 1297 are deemed to be references to section
1296.
(d) Examples. The following examples illustrate the rules of this
section. In each example, FT is an irrevocable foreign trust, and CFC is
a controlled foreign corporation. The examples are as follows:
Example 1. Application of general rule. CFC creates and funds FT.
CFC is the grantor of FT within the meaning of Sec. 1.671-2(e). CFC has
a reversionary interest in FT within the meaning of section 673 that
would cause CFC to be treated as the owner of FT upon application of the
grantor trust rules without regard to section 672(f). Under paragraph
(a) of this section, CFC is treated as a domestic corporation for
purposes of applying the general rule of Sec. 1.672(f)-1. Thus, Sec.
1.672(f)-1 does not prevent CFC from being treated as the owner of FT
under section 673.
Example 2. Distribution from trust to which CFC made gratuitous
transfer. A, a nonresident alien, owns 40 percent of the stock of CFC.
A's brother B, a resident alien, owns the other 60 percent of the stock
of CFC. CFC makes a gratuitous transfer to FT. FT makes a gratuitous
transfer to A's daughter, C, who is a resident alien. Under paragraph
(b)(1) of this section, CFC will be treated as a foreign corporation for
purposes of Sec. 1.672(f)-4(c). For further guidance, see Sec.
1.672(f)-4(g) Example 2 through Example 4.
[[Page 362]]
(e) Effective date. The rules of this section are generally
applicable to taxable years of shareholders of controlled foreign
corporations, passive foreign investment companies, and foreign personal
holding companies beginning after August 10, 1999, and taxable years of
controlled foreign corporations, passive foreign investment companies,
and foreign personal holding companies ending with or within such
taxable years of the shareholders.
[T.D. 8831, 64 FR 43276, Aug. 10, 1999, as amended by T.D. 8890, 65 FR
41334, July 5, 2000]
Sec. 1.672(f)-3 Exceptions to general rule.
(a) Certain revocable trusts--(1) In general. Subject to the
provisions of paragraph (a)(2) of this section, the general rule of
Sec. 1.672(f)-1 does not apply to any portion of a trust for a taxable
year of the trust if the power to revest absolutely in the grantor title
to such portion is exercisable solely by the grantor (or, in the event
of the grantor's incapacity, by a guardian or other person who has
unrestricted authority to exercise such power on the grantor's behalf)
without the approval or consent of any other person. If the grantor can
exercise such power only with the approval of a related or subordinate
party who is subservient to the grantor, such power is treated as
exercisable solely by the grantor. For the definition of grantor, see
Sec. 1.671-2(e). For the definition of related or subordinate party,
see Sec. 1.672(c)-1. For purposes of this paragraph (a), a related or
subordinate party is subservient to the grantor unless the presumption
in the last sentence of Sec. 1.672(c)-1 is rebutted by a preponderance
of the evidence. A trust (or portion of a trust) that fails to qualify
for the exception provided by this paragraph (a) for a particular
taxable year of the trust will be subject to the general rule of Sec.
1.672(f)-1 for that taxable year and all subsequent taxable years of the
trust.
(2) 183-day rule. For purposes of paragraph (a)(1) of this section,
the grantor is treated as having a power to revest for a taxable year of
the trust only if the grantor has such power for a total of 183 or more
days during the taxable year of the trust. If the first or last taxable
year of the trust (including the year of the grantor's death) is less
than 183 days, the grantor is treated as having a power to revest for
purposes of paragraph (a)(1) of this section if the grantor has such
power for each day of the first or last taxable year, as the case may
be.
(3) Grandfather rule for certain revocable trusts in existence on
September 19, 1995. Subject to the rules of paragraph (d) of this
section (relating to separate accounting for gratuitous transfers to the
trust after September 19, 1995), the general rule of Sec. 1.672(f)-1
does not apply to any portion of a trust that was treated as owned by
the grantor under section 676 on September 19, 1995, as long as the
trust would continue to be so treated thereafter. However, the preceding
sentence does not apply to any portion of the trust attributable to
gratuitous transfers to the trust after September 19, 1995.
(4) Examples. The following examples illustrate the rules of this
paragraph (a):
Example 1. Grantor is owner. FP1, a foreign person, creates and
funds a revocable trust, T, for the benefit of FP1's children, who are
resident aliens. The trustee is a foreign bank, FB, that is owned and
controlled by FP1 and FP2, who is FP1's brother. The power to revoke T
and revest absolutely in FP1 title to the trust property is exercisable
by FP1, but only with the approval or consent of FB. The trust
instrument contains no standard that FB must apply in determining
whether to approve or consent to the revocation of T. There are no facts
that would suggest that FB is not subservient to FP1. Therefore, the
exception in paragraph (a)(1) of this section is applicable.
Example 2. Death of grantor. Assume the same facts as in Example 1,
except that FP1 dies. After FP1's death, FP2 has the power to withdraw
the assets of T, but only with the approval of FB. There are no facts
that would suggest that FB is not subservient to FP2. However, the
exception in paragraph (a)(1) of this section is no longer applicable,
because FP2 is not a grantor of T within the meaning of Sec. 1.671-
2(e).
Example 3. Trustee is not related or subordinate party. Assume the
same facts as in Example 1, except that neither FP1 nor any member of
FP1's family has any substantial ownership interest or other connection
with FB. FP1 can remove and replace FB at any time for any reason.
Although FP1 can replace FB with a related or subordinate party if FB
refuses to approve or consent to FP1's decision to revest the trust
property in himself, FB is not a related or subordinate
[[Page 363]]
party. Therefore, the exception in paragraph (a)(1) of this section is
not applicable.
Example 4. Unrelated trustee will consent to revocation. FP, a
foreign person, creates and funds an irrevocable trust, T. The trustee
is a foreign bank, FB, that is not a related or subordinate party within
the meaning of Sec. 1.672(c)-1. FB has the discretion to distribute
trust income or corpus to beneficiaries of T, including FP. Even if FB
would in fact distribute all the trust property to FP if requested to do
so by FP, the exception in paragraph (a)(1) of this section is not
applicable, because FP does not have the power to revoke T.
(b) Certain trusts that can distribute only to the grantor or the
spouse of the grantor--(1) In general. The general rule of Sec.
1.672(f)-1 does not apply to any trust (or portion of a trust) if at all
times during the lifetime of the grantor the only amounts distributable
(whether income or corpus) from such trust (or portion thereof) are
amounts distributable to the grantor or the spouse of the grantor. For
purposes of this paragraph (b), payments of amounts that are not
gratuitous transfers (within the meaning of Sec. 1.671-2(e)(2)) are not
amounts distributable. For the definition of grantor, see Sec. 1.671-
2(e).
(2) Amounts distributable in discharge of legal obligations--(i) In
general. A trust (or portion of a trust) does not fail to satisfy
paragraph (b)(1) of this section solely because amounts are
distributable from the trust (or portion thereof) in discharge of a
legal obligation of the grantor or the spouse of the grantor. Subject to
the provisions of paragraph (b)(2)(ii) of this section, an obligation is
considered a legal obligation for purposes of this paragraph (b)(2)(i)
if it is enforceable under the local law of the jurisdiction in which
the grantor (or the spouse of the grantor) resides.
(ii) Related parties--(A) In general. Except as provided in
paragraph (b)(2)(ii)(B) of this section, an obligation to a person who
is a related person for purposes of Sec. 1.643(h)-1(e) (other than an
individual who is legally separated from the grantor under a decree of
divorce or of separate maintenance) is not a legal obligation for
purposes of paragraph (b)(2)(i) of this section unless it was contracted
bona fide and for adequate and full consideration in money or money's
worth (see Sec. 20.2043-1 of this chapter).
(B) Exceptions--(1) Amounts distributable in support of certain
individuals. Paragraph (b)(2)(ii)(A) of this section does not apply with
respect to amounts that are distributable from the trust (or portion
thereof) to support an individual who--
(i) Would be treated as a dependent of the grantor or the spouse of
the grantor under section 152(a)(1) through (9), without regard to the
requirement that over half of the individual's support be received from
the grantor or the spouse of the grantor; and
(ii) Is either permanently and totally disabled (within the meaning
of section 22(e)(3)), or less than 19 years old.
(2) Certain potential support obligations. The fact that amounts
might become distributable from a trust (or portion of a trust) in
discharge of a potential obligation under local law to support an
individual other than an individual described in paragraph
(b)(2)(ii)(B)(1) of this section is disregarded if such potential
obligation is not reasonably expected to arise under the facts and
circumstances.
(3) Reinsurance trusts. [Reserved]
(3) Grandfather rule for certain section 677 trusts in existence on
September 19, 1995. Subject to the rules of paragraph (d) of this
section (relating to separate accounting for gratuitous transfers to the
trust after September 19, 1995), the general rule of Sec. 1.672(f)-1
does not apply to any portion of a trust that was treated as owned by
the grantor under section 677 (other than section 677(a)(3)) on
September 19, 1995, as long as the trust would continue to be so treated
thereafter. However, the preceding sentence does not apply to any
portion of the trust attributable to gratuitous transfers to the trust
after September 19, 1995.
(4) Examples. The following examples illustrate the rules of this
paragraph (b):
Example 1. Amounts distributable only to grantor or grantor's
spouse. H and his wife, W, are both nonresident aliens. H is 70 years
old, and W is 65. H and W have a 30-year-old child, C, a resident alien.
There is no reasonable expectation that H or W will ever have an
obligation under local law to support C or any other individual. H
creates and funds an
[[Page 364]]
irrevocable trust, FT, using only his separate property. H is the
grantor of FT within the meaning of Sec. 1.671-2(e). Under the terms of
FT, the only amounts distributable (whether income or corpus) from FT as
long as either H or W is alive are amounts distributable to H or W. Upon
the death of both H and W, C may receive distributions from FT. During
H's lifetime, the exception in paragraph (b)(1) of this section is
applicable.
Example 2. Effect of grantor's death. Assume the same facts as in
Example 1. H predeceases W. Assume that W would be treated as owning FT
under section 678 if the grantor trust rules were applied without regard
to section 672(f). The exception in paragraph (b)(1) of this section is
no longer applicable, because W is not a grantor of FT within the
meaning of Sec. 1.671-2(e).
Example 3. Amounts temporarily distributable to person other than
grantor or grantor's spouse. Assume the same facts as in Example 1,
except that C (age 30) is a law student at the time FT is created and
the trust instrument provides that, as long as C is in law school,
amounts may be distributed from FT to pay C's expenses. Thereafter, the
only amounts distributable from FT as long as either H or W is alive
will be amounts distributable to H or W. Even assuming there is an
enforceable obligation under local law for H and W to support C while he
is in school, distributions from FT in payment of C's expenses cannot
qualify as distributions in discharge of a legal obligation under
paragraph (b)(2) of this section, because C is neither permanently and
totally disabled nor less than 19 years old. The exception in paragraph
(b)(1) of this section is not applicable. After C graduates from law
school, the exception in paragraph (b)(1) still will not be applicable,
because amounts were distributable to C during the lifetime of H.
Example 4. Fixed investment trust. FC, a foreign corporation,
invests in a domestic fixed investment trust, DT, that is classified as
a trust under Sec. 301.7701-4(c)(1) of this chapter. Under the terms of
DT, the only amounts that are distributable from FC's portion of DT are
amounts distributable to FC. The exception in paragraph (b)(1) of this
section is applicable to FC's portion of DT.
Example 5. Reinsurance trust. A domestic insurance company, DI,
reinsures a portion of its business with an unrelated foreign insurance
company, FI. To satisfy state regulatory requirements, FI places the
premiums in an irrevocable domestic trust, DT. The trust funds are held
by a United States bank and may be used only to pay claims arising out
of the reinsurance policies, which are legally enforceable under the
local law of the jurisdiction in which FI resides. On the termination of
DT, any assets remaining will revert to FI. Because the only amounts
that are distributable from DT are distributable either to FI or in
discharge of FI's legal obligations within the meaning of paragraph
(b)(2)(i) of this section, the exception in paragraph (b)(1) of this
section is applicable.
Example 6. Trust that provides security for loan. FC, a foreign
corporation, borrows money from B, an unrelated bank, to finance the
purchase of an airplane. FC creates a foreign trust, FT, to hold the
airplane as security for the loan from B. The only amounts that are
distributable from FT while the loan is outstanding are amounts
distributable to B in the event that FC defaults on its loan from B.
When FC repays the loan, the trust assets will revert to FC. The loan is
a legal obligation of FC within the meaning of paragraph (b)(2)(i) of
this section, because it is enforceable under the local law of the
country in which FC is incorporated. Paragraph (b)(2)(ii) of this
section is not applicable, because B is not a related person for
purposes of Sec. 1.643(h)-1(e). The exception in paragraph (b)(1) of
this section is applicable.
(c) Compensatory trusts--(1) In general. The general rule of Sec.
1.672(f)-1 does not apply to any portion of--
(i) A nonexempt employees' trust described in section 402(b),
including a trust created on behalf of a self-employed individual;
(ii) A trust, including a trust created on behalf of a self-employed
individual, that would be a nonexempt employees' trust described in
section 402(b) but for the fact that the trust's assets are not set
aside from the claims of creditors of the actual or deemed transferor
within the meaning of Sec. 1.83-3(e); and
(iii) Any additional category of trust that the Commissioner may
designate in revenue procedures, notices, or other guidance published in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter).
(2) Exceptions. The Commissioner may, in revenue rulings, notices,
or other guidance published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2) of this chapter), designate categories of compensatory
trusts to which the general rule of paragraph (c)(1) of this section
does not apply.
(d) Separate accounting for gratuitous transfers to grandfathered
trusts after September 19, 1995. If a trust that was treated as owned by
the grantor under section 676 or 677 (other than section 677(a)(3)) on
September 19, 1995, contains both amounts held in the trust on September
19, 1995, and amounts that were gratuitously transferred to the
[[Page 365]]
trust after September 19, 1995, paragraphs (a)(3) and (b)(3) of this
section apply only if the amounts that were gratuitously transferred to
the trust after September 19, 1995, are treated as a separate portion of
the trust that is accounted for under the rules of Sec. 1.671-3(a)(2).
If the amounts that were gratuitously transferred to the trust after
September 19, 1995 are not so accounted for, the general rule of Sec.
1.672(f)-1 applies to the entire trust. If such amounts are so accounted
for, and without regard to whether there is physical separation of the
assets, the general rule of Sec. 1.672(f)-1 does not apply to the
portion of the trust that is attributable to amounts that were held in
the trust on September 19, 1995.
(e) Effective date. The rules of this section are generally
applicable to taxable years of a trust beginning after August 10, 1999.
The initial separate accounting required by paragraph (d) of this
section must be prepared by the due date (including extensions) for the
tax return of the trust for the first taxable year of the trust
beginning after August 10, 1999.
[T.D. 8831, 64 FR 43276, Aug. 10, 1999, as amended by T.D. 8890, 65 FR
41334, July 5, 2000]
Sec. 1.672(f)-4 Recharacterization of purported gifts.
(a) In general--(1) Purported gifts from partnerships. Except as
provided in paragraphs (b), (e), and (f) of this section, and without
regard to the existence of any trust, if a United States person (United
States donee) directly or indirectly receives a purported gift or
bequest (as defined in paragraph (d) of this section) from a
partnership, the purported gift or bequest must be included in the
United States donee's gross income as ordinary income.
(2) Purported gifts from foreign corporations. Except as provided in
paragraphs (b), (e), and (f) of this section, and without regard to the
existence of any trust, if a United States donee directly or indirectly
receives a purported gift or bequest (as defined in paragraph (d) of
this section) from any foreign corporation, the purported gift or
bequest must be included in the United States donee's gross income as if
it were a distribution from the foreign corporation. If the foreign
corporation is a passive foreign investment company (within the meaning
of section 1297), the rules of section 1291 apply. For purposes of
section 1012, the United States donee is not treated as having basis in
the stock of the foreign corporation. However, for purposes of section
1223, the United States donee is treated as having a holding period in
the stock of the foreign corporation on the date of the deemed
distribution equal to the weighted average of the holding periods of the
actual interest holders (other than any interest holders who treat the
portion of the purported gift attributable to their interest in the
foreign corporation in the manner described in paragraph (b)(1) of this
section). For purposes of section 902, a United States donee that is a
domestic corporation is not treated as owning any voting stock of the
foreign corporation.
(b) Exceptions--(1) Partner or shareholder treats transfer as
distribution and gift. Paragraph (a) of this section does not apply to
the extent the United States donee can demonstrate to the satisfaction
of the Commissioner that either--
(i) A United States citizen or resident alien individual who
directly or indirectly holds an interest in the partnership or foreign
corporation treated and reported the purported gift or bequest for
United States tax purposes as a distribution to such individual and a
subsequent gift or bequest to the United States donee; or
(ii) A nonresident alien individual who directly or indirectly holds
an interest in the partnership or foreign corporation treated and
reported the purported gift or bequest for purposes of the tax laws of
the nonresident alien individual's country of residence as a
distribution to such individual and a subsequent gift or bequest to the
United States donee, and the United States donee timely complied with
the reporting requirements of section 6039F, if applicable.
(2) All beneficial owners of domestic partnership are United States
citizens or residents or domestic corporations. Paragraph (a)(1) of this
section does not apply to a purported gift or bequest from a domestic
partnership if the United States donee can demonstrate
[[Page 366]]
to the satisfaction of the Commissioner that all beneficial owners
(within the meaning of Sec. 1.1441-1(c)(6)) of the partnership are
United States citizens or residents or domestic corporations.
(3) Contribution to capital of corporate United States donee.
Paragraph (a) of this section does not apply to the extent a United
States donee that is a corporation can establish that the purported gift
or bequest was treated for United States tax purposes as a contribution
to the capital of the United States donee to which section 118 applies.
(4) Charitable transfers. Paragraph (a) of this section does not
apply if either--
(i) The United States donee is described in section 170(c); or
(ii) The transferor has received a ruling or determination letter,
which has been neither revoked nor modified, from the Internal Revenue
Service recognizing its exempt status under section 501(c)(3), and the
transferor made the transfer pursuant to an exempt purpose for which the
transferor was created or organized. For purposes of the preceding
sentence, a ruling or determination letter recognizing exemption may not
be relied upon if there is a material change, inconsistent with
exemption, in the character, the purpose, or the method of operation of
the organization.
(c) Certain transfers from trusts to which a partnership or foreign
corporation has made a gratuitous transfer--(1) Generally treated as
distribution from partnership or foreign corporation. Except as provided
in paragraphs (c)(2) and (3) of this section, if a United States donee
receives a gratuitous transfer (within the meaning of Sec. 1.671-
2(e)(2)) from a trust (or portion of a trust) to which a partnership or
foreign corporation has made a gratuitous transfer, the United States
donee must treat the transfer as a purported gift or bequest from the
partnership or foreign corporation that is subject to the rules of
paragraph (a) of this section (including the exceptions in paragraphs
(b) and (f) of this section). This paragraph (c) applies without regard
to who is treated as the grantor of the trust (or portion thereof) under
Sec. 1.671-2(e)(4).
(2) Alternative rule. Except as provided in paragraph (c)(3) of this
section, if the United States tax computed under the rules of paragraphs
(a) and (c)(1) of this section does not exceed the United States tax
that would be due if the United States donee treated the transfer as a
distribution from the trust (or portion thereof), paragraph (c)(1) of
this section does not apply and the United States donee must treat the
transfer as a distribution from the trust (or portion thereof) that is
subject to the rules of subparts A through D (section 641 and
following), part I, subchapter J, chapter 1 of the Internal Revenue
Code. For purposes of paragraph (f) of this section, the transfer is
treated as a purported gift or bequest from the partnership or foreign
corporation that made the gratuitous transfer to the trust (or portion
thereof).
(3) Exception. Neither paragraph (c)(1) of this section nor
paragraph (c)(2) of this section applies to the extent the United States
donee can demonstrate to the satisfaction of the Commissioner that the
transfer represents an amount that is, or has been, taken into account
for United States tax purposes by a United States citizen or resident or
a domestic corporation. A transfer will be deemed to be made first out
of amounts that have not been taken into account for United States tax
purposes by a United States citizen or resident or a domestic
corporation, unless the United States donee can demonstrate to the
satisfaction of the Commissioner that another ordering rule is more
appropriate.
(d) Definition of purported gift or bequest--(1) In general. Subject
to the provisions of paragraphs (d)(2) and (3) of this section, a
purported gift or bequest for purposes of this section is any transfer
of property by a partnership or foreign corporation other than a
transfer for fair market value (within the meaning of Sec. 1.671-
2(e)(2)(ii)) to a person who is not a partner in the partnership or a
shareholder of the foreign corporation (or to a person who is a partner
in the partnership or a shareholder of a foreign corporation, if the
amount transferred is inconsistent with the partner's interest in the
partnership or
[[Page 367]]
the shareholder's interest in the corporation, as the case may be). For
purposes of this section, the term property includes cash.
(2) Transfers for less than fair market value--(i) Excess treated as
purported gift or bequest. Except as provided in paragraph (d)(2)(ii) of
this section, if a transfer described in paragraph (d)(1) of this
section is for less than fair market value, the excess of the fair
market value of the property transferred over the value of the property
received, services rendered, or the right to use property is treated as
a purported gift or bequest.
(ii) Exception for transfers to unrelated parties. No portion of a
transfer described in paragraph (d)(1) of this section will be treated
as a purported gift or bequest for purposes of this section if the
United States donee can demonstrate to the satisfaction of the
Commissioner that the United States donee is not related to a partner or
shareholder of the transferor within the meaning of Sec. 1.643(h)-1(e)
or does not have another relationship with a partner or shareholder of
the transferor that establishes a reasonable basis for concluding that
the transferor would make a gratuitous transfer to the United States
donee.
(e) Prohibition against affirmative use of recharacterization by
taxpayers. A taxpayer may not use the rules of this section if a
principal purpose for using such rules is the avoidance of any tax
imposed by the Internal Revenue Code. Thus, with respect to such
taxpayer, the Commissioner may depart from the rules of this section and
recharacterize (for all purposes of the Internal Revenue Code) the
transfer in accordance with its form or its economic substance.
(f) Transfers not in excess of $10,000. This section does not apply
if, during the taxable year of the United States donee, the aggregate
amount of purported gifts or bequests that is transferred to such United
States donee directly or indirectly from all partnerships or foreign
corporations that are related (within the meaning of section 643(i))
does not exceed $10,000. The aggregate amount must include gifts or
bequests from persons that the United States donee knows or has reason
to know are related to the partnership or foreign corporation (within
the meaning of section 643(i)).
(g) Examples. The following examples illustrate the rules of this
section. In each example, the amount that is transferred exceeds
$10,000. The examples are as follows:
Example 1. Distribution from foreign corporation. FC is a foreign
corporation that is wholly owned by A, a nonresident alien who is
resident in Country C. FC makes a gratuitous transfer of property
directly to A's daughter, B, who is a resident alien. Under paragraph
(a)(2) of this section, B generally must treat the transfer as a
dividend from FC to the extent of FC's earnings and profits and as an
amount received in excess of basis thereafter. If FC is a passive
foreign investment company, B must treat the amount received as a
distribution under section 1291. B will be treated as having the same
holding period as A. However, under paragraph (b)(1)(ii) of this
section, if B can establish to the satisfaction of the Commissioner
that, for purposes of the tax laws of Country C, A treated (and
reported, if applicable) the transfer as a distribution to himself and a
subsequent gift to B, B may treat the transfer as a gift (provided B
timely complied with the reporting requirements of section 6039F, if
applicable).
Example 2. Distribution of corpus from trust to which foreign
corporation made gratuitous transfer. FC is a foreign corporation that
is wholly owned by A, a nonresident alien who is resident in Country C.
FC makes a gratuitous transfer to a foreign trust, FT, that has no other
assets. FT immediately makes a gratuitous transfer in the same amount to
A's daughter, B, who is a resident alien. Under paragraph (c)(1) of this
section, B must treat the transfer as a transfer from FC that is subject
to the rules of paragraph (a)(2) of this section. Under paragraph (a)(2)
of this section, B must treat the transfer as a dividend from FC unless
she can establish to the satisfaction of the Commissioner that, for
purposes of the tax laws of Country C, A treated (and reported, if
applicable) the transfer as a distribution to himself and a subsequent
gift to B and that B timely complied with the reporting requirements of
section 6039F, if applicable. The alternative rule in paragraph (c)(2)
of this section would not apply as long as the United States tax
computed under the rules of paragraph (a)(2) of this section is equal to
or greater than the United States tax that would be due if the transfer
were treated as a distribution from FT.
Example 3. Accumulation distribution from trust to which foreign
corporation made gratuitous transfer. FC is a foreign corporation that
is wholly owned by A, a nonresident
[[Page 368]]
alien. FC is not a passive foreign investment company (as defined in
section 1297). FC makes a gratuitous transfer of 100X to a foreign
trust, FT, on January 1, 2001. FT has no other assets on January 1,
2001. Several years later, FT makes a gratuitous transfer of 1000X to
A's daughter, B, who is a United States resident. Assume that the
section 668 interest charge on accumulation distributions will apply if
the transfer is treated as a distribution from FT. Under the alternative
rule of paragraph (c)(2) of this section, B must treat the transfer as
an accumulation distribution from FT, because the resulting United
States tax liability is greater than the United States tax that would be
due if the transfer were treated as a transfer from FC that is subject
to the rules of paragraph (a) of this section.
Example 4. Transfer from trust that is treated as owned by United
States citizen. Assume the same facts as in Example 3, except that A is
a United States citizen. Assume that A treats and reports the transfer
to FT as a constructive distribution to himself, followed by a
gratuitous transfer to FT, and that A is properly treated as the grantor
of FT within the meaning of Sec. 1.671-2(e). A is treated as the owner
of FT under section 679 and, as required by section 671 and the
regulations thereunder, A includes all of FT's items of income,
deductions, and credit in computing his taxable income and credits.
Neither paragraph (c)(1) nor paragraph (c)(2) of this section is
applicable, because the exception in paragraph (c)(3) of this section
applies.
Example 5. Transfer for less than fair market value. FC is a foreign
corporation that is wholly owned by A, a nonresident alien. On January
15, 2001, FC transfers property directly to A's daughter, B, a resident
alien, in exchange for 90X. The Commissioner later determines that the
fair market value of the property at the time of the transfer was 100X.
Under paragraph (d)(2)(i) of this section, 10X will be treated as a
purported gift to B on January 15, 2001.
(h) Effective date. The rules of this section are generally
applicable to any transfer after August 10, 1999, by a partnership or
foreign corporation, or by a trust to which a partnership or foreign
corporation makes a gratuitous transfer after August 10, 1999.
[T.D. 8831, 64 FR 43278, Aug. 10, 1999, as amended by T.D. 8890, 65 FR
41334, July 5, 2000]
Sec. 1.672(f)-5 Special rules.
(a) Transfers by certain beneficiaries to foreign grantor--(1) In
general. If, but for section 672(f)(5), a foreign person would be
treated as the owner of any portion of a trust, any United States
beneficiary of the trust is treated as the grantor of a portion of the
trust to the extent the United States beneficiary directly or indirectly
made transfers of property to such foreign person (without regard to
whether the United States beneficiary was a United States beneficiary at
the time of any transfer) in excess of transfers to the United States
beneficiary from the foreign person. The rule of this paragraph (a) does
not apply to the extent the United States beneficiary can demonstrate to
the satisfaction of the Commissioner that the transfer by the United
States beneficiary to the foreign person was wholly unrelated to any
transaction involving the trust. For purposes of this paragraph (a), the
term property includes cash, and a transfer of property does not include
a transfer that is not a gratuitous transfer (within the meaning of
Sec. 1.671-2(e)(2)). In addition, a gift is not taken into account to
the extent such gift would not be characterized as a taxable gift under
section 2503(b). For a definition of United States beneficiary, see
section 679.
(2) Examples. The following examples illustrate the rules of this
section:
Example 1. A, a nonresident alien, contributes property to FC, a
foreign corporation that is wholly owned by A. FC creates a foreign
trust, FT, for the benefit of A and A's children. FT is revocable by FC
without the approval or consent of any other person. FC funds FT with
the property received from A. A and A's family move to the United
States. Under paragraph (a)(1) of this section, A is treated as a
grantor of FT. (A may also be treated as an owner of FT under section
679(a)(4).)
Example 2. B, a United States citizen, makes a gratuitous transfer
of $1 million to B's uncle, C, a nonresident alien. C creates a foreign
trust, FT, for the benefit of B and B's children. FT is revocable by C
without the approval or consent of any other person. C funds FT with the
property received from B. Under paragraph (a)(1) of this section, B is
treated as a grantor of FT. (B also would be treated as an owner of FT
as a result of section 679.)
(b) Entity characterization. Entities generally are characterized
under United States tax principles for purposes of Sec. Sec. 1.672(f)-1
through 1.672(f)-5. See Sec. Sec. 301.7701-1 through 301.7701-4 of this
chapter. However, solely for purposes of Sec. 1.672(f)-4, a transferor
that is
[[Page 369]]
a wholly owned business entity is treated as a corporation, separate
from its single owner.
(c) Effective date. The rules in paragraph (a) of this section are
applicable to transfers to trusts on or after August 10, 1999. The rules
in paragraph (b) of this section are applicable August 10, 1999.
[T.D. 8831, 64 FR 43280, Aug. 10, 1999, as amended by T.D. 8890, 65 FR
41334, July 5, 2000]
Sec. 1.673(a)-1 Reversionary interests; income payable to
beneficiaries other than certain charitable organizations;
general rule.
(a) Under section 673(a), a grantor, in general, is treated as the
owner of any portion of a trust in which he has a reversionary interest
in either the corpus or income if, as of the inception of that portion
of the trust, the grantor's interest will or may reasonably be expected
to take effect in possession or enjoyment within 10 years commencing
with the date of transfer of that portion of the trust. However, the
following types of reversionary interests are excepted from the general
rule of the preceding sentence:
(1) A reversionary interest after the death of the income
beneficiary of a trust (see paragraph (b) of this section); and
(2) Except in the case of transfers in trust made after April 22,
1969, a reversionary interest in a charitable trust meeting the
requirements of section 673(b) (see Sec. 1.673(b)-1). Even though the
duration of the trust may be such that the grantor is not treated as its
owner under section 673, and therefore is not taxed on the ordinary
income, he may nevertheless be treated as an owner under section
677(a)(2) if he has a reversionary interest in the corpus. In the latter
case, items of income, deduction, and credit allocable to corpus, such
as capital gains and losses, will be included in the portion he owns.
See Sec. 1.671-3 and the regulations under section 677. See Sec.
1.673(d)-1 with respect to a postponement of the date specified for
reacquisition of a reversionary interest.
(b) Section 673(c) provides that a grantor is not treated as the
owner of any portion of a trust by reason of section 673 if his
reversionary interest in the portion is not to take effect in possession
or enjoyment until the death of the person or persons to whom the income
of the portion is regardless of the life expectancies of the income
beneficiaries. If his reversionary interest is to take effect on or
after the death of an income beneficiary or upon the expiration of a
specific term of years, whichever is earlier, the grantor is treated as
the owner if the specific term of years is less than 10 years (but not
if the term is 10 years or longer).
(c) Where the grantor's reversionary interest in a portion of a
trust is to take effect in possession or enjoyment by reason of some
event other than the expiration of a specific term of years or the death
of the income beneficiary, the grantor is treated as the owner of the
portion if the event may reasonably be expected to occur within 10 years
from the date of transfer of that portion, but he is not treated as the
owner under section 673 if the event may not reasonably be expected to
occur within 10 years from that date. For example, if the reversionary
interest in any portion of a trust is to take effect on or after the
death of the grantor (or any person other than the person to whom the
income is payable) the grantor is treated under section 673 as the owner
of the portion if the life expectancy of the grantor (or other person)
is less than 10 years on the date of transfer of the portion, but not if
the life expectancy is 10 years or longer. If the reversionary interest
in any portion is to take effect on or after the death of the grantor
(or any person other than the person to whom the income is payable) or
upon the expiration of a specific term of years, whichever is earlier,
the grantor is treated as the owner of the portion if on the date of
transfer of the portion either the life expectancy of the grantor (or
other person) or the specific term is less than 10 years; however, if
both the life expectancy and the specific term are 10 years or longer
the grantor is not treated as the owner of the portion under section
673. Similarly, if the grantor has a reversionary interest in any
portion which will take effect at the death of the income beneficiary or
the grantor, whichever is earlier, the
[[Page 370]]
grantor is not treated as an owner of the portion unless his life
expectancy is less than 10 years.
(d) It is immaterial that a reversionary interest in corpus or
income is subject to a contingency if the reversionary interest may,
taking the contingency into consideration, reasonably be expected to
take effect in possession or enjoyment within 10 years. For example, the
grantor is taxable where the trust income is to be paid to the grantor's
son for 3 years, and the corpus is then to be returned to the grantor if
he survives that period, or to be paid to the grantor's son if he is
already decreased.
(e) See section 671 and Sec. Sec. 1.671-2 and 1.671-3 for rules for
treatment of items of income, deduction, and credit when a person is
treated as the owner of all or only a portion of a trust.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7357, 40 FR
23742, June 2, 1975]
Sec. 1.673(b)-1 Income payable to charitable beneficiaries before
amendment by Tax Reform Act of 1969).
(a) Pursuant to section 673(b) a grantor is not treated as an owner
of any portion of a trust under section 673, even though he has a
reversionary interest which will take effect within 10 years, to the
extent that, under the terms of the trust, the income of the portion is
irrevocably payable for a period of at least 2 years (commencing with
the date of the transfer) to a designated beneficiary of the type
described in section 170(b)(1)(A).
(b) Income must be irrevocably payable to a designated beneficiary
for at least 2 years commencing with the date of the transfer before the
benefit of section 673(b) will apply. Thus, section 673(b) will not
apply if income of a trust is irrevocably payable to University A for 1
year and then to University B for the next year; or if income of a trust
may be allocated among two or more charitable beneficiaries in the
discretion of the trustee or any other person. On the other hand,
section 673(b) will apply if half the income of a trust is irrevocably
payable to University A and the other half is irrevocably payable to
University B for two years.
(c) Section 673(b) applies to the period of 2 years or longer during
which income is paid to a designated beneficiary of the type described
in section 170(b)(1)(A) (i), (ii), or (iii), even though the trust term
is to extend beyond that period. However, the other provisions of
section 673 apply to the part of the trust term, if any, that extends
beyond that period. This paragraph may be illustrated by the following
example:
Example. G transfers property in trust with the ordinary income
payable to University C (which qualifies under section 170(b)(1)(A)(ii))
for 3 years, and then to his son, B, for 5 years. At the expiration of
the term the trust reverts to G. G is not taxed under section 673 of the
trust income payable to University C for the first 3 years because of
the application of section 673(b). However, he is taxed on income for
the next 5 years because he has a reversionary interest which will take
effect within 10 years commencing with the date of the transfer. On the
other hand, if the income were payable to University C for 3 years and
then to R for 7 years so that the trust corpus would not be returned to
G within 10 years, G would not be taxable under section 673 on income
payable to University C and to B during any part of the term.
(d) This section does not apply to transfers in trust made after
April 22, 1969.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D., 6605, 27 FR
8097, Aug. 15, 1962; T.D. 7357, 40 FR 23743, June 2, 1975]
Sec. 1.673(c)-1 Reversionary interest after income beneficiary's
death.
The subject matter of section 673(c) is covered in paragraph (b) of
Sec. 1.673(a)-1.
Sec. 1.673(d)-1 Postponement of date specified for reacquisition.
Any postponement of the date specified for the reacquisition of
possession or enjoyment of any reversionary interest is considered a new
transfer in trust commencing with the date on which the postponement is
effected and terminating with the date prescribed by the postponement.
However, the grantor will not be treated as the owner of any portion of
a trust for any taxable year by reason of the foregoing sentence if he
would not be so treated in the absence of any postponement. The rules
contained in this section
[[Page 371]]
may be illustrated by the following example:
Example. G places property in trust for the benefit of his son B.
Upon the expiration of 12 years or the earlier death of B the property
is to be paid over to G or his estate. After the expiration of 9 years G
extends the term of the trust for an additional 2 years. G is considered
to have made a new transfer in trust for a term of 5 years (the
remaining 3 years of the original transfer plus the 2-year extension).
However, he is not treated as the owner of the trust under section 673
for the first 3 years of the new term because he would not be so treated
if the term of the trust had not been extended. G is treated as the
owner of the trust, however, for the remaining 2 years.
Sec. 1.674(a)-1 Power to control beneficial enjoyment; scope of
section 674.
(a) Under section 674, the grantor is treated as the owner of a
portion of trust if the grantor or a nonadverse party has a power,
beyond specified limits, to dispose of the beneficial enjoyment of the
income or corpus, whether the power is a fiduciary power, a power of
appointment, or any other power. Section 674(a) states in general terms
that the grantor is treated as the owner in every case in which he or a
nonadverse party can affect the beneficial enjoyment of a portion of a
trust, the limitations being set forth as exceptions in subsections (b),
(c), and (d) of section 674. These exceptions are discussed in detail in
Sec. Sec. 1.674(b)-1 through 1.674(d)--1. Certain limitations
applicable to section 674 (b), (c), and (d) are set forth in Sec.
1.674(d)-2. Section 674(b) describes powers which are excepted
regardless of who holds them. Section 674(c) describes additional powers
of trustees which are excepted if at least half the trustees are
independent, and if the grantor is not a trustee. Section 674(d)
describes a further power which is excepted if it is held by trustees
other than the grantor or his spouse (if living with the grantor).
(b) In general terms the grantor is treated as the owner of a
portion of a trust if he or a nonadverse party or both has a power to
dispose of the beneficial enjoyment of the corpus or income unless the
power is one of the following:
(1) Miscellaneous powers over either ordinary income or corpus. (i)
A power that can only affect the beneficial enjoyment of income
(including capital gains) received after a period of time such that the
grantor would not be treated as an owner under section 673 if the power
were a reversionary interest (section 674(b)(2));
(ii) A testamentary power held by anyone (other than a testamentary
power held by the grantor over accumulated income) (section 674(b)(3));
(iii) A power to choose between charitable beneficiaries or to
affect the manner of their enjoyment of a beneficial interest (section
674(b)(4));
(iv) A power to allocate receipts and disbursements between income
and corpus (section 674(b)(8)).
(2) Powers of distribution primarily affecting only one beneficiary.
(i) A power to distribute corpus to or for a current income beneficiary,
if the distribution must be charged against the share of corpus from
which the beneficiary may receive income (section 674(b)(5)(B));
(ii) A power to distribute income to or for a current income
beneficiary or to accumulate it either (a) if accumulated income must
either be payable to the beneficiary from whom it was withheld or as
described in paragraph (b)(6) of Sec. 1.674(b)-1 (section 674(b) (6));
(b) if the power is to apply income to the support of a dependent of the
grantor, and the income is not so applied (section 674(b)(1)); or (c) if
the beneficiary is under 21 or under a legal disability and accumulated
income is added to corpus (section 674(b)(7)).
(3) Powers of distribution affecting more than one beneficiary. A
power to distribute corpus or income to or among one or more
beneficiaries or to accumulate income, either (i) if the power is held
by a trustee or trustees other than the grantor, at least half of whom
are independent (section 674(c)), or (ii) if the power is limited by a
reasonably definite standard in the trust instrument, and in the case of
a power over income, if in addition the power is held by a trustee or
trustees other than the grantor and the grantor's spouse living with the
grantor (section 674(b)(5)(A) and (d)). (These powers include both
powers to ``sprinkle'' income or corpus among current beneficiaries, and
powers to shift income or corpus between current beneficiaries and
[[Page 372]]
remaindermen; however, certain of the powers described under
subparagraph (2) of this paragraph can have the latter effect
incidentally.)
(c) See section 671 and Sec. Sec. 1.671-2 and 1.671-3 for rules for
the treatment of income, deductions, and credits when a person is
treated as the owner of all or only a portion of a trust.
Sec. 1.674(b)-1 Excepted powers exercisable by any person.
(a) Paragraph (b) (1) through (8) of this section sets forth a
number of powers which may be exercisable by any person without causing
the grantor to be treated as an owner of a trust under section 674(a).
Further, with the exception of powers described in paragraph (b)(1) of
this section, it is immaterial whether these powers are held in the
capacity of trustee. It makes no difference under section 674(b) that
the person holding the power is the grantor, or a related or subordinate
party (with the qualifications noted in paragraph (b) (1) and (3) of
this section).
(b) The exceptions referred to in paragraph (a) of this section are
as follows (see, however, the limitations set forth in Sec. 1.674(d)-
2):
(1) Powers to apply income to support of a dependent. Section
674(b)(1) provides, in effect, that regardless of the general rule of
section 674(a), the income of a trust will not be considered as taxable
to the grantor merely because in the discretion of any person (other
than a grantor who is not acting as a trustee or cotrustee) it may be
used for the support of a beneficiary whom the grantor is legally
obligated to support, except to the extent that it is in fact used for
that purpose. See section 677(b) and the regulations thereunder.
(2) Powers affecting beneficial enjoyment only after a period.
Section 674(b)(2) provides an exception to section 674(a) if the
exercise of a power can only affect the beneficial enjoyment of the
income of a trust received after a period of time which is such that a
grantor would not be treated as an owner under section 673 if the power
were a reversionary interest. See Sec. Sec. 1.673(a)-1 and 1.673(b)-1.
For example, if a trust created on January 1, 1955, provides for the
payment of income to the grantor's son, and the grantor reserves the
power to substitute other beneficiaries of income or corpus in lieu of
his son on or after January 1, 1965, the grantor is not treated under
section 674 as the owner of the trust with respect to ordinary income
received before January 1, 1965. But the grantor will be treated as an
owner on and after that date unless the power is relinquished. If the
beginning of the period during which the grantor may substitute
beneficiaries is postponed, the rules set forth in Sec. 1.673(d)-1 are
applicable in order to determine whether the grantor should be treated
as an owner during the period following the postponement.
(3) Testamentary powers. Under paragraph (3) of section 674(b) a
power in any person to control beneficial enjoyment exercisable only by
will does not cause a grantor to be treated as an owner under section
674(a). However, this exception does not apply to income accumulated for
testamentary disposition by the grantor or to income which may be
accumulated for such distribution in the discretion of the grantor or a
nonadverse party, or both, without the approval or consent of any
adverse party. For example, if a trust instrument provides that the
income is to be accumulated during the grantor's life and that the
grantor may appoint the accumulated income by will, the grantor is
treated as the owner of the trust. Moreover, if a trust instrument
provides that the income is payable to another person for his life, but
the grantor has a testamentary power of appointment over the remainder,
and under the trust instrument and local law capital gains are added to
corpus, the grantor is treated as the owner of a portion of the trust
and capital gains and losses are included in that portion. (See Sec.
1.671-3.)
(4) Powers to determine beneficial enjoyment of charitable
beneficiaries. Under paragraph (4) of section 674(b) a power in any
person to determine the beneficial enjoyment of corpus or income which
is irrevocably payable (currently or in the future) for purposes
specified in section 170(c) (relating to definition of charitable
contributions) will not cause the grantor to be treated as an
[[Page 373]]
owner under section 674(a). For example, if a grantor creates a trust,
the income of which is irrevocably payable solely to educational or
other organizations that qualify under section 170(c), he is not treated
as an owner under section 674 although he retains the power to allocate
the income among such organizations.
(5) Powers to distribute corpus. Paragraph (5) of section 674(b)
provides an exception to section 674(a) for powers to distribute corpus,
subject to certain limitations, as follows:
(i) If the power is limited by a reasonably definite standard which
is set forth in the trust instrument, it may extend to corpus
distributions to any beneficiary or beneficiaries or class of
beneficiaries (whether income beneficiaries or remaindermen) without
causing the grantor to be treated as an owner under section 674. See
section 674(b)(5)(A). It is not required that the standard consist of
the needs and circumstances of the beneficiary. A clearly measurable
standard under which the holder of a power is legally accountable is
deemed a reasonably definite standard for this purpose. For instance, a
power to distribute corpus for the education, support, maintenance, or
health of the beneficiary; for his reasonable support and comfort; or to
enable him to maintain his accustomed standard of living; or to meet an
emergency, would be limited by a reasonably definite standard. However,
a power to distribute corpus for the pleasure, desire, or happiness of a
beneficiary is not limited by a reasonably definite standard. The entire
context of a provision of a trust instrument granting a power must be
considered in determining whether the power is limited by a reasonably
definite standard. For example, if a trust instrument provides that the
determination of the trustee shall be conclusive with respect to the
exercise or nonexercise of a power, the power is not limited by a
reasonably definite standard. However, the fact that the governing
instrument is phrased in discretionary terms is not in itself an
indication that no reasonably definite standard exists.
(ii) If the power is not limited by a reasonably definite standard
set forth in the trust instrument, the exception applies only if
distributions of corpus may be made solely in favor of current income
beneficiaries, and any corpus distribution to the current income
beneficiary must be chargeable against the proportionate part of corpus
held in trust for payment of income to that beneficiary as if it
constituted a separate trust (whether or not physically segregated). See
section 674(b)(5)(B).
(iii) This subparagraph may be illustrated by the following
examples:
Example 1. A trust instrument provides for payment of the income to
the grantor's two brothers for life, and for payment of the corpus to
the grantor's nephews in equal shares. The grantor reserves the power to
distribute corpus to pay medical expenses that may be incurred by his
brothers or nephews. The grantor is not treated as an owner by reason of
this power because section 674(b)(5)(A) excepts a power, exercisable by
any person, to invade corpus for any beneficiary, including a
remainderman, if the power is limited by a reasonably definite standard
which is set forth in the trust instrument. However, if the power were
also exercisable in favor of a person (for example, a sister) who was
not otherwise a beneficiary of the trust, section 674(b)(5)(A) would not
be applicable.
Example 2. The facts are the same as in example 1 except that the
grantor reserves the power to distribute any part of the corpus to his
brothers or to his nephews for their happiness. The grantor is treated
as the owner of the trust. Paragraph (5)(A) of section 674(b) is
inapplicable because the power is not limited by a reasonably definite
standard. Paragraph (5)(B) is inapplicable because the power to
distribute corpus permits a distribution of corpus to persons other than
current income beneficiaries.
Example 3. A trust instrument provides for payment of the income to
the grantor's two adult sons in equal shares for 10 years, after which
the corpus is to be distributed to his grandchildren in equal shares.
The grantor reserves the power to pay over to each son up to one-half of
the corpus during the 10-year period, but any such payment shall
proportionately reduce subsequent income and corpus payments made to the
son receiving the corpus. Thus, if one-half of the corpus is paid to one
son, all the income from the remaining half is thereafter payable to the
other son. The grantor is not treated as an owner under section 674(a)
by reason of this power because it qualifies under the exception of
section 674(b)(5)(B).
(6) Powers to withhold income temporarily. (i) Section 674(b)(6)
excepts a power which, in general, enables the holder merely to effect a
postponement
[[Page 374]]
in the time when the ordinary income is enjoyed by a current income
beneficiary. Specifically, there is excepted a power to distribute or
apply ordinary income to or for a current income beneficiary or to
accumulate the income, if the accumulated income must ultimately be
payable either:
(a) To the beneficiary from whom it was withheld, his estate, or his
appointees (or persons designated by name, as a class, or otherwise as
alternate takers in default of appointment) under a power of appointment
held by the beneficiary which does not exclude from the class of
possible appointees any person other than the beneficiary, his estate,
his creditors, or the creditors of his estate (section 674(b)(6)(A));
(b) To the beneficiary from whom it was withheld, or if he does not
survive a date of distribution which could reasonably be expected to
occur within his lifetime, to his appointees (or alternate takers in
default of appointment) under any power of appointment, general or
special, or if he has no power of appointment to one or more designated
alternate takers (other than the grantor of the grantor's estate) whose
shares have been irrevocably specified in the trust instrument (section
674(b)(6)(A) and the flush material following); or
(c) On termination of the trust, or in conjunction with a
distribution of corpus which is augmented by the accumulated income, to
the current income beneficiaries in shares which have been irrevocably
specified in the trust instrument, or if any beneficiary does not
survive a date of distribution which would reasonably be expected to
occur within his lifetime, to his appointees (or alternate takers in
default of appointment) under any power of appointment, general or
special, or if he has no power of appointment to one or more designated
alternate takers (other than the grantor or the grantor's estate) whose
shares have been irrevocably specified in the trust instrument (section
674(b)(6)(B) and the flush material following).
(In the application of (a) of this subdivision, if the accumulated
income of a trust is ultimately payable to the estate of the current
income beneficiary or is ultimately payable to his appointees or takers
in default of appointment, under a power of the type described in (a) of
this subdivision, it need not be payable to the beneficiary from whom it
was withheld under any circumstances. Furthermore, if a trust otherwise
qualifies for the exception in (a) of this subdivision the trust income
will not be considered to be taxable to the grantor under section 677 by
reason of the existence of the power of appointment referred to in (a)
of this subdivision.) In general, the exception in section 674(b)(6) is
not applicable if the power is in substance one to shift ordinary income
from one beneficiary to another. Thus, a power will not qualify for this
exception if ordinary income may be distributed to beneficiary A, or may
be added to corpus which is ultimately payable to beneficiary B, a
remainderman who is not a current income beneficiary. However, section
674(b)(6)(B), and (c) of this subdivision, permit a limited power to
shift ordinary income among current income beneficiaries, as illustrated
in example 1 of this subparagraph.
(ii) The application of section 674(b)(6) may be illustrated by the
following examples:
Example 1. A trust instrument provides that the income shall be paid
in equal shares to the grantor's two adult daughters but the grantor
reserves the power to withhold from either beneficiary any part of that
beneficiary's share of income and to add it to the corpus of the trust
until the younger daughter reaches the age of 30 years. When the younger
daughter reaches the age of 30, the trust is to terminate and the corpus
is to be divided equally between the two daughters or their estates.
Although exercise of this power may permit the shifting of accumulated
income from one beneficiary to the other (since the corpus with the
accumulations is to be divided equally) the power is excepted under
section 674(b)(6)(B) and subdivision (i)(c) of this subparagraph.
Example 2. The facts are the same as in example 1, except that the
grantor of the trust reserves the power to distribute accumulated income
to the beneficiaries in such shares as he chooses. The combined powers
are not excepted by section 674(b)(6)(B) since income accumulated
pursuant to the first power is neither required to be payable only in
conjunction with a corpus distribution nor required to be payable in
shares specified in the trust instrument. See, however, section 674(c)
and Sec. 1.674(c)-1 for the effect of such a power if it is exercisable
only by independent trustees.
[[Page 375]]
Example 3. A trust provides for payment of income to the grantor's
adult son with the grantor retaining the power to accumulate the income
until the grantor's death, when all accumulations are to be paid to the
son. If the son predeceases the grantor, all accumulations are, at the
death of the grantor, to be paid to his daughter, or if she is not
living, to alternate takers (which do not include the grantor's estate)
in specified shares. The power is excepted under section 674(b)(6)(A)
since the date of distribution (the date of the grantor's death) may, in
the usual case, reasonably be expected to occur during the beneficiary's
(the son's) lifetime. It is not necessary that the accumulations be
payable to the son's estate or his appointees if he should predecease
the grantor for this exception to apply.
(7) Power to withhold income during disability. Section 674(b)(7)
provides an exception for a power which, in general, will permit
ordinary income to be withheld during the legal disability of an income
beneficiary or while he is under 21. Specifically, there is excepted a
power, exercisable only during the existence of a legal disability of
any current income beneficiary or the period during which any income
beneficiary is under the age of 21 years, to distribute or apply
ordinary income to or for that beneficiary or to accumulate the income
and add it to corpus. To qualify under this exception it is not
necessary that the income ultimately be payable to the income
beneficiary from whom it was withheld, his estate, or his appointees;
that is, the accumulated income may be added to corpus and ultimately
distributed to others. For example, the grantor is not treated as an
owner under section 674 if the income of a trust is payable to his son
for life, remainder to his grandchildren, although he reserves the power
to accumulate income and add it to corpus while his son is under 21.
(8) Powers to allocate between corpus and income. Paragraph (8) of
section 674(b) provides that a power to allocate receipts and
disbursements between corpus and income, even though expressed in broad
language, will not cause the grantor to be treated as an owner under the
general rule of section 674(a).
Sec. 1.674(c)-1 Excepted powers exercisable only by independent
trustees.
Section 674(c) provides an exception to the general rule of section
674(a) for certain powers that are exercisable by independent trustees.
This exception is in addition to those provided for under section 674(b)
which may be held by any person including an independent trustee. The
powers to which section 674(c) apply are powers (a) to distribute,
apportion, or accumulate income to or for a beneficiary or
beneficiaries, or to, for, or within a class of beneficiaries, or (b) to
pay out corpus to or for a beneficiary or beneficiaries or to or for a
class of beneficiaries (whether or not income beneficiaries). In order
for such a power to fall within the exception of section 674(c) it must
be exercisable solely (without the approval or consent of any other
person) by a trustee or trustees none of whom is the grantor and no more
than half of whom are related or subordinate parties who are subservient
to the wishes of the grantor. (See section 672(c) for definitions of
these terms.) An example of the application of section 674(c) is a trust
whose income is payable to the grantor's three adult sons with power in
an independent trustee to allocate without restriction the amounts of
income to be paid to each son each year. Such a power does not cause the
grantor to be treated as the owner of the trust. See however, the
limitations set forth in Sec. 1.674(d)-2.
Sec. 1.674(d)-1 Excepted powers exercisable by any trustee other than
grantor or spouse.
Section 674(d) provides an additional exception to the general rule
of section 674(a) for a power to distribute, apportion, or accumulate
income to or for a beneficiary or beneficiaries or to, for, or within a
class of beneficiaries, whether or not the conditions of section 674(b)
(6) or (7) are satisfied, if the power is solely exercisable (without
the approval or consent of any other person) by a trustee or trustees
none of whom is the grantor or spouse living with the grantor, and if
the power is limited by a reasonably definite external standard set
forth in the trust instrument (see paragraph (b)(5) of
[[Page 376]]
Sec. 1.674(b)-1 with respect to what constitutes a reasonably definite
standard). See, however, the limitations set forth in Sec. 1.674(d)-2.
Sec. 1.674(d)-2 Limitations on exceptions in section 674 (b), (c), and
(d).
(a) Power to remove trustee. A power in the grantor to remove,
substitute, or add trustees (other than a power exercisable only upon
limited conditions which do not exist during the taxable year, such as
the death or resignation of, or breach of fiduciary duty by, an existing
trustee) may prevent a trust from qualifying under section 674 (c) or
(d). For example, if a grantor has an unrestricted power to remove an
independent trustee and substitute any person including himself as
trustee, the trust will not qualify under section 674 (c) or (d). On the
other hand if the grantor's power to remove, substitute, or add trustees
is limited so that its exercise could not alter the trust in a manner
that would disqualify it under section 674 (c) or (d), as the case may
be, the power itself does not disqualify the trust. Thus, for example, a
power in the grantor to remove or discharge an independent trustee on
the condition that he substitute another independent trustee will not
prevent a trust from qualifying under section 674(c).
(b) Power to add beneficiaries. The exceptions described in section
674 (b) (5), (6), and (7), (c), and (d), are not applicable if any
person has a power to add to the beneficiary or beneficiaries or to a
class of beneficiaries designated to receive the income or corpus,
except where the action is to provide for after-born or after-adopted
children. This limitation does not apply to a power held by a
beneficiary to substitute other beneficiaries to succeed to his interest
in the trust (so that he would be an adverse party as to the exercise or
nonexercise of that power). For example, the limitation does not apply
to a power in a beneficiary of a nonspendthrift trust to assign his
interest. Nor does the limitation apply to a power held by any person
which would qualify as an exception under section 674(b)(3) (relating to
testamentary powers).
Sec. 1.675-1 Administrative powers.
(a) General rule. Section 675 provides in effect that the grantor is
treated as the owner of any portion of a trust if under the terms of the
trust instrument or circumstances attendant on its operation
administrative control is exercisable primarily for the benefit of the
grantor rather than the beneficiaries of the trust. If a grantor retains
a power to amend the administrative provisions of a trust instrument
which is broad enough to permit an amendment causing the grantor to be
treated as the owner of a portion of the trust under section 675, he
will be treated as the owner of the portion from its inception. See
section 671 and Sec. Sec. 1.671-2 and 1.671-3 for rules for treatment
of items of income, deduction, and credit when a person is treated as
the owner of all or only a portion of a trust.
(b) Prohibited controls. The circumstances which cause
administrative controls to be considered exercisable primarily for the
benefit of the grantor are specifically described in paragraphs (1)
through (4) of section 675 as follows:
(1) The existence of a power, exercisable by the grantor or a
nonadverse party, or both, without the approval or consent of any
adverse party, which enables the grantor or any other person to
purchase, exchange, or otherwise deal with or dispose of the corpus or
the income of the trust for less than adequate consideration in money or
money's worth. Whether the existence of the power itself will constitute
the holder an adverse party will depend on the particular circumstances.
(2) The existence of a power exercisable by the grantor or a
nonadverse party, or both, which enables the grantor to borrow the
corpus or income of the trust, directly or indirectly, without adequate
interest or adequate security. However, this paragraph does not apply
where a trustee (other than the grantor acting alone) is authorized
under a general lending power to make loans to any person without regard
to interest or security. A general lending power in the grantor, acting
alone as trustee, under which he has power to
[[Page 377]]
determine interest rates and the adequacy of security is not in itself
an indication that the grantor has power to borrow the corpus or income
without adequate interest or security.
(3) The circumstance that the grantor has directly or indirectly
borrowed the corpus or income of the trust and has not completely repaid
the loan, including any interest, before the beginning of the taxable
year. The preceding sentence does not apply to a loan which provides for
adequate interest and adequate security, if it is made by a trustee
other than the grantor or a related or subordinate trustee subservient
to the grantor. See section 672(c) for definition of ``a related or
subordinate party''.
(4) The existence of certain powers of administration exercisable in
a nonfiduciary capacity by any nonadverse party without the approval or
consent of any person in a fiduciary capacity. The term powers of
administration means one or more of the following powers:
(i) A power to vote or direct the voting of stock or other
securities of a corporation in which the holdings of the grantor and the
trust are significant from the viewpoint of voting control;
(ii) A power to control the investment of the trust funds either by
directing investments or reinvestments, or by vetoing proposed
investments or reinvestments, to the extent that the trust funds consist
of stocks or securities of corporations in which the holdings of the
grantor and the trust are significant from the viewpoint of voting
control; or
(iii) A power to reacquire the trust corpus by substituting other
property of an equivalent value.
If a power is exercisable by a person as trustee, it is presumed that
the power is exercisable in a fiduciary capacity primarily in the
interests of the beneficiaries. This presumption may be rebutted only by
clear and convincing proof that the power is not exercisable primarily
in the interests of the beneficiaries. If a power is not exercisable by
a person as trustee, the determination of whether the power is
exercisable in a fiduciary or a nonfiduciary capacity depends on all the
terms of the trust and the circumstances surrounding its creation and
administration.
(c) Authority of trustee. The mere fact that a power exercisable by
a trustee is described in broad language does not indicate that the
trustee is authorized to purchase, exchange, or otherwise deal with or
dispose of the trust property or income for less than an adequate and
full consideration in money or money's worth, or is authorized to lend
the trust property or income to the grantor without adequate interest.
On the other hand, such authority may be indicated by the actual
administration of the trust.
Sec. 1.676(a)-1 Power to revest title to portion of trust property in
grantor; general rule.
If a power to revest in the grantor title to any portion of a trust
is exercisable by the grantor or a nonadverse party, or both, without
the approval or consent of an adverse party, the grantor is treated as
the owner of that portion, except as provided in section 676(b)
(relating to powers affecting beneficial enjoyment of income only after
the expiration of certain periods of time). If the title to a portion of
the trust will revest in the grantor upon the exercise of a power by the
grantor or a nonadverse party, or both, the grantor is treated as the
owner of that portion regardless of whether the power is a power to
revoke, to terminate, to alter or amend, or to appoint. See section 671
and Sec. Sec. 1.671-2 and 1.671-3 for rules for treatment of items of
income, deduction, and credit when a person is treated as the owner of
all or only a portion of a trust.
Sec. 1.676(b)-1 Powers exercisable only after a period of time.
Section 676(b) provides an exception to the general rule of section
676(a) when the exercise of a power can only affect the beneficial
enjoyment of the income of a trust received after the expiration of a
period of time which is such that a grantor would not be treated as the
owner of that portion, except as power were a reversionary interest. See
Sec. Sec. 1.673(a)-1 and 1.673(b)-1. Thus, for example, a grantor is
excepted from the general rule of section 676(a) with
[[Page 378]]
respect to ordinary income if exercise of a power to revest corpus in
him cannot affect the beneficial enjoyment of the income received within
10 years after the date of transfer of that portion of the trust. It is
immaterial for this purpose that the power is vested at the time of the
transfer. However, the grantor is subject to the general rule of section
676(a) after the expiration of the period unless the power is
relinquished. Thus, in the above example, the grantor may be treated as
the owner and be taxed on all income in the eleventh and succeeding
years if exercise of the power can affect beneficial enjoyment of income
received in those years. If the beginning of the period during which the
grantor may revest is postponed, the rules set forth in Sec. 1.673(d)-1
are applicable to determine whether the grantor should be treated as an
owner during the period following the postponement.
Sec. 1.677(a)-1 Income for benefit of grantor; general rule.
(a)(1) Scope. Section 677 deals with the treatment of the grantor of
a trust as the owner of a portion of the trust because he has retained
an interest in the income from that portion. For convenience,
``grantor'' and ``spouse'' are generally referred to in the masculine
and feminine genders, respectively, but if the grantor is a woman the
reference to ``grantor'' is to her and the reference to ``spouse'' is to
her husband. Section 677 also deals with the treatment of the grantor of
a trust as the owner of a portion of the trust because the income from
property transferred in trust after October 9, 1969, is, or may be,
distributed to his spouse or applied to the payment of premiums on
policies of insurance on the life of his spouse. However, section 677
does not apply when the income of a trust is taxable to a grantor's
spouse under section 71 (relating to alimony and separate maintenance
payments) or section 682 (relating to income of an estate or trust in
case of divorce, etc.). See section 671-1(b).
(2) Cross references. See section 671 and Sec. Sec. 1.671-2 and
1.671-3 for rules for treatment of items of income, deduction, and
credit when a person is treated as the owner of all or a portion of a
trust.
(b) Income for benefit of grantor or his spouse; general rule--(1)
Property transferred in trust prior to October 10, 1969. With respect to
property transferred in trust prior to October 10, 1969, the grantor is
treated, under section 677, in any taxable year as the owner (whether or
not he is treated as an owner under section 674) of a portion of a trust
of which the income for the taxable year or for a period not within the
exception described in paragraph (e) of this section is, or in the
discretion of the grantor or a nonadverse party, or both (without the
approval or consent of any adverse party) may be:
(i) Distributed to the grantor;
(ii) Held or accumulated for future distribution to the grantor; or
(iii) Applied to the payment of premiums on policies of insurance on
the life of the grantor, except policies of insurance irrevocably
payable for a charitable purpose specified in section 170(c).
(2) Property transferred in trust after October 9, 1969. With
respect to property transferred in trust after October 9, 1969, the
grantor is treated, under section 677, in any taxable year as the owner
(whether or not he is treated as an owner under section 674) of a
portion of a trust of which the income for the taxable year or for a
period not within the exception described in paragraph (e) of this
section is, or in the discretion of the grantor, or his spouse, or a
nonadverse party, or any combination thereof (without the approval or
consent of any adverse party other than the grantor's spouse) may be:
(i) Distributed to the grantor or the grantor's spouse;
(ii) Held or accumulated for future distribution to the grantor or
the grantor's spouse; or
(iii) Applied to the payment of premiums on policies of insurance on
the life of the grantor or the grantor's spouse, except policies of
insurance irrevocably payable for a charitable purpose specified in
section 170(c).
With respect to the treatment of a grantor as the owner of a portion of
a trust solely because its income is, or
[[Page 379]]
may be, distributed or held or accumulated for future distribution to a
beneficiary who is his spouse or applied to the payment of premiums for
insurance on the spouse's life, section 677(a) applies to the income of
a trust solely during the period of the marriage of the grantor to a
beneficiary. In the case of divorce or separation, see sections 71 and
682 and the regulations thereunder.
(c) Constructive distribution; cessation of interest. Under section
677 the grantor is treated as the owner of a portion of a trust if he
has retained any interest which might, without the approval or consent
of an adverse party, enable him to have the income from that portion
distributed to him at some time either actually or constructively
(subject to the exception described in paragraph (e) of this section).
In the case of a transfer in trust after October 9, 1969, the grantor is
also treated as the owner of a portion of a trust if he has granted or
retained any interest which might, without the approval or consent of an
adverse party (other than the grantor's spouse), enable his spouse to
have the income from the portion at some time, whether or not within the
grantor's lifetime, distributed to the spouse either actually or
constructively. See paragraph (b)(2) of this section for additional
rules relating to the income of a trust prior to the grantor's marriage
to a beneficiary. Constructive distribution to the grantor or to his
spouse includes payment on behalf of the grantor or his spouse to
another in obedience to his or her direction and payment of premiums
upon policies of insurance on the grantor's, or his spouse's, life
(other than policies of insurance irrevocably payable for charitable
purposes specified in section 170(c)). If the grantor (in the case of
property transferred prior to Oct. 10, 1969) or the grantor and his
spouse (in the case of property transferred after Oct. 9, 1969) are
divested permanently and completely of every interest described in this
paragraph, the grantor is not treated as an owner under section 677
after that divesting. The word ``interest'' as used in this paragraph
does not include the possibility that the grantor or his spouse might
receive back from a beneficiary an interest in a trust by inheritance.
Further, with respect to transfers in trust prior to October 10, 1969,
the word ``interest'' does not include the possibility that the grantor
might receive back from a beneficiary an interest in a trust as a
surviving spouse under a statutory right of election or a similar right.
(d) Discharge of legal obligation of grantor or his spouse. Under
section 677 a grantor is, in general, treated as the owner of a portion
of a trust whose income is, or in the discretion of the grantor or a
nonadverse party, or both, may be applied in discharge of a legal
obligation of the grantor (or his spouse in the case of property
transferred in trust by the grantor after October 9, 1969). However, see
Sec. 1.677(b)-1 for special rules for trusts whose income may not be
applied for the discharge of any legal obligation of the grantor or the
grantor's spouse other than the support or maintenance of a beneficiary
(other than the grantor's spouse) whom the grantor or grantor's spouse
is legally obligated to support. See Sec. 301.7701-4(e) of this chapter
for rules on the classification of and application of section 677 to an
environmental remediation trust.
(e) Exception for certain discretionary rights affecting income. The
last sentence of section 677(a) provides that a grantor shall not be
treated as the owner when a discretionary right can only affect the
beneficial enjoyment of the income of a trust received after a period of
time during which a grantor would not be treated as an owner under
section 673 if the power were a reversionary interest. See Sec. Sec.
1.673(a)-1 and 1.673(b)-1. For example, if the ordinary income of a
trust is payable to B for 10 years and then in the grantor's discretion
income or corpus may be paid to B or to the grantor (or his spouse in
the case of property transferred in trust by the grantor after October
9, 1969), the grantor is not treated as an owner with respect to the
ordinary income under section 677 during the first 10 years. He will be
treated as an owner under section 677 after the expiration of the 10-
year period unless the power is relinquished. If the beginning of the
period during which the grantor may substitute beneficiaries is
postponed, the
[[Page 380]]
rules set forth in Sec. 1.673(d)-1 are applicable in determining
whether the grantor should be treated as an owner during the period
following the postponement.
(f) Accumulation of income. If income is accumulated in any taxable
year for future distribution to the grantor (or his spouse in the case
of property transferred in trust by the grantor after Oct. 9, 1969),
section 677(a)(2) treats the grantor as an owner for that taxable year.
The exception set forth in the last sentence of section 677(a) does not
apply merely because the grantor (or his spouse in the case of property
transferred in trust by the grantor after Oct. 9, 1969) must await the
expiration of a period of time before he or she can receive or exercise
discretion over previously accumulated income of the trust, even though
the period is such that the grantor would not be treated as an owner
under section 673 if a reversionary interest were involved. Thus, if
income (including capital gains) of a trust is to be accumulated for 10
years and then will be, or at the discretion of the grantor, or his
spouse in the case of property transferred in trust after October 9,
1969, or a nonadverse party, may be, distributed to the grantor (or his
spouse in the case of property transferred in trust after Oct. 9, 1969),
the grantor is treated as the owner of the trust from its inception. If
income attributable to transfers after October 9, 1969 is accumulated in
any taxable year during the grantor's lifetime for future distribution
to his spouse, section 677(a)(2) treats the grantor as an owner for that
taxable year even though his spouse may not receive or exercise
discretion over such income prior to the grantor's death.
(g) Examples. The application of section 677(a) may be illustrated
by the following examples:
Example 1. G creates an irrevocable trust which provides that the
ordinary income is to be payable to him for life and that on his death
the corpus shall be distributed to B, an unrelated person. Except for
the right to receive income, G retains no right or power which would
cause him to be treated as an owner under sections 671 through 677.
Under the applicable local law capital gains must be applied to corpus.
During the taxable year 1970 the trust has the following items of gross
income and deductions:
Dividends.........................................................$5,000
Capital gain.......................................................1,000
Expenses allocable to income.........................................200
Expenses allocable to corpus.........................................100
Since G has a right to receive income he is treated as an owner of a
portion of the trust under section 677. Accordingly, he should include
the $5,000 of dividends, $200 income expense, and $100 corpus expense in
the computation of his taxable income for 1970. He should not include
the $1,000 capital gain since that is not attributable to the portion of
the trust that he owns. See Sec. 1.671-3(b). The tax consequences of
the capital gain are governed by the provisions of subparts A, B, C, and
D (section 641 and following), part I, subchapter J, chapter 1 of the
Code. Had the trust sustained a capital loss in any amount the loss
would likewise not be included in the computation of G's taxable income,
but would also be governed by the provisions of such subparts.
Example 2. G creates a trust which provides that the ordinary income
is payable to his adult son. Ten years and one day from the date of
transfer or on the death of his son, whichever is earlier, corpus is to
revert to G. In addition, G retains a discretionary right to receive
$5,000 of ordinary income each year. (Absent the exercise of this right
all the ordinary income is to be distributed to his son.) G retained no
other right or power which would cause him to be treated as an owner
under subpart E (section 671 and following). Under the terms of the
trust instrument and applicable local law capital gains must be applied
to corpus. During the taxable year 1970 the trust had the following
items of income and deductions:
Dividends........................................................$10,000
Capital gain.......................................................2,000
Expenses allocable to income.........................................400
Expenses allocable to corpus.........................................200
Since the capital gain is held or accumulated for future distributions
to G, he is treated under section 677(a)(2) as an owner of a portion of
the trust to which the gain is attributable. See Sec. 1.671-3(b).
Therefore, he must include the capital gain in the computation of
his taxable income. (Had the trust sustained a capital loss in any
amount, G would likewise include that loss in the computation of his
taxable income.) In addition, because of G's discretionary right
(whether exercised or not) he is treated as the owner of a portion of
the trust which will permit a distribution of income to him of $5,000.
Accordingly, G includes dividends of $5,208.33 and income expenses of
$208.33 in computing his taxable income, determined in the following
manner:
Total dividends........................................... $10,000.00
Less: Expenses allocable to income........................ 400.00
-------------
Distributable income of the trust..................... 9,600.00
=============
[[Page 381]]
Portion of dividends attributable to G (5,000/ 5,208.33
9,600x$10,000)...........................................
Portion of income expenses attributable to G (5,000/9,600x 208.33
$400)....................................................
-------------
Amount of income subject to discretionary right....... 5,000.00
In accordance with Sec. 1.671-3(c), G also takes into account $104.17
(5,000/9,600x$200) of corpus expenses in computing his tax liability.
The portion of the dividends and expenses of the trust not attributable
to G are governed by the provisions of subparts A through D.
[T.D. 7148, 36 FR 20749, Oct. 29, 1971, as amended by T.D. 8668, 61 FR
19191, May 1, 1996]
Sec. 1.677(b)-1 Trusts for support.
(a) Section 677(b) provides that a grantor is not treated as the
owner of a trust merely because its income may in the discretion of any
person other than the grantor (except when he is acting as trustee or
cotrustee) be applied or distributed for the support or maintenance of a
beneficiary (other than the grantor's spouse in the case of income from
property transferred in trust after October 9, 1969), such as the child
of the grantor, whom the grantor or his spouse is legally obligated to
support. If income of the current year of the trust is actually so
applied or distributed the grantor may be treated as the owner of any
portion of the trust under section 677 to that extent, even though it
might have been applied or distributed for other purposes. In the case
of property transferred to a trust before October 10, 1969, for the
benefit of the grantor's spouse, the grantor may be treated as the owner
to the extent income of the current year is actually applied for the
support or maintenance of his spouse.
(b) If any amount applied or distributed for the support of a
beneficiary, including the grantor's spouse in the case of property
transferred in trust before October 10, 1969, whom the grantor is
legally obligated to support is paid out of corpus or out of income
other than income of the current year, the grantor is treated as a
beneficiary of the trust, and the amount applied or distributed is
considered to be an amount paid within the meaning of section 661(a)(2),
taxable to the grantor under section 662. Thus, he is subject to the
other relevant portions of subparts A through D (section 641 and
following), part I, subchapter J, chapter 1 of the Code. Accordingly,
the grantor may be taxed on an accumulation distribution or a capital
gain distribution under subpart D (section 665 and following) of such
part I. Those provisions are applied on the basis that the grantor is
the beneficiary.
(c) For the purpose of determining the items of income, deduction,
and credit of a trust to be included under this section in computing the
grantor's tax liability, the income of the trust for the taxable year of
distribution will be deemed to have been first distributed. For example,
in the case of a trust reporting on the calendar year basis, a
distribution made on January 1, 1956, will be deemed to have been made
out of ordinary income of the trust for the calendar year 1956 to the
extent of the income for that year even though the trust had received no
income as of January 1, 1956. Thus, if a distribution of $10,000 is made
on January 1, 1956, for the support of the grantor's dependent, the
grantor will be treated as the owner of the trust for 1956 to that
extent. If the trust received dividends of $5,000 and incurred expenses
of $1,000 during that year but subsequent to January 1, he will take
into account dividends of $5,000 and expenses of $1,000 in computing his
tax liability for 1956. In addition, the grantor will be treated as a
beneficiary of the trust with respect to the $6,000 ($10,000 less
distributable income of $4,000 (dividends of $5,000 less expenses of
$1,000)) paid out of corpus or out of other than income of the current
year. See paragraph (b) of this section.
(d) The exception provided in section 677(b) relates solely to the
satisfaction of the grantor's legal obligation to support or maintain a
beneficiary. Consequently, the general rule of section 677(a) is
applicable when in the discretion of the grantor or nonadverse parties
income of a trust may be applied in discharge of a grantor's obligations
other than his obligation of support or maintenance falling within
section 677(b). Thus, if the grantor creates a trust the income of which
may in the discretion of a nonadverse party be applied in the payment of
the grantor's debts, such as the payment of his rent or other household
expenses, he is
[[Page 382]]
treated as an owner of the trust regardless of whether the income is
actually so applied.
(e) The general rule of section 677(a), and not section 677(b), is
applicable if discretion to apply or distribute income of a trust rests
solely in the grantor, or in the grantor in conjunction with other
persons, unless in either case the grantor has such discretion as
trustee or cotrustee.
(f) The general rule of section 677(a), and not section 677(b), is
applicable to the extent that income is required, without any
discretionary determination, to be applied to the support of a
beneficiary whom the grantor is legally obligated to support.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7148, 36 FR
20750, Oct. 29, 1971]
Sec. 1.678(a)-1 Person other than grantor treated as substantial
owner; general rule.
(a) Where a person other than the grantor of a trust has a power
exercisable solely by himself to vest the corpus or the income of any
portion of a testamentary or inter vivos trust in himself, he is treated
under section 678(a) as the owner of that portion, except as provided in
section 678(b) (involving taxation of the grantor) and section 678(c)
(involving and obligation of support). The holder of such a power also
is treated as an owner of the trust even though he has partially
released or otherwise modified the power so that he can no longer vest
the corpus or income in himself, if he has retained such control of the
trust as would, if retained by a grantor, subject the grantor to
treatment as the owner under sections 671 to 677, inclusive. See section
671 and Sec. Sec. 1.671-2 and 1.671-3 for rules for treatment of items
of income, deduction, and credit where a person is treated as the owner
of all or only a portion of a trust.
(b) Section 678(a) treats a person as an owner of a trust if he has
a power exercisable solely by himself to apply the income or corpus for
the satisfaction of his legal obligations, other than an obligation to
support a dependent (see Sec. 1.678(c)-1 subject to the limitation of
section 678(b). Section 678 does not apply if the power is not
exercisable solely by himself. However, see Sec. 1.662(a)-4 for
principles applicable to income of a trust which, pursuant to the terms
of the trust instrument, is used to satisfy the obligations of a person
other than the grantor.
Sec. 1.678(b)-1 If grantor is treated as the owner.
Section 678(a) does not apply with respect to a power over income,
as originally granted or thereafter modified, if the grantor of the
trust is treated as the owner under sections 671 to 677, inclusive.
Sec. 1.678(c)-1 Trusts for support.
(a) Section 678(a) does not apply to a power which enables the
holder, in the capacity of trustee or cotrustee, to apply the income of
the trust to the support or maintenance of a person whom the holder is
obligated to support, except to the extent the income is so applied. See
paragraphs (a), (b), and (c) of Sec. 1.677(b)-1 for applicable
principles where any amount is applied for the support or maintenance of
a person whom the holder is obligated to support.
(b) The general rule in section 678(a) (and not the exception in
section 678(c)) is applicable in any case in which the holder of a power
exercisable solely by himself is able, in any capacity other than that
of trustee or cotrustee, to apply the income in discharge of his
obligation of support or maintenance.
(c) Section 678(c) is concerned with the taxability of income
subject to a power described in section 678(a). It has no application to
the taxability of income which is either required to be applied pursuant
to the terms of the trust instrument or is applied pursuant to a power
which is not described in section 678(a), the taxability of such income
being governed by other provisions of the Code. See Sec. 1.662(a)-4.
Sec. 1.678(d)-1 Renunciation of power.
Section 678(a) does not apply to a power which has been renounced or
disclaimed within a reasonable time after the holder of the power first
became aware of its existence.
[[Page 383]]
Sec. 1.679-0 Outline of major topics.
This section lists the major paragraphs contained in Sec. Sec.
1.679-1 through 1.679-7 as follows:
Sec. 1.679-1 U.S. transferor treated as owner of foreign trust.
(a) In general.
(b) Interaction with sections 673 through 678.
(c) Definitions.
(1) U.S. transferor.
(2) U.S. person.
(3) Foreign trust.
(4) Property.
(5) Related person.
(6) Obligation.
(d) Examples.
Sec. 1.679-2 Trusts treated as having a U.S. beneficiary.
(a) Existence of U.S. beneficiary.
(1) In general.
(2) Benefit to a U.S. person
(i) In general.
(ii) Certain unexpected beneficiaries.
(iii) Examples.
(3) Changes in beneficiary's status.
(i) In general.
(ii) Examples.
(4) General rules.
(i) Records and documents.
(ii) Additional factors.
(iii) Examples.
(b) Indirect U.S. beneficiaries.
(1) Certain foreign entities.
(2) Other indirect beneficiaries.
(3) Examples.
(c) Treatment of U.S. transferor upon foreign trust's acquisition or
loss of U.S. beneficiary.
(1) Trusts acquiring a U.S. beneficiary.
(2) Trusts ceasing to have a U.S. beneficiary.
(3) Examples.
Sec. 1.679-3 Transfers.
(a) In general.
(b) Transfers by certain trusts.
(1) In general.
(2) Example.
(c) Indirect transfers.
(1) Principal purpose of tax avoidance.
(2) Principal purpose of tax avoidance deemed to exist.
(3) Effect of disregarding intermediary.
(i) In general.
(ii) Special rule.
(iii) Effect on intermediary.
(4) Related parties.
(5) Examples.
(d) Constructive transfers.
(1) In general.
(2) Examples.
(e) Guarantee of trust obligations.
(1) In general.
(2) Amount transferred.
(3) Principal repayments.
(4) Guarantee.
(5) Examples.
(f) Transfers to entities owned by a foreign trust.
(1) General rule.
(2) Examples.
Sec. 1.679-4 Exceptions to general rule.
(a) In general.
(b) Transfers for fair market value.
(1) In general.
(2) Special rule.
(i) Transfers for partial consideration.
(ii) Example.
(c) Certain obligations not taken into account.
(d) Qualified obligations.
(1) In general.
(2) Additional loans.
(3) Obligations that cease to be qualified.
(4) Transfers resulting from failed qualified obligations.
(5) Renegotiated loans.
(6) Principal repayments.
(7) Examples.
Sec. 1.679-5 Pre-immigration trusts.
(a) In general.
(b) Special rules.
(1) Change in grantor trust status.
(2) Treatment of undistributed income.
(c) Examples.
Sec. 1.679-6 Outbound migrations of domestic trusts.
(a) In general.
(b) Amount deemed transferred.
(c) Example.
Sec. 1.679-7 Effective dates.
(a) In general.
(b) Special rules.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-1 U.S. transferor treated as owner of foreign trust.
(a) In general. A U.S. transferor who transfers property to a
foreign trust is treated as the owner of the portion of the trust
attributable to the property transferred if there is a U.S. beneficiary
of any portion of the trust, unless an exception in Sec. 1.679-4
applies to the transfer.
(b) Interaction with sections 673 through 678. The rules of this
section apply without regard to whether the
[[Page 384]]
U.S. transferor retains any power or interest described in sections 673
through 677. If a U.S. transferor would be treated as the owner of a
portion of a foreign trust pursuant to the rules of this section and
another person would be treated as the owner of the same portion of the
trust pursuant to section 678, then the U.S. transferor is treated as
the owner and the other person is not treated as the owner.
(c) Definitions. The following definitions apply for purposes of
this section and Sec. Sec. 1.679-2 through 1.679-7:
(1) U.S. transferor. The term U.S. transferor means any U.S. person
who makes a transfer (as defined in Sec. 1.679-3) of property to a
foreign trust.
(2) U.S. person. The term U.S. person means a United States person
as defined in section 7701(a)(30), a nonresident alien individual who
elects under section 6013(g) to be treated as a resident of the United
States, and an individual who is a dual resident taxpayer within the
meaning of Sec. 301.7701(b)-7(a) of this chapter.
(3) Foreign trust. Section 7701(a)(31)(B) defines the term foreign
trust. See also Sec. 301.7701-7 of this chapter.
(4) Property. The term property means any property including cash.
(5) Related person. A person is a related person if, without regard
to the transfer at issue, the person is--
(i) A grantor of any portion of the trust (within the meaning of
Sec. 1.671-2(e)(1));
(ii) An owner of any portion of the trust under sections 671 through
679;
(iii) A beneficiary of the trust; or
(iv) A person who is related (within the meaning of section
643(i)(2)(B)) to any grantor, owner or beneficiary of the trust.
(6) Obligation. The term obligation means any bond, note, debenture,
certificate, bill receivable, account receivable, note receivable, open
account, or other evidence of indebtedness, and, to the extent not
previously described, any annuity contract.
(d) Examples. The following examples illustrate the rules of
paragraph (a) of this section. In these examples, A is a resident alien,
B is A's son, who is a resident alien, C is A's father, who is a
resident alien, D is A's uncle, who is a nonresident alien, and FT is a
foreign trust. The examples are as follows:
Example 1. Interaction with section 678. A creates and funds FT. FT
may provide for the education of B by paying for books, tuition, room
and board. In addition, C has the power to vest the trust corpus or
income in himself within the meaning of section 678(a)(1). Under
paragraph (b) of this section, A is treated as the owner of the portion
of FT attributable to the property transferred to FT by A and C is not
treated as the owner thereof.
Example 2. U.S. person treated as owner of a portion of FT. D
creates and funds FT for the benefit of B. D retains a power described
in section 676 and Sec. 1.672(f)-3(a)(1). A transfers property to FT.
Under sections 676 and 672(f), D is treated as the owner of the portion
of FT attributable to the property transferred by D. Under paragraph (a)
of this section, A is treated as the owner of the portion of FT
attributable to the property transferred by A.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-2 Trusts treated as having a U.S. beneficiary.
(a) Existence of U.S. beneficiary--(1) In general. The determination
of whether a foreign trust has a U.S. beneficiary is made on an annual
basis. A foreign trust is treated as having a U.S. beneficiary unless
during the taxable year of the U.S. transferor--
(i) No part of the income or corpus of the trust may be paid or
accumulated to or for the benefit of, directly or indirectly, a U.S.
person; and
(ii) If the trust is terminated at any time during the taxable year,
no part of the income or corpus of the trust could be paid to or for the
benefit of, directly or indirectly, a U.S. person.
(2) Benefit to a U.S. person--(i) In general. For purposes of
paragraph (a)(1) of this section, income or corpus may be paid or
accumulated to or for the benefit of a U.S. person during a taxable year
of the U.S. transferor if during that year, directly or indirectly,
income may be distributed to, or accumulated for the benefit of, a U.S.
person, or corpus may be distributed to, or held for the future benefit
of, a U.S. person. This determination is made without regard to whether
income or corpus is actually distributed to a U.S. person during that
year, and without regard to whether a U.S. person's interest in the
trust income or corpus is contingent on a future event.
[[Page 385]]
(ii) Certain unexpected beneficiaries. Notwithstanding paragraph
(a)(2)(i) of this section, for purposes of paragraph (a)(1) of this
section, a person who is not named as a beneficiary and is not a member
of a class of beneficiaries as defined under the trust instrument is not
taken into consideration if the U.S. transferor demonstrates to the
satisfaction of the Commissioner that the person's contingent interest
in the trust is so remote as to be negligible. The preceding sentence
does not apply with respect to persons to whom distributions could be
made pursuant to a grant of discretion to the trustee or any other
person. A class of beneficiaries generally does not include heirs who
will benefit from the trust under the laws of intestate succession in
the event that the named beneficiaries (or members of the named class)
have all deceased (whether or not stated as a named class in the trust
instrument).
(iii) Examples. The following examples illustrate the rules of
paragraphs (a)(1) and (2) of this section. In these examples, A is a
resident alien, B is A's son, who is a resident alien, C is A's
daughter, who is a nonresident alien, and FT is a foreign trust. The
examples are as follows:
Example 1. Distribution of income to U.S. person. A transfers
property to FT. The trust instrument provides that all trust income is
to be distributed currently to B. Under paragraph (a)(1) of this
section, FT is treated as having a U.S. beneficiary.
Example 2. Income accumulation for the benefit of a U.S. person. In
2001, A transfers property to FT. The trust instrument provides that
from 2001 through 2010, the trustee of FT may distribute trust income to
C or may accumulate the trust income. The trust instrument further
provides that in 2011, the trust will terminate and the trustee may
distribute the trust assets to either or both of B and C, in the
trustee's discretion. If the trust terminates unexpectedly prior to
2011, all trust assets must be distributed to C. Because it is possible
that income may be accumulated in each year, and that the accumulated
income ultimately may be distributed to B, a U.S. person, under
paragraph (a)(1) of this section FT is treated as having a U.S.
beneficiary during each of A's tax years from 2001 through 2011. This
result applies even though no U.S. person may receive distributions from
the trust during the tax years 2001 through 2010.
Example 3. Corpus held for the benefit of a U.S. person. The facts
are the same as in Example 2, except that from 2001 through 2011, all
trust income must be distributed to C. In 2011, the trust will terminate
and the trustee may distribute the trust corpus to either or both of B
and C, in the trustee's discretion. If the trust terminates unexpectedly
prior to 2011, all trust corpus must be distributed to C. Because during
each of A's tax years from 2001 through 2011 trust corpus is held for
possible future distribution to B, a U.S. person, under paragraph (a)(1)
of this section FT is treated as having a U.S. beneficiary during each
of those years. This result applies even though no U.S. person may
receive distributions from the trust during the tax years 2001 through
2010.
Example 4. Distribution upon U.S. transferor's death. A transfers
property to FT. The trust instrument provides that all trust income must
be distributed currently to C and, upon A's death, the trust will
terminate and the trustee may distribute the trust corpus to either or
both of B and C. Because B may receive a distribution of corpus upon the
termination of FT, and FT could terminate in any year, FT is treated as
having a U.S. beneficiary in the year of the transfer and in subsequent
years.
Example 5. Distribution after U.S. transferor's death. The facts are
the same as in Example 4, except the trust instrument provides that the
trust will not terminate until the year following A's death. Upon
termination, the trustee may distribute the trust assets to either or
both of B and C, in the trustee's discretion. All trust assets are
invested in the stock of X, a foreign corporation, and X makes no
distributions to FT. Although no U.S. person may receive a distribution
until the year after A's death, and FT has no realized income during any
year of its existence, during each year in which A is living corpus may
be held for future distribution to B, a U.S. person. Thus, under
paragraph (a)(1) of this section FT is treated as having a U.S.
beneficiary during each of A's tax years from 2001 through the year of
A's death.
Example 6. Constructive benefit to U.S. person. A transfers property
to FT. The trust instrument provides that no income or corpus may be
paid directly to a U.S. person. However, the trust instrument provides
that trust corpus may be used to satisfy B's legal obligations to a
third party by making a payment directly to the third party. Under
paragraphs (a)(1) and (2) of this section, FT is treated as having a
U.S. beneficiary.
Example 7. U.S. person with negligible contingent interest. A
transfers property to FT. The trust instrument provides that all income
is to be distributed currently to C, and upon C's death, all corpus is
to be distributed to whomever of C's three children is then living. All
of C's children are nonresident
[[Page 386]]
aliens. Under the laws of intestate succession that would apply to FT,
if all of C's children are deceased at the time of C's death, the corpus
would be distributed to A's heirs. A's living relatives at the time of
the transfer consist solely of two brothers and two nieces, all of whom
are nonresident aliens, and two first cousins, one of whom, E, is a U.S.
citizen. Although it is possible under certain circumstances that E
could receive a corpus distribution under the applicable laws of
intestate succession, for each year the trust is in existence A is able
to demonstrate to the satisfaction of the Commissioner under paragraph
(a)(2)(ii) of this section that E's contingent interest in FT is so
remote as to be negligible. Provided that paragraph (a)(4) of this
section does not require a different result, FT is not treated as having
a U.S. beneficiary.
Example 8. U.S. person with non-negligible contingent interest. A
transfers property to FT. The trust instrument provides that all income
is to be distributed currently to D, A's uncle, who is a nonresident
alien, and upon A's death, the corpus is to be distributed to D if he is
then living. Under the laws of intestate succession that would apply to
FT, B and C would share equally in the trust corpus if D is not living
at the time of A's death. A is unable to demonstrate to the satisfaction
of the Commissioner that B's contingent interest in the trust is so
remote as to be negligible. Under paragraph (a)(2)(ii) of this section,
FT is treated as having a U.S. beneficiary as of the year of the
transfer.
Example 9. U.S. person as member of class of beneficiaries. A
transfers property to FT. The trust instrument provides that all income
is to be distributed currently to D, A's uncle, who is a nonresident
alien, and upon A's death, the corpus is to be distributed to D if he is
then living. If D is not then living, the corpus is to be distributed to
D's descendants. D's grandson, E, is a resident alien. Under paragraph
(a)(2)(ii) of this section, FT is treated as having a U.S. beneficiary
as of the year of the transfer.
Example 10. Trustee's discretion in choosing beneficiaries. A
transfers property to FT. The trust instrument provides that the trustee
may distribute income and corpus to, or accumulate income for the
benefit of, any person who is pursuing the academic study of ancient
Greek, in the trustee's discretion. Because it is possible that a U.S.
person will receive distributions of income or corpus, or will have
income accumulated for his benefit, FT is treated as having a U.S.
beneficiary. This result applies even if, during a tax year, no
distributions or accumulations are actually made to or for the benefit
of a U.S. person. A may not invoke paragraph (a)(2)(ii) of this section
because a U.S. person could benefit pursuant to a grant of discretion in
the trust instrument.
Example 11. Appointment of remainder beneficiary. A transfers
property to FT. The trust instrument provides that the trustee may
distribute current income to C, or may accumulate income, and, upon
termination of the trust, trust assets are to be distributed to C.
However, the trust instrument further provides that D, A's uncle, may
appoint a different remainder beneficiary. Because it is possible that a
U.S. person could be named as the remainder beneficiary, and because
corpus could be held in each year for the future benefit of that U.S.
person, FT is treated as having a U.S. beneficiary for each year.
Example 12. Trust not treated as having a U.S. beneficiary. A
transfers property to FT. The trust instrument provides that the trustee
may distribute income and corpus to, or accumulate income for the
benefit of C. Upon termination of the trust, all income and corpus must
be distributed to C. Assume that paragraph (a)(4) of this section is not
applicable under the facts and circumstances and that A establishes to
the satisfaction of the Commissioner under paragraph (a)(2)(ii) of this
section that no U.S. persons are reasonably expected to benefit from the
trust. Because no part of the income or corpus of the trust may be paid
or accumulated to or for the benefit of, either directly or indirectly,
a U.S. person, and if the trust is terminated no part of the income or
corpus of the trust could be paid to or for the benefit of, either
directly or indirectly, a U.S. person, FT is not treated as having a
U.S. beneficiary.
Example 13. U.S. beneficiary becomes non-U.S. person. In 2001, A
transfers property to FT. The trust instrument provides that, as long as
B remains a U.S. resident, no distributions of income or corpus may be
made from the trust to B. The trust instrument further provides that if
B becomes a nonresident alien, distributions of income (including
previously accumulated income) and corpus may be made to him. If B
remains a U.S. resident at the time of FT's termination, all accumulated
income and corpus is to be distributed to C. In 2007, B becomes a
nonresident alien and remains so thereafter. Because income may be
accumulated during the years 2001 through 2007 for the benefit of a
person who is a U.S. person during those years, FT is treated as having
a U.S. beneficiary under paragraph (a)(1) of this section during each of
those years. This result applies even though B cannot receive
distributions from FT during the years he is a resident alien and even
though B might remain a resident alien who is not entitled to any
distribution from FT. Provided that paragraph (a)(4) of this section
does not require a different result and that A establishes to the
satisfaction of the Commissioner under paragraph (a)(2)(ii) of this
section that no other
[[Page 387]]
U.S. persons are reasonably expected to benefit from the trust, FT is
not treated as having a U.S. beneficiary under paragraph (a)(1) of this
section during tax years after 2007.
(3) Changes in beneficiary's status--(i) In general. For purposes of
paragraph (a)(1) of this section, the possibility that a person that is
not a U.S. person could become a U.S. person will not cause that person
to be treated as a U.S. person for purposes of paragraph (a)(1) of this
section until the tax year of the U.S. transferor in which that
individual actually becomes a U.S. person. However, if a person who is
not a U.S. person becomes a U.S. person for the first time more than 5
years after the date of a transfer to the foreign trust by a U.S.
transferor, that person is not treated as a U.S. person for purposes of
applying paragraph (a)(1) of this section with respect to that transfer.
(ii) Examples. The following examples illustrate the rules of
paragraph (a)(3) of this section. In these examples, A is a resident
alien, B is A's son, who is a resident alien, C is A's daughter, who is
a nonresident alien, and FT is a foreign trust. The examples are as
follows:
Example 1. Non-U.S. beneficiary becomes U.S. person. In 2001, A
transfers property to FT. The trust instrument provides that all income
is to be distributed currently to C and that, upon the termination of
FT, all corpus is to be distributed to C. Assume that paragraph (a)(4)
of this section is not applicable under the facts and circumstances and
that A establishes to the satisfaction of the Commissioner under
paragraph (a)(2)(ii) of this section that no U.S. persons are reasonably
expected to benefit from the trust. Under paragraph (a)(3)(i) of this
section, FT is not treated as having a U.S. beneficiary during the tax
years of A in which C remains a nonresident alien. If C first becomes a
resident alien in 2004, FT is treated as having a U.S. beneficiary
commencing in that year under paragraph (a)(3) of this section. See
paragraph (c) of this section regarding the treatment of A upon FT's
acquisition of a U.S. beneficiary.
Example 2. Non-U.S. beneficiary becomes U.S. person more than 5
years after transfer. The facts are the same as in Example 1, except C
first becomes a resident alien in 2007. FT is treated as not having a
U.S. beneficiary under paragraph (a)(3)(i) of this section with respect
to the property transfer by A. However, if C had previously been a U.S.
person during any prior period, the 5-year exception in paragraph
(a)(3)(i) of this section would not apply in 2007 because it would not
have been the first time C became a U.S. person.
(4) General rules--(i) Records and documents. Even if, based on the
terms of the trust instrument, a foreign trust is not treated as having
a U.S. beneficiary within the meaning of paragraph (a)(1) of this
section, the trust may nevertheless be treated as having a U.S.
beneficiary pursuant to paragraph (a)(1) of this section based on the
following--
(A) All written and oral agreements and understandings relating to
the trust;
(B) Memoranda or letters of wishes;
(C) All records that relate to the actual distribution of income and
corpus; and
(D) All other documents that relate to the trust, whether or not of
any purported legal effect.
(ii) Additional factors. For purposes of determining whether a
foreign trust is treated as having a U.S. beneficiary within the meaning
of paragraph (a)(1) of this section, the following additional factors
are taken into account--
(A) If the terms of the trust instrument allow the trust to be
amended to benefit a U.S. person, all potential benefits that could be
provided to a U.S. person pursuant to an amendment must be taken into
account;
(B) If the terms of the trust instrument do not allow the trust to
be amended to benefit a U.S. person, but the law applicable to a foreign
trust may require payments or accumulations of income or corpus to or
for the benefit of a U.S. person (by judicial reformation or otherwise),
all potential benefits that could be provided to a U.S. person pursuant
to the law must be taken into account, unless the U.S. transferor
demonstrates to the satisfaction of the Commissioner that the law is not
reasonably expected to be applied or invoked under the facts and
circumstances; and
(C) If the parties to the trust ignore the terms of the trust
instrument, or if it is reasonably expected that they will do so, all
benefits that have been, or are reasonably expected to be, provided to a
U.S. person must be taken into account.
(iii) Examples. The following examples illustrate the rules of
paragraph
[[Page 388]]
(a)(4) of this section. In these examples, A is a resident alien, B is
A's son, who is a resident alien, C is A's daughter, who is a
nonresident alien, and FT is a foreign trust. The examples are as
follows:
Example 1. Amendment pursuant to local law. A creates and funds FT
for the benefit of C. The terms of FT (which, according to the trust
instrument, cannot be amended) provide that no part of the income or
corpus of FT may be paid or accumulated during the taxable year to or
for the benefit of any U.S. person, either during the existence of FT or
at the time of its termination. However, pursuant to the applicable
foreign law, FT can be amended to provide for additional beneficiaries,
and there is an oral understanding between A and the trustee that B can
be added as a beneficiary. Under paragraphs (a)(1) and (a)(4)(ii)(B) of
this section, FT is treated as having a U.S. beneficiary.
Example 2. Actions in violation of the terms of the trust. A
transfers property to FT. The trust instrument provides that no U.S.
person can receive income or corpus from FT during the term of the trust
or at the termination of FT. Notwithstanding the terms of the trust
instrument, a letter of wishes directs the trustee of FT to provide for
the educational needs of B, who is about to begin college. The letter of
wishes contains a disclaimer to the effect that its contents are only
suggestions and recommendations and that the trustee is at all times
bound by the terms of the trust as set forth in the trust instrument.
Under paragraphs (a)(1) and (a)(4)(ii)(C) of this section, FT is treated
as having a U.S. beneficiary.
(b) Indirect U.S. beneficiaries--(1) Certain foreign entities. For
purposes of paragraph (a)(1) of this section, an amount is treated as
paid or accumulated to or for the benefit of a U.S. person if the amount
is paid to or accumulated for the benefit of--
(i) A controlled foreign corporation, as defined in section 957(a);
(ii) A foreign partnership, if a U.S. person is a partner of such
partnership; or
(iii) A foreign trust or estate, if such trust or estate has a U.S.
beneficiary (within the meaning of paragraph (a)(1) of this section).
(2) Other indirect beneficiaries. For purposes of paragraph (a)(1)
of this section, an amount is treated as paid or accumulated to or for
the benefit of a U.S. person if the amount is paid to or accumulated for
the benefit of a U.S. person through an intermediary, such as an agent
or nominee, or by any other means where a U.S. person may obtain an
actual or constructive benefit.
(3) Examples. The following examples illustrate the rules of this
paragraph (b). Unless otherwise noted, A is a resident alien. B is A's
son and is a resident alien. FT is a foreign trust. The examples are as
follows:
Example 1. Trust benefitting foreign corporation. A transfers
property to FT. The beneficiary of FT is FC, a foreign corporation. FC
has outstanding solely 100 shares of common stock. B owns 49 shares of
the FC stock and FC2, also a foreign corporation, owns the remaining 51
shares. FC2 has outstanding solely 100 shares of common stock. B owns 49
shares of FC2 and nonresident alien individuals own the remaining 51 FC2
shares. FC is a controlled foreign corporation (as defined in section
957(a), after the application of section 958(a)(2)). Under paragraphs
(a)(1) and (b)(1)(i) of this section, FT is treated as having a U.S.
beneficiary.
Example 2. Trust benefitting another trust. A transfers property to
FT. The terms of FT permit current distributions of income to B. A
transfers property to another foreign trust, FT2. The terms of FT2
provide that no U.S. person can benefit either as to income or corpus,
but permit current distributions of income to FT. Under paragraph (a)(1)
of this section, FT is treated as having a U.S. beneficiary and, under
paragraphs (a)(1) and (b)(1)(iii) of this section, FT2 is treated as
having a U.S. beneficiary.
Example 3. Trust benefitting another trust after transferor's death.
A transfers property to FT. The terms of FT require that all income from
FT be accumulated during A's lifetime. In the year following A's death,
a share of FT is to be distributed to FT2, another foreign trust, for
the benefit of B. Under paragraphs (a)(1) and (b)(1)(iii) of this
section, FT is treated as having a U.S. beneficiary beginning with the
year of A's transfer of property to FT.
Example 4. Indirect benefit through use of debit card. A transfers
property to FT. The trust instrument provides that no U.S. person can
benefit either as to income or corpus. However, FT maintains an account
with FB, a foreign bank, and FB issues a debit card to B against the
account maintained by FT and B is allowed to make withdrawals. Under
paragraphs (a)(1) and (b)(2) of this section, FT is treated as having a
U.S. beneficiary.
Example 5. Other indirect benefit. A transfers property to FT. FT is
administered by FTC, a foreign trust company. FTC forms IBC, an
international business corporation formed under the laws of a foreign
jurisdiction. IBC is the beneficiary of FT. IBC maintains an
[[Page 389]]
account with FB, a foreign bank. FB issues a debit card to B against the
account maintained by IBC and B is allowed to make withdrawals. Under
paragraphs (a)(1) and (b)(2) of this section, FT is treated as having a
U.S. beneficiary.
(c) Treatment of U.S. transferor upon foreign trust's acquisition or
loss of U.S. beneficiary--(1) Trusts acquiring a U.S. beneficiary. If a
foreign trust to which a U.S. transferor has transferred property is not
treated as having a U.S. beneficiary (within the meaning of paragraph
(a) of this section) for any taxable year of the U.S. transferor, but
the trust is treated as having a U.S. beneficiary (within the meaning of
paragraph (a) of this section) in any subsequent taxable year, the U.S.
transferor is treated as having additional income in the first such
taxable year of the U.S. transferor in which the trust is treated as
having a U.S. beneficiary. The amount of the additional income is equal
to the trust's undistributed net income, as defined in section 665(a),
at the end of the U.S. transferor's immediately preceding taxable year
and is subject to the rules of section 668, providing for an interest
charge on accumulation distributions from foreign trusts.
(2) Trusts ceasing to have a U.S. beneficiary. If, for any taxable
year of a U.S. transferor, a foreign trust that has received a transfer
of property from the U.S. transferor ceases to be treated as having a
U.S. beneficiary, the U.S. transferor ceases to be treated as the owner
of the portion of the trust attributable to the transfer beginning in
the first taxable year following the last taxable year of the U.S.
transferor during which the trust was treated as having a U.S.
beneficiary (unless the U.S. transferor is treated as an owner thereof
pursuant to sections 673 through 677). The U.S. transferor is treated as
making a transfer of property to the foreign trust on the first day of
the first taxable year following the last taxable year of the U.S.
transferor during which the trust was treated as having a U.S.
beneficiary. The amount of the property deemed to be transferred to the
trust is the portion of the trust attributable to the prior transfer to
which paragraph (a)(1) of this section applied. For rules regarding the
recognition of gain on transfers to foreign trusts, see section 684.
(3) Examples. The rules of this paragraph (c) are illustrated by the
following examples. A is a resident alien, B is A's son, and FT is a
foreign trust. The examples are as follows:
Example 1. Trust acquiring U.S. beneficiary. (i) In 2001, A
transfers stock with a fair market value of $100,000 to FT. The stock
has an adjusted basis of $50,000 at the time of the transfer. The trust
instrument provides that income may be paid currently to, or accumulated
for the benefit of, B and that, upon the termination of the trust, all
income and corpus is to be distributed to B. At the time of the
transfer, B is a nonresident alien. A is not treated as the owner of any
portion of FT under sections 673 through 677. FT accumulates a total of
$30,000 of income during the taxable years 2001 through 2003. In 2004, B
moves to the United States and becomes a resident alien. Assume
paragraph (a)(4) of this section is not applicable under the facts and
circumstances.
(ii) Under paragraph (c)(1) of this section, A is treated as
receiving an accumulation distribution in the amount of $30,000 in 2004
and immediately transferring that amount back to the trust. The
accumulation distribution is subject to the rules of section 668,
providing for an interest charge on accumulation distributions.
(iii) Under paragraphs (a)(1) and (3) of this section, beginning in
2005, A is treated as the owner of the portion of FT attributable to the
stock transferred by A to FT in 2001 (which includes the portion
attributable to the accumulated income deemed to be retransferred in
2004).
Example 2. Trust ceasing to have U.S. beneficiary. (i) The facts are
the same as in Example 1. In 2008, B becomes a nonresident alien. On the
date B becomes a nonresident alien, the stock transferred by A to FT in
2001 has a fair market value of $125,000 and an adjusted basis of
$50,000.
(ii) Under paragraph (c)(2) of this section, beginning in 2009, FT
is not treated as having a U.S. beneficiary, and A is not treated as the
owner of the portion of the trust attributable to the prior transfer of
stock. For rules regarding the recognition of gain on the termination of
ownership status, see section 684.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-3 Transfers.
(a) In general. A transfer means a direct, indirect, or constructive
transfer.
(b) Transfers by certain trusts--(1) In general. If any portion of a
trust is treated as owned by a U.S. person, a transfer of property from
that portion
[[Page 390]]
of the trust to a foreign trust is treated as a transfer from the owner
of that portion to the foreign trust.
(2) Example. The following example illustrates this paragraph (b):
Example. In 2001, A, a U.S. citizen, creates and funds DT, a
domestic trust. A has the power to revest absolutely in himself the
title to the property in DT and is treated as the owner of DT pursuant
to section 676. In 2004, DT transfers property to FT, a foreign trust. A
is treated as having transferred the property to FT in 2004 for purposes
of this section.
(c) Indirect transfers--(1) Principal purpose of tax avoidance. A
transfer to a foreign trust by any person (intermediary) to whom a U.S.
person transfers property is treated as an indirect transfer by a U.S.
person to the foreign trust if such transfer is made pursuant to a plan
one of the principal purposes of which is the avoidance of United States
tax.
(2) Principal purpose of tax avoidance deemed to exist. For purposes
of paragraph (c)(1) of this section, a transfer is deemed to have been
made pursuant to a plan one of the principal purposes of which was the
avoidance of United States tax if--
(i) The U.S. person is related (within the meaning of paragraph
(c)(4) of this section) to a beneficiary of the foreign trust, or has
another relationship with a beneficiary of the foreign trust that
establishes a reasonable basis for concluding that the U.S. transferor
would make a transfer to the foreign trust; and
(ii) The U.S. person cannot demonstrate to the satisfaction of the
Commissioner that--
(A) The intermediary has a relationship with a beneficiary of the
foreign trust that establishes a reasonable basis for concluding that
the intermediary would make a transfer to the foreign trust;
(B) The intermediary acted independently of the U.S. person;
(C) The intermediary is not an agent of the U.S. person under
generally applicable United States agency principles; and
(D) The intermediary timely complied with the reporting requirements
of section 6048, if applicable.
(3) Effect of disregarding intermediary--(i) In general. Except as
provided in paragraph (c)(3)(ii) of this section, if a transfer is
treated as an indirect transfer pursuant to paragraph (c)(1) of this
section, then the intermediary is treated as an agent of the U.S.
person, and the property is treated as transferred to the foreign trust
by the U.S. person in the year the property is transferred, or made
available, by the intermediary to the foreign trust. The fair market
value of the property transferred is determined as of the date of the
transfer by the intermediary to the foreign trust.
(ii) Special rule. If the Commissioner determines, or if the
taxpayer can demonstrate to the satisfaction of the Commissioner, that
the intermediary is an agent of the foreign trust under generally
applicable United States agency principles, the property will be treated
as transferred to the foreign trust in the year the U.S. person
transfers the property to the intermediary. The fair market value of the
property transferred will be determined as of the date of the transfer
by the U.S. person to the intermediary.
(iii) Effect on intermediary. If a transfer of property is treated
as an indirect transfer under paragraph (c)(1) of this section, the
intermediary is not treated as having transferred the property to the
foreign trust.
(4) Related parties. For purposes of this paragraph (c), a U.S.
transferor is treated as related to a U.S. beneficiary of a foreign
trust if the U.S. transferor and the beneficiary are related for
purposes of section 643(i)(2)(B), with the following modifications--
(i) For purposes of applying section 267 (other than section 267(f))
and section 707(b)(1), ``at least 10 percent'' is used instead of ``more
than 50 percent'' each place it appears; and
(ii) The principles of section 267(b)(10), using ``at least 10
percent'' instead of ``more than 50 percent,'' apply to determine
whether two corporations are related.
(5) Examples. The rules of this paragraph (c) are illustrated by the
following examples:
Example 1. Principal purpose of tax avoidance. A, a U.S. citizen,
creates and funds FT,
[[Page 391]]
a foreign trust, for the benefit of A's children, who are U.S. citizens.
In 2004, A decides to transfer an additional 1000X to the foreign trust.
Pursuant to a plan with a principal purpose of avoiding the application
of section 679, A transfers 1000X to I, a foreign person. I subsequently
transfers 1000X to FT. Under paragraph (c)(1) of this section, A is
treated as having made a transfer of 1000X to FT.
Example 2. U.S. person unable to demonstrate that intermediary acted
independently. A, a U.S. citizen, creates and funds FT, a foreign trust,
for the benefit of A's children, who are U.S. citizens. On July 1, 2004,
A transfers XYZ stock to D, A's uncle, who is a nonresident alien. D
immediately sells the XYZ stock and uses the proceeds to purchase ABC
stock. On January 1, 2007, D transfers the ABC stock to FT. A is unable
to demonstrate to the satisfaction of the Commissioner, pursuant to
paragraph (c)(2) of this section, that D acted independently of A in
making the transfer to FT. Under paragraph (c)(1) of this section, A is
treated as having transferred the ABC stock to FT. Under paragraph
(c)(3) of this section, D is treated as an agent of A, and the transfer
is deemed to have been made on January 1, 2007.
Example 3. Indirect loan to foreign trust. A, a U.S. citizen,
previously created and funded FT, a foreign trust, for the benefit of
A's children, who are U.S. citizens. On July 1, 2004, A deposits 500X
with FB, a foreign bank. On January 1, 2005, FB loans 450X to FT. A is
unable to demonstrate to the satisfaction of the Commissioner, pursuant
to paragraph (c)(2) of this section, that FB has a relationship with FT
that establishes a reasonable basis for concluding that FB would make a
loan to FT or that FB acted independently of A in making the loan. Under
paragraph (c)(1) of this section, A is deemed to have transferred 450X
directly to FT on January 1, 2005. Under paragraph (c)(3) of this
section, FB is treated as an agent of A. For possible exceptions with
respect to qualified obligations of the trust, and the treatment of
principal repayments with respect to obligations of the trust that are
not qualified obligations, see Sec. 1.679-4.
Example 4. Loan to foreign trust prior to deposit of funds in
foreign bank. The facts are the same as in Example 3, except that A
makes the 500X deposit with FB on January 2, 2005, the day after FB
makes the loan to FT. The result is the same as in Example 3.
(d) Constructive transfers--(1) In general. For purposes of
paragraph (a) of this section, a constructive transfer includes any
assumption or satisfaction of a foreign trust's obligation to a third
party.
(2) Examples. The rules of this paragraph (d) are illustrated by the
following examples. In each example, A is a U.S. citizen and FT is a
foreign trust. The examples are as follows:
Example 1. Payment of debt of foreign trust. FT owes 1000X to Y, an
unrelated foreign corporation, for the performance of services by Y for
FT. In satisfaction of FT's liability to Y, A transfers to Y property
with a fair market value of 1000X. Under paragraph (d)(1) of this
section, A is treated as having made a constructive transfer of the
property to FT.
Example 2. Assumption of liability of foreign trust. FT owes 1000X
to Y, an unrelated foreign corporation, for the performance of services
by Y for FT. A assumes FT's liability to pay Y. Under paragraph (d)(1)
of this section, A is treated as having made a constructive transfer of
property with a fair market value of 1000X to FT.
(e) Guarantee of trust obligations--(1) In general. If a foreign
trust borrows money or other property from any person who is not a
related person (within the meaning of Sec. 1.679-1(c)(5)) with respect
to the trust (lender) and a U.S. person (U.S. guarantor) that is a
related person with respect to the trust guarantees (within the meaning
of paragraph (e)(4) of this section) the foreign trust's obligation, the
U.S. guarantor is treated for purposes of this section as a U.S.
transferor that has made a transfer to the trust on the date of the
guarantee in an amount determined under paragraph (e)(2) of this
section. To the extent this paragraph causes the U.S. guarantor to be
treated as having made a transfer to the trust, a lender that is a U.S.
person shall not be treated as having transferred that amount to the
foreign trust.
(2) Amount transferred. The amount deemed transferred by a U.S.
guarantor described in paragraph (e)(1) of this section is the
guaranteed portion of the adjusted issue price of the obligation (within
the meaning of Sec. 1.1275-1(b)) plus any accrued but unpaid qualified
stated interest (within the meaning of Sec. 1.1273-1(c)).
(3) Principal repayments. If a U.S. person is treated under this
paragraph (e) as having made a transfer by reason of the guarantee of an
obligation, payments of principal to the lender by the foreign trust
with respect to the obligation are taken into account on and
[[Page 392]]
after the date of the payment in determining the portion of the trust
attributable to the property deemed transferred by the U.S. guarantor.
(4) Guarantee. For purposes of this section, the term guarantee--
(i) Includes any arrangement under which a person, directly or
indirectly, assures, on a conditional or unconditional basis, the
payment of another's obligation;
(ii) Encompasses any form of credit support, and includes a
commitment to make a capital contribution to the debtor or otherwise
maintain its financial viability; and
(iii) Includes an arrangement reflected in a comfort letter,
regardless of whether the arrangement gives rise to a legally
enforceable obligation. If an arrangement is contingent upon the
occurrence of an event, in determining whether the arrangement is a
guarantee, it is assumed that the event has occurred.
(5) Examples. The rules of this paragraph (e) are illustrated by the
following examples. In all of the examples, A is a U.S. resident and FT
is a foreign trust. The examples are as follows:
Example 1. Foreign lender. X, a foreign corporation, loans 1000X of
cash to FT in exchange for FT's obligation to repay the loan. A
guarantees the repayment of 600X of FT's obligation. Under paragraph
(e)(2) of this section, A is treated as having transferred 600X to FT.
Example 2. Unrelated U.S. lender. The facts are the same as in
Example 1, except X is a U.S. person that is not a related person within
the meaning of Sec. 1.679-1(c)(5). The result is the same as in Example
1.
(f) Transfers to entities owned by a foreign trust--(1) General
rule. If a U.S. person is a related person (as defined in Sec. 1.679-
1(c)(5)) with respect to a foreign trust, any transfer of property by
the U.S. person to an entity in which the foreign trust holds an
ownership interest is treated as a transfer of such property by the U.S.
person to the foreign trust followed by a transfer of the property from
the foreign trust to the entity owned by the foreign trust, unless the
U.S. person demonstrates to the satisfaction of the Commissioner that
the transfer to the entity is properly attributable to the U.S. person's
ownership interest in the entity.
(2) Examples. The rules of this paragraph (f) are illustrated by the
following examples. In all of the examples, A is a U.S. citizen, FT is a
foreign trust, and FC is a foreign corporation. The examples are as
follows:
Example 1. Transfer treated as transfer to trust. A creates and
funds FT, which is treated as having a U.S. beneficiary under Sec.
1.679-2. FT owns all of the outstanding stock of FC. A transfers
property directly to FC. Because FT is the sole shareholder of FC, A is
unable to demonstrate to the satisfaction of the Commissioner that the
transfer is properly attributable to A's ownership interest in FC.
Accordingly, under this paragraph (f), A is treated as having
transferred the property to FT, followed by a transfer of such property
by FT to FC. Under Sec. 1.679-1(a), A is treated as the owner of the
portion of FT attributable to the property treated as transferred
directly to FT. Under Sec. 1.367(a)-1T(c)(4)(ii), the transfer of
property by FT to FC is treated as a transfer of the property by A to
FC.
Example 2. Transfer treated as transfer to trust. The facts are the
same as in Example 1, except that FT is not treated as having a U.S.
beneficiary under Sec. 1.679-2. Under this paragraph (f), A is treated
as having transferred the property to FT, followed by a transfer of such
property by FT to FC. A is not treated as the owner of FT for purposes
of Sec. 1.679-1(a). For rules regarding the recognition of gain on the
transfer, see section 684.
Example 3. Transfer not treated as transfer to trust. A creates and
funds FT. FC has outstanding solely 100 shares of common stock. FT owns
50 shares of FC stock, and A owns the remaining 50 shares. On July 1,
2001, FT and A each transfer 1000X to FC. A is able to demonstrate to
the satisfaction of the Commissioner that A's transfer to FC is properly
attributable to A's ownership interest in FC. Accordingly, under this
paragraph (f), A's transfer to FC is not treated as a transfer to FT.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-4 Exceptions to general rule.
(a) In general. Section 1.679-1 does not apply to--
(1) Any transfer of property to a foreign trust by reason of the
death of the transferor;
(2) Any transfer of property to a foreign trust described in
sections 402(b), 404(a)(4), or 404A;
(3) Any transfer of property to a foreign trust described in section
501(c)(3) (without regard to the requirements of section 508(a)); and
[[Page 393]]
(4) Any transfer of property to a foreign trust to the extent the
transfer is for fair market value.
(b) Transfers for fair market value--(1) In general. For purposes of
this section, a transfer is for fair market value only to the extent of
the value of property received from the trust, services rendered by the
trust, or the right to use property of the trust. For example, rents,
royalties, interest, and compensation paid to a trust are transfers for
fair market value only to the extent that the payments reflect an arm's
length price for the use of the property of, or for the services
rendered by, the trust. For purposes of this determination, an interest
in the trust is not property received from the trust. For purposes of
this section, a distribution to a trust with respect to an interest held
by such trust in an entity other than a trust or an interest in certain
investment trusts described in Sec. 301.7701-4(c) of this chapter,
liquidating trusts described in Sec. 301.7701-4(d) of this chapter, or
environmental remediation trusts described in Sec. 301.7701-4(e) of
this chapter is considered to be a transfer for fair market value.
(2) Special rule--(i) Transfers for partial consideration. For
purposes of this section, if a person transfers property to a foreign
trust in exchange for property having a fair market value that is less
than the fair market value of the property transferred, the exception in
paragraph (a)(4) of this section applies only to the extent of the fair
market value of the property received.
(ii) Example. This paragraph (b) is illustrated by the following
example:
Example. A, a U.S. citizen, transfers property that has a fair
market value of 1000X to FT, a foreign trust, in exchange for 600X of
cash. Under this paragraph (b), Sec. 1.679-1 applies with respect to
the transfer of 400X (1000X less 600X) to FT.
(c) Certain obligations not taken into account. Solely for purposes
of this section, in determining whether a transfer by a U.S. transferor
that is a related person (as defined in Sec. 1.679-1(c)(5)) with
respect to the foreign trust is for fair market value, any obligation
(as defined in Sec. 1.679-1(c)(6)) of the trust or a related person (as
defined in Sec. 1.679-1(c)(5)) that is not a qualified obligation
within the meaning of paragraph (d)(1) of this section shall not be
taken into account.
(d) Qualified obligations--(1) In general. For purposes of this
section, an obligation is treated as a qualified obligation only if--
(i) The obligation is reduced to writing by an express written
agreement;
(ii) The term of the obligation does not exceed five years (for
purposes of determining the term of an obligation, the obligation's
maturity date is the last possible date that the obligation can be
outstanding under the terms of the obligation);
(iii) All payments on the obligation are denominated in U.S.
dollars;
(iv) The yield to maturity is not less than 100 percent of the
applicable Federal rate and not greater that 130 percent of the
applicable Federal rate (the applicable Federal rate for an obligation
is the applicable Federal rate in effect under section 1274(d) for the
day on which the obligation is issued, as published in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter));
(v) The U.S. transferor extends the period for assessment of any
income or transfer tax attributable to the transfer and any
consequential income tax changes for each year that the obligation is
outstanding, to a date not earlier than three years after the maturity
date of the obligation (this extension is not necessary if the maturity
date of the obligation does not extend beyond the end of the U.S.
transferor's taxable year for the year of the transfer and is paid
within such period); when properly executed and filed, such an agreement
is deemed to be consented to for purposes of Sec. 301.6501(c)-1(d) of
this chapter; and
(vi) The U.S. transferor reports the status of the loan, including
principal and interest payments, on Form 3520 for every year that the
loan is outstanding.
(2) Additional loans. If, while the original obligation is
outstanding, the U.S. transferor or a person related to the trust
(within the meaning of Sec. 1.679-1(c)(5)) directly or indirectly
obtains another obligation issued by the trust, or if the U.S.
transferor directly or indirectly obtains another obligation issued by a
person related to the trust,
[[Page 394]]
the original obligation is deemed to have the maturity date of any such
subsequent obligation in determining whether the term of the original
obligation exceeds the specified 5-year term. In addition, a series of
obligations issued and repaid by the trust (or a person related to the
trust) is treated as a single obligation if the transactions giving rise
to the obligations are structured with a principal purpose to avoid the
application of this provision.
(3) Obligations that cease to be qualified. If an obligation treated
as a qualified obligation subsequently fails to be a qualified
obligation (e.g., renegotiation of the terms of the obligation causes
the term of the obligation to exceed five years), the U.S. transferor is
treated as making a transfer to the trust in an amount equal to the
original obligation's adjusted issue price (within the meaning of Sec.
1.1275-1(b)) plus any accrued but unpaid qualified stated interest
(within the meaning of Sec. 1.1273-1(c)) as of the date of the
subsequent event that causes the obligation to no longer be a qualified
obligation. If the maturity date is extended beyond five years by reason
of the issuance of a subsequent obligation by the trust (or person
related to the trust), the amount of the transfer will not exceed the
issue price of the subsequent obligation. The subsequent obligation is
separately tested to determine if it is a qualified obligation.
(4) Transfers resulting from failed qualified obligations. In
general, a transfer resulting from a failed qualified obligation is
deemed to occur on the date of the subsequent event that causes the
obligation to no longer be a qualified obligation. However, based on all
of the facts and circumstances, the Commissioner may deem a transfer to
have occurred on any date on or after the issue date of the original
obligation. For example, if at the time the original obligation was
issued, the transferor knew or had reason to know that the obligation
would not be repaid, the Commissioner could deem the transfer to have
occurred on the issue date of the original obligation.
(5) Renegotiated loans. Any loan that is renegotiated, extended, or
revised is treated as a new loan, and any transfer of funds to a foreign
trust after such renegotiation, extension, or revision under a pre-
existing loan agreement is treated as a transfer subject to this
section.
(6) Principal repayments. The payment of principal with respect to
any obligation that is not treated as a qualified obligation under this
paragraph is taken into account on and after the date of the payment in
determining the portion of the trust attributable to the property
transferred.
(7) Examples. The rules of this paragraph (d) are illustrated by the
following examples. In the examples, A and B are U.S. residents and FT
is a foreign trust. The examples are as follows:
Example 1. Demand loan. A transfers 500X to FT in exchange for a
demand note that permits A to require repayment by FT at any time. A is
a related person (as defined in Sec. 1.679-1(c)(5)) with respect to FT.
Because FT's obligation to A could remain outstanding for more than five
years, the obligation is not a qualified obligation within the meaning
of paragraph (d) of this section and, pursuant to paragraph (c) of this
section, it is not taken into account for purposes of determining
whether A's transfer is eligible for the fair market value exception of
paragraph (a)(4) of this section. Accordingly, Sec. 1.679-1 applies
with respect to the full 500X transfer to FT.
Example 2. Private annuity. A transfers 4000X to FT in exchange for
an annuity from the foreign trust that will pay A 100X per year for the
rest of A's life. A is a related person (as defined in Sec. 1.679-
1(c)(5)) with respect to FT. Because FT's obligation to A could remain
outstanding for more than five years, the obligation is not a qualified
obligation within the meaning of paragraph (d)(1) of this section and,
pursuant to paragraph (c) of this section, it is not taken into account
for purposes of determining whether A's transfer is eligible for the
fair market value exception of paragraph (a)(4) of this section.
Accordingly, Sec. 1.679-1 applies with respect to the full 4000X
transfer to FT.
Example 3. Loan to unrelated foreign trust. B transfers 1000X to FT
in exchange for an obligation of the trust. The term of the obligation
is fifteen years. B is not a related person (as defined in Sec. 1.679-
1(c)(5)) with respect to FT. Because B is not a related person, the fair
market value of the obligation received by B is taken into account for
purposes of determining whether B's transfer is eligible for the fair
market value exception of paragraph (a)(4) of this section, even though
the
[[Page 395]]
obligation is not a qualified obligation within the meaning of paragraph
(d)(1) of this section.
Example 4. Transfer for an obligation with term in excess of 5
years. A transfers property that has a fair market value of 5000X to FT
in exchange for an obligation of the trust. The term of the obligation
is ten years. A is a related person (as defined in Sec. 1.679-1(c)(5))
with respect to FT. Because the term of the obligation is greater than
five years, the obligation is not a qualified obligation within the
meaning of paragraph (d)(1) of this section and, pursuant to paragraph
(c) of this section, it is not taken into account for purposes of
determining whether A's transfer is eligible for the fair market value
exception of paragraph (a)(4) of this section. Accordingly, Sec. 1.679-
1 applies with respect to the full 5000X transfer to FT.
Example 5. Transfer for a qualified obligation. The facts are the
same as in Example 4, except that the term of the obligation is 3 years.
Assuming the other requirements of paragraph (d)(1) of this section are
satisfied, the obligation is a qualified obligation and its adjusted
issue price is taken into account for purposes of determining whether
A's transfer is eligible for the fair market value exception of
paragraph (a)(4) of this section.
Example 6. Effect of subsequent obligation on original obligation. A
transfers property that has a fair market value of 1000X to FT in
exchange for an obligation that satisfies the requirements of paragraph
(d)(1) of this section. A is a related person (as defined in Sec.
1.679-1(c)(5)) with respect to FT. Two years later, A transfers an
additional 2000X to FT and receives another obligation from FT that has
a maturity date four years from the date that the second obligation was
issued. Under paragraph (d)(2) of this section, the original obligation
is deemed to have the maturity date of the second obligation. Under
paragraph (a) of this section, A is treated as having made a transfer in
an amount equal to the original obligation's adjusted issue price
(within the meaning of Sec. 1.1275-1(b)) plus any accrued but unpaid
qualified stated interest (within the meaning of Sec. 1.1273-1(c)) as
of the date of issuance of the second obligation. The second obligation
is tested separately to determine whether it is a qualified obligation
for purposes of applying paragraph (a) of this section to the second
transfer.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-5 Pre-immigration trusts.
(a) In general. If a nonresident alien individual becomes a U.S.
person and the individual has a residency starting date (as determined
under section 7701(b)(2)(A)) within 5 years after directly or indirectly
transferring property to a foreign trust (the original transfer), the
individual is treated as having transferred to the trust on the
residency starting date an amount equal to the portion of the trust
attributable to the property transferred by the individual in the
original transfer.
(b) Special rules--(1) Change in grantor trust status. For purposes
of paragraph (a) of this section, if a nonresident alien individual who
is treated as owning any portion of a trust under the provisions of
subpart E of part I of subchapter J, chapter 1 of the Internal Revenue
Code, subsequently ceases to be so treated, the individual is treated as
having made the original transfer to the foreign trust immediately
before the trust ceases to be treated as owned by the individual.
(2) Treatment of undistributed income. For purposes of paragraph (a)
of this section, the property deemed transferred to the foreign trust on
the residency starting date includes undistributed net income, as
defined in section 665(a), attributable to the property deemed
transferred. Undistributed net income for periods before the
individual's residency starting date is taken into account only for
purposes of determining the amount of the property deemed transferred.
(c) Examples. The rules of this section are illustrated by the
following examples:
Example 1. Nonresident alien becomes resident alien. On January 1,
2002, A, a nonresident alien individual, transfers property to a foreign
trust, FT. On January 1, 2006, A becomes a resident of the United States
within the meaning of section 7701(b)(1)(A) and has a residency starting
date of January 1, 2006, within the meaning of section 7701(b)(2)(A).
Under paragraph (a) of this section, A is treated as a U.S. transferor
and is deemed to transfer the property to FT on January 1, 2006. Under
paragraph (b)(2) of this section, the property deemed transferred to FT
on January 1, 2006, includes the undistributed net income of the trust,
as defined in section 665(a), attributable to the property originally
transferred.
Example 2. Nonresident alien loses power to revest property. On
January 1, 2002, A, a nonresident alien individual, transfers property
to a foreign trust, FT. A has the power to revest absolutely in himself
the title to such property transferred and is treated as the owner of
the trust pursuant to sections 676 and 672(f). On January 1, 2008, the
terms of FT are amended to remove A's power to
[[Page 396]]
revest in himself title to the property transferred, and A ceases to be
treated as the owner of FT. On January 1, 2010, A becomes a resident of
the United States. Under paragraph (b)(1) of this section, for purposes
of paragraph (a) of this section A is treated as having originally
transferred the property to FT on January 1, 2008. Because this date is
within five years of A's residency starting date, A is deemed to have
made a transfer to the foreign trust on January 1, 2010, his residency
starting date. Under paragraph (b)(2) of this section, the property
deemed transferred to the foreign trust on January 1, 2010, includes the
undistributed net income of the trust, as defined in section 665(a),
attributable to the property deemed transferred.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-6 Outbound migrations of domestic trusts.
(a) In general. Subject to the provisions of paragraph (b) of this
section, if an individual who is a U.S. person transfers property to a
trust that is not a foreign trust, and such trust becomes a foreign
trust while the U.S. person is alive, the U.S. individual is treated as
a U.S. transferor and is deemed to transfer the property to a foreign
trust on the date the domestic trust becomes a foreign trust.
(b) Amount deemed transferred. For purposes of paragraph (a) of this
section, the property deemed transferred to the trust when it becomes a
foreign trust includes undistributed net income, as defined in section
665(a), attributable to the property previously transferred.
Undistributed net income for periods prior to the migration is taken
into account only for purposes of determining the portion of the trust
that is attributable to the property transferred by the U.S. person.
(c) Example. The following example illustrates the rules of this
section. For purposes of the example, A is a resident alien, B is A's
son, who is a resident alien, and DT is a domestic trust. The example is
as follows:
Example. Outbound migration of domestic trust. On January 1, 2002, A
transfers property to DT, for the benefit of B. On January 1, 2003, DT
acquires a foreign trustee who has the power to determine whether and
when distributions will be made to B. Under section 7701(a)(30)(E) and
Sec. 301.7701-7(d)(ii)(A) of this chapter, DT becomes a foreign trust
on January 1, 2003. Under paragraph (a) of this section, A is treated as
transferring property to a foreign trust on January 1, 2003. Under
paragraph (b) of this section, the property deemed transferred to the
trust when it becomes a foreign trust includes undistributed net income,
as defined in section 665(a), attributable to the property deemed
transferred.
[T.D. 8955, 66 FR 37889, July 20, 2001]
Sec. 1.679-7 Effective dates.
(a) In general. Except as provided in paragraph (b) of this section,
the rules of Sec. Sec. 1.679-1, 1.679-2, 1.679-3, and 1.679-4 apply
with respect to transfers after August 7, 2000.
(b) Special rules. (1) The rules of Sec. 1.679-4(c) and (d) apply
to an obligation issued after February 6, 1995, whether or not in
accordance with a pre-existing arrangement or understanding. For
purposes of the rules of Sec. 1.679-4(c) and (d), if an obligation
issued on or before February 6, 1995, is modified after that date, and
the modification is a significant modification within the meaning of
Sec. 1.1001-3, the obligation is treated as if it were issued on the
date of the modification. However, the penalty provided in section 6677
applies only to a failure to report transfers in exchange for
obligations issued after August 20, 1996.
(2) The rules of Sec. 1.679-5 apply to persons whose residency
starting date is after August 7, 2000.
(3) The rules of Sec. 1.679-6 apply to trusts that become foreign
trusts after August 7, 2000.
[T.D. 8955, 66 FR 37889, July 20, 2001]
miscellaneous
Sec. 1.681(a)-1 Limitation on charitable contributions deductions of
trusts; scope of section 681.
Under section 681, the unlimited charitable contributions deduction
otherwise allowable to a trust under section 642(c) is, in general,
subject to percentage limitations, corresponding to those applicable to
contributions by an individual under section 170(b)(1) (A) and (B),
under the following circumstances;
(a) To the extent that the deduction is allocable to ``unrelated
business income'';
[[Page 397]]
(b) For taxable years beginning before January 1, 1970, if the trust
has engaged in a prohibited transaction;
(c) For taxable years beginning before January 1, 1970, if income is
accumulated for a charitable purpose and the accumulation is (1)
unreasonable, (2) substantially diverted to a noncharitable purpose, or
(3) invested against the interests of the charitable beneficiaries.
Further, if the circumstance set forth in paragraph (a) or (c) of this
section is applicable, the deduction is limited to income actually paid
out for charitable purposes, and is not allowed for income only set
aside or to be used for those purposes. If the circumstance set forth in
paragraph (b) of this section is applicable, deductions for
contributions to the trust may be disallowed. The provisions of section
681 are discussed in detail in Sec. Sec. 1.681(a)-2 through 1.681(c)-1.
For definition of the term ``income'', see section 643(b) and Sec.
1.643(b)-1.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7428, 41 FR
34627, Aug. 16, 1976]
Sec. 1.681(a)-2 Limitation on charitable contributions deduction of
trusts with trade or business income.
(a) In general. No charitable contributions deduction is allowable
to a trust under section 642(c) for any taxable year for amounts
allocable to the trust's unrelated business income for the taxable year.
For the purpose of section 681(a) the term unrelated business income of
a trust means an amount which would be computed as the trust's unrelated
business taxable income under section 512 and the regulations
thereunder, if the trust were an organization exempt from tax under
section 501(a) by reason of section 501(c)(3). For the purpose of the
computation under section 512, the term unrelated trade or business
includes a trade or business carried on by a partnership of which a
trust is a member, as well as one carried on by the trust itself. While
the charitable contributions deduction under section 642(c) is entirely
disallowed by section 681(a) for amounts allocable to ``unrelated
business income'', a partial deduction is nevertheless allowed for such
amounts by the operation of section 512(b)(11), as illustrated in
paragraphs (b) and (c) of this section. This partial deduction is
subject to the percentage limitations applicable to contributions by an
individual under section 170(b)(1) (A) and (B), and is not allowed for
amounts set aside or to be used for charitable purposes but not actually
paid out during the taxable year. Charitable contributions deductions
otherwise allowable under section 170, 545(b)(2), or 642(c) for
contributions to a trust are not disallowed solely because the trust has
unrelated business income.
(b) Determination of amounts allocable to unrelated business income.
In determining the amount for which a charitable contributions deduction
would otherwise be allowable under section 642(c) which are allocable to
unrelated business income, and therefore not allowable as a deduction,
the following steps are taken:
(1) There is first determined the amount which would be computed as
the trust's unrelated business taxable income under section 512 and the
regulations thereunder if the trust were an organization exempt from tax
under section 501(a) by reason of section 501(c)(3), but without taking
the charitable contributions deduction allowed under section 512(b)(11).
(2) The amount for which a charitable contributions deduction would
otherwise be allowable under section 642(c) is then allocated between
the amount determined in subparagraph (1) of this paragraph and any
other income of the trust. Unless the facts clearly indicate to the
contrary, the allocation to the amount determined in subparagraph (1) of
this paragraph is made on the basis of the ratio (but not in excess of
100 percent) of the amount determined in subparagraph (1) of this
paragraph to the taxable income of the trust, determined without the
deduction for personal exemption under section 642(b), the charitable
contributions deduction under section 642(c), or the deduction for
distributions to beneficiaries under section 661(a).
(3) The amount for which a charitable contributions deduction would
otherwise be allowable under section 642(c) which is allocable to
unrelated business income as determined in subparagraph (2) of this
paragraph, and
[[Page 398]]
therefore not allowable as a deduction, is the amount determined in
subparagraph (2) of this paragraph reduced by the charitable
contributions deduction which would be allowed under section 512(b)(11)
if the trust were an organization exempt from tax under section 501(a)
by reason of section 501(c)(3).
(c) Examples. (1) The application of this section may be illustrated
by the following examples, in which it is assumed that the Y charity is
not a charitable organization qualifying under section 170(b)(1)(A) (see
subparagraph (2) of this paragraph):
Example 1. The X trust has income of $50,000. There is included in
this amount a net profit of $31,000 from the operation of a trade or
business. The trustee is required to pay half of the trust income to A,
an individual, and the balance of the trust income to the Y charity, an
organization described in section 170(c)(2). The trustee pays each
beneficiary $25,000. Under these facts, the unrelated business income of
the trust (computed before the charitable contributions deduction which
would be allowed under section 512(b)(11)) is $30,000 ($31,000 less the
deduction of $1,000 allowed by section 512(b)(12)). The deduction
otherwise allowable under section 642(c) is $25,000, the amount paid to
the Y charity. The portion allocable to the unrelated business income
(computed as prescribed in paragraph (b)(2) of this section) is $15,000,
that is, an amount which bears the same ratio to $25,000 as $30,000
bears to $50,000. The portion allocable to the unrelated business
income, and therefore disallowed as a deduction, is $15,000 reduced by
$6,000 (20 percent of $30,000, the charitable contributions deduction
which would be allowable under section 512(b)(11)), or $9,000.
Example 2. Assume the same facts as in example 1, except that the
trustee has discretion as to the portion of the trust income to be paid
to each beneficiary, and the trustee pays $40,000 to A and $10,000 to
the Y charity. The deduction otherwise allowable under section 642(c) is
$10,000. The portion allocable to the unrelated business income computed
as prescribed in paragraph (b)(2) of this section is $6,000, that is, an
amount which bears the same ratio to $10,000 as $30,000 bears to
$50,000. Since this amount does not exceed the charitable contributions
deduction which would be allowable under section 512(b)(11) ($6,000,
determined as in example 1), no portion of it is disallowed as a
deduction.
Example 3. Assume the same facts as in example 1, except that the
terms of the trust instrument require the trustee to pay to the Y
charity the trust income, if any, derived from the trade or business,
and to pay to A all the trust income derived from other sources. The
trustee pays $31,000 to the Y charity and $19,000 to A. The deduction
otherwise allowable under section 642(c) is $31,000. Since the entire
income from the trade or business is paid to Y charity, the amount
allocable to the unrelated business income computed before the
charitable contributions deduction under section 512(b)(11) is $30,000
($31,000 less the deduction of $1,000 allowed by section 512(b)(12)).
The amount allocable to the unrelated business income and therefore
disallowed as a deduction is $24,000 ($30,000 less $6,000).
Example 4. (i) Under the terms of the trust, the trustee is required
to pay half of the trust income to A, an individual, for his life, and
the balance of the trust income to the Y charity, an organization
described in section 170(c)(2). Capital gains are allocable to corpus
and upon A's death the trust is to terminate and the corpus is to be
distributed to the Y charity. The trust has taxable income of $50,000
computed without any deduction for personal exemption, charitable
contributions, or distributions. The amount of $50,000 includes $10,000
capital gains, $30,000 ($31,000 less the $1,000 deduction allowed under
section 512(b)(12)) unrelated business income (computed before the
charitable contributions deduction which would be allowed under section
512(b)(11)) and other income of $9,000. The trustee pays each
beneficiary $20,000.
(ii) The deduction otherwise allowable under section 642(c) is
$30,000 ($20,000 paid to Y charity and $10,000 capital gains allocated
to corpus and permanently set aside for charitable purposes). The
portion allocable to the unrelated business income is $15,000, that is,
an amount which bears the same ratio to $20,000 (the amount paid to Y
charity) as $30,000 bears to $40,000 ($50,000 less $10,000 capital gains
allocable to corpus). The portion allocable to the unrelated business
income, and therefore disallowed as a deduction, is $15,000 reduced by
$6,000 (the charitable contributions deduction which would be allowable
under section 512(b)(11)), or $9,000.
(2) If, in the examples in subparagraph (1) of this paragraph, the Y
charity were a charitable organization qualifying under section
170(b)(1)(A), then the deduction allowable under section 512(b)(11)
would be computed at a rate of 30 percent.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6605, 27 FR
8097, Aug. 15, 1962]
[[Page 399]]
Sec. 1.681(b)-1 Cross reference.
For disallowance of certain charitable, etc., deductions otherwise
allowable under section 642(c), see sections 508(d) and 4948(c)(4). See
also 26 CFR 1.681(b)-1 and 1.681(c)-1 (rev. as of Apr. 1, 1974) for
provisions applying before January 1, 1970.
[T.D. 7428, 41 FR 34627, Aug. 16, 1976]
Sec. 1.682(a)-1 Income of trust in case of divorce, etc.
(a) In general. (1) Section 682(a) provides rules in certain cases
for determining the taxability of income of trusts as between spouses
who are divorced, or who are separated under a decree of separate
maintenance or a written separation agreement. In such cases, the spouse
actually entitled to receive payments from the trust is considered the
beneficiary rather than the spouse in discharge of whose obligations the
payments are made, except to the extent that the payments are specified
to be for the support of the obligor spouse's minor children in the
divorce or separate maintenance decree, the separation agreement or the
governing trust instrument. For convenience, the beneficiary spouse will
hereafter in this section and in Sec. 1.682(b)-1 be referred to as the
``wife'' and the obligor spouse from whom she is divorced or legally
separated as the ``husband''. (See section 7701(a)(17).) Thus, under
section 682(a) income of a trust:
(i) Which is paid, credited, or required to be distributed to the
wife in a taxable year of the wife, and
(ii) Which, except for the provisions of section 682, would be
includible in the gross income of her husband,
is includible in her gross income and is not includible in his gross
income.
(2) Section 682(a) does not apply in any case to which section 71
applies. Although section 682(a) and section 71 seemingly cover some of
the same situations, there are important differences between them. Thus,
section 682(a) applies, for example, to a trust created before the
divorce or separation and not in contemplation of it, while section 71
applies only if the creation of the trust or payments by a previously
created trust are in discharge of an obligation imposed upon or assumed
by the husband (or made specific) under the court order or decree
divorcing or legally separating the husband and wife, or a written
instrument incident to the divorce status or legal separation status, or
a written separation agreement. If section 71 applies, it requires
inclusion in the wife's income of the full amount of periodic payments
received attributable to property in trust (whether or not out of trust
income), while, if section 71 does not apply, section 682(a) requires
amounts paid, credited, or required to be distributed to her to be
included only to the extent they are includible in the taxable income of
a trust beneficiary under subparts A through D (section 641 and
following), part I, subchapter J, chapter 1 of the Code.
(3) Section 682(a) is designed to produce uniformity as between
cases in which, without section 682(a), the income of a so-called
alimony trust would be taxable to the husband because of his continuing
obligation to support his wife or former wife, and other cases in which
the income of a so-called alimony trust is taxable to the wife or former
wife because of the termination of the husband's obligation.
Furthermore, section 682(a) taxes trust income to the wife in all cases
in which the husband would otherwise be taxed not only because of the
discharge of his alimony obligation but also because of his retention of
control over the trust income or corpus. Section 682(a) applies whether
the wife is the beneficiary under the terms of the trust instrument or
is an assignee of a beneficiary.
(4) The application of section 682(a) may be illustrated by the
following examples, in which it is assumed that both the husband and
wife make their income tax returns on a calendar year basis:
Example 1. Upon the marriage of H and W, H irrevocably transfers
property in trust to pay the income to W for her life for support,
maintenance, and all other expenses. Some years later, W obtains a legal
separation from H under an order of court. W, relying upon the income
from the trust payable to her, does not ask for any provision for her
support and the decree recites that since W is adequately provided for
by the trust, no further provision is being made for her. Under these
facts, section 682(a), rather than
[[Page 400]]
section 71, is applicable. Under the provisions of section 682(a), the
income of the trust which becomes payable to W after the order of
separation is includible in her income and is deductible by the trust.
No part of the income is includible in H's income or deductible by him.
Example 2. H transfers property in trust for the benefit of W,
retaining the power to revoke the trust at any time. H, however,
promises that if he revokes the trust he will transfer to W property in
the value of $100,000. The transfer in trust and the agreement were not
incident to divorce, but some years later W divorces H. The court decree
is silent as to alimony and the trust. After the divorce, income of the
trust which becomes payable to W is taxable to her, and is not taxable
to H or deductible by him. If H later terminates the trust and transfers
$100,000 of property to W, the $100,000 is not income to W nor
deductible by H.
(b) Alimony trust income designated for support of minor children.
Section 682(a) does not require the inclusion in the wife's income of
trust income which the terms of the divorce or separate maintenance
decree, separation agreement, or trust instrument fix in terms of an
amount of money or a portion of the income as a sum which is payable for
the support of minor children of the husband. The portion of the income
which is payable for the support of the minor children is includible in
the husband's income. If in such a case trust income fixed in terms of
an amount of money is to be paid but a lesser amount becomes payable,
the trust income is considered to be payable for the support of the
husband's minor children to the extent of the sum which would be payable
for their support out of the originally specified amount of trust
income. This rule is similar to that provided in the case of periodic
payments under section 71. See Sec. 1.71-1.
Sec. 1.682(b)-1 Application of trust rules to alimony payments.
(a) For the purpose of the application of subparts A through D
(section 641 and following), part I, subchapter J, chapter 1 of the
Code, the wife described in section 682 or section 71 who is entitled to
receive payments attributable to property in trust is considered a
beneficiary of the trust, whether or not the payments are made for the
benefit of the husband in discharge of his obligations. A wife treated
as a beneficiary of a trust under this section is also treated as the
beneficiary of such trust for purposes of the tax imposed by section 56
(relating to the minimum tax for tax preferences). For rules relating to
the treatment of items of tax preference with respect to a beneficiary
of a trust, see Sec. 1.58-3.
(b) A periodic payment includible in the wife's gross income under
section 71 attributable to property in trust is included in full in her
gross income in her taxable year in which any part is required to be
included under section 652 or 662. Assume, for example, in a case in
which both the wife and the trust file income tax returns on the
calendar year basis, that an annuity of $5,000 is to be paid to the wife
by the trustee every December 31 (out of trust income if possible and,
if not, out of corpus) pursuant to the terms of a divorce decree. Of the
$5,000 distributable on December 31, 1954, $4,000 is payable out of
income and $1,000 out of corpus. The actual distribution is made in
1955. Although the periodic payment is received by the wife in 1955,
since under section 662 the $4,000 income distributable on December 31,
1954, is to be included in the wife's income for 1954, the $1,000
payment out of corpus is also to be included in her income for 1954.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7564, 43 FR
40495, Sept. 12, 1978]
Sec. 1.682(c)-1 Definitions.
For definitions of the terms ``husband'' and ``wife'' as used in
section 682, see section 7701(a)(17) and the regulations thereunder.
Sec. 1.683-1 Applicability of provisions; general rule.
Part I (section 641 and following), subchapter J, chapter 1 of the
Code, applies to estates and trusts and to beneficiaries only with
respect to taxable years which begin after December 31, 1953, and end
after August 16, 1954 the date of enactment of the Internal Revenue Code
of 1954. In the case of an estate or trust, the date on which a trust is
created or amended or on which an estate commences, and the taxable
years of beneficiaries, grantors, or decedents concerned are immaterial.
This provision applies equally to taxable
[[Page 401]]
years of normal and of abbreviated length.
Sec. 1.683-2 Exceptions.
(a) In the case of any beneficiary of an estate or trust, sections
641 through 682 do not apply to any amount paid, credited, or to be
distributed by an estate or trust in any taxable year of the estate or
trust which begins before January 1, 1954, or which ends before August
17, 1954. Whether an amount so paid, credited, or to be distributed is
to be included in the gross income of a beneficiary is determined with
reference to the Internal Revenue Code of 1939. Thus, if a trust in its
fiscal year ending June 30, 1954, distributed its current income to a
beneficiary on June 30, 1954, the extent to which the distribution is
includible in the beneficiary's gross income for his taxable year (the
calendar year 1954) and the character of such income will be determined
under the Internal Revenue Code of 1939. The Internal Revenue Code of
1954, however, determines the beneficiary's tax liability for a taxable
year of the beneficiary to which such Code applies, with respect even to
gross income of the beneficiary determined under the Internal Revenue
Code of 1939 in accordance with this paragraph. Accordingly, the
beneficiary is allowed credits and deductions pursuant to the Internal
Revenue Code of 1954 for a taxable year governed by the Internal Revenue
Code of 1954. See subparagraph (ii) of example (1) in paragraph (c) of
this section.
(b) For purposes of determining the time of receipt of dividends
under sections 34 (for purposes of the credit for dividends received on
or before December 31, 1964) and 116, the dividends paid, credited, or
to be distributed to a beneficiary are deemed to have been received by
the beneficiary ratably on the same dates that the dividends were
received by the estate or trust.
(c) The application of this section may be illustrated by the
following examples:
Example 1. (i) A trust, reporting on the fiscal year basis, receives
in its taxable year ending November 30, 1954, dividends on December 3,
1953, and April 3, July 5, and October 4, 1954. It distributes the
dividends to A, its sole beneficiary (who reports on the calendar year
basis) on November 30, 1954. Since the trust has received dividends in a
taxable year ending after July 31, 1954, it will receive a dividend
credit under section 34 with respect to dividends received which
otherwise qualify under that section, in this case dividends received on
October 4, 1954 (i. e., received after July 31, 1954). See section
7851(a)(1)(C). This credit, however, is reduced to the extent the
dividends are allocable to the beneficiary as a result of income being
paid, credited, or required to be distributed to him. The trust will
also be permitted the dividend exclusion under section 116, since it
received its dividends in a taxable year ending after July 31, 1954.
(ii) A is entitled to the section 34 credit with respect to the
portion of the October 4, 1954, dividends which is distributed to him
even though the determination of whether the amount distributed to him
is includible in his gross income is made under the Internal Revenue
Code of 1939. The credit allowable to the trust is reduced
proportionately to the extent A is deemed to have received the October 4
dividends. A is not entitled to a credit with respect to the dividends
received by the trust on December 3, 1953, and April 3, and July 5,
1954, because, although he receives after July 31, 1954, the
distribution resulting from the trust's receipt of dividends, he is
deemed to have received the dividends ratably with the trust on dates
prior to July 31, 1954. In determining the exclusion under section 116
to which he is entitled, all the dividends received by the trust in 1954
and distributed to him are aggregated with any other dividends received
by him in 1954, since he is deemed to have received such dividends in
1954 and therefore within a taxable year ending after July 31, 1954. He
is not, however, entitled to the exclusion for the dividends received by
the trust in December 1953.
Example 2. (i) A simple trust reports on the basis of a fiscal year
ending July 31. It receives dividends on October 3, 1953, and January 4,
April 3, and July 5, 1954. It distributes the dividends to A, its sole
beneficiary, on September 1, 1954. The trust, receiving dividends in a
taxable year ending prior to August 17, 1954, is entitled neither to the
dividend received credit under section 34 nor the dividend exclusion
under section 116.
(ii) A (reporting on the calendar year basis) is not entitled to the
section 34 credit, because, although he receives after July 31, 1954,
the distribution resulting from the trust's receipt of dividends, he is
deemed to have received the dividends ratably with the trust, that is,
on October 3, 1953, and January 4, April 3, and July 5, 1954. He is,
however, entitled to the section 116 exclusion with respect to the
dividends received by the trust in 1954 (along with other dividends
received by him in 1954) and distributed to him, since he is deemed to
have received
[[Page 402]]
such dividends on January 4, April 3, and July 5, 1954, each a date in
this taxable year ending after July 31, 1954. He is entitled to no
exclusion for the dividends received by the trust on October 3, 1953,
since he is deemed to receive the resulting distribution on the same
date, which falls within a taxable year of his which ends before August
1, 1954, although he is required to include the October 1953 dividends
in his 1954 income. See section 164 of the Internal Revenue Code of
1939.
Example 3. A simple trust on a fiscal year ending July 31, 1954,
receives dividends August 5 and November 4, 1953. It distributes the
dividends to A, its sole beneficiary (who is on a calendar year basis),
on September 1, 1954. Neither the trust nor A is entitled to a credit
under section 34 or an exclusion under section 116.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6777, 29 FR
17809, Dec. 16, 1964]
Sec. 1.683-3 Application of the 65-day rule of the Internal Revenue
Code of 1939.
If an amount is paid, credited, or to be distributed in the first 65
days of the first taxable year of an estate or trust (heretofore subject
to the provisions of the Internal Revenue Code of 1939) to which the
Internal Revenue Code of 1954 applies and the amount would be treated,
if the Internal Revenue Code of 1939 were applicable, as if paid,
credited, or to be distributed on the last day of the preceding taxable
year, sections 641 through 682 do not apply to the amount. The amount so
paid, credited, or to be distributed is taken into account as provided
in the Internal Revenue Code of 1939. See 26 CFR (1939) 39.162-2 (c) and
(d) (Regulations 118).
Sec. 1.684-1 Recognition of gain on transfers to certain foreign
trusts and estates.
(a) Immediate recognition of gain--(1) In general. Any U.S. person
who transfers property to a foreign trust or foreign estate shall be
required to recognize gain at the time of the transfer equal to the
excess of the fair market value of the property transferred over the
adjusted basis (for purposes of determining gain) of such property in
the hands of the U.S. transferor unless an exception applies under the
provisions of Sec. 1.684-3. The amount of gain recognized is determined
on an asset-by-asset basis.
(2) No recognition of loss. Under this section a U.S. person may not
recognize loss on the transfer of an asset to a foreign trust or foreign
estate. A U.S. person may not offset gain realized on the transfer of an
appreciated asset to a foreign trust or foreign estate by a loss
realized on the transfer of a depreciated asset to the foreign trust or
foreign estate.
(b) Definitions. The following definitions apply for purposes of
this section:
(1) U.S. person. The term U.S. person means a United States person
as defined in section 7701(a)(30), and includes a nonresident alien
individual who elects under section 6013(g) to be treated as a resident
of the United States.
(2) U.S. transferor. The term U.S. transferor means any U.S. person
who makes a transfer (as defined in Sec. 1.684-2) of property to a
foreign trust or foreign estate.
(3) Foreign trust. Section 7701(a)(31)(B) defines foreign trust. See
also Sec. 301.7701-7 of this chapter.
(4) Foreign estate. Section 7701(a)(31)(A) defines foreign estate.
(c) Reporting requirements. A U.S. person who transfers property to
a foreign trust or foreign estate must comply with the reporting
requirements under section 6048.
(d) Examples. The following examples illustrate the rules of this
section. In all examples, A is a U.S. person and FT is a foreign trust.
The examples are as follows:
Example 1. Transfer to foreign trust. A transfers property that has
a fair market value of 1000X to FT. A's adjusted basis in the property
is 400X. FT has no U.S. beneficiary within the meaning of Sec. 1.679-2,
and no person is treated as owning any portion of FT. Under paragraph
(a)(1) of this section, A recognizes gain at the time of the transfer
equal to 600X.
Example 2. Transfer of multiple properties. A transfers property Q,
with a fair market value of 1000X, and property R, with a fair market
value of 2000X, to FT. At the time of the transfer, A's adjusted basis
in property Q is 700X, and A's adjusted basis in property R is 2200X. FT
has no U.S. beneficiary within the meaning of Sec. 1.679-2, and no
person is treated as owning any portion of FT. Under paragraph (a)(1) of
this section, A recognizes the 300X of gain attributable to property Q.
Under paragraph (a)(2) of this section, A does not recognize the 200X of
loss attributable to
[[Page 403]]
property R, and may not offset that loss against the gain attributable
to property Q.
Example 3. Transfer for less than fair market value. A transfers
property that has a fair market value of 1000X to FT in exchange for
400X of cash. A's adjusted basis in the property is 200X. FT has no U.S.
beneficiary within the meaning of Sec. 1.679-2, and no person is
treated as owning any portion of FT. Under paragraph (a)(1) of this
section, A recognizes gain at the time of the transfer equal to 800X.
Example 4. Exchange of property for private annuity. A transfers
property that has a fair market value of 1000X to FT in exchange for
FT's obligation to pay A 50X per year for the rest of A's life. A's
adjusted basis in the property is 100X. FT has no U.S. beneficiary
within the meaning of Sec. 1.679-2, and no person is treated as owning
any portion of FT. A is required to recognize gain equal to 900X
immediately upon transfer of the property to the trust. This result
applies even though A might otherwise have been allowed to defer
recognition of gain under another provision of the Internal Revenue
Code.
Example 5. Transfer of property to related foreign trust in exchange
for qualified obligation. A transfers property that has a fair market
value of 1000X to FT in exchange for FT's obligation to make payments to
A during the next four years. FT is related to A as defined in Sec.
1.679-1(c)(5). The obligation is treated as a qualified obligation
within the meaning of Sec. 1.679-4(d), and no person is treated as
owning any portion of FT. A's adjusted basis in the property is 100X. A
is required to recognize gain equal to 900X immediately upon transfer of
the property to the trust. This result applies even though A might
otherwise have been allowed to defer recognition of gain under another
provision of the Internal Revenue Code. Section 1.684-3(d) provides
rules relating to transfers for fair market value to unrelated foreign
trusts.
[T.D. 8956, 66 FR 37899, July 20, 2001]
Sec. 1.684-2 Transfers.
(a) In general. A transfer means a direct, indirect, or constructive
transfer.
(b) Indirect transfers--(1) In general. Section 1.679-3(c) shall
apply to determine if a transfer to a foreign trust or foreign estate,
by any person, is treated as an indirect transfer by a U.S. person to
the foreign trust or foreign estate.
(2) Examples. The following examples illustrate the rules of this
paragraph (b). In all examples, A is a U.S. citizen, FT is a foreign
trust, and I is A's uncle, who is a nonresident alien. The examples are
as follows:
Example 1. Principal purpose of tax avoidance. A creates and funds
FT for the benefit of A's cousin, who is a nonresident alien. FT has no
U.S. beneficiary within the meaning of Sec. 1.679-2, and no person is
treated as owning any portion of FT. In 2004, A decides to transfer
additional property with a fair market value of 1000X and an adjusted
basis of 600X to FT. Pursuant to a plan with a principal purpose of
avoiding the application of section 684, A transfers the property to I.
I subsequently transfers the property to FT. Under paragraph (b) of this
section and Sec. 1.679-3(c), A is treated as having transferred the
property to FT.
Example 2. U.S. person unable to demonstrate that intermediary acted
independently. A creates and funds FT for the benefit of A's cousin, who
is a nonresident alien. FT has no U.S. beneficiary within the meaning of
Sec. 1.679-2, and no person is treated as owning any portion of FT. On
July 1, 2004, A transfers property with a fair market value of 1000X and
an adjusted basis of 300X to I, a foreign person. On January 1, 2007, at
a time when the fair market value of the property is 1100X, I transfers
the property to FT. A is unable to demonstrate to the satisfaction of
the Commissioner, under Sec. 1.679-3(c)(2)(ii), that I acted
independently of A in making the transfer to FT. Under paragraph (b) of
this section and Sec. 1.679-3(c), A is treated as having transferred
the property to FT. Under paragraph (b) of this section and Sec. 1.679-
3(c)(3), I is treated as an agent of A, and the transfer is deemed to
have been made on January 1, 2007. Under Sec. 1.684-1(a), A recognizes
gain equal to 800X on that date.
(c) Constructive transfers. Section 1.679-3(d) shall apply to
determine if a transfer to a foreign trust or foreign estate is treated
as a constructive transfer by a U.S. person to the foreign trust or
foreign estate.
(d) Transfers by certain trusts--(1) In general. If any portion of a
trust is treated as owned by a U.S. person, a transfer of property from
that portion of the trust to a foreign trust is treated as a transfer
from the owner of that portion to the foreign trust.
(2) Examples. The following examples illustrate the rules of this
paragraph (d). In all examples, A is a U.S. person, DT is a domestic
trust, and FT is a foreign trust. The examples are as follows:
Example 1. Transfer by a domestic trust. On January 1, 2001, A
transfers property which has a fair market value of 1000X and an
adjusted basis of 200X to DT. A retains the power to revoke DT. On
January 1, 2003, DT transfers property which has a fair market value of
500X and an adjusted basis of 100X to
[[Page 404]]
FT. At the time of the transfer, FT has no U.S. beneficiary as defined
in Sec. 1.679-2 and no person is treated as owning any portion of FT. A
is treated as having transferred the property to FT and is required to
recognize gain of 400X, under Sec. 1.684-1, at the time of the transfer
by DT to FT.
Example 2. Transfer by a foreign trust. On January 1, 2001, A
transfers property which has a fair market value of 1000X and an
adjusted basis of 200X to FT1. At the time of the transfer, FT1 has a
U.S. beneficiary as defined in Sec. 1.679-2 and A is treated as the
owner of FT1 under section 679. On January 1, 2003, FT1 transfers
property which has a fair market value of 500X and an adjusted basis of
100X to FT2. At the time of the transfer, FT2 has no U.S. beneficiary as
defined in Sec. 1.679-2 and no person is treated as owning any portion
of FT2. A is treated as having transferred the property to FT2 and is
required to recognize gain of 400X, under Sec. 1.684-1, at the time of
the transfer by FT1 to FT2.
(e) Deemed transfers when foreign trust no longer treated as owned
by a U.S. person--(1) In general. If any portion of a foreign trust is
treated as owned by a U.S. person under subpart E of part I of
subchapter J, chapter 1 of the Internal Revenue Code, and such portion
ceases to be treated as owned by that person under such subpart (other
than by reason of an actual transfer of property from the trust to which
Sec. 1.684-2(d) applies), the U.S. person shall be treated as having
transferred, immediately before (but on the same date that) the trust is
no longer treated as owned by that U.S. person, the assets of such
portion to a foreign trust.
(2) Examples. The following examples illustrate the rules of this
paragraph (e). In all examples, A is a U.S. citizen and FT is a foreign
trust. The examples are as follows:
Example 1. Loss of U.S. beneficiary. (i) On January 1, 2001, A
transfers property, which has a fair market value of 1000X and an
adjusted basis of 400X, to FT. At the time of the transfer, FT has a
U.S. beneficiary within the meaning of Sec. 1.679-2, and A is treated
as owning FT under section 679. Under Sec. 1.684-3(a), Sec. 1.684-1
does not cause A to recognize gain at the time of the transfer.
(ii) On July 1, 2003, FT ceases to have a U.S. beneficiary as
defined in Sec. 1.679-2(c) and as of that date neither A nor any other
person is treated as owning any portion of FT. Pursuant to Sec. 1.679-
2(c)(2), if FT ceases to be treated as having a U.S. beneficiary, A will
cease to be treated as owner of FT beginning on the first day of the
first taxable year following the last taxable year in which there was a
U.S. beneficiary. Thus, on January 1, 2004, A ceases to be treated as
owner of FT. On that date, the fair market value of the property is
1200X and the adjusted basis is 350X. Under paragraph (e)(1) of this
section, A is treated as having transferred the property to FT on
January 1, 2004, and must recognize 850X of gain at that time under
Sec. 1.684-1.
Example 2. Death of grantor. (i) The initial facts are the same as
in paragraph (i) of Example 1.
(ii) On July 1, 2003, A dies, and as of that date no other person is
treated as the owner of FT. On that date, the fair market value of the
property is 1200X, and its adjusted basis equals 350X. Under paragraph
(e)(1) of this section, A is treated as having transferred the property
to FT immediately before his death, and generally is required to
recognize 850X of gain at that time under Sec. 1.684-1. However, an
exception may apply under Sec. 1.684-3(c).
Example 3. Release of a power. (i) On January 1, 2001, A transfers
property that has a fair market value of 500X and an adjusted basis of
200X to FT. At the time of the transfer, FT does not have a U.S.
beneficiary within the meaning of Sec. 1.679-2. However, A retains the
power to revoke the trust. A is treated as the owner of the trust under
section 676 and, therefore, under Sec. 1.684-3(a), A is not required to
recognize gain under Sec. 1.684-1 at the time of the transfer.
(ii) On January 1, 2007, A releases the power to revoke the trust
and, as of that date, neither A nor any other person is treated as
owning any portion of FT. On that date, the fair market value of the
property is 900X, and its adjusted basis is 200X. Under paragraph (e)(1)
of this section, A is treated as having transferred the property to FT
on January 1, 2007, and must recognize 700X of gain at that time.
(f) Transfers to entities owned by a foreign trust. Section 1.679-
3(f) provides rules that apply with respect to transfers of property by
a U.S. person to an entity in which a foreign trust holds an ownership
interest.
[T.D. 8956, 66 FR 37899, July 20, 2001]
Sec. 1.684-3 Exceptions to general rule of gain recognition.
(a) Transfers to grantor trusts. The general rule of gain
recognition under Sec. 1.684-1 shall not apply to any transfer of
property by a U.S. person to a foreign trust to the extent that any
person is treated as the owner of the trust under section 671. Section
1.684-2(e)
[[Page 405]]
provides rules regarding a subsequent change in the status of the trust.
(b) Transfers to charitable trusts. The general rule of gain
recognition under Sec. 1.684-1 shall not apply to any transfer of
property to a foreign trust that is described in section 501(c)(3)
(without regard to the requirements of section 508(a)).
(c) Certain transfers at death. The general rule of gain recognition
under Sec. 1.684-1 shall not apply to any transfer of property by
reason of death of the U.S. transferor if the basis of the property in
the hands of the foreign trust is determined under section 1014(a).
(d) Transfers for fair market value to unrelated trusts. The general
rule of gain recognition under Sec. 1.684-1 shall not apply to any
transfer of property for fair market value to a foreign trust that is
not a related foreign trust as defined in Sec. 1.679-1(c)(5). Section
1.671-2(e)(2)(ii) defines fair market value.
(e) Transfers to which section 1032 applies. The general rule of
gain recognition under Sec. 1.684-1 shall not apply to any transfer of
stock (including treasury stock) by a domestic corporation to a foreign
trust if the domestic corporation is not required to recognize gain on
the transfer under section 1032.
(f) Certain distributions to trusts. For purposes of this section, a
transfer does not include a distribution to a trust with respect to an
interest held by such trust in an entity other than a trust or an
interest in certain investment trusts described in Sec. 301.7701-4(c)
of this chapter, liquidating trusts described in Sec. 301.7701-4(d) of
this chapter, or environmental remediation trusts described in Sec.
301.7701-4(e) of this chapter.
(g) Examples. The following examples illustrate the rules of this
section. In all examples, A is a U.S. citizen and FT is a foreign trust.
The examples are as follows:
Example 1. Transfer to owner trust. In 2001, A transfers property
which has a fair market value of 1000X and an adjusted basis equal to
400X to FT. At the time of the transfer, FT has a U.S. beneficiary
within the meaning of Sec. 1.679-2, and A is treated as owning FT under
section 679. Under paragraph (a) of this section, Sec. 1.684-1 does not
cause A to recognize gain at the time of the transfer. See Sec. 1.684-
2(e) for rules that may require A to recognize gain if the trust is no
longer owned by A.
Example 2. Transfer of property at death: Basis determined under
section 1014(a). (i) The initial facts are the same as Example 1.
(ii) A dies on July 1, 2004. The fair market value at A's death of
all property transferred to FT by A is 1500X. The basis in the property
is 400X. A retained the power to revoke FT, thus, the value of all
property owned by FT at A's death is includible in A's gross estate for
U.S. estate tax purposes. Pursuant to paragraph (c) of this section, A
is not required to recognize gain under Sec. 1.684-1 because the basis
of the property in the hands of the foreign trust is determined under
section 1014(a).
Example 3. Transfer of property at death: Basis not determined under
section 1014(a). (i) The initial facts are the same as Example 1.
(ii) A dies on July 1, 2004. The fair market value at A's death of
all property transferred to FT by A is 1500X. The basis in the property
is 400X. A retains no power over FT, and FT's basis in the property
transferred is not determined under section 1014(a). Under Sec. 1.684-
2(e)(1), A is treated as having transferred the property to FT
immediately before his death, and must recognize 1100X of gain at that
time under Sec. 1.684-1.
Example 4. Transfer of property for fair market value to an
unrelated foreign trust. A sells a house with a fair market value of
1000X to FT in exchange for a 30-year note issued by FT. A is not
related to FT as defined in Sec. 1.679-1(c)(5). FT is not treated as
owned by any person. Pursuant to paragraph (d) of this section, A is not
required to recognize gain under Sec. 1.684-1.
[T.D. 8956, 66 FR 37899, July 20, 2001]
Sec. 1.684-4 Outbound migrations of domestic trusts.
(a) In general. If a U.S. person transfers property to a domestic
trust, and such trust becomes a foreign trust, and neither trust is
treated as owned by any person under subpart E of part I of subchapter
J, chapter 1 of the Internal Revenue Code, the trust shall be treated
for purposes of this section as having transferred all of its assets to
a foreign trust and the trust is required to recognize gain on the
transfer under Sec. 1.684-1(a). The trust must also comply with the
rules of section 6048.
(b) Date of transfer. The transfer described in this section shall
be deemed to occur immediately before, but on the same date that, the
trust meets the definition of a foreign trust set forth in section
7701(a)(31)(B).
(c) Inadvertent migrations. In the event of an inadvertent
migration, as
[[Page 406]]
defined in Sec. 301.7701-7(d)(2) of this chapter, a trust may avoid the
application of this section by complying with the procedures set forth
in Sec. 301.7701-7(d)(2) of this chapter.
(d) Examples. The following examples illustrate the rules of this
section. In all examples, A is a U.S. citizen, B is a U.S. citizen, C is
a nonresident alien, and T is a trust. The examples are as follows:
Example 1. Migration of domestic trust with U.S. beneficiaries. A
transfers property which has a fair market value of 1000X and an
adjusted basis equal to 400X to T, a domestic trust, for the benefit of
A's children who are also U.S. citizens. B is the trustee of T. On
January 1, 2001, while A is still alive, B resigns as trustee and C
becomes successor trustee under the terms of the trust. Pursuant to
Sec. 301.7701-7(d) of this chapter, T becomes a foreign trust. T has
U.S. beneficiaries within the meaning of Sec. 1.679-2 and A is,
therefore, treated as owning FT under section 679. Pursuant to Sec.
1.684-3(a), neither A nor T is required to recognize gain at the time of
the migration. Section 1.684-2(e) provides rules that may require A to
recognize gain upon a subsequent change in the status of the trust.
Example 2. Migration of domestic trust with no U.S. beneficiaries. A
transfers property which has a fair market value of 1000X and an
adjusted basis equal to 400X to T, a domestic trust for the benefit of
A's mother who is not a citizen or resident of the United States. T is
not treated as owned by another person. B is the trustee of T. On
January 1, 2001, while A is still alive, B resigns as trustee and C
becomes successor trustee under the terms of the trust. Pursuant to
Sec. 301.7701-7(d) of this chapter, T becomes a foreign trust, FT. FT
has no U.S. beneficiaries within the meaning of Sec. 1.679-2 and no
person is treated as owning any portion of FT. T is required to
recognize gain of 600X on January 1, 2001. Paragraph (c) of this section
provides rules with respect to an inadvertent migration of a domestic
trust.
[T.D. 8956, 66 FR 37899, July 20, 2001]
Sec. 1.684-5 Effective date.
Sections 1.684-1 through 1.684-4 apply to transfers of property to
foreign trusts and foreign estates after August 7, 2000.
[T.D. 8956, 66 FR 37899, July 20, 2001]
income in respect of decedents
Sec. 1.691(a)-1 Income in respect of a decedent.
(a) Scope of section 691. In general, the regulations under section
691 cover: (1) The provisions requiring that amounts which are not
includible in gross income for the decedent's last taxable year or for a
prior taxable year be included in the gross income of the estate or
persons receiving such income to the extent that such amounts constitute
``income in respect of a decedent''; (2) the taxable effect of a
transfer of the right to such income; (3) the treatment of certain
deductions and credit in respect of a decedent which are not allowable
to the decedent for the taxable period ending with his death or for a
prior taxable year; (4) the allowance to a recipient of income in
respect of a decedent of a deduction for estate taxes attributable to
the inclusion of the value of the right to such income in the decedent's
estate; (5) special provisions with respect to installment obligations
acquired from a decedent and with respect to the allowance of a
deduction for estate taxes to a surviving annuitant under a joint and
survivor annuity contract; and (6) special provisions relating to
installment obligations transmitted at death when prior law applied to
the transmission.
(b) General definition. In general, the term income in respect of a
decedent refers to those amounts to which a decedent was entitled as
gross income but which were not properly includible in computing his
taxable income for the taxable year ending with the date of his death or
for a previous taxable year under the method of accounting employed by
the decedent. See the regulations under section 451. Thus, the term
includes:
(1) All accrued income of a decedent who reported his income by use
of the cash receipts and disbursements method;
(2) Income accrued solely by reason of the decedent's death in case
of a decedent who reports his income by use of an accrual method of
accounting; and
(3) Income to which the decedent had a contingent claim at the time
of his death.
[[Page 407]]
See sections 736 and 753 and the regulations thereunder for ``income in
respect of a decedent'' in the case of a deceased partner.
(c) Prior decedent. The term income in respect of a decedent also
includes the amount of all items of gross income in respect of a prior
decedent, if (1) the right to receive such amount was acquired by the
decedent by reason of the death of the prior decedent or by bequest,
devise, or inheritance from the prior decedent and if (2) the amount of
gross income in respect of the prior decedent was not properly
includible in computing the decedent's taxable income for the taxable
year ending with the date of his death or for a previous taxable year.
See example 2 of paragraph (b) of Sec. 1.691(a)-2.
(d) Items excluded from gross income. Section 691 applies only to
the amount of items of gross income in respect of a decedent, and items
which are excluded from gross income under subtitle A of the Code are
not within the provisions of section 691.
(e) Cross reference. For items deemed to be income in respect of a
decedent for purposes of the deduction for estate taxes provided by
section 691(c), see paragraph (c) of Sec. 1.691(c)-1.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6808, 30 FR
3435, Mar. 16, 1965]
Sec. 1.691(a)-2 Inclusion in gross income by recipients.
(a) Under section 691(a)(1), income in respect of a decedent shall
be included in the gross income, for the taxable year when received, of:
(1) The estate of the decedent, if the right to receive the amount
is acquired by the decedent's estate from the decedent;
(2) The person who, by reason of the death of the decedent, acquires
the right to receive the amount, if the right to receive the amount is
not acquired by the decedent's estate from the decedent; or
(3) The person who acquires from the decedent the right to receive
the amount by bequest, devise, or inheritance, if the amount is received
after a distribution by the decedent's estate of such right.
These amounts are included in the income of the estate or of such
persons when received by them whether or not they report income by use
of the cash receipts and disbursements methods.
(b) The application of paragraph (a) of this section may be
illustrated by the following examples, in each of which it is assumed
that the decedent kept his books by use of the cash receipts and
disbursements method.
Example 1. The decedent was entitled at the date of his death to a
large salary payment to be made in equal annual installments over five
years. His estate, after collecting two installments, distributed the
right to the remaining installment payments to the residuary legatee of
the estate. The estate must include in its gross income the two
installments received by it, and the legatee must include in his gross
income each of the three installments received by him.
Example 2. A widow acquired, by bequest from her husband, the right
to receive renewal commissions on life insurance sold by him in his
lifetime, which commissions were payable over a period of years. The
widow died before having received all of such commissions, and her son
inherited the right to receive the rest of the commissions. The
commissions received by the widow were includible in her gross income.
The commissions received by the son were not includible in the widow's
gross income but must be included in the gross income of the son.
Example 3. The decedent owned a Series E United States savings bond,
with his wife as co-owner or beneficiary, but died before the payment of
such bond. The entire amount of interest accruing on the bond and not
includible in income by the decedent, not just the amount accruing after
the death of the decedent, would be treated as income to his wife when
the bond is paid.
Example 4. A, prior to his death, acquired 10,000 shares of the
capital stock of the X Corporation at a cost of $100 per share. During
his lifetime, A had entered into an agreement with X Corporation whereby
X Corporation agreed to purchase and the decedent agreed that his
executor would sell the 10,000 shares of X Corporation stock owned by
him at the book value of the stock at the date of A's death. Upon A's
death, the shares are sold by A's executor for $500 a share pursuant to
the agreement. Since the sale of stock is consummated after A's death,
there is no income in respect of a decedent with respect to the
appreciation in value of A's stock to the date of his death. If, in this
example, A had in fact sold the stock during his lifetime but payment
had not been received before his death, any gain on the sale would
constitute income in respect of a decedent when the proceeds were
received.
[[Page 408]]
Example 5. (1) A owned and operated an apple orchard. During his
lifetime, A sold and delivered 1,000 bushels of apples to X, a canning
factory, but did not receive payment before his death. A also entered
into negotiations to sell 3,000 bushels of apples to Y, a canning
factory, but did not complete the sale before his death. After A's
death, the executor received payment from X. He also completed the sale
to Y and transferred to Y 1,200 bushels of apples on hand at A's death
and harvested and transferred an additional 1,800 bushels. The gain from
the sale of apples by A to X constitutes income in respect of a decedent
when received. On the other hand, the gain from the sale of apples by
the executor to Y does not.
(2) Assume that, instead of the transaction entered into with Y, A
had disposed of the 1,200 bushels of harvested apples by delivering them
to Z, a cooperative association, for processing and sale. Each year the
association commingles the fruit received from all of its members into a
pool and assigns to each member a percentage interest in the pool based
on the fruit delivered by him. After the fruit is processed and the
products are sold, the association distributes the net proceeds from the
pool to its members in proportion to their interests in the pool. After
A's death, the association made distributions to the executor with
respect to A's share of the proceeds from the pool in which A had in
interest. Under such circumstances, the proceeds from the disposition of
the 1,200 bushels of apples constitute income in respect of a decedent.
Sec. 1.691(a)-3 Character of gross income.
(a) The right to receive an amount of income in respect of a
decedent shall be treated in the hands of the estate, or by the person
entitled to receive such amount by bequest, devise, or inheritance from
the decedent or by reason of his death, as if it had been acquired in
the transaction by which the decedent (or a prior decedent) acquired
such right, and shall be considered as having the same character it
would have had if the decedent (or a prior decedent) had lived and
received such amount. The provisions of section 1014(a), relating to the
basis of property acquired from a decedent, do not apply to these
amounts in the hands of the estate and such persons. See section
1014(c).
(b) The application of paragraph (a) of this section may be
illustrated by the following:
(1) If the income would have been capital gain to the decedent, if
he had lived and had received it, from the sale of property, held for
more than 1 year (6 months for taxable years beginning before 1977; 9
months for taxable years beginning in 1977), the income, when received,
shall be treated in the hands of the estate or of such person as capital
gain from the sale of the property, held for more than 1 year (6 months
for taxable years beginning before 1977; 9 months for taxable years
beginning in 1977), in the same manner as if such person had held the
property for the period the decedent held it, and had made the sale.
(2) If the income is interest on United States obligations which
were owned by the decedent, such income shall be treated as interest on
United States obligations in the hands of the person receiving it, for
the purpose of determining the credit provided by section 35, as if such
person had owned the obligations with respect to which such interest is
paid.
(3) If the amounts received would be subject to special treatment
under part I (section 1301 and following), subchapter Q, chapter 1 of
the Code, relating to income attributable to serveral taxable years, as
in effect for taxable years beginning before January 1, 1964, if the
decedent had lived and included such amounts in his gross income, such
sections apply with respect to the recipient of the income.
(4) The provisions of sections 632 and 1347, relating to the tax
attributable to the sale of certain oil or gas property and to certain
claims against the United States, apply to any amount included in gross
income, the right to which was obtained by the decedent by a sale or
claim within the provisions of those sections.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6885, 31 FR
7803, June 2, 1966; T.D. 7728, 45 FR 72650, Nov. 3, 1980]
Sec. 1.691(a)-4 Transfer of right to income in respect of a decedent.
(a) Section 691(a)(2) provides the rules governing the treatment of
income in respect of a decedent (or a prior decedent) in the event a
right to receive such income is transferred by the estate or person
entitled thereto by bequest, devise, or inheritance, or by reason of the
death of the decedent. In general, the transferor must include in
[[Page 409]]
his gross income for the taxable period in which the transfer occurs the
amount of the consideration, if any, received for the right or the fair
market value of the right at the time of the transfer, whichever is
greater. Thus, upon a sale of such right by the estate or person
entitled to receive it, the fair market value of the right or the amount
received upon the sale, whichever is greater, is included in the gross
income of the vendor. Similarly, if such right is disposed of by gift,
the fair market value of the right at the time of the gift must be
included in the gross income of the donor. In the case of a satisfaction
of an installment obligation at other than face value, which is likewise
considered a transfer under section 691(a)(2), see Sec. 1.691(a)-5.
(b) If the estate of a decedent or any person transmits the right to
income in respect of a decedent to another who would be required by
section 691(a)(1) to include such income when received in his gross
income, only the transferee will include such income when received in
his gross income. In this situation, a transfer within the meaning of
section 691(a)(2) has not occurred. This paragraph may be illustrated by
the following:
(1) If a person entitled to income in respect of a decedent dies
before receiving such income, only his estate or other person entitled
to such income by bequest, devise, or inheritance from the latter
decedent, or by reason of the death of the latter decedent, must include
such amount in gross income when received.
(2) If a right to income in respect of a decedent is transferred by
an estate to a specific or residuary legatee, only the specific or
residuary legatee must include such income in gross income when
received.
(3) If a trust to which is bequeathed a right of a decedent to
certain payments of income terminates and transfers the right to a
beneficiary, only the beneficiary must include such income in gross
income when received.
If the transferee described in subparagraphs (1), (2), and (3) of this
paragraph transfers his right to receive the amounts in the manner
described in paragraph (a) of this section, the principles contained in
paragraph (a) are applied to such transfer. On the other hand, if the
transferee transmits his right in the manner described in this
paragraph, the principles of this paragraph are again applied to such
transfer.
Sec. 1.691(a)-5 Installment obligations acquired from decedent.
(a) Section 691(a)(4) has reference to an installment obligation
which remains uncollected by a decedent (or a prior decedent) and which
was originally acquired in a transaction the income from which was
properly reportable by the decedent on the installment method under
section 453. Under the provisions of section 691(a)(4), an amount equal
to the excess of the face value of the obligation over its basis in the
hands of the decedent (determined under section 453(d)(2) and the
regulations thereunder) shall be considered an amount of income in
respect of a decedent and shall be treated as such. The decedent's
estate (or the person entitled to receive such income by bequest or
inheritance from the decedent or by reason of the decedent's death)
shall include in its gross income when received the same proportion of
any payment in satisfaction of such obligations as would be returnable
as income by the decedent if he had lived and received such payment. No
gain on account of the transmission of such obligations by the
decedent's death is required to be reported as income in the return of
the decedent for the year of his death. See Sec. 1.691(e)-1 for special
provisions relating to the filing of an election to have the provisions
of section 691(a)(4) apply in the case of installment obligations in
respect of which section 44(d) of the Internal Revenue Code of 1939 (or
corresponding provisions of prior law) would have applied but for the
filing of a bond referred to therein.
(b) If an installment obligation described in paragraph (a) of this
section is transferred within the meaning of section 691(a)(2) and
paragraph (a) of Sec. 1.691(a)-4, the entire installment obligation
transferred shall be considered a right to income in respect of a
decedent but the amount includible in the gross income of the transferor
shall be reduced by an amount equal to the
[[Page 410]]
basis of the obligation in the hands of the decedent (determined under
section 453(d)(2) and the regulations thereunder) adjusted, however, to
take into account the receipt of any installment payments after the
decedent's death and before such transfer. Thus, the amount includible
in the gross income of the transferor shall be the fair market value of
such obligation at the time of the transfer or the consideration
received for the transfer of the installment obligation, whichever is
greater, reduced by the basis of the obligation as described in the
preceding sentence. For purposes of this paragraph, the term
``transfer'' in section 691(a)(2) and paragraph (a) of Sec. 1.691(a)-4
includes the satisfaction of an installment obligation at other than
face value.
(c) The application of this section may be illustrated by the
following example:
Example. An heir of a decedent is entitled to collect an installment
obligation with a face value of $100, a fair market value of $80, and a
basis in the hands of the decedent of $60. If the heir collects the
obligation at face value, the excess of the amount collected over the
basis is considered income in respect of a decedent and includible in
the gross income of the heir under section 691(a)(1). In this case, the
amount includible would be $40 ($100 less $60). If the heir collects the
obligation at $90, an amount other than face value, the entire
obligation is considered a right to receive income in respect of a
decedent but the amount ordinarily required to be included in the heir's
gross income under section 691(a)(2) (namely, the consideration received
in satisfaction of the installment obligation or its fair market value,
whichever is greater) shall be reduced by the amount of the basis of the
obligation in the hands of the decedent. In this case, the amount
includible would be $30 ($90 less $60).
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6808, 30 FR
3435, Mar. 16, 1965]
Sec. 1.691(b)-1 Allowance of deductions and credit in respect to
decedents.
(a) Under section 691(b) the expenses, interest, and taxes described
in sections 162, 163, 164, and 212 for which the decedent (or a prior
decedent) was liable, which were not properly allowable as a deduction
in his last taxable year or any prior taxable year, are allowed when
paid:
(1) As a deduction by the estate; or
(2) If the estate was not liable to pay such obligation, as a
deduction by the person who by bequest, devise, or inheritance from the
decedent or by reason of the death of the decedent acquires, subject to
such obligation, an interest in property of the decedent (or the prior
decedent).
Similar treatment is given to the foreign tax credit provided by section
33. For the purposes of subparagraph (2) of this paragraph, the right to
receive an amount of gross income in respect of a decedent is considered
property of the decedent; on the other hand, it is not necessary for a
person, otherwise within the provisions of subparagraph (2) of this
paragraph, to receive the right to any income in respect of a decedent.
Thus, an heir who receives a right to income in respect of a decedent
(by reason of the death of the decedent) subject to any income tax
imposed by a foreign country during the decedent's life, which tax must
be satisfied out of such income, is entitled to the credit provided by
section 33 when he pays the tax. If a decedent who reported income by
use of the cash receipts and disbursements method owned real property on
which accrued taxes had become a lien, and if such property passed
directly to the heir of the decedent in a jurisdiction in which real
property does not become a part of a decedent's estate, the heir, upon
paying such taxes, may take the same deduction under section 164 that
would be allowed to the decedent if, while alive, he had made such
payment.
(b) The deduction for percentage depletion is allowable only to the
person (described in section 691(a)(1)) who receives the income in
respect of the decedent to which the deduction relates, whether or not
such person receives the property from which such income is derived.
Thus, an heir who (by reason of the decedent's death) receives income
derived from sales of units of mineral by the decedent (who reported
income by use of the cash receipts and disbursements method) shall be
allowed the deduction for percentage depletion, computed on the gross
income from such number of units as if the
[[Page 411]]
heir had the same economic interest in the property as the decedent.
Such heir need not also receive any interest in the mineral property
other than such income. If the decedent did not compute his deduction
for depletion on the basis of percentage depletion, any deduction for
depletion to which the decedent was entitled at the date of his death
would be allowable in computing his taxable income for his last taxable
year, and there can be no deduction in respect of the decedent by any
other person for such depletion.
Sec. 1.691(c)-1 Deduction for estate tax attributable to income in
respect of a decedent.
(a) In general. A person who is required to include in gross income
for any taxable year an amount of income in respect of a decedent may
deduct for the same taxable year that portion of the estate tax imposed
upon the decedent's estate which is attributable to the inclusion in the
decedent's estate of the right to receive such amount. The deduction is
determined as follows:
(1) Ascertain the net value in the decedent's estate of the items
which are included under section 691 in computing gross income. This is
the excess of the value included in the gross estate on account of the
items of gross income in respect of the decedent (see Sec. 1.691(a)-1
and paragraph (c) of this section) over the deductions from the gross
estate for claims which represent the deductions and credit in respect
of the decedent (see Sec. 1.691(b)-1). But see section 691(d) and
paragraph (b) of Sec. 1.691(d)-1 for computation of the special value
of a survivor's annuity to be used in computing the net value for estate
tax purposes in cases involving joint and survivor annuities.
(2) Ascertain the portion of the estate tax attributable to the
inclusion in the gross estate of such net value. This is the excess of
the estate tax over the estate tax computed without including such net
value in the gross estate. In computing the estate tax without including
such net value in the gross estate, any estate tax deduction (such as
the marital deduction) which may be based upon the gross estate shall be
recomputed so as to take into account the exclusion of such net value
from the gross estate. See example 2, paragraph (e) of Sec. 1.691(d)-1.
For purposes of this section, the term estate tax means the tax imposed
under section 2001 or 2101 (or the corresponding provisions of the
Internal Revenue Code of 1939), reduced by the credits against such tax.
Each person including in gross income an amount of income in respect of
a decedent may deduct as his share of the portion of the estate tax
(computed under subparagraph (2) of this paragraph) an amount which
bears the same ratio to such portion as the value in the gross estate of
the right to the income included by such person in gross income (or the
amount included in gross income if lower) bears to the value in the
gross estate of all the items of gross income in respect of the
decedent.
(b) Prior decedent. If a person is required to include in gross
income an amount of income in respect of a prior decedent, such person
may deduct for the same taxable year that portion of the estate tax
imposed upon the prior decedent's estate which is attributable to the
inclusion in the prior decedent's estate of the value of the right to
receive such amount. This deduction is computed in the same manner as
provided in paragraph (a) of this section and is in addition to the
deduction for estate tax imposed upon the decedent's estate which is
attributable to the inclusion in the decedent's estate of the right to
receive such amount.
(c) Amounts deemed to be income in respect of a decedent. For
purposes of allowing the deduction under section 691(c), the following
items are also considered to be income in respect of a decedent under
section 691(a):
(1) The value for estate tax purposes of stock options in respect of
which amounts are includible in gross income under section 421(b) (prior
to amendment by section 221(a) of the Revenue Act of 1964), in the case
of taxable years ending before January 1, 1964, or under section
422(c)(1), 423(c), or 424(c)(1), whichever is applicable, in the case of
taxable years ending after December 31, 1963. See section 421(d)(6)
(prior to amendment by sec. 221(a) of the Revenue Act of 1964), in the
case of taxable years ending before January 1, 1964, and section
421(c)(2), in the case of
[[Page 412]]
taxable years ending after December 31, 1963.
(2) Amounts received by a surviving annuitant during his life
expectancy period as an annuity under a joint and survivor annuity
contract to the extent included in gross income under section 72. See
section 691(d).
(d) Examples. Paragraphs (a) and (b) of this section may be
illustrated by the following examples:
Example 1. X, an attorney who kept his books by use of the cash
receipts and disbursements method, was entitled at the date of his death
to a fee for services rendered in a case not completed at the time of
his death, which fee was valued in his estate at $1,000, and to accrued
bond interest, which was valued in his estate at $500. In all, $1,500
was included in his gross estate in respect of income described in
section 691(a)(1). There were deducted as claims against his estate $150
for business expenses for which his estate was liable and $50 for taxes
accrued on certain property which he owned. In all, $200 was deducted
for claims which represent amounts described in section 691(b) which are
allowable as deductions to his estate or to the beneficiaries of his
estate. His gross estate was $185,000 and, considering deductions of
$15,000 and an exemption of $60,000, his taxable estate amounted to
$110,000. The estate tax on this amount is $23,700 from which is
subtracted a $75 credit for State death taxes leaving an estate tax
liability of $23,625. In the year following the closing of X's estate,
the fee in the amount of $1,200 was collected by X's son, who was the
sole beneficiary of the estate. This amount was included under section
691(a)(1)(C) in the son's gross income. The son may deduct, in computing
his taxable income for such year, $260 on account of the estate tax
attributable to such income, computed as follows:
(1) (i) Value of income described in section 691(a)(1) $1,500
included in computing gross estate.........................
(ii) Deductions in computing gross estate for claims 200
representing deductions described in section 691(b)........
-----------
(iii) Net value of items described in section 691(a)(1)..... 1,300
===========
(2) (i) Estate tax.......................................... 23,625
(ii) Less: Estate tax computed without including $1,300 23,235
(item (1)(iii)) in gross estate............................
-----------
(iii) Portion of estate tax attributable to net value of 390
items described in section 691(a)(1).......................
===========
(3) (i) Value in gross estate of items described in section 1,000
691(a)(1) received in taxable year (fee)...................
(ii) Value in gross estate of all income items described in 1,500
section 691(a)(1) (item (1)(i))............................
(iii) Part of estate tax deductible on account of receipt of 260
$1,200 fee (1,000/1,500 of $390)...........................
Although $1,200 was later collected as the fee, only the $1,000 actually
included in the gross estate is used in the above computations. However,
to avoid distortion, section 691(c) provides that if the value included
in the gross estate is greater than the amount finally collected, only
the amount collected shall be used in the above computations. Thus, if
the amount collected as the fee were only $500, the estate tax
deductible on the receipt of such amount would be 500/1,500 of $390, or
$130. With respect to taxable years ending before January 1, 1964, see
paragraph (d)(3) of Sec. 1.421-5 for a similar example involving a
restricted stock option. With respect to taxable years ending after
December 31, 1963, see paragraph (c)(3) of Sec. 1.421-8 for a similar
example involving a stock option subject to the provisions of part II of
subchapter D.
Example 2. Assume that in example 1 the fee valued at $1,000 had
been earned by prior decedent Y and had been inherited by X who died
before collecting it. With regard to the son, the fee would be
considered income in respect of a prior decedent. Assume further that
the fee was valued at $1,000 in Y's estate, that the net value in Y's
estate of items described in section 691 (a)(1) was $5,000 and that the
estate tax imposed on Y's estate attributable to such net value was
$550. In such case, the portion of such estate tax attributable to the
fee would be 1,000/5,000 of $550, or $110. When the son collects the
$1,200 fee, he will receive for the same taxable year a deduction of
$110 with respect to the estate tax imposed on the estate of prior
decedent Y as well as the deduction of $260 (as computed in example 1)
with respect to the estate tax imposed on the estate of decedent X.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6887, 31 FR
8812, June 24, 1966]
Sec. 1.691(c)-2 Estates and trusts.
(a) In the case of an estate or trust, the deduction prescribed in
section 691(c) is determined in the same manner as described in Sec.
1.691(c)-1, with the following exceptions:
(1) If any amount properly paid, credited, or required to be
distributed by an estate or trust to a beneficiary consists of income in
respect of a decedent received by the estate or trust during the taxable
year:
(i) Such income shall be excluded in determining the income in
respect of the decedent with respect to which the estate or trust is
entitled to a deduction under section 691(c), and
(ii) Such income shall be considered income in respect of a decedent
to such
[[Page 413]]
beneficiary for purposes of allowing the deduction under section 691(c)
to such beneficiary.
(2) For determination of the amount of income in respect of a
decedent received by the beneficiary, see sections 652 and 662, and
Sec. Sec. 1.652(b)-2 and 1.662(b)-2. However, for this purpose,
distributable net income as defined in section 643 (a) and the
regulations thereunder shall be computed without taking into account the
estate tax deduction provided in section 691(c) and this section.
Distributable net income as modified under the preceding sentence shall
be applied for other relevant purposes of subchapter J, chapter 1 of the
Code, such as the deduction provided by section 651 or 661, or subpart
D, part I of subchapter J, relating to excess distributions by trusts.
(3) The rule stated in subparagraph (1) of this paragraph does not
apply to income in respect of a decedent which is properly allocable to
corpus by the fiduciary during the taxable year but which is distributed
to a beneficiary in a subsequent year. The deduction provided by section
691(c) in such a case is allowable only to the estate or trust. If any
amount properly paid, credited, or required to be distributed by a trust
qualifies as a distribution under section 666, the fact that a portion
thereof constitutes income in respect of a decedent shall be disregarded
for the purposes of determining the deduction of the trust and of the
beneficiaries under section 691(c) since the deduction for estate taxes
was taken into consideration in computing the undistributed net income
of the trust for the preceding taxable year.
(b) This section shall apply only to amounts properly paid,
credited, or required to be distributed in taxable years of an estate or
trust beginning after December 31, 1953, and ending after August 16,
1954, except as otherwise provided in paragraph (c) of this section.
(c) In the case of an estate or trust heretofore taxable under the
provisions of the Internal Revenue Code of 1939, amounts paid, credited,
or to be distributed during its first taxable year subject to the
Internal Revenue Code of 1954 which would have been treated as paid,
credited, or to be distributed on the last day of the preceding taxable
year if the Internal Revenue Code of 1939 were still applicable shall
not be subject to the provisions of section 691(c)(1)(B) or this
section. See section 683 and the regulations thereunder.
(d) The provisions of this section may be illustrated by the
following example, in which it is assumed that the estate and the
beneficiary make their returns on the calendar year basis:
Example. (1) The fiduciary of an estate receives taxable interest of
$5,500 and income in respect of a decedent of $4,500 during the taxable
year. Neither the will of the decedent nor local law requires the
allocation to corpus of income in respect of a decedent. The estate tax
attributable to the income in respect of a decedent is $1,500. In his
discretion, the fiduciary distributes $2,000 (falling within sections
661(a) and 662(a)) to a beneficiary during that year. On these facts the
fiduciary and beneficiary are respectively entitled to estate tax
deductions of $1,200 and $300, computed as follows:
(2) Distributable net income computed under section 643(a) without
regard to the estate tax deduction under section 691(c) is $10,000,
computed as follows:
Taxable interest............................................. $5,500
Income in respect of a decedent.............................. 4,500
------------
Total.................................................... 10,000
(3) Inasmuch as the distributable net income of $10,000 exceeds the
amount of $2,000 distributed to the beneficiary, the deduction allowable
to the estate under section 661(a) and the amount taxable to the
beneficiary under section 662(a) is $2,000.
(4) The character of the amounts distributed to the beneficiary
under section 662 (b) is shown in the following table:
------------------------------------------------------------------------
Income in
Taxable respect
interest of a Total
decedent
------------------------------------------------------------------------
Distributable net income............... $5,500 $4,500 $10,000
Amount deemed distributed under section 1,100 900 2,000
662(b)................................
------------------------------------------------------------------------
(5) Accordingly, the beneficiary will be entitled to an estate tax
deduction of $300 (900/4,500x$1,500) and the estate will be entitled to
an estate tax deduction of $1,200 (3,600/4,500x$1,500).
(6) The taxable income of the estate is $6,200, computed as follows:
Gross income................................................. $10,000
Less:
Distributions to the beneficiary................ $2,000
Estate tax deduction under section 691(c)......... 1,200
Personal exemption................................ 600
[[Page 414]]
3,800
------------
Taxable income........................................... 6,200
Sec. 1.691(d)-1 Amounts received by surviving annuitant under joint
and survivor annuity contract.
(a) In general. Under section 691(d), annuity payments received by a
surviving annuitant under a joint and survivor annuity contract (to the
extent indicated in paragraph (b) of this section) are treated as income
in respect of a decedent under section 691(a) for the purpose of
allowing the deduction for estate tax provided for in section
691(c)(1)(A). This section applies only if the deceased annuitant died
after December 31, 1953, and after the annuity starting date as defined
in section 72(c)(4).
(b) Special value for surviving annuitant's payments. Section 691(d)
provides a special value for the surviving annuitant's payments to
determine the amount of the estate tax deduction provided for in section
691(c)(1)(A). This special value is determined by multiplying:
(1) The excess of the value of the annuity at the date of death of
the deceased annuitant over the total amount excludable from the gross
income of the surviving annuitant under section 72 during his life
expectancy period (see paragraph (d)(1)(i) of this section)
by
(2) A fraction consisting of the value of the annuity for estate tax
purposes over the value of the annuity at the date of death of the
deceased annuitant.
This special value is used for the purpose of determining the net value
for estate tax purposes (see section 691(c)(2)(B) and paragraph (a)(1)
of Sec. 1.691(c)-1) and for the purpose of determining the portion of
estate tax attributable to the survivor's annuity (see paragraph (a) of
Sec. 1.691(c)-1).
(c) Amount of deduction. The portion of estate tax attributable to
the survivor's annuity (see paragraph (a) of Sec. 1.691(c)-1) is
allowable as a deduction to the surviving annuitant over his life
expectancy period. If the surviving annuitant continues to receive
annuity payments beyond this period, there is no further deduction under
section 691(d). If the surviving annuitant dies before expiration of
such period, there is no compensating adjustment for the unused
deduction.
(d) Definitions. (1) For purposes of section 691(d) and this
section:
(i) The term life expectancy period means the period beginning with
the first day of the first period for which an amount is received by the
surviving annuitant under the contract and ending with the close of the
taxable year with or in which falls the termination of the life
expectancy of the surviving annuitant.
(ii) The life expectancy of the surviving annuitant shall be
determined as of the date of death of the deceased annuitant, with
reference to actuarial Table I set forth in Sec. 1.72-9 (but without
making any adjustment under paragraph (a)(2) of Sec. 1.72-5).
(iii) The value of the annuity at the date of death of the deceased
annuitant shall be the entire value of the survivor's annuity determined
by reference to the principles set forth in section 2031 and the
regulations thereunder, relating to the valuation of annuities for
estate tax purposes.
(iv) The value of the annuity for estate tax purposes shall be that
portion of the value determined under subdivision (iii) of this
subparagraph which was includible in the deceased annuitant's gross
estate.
(2) The determination of the ``life expectancy period'' of the
survivor for purposes of section 691(d) may be illustrated by the
following example:
Example. H and W file their income tax returns on the calendar year
basis. H dies on July 15, 1955, on which date W is 70 years of age. On
August 1, 1955, W receives a monthly payment under a joint and survivor
annuity contract. W's life expectancy determined as of the date of H's
death is 15 years as determined from Table I in Sec. 1.72-9; thus her
life expectancy ends on July 14, 1970. Under the provisions of section
691(d), her life expectancy period begins as of July 1, 1955, and ends
as of December 31, 1970, thus giving her a life expectancy period of
15\1/2\ years.
(e) Examples. The application of section 691(d) and this section may
be illustrated by the following examples:
Example 1. (1) H and W, husband and wife, purchased a joint and
survivor annuity contract for $203,800 providing for monthly payments of
$1,000 starting January 28, 1954, and
[[Page 415]]
continuing for their joint lives and for the remaining life of the
survivor. H contributed $152,850 and W contributed $50,950 to the cost
of the annuity. As of the annuity starting date, January 1, 1954, H's
age at his nearest birthday was 70 and W's age at her nearest birthday
was 67. H dies on January 1, 1957, and beginning on January 28, 1957, W
receives her monthly payments of $1,000. The value of the annuity at the
date of H's death is $159,000 (see paragraph (d)(1)(iii) of this
section), and the value of the annuity for estate tax purposes (see
paragraph (d)(1)(iv) of this section) is $119,250 (152,850/203,800 of
$159,000). As of the date of H's death, W's age is 70 and her life
expectancy period is 15 years (see paragraph (d) of this section for
method of computation). Both H and W reported income by use of the cash
receipts and disbursements method and filed income tax returns on the
calendar year basis.
(2) The following computations illustrate the application of section
72 in determining the excludable portions of the annuity payments to W
during her life expectancy period:
Amount of annuity payments per year (12x$1,000).............. $12,000
Life expectancy of H and W as of the annuity starting date 19.7
(see section 72(c)(3)(A) and Table II of Sec. 1.72-9
(male, age 70; female, age 67)).............................
Expected return as of the annuity starting date, January 1, $236,400
1954 ($12,000x19.7 as determined under section 72(c)(3)(A)
and paragraph (b) of Sec. 1.72-5).........................
Investment in the contract as of the annuity starting date, $203,800
Jan. 1, 1954 (see section 72(c)(1) and paragraph (a) of Sec.
1.72-6)...................................................
Exclusion ratio (203,800/236,400 as determined under section 86.2
72(b) and Sec. 1.72-4) (percent)..........................
Exclusion per year under section 72 ($12,000x86.2 percent)... $10,344
Excludable during W's life expectancy period ($10,344x15).... $155,160
(3) For the purpose of computing the deduction for estate tax under
section 691(c), the value for estate tax purposes of the amounts
includible in W's gross income and considered income in respect of a
decedent by virtue of section 691(d)(1) is $2,880. This amount is
arrived at in accordance with the formula contained in section
691(d)(2), as follows:
Value of annuity at the date of H's death.................... $159,000
Total amount excludable from W's gross income under section $155,160
72 during W's life expectancy period (see subparagraph (2)
of this example)............................................
Excess....................................................... $3,840
Ratio which value of annuity for estate tax purposes bears to 75
value of annuity at date of H's death (119,250/159,000)
(percent)...................................................
Value for estate tax purposes (75 percent of $3,840)......... $2,880
This amount ($2,880) is included in the items of income under section
691(a)(1) for the purpose of determining the estate tax attributable to
each item under section 691(c)(1)(A). The estate tax determined to be
attributable to the item of $2,880 is then allowed as a deduction to W
over her 15-year life expectancy period (see example 2 of this
paragraph).
Example 2. Assume, in addition to the facts contained in example 1
of this paragraph, that H was an attorney and was entitled at the date
of his death to a fee for services rendered in a case not completed at
the time of his death, which fee was valued at $1,000, and to accrued
bond interest, which was valued at $500. Taking into consideration the
annuity payments of example 1, valued at $2,880, a total of $4,380 was
included in his gross estate in respect of income described in section
691(a)(1). There were deducted as claims against his estate $280 for
business expenses for which his estate was liable and $100 for taxes
accrued on certain property which he owned. In all, $380 was deducted
for claims which represent amounts described in section 691(b) which are
allowable as deductions to his estate or to the beneficiaries of his
estate. His gross estate was $404,250 and considering deductions of
$15,000, a marital deduction of $119,250 (assuming the annuity to be the
only qualifying gift) and an exemption of $60,000, his taxable estate
amounted to $210,000. The estate tax on this amount is $53,700 from
which is subtracted a $175 credit for State death taxes, leaving an
estate tax liability of $53,525. W may deduct, in computing her taxable
income during each year of her 15-year life expectancy period, $14.73 on
account of the estate tax attributable to the value for estate tax
purposes of that portion of the annuity payments considered income in
respect of a decedent, computed as follows:
(1)(i) Value of income described in section 691(a)(1) $4,380.00
included in computing gross estate..........................
(ii) Deductions in computing gross estate for claims 380.00
representing deductions described in section 691(b).........
------------
(iii) Net value of items described in section 691(a) (1). 4,000.00
============
(2)(i) Estate tax............................................ 53,525.00
(ii) Less: estate tax computed without including $4,000 (item 53,189.00
(1) (iii)) in gross estate and by reducing marital deduction
by $2,880 (portion of item (1)(iii) allowed as a marital
deduction)..................................................
------------
(iii) Portion of estate tax attributable to net value of 336.00
income items............................................
(3)(i) Value in gross estate of income attributable to 2,880.00
annuity payments............................................
(ii) Value in gross estate of all income items described in 4,380.00
section 691(a)(1) (item (1)(i)).............................
(iii) Part of estate tax attributable to annuity income 220.93
(2,880/4,380 of $336).......................................
(iv) Deduction each year on account of estate tax 14.73
attributable to annuity income ($220.93/15 (life expectancy
period))....................................................
[[Page 416]]
Sec. 1.691(e)-1 Installment obligations transmitted at death when
prior law applied.
(a) In general--(1) Application of prior law. Under section 44(d) of
the Internal Revenue Code of 1939 and corresponding provisions of prior
law, gains and losses on account of the transmission of installment
obligations at the death of a holder of such obligations were required
to be reported in the return of the decedent for the year of his death.
However, an exception to this rule was provided if there was filed with
the Commissioner a bond assuring the return as income of any payment in
satisfaction of these obligations in the same proportion as would have
been returnable as income by the decedent had he lived and received such
payments. Obligations in respect of which such bond was filed are
referred to in this section as ``obligations assured by bond''.
(2) Application of present law. Section 691(a)(4) of the Internal
Revenue Code of 1954 (effective for taxable years beginning after
December 31, 1953, and ending after August 16, 1954) in effect makes the
exception which under prior law applied to obligations assured by bond
the general rule for obligations transmitted at death, but contains no
requirement for a bond. Section 691(e)(1) provides that if the holder of
the installment obligation makes a proper election, the provisions of
section 691(a)(4) shall apply in the case of obligations assured by
bond. Section 691(e)(1) further provides that the estate tax deduction
provided by section 691(c)(1) is not allowable for any amount included
in gross income by reason of filing such an election.
(b) Manner and scope of election--(1) In general. The election to
have obligations assured by bond treated as obligations to which section
691(a)(4) applies shall be made by the filing of a statement with
respect to each bond to be released, containing the following
information:
(i) The name and address of the decedent from whom the obligations
assured by bond were transmitted, the date of his death, and the
internal revenue district in which the last income tax return of the
decedent was filed.
(ii) A schedule of all obligations assured by the bond on which is
listed--
(a) The name and address of the obligors, face amount, date of
maturity, and manner of payment of each obligation,
(b) The name, identifying number (provided under section 6109 and
the regulations thereunder), and address of each person holding the
obligations, and
(c) The name, identifying number, and address, of each person who at
the time of the election possesses an interest in each obligation, and a
description of such interest.
(iii) The total amount of income in respect of the obligations which
would have been reportable as income by the decedent if he had lived and
received such payment.
(iv) The amount of income referred to in subdivision (iii) of this
subparagraph which has previously been included in gross income.
(v) An unqualified statement, signed by all persons holding the
obligations, that they elect to have the provisions of section 691(a)(4)
apply to such obligations and that such election shall be binding upon
them, all current beneficiaries, and any person to whom the obligations
may be transmitted by gift, bequest, or inheritance.
(vi) A declaration that the election is made under the penalties of
perjury.
(2) Filing of statement. The statement with respect to each bond to
be released shall be filed in duplicate with the district director of
internal revenue for the district in which the bond is maintained. The
statement shall be filed not later than the time prescribed for filing
the return for the first taxable year (including any extension of time
for such filing) to which the election applies.
(3) Effect of election. The election referred to in subparagraph (1)
of this paragraph shall be irrevocable. Once an election is made with
respect to an obligation assured by bond, it shall apply to all payments
made in satisfaction of such obligation which were received during the
first taxable year to which the election applies and to all such
payments received during each taxable year thereafter, whether the
recipient is the person who made the election, a
[[Page 417]]
current beneficiary, or a person to whom the obligation may be
transmitted by gift, bequest, or inheritance. Therefore, all payments
received to which the election applies shall be treated as payments made
on installment obligations to which section 691(a)(4) applies. However,
the estate tax deduction provided by section 691(c) is not allowable for
any such payment. The application of this subparagraph may be
illustrated by the following example:
Example. A, the holder of an installment obligation, died in 1952.
The installment obligation was transmitted at A's death to B who filed a
bond on Form 1132 pursuant to paragraph (c) of Sec. 39.44-5 of
Regulations 118 (26 CFR part 39, 1939 ed.) for the necessary amount. On
January 1, 1965, B, a calendar year taxpayer, filed an election under
section 691(e) to treat the obligation assured by bond as an obligation
to which section 691(a)(4) applies, and B's bond was released for 1964
and subsequent taxable years. B died on June 1, 1965, and the obligation
was bequeathed to C. On January 1, 1966, C received an installment
payment on the obligation which had been assured by the bond. Because B
filed an election with respect to the obligation assured by bond, C is
required to treat the proper proportion of the January 1, 1966, payment
and all subsequent payments made in satisfaction of this obligation as
income in respect of a decedent. However, no estate tax deduction is
allowable to C under section 691(c)(1) for any estate tax attributable
to the inclusion of the value of such obligation in the estate of either
A or B.
(c) Release of bond. If an election according to the provisions of
paragraph (b) of this section is filed, the liability under any bond
filed under section 44(d) of the 1939 Code (or the corresponding
provisions of prior law) shall be released with respect to each taxable
year to which such election applies. However, the liability under any
such bond for an earlier taxable year to which the election does not
apply shall not be released until the district director of internal
revenue for the district in which the bond is maintained is assured that
the proper portion of each installment payment received in such taxable
year has been reported and the tax thereon paid.
[T.D. 6808, 30 FR 3436, Mar. 16, 1965]
Sec. 1.691(f)-1 Cross reference.
See section 753 and the regulations thereunder for application of
section 691 to income in respect of a deceased partner.
[T.D. 6808, 30 FR 3436, Mar. 16, 1965]
Sec. 1.692-1 Abatement of income taxes of certain members of the Armed
Forces of the United States upon death.
(a)(1) This section applies if:
(i) An individual dies while in active service as a member of the
Armed Forces of the United States, and
(ii) His death occurs while he is serving in a combat zone (as
determined under section 112), or at any place as a result of wounds,
disease, or injury incurred while he was serving in a combat zone.
(2) If an individuals dies as described in paragraph (a)(1), the
following liabilities for tax, under subtitle A of the Internal Revenue
Code of 1954 or under chapter 1 of the Internal Revenue Code of 1939,
are canceled:
(i) The libaility of the deceased individual, for the last taxable
year, ending on the date of his death, and for any prior taxable year
ending on or after the first day he served in a combat zone in active
service as a member of the U.S. Armed Forces after June 24, 1950, and
(ii) The liability of any other person to the extent the liability
is attributable to an amount received after the individual's death
(including income in respect of a decedent under section 691) which
would have been includible in the individual's gross income for his
taxable year in which the date of his death falls (determined as if he
had survived).
If the tax (including interest, additions to the tax, and additional
amounts) is assessed, the assessment will be abated. If the amount of
the tax is collected (regardless of the date of collection), the amount
so collected will be credited or refunded as an overpayment.
(3) If an individual dies as described in paragraph (a)(1), there
will not be assessed any amount of tax of the indvidual for taxable
years preceding the years specified in paragraph (a)(2),
[[Page 418]]
under subtitle A of the Internal Revenue Code of 1954, chapter 1 of the
Internal Revenue Code of 1939, or corresponding provisions of prior
revenue laws, remaining unpaid as of the date of death. If any such
unpaid tax (including interest, additions to the tax, and additional
amounts) has been assessed, the assessments will be abated. If the
amount of any such unpaid tax is collected after the date of death, the
amount so collected will be credited or refunded as an overpayment.
(4) As to what constitutes active service as a member of the Armed
Forces, service in a combat zone, and wounds, disease, or injury
incurred while serving in a combat zone, see section 112. As to who are
members of the Armed Forces, see section 7701(a)(15). As to the period
of time within which any claim for refund must be filed, see sections
6511(a) and 7508(a)(1)(E).
(b) If such an individual and his spouse have for any such year
filed a joint return, the tax abated, credited, or refunded pursuant to
the provisions of section 692 for such year shall be an amount equal to
that portion of the joint tax liability which is the same percentage of
such joint tax liability as a tax computed upon the separate income of
such individual is of the sum of the taxes computed upon the separate
income of such individual and his spouse, but with respect to taxable
years ending before June 24, 1950, and with respect to taxable years
ending before the first day such individual served in a combat zone, as
determined under section 112, the amount so abated, credited, or
refunded shall not exceed the amount unpaid at the date of death. For
such purpose, the separate tax of each spouse:
(1) For taxable years beginning after December 31, 1953, and ending
after August 16, 1954, shall be the tax computed under subtitle A of the
Internal Revenue Code of 1954 before the application of sections 31, 32,
6401(b), and 6402, but after the application of section 33, as if such
spouse were required to make a separate income tax return; and
(2) For taxable years beginning before January 1, 1954, and for
taxable years beginning after December 31, 1953, and ending before
August 17, 1954, shall be the tax computed under chapter 1 of the
Internal Revenue Code of 1939 before the application of sections 32, 35,
and 322(a), but after the application of section 31, as if such spouse
were required to make a separate income tax return.
(c) If such an individual and his spouse filed a joint declaration
of estimated tax for the taxable year ending with the date of his death,
the estimated tax paid pursuant to such declaration may be treated as
the estimated tax of either such individual or his spouse, or may be
divided between them, in such manner as his legal representative and
such spouse may agree. Should they agree to treat such estimated tax, or
any portion thereof, as the estimated tax of such individual, the
estimated tax so paid shall be credited or refunded as an overpayment
for the taxable year ending with the date of his death.
(d) For the purpose of determining the tax which is unpaid at the
date of death, amounts deducted and withheld under chapter 24, subtitle
C of the Internal Revenue Code of 1954, or under subchapter D, chapter 9
of the Internal Revenue Code of 1939 (relating to income tax withheld at
source on wages), constitute payment of tax imposed under subtitle A of
the Internal Revenue Code of 1954 or under chapter 1 of the Internal
Revenue Code of 1939, as the case may be.
(e) This section shall have no application whatsoever with respect
to the liability of an individual as a transferee of property of a
taxpayer where such liability relates to the tax imposed upon the
taxpayer by subtitle A of the Internal Revenue Code of 1954 or by
chapter 1 of the Internal Revenue Code of 1939.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7543, 43 FR
19392, May 5, 1978]
PARTNERS AND PARTNERSHIPS
Determination of Tax Liability
Sec. 1.701-1 Partners, not partnership, subject to tax.
Partners are liable for income tax only in their separate
capacities. Partnerships as such are not subject to the income tax
imposed by subtitle A but
[[Page 419]]
are required to make returns of income under the provisions of section
6031 and the regulations thereunder. For definition of the terms
``partner'' and ``partnership'', see sections 761 and 7701(a)(2), and
the regulations thereunder. For provisions relating to the election of
certain partnerships to be taxed as domestic corporations, see section
1361 and the regulations thereunder.
Sec. 1.701-2 Anti-abuse rule.
(a) Intent of subchapter K. Subchapter K is intended to permit
taxpayers to conduct joint business (including investment) activities
through a flexible economic arrangement without incurring an entity-
level tax. Implicit in the intent of subchapter K are the following
requirements--
(1) The partnership must be bona fide and each partnership
transaction or series of related transactions (individually or
collectively, the transaction) must be entered into for a substantial
business purpose.
(2) The form of each partnership transaction must be respected under
substance over form principles.
(3) Except as otherwise provided in this paragraph (a)(3), the tax
consequences under subchapter K to each partner of partnership
operations and of transactions between the partner and the partnership
must accurately reflect the partners' economic agreement and clearly
reflect the partner's income (collectively, proper reflection of
income). However, certain provisions of subchapter K and the regulations
thereunder were adopted to promote administrative convenience and other
policy objectives, with the recognition that the application of those
provisions to a transaction could, in some circumstances, produce tax
results that do not properly reflect income. Thus, the proper reflection
of income requirement of this paragraph (a)(3) is treated as satisfied
with respect to a transaction that satisfies paragraphs (a)(1) and (2)
of this section to the extent that the application of such a provision
to the transaction and the ultimate tax results, taking into account all
the relevant facts and circumstances, are clearly contemplated by that
provision. See, for example, paragraph (d) Example 6 of this section
(relating to the value-equals-basis rule in Sec. 1.704-
1(b)(2)(iii)(c)), paragraph (d) Example 9 of this section (relating to
the election under section 754 to adjust basis in partnership property),
and paragraph (d) Examples 10 and 11 of this section (relating to the
basis in property distributed by a partnership under section 732). See
also, for example, Sec. Sec. 1.704-3(e)(1) and 1.752-2(e)(4) (providing
certain de minimis exceptions).
(b) Application of subchapter K rules. The provisions of subchapter
K and the regulations thereunder must be applied in a manner that is
consistent with the intent of subchapter K as set forth in paragraph (a)
of this section (intent of subchapter K). Accordingly, if a partnership
is formed or availed of in connection with a transaction a principal
purpose of which is to reduce substantially the present value of the
partners' aggregate federal tax liability in a manner that is
inconsistent with the intent of subchapter K, the Commissioner can
recast the transaction for federal tax purposes, as appropriate to
achieve tax results that are consistent with the intent of subchapter K,
in light of the applicable statutory and regulatory provisions and the
pertinent facts and circumstances. Thus, even though the transaction may
fall within the literal words of a particular statutory or regulatory
provision, the Commissioner can determine, based on the particular facts
and circumstances, that to achieve tax results that are consistent with
the intent of subchapter K--
(1) The purported partnership should be disregarded in whole or in
part, and the partnership's assets and activities should be considered,
in whole or in part, to be owned and conducted, respectively, by one or
more of its purported partners;
(2) One or more of the purported partners of the partnership should
not be treated as a partner;
(3) The methods of accounting used by the partnership or a partner
should be adjusted to reflect clearly the partnership's or the partner's
income;
(4) The partnership's items of income, gain, loss, deduction, or
credit should be reallocated; or
(5) The claimed tax treatment should otherwise be adjusted or
modified.
[[Page 420]]
(c) Facts and circumstances analysis; factors. Whether a partnership
was formed or availed of with a principal purpose to reduce
substantially the present value of the partners' aggregate federal tax
liability in a manner inconsistent with the intent of subchapter K is
determined based on all of the facts and circumstances, including a
comparison of the purported business purpose for a transaction and the
claimed tax benefits resulting from the transaction. The factors set
forth below may be indicative, but do not necessarily establish, that a
partnership was used in such a manner. These factors are illustrative
only, and therefore may not be the only factors taken into account in
making the determination under this section. Moreover, the weight given
to any factor (whether specified in this paragraph or otherwise) depends
on all the facts and circumstances. The presence or absence of any
factor described in this paragraph does not create a presumption that a
partnership was (or was not) used in such a manner. Factors include:
(1) The present value of the partners' aggregate federal tax
liability is substantially less than had the partners owned the
partnership's assets and conducted the partnership's activities
directly;
(2) The present value of the partners' aggregate federal tax
liability is substantially less than would be the case if purportedly
separate transactions that are designed to achieve a particular end
result are integrated and treated as steps in a single transaction. For
example, this analysis may indicate that it was contemplated that a
partner who was necessary to achieve the intended tax results and whose
interest in the partnership was liquidated or disposed of (in whole or
in part) would be a partner only temporarily in order to provide the
claimed tax benefits to the remaining partners;
(3) One or more partners who are necessary to achieve the claimed
tax results either have a nominal interest in the partnership, are
substantially protected from any risk of loss from the partnership's
activities (through distribution preferences, indemnity or loss guaranty
agreements, or other arrangements), or have little or no participation
in the profits from the partnership's activities other than a preferred
return that is in the nature of a payment for the use of capital;
(4) Substantially all of the partners (measured by number or
interests in the partnership) are related (directly or indirectly) to
one another;
(5) Partnership items are allocated in compliance with the literal
language of Sec. Sec. 1.704-1 and 1.704-2 but with results that are
inconsistent with the purpose of section 704(b) and those regulations.
In this regard, particular scrutiny will be paid to partnerships in
which income or gain is specially allocated to one or more partners that
may be legally or effectively exempt from federal taxation (for example,
a foreign person, an exempt organization, an insolvent taxpayer, or a
taxpayer with unused federal tax attributes such as net operating
losses, capital losses, or foreign tax credits);
(6) The benefits and burdens of ownership of property nominally
contributed to the partnership are in substantial part retained
(directly or indirectly) by the contributing partner (or a related
party); or
(7) The benefits and burdens of ownership of partnership property
are in substantial part shifted (directly or indirectly) to the
distributee partner before or after the property is actually distributed
to the distributee partner (or a related party).
(d) Examples. The following examples illustrate the principles of
paragraphs (a), (b), and (c) of this section. The examples set forth
below do not delineate the boundaries of either permissible or
impermissible types of transactions. Further, the addition of any facts
or circumstances that are not specifically set forth in an example (or
the deletion of any facts or circumstances) may alter the outcome of the
transaction described in the example. Unless otherwise indicated,
parties to the transactions are not related to one another.
Example 1. Choice of entity; avoidance of entity-level tax; use of
partnership consistent with the intent of subchapter K. (i) A and B form
limited partnership PRS to conduct a bona fide business. A, the
corporate general partner, has a 1% partnership interest. B, the
individual limited partner, has a 99% interest. PRS is properly
classified as a partnership under Sec. Sec. 301.7701-2 and 301.7701-3.
A and B
[[Page 421]]
chose limited partnership form as a means to provide B with limited
liability without subjecting the income from the business operations to
an entity-level tax.
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section.
Although B has retained, indirectly, substantially all of the benefits
and burdens of ownership of the money or property B contributed to PRS
(see paragraph (c)(6) of this section), the decision to organize and
conduct business through PRS under these circumstances is consistent
with this intent. In addition, on these facts, the requirements of
paragraphs (a)(1), (2), and (3) of this section have been satisfied. The
Commissioner therefore cannot invoke paragraph (b) of this section to
recast the transaction.
Example 2. Choice of entity; avoidance of subchapter S shareholder
requirements; use of partnership consistent with the intent of
subchapter K. (i) A and B form partnership PRS to conduct a bona fide
business. A is a corporation that has elected to be treated as an S
corporation under subchapter S. B is a nonresident alien. PRS is
properly classified as a partnership under Sec. Sec. 301.7701-2 and
301.7701-3. Because section 1361(b) prohibits B from being a shareholder
in A, A and B chose partnership form, rather than admit B as a
shareholder in A, as a means to retain the benefits of subchapter S
treatment for A and its shareholders.
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS is consistent with
this intent. In addition, on these facts, the requirements of paragraphs
(a)(1), (2), and (3) of this section have been satisfied. Although it
may be argued that the form of the partnership transaction should not be
respected because it does not reflect its substance (inasmuch as
application of the substance over form doctrine arguably could result in
B being treated as a shareholder of A, thereby invalidating A's
subchapter S election), the facts indicate otherwise. The shareholders
of A are subject to tax on their pro rata shares of A's income (see
section 1361 et seq.), and B is subject to tax on B's distributive share
of partnership income (see sections 871 and 875). Thus, the form in
which this arrangement is cast accurately reflects its substance as a
separate partnership and S corporation. The Commissioner therefore
cannot invoke paragraph (b) of this section to recast the transaction.
Example 3. Choice of entity; avoidance of more restrictive foreign
tax credit limitation; use of partnership consistent with the intent of
subchapter K. (i) X, a domestic corporation, and Y, a foreign
corporation, form partnership PRS under the laws of foreign Country A to
conduct a bona fide joint business. X and Y each owns a 50% interest in
PRS. PRS is properly classified as a partnership under Sec. Sec.
301.7701-2 and 301.7701-3. PRS pays income taxes to Country A. X and Y
chose partnership form to enable X to qualify for a direct foreign tax
credit under section 901, with look-through treatment under Sec. 1.904-
5(h)(1). Conversely, if PRS were a foreign corporation for U.S. tax
purposes, X would be entitled only to indirect foreign tax credits under
section 902 with respect to dividend distributions from PRS. The look-
through rules, however, would not apply, and pursuant to section
904(d)(1)(E) and Sec. 1.904-4(g), the dividends and associated taxes
would be subject to a separate foreign tax credit limitation for
dividends from PRS, a noncontrolled section 902 corporation.
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS in order to take
advantage of the look-through rules for foreign tax credit purposes,
thereby maximizing X's use of its proper share of foreign taxes paid by
PRS, is consistent with this intent. In addition, on these facts, the
requirements of paragraphs (a)(1), (2), and (3) of this section have
been satisfied. The Commissioner therefore cannot invoke paragraph (b)
of this section to recast the transaction.
Example 4. Choice of entity; avoidance of gain recognition under
sections 351(e) and 357(c); use of partnership consistent with the
intent of subchapter K. (i) X, ABC, and DEF form limited partnership PRS
to conduct a bona fide real estate management business. PRS is properly
classified as a partnership under Sec. Sec. 301.7701-2 and 301.7701-3.
X, the general partner, is a newly formed corporation that elects to be
treated as a real estate investment trust as defined in section 856. X
offers its stock to the public and contributes substantially all of the
proceeds from the public offering to PRS. ABC and DEF, the limited
partners, are existing partnerships with substantial real estate
holdings. ABC and DEF contribute all of their real property assets to
PRS, subject to liabilities that exceed their respective aggregate bases
in the real property contributed, and terminate under section
708(b)(1)(A). In addition, some of the former partners of ABC and DEF
each have the right, beginning two years after the formation of PRS, to
require the redemption of their limited partnership interests in PRS in
exchange for cash or X stock (at X's option) equal to the fair market
value of their respective interests in PRS at the time of the
[[Page 422]]
redemption. These partners are not compelled, as a legal or practical
matter, to exercise their exchange rights at any time. X, ABC, and DEF
chose to form a partnership rather than have ABC and DEF invest directly
in X to allow ABC and DEF to avoid recognition of gain under sections
351(e) and 357(c). Because PRS would not be treated as an investment
company within the meaning of section 351(e) if PRS were incorporated
(so long as it did not elect under section 856), section 721(a) applies
to the contribution of the real property to PRS. See section 721(b).
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS, thereby avoiding
the tax consequences that would have resulted from contributing the
existing partnerships' real estate assets to X (by applying the rules of
sections 721, 731, and 752 in lieu of the rules of sections 351(e) and
357(c)), is consistent with this intent. In addition, on these facts,
the requirements of paragraphs (a)(1), (2), and (3) of this section have
been satisfied. Although it may be argued that the form of the
transaction should not be respected because it does not reflect its
substance (inasmuch as the present value of the partners' aggregate
federal tax liability is substantially less than would be the case if
the transaction were integrated and treated as a contribution of the
encumbered assets by ABC and DEF directly to X, see paragraph (c)(2) of
this section), the facts indicate otherwise. For example, the right of
some of the former ABC and DEF partners after two years to exchange
their PRS interests for cash or X stock (at X's option) equal to the
fair market value of their PRS interest at that time would not require
that right to be considered as exercised prior to its actual exercise.
Moreover, X may make other real estate investments and other business
decisions, including the decision to raise additional capital for those
purposes. Thus, although it may be likely that some or all of the
partners with the right to do so will, at some point, exercise their
exchange rights, and thereby receive either cash or X stock, the form of
the transaction as a separate partnership and real estate investment
trust is respected under substance over form principles (see paragraph
(a)(2) of this section). The Commissioner therefore cannot invoke
paragraph (b) of this section to recast the transaction.
Example 5. Special allocations; dividends received deductions; use
of partnership consistent with the intent of subchapter K. (i)
Corporations X and Y contribute equal amounts to PRS, a bona fide
partnership formed to make joint investments. PRS pays $100x for a share
of common stock of Z, an unrelated corporation, which has historically
paid an annual dividend of $6x. PRS specially allocates the dividend
income on the Z stock to X to the extent of the London Inter-Bank
Offered Rate (LIBOR) on the record date, applied to X's contribution of
$50x, and allocates the remainder of the dividend income to Y. All other
items of partnership income and loss are allocated equally between X and
Y. The allocations under the partnership agreement have substantial
economic effect within the meaning of Sec. 1.704-1(b)(2). In addition
to avoiding an entity-level tax, a principal purpose for the formation
of the partnership was to invest in the Z common stock and to allocate
the dividend income from the stock to provide X with a floating-rate
return based on LIBOR, while permitting X and Y to claim the dividends
received deduction under section 243 on the dividends allocated to each
of them.
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS is consistent with
this intent. In addition, on these facts, the requirements of paragraphs
(a)(1), (2), and (3) of this section have been satisfied. Section 704(b)
and Sec. 1.704-1(b)(2) permit income realized by the partnership to be
allocated validly to the partners separate from the partners' respective
ownership of the capital to which the allocations relate, provided that
the allocations satisfy both the literal requirements of the statute and
regulations and the purpose of those provisions (see paragraph (c)(5) of
this section). Section 704(e)(2) is not applicable to the facts of this
example (otherwise, the allocations would be required to be
proportionate to the partners' ownership of contributed capital). The
Commissioner therefore cannot invoke paragraph (b) of this section to
recast the transaction.
Example 6. Special allocations; nonrecourse financing; low-income
housing credit; use of partnership consistent with the intent of
subchapter K. (i) A and B, high-bracket taxpayers, and X, a corporation
with net operating loss carryforwards, form general partnership PRS to
own and operate a building that qualifies for the low-income housing
credit provided by section 42. The project is financed with both cash
contributions from the partners and nonrecourse indebtedness. The
partnership agreement provides for special allocations of income and
deductions, including the allocation of all depreciation deductions
attributable to the building to A and B equally in a manner that is
reasonably consistent with allocations that have substantial economic
effect of some other significant partnership item attributable to the
building. The section 42 credits are allocated to A and B in accordance
with the allocation
[[Page 423]]
of depreciation deductions. PRS's allocations comply with all applicable
regulations, including the requirements of Sec. Sec. 1.704-1(b)(2)(ii)
(pertaining to economic effect) and 1.704-2(e) (requirements for
allocations of nonrecourse deductions). The nonrecourse indebtedness is
validly allocated to the partners under the rules of Sec. 1.752-3,
thereby increasing the basis of the partners' respective partnership
interests. The basis increase created by the nonrecourse indebtedness
enables A and B to deduct their distributive share of losses from the
partnership (subject to all other applicable limitations under the
Internal Revenue Code) against their nonpartnership income and to apply
the credits against their tax liability.
(ii) At a time when the depreciation deductions attributable to the
building are not treated as nonrecourse deductions under Sec. 1.704-
2(c) (because there is no net increase in partnership minimum gain
during the year), the special allocation of depreciation deductions to A
and B has substantial economic effect because of the value-equals-basis
safe harbor contained in Sec. 1.704-1(b)(2)(iii)(c) and the fact that A
and B would bear the economic burden of any decline in the value of the
building (to the extent of the partnership's investment in the
building), notwithstanding that A and B believe it is unlikely that the
building will decline in value (and, accordingly, they anticipate
significant timing benefits through the special allocation). Moreover,
in later years, when the depreciation deductions attributable to the
building are treated as nonrecourse deductions under Sec. 1.704-2(c),
the special allocation of depreciation deductions to A and B is
considered to be consistent with the partners' interests in the
partnership under Sec. 1.704-2(e).
(iii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS is consistent with
this intent. In addition, on these facts, the requirements of paragraphs
(a) (1), (2), and (3) of this section have been satisfied. Section
704(b), Sec. 1.704-1(b)(2), and Sec. 1.704-2(e) allow partnership
items of income, gain, loss, deduction, and credit to be allocated
validly to the partners separate from the partners' respective ownership
of the capital to which the allocations relate, provided that the
allocations satisfy both the literal requirements of the statute and
regulations and the purpose of those provisions (see paragraph (c)(5) of
this section). Moreover, the application of the value-equals-basis safe
harbor and the provisions of Sec. 1.704-2(e) with respect to the
allocations to A and B, and the tax results of the application of those
provisions, taking into account all the facts and circumstances, are
clearly contemplated. Accordingly, even if the allocations would not
otherwise be considered to satisfy the proper reflection of income
standard in paragraph (a)(3) of this section, that requirement will be
treated as satisfied under these facts. Thus, even though the partners'
aggregate federal tax liability may be substantially less than had the
partners owned the partnership's assets directly (due to X's inability
to use its allocable share of the partnership's losses and credits) (see
paragraph (c)(1) of this section), the transaction is not inconsistent
with the intent of subchapter K. The Commissioner therefore cannot
invoke paragraph (b) of this section to recast the transaction.
Example 7. Partner with nominal interest; temporary partner; use of
partnership not consistent with the intent of subchapter K. (i) Pursuant
to a plan a principal purpose of which is to generate artificial losses
and thereby shelter from federal taxation a substantial amount of
income, X (a foreign corporation), Y (a domestic corporation), and Z (a
promoter) form partnership PRS by contributing $9,000x, $990x, and $10x,
respectively, for proportionate interests (90.0%, 9.9%, and 0.1%,
respectively) in the capital and profits of PRS. PRS purchases offshore
equipment for $10,000x and validly leases the equipment offshore for a
term representing most of its projected useful life. Shortly thereafter,
PRS sells its rights to receive income under the lease to a third party
for $9,000x, and allocates the resulting $9,000x of income $8,100x to X,
$891x to Y, and $9x to Z. PRS thereafter makes a distribution of $9,000x
to X in complete liquidation of its interest. Under Sec. 1.704-
1(b)(2)(iv)(f), PRS restates the partners' capital accounts immediately
before making the liquidating distribution to X to reflect its assets
consisting of the offshore equipment worth $1,000x and $9,000x in cash.
Thus, because the capital accounts immediately before the distribution
reflect assets of $19,000x (that is, the initial capital contributions
of $10,000x plus the $9,000x of income realized from the sale of the
lease), PRS allocates a $9,000x book loss among the partners (for
capital account purposes only), resulting in restated capital accounts
for X, Y, and Z of $9,000x, $990x, and $10x, respectively. Thereafter,
PRS purchases real property by borrowing the $8,000x purchase price on a
recourse basis, which increases Y's and Z's bases in their respective
partnership interests from $1,881x and $19x, to $9,801x and $99x,
respectively (reflecting Y's and Z's adjusted interests in the
partnership of 99% and 1%, respectively). PRS subsequently sells the
offshore equipment, subject to the lease, for $1,000x and allocates the
$9,000x tax loss $8,910x to Y and $90x to Z. Y's and Z's bases in their
partnership interests are therefore reduced to $891x and $9x,
respectively.
[[Page 424]]
(ii) On these facts, any purported business purpose for the
transaction is insignificant in comparison to the tax benefits that
would result if the transaction were respected for federal tax purposes
(see paragraph (c) of this section). Accordingly, the transaction lacks
a substantial business purpose (see paragraph (a)(1) of this section).
In addition, factors (1), (2), (3), and (5) of paragraph (c) of this
section indicate that PRS was used with a principal purpose to reduce
substantially the partners' tax liability in a manner inconsistent with
the intent of subchapter K. On these facts, PRS is not bona fide (see
paragraph (a)(1) of this section), and the transaction is not respected
under applicable substance over form principles (see paragraph (a)(2) of
this section) and does not properly reflect the income of Y (see
paragraph (a)(3) of this section). Thus, PRS has been formed and availed
of with a principal purpose of reducing substantially the present value
of the partners' aggregate federal tax liability in a manner
inconsistent with the intent of subchapter K. Therefore (in addition to
possibly challenging the transaction under judicial principles or the
validity of the allocations under Sec. 1.704-1(b)(2) (see paragraph (h)
of this section)), the Commissioner can recast the transaction as
appropriate under paragraph (b) of this section.
Example 8. Plan to duplicate losses through absence of section 754
election; use of partnership not consistent with the intent of
subchapter K. (i) A owns land with a basis of $100x and a fair market
value of $60x. A would like to sell the land to B. A and B devise a plan
a principal purpose of which is to permit the duplication, for a
substantial period of time, of the tax benefit of A's built-in loss in
the land. To effect this plan, A, C (A's brother), and W (C's wife) form
partnership PRS, to which A contributes the land, and C and W each
contribute $30x. All partnership items are shared in proportion to the
partners' respective contributions to PRS. PRS invests the cash in an
investment asset (that is not a marketable security within the meaning
of section 731(c)). PRS also leases the land to B under a three-year
lease pursuant to which B has the option to purchase the land from PRS
upon the expiration of the lease for an amount equal to its fair market
value at that time. All lease proceeds received are immediately
distributed to the partners. In year 3, at a time when the values of the
partnership's assets have not materially changed, PRS agrees with A to
liquidate A's interest in exchange for the investment asset held by PRS.
Under section 732(b), A's basis in the asset distributed equals $100x,
A's basis in A's partnership interest immediately before the
distribution. Shortly thereafter, A sells the investment asset to X, an
unrelated party, recognizing a $40x loss.
(ii) PRS does not make an election under section 754. Accordingly,
PRS's basis in the land contributed by A remains $100x. At the end of
year 3, pursuant to the lease option, PRS sells the land to B for $60x
(its fair market value). Thus, PRS recognizes a $40x loss on the sale,
which is allocated equally between C and W. C's and W's bases in their
partnership interests are reduced to $10x each pursuant to section 705.
Their respective interests are worth $30x each. Thus, upon liquidation
of PRS (or their interests therein), each of C and W will recognize $20x
of gain. However, PRS's continued existence defers recognition of that
gain indefinitely. Thus, if this arrangement is respected, C and W
duplicate for their benefit A's built-in loss in the land prior to its
contribution to PRS.
(iii) On these facts, any purported business purpose for the
transaction is insignificant in comparison to the tax benefits that
would result if the transaction were respected for federal tax purposes
(see paragraph (c) of this section). Accordingly, the transaction lacks
a substantial business purpose (see paragraph (a)(1) of this section).
In addition, factors (1), (2), and (4) of paragraph (c) of this section
indicate that PRS was used with a principal purpose to reduce
substantially the partners' tax liability in a manner inconsistent with
the intent of subchapter K. On these facts, PRS is not bona fide (see
paragraph (a)(1) of this section), and the transaction is not respected
under applicable substance over form principles (see paragraph (a)(2) of
this section). Further, the tax consequences to the partners do not
properly reflect the partners' income; and Congress did not contemplate
application of section 754 to partnerships such as PRS, which was formed
for a principal purpose of producing a double tax benefit from a single
economic loss (see paragraph (a)(3) of this section). Thus, PRS has been
formed and availed of with a principal purpose of reducing substantially
the present value of the partners' aggregate federal tax liability in a
manner inconsistent with the intent of subchapter K. Therefore (in
addition to possibly challenging the transaction under judicial
principles or other statutory authorities, such as the substance over
form doctrine or the disguised sale rules under section 707 (see
paragraph (h) of this section)), the Commissioner can recast the
transaction as appropriate under paragraph (b) of this section.
Example 9. Absence of section 754 election; use of partnership
consistent with the intent of subchapter K. (i) PRS is a bona fide
partnership formed to engage in investment activities with contributions
of cash from each partner. Several years after joining PRS, A, a partner
with a capital account balance and basis in its partnership interest of
$100x,
[[Page 425]]
wishes to withdraw from PRS. The partnership agreement entitles A to
receive the balance of A's capital account in cash or securities owned
by PRS at the time of withdrawal, as mutually agreed to by A and the
managing general partner, P. P and A agree to distribute to A $100x
worth of non-marketable securities (see section 731(c)) in which PRS has
an aggregate basis of $20x. Upon distribution, A's aggregate basis in
the securities is $100x under section 732(b). PRS does not make an
election to adjust the basis in its remaining assets under section 754.
Thus, PRS's basis in its remaining assets is unaffected by the
distribution. In contrast, if a section 754 election had been in effect
for the year of the distribution, under these facts section 734(b) would
have required PRS to adjust the basis in its remaining assets downward
by the amount of the untaxed appreciation in the distributed property,
thus reflecting that gain in PRS's retained assets. In selecting the
assets to be distributed, A and P had a principal purpose to take
advantage of the facts that A's basis in the securities will be
determined by reference to A's basis in its partnership interest under
section 732(b), and because PRS will not make an election under section
754, the remaining partners of PRS will likely enjoy a federal tax
timing advantage (i.e., from the $80x of additional basis in its assets
that would have been eliminated if the section 754 election had been
made) that is inconsistent with proper reflection of income under
paragraph (a)(3) of this section.
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS is consistent with
this intent. In addition, on these facts, the requirements of paragraphs
(a)(1) and (2) of this section have been satisfied. The validity of the
tax treatment of this transaction is therefore dependent upon whether
the transaction satisfies (or is treated as satisfying) the proper
reflection of income standard under paragraph (a)(3) of this section.
A's basis in the distributed securities is properly determined under
section 732(b). The benefit to the remaining partners is a result of PRS
not having made an election under section 754. Subchapter K is generally
intended to produce tax consequences that achieve proper reflection of
income. However, paragraph (a)(3) of this section provides that if the
application of a provision of subchapter K produces tax results that do
not properly reflect income, but application of that provision to the
transaction and the ultimate tax results, taking into account all the
relevant facts and circumstances, are clearly contemplated by that
provision (and the transaction satisfies the requirements of paragraphs
(a)(1) and (2) of this section), then the application of that provision
to the transaction will be treated as satisfying the proper reflection
of income standard.
(iii) In general, the adjustments that would be made if an election
under section 754 were in effect are necessary to minimize distortions
between the partners' bases in their partnership interests and the
partnership's basis in its assets following, for example, a distribution
to a partner. The electivity of section 754 is intended to provide
administrative convenience for bona fide partnerships that are engaged
in transactions for a substantial business purpose, by providing those
partnerships the option of not adjusting their bases in their remaining
assets following a distribution to a partner. Congress clearly
recognized that if the section 754 election were not made, basis
distortions may result. Taking into account all the facts and
circumstances of the transaction, the electivity of section 754 in the
context of the distribution from PRS to A, and the ultimate tax
consequences that follow from the failure to make the election with
respect to the transaction, are clearly contemplated by section 754.
Thus, the tax consequences of this transaction will be treated as
satisfying the proper reflection of income standard under paragraph
(a)(3) of this section. The Commissioner therefore cannot invoke
paragraph (b) of this section to recast the transaction.
Example 10. Basis adjustments under section 732; use of partnership
consistent with the intent of subchapter K. (i) A, B, and C are partners
in partnership PRS, which has for several years been engaged in
substantial bona fide business activities. For valid business reasons,
the partners agree that A's interest in PRS, which has a value and basis
of $100x, will be liquidated with the following assets of PRS: a
nondepreciable asset with a value of $60x and a basis to PRS of $40x,
and related equipment with two years of cost recovery remaining and a
value and basis to PRS of $40x. Neither asset is described in section
751 and the transaction is not described in section 732(d). Under
section 732 (b) and (c), A's $100x basis in A's partnership interest
will be allocated between the nondepreciable asset and the equipment
received in the liquidating distribution in proportion to PRS's bases in
those assets, or $50x to the nondepreciable asset and $50x to the
equipment. Thus, A will have a $10x built-in gain in the nondepreciable
asset ($60x value less $50x basis) and a $10x built-in loss in the
equipment ($50x basis less $40x value), which it expects to recover
rapidly through cost recovery deductions. In selecting the assets to be
distributed to A, the partners had a principal purpose to take advantage
of the fact that A's basis in the assets will be determined by reference
to A's basis in A's partnership interest, thus, in effect, shifting a
portion of A's basis from the nondepreciable asset to
[[Page 426]]
the equipment, which in turn would allow A to recover that portion of
its basis more rapidly. This shift provides a federal tax timing
advantage to A, with no offsetting detriment to B or C.
(ii) Subchapter K is intended to permit taxpayers to conduct joint
business activity through a flexible economic arrangement without
incurring an entity-level tax. See paragraph (a) of this section. The
decision to organize and conduct business through PRS is consistent with
this intent. In addition, on these facts, the requirements of paragraphs
(a)(1) and (2) of this section have been satisfied. The validity of the
tax treatment of this transaction is therefore dependent upon whether
the transaction satisfies (or is treated as satisfying) the proper
reflection of income standard under paragraph (a)(3) of this section.
Subchapter K is generally intended to produce tax consequences that
achieve proper reflection of income. However, paragraph (a)(3) of this
section provides that if the application of a provision of subchapter K
produces tax results that do not properly reflect income, but the
application of that provision to the transaction and the ultimate tax
results, taking into account all the relevant facts and circumstances,
are clearly contemplated by that provision (and the transaction
satisfies the requirements of paragraphs (a)(1) and (2) of this
section), then the application of that provision to the transaction will
be treated as satisfying the proper reflection of income standard.
(iii) A's basis in the assets distributed to it was determined under
section 732 (b) and (c). The transaction does not properly reflect A's
income due to the basis distortions caused by the distribution and the
shifting of basis from a nondepreciable to a depreciable asset. However,
the basis rules under section 732, which in some situations can produce
tax results that are inconsistent with the proper reflection of income
standard (see paragraph (a)(3) of this section), are intended to provide
simplifying administrative rules for bona fide partnerships that are
engaged in transactions with a substantial business purpose. Taking into
account all the facts and circumstances of the transaction, the
application of the basis rules under section 732 to the distribution
from PRS to A, and the ultimate tax consequences of the application of
that provision of subchapter K, are clearly contemplated. Thus, the
application of section 732 to this transaction will be treated as
satisfying the proper reflection of income standard under paragraph
(a)(3) of this section. The Commissioner therefore cannot invoke
paragraph (b) of this section to recast the transaction.
Example 11. Basis adjustments under section 732; plan or arrangement
to distort basis allocations artificially; use of partnership not
consistent with the intent of subchapter K. (i) Partnership PRS has for
several years been engaged in the development and management of
commercial real estate projects. X, an unrelated party, desires to
acquire undeveloped land owned by PRS, which has a value of $95x and a
basis of $5x. X expects to hold the land indefinitely after its
acquisition. Pursuant to a plan a principal purpose of which is to
permit X to acquire and hold the land but nevertheless to recover for
tax purposes a substantial portion of the purchase price for the land, X
contributes $100x to PRS for an interest therein. Subsequently (at a
time when the value of the partnership's assets have not materially
changed), PRS distributes to X in liquidation of its interest in PRS the
land and another asset with a value and basis to PRS of $5x. The second
asset is an insignificant part of the economic transaction but is
important to achieve the desired tax results. Under section 732 (b) and
(c), X's $100x basis in its partnership interest is allocated between
the assets distributed to it in proportion to their bases to PRS, or
$50x each. Thereafter, X plans to sell the second asset for its value of
$5x, recognizing a loss of $45x. In this manner, X will, in effect,
recover a substantial portion of the purchase price of the land almost
immediately. In selecting the assets to be distributed to X, the
partners had a principal purpose to take advantage of the fact that X's
basis in the assets will be determined under section 732 (b) and (c),
thus, in effect, shifting a portion of X's basis economically allocable
to the land that X intends to retain to an inconsequential asset that X
intends to dispose of quickly. This shift provides a federal tax timing
advantage to X, with no offsetting detriment to any of PRS's other
partners.
(ii) Although section 732 recognizes that basis distortions can
occur in certain situations, which may produce tax results that do not
satisfy the proper reflection of income standard of paragraph (a)(3) of
this section, the provision is intended only to provide ancillary,
simplifying tax results for bona fide partnership transactions that are
engaged in for substantial business purposes. Section 732 is not
intended to serve as the basis for plans or arrangements in which
inconsequential or immaterial assets are included in the distribution
with a principal purpose of obtaining substantially favorable tax
results by virtue of the statute's simplifying rules. The transaction
does not properly reflect X's income due to the basis distortions caused
by the distribution that result in shifting a significant portion of X's
basis to this inconsequential asset. Moreover, the proper reflection of
income standard contained in paragraph (a)(3) of this section is not
treated as satisfied, because, taking into account all the facts and
circumstances, the application of section 732 to this arrangement, and
the ultimate tax consequences that would thereby result, were not
clearly contemplated by
[[Page 427]]
that provision of subchapter K. In addition, by using a partnership (if
respected), the partners' aggregate federal tax liability would be
substantially less than had they owned the partnership's assets directly
(see paragraph (c)(1) of this section). On these facts, PRS has been
formed and availed of with a principal purpose to reduce the taxpayers'
aggregate federal tax liability in a manner that is inconsistent with
the intent of subchapter K. Therefore (in addition to possibly
challenging the transaction under applicable judicial principles and
statutory authorities, such as the disguised sale rules under section
707, see paragraph (h) of this section), the Commissioner can recast the
transaction as appropriate under paragraph (b) of this section.
(e) Abuse of entity treatment--(1) General rule. The Commissioner
can treat a partnership as an aggregate of its partners in whole or in
part as appropriate to carry out the purpose of any provision of the
Internal Revenue Code or the regulations promulgated thereunder.
(2) Clearly contemplated entity treatment. Paragraph (e)(1) of this
section does not apply to the extent that--
(i) A provision of the Internal Revenue Code or the regulations
promulgated thereunder prescribes the treatment of a partnership as an
entity, in whole or in part, and
(ii) That treatment and the ultimate tax results, taking into
account all the relevant facts and circumstances, are clearly
contemplated by that provision.
(f) Examples. The following examples illustrate the principles of
paragraph (e) of this section. The examples set forth below do not
delineate the boundaries of either permissible or impermissible types of
transactions. Further, the addition of any facts or circumstances that
are not specifically set forth in an example (or the deletion of any
facts or circumstances) may alter the outcome of the transaction
described in the example. Unless otherwise indicated, parties to the
transactions are not related to one another.
Example 1. Aggregate treatment of partnership appropriate to carry
out purpose of section 163(e)(5). (i) Corporations X and Y are partners
in partnership PRS, which for several years has engaged in substantial
bona fide business activities. As part of these business activities, PRS
issues certain high yield discount obligations to an unrelated third
party. Section 163(e)(5) defers (and in certain circumstances disallows)
the interest deductions on this type of obligation if issued by a
corporation. PRS, X, and Y take the position that, because PRS is a
partnership and not a corporation, section 163(e)(5) is not applicable.
(ii) Section 163(e)(5) does not prescribe the treatment of a
partnership as an entity for purposes of that section. The purpose of
section 163(e)(5) is to limit corporate-level interest deductions on
certain obligations. The treatment of PRS as an entity could result in a
partnership with corporate partners issuing those obligations and
thereby circumventing the purpose of section 163(e)(5), because the
corporate partner would deduct its distributive share of the interest on
obligations that would have been deferred until paid or disallowed had
the corporation issued its share of the obligation directly. Thus, under
paragraph (e)(1) of this section, PRS is properly treated as an
aggregate of its partners for purposes of applying section 163(e)(5)
(regardless of whether any party had a tax avoidance purpose in having
PRS issue the obligation). Each partner of PRS will therefore be treated
as issuing its share of the obligations for purposes of determining the
deductibility of its distributive share of any interest on the
obligations. See also section 163(i)(5)(B).
Example 2. Aggregate treatment of partnership appropriate to carry
out purpose of section 1059. (i) Corporations X and Y are partners in
partnership PRS, which for several years has engaged in substantial bona
fide business activities. As part of these business activities, PRS
purchases 50 shares of Corporation Z common stock. Six months later,
Corporation Z announces an extraordinary dividend (within the meaning of
section 1059). Section 1059(a) generally provides that if any
corporation receives an extraordinary dividend with respect to any share
of stock and the corporation has not held the stock for more than two
years before the dividend announcement date, the basis in the stock held
by the corporation is reduced by the nontaxed portion of the dividend.
PRS, X, and Y take the position that section 1059(a) is not applicable
because PRS is a partnership and not a corporation.
(ii) Section 1059(a) does not prescribe the treatment of a
partnership as an entity for purposes of that section. The purpose of
section 1059(a) is to limit the benefits of the dividends received
deduction with respect to extraordinary dividends. The treatment of PRS
as an entity could result in corporate partners in the partnership
receiving dividends through partnerships in circumvention of the intent
of section 1059. Thus, under paragraph (e)(1) of this section, PRS is
properly treated as an aggregate of its partners
[[Page 428]]
for purposes of applying section 1059 (regardless of whether any party
had a tax avoidance purpose in acquiring the Z stock through PRS). Each
partner of PRS will therefore be treated as owning its share of the
stock. Accordingly, PRS must make appropriate adjustments to the basis
of the Corporation Z stock, and the partners must also make adjustments
to the basis in their respective interests in PRS under section
705(a)(2)(B). See also section 1059(g)(1).
Example 3. Prescribed entity treatment of partnership; determination
of CFC status clearly contemplated. (i) X, a domestic corporation, and
Y, a foreign corporation, intend to conduct a joint venture in foreign
Country A. They form PRS, a bona fide domestic general partnership in
which X owns a 40% interest and Y owns a 60% interest. PRS is properly
classified as a partnership under Sec. Sec. 301.7701-2 and 301.7701-3.
PRS holds 100% of the voting stock of Z, a Country A entity that is
classified as an association taxable as a corporation for federal tax
purposes under Sec. 301.7701-2. Z conducts its business operations in
Country A. By investing in Z through a domestic partnership, X seeks to
obtain the benefit of the look-through rules of section 904(d)(3) and,
as a result, maximize its ability to claim credits for its proper share
of Country A taxes expected to be incurred by Z.
(ii) Pursuant to sections 957(c) and 7701(a)(30), PRS is a United
States person. Therefore, because it owns 10% or more of the voting
stock of Z, PRS satisfies the definition of a U.S. shareholder under
section 951(b). Under section 957(a), Z is a controlled foreign
corporation (CFC) because more than 50% of the voting power or value of
its stock is owned by PRS. Consequently, under section 904(d)(3), X
qualifies for look-through treatment in computing its credit for foreign
taxes paid or accrued by Z. In contrast, if X and Y owned their
interests in Z directly, Z would not be a CFC because only 40% of its
stock would be owned by U.S. shareholders. X's credit for foreign taxes
paid or accrued by Z in that case would be subject to a separate foreign
tax credit limitation for dividends from Z, a noncontrolled section 902
corporation. See section 904(d)(1)(E) and Sec. 1.904-4(g).
(iii) Sections 957(c) and 7701(a)(30) prescribe the treatment of a
domestic partnership as an entity for purposes of defining a U.S.
shareholder, and thus, for purposes of determining whether a foreign
corporation is a CFC. The CFC rules prevent the deferral by U.S.
shareholders of U.S. taxation of certain earnings of the CFC and reduce
disparities that otherwise might occur between the amount of income
subject to a particular foreign tax credit limitation when a taxpayer
earns income abroad directly rather than indirectly through a CFC. The
application of the look-through rules for foreign tax credit purposes is
appropriately tied to CFC status. See sections 904(d)(2)(E) and
904(d)(3). This analysis confirms that Congress clearly contemplated
that taxpayers could use a bona fide domestic partnership to subject
themselves to the CFC regime, and the resulting application of the look-
through rules of section 904(d)(3). Accordingly, under paragraph (e) of
this section, the Commissioner cannot treat PRS as an aggregate of its
partners for purposes of determining X's foreign tax credit limitation.
(g) Effective date. Paragraphs (a), (b), (c), and (d) of this
section are effective for all transactions involving a partnership that
occur on or after May 12, 1994. Paragraphs (e) and (f) of this section
are effective for all transactions involving a partnership that occur on
or after December 29, 1994.
(h) Scope and application. This section applies solely with respect
to taxes under subtitle A of the Internal Revenue Code, and for purposes
of this section, any reference to a federal tax is limited to any tax
imposed under subtitle A of the Internal Revenue Code.
(i) Application of nonstatutory principles and other statutory
authorities. The Commissioner can continue to assert and to rely upon
applicable nonstatutory principles and other statutory and regulatory
authorities to challenge transactions. This section does not limit the
applicability of those principles and authorities.
[T.D. 8588, 60 FR 27, Jan. 3, 1995; T.D. 8588, 60 FR 9776, 9777, Feb.
22, 1995, as amended by T.D. 8592, 60 FR 18741, Apr. 13, 1995]
Sec. 1.702-1 Income and credits of partner.
(a) General rule. Each partner is required to take into account
separately in his return his distributive share, whether or not
distributed, of each class or item of partnership income, gain, loss,
deduction, or credit described in subparagraphs (1) through (9) of this
paragraph. (For the taxable year in which a partner includes his
distributive share of partnership taxable income, see section 706(a) and
Sec. 1.706-1(a). Such distributive share shall be determined as
provided in section 704 and Sec. 1.704-1.) Accordingly, in determining
his income tax:
(1) Each partner shall take into account, as part of his gains and
losses
[[Page 429]]
from sales or exchanges of capital assets held for not more than 1 year
(6 months for taxable years beginning before 1977; 9 months for taxable
years beginning in 1977), his distributive share of the combined net
amount of such gains and losses of the partnership.
(2) Each partner shall take into account, as part of his gains and
losses from sales or exchanges of capital assets held for more than 1
year (6 months for taxable years beginning before 1977; 9 months for
taxable years beginning in 1977), his distributive share of the combined
net amount of such gains and losses of the partnership.
(3) Each partner shall take into account, as part of his gains and
losses from sales or exchanges of property described in section 1231
(relating to property used in the trade or business and involuntary
conversions), his distributive share of the combined net amount of such
gains and losses of the partnership. The partnership shall not combine
such items with items set forth in subparagraph (1) or (2) of this
paragraph.
(4) Each partner shall take into account, as part of the charitable
contributions paid by him, his distributive share of each class of
charitable contributions paid by the partnership within the
partnership's taxable year. Section 170 determines the extent to which
such amount may be allowed as a deduction to the partner. For the
definition of the term ``charitable contribution'', see section 170(c).
(5) Each partner shall take into account, as part of the dividends
received by him from domestic corporations, his distributive share of
dividends received by the partnership, with respect to which the partner
is entitled to a credit under section 34 (for dividends received on or
before December 31, 1964), an exclusion under section 116, or a
deduction under part VIII, subchapter B, chapter 1 of the Code.
(6) Each partner shall take into account, as part of his taxes
described in section 901 which have been paid or accrued to foreign
countries or to possessions of the United States, his distributive share
of such taxes which have been paid or accrued by the partnership,
according to its method of treating such taxes. A partner may elect to
treat his total amount of such taxes, including his distributive share
of such taxes of the partnership, as a deduction under section 164 or as
a credit under section 901, subject to the provisions of sections 901
through 905.
(7) Each partner shall take into account, as part of the partially
tax-exempt interest received by him on obligations of the United States
or on obligations of instrumentalities of the United States, as
described in section 35 or section 242, his distributive share of such
partially tax-exempt interest received by the partnership. However, if
the partnership elects to amortize premiums on bonds as provided in
section 171, the amount received on such obligations by the partnership
shall be reduced by the amortizable bond premium applicable to such
obligations as provided in section 171(a)(3).
(8)(i) Each partner shall take into account separately, as part of
any class of income, gain, loss, deduction, or credit, his distributive
share of the following items: Recoveries of bad debts, prior taxes, and
delinquency amounts (section 111); gains and losses from wagering
transactions (section 165(d)); soil and water conservation expenditures
(section 175); nonbusiness expenses as described in section 212;
medical, dental, etc., expenses (section 213); expenses for care of
certain dependents (section 214); alimony, etc., payments (section 215);
amounts representing taxes and interest paid to cooperative housing
corporations (section 216); intangible drilling and developments costs
(section 263(c)); pre-1970 exploration expenditures (section 615);
certain mining exploration expenditures (section 617); income, gain, or
loss to the partnership under section 751(b); and any items of income,
gain, loss, deduction, or credit subject to a special allocation under
the partnership agreement which differs from the allocation of
partnership taxable income or loss generally.
(ii) Each partner must also take into account separately the
partner's distributive share of any partnership item which, if
separately taken into account by any partner, would result in an income
tax liability for that partner, or
[[Page 430]]
for any other person, different from that which would result if that
partner did not take the item into account separately. Thus, if any
partner is a controlled foreign corporation, as defined in section 957,
items of income that would be gross subpart F income if separately taken
into account by the controlled foreign corporation must be separately
stated for all partners. Under section 911(a), if any partner is a bona
fide resident of a foreign country who may exclude from gross income the
part of the partner's distributive share which qualifies as earned
income, as defined in section 911(b), the earned income of the
partnership for all partners must be separately stated. Similarly, all
relevant items of income or deduction of the partnership must be
separately stated for all partners in determining the applicability of
section 183 (relating to activities not engaged in for profit) and the
recomputation of tax thereunder for any partner. This paragraph
(a)(8)(ii) applies to taxable years beginning on or after July 23, 2002.
(iii) Each partner shall aggregate the amount of his separate
deductions or exclusions and his distributive share of partnership
deductions or exclusions separately stated in determining the amount
allowable to him of any deduction or exclusion under subtitle A of the
Code as to which a limitation is imposed. For example, partner A has
individual domestic exploration expenditures of $300,000. He is also a
member of the AB partnership which in 1971 in its first year of
operation has foreign exploration expenditures of $400,000. A's
distributable share of this item is $200,000. However, the total amount
of his distributable share that A can deduct as exploration expenditures
under section 617(a) is limited to $100,000 in view of the limitation
provided in section 617(h). Therefore, the excess of $100,000 ($200,000
minus $100,000) is not deductible by A.
(9) Each partner shall also take into account separately his
distributive share of the taxable income or loss of the partnership,
exclusive of items requiring separate computations under subparagraphs
(1) through (8) of this paragraph. For limitation on allowance of a
partner's distributive share of partnership losses, see section 704(d)
and paragraph (d) of Sec. 1.704-1.
(b) Character of items constituting distributive share. The
character in the hands of a partner of any item of income, gain, loss,
deduction, or credit described in section 702(a)(1) through (8) shall be
determined as if such item were realized directly from the source from
which realized by the partnership or incurred in the same manner as
incurred by the partnership. For example, a partner's distributive share
of gain from the sale of depreciable property used in the trade or
business of the partnership shall be considered as gain from the sale of
such depreciable property in the hands of the partner. Similarly, a
partner's distributive share of partnership ``hobby losses'' (section
270) or his distributive share of partnership charitable contributions
to organizations qualifying under section 170(b)(1)(A) retains such
character in the hands of the partner.
(c) Gross income of a partner. (1) Where it is necessary to
determine the amount or character of the gross income of a partner, his
gross income shall include the partner's distributive share of the gross
income of the partnership, that is, the amount of gross income of the
partnership from which was derived the partner's distributive share of
partnership taxable income or loss (including items described in section
702(a)(1) through (8)). For example, a partner is required to include
his distributive share of partnership gross income:
(i) In computing his gross income for the purpose of determining the
necessity of filing a return (section 6012 (a));
(ii) In determining the application of the provisions permitting the
spreading of income for services rendered over a 36-month period
(section 1301, as in effect for taxable years beginning before January
1, 1964);
(iii) In computing the amount of gross income received from sources
within possessions of the United States (section 937).
(iv) In determining a partner's ``gross income from farming''
(sections 175 and 6073); and
(v) In determining whether the de minimis or full inclusion rules of
section 954(b)(3) apply.
[[Page 431]]
(2) In determining the applicability of the 6-year period of
limitation on assessment and collection provided in section 6501(e)
(relating to omission of more than 25 percent of gross income), a
partner's gross income includes his distributive share of partnership
gross income (as described in section 6501(e)(1)(A)(i)). In this
respect, the amount of partnership gross income from which was derived
the partner's distributive share of any item of partnership income,
gain, loss, deduction, or credit (as included or disclosed in the
partner's return) is considered as an amount of gross income stated in
the partner's return for the purposes of section 6501(e). For example,
A, who is entitled to one-fourth of the profits of the ABCD partnership,
which has $10,000 gross income and $2,000 taxable income, reports only
$300 as his distributive share of partnership profits. A should have
shown $500 as his distributive share of profits, which amount was
derived from $2,500 of partnership gross income. However, since A
included only $300 on his return without explaining in the return the
difference of $200, he is regarded as having stated in his return only
$1,500 ($300/$500 of $2,500) as gross income from the partnership.
(d) Partners in community property States. If separate returns are
made by a husband and wife domiciled in a community property State, and
only one spouse is a member of the partnership, the part of his or her
distributive share of any item or items listed in paragraph (a) (1)
through (9) of this section which is community property, or which is
derived from community property, should be reported by the husband and
wife in equal proportions.
(e) Special rules on requirement to separately state meal, travel,
and entertainment expenses. Each partner shall take into account
separately his or her distributive share of meal, travel, and
entertainment expenses paid or incurred after December 31, 1986, by
partnerships that have taxable years beginning before January 1, 1987,
and ending with or within partner's taxable years beginning on or after
January 1, 1987. In addition, with respect to skybox rentals under
section 274 (1) (2), each partner shall take into account separately his
or her distributive share of rents paid or incurred after December 31,
1986, by partnerships that have taxable years beginning before January
1, 1989, and ending with or within partners' taxable years beginning on
or after January 1, 1987.
(f) Cross--references. For special rules in accordance with the
principles of section 702 applicable solely for the purpose of the tax
imposed by section 56 (relating to the minimum tax for tax preferences)
see Sec. 1.58-2(a). In the case of a disposition of an oil or gas
property by the partnership, see the rules contained in section
613A(c)(7)(D) and Sec. 1.613A-3(e).
[T.D. 6500, 25 FR 11814, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.702-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 1.702-2 Net operating loss deduction of partner.
For the purpose of determining a net operating loss deduction under
section 172, a partner shall take into account his distributive share of
items of income, gain, loss, deduction, or credit of the partnership.
The character of any such item shall be determined as if such item were
realized directly from the source from which realized by the
partnership, or incurred in the same manner as incurred by the
partnership. See section 702(b) and paragraph (b) of Sec. 1.702-1. To
the extent necessary to determine the allowance under section 172(d)(4)
of the nonbusiness deductions of a partner (arising from both
partnership and nonpartnership sources), the partner shall separately
take into account his distributive share of the deductions of the
partnership which are not attributable to a trade or business and
combine such amount with his nonbusiness deductions from nonpartnership
sources. Such partner shall also separately take into account his
distributive share of the gross income of the partnership not derived
from a trade or business and combine such amount with his nonbusiness
income from nonpartnership sources. See section 172 and the regulations
thereunder.
[[Page 432]]
Sec. 1.702-3T 4-Year spread (temporary).
(a) Applicability. This section applies to a partner in a
partnership if--
(1) The partnership is required by section 806 of the Tax Reform Act
of 1986 (the 1986 Act), Pub. L. 99-514, 100 Stat. 2362, to change its
taxable year for the first taxable year beginning after December 31,
1986 (partnership's year of change); and
(2) As a result of such change in taxable year, items from more than
one taxable year of the partnership would, but for the provisions of
this section, be included in the taxable year of the partner with or
within which the partnership's year of change ends.
(b) Partner's treatment of items from the partnership's year of
change--(1) In general. Except as provided in paragraph (c) of this
section, if a partner's share of ``income items'' exceeds the partner's
share of ``expense items,'' the partner's share of each and every income
and expense item shall be taken into account ratably (and retain its
character) over the partner's first 4 taxable years beginning with the
partner's taxable year with or within which the partnership's year of
change ends.
(2) Definitions--(i) Income items. For purposes of this section, the
term income items means the sum of--
(A) The partner's distributive share of taxable income (exclusive of
separately stated items) from the partnership's year of change,
(B) The partner's distributive share of all separately stated income
or gain items from the partnership's year of change, and
(C) Any amount includible in the partner's income under section
707(c) on account of payments during the partnership's year of change.
(ii) Expense items. For purposes of this section, the term expense
items means the sum of--
(A) The partner's distributive share of taxable loss (exclusive of
separately stated items) from the partnership's year of change, and
(B) The partner's distributive share of all separately stated items
of loss or deduction from the partnership's year of change.
(c) Electing out of 4-year spread. A partner may elect out of the
rules of paragraph (b) of this section by meeting the requirements of
Sec. 301.9100-7T of this chapter (temporary regulations relating to
elections under the Tax Reform Act of 1986).
(d) Special rules for a partner that is a partnership or S
corporation--(1) In general. Except as provided in paragraph (d)(2) of
this section, a partner that is a partnership or S corporation may, if
otherwise eligible, use the 4-year spread (with respect to partnership
interests owned by the partner) described in this section.
(2) Certain partners prohibited from using 4-year spread--(i) In
general. Except as provided in paragraph (d)(2)(ii) of this section, a
partner that is a partnership or S corporation may not use the 4-year
spread (with respect to partnership interests owned by the partner) if
such partner is also changing its taxable year pursuant to section 806
of the 1986 Act.
(ii) Exception. If a partner's year of change does not include any
income or expense items with respect to the partnership's year of
change, such partner may, if otherwise eligible, use the 4-year spread
(with respect to such partnership interest) described in this section
even though the partner is a partnership or S corporation. See examples
13 and 14 in paragraph (h) of this section.
(e) Basis of partner's interest. The basis of a partner's interest
in a partnership shall be determined as if the partner elected not to
spread the partnership items over 4 years, regardless of whether such
election was in fact made. Thus, for example, if a partner is eligible
for the 4-year spread and does not elect out of the 4-year spread
pursuant to paragraph (c) of this section, the partner's basis in the
partnership interest will be increased in the first year of the 4-year
spread period by an amount equal to the excess of the income items over
the expense items. However, the partner's basis will not be increased
again, with respect to the unamortized income and expense items, as they
are amortized over the 4-year spread period.
(f) Effect on other provisions of the Code. Except as provided in
paragraph (e) of this section, determinations with respect to a partner,
for purposes of other provisions of the Code, must be
[[Page 433]]
made with regard to the manner in which partnership items are taken into
account under the rules of this section. Thus, for example, a partner
who does not elect out of the 4-year spread must take into account, for
purposes of determining net earnings from self-employment under section
1402(a) for a taxable year, only the ratable portion of partnership
items for that taxable year.
(g) Treatment of dispositions--(1) In general. If a partnership
interest is disposed of before the last taxable year in the 4-year
spread period, unamortized income and expense items that are
attributable to the interest disposed of and that would be taken into
account by the partner for subsequent taxable years in the 4-year spread
period shall be taken into account by the partner as determined under
paragraph (g)(2) of this section. For purposes of this section, the term
disposed of means any transfer, including (but not limited to) transfers
by sale, exchange, gift, and by reason of death.
(2) Year unamortized items taken into account--(i) In general. If,
at the end of a partner's taxable year, the fraction determined under
paragraph (g)(2)(ii) of this section is--
(A) Greater than \2/3\, the partner must continue to take the
unamortized income and expense items into account ratably over the 4-
year spread period;
(B) Greater than \1/3\ but less than or equal to \2/3\, the partner
must, in addition to its ratable amortization, take into account in such
year 50 percent of the income and expense items that would otherwise be
unamortized at the end of such year (however, this paragraph
(g)(2)(i)(B) is only applied once with respect to a partner's interest
in a particular partnership); or
(C) Less than or equal to \1/3\, the partner must take into account
the entire balance of unamortized income and expense items in such year.
(ii) Determination of fraction. For purposes of paragraph (g)(2)(i)
of this section, the numerator of the fraction is the partner's
proportionate interest in the partnership at the end of the partner's
taxable year and the denominator is the partner's proportionate interest
in the partnership as of the last day of the partnership's year of
change.
(h) Examples. The provisions of this section may be illustrated by
the following examples.
Example 1. Assume that P1, a partnership with a taxable year ending
September 30, is required by the 1986 Act to change its taxable year to
a calendar year. All of the partners of P1 are individual taxpayers
reporting on a calendar year. P1 is required to change to a calendar
year for its taxable year beginning October 1, 1987, and to file a
return for the short taxable year ending December 31, 1987. Based on the
above facts, the partners of P1 are required to include the items from
more than one taxable year of P1 in income for their 1987 taxable year.
Thus, under paragraph (b) of this section, if a partner's share of
income items exceeds the partner's share of expense items, the partner's
share of each and every income and expense item shall be taken into
account ratably by such partner in each of the partner's first four
taxable years' beginning with the partner's 1987 taxable year, unless
such partner elects under paragraph (c) of this section to include all
such amounts in his 1987 taxable year.
Example 2. Assume the same facts as in example 1, except P1 is a
personal service corporation with all of its employee-owners reporting
on a calendar year. Although P1 is required to change to a calendar year
for its taxable year beginning October 1, 1987, neither P1 nor its
employee-owners obtain the benefits of a 4-year spread. Pursuant to
section 806(e)(2)(C) of the 1986 Act, the 4-year spread provision is
only applicable to short taxable years of partnerships and S
corporations required to change their taxable year under the 1986 Act.
Example 3. Assume the same facts as example 1 and that I is one of
the individual partners of P1. Further assume that I's distributive
share of P1's taxable income for the short taxable year ended December
31, 1987 (i.e., P1's year of change), is $10,000. In addition, I has
$8,000 of separately stated expense from P1's year of change. Since I's
income items (i.e., $10,000 of taxable income) exceed I's expense items
(i.e., $8,000 of separately stated expense) attributable to P1's year of
change, I is eligible for the 4-year spread provided by this section. If
I does not elect out of the 4-year spread, I will recognize $2,500 of
taxable income and $2,000 of separately stated expense in his 1987
calendar year return. Assuming I does not dispose of his partnership
interest in P1 by December 31, 1989, the remaining $7,500 of taxable
income and $6,000 of separately stated expense will be amortized (and
retain its character) over I's next three taxable years (i.e., 1988,
1989 and 1990).
Example 4. Assume the same facts as example 3, except that I
disposes of his entire interest in P1 during 1988. Pursuant to paragraph
(g) of this section, I would recognize
[[Page 434]]
$7,500 of taxable income and $6,000 of separately stated expense in his
1988 calendar year return.
Example 5. Assume the same facts as in example 3, except that I
disposes of 50 percent of his interest in P1 during 1989. Pursuant to
paragraph (g) of this section, I would recognize $3,750 of taxable
income in his 1989 calendar year return ($2,500 ratable portion for 1989
plus 50 percent of the $2,500 of income items that would otherwise be
unamortized at the end of 1989). I would also recognize $3,000 of
separately stated expense items in 1989 ($2,000 ratable portion for 1989
plus 50 percent of the $2,000 of separately stated expense items that
would otherwise be unamortized at the end of 1989).
Example 6. Assume the same facts as in example 1, except that X, a
personal service corporation as defined in section 441(i), is a partner
of P1. X is a calendar year taxpayer, and thus is not required to change
its taxable year under the 1986 Act. The same result occurs as in
example 1 (i.e., unless X elects to the contrary, X is required to
include one fourth of its share of income and expense items from P1's
year of change in the first four taxable years of X beginning with the
1987 taxable year).
Example 7. Assume the same facts as in example 6, except that X is a
fiscal year personal service corporation with a taxable year ending
September 30. X is required under the 1986 Act to change to a calendar
year for its taxable year beginning October 1, 1987, and to file a
return for its short year ending December 31, 1987. Based on the above
facts, X is not required to include the items from more than one taxable
year of P1 in any one taxable year of X. Thus, the provisions of this
section do not apply to X, and X is required to include the full amount
of income and expense items from P1's year of change in X's taxable
income for X's short year ending December 31. Under section 443 of the
Code, X is required to annualize the taxable income for its short year
ending December 31, 1987.
Example 8. Assume that P2 is a partnership with a taxable year
ending September 30. Under the 1986 Act, P2 would have been required to
change its taxable year to a calendar year, effective for the taxable
year beginning October 1, 1987. However, P2 properly changed its taxable
year to a calendar year for the year beginning October 1, 1986, and
filed a return for the short period ending December 31, 1986. The
provisions of the 1986 Act do not apply to P2 because the short year
ending December 31, 1986, was not required by the amendments made by
section 806 of the 1986 Act. Thus, the partners of P2 are required to
take all items of income and expense for the short taxable year ending
December 31, 1986, into account for the taxable year with or within
which such short year ends.
Example 9. Assume that P3 is a partnership with a taxable year
ending March 31 and I, a calendar year individual, is a partner in P3.
Under the 1986 Act, P3 would have been required to change its taxable
year to a calendar year. However, under Rev. Proc. 87-32, P3 establishes
and changes to a natural business year beginning with the taxable year
ending June 30, 1987. Thus, P3 is required to change its taxable year
under section 806 of the 1986 Act, and I is required to include items
from more than one taxable year of P3 in one of her taxable years.
Furthermore, I's share of P3's income items exceeds her share of P3's
expense items for the short period April 1, 1987 through June 30, 1987.
Accordingly, under this section, unless I elects to the contrary, I is
required to take one fourth of her share of items of income and expense
from P3's short taxable year ending June 30, 1987 into account for her
taxable year ending December 31, 1987.
Example 10. Assume that P4 is a partnership with a taxable year
ending March 31. Y, a C corporation, owns a 51 percent interest in the
profits and capital of P4. Y reports its income on the basis of a
taxable year ending March 31. P4 establishes and changes to a natural
business year beginning with the taxable year ending June 30, 1987,
under Rev. Proc. 87-32. Under the above facts, P4 is not required to
change its taxable year because its March 31 taxable year was the
taxable year of Y, the partner owning a majority of the partnership's
profits and capital. Therefore, the remaining partners of P4 owning 49
percent of the profits and capital are not permitted the 4-year spread
of the items of income and expense with respect to the short year, even
though they may be required to include their distributive share of P4's
items from more than one taxable year in one of their years.
Example 11. Assume that X and Y are C corporations with taxable
years ending June 30. Each owns a 50-percent interest in the profits and
capital of partnership P5. P5 has a taxable year ending March 31. Assume
that P5 cannot establish a business purpose in order to retain a taxable
year ending March 31, and thus P5 must change to a June 30 taxable year,
the taxable year of its partners. Furthermore, assume that X's share of
P5's income items exceeds its share of P5's expense items for P5's short
taxable year ending June 30, 1987. Unless X elects out of the 4-year
spread, the taxable year ending June 30, 1987, is the first of the four
taxable years in which X must take into account its share of the items
of income and expense resulting from P5's short taxable year ending June
30, 1987.
Example 12. Assume that I, an individual who reports income on the
basis of the calendar year, is a partner in two partnerships, P6 and P7.
Both partnerships have a taxable
[[Page 435]]
year ending September 30. Neither partnership can establish a business
purpose for retaining its taxable year. Consequently, each partnership
will change its taxable year to December 31, for the taxable year
beginning October 1, 1987. The election to avoid a 4-year spread is made
at the partner level; in addition, a partner may make such elections on
a partnership-by-partnership basis. Thus, assuming I is eligible to
obtain the 4-year spread with respect to income and expense items from
partnerships P6 and P7, I may use the 4-year spread with respect to
items from P6, while not using the 4-year spread with respect to items
from P7.
Example 13. I, an individual taxpayer using a calendar year, owns an
interest in P8, a partnership using a taxable year ending June 30.
Furthermore, P8 owns an interest in P9, a partnership with a taxable
year ending March 31. Under section 806 of the 1986 Act, P8 will be
required to change to a taxable year ending December 31, while P9 will
be required to change to a taxable year ending June 30. As a result,
P8's year of change will be July 1 through December 31, 1987, while P9's
year of change will be from April 1 through June 30, 1987. Since P9's
year of change does not end with or within P8's year of change,
paragraph (d)(2) of this section does not prevent P8 from obtaining a 4-
year spread with respect to its interest in P9.
Example 14. The facts are the same as in example 13, except that P9
has a taxable year ending September 30, and under the 1986 Act P9 is
required to change to a taxable year ending December 31. Therefore, P9's
year of change will be from October 1, 1987 through December 31, 1987.
Although P8's year of change from July 1, 1987 through December 31, 1987
includes two taxable years of P9 (i.e., October 1, 1986 through
September 30, 1987 and October 1, 1987 through December 31, 1987),
paragraph (d)(2) of this section prohibits P8 from using the 4-year
spread with respect to its interest in P9, because P9's year of change
ends with or within P8's year of change.
[T.D. 8167, 52 FR 48530, Dec. 23, 1987, as amended by T.D. 8435, 57 FR
43896, Sept. 23, 1992]
Sec. 1.703-1 Partnership computations.
(a) Income and deductions. (1) The taxable income of a partnership
shall be computed in the same manner as the taxable income of an
individual, except as otherwise provided in this section. A partnership
is required to state separately in its return the items described in
section 702(a)(1) through (7) and, in addition, to attach to its return
a statement setting forth separately those items described in section
702(a)(8) which the partner is required to take into account separately
in determining his income tax. See paragraph (a)(8) of Sec. 1.702-1.
The partnership is further required to compute and to state separately
in its return:
(i) As taxable income under section 702(a)(9), the total of all
other items of gross income (not separately stated) over the total of
all other allowable deductions (not separately stated), or
(ii) As loss under section 702(a)(9), the total of all other
allowable deductions (not separately stated) over the total of all other
items of gross income (not separately stated).
The taxable income or loss so computed shall be accounted for by the
partners in accordance with their partnership agreement.
(2) The partnership is not allowed the following deductions:
(i) The standard deduction provided in section 141.
(ii) The deduction for personal exemptions provided in section 151.
(iii) The deduction provided in section 164(a) for taxes, described
in section 901, paid or accrued to foreign countries or possessions of
the United States. Each partner's distributive share of such taxes shall
be accounted for separately by him as provided in section 702(a)(6).
(iv) The deduction for charitable contributions provided in section
170. Each partner is considered as having paid within his taxable year
his distributive share of any contribution or gift, payment of which was
actually made by the partnership within its taxable year ending within
or with the partner's taxable year. This item shall be accounted for
separately by the partners as provided in section 702(a)(4). See also
paragraph (b) of Sec. 1.702-1.
(v) The net operating loss deduction provided in section 172. See
Sec. 1.702-2.
(vi) The additional itemized deductions for individuals provided in
part VII, subchapter B, chapter 1 of the Code, as follows: Expenses for
production of income (section 212); medical, dental, etc., expenses
(section 213); expenses for care of certain dependents (section 214);
alimony, etc., payments (section 215); and amounts representing taxes
and interest paid to cooperative
[[Page 436]]
housing corporation (section 216). However, see paragraph (a)(8) of
Sec. 1.702-1.
(vii) The deduction for depletion under section 611 with respect to
domestic oil or gas which is produced after December 31, 1974, and to
which gross income from the property is attributable after such year.
(viii) The deduction for capital gains provided by section 1202 and
the deduction for capital loss carryover provided by section 1212.
(b) Elections of the partnership--(1) General rule. Any elections
(other than those described in subparagraph (2) of this paragraph)
affecting the computation of income derived from a partnership shall be
made by the partnership. For example, elections of methods of
accounting, of computing depreciation, of treating soil and water
conservation expenditures, and the option to deduct as expenses
intangible drilling and development costs, shall be made by the
partnership and not by the partners separately. All partnership
elections are applicable to all partners equally, but any election made
by a partnership shall not apply to any partner's nonpartnership
interests.
(2) Exceptions. (i) Each partner shall add his distributive share of
taxes described in section 901 paid or accrued by the partnership to
foreign countries or possessions of the United States (according to its
method of treating such taxes) to any such taxes paid or accrued by him
(according to his method of treating such taxes), and may elect to use
the total amount either as a credit against tax or as a deduction from
income.
(ii) Each partner shall add his distributive share of expenses
described in section 615 or section 617 paid or accrued by the
partnership to any such expenses paid or accrued by him and shall treat
the total amount according to his method of treating such expenses,
notwithstanding the treatment of the expenses by the partnership.
(iii) Each partner who is a nonresident alien individual or a
foreign corporation shall add his distributive share of income derived
by the partnership from real property located in the United States, as
described in section 871(d)(1) or 882(d)(1), to any such income derived
by him and may elect under Sec. 1.871-10 to treat all such income as
income which is effectively connected for the taxable year with the
conduct of a trade or business in the United States.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7192, 37 FR
12949, June 30, 1972; T.D. 7332, 39 FR 44232, Dec. 23, 1974; T.D. 8348,
56 FR 21952, May 13, 1991]
Sec. 1.704-1 Partner's distributive share.
(a) Effect of partnership agreement. A partner's distributive share
of any item or class of items of income, gain, loss, deduction, or
credit of the partnership shall be determined by the partnership
agreement, unless otherwise provided by section 704 and paragraphs (b)
through (e) of this section. For definition of partnership agreement see
section 761(c).
(b) Determination of partner's distributive share--(0) Cross-
references.
------------------------------------------------------------------------
Heading Section
------------------------------------------------------------------------
Cross-references.................... 1.704-1(b)(0)
In general.......................... 1.704-1(b)(1)
Basic principles................ 1.704-1(b)(1)(i)
Effective dates................. 1.704-1(b)(1)(ii)
Generally....................... 1.704-1(b)(1)(ii)(a)
Foreign tax expenditures........ 1.704-1(b)(1)(ii)(b)
[Reserved] 1.704-1(b)(1)(ii)(b)(3)
Effect of other sections........ 1.704-1(b)(1)(iii)
Other possible tax consequences. 1.704-1(b)(1)(iv)
Purported allocations........... 1.704-1(b)(1)(v)
Section 704(c) determinations... 1.704-1(b)(1)(vi)
Bottom line allocations......... 1.704-1(b)(1)(vii)
Substantial economic effect......... 1.704-1(b)(2)
Two-part analysis............... 1.704-1(b)(2)(i)
Economic effect................. 1.704-1(b)(2)(ii)
Fundamental principles...... 1.704-1(b)(2)(ii)(a)
Three requirements.......... 1.704-1(b)(2)(ii)(b)
Obligation to restore 1.704-1(b)(2)(ii)(c)
deficit.
Alternate test for economic 1.704-1(b)(2)(ii)(d)
effect.
Partial economic effect..... 1.704-1(b)(2)(ii)(e)
Reduction of obligation to 1.704-1(b)(2)(ii)(f)
restore.
Liquidation defined......... 1.704-1(b)(2)(ii)(g)
Partnership agreement 1.704-1(b)(2)(ii)(h)
defined.
Economic effect equivalence. 1.704-1(b)(2)(ii)(i)
Substantiality.................. 1.704-1(b)(2)(iii)
General rules............... 1.704-1(b)(2)(iii)(a)
Shifting tax consequences... 1.704-1(b)(2)(iii)(b)
Transitory allocations...... 1.704-1(b)(2)(iii)(c)
Maintenance of capital accounts..... 1.704-1(b)(2)(iv)
In general...................... 1.704-1(b)(2)(iv)(a)
Basic rules..................... 1.704-1(b)(2)(iv)(b)
Treatment of liabilities........ 1.704-1(b)(2)(iv)(c)
[[Page 437]]
Contributed property............ 1.704-1(b)(2)(iv)(d)
In general.................. 1.704-1(b)(2)(iv)(d)(1)
Contribution of promissory 1.704-1(b)(2)(iv)(d)(2)
notes.
Section 704(c) 1.704-1(b)(2)(iv)(d)(3)
considerations.
Exercise of noncompensatory 1.704-1(b)(2)(iv)(d)(4).
options.
Distributed property............ 1.704-1(b)(2)(iv)(e)
In general.................. 1.704-1(b)(2)(iv)(e)(1)
Distribution of promissory 1.704-1(b)(2)(iv)(e)(2)
notes.
Revaluations of property........ 1.704-1(b)(2)(iv)(f)
Adjustments to reflect book 1.704-1(b)(2)(iv)(g)
value.
In general.................. 1.704-1(b)(2)(iv)(g)(1)
Payables and receivables.... 1.704-1(b)(2)(iv)(g)(2)
Determining amount of book 1.704-1(b)(2)(iv)(g)(3)
items.
Determinations of fair market 1.704-1(b)(2)(iv)(h)
value.
In general.................. 1.704-1(b)(2)(iv)(h)(1).
Adjustments for 1.704-1(b)(2)(iv)(h)(2).
noncompensatory options.
Section 705(a)(2)(B) 1.704-1(b)(2)(iv)(i)
expenditures.
In general.................. 1.704-1(b)(2)(iv)(i)(1)
Expenses described in 1.704-1(b)(2)(iv)(i)(2)
section 709.
Disallowed losses........... 1.704-1(b)(2)(iv)(i)(3)
Basis adjustments to section 38 1.704-1(b)(2)(iv)(j)
property.
Depletion of oil and gas 1.704-1(b)(2)(iv)(k)
properties.
In general.................. 1.704-1(b)(2)(iv)(k)(1)
Simulated depletion......... 1.704-1(b)(2)(iv)(k)(2)
Actual depletion............ 1.704-1(b)(2)(iv)(k)(3)
Effect of book values....... 1.704-1(b)(2)(iv)(k)(4)
Transfers of partnership 1.704-1(b)(2)(iv)(l)
interests.
Section 754 elections........... 1.704-1(b)(2)(iv)(m)
In general.................. 1.704-1(b)(2)(iv)(m)(1)
Section 743 adjustments..... 1.704-1(b)(2)(iv)(m)(2)
Section 732 adjustments..... 1.704-1(b)(2)(iv)(m)(3)
Section 734 adjustments..... 1.704-1(b)(2) iv)(m)(4)
Limitations on adjustments.. 1.704-1(b)(2) iv)(m)(5)
Partnership level 1.704-1(b)(2)(iv)(n)
characterization.
Guaranteed payments............. 1.704-1(b)(2)(iv)(o)
Minor discrepancies............. 1.704-1(b)(2)(iv)(p)
Adjustments where guidance is 1.704-1(b)(2)(iv)(q)
lacking.
Restatement of capital accounts. 1.704-1(b)(2)(iv)(r)
Adjustments on the exercise of a 1.704-1(b)(2)(iv)(s).
noncompensatory option.
Partner's interest in the 1.704-1(b)(3)
partnership.
In general.................. 1.704-1(b)(3)(i)
Factors considered.......... 1.704-1(b)(3)(ii)
Certain determinations...... 1.704-1(b)(3)(iii)
Special rules................... 1.704-1(b)(4)
Allocations to reflect 1.704-1(b)(4)(i)
revaluations.
Credits..................... 1.704-1(b)(4)(ii)
Excess percentage depletion. 1.704-1(b)(4)(iii)
Allocations attributable to 1.704-1(b)(4)(iv)
nonrecourse liabilities.
Allocations under section 1.704-1(b)(4)(v)
613A(c(7)(D).
Amendments to partnership 1.704-1(b)(4)(vi)
agreement.
Recapture................... 1.704-1(b)(4)(vii)
Allocation of creditable foreign 1.704-1(b)(4)(viii)
taxes.
In general.......................... 1.704-1(b)(4)(viii)(a)
Creditable foreign tax 1.704-1(b)(4)(viii)(b)
expenditures (CFTEs).
Income to which CFTEs relate.... 1.704-1(b)(4)(viii)(c)
In general.................. 1.704-1(b)(4)(viii)(c)(1)
CFTE category............... 1.704-1(b)(4)(viii)(c)(2)
Net income in a CFTE 1.704-1(b)(4)(viii)(c)(3)
category.
Distributive shares of income... 1.704-1(b)(4)(viii)(c)(4)
No net income in a CFTE category 1.704-1(b)(4)(viii)(c)(5)
Allocation and apportionment of 1.704-1(b)(4)(viii)(d)
CFTEs to CFTE categories.
In general...................... 1.704-1(b)(4)(viii)(d)(1)
Timing and base differences..... 1.704-1(b)(4)(viii)(d)(2)
[Reserved] 1.704-1(b)(4)(viii)(d)(3)
Allocations with respect to 1.704-1(b)(4)(ix).
noncompensatory options.
Corrective allocations.......... 1.704-1(b)(4)(x).
------------------------------------------------------------------------
(1) In general--(i) Basic principles. Under section 704(b) if a
partnership agreement does not provide for the allocation of income,
gain, loss, deduction, or credit (or item thereof) to a partner, or if
the partnership agreement provides for the allocation of income, gain,
loss, deduction, or credit (or item thereof) to a partner but such
allocation does not have substantial economic effect, then the partner's
distributive share of such income, gain, loss, deduction, or credit (or
item thereof) shall be determined in accordance with such partner's
interest in the partnership (taking into account all facts and
circumstances). If the partnership agreement provides for the allocation
of income, gain, loss, deduction, or credit (or item thereof) to a
partner, there are three ways in which such allocation will be respected
under section 704(b) and this paragraph. First, the allocation can have
substantial economic effect in accordance with paragraph (b)(2) of this
section. Second, taking into account all facts and circumstances, the
allocation can be in
[[Page 438]]
accordance with the partner's interest in the partnership. See paragraph
(b)(3) of this section. Third, the allocation can be deemed to be in
accordance with the partner's interest in the partnership pursuant to
one of the special rules contained in paragraph (b)(4) of this section
and Sec. 1.704-2. To the extent an allocation under the partnership
agreement of income, gain, loss, deduction, or credit (or item thereof)
to a partner does not have substantial economic effect, is not in
accordance with the partner's interest in the partnership, and is not
deemed to be in accordance with the partner's interest in the
partnership, such income, gain, loss, deduction, or credit (or item
thereof) will be reallocated in accordance with the partner's interest
in the partnership (determined under paragraph (b)(3) of this section).
(ii) Effective/applicability date. (a) Generally. Except as
otherwise provided in this section, the provisions of this paragraph are
effective for partnership taxable years beginning after December 31,
1975. However, for partnership taxable years beginning after December
31, 1975, but before May 1, 1986, (January 1, 1987, in the case of
allocations of nonrecourse deductions as defined in paragraph
(b)(4)(iv)(a) of this section) an allocation of income, gain, loss,
deduction, or credit (or item thereof) to a partner that is not
respected under this paragraph nevertheless will be respected under
section 704(b) if such allocation has substantial economic effect or is
in accordance with the partners' interests in the partnership as those
terms have been interpreted under the relevant case law, the legislative
history of section 210(d) of the Tax Reform Act of 1976, and the
provisions of this paragraph in effect for partnership taxable years
beginning before May 1, 1986. Paragraphs (b)(2)(iii)(a) (last sentence),
(b)(2)(iii)(d), (b)(2)(iii)(e), and (b)(5) Example 28, Example 29, and
Example 30 of this section apply to partnership taxable years beginning
on or after May 19, 2008. In addition, paragraph (b)(2)(iv)(d)(4),
paragraph (b)(2)(iv)(f)(1), paragraph (b)(2)(iv)(f)(5)(iv), paragraph
(b)(2)(iv)(h)(2), paragraph (b)(2)(iv)(s), paragraph (b)(4)(ix),
paragraph (b)(4)(x), and Examples 31 through 35 in paragraph (b)(5) of
this section apply to noncompensatory options (as defined in Sec.
1.721-2(f)) that are issued on or after February 5, 2013.
(b) Rules relating to foreign tax expenditures--(1) In general. The
provisions of paragraphs (b)(3)(iv) and (b)(4)(viii) of this section
(regarding the allocation of creditable foreign taxes) apply for
partnership taxable years beginning on or after October 19, 2006. The
rules that apply to allocations of creditable foreign taxes made in
partnership taxable years beginning before October 19, 2006 are
contained in Sec. Sec. 1.704-1T(b)(1)(ii)(b)(1) and 1.704-1T(b)(4)(xi)
as in effect prior to October 19, 2006 (see 26 CFR part 1 revised as of
April 1, 2005). However, taxpayers may rely on the provisions of
paragraphs (b)(3)(iv) and (b)(4)(viii) of this section for partnership
taxable years beginning on or after April 21, 2004.
(2) Transition rule. Transition relief is provided herein to
partnerships whose agreements were entered into prior to April 21, 2004.
In such case, if there has been no material modification to the
partnership agreement on or after April 21, 2004, then the partnership
may apply the provisions of paragraph (b) of this section as if the
amendments made by paragraphs (b)(3)(iv) and (b)(4)(viii) of this
section had not occurred. If the partnership agreement was materially
modified on or after April 21, 2004, then the rules provided in
paragraphs (b)(3)(iv) and (b)(4)(viii) of this section shall apply to
the later of the taxable year beginning on or after October 19, 2006 or
the taxable year within which the material modification occurred, and to
all subsequent taxable years. If the partnership agreement was
materially modified on or after April 21, 2004, and before a tax year
beginning on or after October 19, 2006, see Sec. Sec. 1.704-
1T(b)(1)(ii)(b)(1) and 1.704-1T(b)(4)(xi) as in effect prior to October
19, 2006 (26 CFR part 1 revised as of April 1, 2005). For purposes of
this paragraph (b)(1)(ii)(b)(2), any change in ownership constitutes a
material modification to the partnership agreement. This transition rule
does not apply to any taxable year (and all subsequent taxable
[[Page 439]]
years) in which persons that are related to each other (within the
meaning of section 267(b) and 707(b)) collectively have the power to
amend the partnership agreement without the consent of any unrelated
party.
(3) [Reserved] For further guidance, see Sec. 1.704-
1T(b)(1)(ii)(b)(3).
(iii) Effect of other sections. The determination of a partner's
distributive share of income, gain, loss, deduction, or credit (or item
thereof) under section 704(b) and this paragraph is not conclusive as to
the tax treatment of a partner with respect to such distributive share.
For example, an allocation of loss or deduction to a partner that is
respected under section 704(b) and this paragraph may not be deductible
by such partner if the partner lacks the requisite motive for economic
gain (see, e.g., Goldstein v. Commissioner, 364 F.2d 734 (2d Cir.
1966)), or may be disallowed for that taxable year (and held in
suspense) if the limitations of section 465 or section 704(d) are
applicable. Similarly, an allocation that is respected under section
704(b) and this paragraph nevertheless may be reallocated under other
provisions, such as section 482, section 704(e)(2), section 706(d) (and
related assignment of income principles), and paragraph (b)(2)(ii) of
Sec. 1.751-1. If a partnership has a section 754 election in effect, a
partner's distributive share of partnership income, gain, loss, or
deduction may be affected as provided in Sec. 1.743-1 (see paragraph
(b)(2)(iv)(m)(2) of this section). A deduction that appears to be a
nonrecourse deduction deemed to be in accordance with the partners'
interests in the partnership may not be such because purported
nonrecourse liabilities of the partnership in fact constitute equity
rather than debt. The examples in paragraph (b)(5) of this section
concern the validity of allocations under section 704(b) and this
paragraph and, except as noted, do not address the effect of other
sections or limitations on such allocations.
(iv) Other possible tax consequences. Allocations that are respected
under section 704(b) and this paragraph may give rise to other tax
consequences, such as those resulting from the application of section
61, section 83, section 751, section 2501, paragraph (f) of Sec. 1.46-
3, Sec. 1.47-6, paragraph (b)(1) of Sec. 1.721-1 (and related
principles), and paragraph (e) of Sec. 1.752-1. The examples in
paragraph (b)(5) of this section concern the validity of allocations
under section 704(b) and this paragraph and, except as noted, do not
address other tax consequences that may result from such allocations.
(v) Purported allocations. Section 704(b) and this paragraph do not
apply to a purported allocation if it is made to a person who is not a
partner of the partnership (see section 7701(a)(2) and paragraph (d) of
Sec. 301.7701-3) or to a person who is not receiving the purported
allocation in his capacity as a partner (see section 707(a) and
paragraph (a) of Sec. 1.707-1).
(vi) Section 704(c) determinations. Section 704(c) and Sec. 1.704-3
generally require that if property is contributed by a partner to a
partnership, the partners' distributive shares of income, gain, loss,
and deduction, as computed for tax purposes, with respect to the
property are determined so as to take account of the variation between
the adjusted tax basis and fair market value of the property. Although
section 704(b) does not directly determine the partners' distributive
shares of tax items governed by section 704(c), the partners'
distributive shares of tax items may be determined under section 704(c)
and Sec. 1.704-3 (depending on the allocation method chosen by the
partnership under Sec. 1.704-3) with reference to the partners'
distributive shares of the corresponding book items, as determined under
section 704(b) and this paragraph. (See paragraphs (b)(2)(iv)(d) and
(b)(4)(i) of this section.) See Sec. 1.704-3 for methods of making
allocations under section 704(c), and Sec. 1.704-3(d)(2) for a special
rule in determining the amount of book items if the remedial allocation
method is chosen by the partnership. See also paragraph (b)(5) Example
(13) (i) of this section.
(vii) Bottom line allocations. Section 704(b) and this paragraph are
applicable to allocations of income, gain, loss, deduction, and credit,
allocations of specific items of income, gain, loss, deduction, and
credit, and allocations of partnership net or ``bottom line'' taxable
income and loss. An allocation to a partner of a share of partnership
net
[[Page 440]]
or ``bottom line'' taxable income or loss shall be treated as an
allocation to such partner of the same share of each item of income,
gain, loss, and deduction that is taken into account in computing such
net or ``bottom line'' taxable income or loss. See example 15(i) of
paragraph (b)(5) of this section.
(2) Substantial economic effect--(i) Two-part analysis. The
determination of whether an allocation of income, gain, loss, or
deduction (or item thereof) to a partner has substantial economic effect
involves a two-part analysis that is made as of the end of the
partnership taxable year to which the allocation relates. First, the
allocation must have economic effect (within the meaning of paragraph
(b)(2)(ii) of this section). Second, the economic effect of the
allocation must be substantial (within the meaning of paragraph
(b)(2)(iii) of this section).
(ii) Economic effect--(a) Fundamental principles. In order for an
allocation to have economic effect, it must be consistent with the
underlying economic arrangement of the partners. This means that in the
event there is an economic benefit or economic burden that corresponds
to an allocation, the partner to whom the allocation is made must
receive such economic benefit or bear such economic burden.
(b) Three requirements. Based on the principles contained in
paragraph (b)(2)(ii)(a) of this section, and except as otherwise
provided in this paragraph, an allocation of income, gain, loss, or
deduction (or item thereof) to a partner will have economic effect if,
and only if, throughout the full term of the partnership, the
partnership agreement provides--
(1) For the determination and maintenance of the partners' capital
accounts in accordance with the rules of paragraph (b)(2)(iv) of this
section,
(2) Upon liquidation of the partnership (or any partner's interest
in the partnership), liquidating distributions are required in all cases
to be made in accordance with the positive capital account balances of
the partners, as determined after taking into account all capital
account adjustments for the partnership taxable year during which such
liquidation occurs (other than those made pursuant to this requirement
(2) and requirement (3) of this paragraph (b)(2)(ii)(b)), by the end of
such taxable year (or, if later, within 90 days after the date of such
liquidation), and
(3) If such partner has a deficit balance in his capital account
following the liquidation of his interest in the partnership, as
determined after taking into account all capital account adjustments for
the partnership taxable year during which such liquidation occurs (other
than those made pursuant to this requirement (3)), he is unconditionally
obligated to restore the amount of such deficit balance to the
partnership by the end of such taxable year (or, if later, within 90
days after the date of such liquidation), which amount shall, upon
liquidation of the partnership, be paid to creditors of the partnership
or distributed to other partners in accordance with their positive
capital account balances (in accordance with requirement (2) of this
paragraph (b)(2)(ii)(b)).
For purposes of the preceding sentence, a partnership taxable year shall
be determined without regard to section 706(c)(2)(A). Requirements (2)
and (3) of this paragraph (b)(2)(ii)(b) are not violated if all or part
of the partnership interest of one or more partners is purchased (other
than in connection with the liquidation of the partnership) by the
partnership or by one or more partners (or one or more persons related,
within the meaning of section 267(b) (without modification by section
267(e)(1)) or section 707(b)(1), to a partner) pursuant to an agreement
negotiated at arm's length by persons who at the time such agreement is
entered into have materially adverse interests and if a principal
purpose of such purchase and sale is not to avoid the principles of the
second sentence of paragraph (b)(2)(ii)(a) of this section. In addition,
requirement (2) of this paragraph (b)(2)(ii)(b) is not violated if, upon
the liquidation of the partnership, the capital accounts of the partners
are increased or decreased pursuant to paragraph (b)(2)(iv)(f) of this
section as of the date of such liquidation and the partnership makes
liquidating distributions within the time set out in that requirement
(2) in the ratios of the partners' positive capital
[[Page 441]]
accounts, except that it does not distribute reserves reasonably
required to provide for liabilities (contingent or otherwise) of the
partnership and installment obligations owed to the partnership, so long
as such withheld amounts are distributed as soon as practicable and in
the ratios of the partners' positive capital account balances. See
examples 1(i) and (ii), (4)(i), (8)(i), and (16)(i) of paragraph (b)(5)
of this section.
(c) Obligation to restore deficit. If a partner is not expressly
obligated to restore the deficit balance in his capital account, such
partner nevertheless will be treated as obligated to restore the deficit
balance in his capital account (in accordance with requirement (3) of
paragraph (b)(2)(ii)(b) of this section) to the extent of--
(1) The outstanding principal balance of any promissory note (of
which such partner is the maker) contributed to the partnership by such
partner (other than a promissory note that is readily tradable on an
established securities market), and
(2) The amount of any unconditional obligation of such partner
(whether imposed by the partnership agreement or by State or local law)
to make subsequent contributions to the partnership (other than pursuant
to a promissory note of which such partner is the maker),
provided that such note or obligation is required to be satisfied at a
time no later than the end of the partnership taxable year in which such
partner's interest is liquidated (or, if later, within 90 days after the
date of such liquidation). If a promissory note referred to in the
previous sentence is negotiable, a partner will be considered required
to satisfy such note within the time period specified in such sentence
if the partnership agreement provides that, in lieu of actual
satisfaction, the partnership will retain such note and such partner
will contribute to the partnership the excess, if any, of the
outstanding principal balance of such note over its fair market value at
the time of liquidation. See paragraph (b)(2)(iv)(d)(2) of this section.
See examples (1)(ix) and (x) of paragraph (b)(5) of this section. A
partner in no event will be considered obligated to restore the deficit
balance in his capital account to the partnership (in accordance with
requirement (3) of paragraph (b)(2)(ii)(b) of this section) to the
extent such partner's obligation is not legally enforceable, or the
facts and circumstances otherwise indicate a plan to avoid or circumvent
such obligation. See paragraphs (b)(2)(ii)(f), (b)(2)(ii)(h), and
(b)(4)(vi) of this section for other rules regarding such obligation.
For purposes of this paragraph (b)(2), if a partner contributes a
promissory note to the partnership during a partnership taxable year
beginning after December 29, 1988 and the maker of such note is a person
related to such partner (within the meaning of Sec. 1.752-1T(h), but
without regard to subdivision (4) of that section), then such promissory
note shall be treated as a promissory note of which such partner is the
maker.
(d) Alternate test for economic effect. If--
(1) Requirements (1) and (2) of paragraph (b)(2)(ii)(b) of this
section are satisfied, and
(2) The partner to whom an allocation is made is not obligated to
restore the deficit balance in his capital account to the partnership
(in accordance with requirement (3) of paragraph (b)(2)(ii)(b) of this
section), or is obligated to restore only a limited dollar amount of
such deficit balance, and
(3) The partnership agreement contains a ``qualified income
offset,''
such allocation will be considered to have economic effect under this
paragraph (b)(2)(ii)(d) to the extent such allocation does not cause or
increase a deficit balance in such partner's capital account (in excess
of any limited dollar amount of such deficit balance that such partner
is obligated to restore) as of the end of the partnership taxable year
to which such allocation relates. In determining the extent to which the
previous sentence is satisfied, such partner's capital account also
shall be reduced for--
(4) Adjustments that, as of the end of such year, reasonably are
expected to be made to such partner's capital account under paragraph
(b)(2)(iv)(k) of this section for depletion allowances with respect to
oil and gas properties of the partnership, and
[[Page 442]]
(5) Allocations of loss and deduction that, as of the end of such
year, reasonably are expected to be made to such partner pursuant to
section 704(e)(2), section 706(d), and paragraph (b)(2)(ii) of Sec.
751-1, and
(6) Distributions that, as of the end of such year, reasonably are
expected to be made to such partner to the extent they exceed offsetting
increases to such partner's capital account that reasonably are expected
to occur during (or prior to) the partnership taxable years in which
such distributions reasonably are expected to be made (other than
increases pursuant to a minimum gain chargeback under paragraph
(b)(4)(iv)(e) of this section or under Sec. 1.704-2(f); however,
increases to a partner's capital account pursuant to a minimum gain
chargeback requirement are taken into account as an offset to
distributions of nonrecourse liability proceeds that are reasonably
expected to be made and that are allocable to an increase in partnership
minimum gain).
For purposes of determining the amount of expected distributions and
expected capital account increases described in (6) above, the rule set
out in paragraph (b)(2)(iii)(c) of this section concerning the presumed
value of partnership property shall apply. The partnership agreement
contains a ``qualified income offset'' if, and only if, it provides that
a partner who unexpectedly receives an adjustment, allocation, or
distribution described in (4), (5), or (6) above, will be allocated
items of income and gain (consisting of a pro rata portion of each item
of partnership income, including gross income, and gain for such year)
in an amount and manner sufficient to eliminate such deficit balance as
quickly as possible. Allocations of items of income and gain made
pursuant to the immediately preceding sentence shall be deemed to be
made in accordance with the partners' interests in the partnership if
requirements (1) and (2) of paragraph (b)(2)(ii)(b) of this section are
satisfied. See examples (1)(iii), (iv), (v), (vi), (viii), (ix), and
(x), (15), and (16)(ii) of paragraph (b)(5) of this section.
(e) Partial economic effect. If only a portion of an allocation made
to a partner with respect to a partnership taxable year has economic
effect, both the portion that has economic effect and the portion that
is reallocated shall consist of a proportionate share of all items that
made up the allocation to such partner for such year. See examples (15)
(ii) and (iii) of paragraph (b)(5) of this section.
(f) Reduction of obligation to restore. If requirements (1) and (2)
of paragraph (b)(2)(ii)(b) of this section are satisfied, a partner's
obligation to restore the deficit balance in his capital account (or any
limited dollar amount thereof) to the partnership may be eliminated or
reduced as of the end of a partnership taxable year without affecting
the validity of prior allocations (see paragraph (b)(4)(vi) of this
section) to the extent the deficit balance (if any) in such partner's
capital account, after reduction for the items described in (4), (5),
and (6) of paragraph (b)(2)(ii)(d) of this section, will not exceed the
partner's remaining obligation (if any) to restore the deficit balance
in his capital account. See example (1)(viii) of paragraph (b)(5) of
this section.
(g) Liquidation defined. For purposes of this paragraph, a
liquidation of a partner's interest in the partnership occurs upon the
earlier of (1) the date upon which there is a liquidation of the
partnership, or (2) the date upon which there is a liquidation of the
partner's interest in the partnership under paragraph (d) of Sec.
1.761-1. For purposes of this paragraph, the liquidation of a
partnership occurs upon the earlier of (3) the date upon which the
partnership is terminated under section 708(b)(1), or (4) the date upon
which the partnership ceases to be a going concern (even though it may
continue in existence for the purpose of winding up its affairs, paying
its debts, and distributing any remaining balance to its partners).
Requirements (2) and (3) of paragraph (b)(2)(ii)(b) of this section will
be considered unsatisfied if the liquidation of a partner's interest in
the partnership is delayed after its primary business activities have
been terminated (for example, by continuing to engage in a relatively
minor amount of business activity, if such actions themselves do not
cause the partnership to terminate
[[Page 443]]
pursuant to section 708(b)(1)) for a principal purpose of deferring any
distribution pursuant to requirement (2) of paragraph (b)(2)(ii)(b) of
this section or deferring any partner's obligations under requirement
(3) of paragraph (b)(2)(ii)(b) of this section.
(h) Partnership agreement defined. For purposes of this paragraph,
the partnership agreement includes all agreements among the partners, or
between one or more partners and the partnership, concerning affairs of
the partnership and responsibilities of partners, whether oral or
written, and whether or not embodied in a document referred to by the
partners as the partnership agreement. Thus, in determining whether
distributions are required in all cases to be made in accordance with
the partners' positive capital account balances (requirement (2) of
paragraph (b)(2)(ii)(b) of this section), and in determining the extent
to which a partner is obligated to restore a deficit balance in his
capital account (requirement (3) of paragraph (b)(2)(ii)(b) of this
section), all arrangements among partners, or between one or more
partners and the partnership relating to the partnership, direct and
indirect, including puts, options, and other buy-sell agreements, and
any other ``stop-loss'' arrangement, are considered to be part of the
partnership agreement. (Thus, for example, if one partner who assumes a
liability of the partnership is indemnified by another partner for a
portion of such liability, the indemnifying partner (depending upon the
particular facts) may be viewed as in effect having a partial deficit
makeup obligation as a result of such indemnity agreement.) In addition,
the partnership agreement includes provisions of Federal, State, or
local law that govern the affairs of the partnership or are considered
under such law to be a part of the partnership agreement (see the last
sentence of paragraph (c) of Sec. 1.761-1). For purposes of this
paragraph (b)(2)(ii)(h), an agreement with a partner or a partnership
shall include an agreement with a person related, within the meaning of
section 267(b) (without modification by section 267(e)(1)) or section
707(b)(1), to such partner or partnership. For purposes of the preceding
sentence, sections 267(b) and 707(b)(1) shall be applied for partnership
taxable years beginning after December 29, 1988 by (1) substituting ``80
percent or more'' for ``more than 50 percent'' each place it appears in
such sections, (2) excluding brothers and sisters from the members of a
person's family, and (3) disregarding Sec. 267(f)(1)(A).
(i) Economic effect equivalence. Allocations made to a partner that
do not otherwise have economic effect under this paragraph (b)(2)(ii)
shall nevertheless be deemed to have economic effect, provided that as
of the end of each partnership taxable year a liquidation of the
partnership at the end of such year or at the end of any future year
would produce the same economic results to the partners as would occur
if requirements (1), (2), and (3) of paragraph (b)(2)(ii)(b) of this
section had been satisfied, regardless of the economic performance of
the partnership. See examples (4)(ii) and (iii) of paragraph (b)(5) of
this section.
(iii) Substantiality--(a) General rules. Except as otherwise
provided in this paragraph (b)(2)(iii), the economic effect of an
allocation (or allocations) is substantial if there is a reasonable
possibility that the allocation (or allocations) will affect
substantially the dollar amounts to be received by the partners from the
partnership, independent of tax consequences. Notwithstanding the
preceding sentence, the economic effect of an allocation (or
allocations) is not substantial if, at the time the allocation becomes
part of the partnership agreement, (1) the after-tax economic
consequences of at least one partner may, in present value terms, be
enhanced compared to such consequences if the allocation (or
allocations) were not contained in the partnership agreement, and (2)
there is a strong likelihood that the after-tax economic consequences of
no partner will, in present value terms, be substantially diminished
compared to such consequences if the allocation (or allocations) were
not contained in the partnership agreement. In determining the after-tax
economic benefit or detriment to a partner, tax consequences that result
from the interaction of the
[[Page 444]]
allocation with such partner's tax attributes that are unrelated to the
partnership will be taken into account. See examples 5 and 9 of
paragraph (b)(5) of this section. The economic effect of an allocation
is not substantial in the two situations described in paragraphs
(b)(2)(iii) (b) and (c) of this section. However, even if an allocation
is not described therein, its economic effect may be insubstantial under
the general rules stated in this paragraph (b)(2)(iii)(a). References in
this paragraph (b)(2)(iii) to allocations include capital account
adjustments made pursuant to paragraph (b)(2)(iv)(k) of this section.
References in this paragraph (b)(2)(iii) to a comparison to consequences
arising if an allocation (or allocations) were not contained in the
partnership agreement mean that the allocation (or allocations) is
determined in accordance with the partners' interests in the partnership
(within the meaning of paragraph (b)(3) of this section), disregarding
the allocation (or allocations) being tested under this paragraph
(b)(2)(iii).
(b) Shifting tax consequences. The economic effect of an allocation
(or allocations) in a partnership taxable year is not substantial if, at
the time the allocation (or allocations) becomes part of the partnership
agreement, there is a strong likelihood that--
(1) The net increases and decreases that will be recorded in the
partners' respective capital accounts for such taxable year will not
differ substantially from the net increases and decreases that would be
recorded in such partners' respective capital accounts for such year if
the allocations were not contained in the partnership agreement, and
(2) The total tax liability of the partners (for their respective
taxable years in which the allocations will be taken into account) will
be less than if the allocations were not contained in the partnership
agreement (taking into account tax consequences that result from the
interaction of the allocation (or allocations) with partner tax
attributes that are unrelated to the partnership).
If, at the end of a partnership taxable year to which an allocation (or
allocations) relates, the net increases and decreases that are recorded
in the partners' respective capital accounts do not differ substantially
from the net increases and decreases that would have been recorded in
such partners' respective capital accounts had the allocation (or
allocations) not been contained in the partnership agreement, and the
total tax liability of the partners is (as described in (2) above) less
than it would have been had the allocation (or allocations) not been
contained in the partnership agreement, it will be presumed that, at the
time the allocation (or allocations) became part of such partnership
agreement, there was a strong likelihood that these results would occur.
This presumption may be overcome by a showing of facts and circumstances
that prove otherwise. See examples 6, 7(ii) and (iii), and (10)(ii) of
paragraph (b)(5) of this section.
(c) Transitory allocations. If a partnership agreement provides for
the possibility that one or more allocations (the ``original
allocation(s)'') will be largely offset by one or more other allocations
(the ``offsetting allocation(s)''), and, at the time the allocations
become part of the partnership agreement, there is a strong likelihood
that--
(1) The net increases and decreases that will be recorded in the
partners' respective capital accounts for the taxable years to which the
allocations relate will not differ substantially from the net increases
and decreases that would be recorded in such partners' respective
capital accounts for such years if the original allocation(s) and
offsetting allocation(s) were not contained in the partnership
agreement, and
(2) The total tax liability of the partners (for their respective
taxable years in which the allocations will be taken into account) will
be less than if the allocations were not contained in the partnership
agreement (taking into account tax consequences that result from the
interaction of the allocation (or allocations) with partner tax
attributes that are unrelated to the partnership)
the economic effect of the original allocation(s) and offsetting
allocation(s) will not be substantial. If, at the end of a partnership
taxable year to which an offsetting allocation(s) relates, the net
[[Page 445]]
increases and decreases recorded in the partners' respective capital
accounts do not differ substantially from the net increases and
decreases that would have been recorded in such partners' respective
capital accounts had the original allocation(s) and the offsetting
allocation(s) not been contained in the partnership agreement, and the
total tax liability of the partners is (as described in (2) above) less
than it would have been had such allocations not been contained in the
partnership agreement, it will be presumed that, at the time the
allocations became part of the partnership agreement, there was a strong
likelihood that these results would occur. This presumption may be
overcome by a showing of facts and circumstances that prove otherwise.
See examples (1)(xi), (2), (3), (7), (8)(ii), and (17) of paragraph
(b)(5) of this section. Notwithstanding the foregoing, the original
allocation(s) and the offsetting allocation(s) will not be insubstantial
(under this paragraph (b)(2)(iii)(c)) and, for purposes of paragraph
(b)(2)(iii)(a), it will be presumed that there is a reasonable
possibility that the allocations will affect substantially the dollar
amounts to be received by the partners from the partnership if, at the
time the allocations become part of the partnership agreement, there is
a strong likelihood that the offsetting allocation(s) will not, in large
part, be made within five years after the original allocation(s) is made
(determined on a first-in, first-out basis). See example 2 of paragraph
(b)(5) of this section. For purposes of applying the provisions of this
paragraph (b)(2)(iii) (and paragraphs (b)(2)(ii)(d)(6) and (b)(3)(iii)
of this section), the adjusted tax basis of partnership property (or, if
partnership property is properly reflected on the books of the
partnership at a book value that differs from its adjusted tax basis,
the book value of such property) will be presumed to be the fair market
value of such property, and adjustments to the adjusted tax basis (or
book value) of such property will be presumed to be matched by
corresponding changes in such property's fair market value. Thus, there
cannot be a strong likelihood that the economic effect of an allocation
(or allocations) will be largely offset by an allocation (or
allocations) of gain or loss from the disposition of partnership
property. See examples 1 (vi) and (xi) of paragraph (b)(5) of this
section.
(d) Partners that are look-through entities or members of a
consolidated group--(1) In general. For purposes of applying paragraphs
(b)(2)(iii)(a), (b), and (c) of this section to a partner that is a
look-through entity, the tax consequences that result from the
interaction of the allocation with the tax attributes of any person that
is an owner, or in the case of a trust or estate, the beneficiary, of an
interest in such a partner, whether directly or indirectly through one
or more look-through entities, must be taken into account. For purposes
of applying paragraphs (b)(2)(iii)(a), (b), and (c) of this section to a
partner that is a member of a consolidated group (within the meaning of
Sec. 1.1502-1(h)), the tax consequences that result from the
interaction of the allocation with the tax attributes of the
consolidated group and with the tax attributes of another member with
respect to a separate return year must be taken into account. See
paragraph (b)(5) Example 29 of this section.
(2) Look-through entity. For purposes of this paragraph
(b)(2)(iii)(d), a look-through entity means--
(i) A partnership;
(ii) A subchapter S corporation;
(iii) A trust or an estate;
(iv) An entity that is disregarded for Federal tax purposes, such as
a qualified subchapter S subsidiary under section 1361(b)(3), an entity
that is disregarded as an entity separate from its owner under
Sec. Sec. 301.7701-1 through 301.7701-3 of this chapter, or a qualified
REIT subsidiary within the meaning of section 856(i)(2); or
(v) A controlled foreign corporation if United States shareholders
of the controlled foreign corporation in the aggregate own, directly or
indirectly, at least 10 percent of the capital or profits of the
partnership on any day during the partnership's taxable year. In such
case, the controlled foreign corporation shall be treated as a look-
through entity, but only with respect to allocations of income, gain,
loss, or deduction (or items thereof) that enter into the computation of
a United States shareholder's inclusion under
[[Page 446]]
section 951(a) with respect to the controlled foreign corporation, enter
into any person's income attributable to a United States shareholder's
inclusion under section 951(a) with respect to the controlled foreign
corporation, or would enter into the computations described in this
paragraph if such items were allocated to the controlled foreign
corporation. See paragraph (b)(2)(iii)(d)(6) for the definition of
indirect ownership.
(3) Controlled foreign corporations. For purposes of this section,
the term controlled foreign corporation means a controlled foreign
corporation as defined in section 957(a) or section 953(c). In the case
of a controlled foreign corporation that is a look-through entity, the
tax attributes to be taken into account are those of any person that is
a United States shareholder (as defined in paragraph (b)(2)(iii)(d)(5)
of this section) of the controlled foreign corporation, or, if the
United States shareholder is a look-through entity, a United States
person that owns an interest in such shareholder directly or indirectly
through one or more look-through entities.
(4) United States person. For purposes of this section, a United
States person is a person described in section 7701(a)(30).
(5) United States shareholder. For purposes of this section, a
United States shareholder is a person described in section 951(b) or
section 953(c).
(6) Indirect ownership. For purposes of this section, indirect
ownership of stock or another equity interest (such as an interest in a
partnership) shall be determined in accordance with the principles of
section 318, substituting the phrase ``10 percent'' for the phrase ``50
percent'' each time it appears.
(e) De minimis rule--(1) Partnership taxable years beginning after
May 19, 2008 and beginning before December 28, 2012. Except as provided
in paragraph (b)(2)(iii)(e)(2) of this section, for purposes of applying
this paragraph (b)(2)(iii), for partnership taxable years beginning
after May 19, 2008 and beginning before December 28, 2012, the tax
attributes of de minimis partners need not be taken into account. For
purposes of this paragraph (b)(2)(iii)(e)(1), a de minimis partner is
any partner, including a look-through entity that owns, directly or
indirectly, less than 10 percent of the capital and profits of a
partnership, and who is allocated less than 10 percent of each
partnership item of income, gain, loss, deduction, and credit. See
paragraph (b)(2)(iii)(d)(6) of this section for the definition of
indirect ownership.
(2) Nonapplicability of de minimis rule. (i) Allocations that become
part of the partnership agreement on or after December 28, 2012.
Paragraph (b)(2)(iii)(e)(1) of this section does not apply to
allocations that become part of the partnership agreement on or after
December 28, 2012.
(ii) Retest for allocations that become part of the partnership
agreement prior to December 28, 2012. If the de minimis partner rule of
paragraph (b)(2)(iii)(e)(1) of this section was relied upon in testing
the substantiality of allocations that became part of the partnership
agreement before December 28, 2012, such allocations must be retested on
the first day of the first partnership taxable year beginning on or
after December 28, 2012, without regard to paragraph (b)(2)(iii)(e)(1)
of this section.
(iv) Maintenance of capital accounts--(a) In general. The economic
effect test described in paragraph (b)(2)(ii) of this section requires
an examination of the capital accounts of the partners of a partnership,
as maintained under the partnership agreement. Except as otherwise
provided in paragraph (b)(2)(ii)(i) of this section, an allocation of
income, gain, loss, or deduction will not have economic effect under
paragraph (b)(2)(ii) of this section, and will not be deemed to be in
accordance with a partner's interest in the partnership under paragraph
(b)(4) of this section, unless the capital accounts of the partners are
determined and maintained throughout the full term of the partnership in
accordance with the capital accounting rules of this paragraph
(b)(2)(iv).
(b) Basic rules. Except as otherwise provided in this paragraph
(b)(2)(iv), the partners' capital accounts will be considered to be
determined and maintained in accordance with the rules of this paragraph
(b)(2)(iv) if, and only if,
[[Page 447]]
each partner's capital account is increased by (1) the amount of money
contributed by him to the partnership, (2) the fair market value of
property contributed by him to the partnership (net of liabilities that
the partnership is considered to assume or take subject to), and (3)
allocations to him of partnership income and gain (or items thereof),
including income and gain exempt from tax and income and gain described
in paragraph (b)(2)(iv)(g) of this section, but excluding income and
gain described in paragraph (b)(4)(i) of this section; and is decreased
by (4) the amount of money distributed to him by the partnership, (5)
the fair market value of property distributed to him by the partnership
(net of liabilities that such partner is considered to assume or take
subject to), (6) allocations to him of expenditures of the partnership
described in section 705 (a)(2)(B), and (7) allocations of partnership
loss and deduction (or item thereof), including loss and deduction
described in paragraph (b)(2)(iv)(g) of this section, but excluding
items described in (6) above and loss or deduction described in
paragraphs (b)(4)(i) or (b)(4)(iii) of this section; and is otherwise
adjusted in accordance with the additional rules set forth in this
paragraph (b)(2)(iv). For purposes of this paragraph, a partner who has
more than one interest in a partnership shall have a single capital
account that reflects all such interests, regardless of the class of
interests owned by such partner (e.g., general or limited) and
regardless of the time or manner in which such interests were acquired.
For liabilities assumed before June 24, 2003, references to liabilities
in this paragraph (b)(2)(iv)(b) shall include only liabilities secured
by the contributed or distributed property that are taken into account
under section 752(a) and (b).
(c) Treatment of liabilities. For purposes of this paragraph
(b)(2)(iv), (1) money contributed by a partner to a partnership includes
the amount of any partnership liabilities that are assumed by such
partner (other than liabilities described in paragraph (b)(2)(iv)(b)(5)
of this section that are assumed by a distributee partner) but does not
include increases in such partner's share of partnership liabilities
(see section 752(a)), and (2) money distributed to a partner by a
partnership includes the amount of such partner's individual liabilities
that are assumed by the partnership (other than liabilities described in
paragraph (b)(2)(iv)(b)(2) of this section that are assumed by the
partnership) but does not include decreases in such partner's share of
partnership liabilities (see section 752(b)). For purposes of this
paragraph (b)(2)(iv)(c), liabilities are considered assumed only to the
extent the assuming party is thereby subjected to personal liability
with respect to such obligation, the obligee is aware of the assumption
and can directly enforce the assuming party's obligation, and, as
between the assuming party and the party from whom the liability is
assumed, the assuming party is ultimately liable.
(d) Contributed property--(1) In general. The basic capital
accounting rules contained in paragraph (b)(2)(iv)(b) of this section
require that a partner's capital account be increased by the fair market
value of property contributed to the partnership by such partner on the
date of contribution. See Example 13(i) of paragraph (b)(5) of this
section. Consistent with section 752(c), section 7701(g) does not apply
in determining such fair market value.
(2) Contribution of promissory notes. Notwithstanding the general
rule of paragraph (b)(2)(iv)(b)(2) of this section, except as provided
in this paragraph (b)(2)(iv)(d)(2), if a promissory note is contributed
to a partnership by a partner who is the maker of such note, such
partner's capital account will be increased with respect to such note
only when there is a taxable disposition of such note by the partnership
or when the partner makes principal payments on such note. See example
(1)(ix) of paragraph (b)(5) of this section. The first sentence of this
paragraph (b)(2)(iv)(d)(2) shall not apply if the note referred to
therein is readily tradable on an established securities market. See
also paragraph (b)(2)(ii)(c) of this section. Furthermore, a partner
whose interest is liquidated will be considered as satisfying his
obligation to restore the deficit balance in his capital account to the
extent of (i) the
[[Page 448]]
fair market value, at the time of contribution, of any negotiable
promissory note (of which such partner is the maker) that such partner
contributes to the partnership on or after the date his interest is
liquidated and within the time specified in paragraph (b)(2)(ii)(b)(3)
of this section, and (ii) the fair market value, at the time of
liquidation, of the unsatisfied portion of any negotiable promissory
note (of which such partner is the maker) that such partner previously
contributed to the partnership. For purposes of the preceding sentence,
the fair market value of a note will be no less than the outstanding
principal balance of such note, provided that such note bears interest
at a rate no less than the applicable federal rate at the time of
valuation.
(3) Section 704(c) considerations. Section 704(c) and Sec. 1.704-3
govern the determination of the partners' distributive shares of income,
gain, loss, and deduction, as computed for tax purposes, with respect to
property contributed to a partnership (see paragraph (b)(1)(vi) of this
section). In cases where section 704(c) and Sec. 1.704-3 apply to
partnership property, the capital accounts of the partners will not be
considered to be determined and maintained in accordance with the rules
of this paragraph (b)(2)(iv) unless the partnership agreement requires
that the partners' capital accounts be adjusted in accordance with
paragraph (b)(2)(iv)(g) of this section for allocations to them of
income, gain, loss, and deduction (including depreciation, depletion,
amortization, or other cost recovery) as computed for book purposes,
with respect to the property. See, however, Sec. 1.704-3(d)(2) for a
special rule in determining the amount of book items if the partnership
chooses the remedial allocation method. See also Example (13) (i) of
paragraph (b)(5) of this section. Capital accounts are not adjusted to
reflect allocations under section 704(c) and Sec. 1.704-3 (e.g., tax
allocations of precontribution gain or loss).
(4) Exercise of noncompensatory options. Solely for purposes of
paragraph (b)(2)(iv)(b)(2) of this section, the fair market value of the
property contributed on the exercise of a noncompensatory option (as
defined in Sec. 1.721-2(f)) does not include the fair market value of
the option privilege, but does include the consideration paid to the
partnership to acquire the option and the fair market value of any
property (other than the option) contributed to the partnership on the
exercise of the option. With respect to convertible debt, the fair
market value of the property contributed on the exercise of the option
is the adjusted issue price of the debt and the accrued but unpaid
qualified stated interest (as defined in Sec. 1.1273-1(c)) on the debt
immediately before the conversion, plus the fair market value of any
property (other than the convertible debt) contributed to the
partnership on the exercise of the option. See Examples 31 through 35 of
paragraph (b)(5) of this section.
(e) Distributed property--(1) In general. The basic capital
accounting rules contained in paragraph (b)(2)(iv) (b) of this section
require that a partner's capital account be decreased by the fair market
value of property distributed by the partnership (without regard to
section 7701(g)) to such partner (whether in connection with a
liquidation or otherwise). To satisfy this requirement, the capital
accounts of the partners first must be adjusted to reflect the manner in
which the unrealized income, gain, loss, and deduction inherent in such
property (that has not been reflected in the capital accounts
previously) would be allocated among the partners if there were a
taxable disposition of such property for the fair market value of such
property (taking section 7701(g) into account) on the date of
distribution. See example (14)(v) of paragraph (b)(5) of this section.
(2) Distribution of promissory notes. Notwithstanding the general
rule of paragraph (b)(2)(iv)(b)(5), except as provided in this paragraph
(b)(2)(iv)(e)(2), if a promissory note is distributed to a partner by a
partnership that is the maker of such note, such partner's capital
account will be decreased with respect to such note only when there is a
taxable disposition of such note by the partner or when the partnership
makes principal payments on the note. The previous sentence shall not
apply if a note distributed to a partner by a partnership who is the
maker of such note
[[Page 449]]
is readily tradable on an established securities market. Furthermore,
the capital account of a partner whose interest in a partnership is
liquidated will be reduced to the extent of (i) the fair market value,
at the time of distribution, of any negotiable promissory note (of which
such partnership is the maker) that such partnership distributes to the
partner on or after the date such partner's interest is liquidated and
within the time specified in paragraph (b)(2)(ii)(b)(2) of this section,
and (ii) the fair market value, at the time of liquidation, of the
unsatisfied portion of any negotiable promissory note (of which such
partnership is the maker) that such partnership previously distributed
to the partner. For purposes of the preceding sentence, the fair market
value of a note will be no less than the outstanding principal balance
of such note, provided that such note bears interest at a rate no less
than the applicable Federal rate at time of valuation.
(f) Revaluations of property. A partnership agreement may, upon the
occurrence of certain events, increase or decrease the capital accounts
of the partners to reflect a revaluation of partnership property
(including intangible assets such as goodwill) on the partnership's
books. Capital accounts so adjusted will not be considered to be
determined and maintained in accordance with the rules of this paragraph
(b)(2)(iv) unless--
(1) The adjustments are based on the fair market value of
partnership property (taking section 7701(g) into account) on the date
of adjustment, as determined under paragraph (b)(2)(iv)(h) of this
section. See Example 33 of paragraph (b)(5) of this section.
(2) The adjustments reflect the manner in which the unrealized
income, gain, loss, or deduction inherent in such property (that has not
been reflected in the capital accounts previously) would be allocated
among the partners if there were a taxable disposition of such property
for such fair market value on that date, and
(3) The partnership agreement requires that the partners' capital
accounts be adjusted in accordance with paragraph (b)(2)(iv)(g) of this
section for allocations to them of depreciation, depletion,
amortization, and gain or loss, as computed for book purposes, with
respect to such property, and
(4) The partnership agreement requires that the partners'
distributive shares of depreciation, depletion, amortization, and gain
or loss, as computed for tax purposes, with respect to such property be
determined so as to take account of the variation between the adjusted
tax basis and book value of such property in the same manner as under
section 704(c) (see paragraph (b)(4)(i) of this section), and
(5) The adjustments are made principally for a substantial non-tax
business purpose--
(i) In connection with a contribution of money or other property
(other than a de minimis amount) to the partnership by a new or existing
partner as consideration for an interest in the partnership, or
(ii) In connection with the liquidation of the partnership or a
distribution of money or other property (other than a de minimis amount)
by the partnership to a retiring or continuing partner as consideration
for an interest in the partnership, or
(iii) In connection with the grant of an interest in the partnership
(other than a de minimis interest) on or after May 6, 2004, as
consideration for the provision of services to or for the benefit of the
partnership by an existing partner acting in a partner capacity, or by a
new partner acting in a partner capacity or in anticipation of being a
partner, or
(iv) In connection with the issuance by the partnership of a
noncompensatory option (other than an option for a de minimis
partnership interest), or
(v) Under generally accepted industry accounting practices, provided
substantially all of the partnership's property (excluding money)
consists of stock, securities, commodities, options, warrants, futures,
or similar instruments that are readily tradable on an established
securities market.
See examples 14 and 18 of paragraph (b)(5) of this section. If the
capital accounts of the partners are not adjusted to reflect the fair
market value of partnership property when an interest in
[[Page 450]]
the partnership is acquired from or relinquished to the partnership,
paragraphs (b)(1)(iii) and (b)(1)(iv) of this section should be
consulted regarding the potential tax consequences that may arise if the
principles of section 704(c) are not applied to determine the partners'
distributive shares of depreciation, depletion, amortization, and gain
or loss as computed for tax purposes, with respect to such property.
(g) Adjustments to reflect book value--(1) In general. Under
paragraphs (b)(2)(iv)(d) and (b)(2)(iv)(f) of this section, property may
be properly reflected on the books of the partnership at a book value
that differs from the adjusted tax basis of such property. In these
circumstances, paragraphs (b)(2)(iv)(d)(3) and (b)(2)(iv)(f)(3) of this
section provide that the capital accounts of the partners will not be
considered to be determined and maintained in accordance with the rules
of this paragraph (b)(2)(iv) unless the partnership agreement requires
the partners' capital accounts to be adjusted in accordance with this
paragraph (b)(2)(iv)(g) for allocations to them of depreciation,
depletion, amortization, and gain or loss, as computed for book
purposes, with respect to such property. In determining whether the
economic effect of an allocation of book items is substantial,
consideration will be given to the effect of such allocation on the
determination of the partners' distributive shares of corresponding tax
items under section 704(c) and paragraph (b)(4)(i) of this section. See
example 17 of paragraph (b)(5) of this section. If an allocation of book
items under the partnership agreement does not have substantial economic
effect (as determined under paragraphs (b)(2)(ii) and (b)(2)(iii) of
this section), or is not otherwise respected under this paragraph, such
items will be reallocated in accordance with the partners' interests in
the partnership, and such reallocation will be the basis upon which the
partners' distributive shares of the corresponding tax items are
determined under section 704(c) and paragraph (b)(4)(i) of this section.
See examples 13, 14, and 18 of paragraph (b)(5) of this section.
(2) Payables and receivables. References in this paragraph
(b)(2)(iv) and paragraph (b)(4)(i) of this section to book and tax
depreciation, depletion, amortization, and gain or loss with respect to
property that has an adjusted tax basis that differs from book value
include, under analogous rules and principles, the unrealized income or
deduction with respect to accounts receivable, accounts payable, and
other accrued but unpaid items.
(3) Determining amount of book items. The partners' capital accounts
will not be considered adjusted in accordance with this paragraph
(b)(2)(iv)(g) unless the amount of book depreciation, depletion, or
amortization for a period with respect to an item of partnership
property is the amount that bears the same relationship to the book
value of such property as the depreciation (or cost recovery deduction),
depletion, or amortization computed for tax purposes with respect to
such property for such period bears to the adjusted tax basis of such
property. If such property has a zero adjusted tax basis, the book
depreciation, depletion, or amortization may be determined under any
reasonable method selected by the partnership.
(h) Determinations of fair market value--(1) In general. For
purposes of this paragraph (b)(2)(iv), the fair market value assigned to
property contributed to a partnership, property distributed by a
partnership, or property otherwise revalued by a partnership, will be
regarded as correct, provided that (1) such value is reasonably agreed
to among the partners in arm's-length negotiations, and (2) the partners
have sufficiently adverse interests. If, however, these conditions are
not satisfied and the value assigned to such property is overstated or
understated (by more than an insignificant amount), the capital accounts
of the partners will not be considered to be determined and maintained
in accordance with the rules of this paragraph (b)(2)(iv). Valuation of
property contributed to the partnership, distributed by the partnership,
or otherwise revalued by the partnership shall be on a property-by-
property basis, except to the extent the regulations under section
704(c) permit otherwise.
[[Page 451]]
(2) Adjustments for noncompensatory options. The value of
partnership property as reflected on the books of the partnership must
be adjusted to account for any outstanding noncompensatory options (as
defined in Sec. 1.721-2(f)) at the time of a revaluation of partnership
property under paragraph (b)(2)(iv)(f) or (s) of this section. If the
fair market value of outstanding noncompensatory options (as defined in
Sec. 1.721-2(f)) as of the date of the adjustment exceeds the
consideration paid to the partnership to acquire the options, then the
value of partnership property as reflected on the books of the
partnership must be reduced by that excess to the extent of the
unrealized income or gain in partnership property (that has not been
reflected in the capital accounts previously). This reduction is
allocated only to properties with unrealized appreciation in proportion
to their respective amounts of unrealized appreciation. If the
consideration paid to the partnership to acquire the outstanding
noncompensatory options (as defined in Sec. 1.721-2(f)) exceeds the
fair market value of such options as of the date of the adjustment, then
the value of partnership property as reflected on the books of the
partnership must be increased by that excess to the extent of the
unrealized loss in partnership property (that has not been reflected in
the capital accounts previously). This increase is allocated only to
properties with unrealized loss in proportion to their respective
amounts of unrealized loss. However, any reduction or increase shall
take into account the economic arrangement of the partners with respect
to the property.
(i) Section 705(a)(2)(B) expenditures--(1) In general. The basic
capital accounting rules contained in paragraph (b)(2)(iv)(b) of this
section require that a partner's capital account be decreased by
allocations made to such partner of expenditures described in section
705(a)(2)(B). See example 11 of paragraph (b)(5) of this section. If an
allocation of these expenditures under the partnership agreement does
not have substantial economic effect (as determined under paragraphs
(b)(2)(ii) and (b)(2)(iii) of this section), or is not otherwise
respected under this paragraph, such expenditures will be reallocated in
accordance with the partners' interest in the partnership.
(2) Expenses described in section 709. Except for amounts with
respect to which an election is properly made under section 709(b),
amounts paid or incurred to organize a partnership or to promote the
sale of (or to sell) an interest in such a partnership shall, solely for
purposes of this paragraph, be treated as section 705(a)(2)(B)
expenditures, and upon liquidation of the partnership no further capital
account adjustments will be made in respect thereof.
(3) Disallowed losses. If a deduction for a loss incurred in
connection with the sale or exchange of partnership property is
disallowed to the partnership under section 267(a)(1) or section 707(b),
that deduction shall, solely for purposes of this paragraph, be treated
as a section 705(a)(2)(B) expenditure.
(j) Basis adjustments to section 38 property. The capital accounts
of the partners will not be considered to be determined and maintained
in accordance with the rules of this paragraph (b)(2)(iv) unless such
capital accounts are adjusted by the partners' shares of any upward or
downward basis adjustments allocated to them under this paragraph
(b)(2)(iv)(j). When there is a reduction in the adjusted tax basis of
partnership section 38 property under section 48(q)(1) or section
48(q)(3), section 48(q)(6) provides for an equivalent downward
adjustment to the aggregate basis of partnership interests (and no
additional adjustment is made under section 705(a)(2)(B)). These
downward basis adjustments shall be shared among the partners in the
same proportion as the adjusted tax basis or cost of (or the qualified
investment in) such section 38 property is allocated among the partners
under paragraph (f) of Sec. 1.46-3 (or paragraph (a)(4)(iv) of Sec.
1.48-8). Conversely, when there is an increase in the adjusted tax basis
of partnership section 38 property under section 48(q)(2), section
48(q)(6) provides for an equivalent upward adjustment to the aggregate
basis of partnership interests. These upward adjustments shall be
allocated among the partners in the same proportion as the
[[Page 452]]
investment tax credit from such property is recaptured by the partners
under Sec. 1.47-6.
(k) Depletion of oil and gas properties--(1) In general. The capital
accounts of the partners will not be considered to be determined and
maintained in accordance with the rules of this paragraph (b)(2)(iv)
unless such capital accounts are adjusted for depletion and gain or loss
with respect to the oil or gas properties of the partnership in
accordance with this paragraph (b)(2)(iv)(k).
(2) Simulated depletion. Except as provided in paragraph
(b)(2)(iv)(k) (3) of this section, a partnership shall, solely for
purposes of maintaining capital accounts under this paragraph, compute
simulated depletion allowances with respect to its oil and gas
properties at the partnership level. These allowances shall be computed
on each depletable oil or gas property of the partnership by using
either the cost depletion method or the percentage depletion method
(computed in accordance with section 613 at the rates specified in
section 613A(c)(5) without regard to the limitations of section 613A,
which theoretically could apply to any partner) for each partnership
taxable year that the property is owned by the partnership and subject
to depletion. The choice between the simulated cost depletion method and
the simulated percentage depletion method shall be made on a property-
by-property basis in the first partnership taxable year beginning after
April 30, 1986, for which it is relevent for the property, and shall be
binding for all partnership taxable years during which the oil or gas
property is held by the partnership. The partnership shall make downward
adjustments to the capital accounts of the partners for the simulated
depletion allowance with respect to each oil or gas property of the
partnership, in the same proportion as such partners (or their
precedecessors in interest) were properly allocated the adjusted tax
basis of each such property. The aggregate capital account adjustments
for simulated percentage depletion allowances with respect to an oil or
gas property of the partnership shall not exceed the aggregate adjusted
tax basis allocated to the partners with respect to such property. Upon
the taxable disposition of an oil or gas property by a partnership, such
partnership's simulated gain or loss shall be determined by subtracting
its simulated adjusted basis in such property from the amount realized
upon such disposition. (The partnership's simulated adjusted basis in an
oil or gas property is determined in the same manner as adjusted tax
basis except that simulated depletion allowances are taken into account
instead of actual depletion allowances.) The capital accounts of the
partners shall be adjusted upward by the amount of any simulated gain in
proportion to such partners' allocable shares of the portion of the
total amount realized from the disposition of such property that exceeds
the partnership's simulated adjusted basis in such property. The capital
accounts of such partners shall be adjusted downward by the amount of
any simulated loss in proportion to such partners' allocable shares of
the total amount realized from the disposition of such property that
represents recovery of the partnership's simulated adjusted basis in
such property. See section 613A(c)(7)(D) and the regulations thereunder
and paragraph (b)(4)(v) of this section. See example (19)(iv) of
paragraph (b)(5) of this section.
(3) Actual depletion. Pursuant to section 613A(c)(7)(D) and the
regulations thereunder, the depletion allowance under section 611 with
respect to the oil and gas properties of a partnership is computed
separately by the partners. Accordingly, in lieu of adjusting the
partner's capital accounts as provided in paragraph (b)(2)(iv)(k)(2) of
this section, the partnership may make downward adjustments to the
capital account of each partner equal to such partner's depletion
allowance with respect to each oil or gas property of the partnership
(for the partner's taxable year that ends with or within the
partnership's taxable year). The aggregate adjustments to the capital
account of a partner for depletion allowances with respect to an oil or
gas property of the partnership shall not exceed the adjusted tax basis
allocated to such partner with respect to such property. Upon the
taxable disposition of an oil or gas property by a partnership, the
[[Page 453]]
capital account of each partner shall be adjusted upward by the amount
of any excess of such partner's allocable share of the total amount
realized from the disposition of such property over such partner's
remaining adjusted tax basis in such property. If there is no such
excess, the capital account of such partner shall be adjusted downward
by the amount of any excess of such partner's remaining adjusted tax
basis in such property over such partner's allocable share of the total
amount realized from the disposition thereof. See section
613A(c)(7)(4)(D) and the regulations thereunder and paragraph (b)(4)(v)
of this section.
(4) Effect of book values. If an oil or gas property of the
partnership is, under paragraphs (b)(2)(iv(d) or (b)(2)(iv)(f) of this
section, properly reflected on the books of the partnership at a book
value that differs from the adjusted tax basis of such property, the
rules contained in this paragraph (b)(2)(iv)(k) and paragraph (b)(4)(v)
of this section shall be applied with reference to such book value. A
revaluation of a partnership oil or gas property under paragraph
(b)(2)(iv)(f) of this section may give rise to a reallocation of the
adjusted tax basis of such property, or a change in the partners'
relative shares of simulated depletion from such property, only to the
extent permitted by section 613A(c)(7)(D) and the regulations
thereunder.
(l) Transfers of partnership interests. The capital accounts of the
partners will not be considered to be determined and maintained in
accordance with the rules of this paragraph (b)(2)(iv) unless, upon the
transfer of all or a part of an interest in the partnership, the capital
account of the transferor that is attributable to the transferred
interest carries over to the transferee partner. (See paragraph
(b)(2)(iv)(m) of this section for rules concerning the effect of a
section 754 election on the capital accounts of the partners.) If the
transfer of an interest in a partnership causes a termination of the
partnership under section 708(b)(1)(B), the capital account of the
transferee partner and the capital accounts of the other partners of the
terminated partnership carry over to the new partnership that is formed
as a result of the termination of the partnership under Sec. 1.708-
1(b)(1)(iv). Moreover, the deemed contribution of assets and liabilities
by the terminated partnership to a new partnership and the deemed
liquidation of the terminated partnership that occur under Sec. 1.708-
1(b)(1)(iv) are disregarded for purposes of this paragraph (b)(2)(iv).
See Example 13 of paragraph (b)(5) of this section and the example in
Sec. 1.708-1(b)(1)(iv). The previous three sentences apply to
terminations of partnerships under section 708(b)(1)(B) occurring on or
after May 9, 1997; however, the sentences may be applied to terminations
occurring on or after May 9, 1996, provided that the partnership and its
partners apply the sentences to the termination in a consistent manner.
(m) Section 754 elections--(1) In general. The capital accounts of
the partners will not be considered to be determined and maintained in
accordance with the rules of this paragraph (b)(2)(iv) unless, upon
adjustment to the adjusted tax basis of partnership property under
section 732, 734, or 743, the capital accounts of the partners are
adjusted as provided in this paragraph (b)(2)(iv)(m).
(2) Section 743 adjustments. In the case of a transfer of all or a
part of an interest in a partnership that has a section 754 election in
effect for the partnership taxable year in which such transfer occurs,
adjustments to the adjusted tax basis of partnership property under
section 743 shall not be reflected in the capital account of the
transferee partner or on the books of the partnership, and subsequent
capital account adjustments for distributions (see paragraph
(b)(2)(iv)(e)(1) of this section) and for depreciation, depletion,
amortization, and gain or loss with respect to such property will
disregard the effect of such basis adjustment. The preceding sentence
shall not apply to the extent such basis adjustment is allocated to the
common basis of partnership property under paragraph (b)(1) of Sec.
1.734-2; in these cases, such basis adjustment shall, except as provided
in paragraph (b)(2)(iv)(m)(5) of this section, give rise to adjustments
to the capital accounts of the partners in accordance with their
interests in the partnership under
[[Page 454]]
paragraph (b)(3) of this section. See examples 13 (iii) and (iv) of
paragraph (b)(5) of this section.
(3) Section 732 adjustments. In the case of a transfer of all or a
part of an interest in a partnership that does not have a section 754
election in effect for the partnership taxable year in which such
transfer occurs, adjustments to the adjusted tax basis of partnership
property under section 732(d) will be treated in the capital accounts of
the partners in the same manner as section 743 basis adjustments are
treated under paragraph (b)(2)(iv)(m)(2) of this section.
(4) Section 734 adjustments. Except as provided in paragraph
(b)(2)(iv)(m)(5) of this section, in the case of a distribution of
property in liquidation of a partner's interest in the partnership by a
partnership that has a section 754 election in effect for the
partnership taxable year in which the distribution occurs, the partner
who receives the distribution that gives rise to the adjustment to the
adjusted tax basis of partnership property under section 734 shall have
a corresponding adjustment made to his capital account. If such
distribution is made other than in liquidation of a partner's interest
in the partnership, however, except as provided in paragraph
(b)(2)(iv)(m)(5) of this section, the capital accounts of the partners
shall be adjusted by the amount of the adjustment to the adjusted tax
basis of partnership property under section 734, and such capital
account adjustment shall be shared among the partners in the manner in
which the unrealized income and gain that is displaced by such
adjustment would have been shared if the property whose basis is
adjusted were sold immediately prior to such adjustment for its
recomputed adjusted tax basis.
(5) Limitations on adjustments. Adjustments may be made to the
capital account of a partner (or his successor in interest) in respect
of basis adjustments to partnership property under sections 732, 734,
and 743 only to the extent that such basis adjustments (i) are permitted
to be made to one or more items of partnership property under section
755, and (ii) result in an increase or a decrease in the amount at which
such property is carried on the partnership's balance sheet, as computed
for book purposes. For example, if the book value of partnership
property exceeds the adjusted tax basis of such property, a basis
adjustment to such property may be reflected in a partner's capital
account only to the extent such adjustment exceeds the difference
between the book value of such property and the adjusted tax basis of
such property prior to such adjustment.
(n) Partnership level characterization. Except as otherwise provided
in paragraph (b)(2)(iv)(k) of this section, the capital accounts of the
partners will not be considered to be determined and maintained in
accordance with the rules of this paragraph (b)(2)(iv) unless
adjustments to such capital accounts in respect of partnership income,
gain, loss, deduction, and section 705(a)(2)(B) expenditures (or item
thereof) are made with reference to the Federal tax treatment of such
items (and in the case of book items, with reference to the Federal tax
treatment of the corresponding tax items) at the partnership level,
without regard to any requisite or elective tax treatment of such items
at the partner level (for example, under section 58(i)). However, a
partnership that incurs mining exploration expenditures will determine
the Federal tax treatment of income, gain, loss, and deduction with
respect to the property to which such expenditures relate at the
partnership level only after first taking into account the elections
made by its partners under section 617 and section 703(b)(4).
(o) Guaranteed payments. Guaranteed payments to a partner under
section 707(c) cause the capital account of the recipient partner to be
adjusted only to the extent of such partner's distributive share of any
partnership deduction, loss, or other downward capital account
adjustment resulting from such payment.
(p) Minor discrepancies. Discrepancies between the balances in the
respective capital accounts of the partners and the balances that would
be in such respective capital accounts if they had been determined and
maintained in accordance with this paragraph (b)(2)(iv) will not
adversely affect the validity of
[[Page 455]]
an allocation, provided that such discrepancies are minor and are
attributable to good faith error by the partnership.
(q) Adjustments where guidance is lacking. If the rules of this
paragraph (b)(2)(iv) fail to provide guidance on how adjustments to the
capital accounts of the partners should be made to reflect particular
adjustments to partnership capital on the books of the partnership, such
capital accounts will not be considered to be determined and maintained
in accordance with those rules unless such capital account adjustments
are made in a manner that (1) maintains equality between the aggregate
governing capital accounts of the partners and the amount of partnership
capital reflected on the partnership's balance sheet, as computed for
book purposes, (2) is consistent with the underlying economic
arrangement of the partners, and (3) is based, wherever practicable, on
Federal tax accounting principles.
(r) Restatement of capital accounts. With respect to partnerships
that began operating in a taxable year beginning before May 1, 1986, the
capital accounts of the partners of which have not been determined and
maintained in accordance with the rules of this paragraph (b)(2)(iv)
since inception, such capital accounts shall not be considered to be
determined and maintained in accordance with the rules of this paragraph
(b)(2)(iv) for taxable years beginning after April 30, 1986, unless
either--
(1) Such capital accounts are adjusted, effective for the first
partnership taxable year beginning after April 30, 1986, to reflect the
fair market value of partnership property as of the first day of such
taxable year, and in connection with such adjustment, the rules
contained in paragraph (b)(2)(iv)(f) (2), (3), and (4) of this section
are satisfied, or
(2) The differences between the balance in each partner's capital
account and the balance that would be in such partner's capital account
if capital accounts had been determined and maintained in accordance
with this paragraph (b)(2)(iv) throughout the full term of the
partnership are not significant (for example, such differences are
solely attributable to a failure to provide for treatment of section 709
expenses in accordance with the rules of paragraph (b)(2)(iv)(i)(2) of
this section or to a failure to follow the rules in paragraph
(b)(2)(iv)(m) of this section), and capital accounts are adjusted to
bring them into conformity with the rules of this paragraph (b)(2)(iv)
no later than the end of the first partnership taxable year beginning
after April 30, 1986.
(3) With respect to a partnership that began operating in a taxable
year beginning before May 1, 1986, modifications to the partnership
agreement adopted on or before November 1, 1988, to make the capital
account adjustments required to comply with this paragraph, and
otherwise to satisfy the requirements of this paragraph, will be treated
as if such modifications were included in the partnership agreement
before the end of the first partnership taxable year beginning after
April 30, 1986. However, compliance with the previous sentences will
have no bearing on the validity of allocations that relate to
partnership taxable years beginning before May 1, 1986.
(s) Adjustments on the exercise of a noncompensatory option. A
partnership agreement may grant a partner, on the exercise of a
noncompensatory option (as defined in Sec. 1.721-2(f)), a right to
share in partnership capital that exceeds (or is less than) the sum of
the consideration paid to the partnership to acquire and exercise such
option. Where such an agreement exists, capital accounts will not be
considered to be determined and maintained in accordance with the rules
of this paragraph (b)(2)(iv) unless the following requirements are met:
(1) In lieu of revaluing partnership property under paragraph
(b)(2)(iv)(f) of this section immediately before the exercise of the
option, the partnership revalues partnership property in accordance with
the provisions of paragraphs (b)(2)(iv)(f)(1) through (f)(4) of this
section immediately after the exercise of the option.
(2) In determining the capital accounts of the partners (including
the exercising partner) under paragraph (b)(2)(iv)(s)(1) of this
section, the partnership first allocates any unrealized
[[Page 456]]
income, gain, or loss in partnership property (that has not been
reflected in the capital accounts previously) to the exercising partner
to the extent necessary to reflect that partner's right to share in
partnership capital under the partnership agreement, and then allocates
any remaining unrealized income, gain, or loss (that has not been
reflected in the capital accounts previously) to the existing partners,
to reflect the manner in which the unrealized income, gain, or loss in
partnership property would be allocated among those partners if there
were a taxable disposition of such property for its fair market value on
that date. For purposes of the preceding sentence, if the exercising
partner's initial capital account as determined under Sec. 1.704-
1(b)(2)(iv)(b) and (d)(4) of this section would be less than the amount
that reflects the exercising partner's right to share in partnership
capital under the partnership agreement, then only income or gain may be
allocated to the exercising partner from partnership properties with
unrealized appreciation, in proportion to their respective amounts of
unrealized appreciation. If the exercising partner's initial capital
account, as determined under Sec. 1.704-1(b)(2)(iv)(b) and (d)(4) of
this section, would be greater than the amount that reflects the
exercising partner's right to share in partnership capital under the
partnership agreement, then only loss may be allocated to the exercising
partner from partnership properties with unrealized loss, in proportion
to their respective amounts of unrealized loss. However, any allocation
must take into account the economic arrangement of the partners with
respect to the property.
(3) If, after making the allocations described in paragraph
(b)(2)(iv)(s)(2) of this section, the exercising partner's capital
account does not reflect that partner's right to share in partnership
capital under the partnership agreement, then the partnership
reallocates partnership capital between the existing partners and the
exercising partner so that the exercising partner's capital account
reflects the exercising partner's right to share in partnership capital
under the partnership agreement (a capital account reallocation). Any
increase or decrease in the capital accounts of existing partners that
occurs as a result of a capital account reallocation under this
paragraph (b)(2)(iv)(s)(3) must be allocated among the existing partners
in accordance with the principles of this section. See Example 32 of
paragraph (b)(5) of this section.
(4) The partnership agreement requires corrective allocations so as
to take into account all capital account reallocations made under
paragraph (b)(2)(iv)(s)(3) of this section (see paragraph (b)(4)(x) of
this section). See Example 32 of paragraph (b)(5) of this section.
(3) Partner's interest in the partnership--(i) In general.
References in section 704(b) and this paragraph to a partner's interest
in the partnership, or to the partners' interests in the partnership,
signify the manner in which the partners have agreed to share the
economic benefit or burden (if any) corresponding to the income, gain,
loss, deduction, or credit (or item thereof) that is allocated. Except
with respect to partnership items that cannot have economic effect (such
as nonrecourse deductions of the partnership), this sharing arrangement
may or may not correspond to the overall economic arrangement of the
partners. Thus, a partner who has a 50 percent overall interest in the
partnership may have a 90 percent interest in a particular item of
income or deduction. (For example, in the case of an unexpected downward
adjustment to the capital account of a partner who does not have a
deficit make-up obligation that causes such partner to have a negative
capital account, it may be necessary to allocate a disproportionate
amount of gross income of the partnership to such partner for such year
so as to bring that partner's capital account back up to zero.) The
determination of a partner's interest in a partnership shall be made by
taking into account all facts and circumstances relating to the economic
arrangement of the partners.
(ii) Factors considered. In determining a partner's interest in the
partnership, the following factors are among those that will be
considered:
[[Page 457]]
(a) The partners' relative contributions to the partnership,
(b) The interests of the partners in economic profits and losses (if
different than that in taxable income or loss),
(c) The interests of the partners in cash flow and other non-
liquidating distributions, and
(d) The rights of the partners to distributions of capital upon
liquidation.
The provisions of this subparagraph (b)(3) are illustrated by examples
(1)(i) and (ii), (4)(i), (5)(i) and (ii), (6), (7), (8), (10)(ii),
(16)(i), and (19)(iii) of paragraph (b)(5) of this section. See
paragraph (b)(4)(i) of this section concerning rules for determining the
partners' interests in the partnership with respect to certain tax
items.
(iii) Certain determinations. If--
(a) Requirements (1) and (2) of paragraph (b)(2)(ii)(b) of this
section are satisfied, and
(b) All or a portion of an allocation of income, gain, loss, or
deduction made to a partner for a partnership taxable year does not have
economic effect under paragraph (b)(2)(ii) of this section.
the partners' interests in the partnership with respect to the portion
of the allocation that lacks economic effect will be determined by
comparing the manner in which distributions (and contributions) would be
made if all partnership property were sold at book value and the
partnership were liquidated immediately following the end of the taxable
year to which the allocation relates with the manner in which
distributions (and contributions) would be made if all partnership
property were sold at book value and the partnership were liquidated
immediately following the end of the prior taxable year, and adjusting
the result for the items described in (4), (5), and (6) of paragraph
(b)(2)(ii)(d) of this section. A determination made under this paragraph
(b)(3)(iii) will have no force if the economic effect of valid
allocations made in the same manner is insubstantial under paragraph
(b)(2)(iii) of this section. See examples 1 (iv), (v), and (vi), and 15
(ii) and (iii) of paragraph (b)(5) of this section.
(iv) Special rule for creditable foreign tax expenditures. In
determining whether an allocation of a partnership item is in accordance
with the partners' interests in the partnership, the allocation of the
creditable foreign tax expenditure (CFTE) (as defined in paragraph
(b)(4)(viii)(b) of this section) must be disregarded. This paragraph
(b)(3)(iv) shall not apply to the extent the partners to whom such taxes
are allocated reasonably expect to claim a deduction for such taxes in
determining their U.S. tax liabilities.
(4) Special rules--(i) Allocations to reflect revaluations. If
partnership property is, under paragraphs (b)(2)(iv)(d) or (b)(2)(iv)(f)
of this section, properly reflected in the capital accounts of the
partners and on the books of the partnership at a book value that
differs from the adjusted tax basis of such property, then depreciation,
depletion, amortization, and gain or loss, as computed for book
purposes, with respect to such property will be greater or less than the
depreciation, depletion, amortization, and gain or loss, as computed for
tax purposes, with respect to such property. In these cases the capital
accounts of the partners are required to be adjusted solely for
allocations of the book items to such partners (see paragraph
(b)(2)(iv)(g) of this section), and the partners' shares of the
corresponding tax items are not independently reflected by further
adjustments to the partners' capital accounts. Thus, separate
allocations of these tax items cannot have economic effect under
paragraph (b)(2)(ii)(b)(1) of this section, and the partners'
distributive shares of such tax items must (unless governed by section
704(c)) be determined in accordance with the partners' interests in the
partnership. These tax items must be shared among the partners in a
manner that takes account of the variation between the adjusted tax
basis of such property and its book value in the same manner as
variations between the adjusted tax basis and fair market value of
property contributed to the partnership are taken into account in
determining the partners' shares of tax items under section 704(c). See
examples 14 and 18 of paragraph (b)(5) of this section.
(ii) Credits. Allocations of tax credits and tax credit recapture
are not reflected by adjustments to the partners' capital accounts
(except to the extent
[[Page 458]]
that adjustments to the adjusted tax basis of partnership section 38
property in respect of tax credits and tax credit recapture give rise to
capital account adjustments under paragraph (b)(2)(iv)(j) of this
section). Thus, such allocations cannot have economic effect under
paragraph (b)(2)(ii)(b)(1) of this section, and the tax credits and tax
credit recapture must be allocated in accordance with the partners'
interests in the partnership as of the time the tax credit or credit
recapture arises. With respect to the investment tax credit provided by
section 38, allocations of cost or qualified investment made in
accordance with paragraph (f) of Sec. 1.46-3 and paragraph (a)(4)(iv)
of Sec. 1.48-8 shall be deemed to be made in accordance with the
partners' interests in the partnership. With respect to other tax
credits, if a partnership expenditure (whether or not deductible) that
gives rise to a tax credit in a partnership taxable year also gives rise
to valid allocations of partnership loss or deduction (or other downward
capital account adjustments) for such year, then the partners' interests
in the partnership with respect to such credit (or the cost giving rise
thereto) shall be in the same proportion as such partners' respective
distributive shares of such loss or deduction (and adjustments). See
example 11 of paragraph (b)(5) of this section. Identical principles
shall apply in determining the partners' interests in the partnership
with respect to tax credits that arise from receipts of the partnership
(whether or not taxable).
(iii) Excess percentage depletion. To the extent the percentage
depletion in respect of an item of depletable property of the
partnership exceeds the adjusted tax basis of such property, allocations
of such excess percentage depletion are not reflected by adjustments to
the partners' capital accounts. Thus, such allocations cannot have
economic effect under paragraph (b)(2)(ii)(b)(1) of this section, and
such excess percentage depletion must be allocated in accordance with
the partners' interests in the partnership. The partners' interests in
the partnership for a partnership taxable year with respect to such
excess percentage depletion shall be in the same proportion as such
partners' respective distributive shares of gross income from the
depletable property (as determined under section 613(c)) for such year.
See example 12 of paragraph (b)(5) of this section. See paragraphs
(b)(2)(iv)(k) and (b)(4)(v) of this section for special rules concerning
oil and gas properties of the partnership.
(iv) Allocations attributable to nonrecourse liabilities. The rules
for allocations attributable to nonrecourse liabilities are contained in
Sec. 1.704-2.
(v) Allocations under section 613A(c)(7)(D). Allocations of the
adjusted tax basis of a partnership oil or gas property are controlled
by section 613A(c)(7)(D) and the regulations thereunder. However, if the
partnership agreement provides for an allocation of the adjusted tax
basis of an oil or gas property among the partners, and such allocation
is not otherwise governed under section 704(c) (or related principles
under paragraph (b)(4)(i) of this section), that allocation will be
recognized as being in accordance with the partners' interests in
partnership capital under section 613A(c)(7)(D), provided (a) such
allocation does not give rise to capital account adjustments under
paragraph (b)(2)(iv)(k) of this section, the economic effect of which is
insubstantial (as determined under paragraph (b)(2)(iii) of this
section), and (b) all other material allocations and capital account
adjustments under the partnership agreement are recognized under this
paragraph (b). Otherwise, such adjusted tax basis must be allocated
among the partners pursuant to section 613A(c)(7)(D) in accordance with
the partners' actual interests in partnership capital or income. For
purposes of section 613A(c)(7)(D) the partners' allocable shares of the
amount realized upon the partnership's taxable disposition of an oil or
gas property will, except to the extent governed by section 704(c) (or
related principles under paragraph (b)(4)(i) of this section), be
determined under this paragraph (b)(4)(v). If, pursuant to paragraph
(b)(2)(iv)(k)(2) of this section, the partners' capital accounts are
adjusted to reflect the simulated depletion of an oil or gas property of
the partnership,
[[Page 459]]
the portion of the total amount realized by the partnership upon the
taxable disposition of such property that represents recovery of its
simulated adjusted tax basis therein will be allocated to the partners
in the same proportion as the aggregate adjusted tax basis of such
property was allocated to such partners (or their predecessors in
interest). If, pursuant to paragraph (b)(2)(iv)(k)(3) of this section,
the partners' capital accounts are adjusted to reflect the actual
depletion of an oil or gas property of the partnership, the portion of
the total amount realized by the partnership upon the taxable
disposition of such property that equals the partners' aggregate
remaining adjusted basis therein will be allocated to the partners in
proportion to their respective remaining adjusted tax bases in such
property. An allocation provided by the partnership agreement of the
portion of the total amount realized by the partnership on its taxable
disposition of an oil or gas property that exceeds the portion of the
total amount realized allocated under either of the previous two
sentences (whichever is applicable) shall be deemed to be made in
accordance with the partners' allocable shares of such amount realized,
provided (c) such allocation does not give rise to capital account
adjustments under paragraph (b)(2)(iv)(k) of this section the economic
effect of which is insubstantial (as determined under paragraph
(b)(2)(ii) of this section), and (d) all other allocations and capital
account adjustments under the partnership agreement are recognized under
this paragraph. Otherwise, the partners' allocable shares of the total
amount realized by the partnership on its taxable disposition of an oil
or gas property shall be determined in accordance with the partners'
interests in the partnership under paragraph (b)(3) of this section. See
example 19 of paragraph (b)(5) of this section. (See paragraph
(b)(2)(iv)(k) of this section for the determination of appropriate
adjustments to the partners' capital accounts relating to section
613A(c)(7)(D).)
(vi) Amendments to partnership agreement. If an allocation has
substantial economic effect under paragraph (b)(2) of this section or is
deemed to be made in accordance with the partners' interests in the
partnership under paragraph (b)(4) of this section under the partnership
agreement that is effective for the taxable year to which such
allocation relates, and such partnership agreement thereafter is
modified, both the tax consequences of the modification and the facts
and circumstances surrounding the modification will be closely
scrutinized to determine whether the purported modification was part of
the original agreement. If it is determined that the purported
modification was part of the original agreement, prior allocations may
be reallocated in a manner consistent with the modified terms of the
agreement, and subsequent allocations may be reallocated to take account
of such modified terms. For example, if a partner is obligated by the
partnership agreement to restore the deficit balance in his capital
account (or any limited dollar amount thereof) in accordance with
requirement (3) of paragraph (b)(2)(ii)(b) of this section and,
thereafter, such obligation is eliminated or reduced (other than as
provided in paragraph (b)(2)(ii)(f) of this section), or is not complied
with in a timely manner, such elimination, reduction, or noncompliance
may be treated as if it always were part of the partnership agreement
for purposes of making any reallocations and determining the appropriate
limitations period.
(vii) Recapture. For special rules applicable to the allocation of
recapture income or credit, see paragraph (e) of Sec. 1.1245-1,
paragraph (f) of Sec. 1.1250-1, paragraph (c) of Sec. 1.1254-1, and
paragraph (a) of Sec. 1.47-6.
(viii) Allocation of creditable foreign taxes--(a) In general.
Allocations of creditable foreign taxes do not have substantial economic
effect within the meaning of paragraph (b)(2) of this section and,
accordingly, such expenditures must be allocated in accordance with the
partners' interests in the partnership. See paragraph (b)(3)(iv) of this
section. An allocation of a creditable foreign tax expenditure (CFTE)
will be deemed to be in accordance with the partners' interests in the
partnership if--
(1) The CFTE is allocated (whether or not pursuant to an express
provision in
[[Page 460]]
the partnership agreement) and reported on the partnership return in
proportion to the distributive shares of income to which the CFTE
relates; and
(2) Allocations of all other partnership items that, in the
aggregate, have a material effect on the amount of CFTEs allocated to a
partner pursuant to paragraph (b)(4)(viii)(a)(1) of this section are
valid.
(b) Creditable foreign tax expenditures (CFTEs). For purposes of
this section, a CFTE is a foreign tax paid or accrued by a partnership
that is eligible for a credit under section 901(a) or an applicable U.S.
income tax treaty. A foreign tax is a CFTE for these purposes without
regard to whether a partner receiving an allocation of such foreign tax
elects to claim a credit for such tax. Foreign taxes paid or accrued by
a partner with respect to a distributive share of partnership income,
and foreign taxes deemed paid under section 902 or 960 by a corporate
partner with respect to stock owned, directly or indirectly, by or for a
partnership, are not taxes paid or accrued by a partnership and,
therefore, are not CFTEs subject to the rules of this section. See
paragraphs (e) and (f) of Sec. 1.901-2 for rules for determining when
and by whom a foreign tax is paid or accrued.
(c) Income to which CFTEs relate--(1) In general. For purposes of
paragraph (b)(4)(viii)(a) of this section, CFTEs are related to net
income in the partnership's CFTE category or categories to which the
CFTE is allocated and apportioned in accordance with the rules of
paragraph (b)(4)(viii)(d) of this section. Paragraph (b)(4)(viii)(c)(2)
of this section provides rules for determining a partnership's CFTE
categories. Paragraph (b)(4)(viii)(c)(3) of this section provides rules
for determining the net income in each CFTE category. Paragraph
(b)(4)(viii)(c)(4) of this section provides guidance in determining a
partner's distributive share of income in a CFTE category. Paragraph
(b)(4)(viii)(c)(5) of this section provides a special rule for
allocating CFTEs when a partnership has no net income in a CFTE
category.
(2) CFTE category--(i) Income from activities. A CFTE category is a
category of net income (or loss) attributable to one or more activities
of the partnership. Net income (or loss) from all the partnership's
activities shall be included in a single CFTE category unless the
allocation of net income (or loss) from one or more activities differs
from the allocation of net income (or loss) from other activities, in
which case income from each activity or group of activities that is
subject to a different allocation shall be treated as net income (or
loss) in a separate CFTE category.
(ii) Different allocations. Different allocations of net income (or
loss) generally will result from provisions of the partnership agreement
providing for different sharing ratios for net income (or loss) from
separate activities. Different allocations of net income (or loss) from
separate activities generally will also result if any partnership item
is shared in a different ratio than any other partnership item. A
guaranteed payment described in paragraph (b)(4)(viii)(c)(3)(ii) of this
section, gross income allocation, or other preferential allocation will
result in different allocations of net income (or loss) from separate
activities only if the amount of the payment or the allocation is
determined by reference to income from less than all of the
partnership's activities. For purposes of this paragraph
(b)(4)(viii)(c)(2), a partnership item shall not include any item that
is excluded from income attributable to an activity pursuant to the
second sentence of paragraph (b)(4)(viii)(c)(3)(ii) of this section
(relating to allocations or payments that result in a deduction under
foreign law).
(iii) Activity. Whether a partnership has one or more activities,
and the scope of each activity, shall be determined in a reasonable
manner taking into account all the facts and circumstances. In
evaluating whether aggregating or disaggregating income from particular
business or investment operations constitutes a reasonable method of
determining the scope of an activity, the principal consideration is
whether the proposed determination has the effect of separating CFTEs
from the related foreign income. Accordingly, relevant considerations
include whether the partnership conducts business in more than one
geographic
[[Page 461]]
location or through more than one entity or branch, and whether certain
types of income are exempt from foreign tax or subject to preferential
foreign tax treatment. In addition, income from a divisible part of a
single activity shall be treated as income from a separate activity if
necessary to prevent separating CFTEs from the related foreign income.
The partnership's activities must be determined consistently from year
to year absent a material change in facts and circumstances.
(3) Net income in a CFTE category--(i) In general. The net income in
a CFTE category means the net income for U.S. Federal income tax
purposes, determined by taking into account all partnership items
attributable to the relevant activity or group of activities, including
items of gross income, gain, loss, deduction, and expense and items
allocated pursuant to section 704(c). The items of gross income
attributable to an activity shall be determined in a consistent manner
under any reasonable method taking into account all the facts and
circumstances. Except as otherwise provided below, expenses, losses or
other deductions shall be allocated and apportioned to gross income
attributable to an activity in accordance with the rules of Sec. Sec.
1.861-8 and 1.861-8T. Under these rules, if an expense, loss or other
deduction is allocated to gross income from more than one activity, such
expense, loss or deduction must be apportioned among each such activity
using a reasonable method that reflects to a reasonably close extent the
factual relationship between the deduction and the gross income from
such activities. See Sec. 1.861-8T(c). For purposes of determining net
income in a CFTE category, the partnership's interest expense and
research and experimental expenditures described in section 174 may be
allocated and apportioned under any reasonable method, including but not
limited to the methods prescribed in Sec. 1.861-9 through Sec. 1.861-
13T (interest expense) and Sec. 1.861-17 (research and experimental
expenditures). For purposes of determining the net income attributable
to any activity of a branch, the only items of gross income taken into
account in applying this paragraph (b)(4)(viii)(c)(3) are those items of
gross income recognized by the branch for U.S. income tax purposes. See
paragraph (b)(5) Example 24 of this section (relating to inter-branch
payments).
(ii) Special rules. Income attributable to an activity shall include
the amount included in a partner's income as a guaranteed payment
(within the meaning of section 707(c)) from the partnership to the
extent that the guaranteed payment is not deductible by the partnership
under foreign law. See paragraph (b)(5) Example 25 (iv) of this section.
Income attributable to an activity shall not include an item of
partnership income to the extent the allocation of such item of income
(or payment thereof) results in a deduction under foreign law. See
paragraph (b)(5) Example 25 (iii) and (iv) of this section. Similarly,
income attributable to an activity shall not include net income that
foreign law would exclude from the foreign tax base as a result of the
status of a partner. See paragraph (b)(5) Example 27 of this section.
(4) Distributive shares of income. For purposes of paragraph
(b)(4)(viii)(a)(1) of this section, distributive share of income means
the net income from each CFTE category, determined in accordance with
paragraph (b)(4)(viii)(c)(3) of this section, that is allocated to a
partner. A guaranteed payment shall be treated as a distributive share
of income for purposes of paragraph (b)(4)(viii)(a)(1) of this section
to the extent that the guaranteed payment is treated as income
attributable to an activity pursuant to paragraph (b)(4)(viii)(c)(3)(ii)
of this section. See paragraph (b)(5) Example 25 (iv) of this section.
If more than one partner receives positive income allocations (income in
excess of expenses) from a CFTE category, which in the aggregate exceed
the total net income in the CFTE category, then for purposes of
paragraph (b)(4)(viii)(a)(1) of this section such partner's distributive
share of income from the CFTE category shall equal the partner's
positive income allocation from the CFTE category, divided by the
aggregate positive income allocations from the CFTE category, multiplied
by the net income in the CFTE category.
(5) No net income in a CFTE category. If a CFTE is allocated or
apportioned
[[Page 462]]
to a CFTE category that does not have net income for the year in which
the foreign tax is paid or accrued, the CFTE shall be deemed to relate
to the aggregate of the net income (disregarding net losses) recognized
by the partnership in that CFTE category in each of the three preceding
taxable years. Accordingly, except as provided below, such CFTE must be
allocated in the current taxable year in the same proportion as the
allocation of the aggregate net income for the prior three-year period
in order to satisfy the requirements of paragraph (b)(4)(viii)(a)(1) of
this section. If the partnership does not have net income in the
applicable CFTE category in either the current year or any of the
previous three taxable years, the CFTE must be allocated in the same
proportion that the partnership reasonably expects to allocate the
aggregate net income (disregarding net losses) in the CFTE category for
the succeeding three taxable years. If the partnership does not
reasonably expect to have net income in the CFTE category for the
succeeding three years and the partnership has net income in one or more
other CFTE categories for the year in which the foreign tax is paid or
accrued, the CFTE shall be deemed to relate to such other net income and
must be allocated in proportion to the allocations of such other net
income. If any CFTE is not allocated pursuant to the above provisions of
this paragraph then the CFTE must be allocated in proportion to the
partners' outstanding capital contributions.
(d) Allocation and apportionment of CFTEs to CFTE categories--(1) In
general. CFTEs are allocated and apportioned to CFTE categories in
accordance with the principles of Sec. 1.904-6. Under these principles,
a CFTE is related to income in a CFTE category if the income is included
in the base upon which the foreign tax is imposed. In accordance with
Sec. 1.904-6(a)(1)(ii) as modified by this paragraph (b)(4)(viii)(d),
if the foreign tax base includes income in more than one CFTE category,
the CFTEs are apportioned among the CFTE categories based on the
relative amounts of taxable income computed under foreign law in each
CFTE category. For purposes of this paragraph (b)(4)(viii)(d),
references in Sec. 1.904-6 to a separate category or separate
categories shall mean ``CFTE category'' or ``CFTE categories'' and the
rules in Sec. 1.904-6(a)(1)(ii) are modified as follows:
(i) The related party interest expense rule in Sec. 1.904-
6(a)(1)(ii) shall not apply in determining the amount of taxable income
computed under foreign law in a CFTE category.
(ii) If foreign law does not provide for the direct allocation or
apportionment of expenses, losses or other deductions allowed under
foreign law to a CFTE category of income, then such expenses, losses or
other deductions must be allocated and apportioned to gross income as
determined under foreign law in a manner that is consistent with the
allocation and apportionment of such items for purposes of determining
the net income in the CFTE categories for U.S. tax purposes pursuant to
paragraph (b)(4)(viii)(c)(3) of this section.
(2) Timing and base differences. A foreign tax imposed on an item
that would be income under U.S. tax principles in another year (a timing
difference) is allocated to the CFTE category that would include the
income if the income were recognized for U.S. tax purposes in the year
in which the foreign tax is imposed. A foreign tax imposed on an item
that would not constitute income under U.S. tax principles in any year
(a base difference) is allocated to the CFTE category that includes the
partnership items attributable to the activity with respect to which the
foreign tax is imposed. See paragraph (b)(5) Example 23 of this section.
(3) [Reserved] For further guidance, see Sec. 1.704-
1T(b)(4)(viii)(d)(3).
(ix) Allocations with respect to noncompensatory options--(a) In
general. A partnership agreement may grant to a partner that exercises a
noncompensatory option (as defined in Sec. 1.721-2(f)) a right to share
in partnership capital that exceeds (or is less than) the sum of the
amounts paid to the partnership to acquire and exercise the option. In
such a case, allocations of income, gain, loss, and deduction to the
partners while the noncompensatory option is outstanding cannot have
economic effect because, if the noncompensatory
[[Page 463]]
option is exercised, the exercising partner, rather than the existing
partners, may receive the economic benefit or bear the economic
detriment associated with that income, gain, loss, or deduction.
However, allocations of partnership income, gain, loss, and deduction to
the partners while the noncompensatory option is outstanding will be
deemed to be in accordance with the partners' interests in the
partnership only if--
(1) The holder of the noncompensatory option is not treated as a
partner under Sec. 1.761-3;
(2) The partnership agreement requires that, while a noncompensatory
option is outstanding, the partnership comply with the rules of
paragraph (b)(2)(iv)(f) of this section and that, on the exercise of the
noncompensatory option, the partnership comply with the rules of
paragraph (b)(2)(iv)(s) of this section; and
(3) All material allocations and capital account adjustments under
the partnership agreement would be respected under section 704(b) if
there were no outstanding noncompensatory options issued by the
partnership. See Examples 31 through 35 of paragraph (b)(5) of this
section.
(b) Substantial economic effect under sections 168(h) and
514(c)(9)(E)(i)(ll). An allocation of partnership income, gain, loss, or
deduction to the partners will be deemed to have substantial economic
effect for purposes of sections 168(h) and 514(c)(9)(E)(i)(ll) if--
(1) The allocation would meet the substantial economic effect
requirements of paragraph (b)(2) of this section if there were no
outstanding noncompensatory options issued by the partnership; and
(2) The partnership satisfies the requirements of paragraph
(b)(4)(ix)(a)(1), (2), and (3) of this section.
(x) Corrective allocations--(a)--In general. If partnership capital
is reallocated between existing partners and a partner exercising a
noncompensatory option under paragraph (b)(2)(iv)(s)(3) of this section
(a capital account reallocation), then the partnership must, beginning
with the taxable year of the exercise and in all succeeding taxable
years until the required allocations are fully taken into account, make
corrective allocations so as to take into account the capital account
reallocation. A corrective allocation is an allocation (consisting of a
pro rata portion of each item) for tax purposes of gross income and
gain, or gross loss and deduction, that differs from the partnership's
allocation of the corresponding book item. See Example 32 of paragraph
(b)(5) of this section.
(b) Timing. Section 706 and the regulations and principles
thereunder apply in determining the items of income, gain, loss, and
deduction that may be subject to corrective allocation.
(c) Allocation of gross income and gain and gross loss and
deduction. If the capital account reallocation is from the historic
partners to the exercising option holder, then the corrective
allocations must first be made with gross income and gain. If an
allocation of gross income and gain alone does not completely take into
account the capital account reallocation in a given year, then the
partnership must also make corrective allocations using a pro rata
portion of items of gross loss and deduction as to further take into
account the capital account reallocation. Conversely, if the capital
account reallocation is from the exercising option holder to the
historic partners, then the corrective allocations must first be made
with gross loss and deduction. If an allocation of gross loss and
deduction alone does not completely take into account the capital
account reallocation in a given year, then the partnership must also
make corrective allocations using a pro rata portion of items of gross
income and gain as to further take into account the capital account
reallocation.
(5) Examples. The operation of the rules in this paragraph is
illustrated by the following examples:
Example 1. (i) A and B form a general partnership with cash
contributions of $40,000 each, which cash is used to purchase
depreciable personal property at a cost of $80,000. The partnership
elects under section 48(q)(4) to reduce the amount of investment tax
credit in lieu of adjusting the tax basis of such property. The
partnership agreement provides that A and B will have equal shares of
taxable income and loss (computed without regard to cost recovery
deductions) and cash flow and that all cost recovery deductions on the
property will be allocated to A.
[[Page 464]]
The agreement further provides that the partners' capital accounts will
be determined and maintained in accordance with paragraph (b)(2)(iv) of
the section, but that upon liquidation of the partnership, distributions
will be made equally between the partners (regardless of capital account
balances) and no partner will be required to restore the deficit balance
in his capital account for distribution to partners with positive
capital accounts balances. In the partnership's first taxable year, it
recognizes operating income equal to its operating expenses and has an
additional $20,000 cost recovery deduction, which is allocated entirely
to A. That A and B will be entitled to equal distributions on
liquidation, even through A is allocated the entire $20,000 cost
recovery deduction, indicates A will not bear the full risk of the
economic loss corresponding to such deduction if such loss occurs. Under
paragraph (b)(2)(ii) of this section, the allocation lacks economic
effect and will be disregarded. The partners made equal contributions to
the partnership, share equally in other taxable income and loss and in
cash flow, and will share equally in liquidation proceeds, indicating
that their actual economic arrangement is to bear the risk imposed by
the potential decrease in the value of the property equally. Thus, under
paragraph (b)(3) of this section the partners' interests in the
partnership are equal, and the cost recovery deduction will be
reallocated equally between A and B.
(ii) Assume the same facts as in (i) except that the partnership
agreement provides that liquidation proceeds will be distributed in
accordance with capital account balances if the partnership is
liquidated during the first five years of its existence but that
liquidation proceeds will be distributed equally if the partnership is
liquidated thereafter. Since the partnership agreement does not provide
for the requirement contained in paragraph (b)(2)(ii)(b)(2) of this
section to be satisfied throughout the term of the partnership, the
partnership allocations do not have economic effect. Even if the
partnership agreement provided for the requirement contained in
paragraph (b)(2)(ii)(b)(2) to be satisfied throughout the term of the
partnership, such allocations would not have economic effect unless the
requirement contained in paragraph (b)(2)(ii)(b)(3) of this section or
the alternate economic effect test contained in paragraph (b)(2)(ii)(d)
of this section were satisfied.
(iii) Assume the same facts as in (i) except that distributions in
liquidation of the partnership (or any partner's interest) are to be
made in accordance with the partners' positive capital account balances
throughout the term of the partnership (as set forth in paragraph
(b)(2)(ii)(b)(2) of this section). Assume further that the partnership
agreement contains a qualified income offset (as defined in paragraph
(b)(2)(ii)(d) of this section) and that, as of the end of each
partnership taxable year, the items described in paragraphs
(b)(2)(ii)(d)(4), (5), and (6) of this section are not reasonably
expected to cause or increase a deficit balance in A's capital account.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account upon formation.................... $40,000 $40,000
Less: year 1 cost recovery deduction.............. (20,000) 0
---------------------
Capital account at end of year 1............ $20,000 $40,000
------------------------------------------------------------------------
Under the alternate economic effect test contained in paragraph
(b)(2)(ii)(d) of this section, the allocation of the $20,000 cost
recovery deduction to A has economic effect.
(iv) Assume the same facts as in (iii) and that in the partnership's
second taxable year it recognizes operating income equal to its
operating expenses and has a $25,000 cost recovery deduction which,
under the partnership agreement, is allocated entirely to A.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account at beginning of year 2............ $20,000 $40,000
Less: year 2 cost recovery deduction.............. (25,000) 0
---------------------
Capital account at end of year 2.................. ($5,000) $40,000
------------------------------------------------------------------------
The allocation of the $25,000 cost recovery deduction to A satisfies
that alternate economic effect test contained in paragraph (b)(2)(ii)(d)
of this section only to the extent of $20,000. Therefore, only $20,000
of such allocation has economic effect, and the remaining $5,000 must be
reallocated in accordance with the partners' interests in the
partnership. Under the partnership agreement, if the property were sold
immediately following the end of the partnership's second taxable year
for $35,000 (its adjusted tax basis), the $35,000 would be distributed
to B. Thus, B, and not A, bears the economic burden corresponding to
$5,000 of the $25,000 cost recovery deduction allocated to A. Under
paragraph (b)(3)(iii) of this section, $5,000 of such cost recovery
deduction will be reallocated to B.
(v) Assume the same facts as in (iv) except that the cost recovery
deduction for the partnership's second taxable year is $20,000 instead
of $25,000. The allocation of such cost recovery deduction to A has
economic effect under the alternate economic effect test contained in
paragraph (b)(2)(ii)(d) of this section. Assume further that the
property is sold for $35,000 immediately following the end of the
partnership's second taxable year, resulting in a $5,000 taxable loss
($40,000 adjusted tax basis less $35,000 sales price), and the
partnership is liquidated.
[[Page 465]]
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account at beginning of year 2.............. $20,000 $40,000
Less: year 2 cost recovery dedustion................ (20,000) 0
-------------------
Capital account at end of year 2.................... 0 $40,000
Less: loss on sale.................................. (2,500) (2,500)
-------------------
Capital account before liquidation............ ($2,500) $37,500
------------------------------------------------------------------------
Under the partnership agreement the $35,000 sales proceeds are
distributed to B. Since B bears the entire economic burden corresponding
to the $5,000 taxable loss from the sale of the property, the allocation
of $2,500 of such loss to A does not have economic effect and must be
reallocated in accordance with the partners' interests in the
partnership. Under paragraph (b)(3)(iii) of this section, such $2,500
loss will be reallocated to B.
(vi) Assume the same facts as in (iv) except that the cost recovery
deduction for the partnership's second taxable year is $20,000 instead
of $25,000, and that as of the end of the partnership's second taxable
year it is reasonably expected that during its third taxable year the
partnership will (1) have operating income equal to its operating
expenses (but will have no cost recovery deductions), (2) borrow $10,000
(recourse) and distribute such amount $5,000 to A and $5,000 to B, and
(3) thereafter sell the partnership property, repay the $10,000
liability, and liquidate. In determining the extent to which the
alternate economic effect test contained in paragraph (b)(2)(ii)(d) of
this section is satisfied as of the end of the partnership's second
taxable year, the fair market value of partnership property is presumed
to be equal to its adjusted tax basis (in accordance with paragraph
(b)(2)(iii)(c) of this section). Thus, it is presumed that the selling
price of such property during the partnership's third taxable year will
be its $40,000 adjusted tax basis. Accordingly, there can be no
reasonable expectation that there will be increases to A's capital
account in the partnership's third taxable year that will offset the
expected $5,000 distribution to A. Therefore, the distribution of the
loan proceeds must be taken into account in determining to what extent
the alternate economic effect test contained in paragraph (b)(2)(ii)(d)
is satisfied.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account at beginning of year 2.............. $20,000 $40,000
Less: expected future distribution.................. (5,000) (5,000)
Less: year 2 cost recovery deduction................ (20,000) (0)
-------------------
Hypothetical capital account at end of year 2. ($5,000) $35,000
------------------------------------------------------------------------
Upon sale of the partnership property, the $40,000 presumed sales
proceeds would be used to repay the $10,000 liability, and the remaining
$30,000 would be distributed to B. Under these circumstances the
allocation of the $20,000 cost recovery deduction to A in the
partnership's second taxable year satisfies the alternate economic
effect test contained in paragraph (b)(2)(ii)(d) of this section only to
the extent of $15,000. Under paragraph (b)(3)(iii) of this section, the
remaining $5,000 of such deduction will be reallocated to B. The results
in this example would be the same even if the partnership agreement also
provided that any gain (whether ordinary income or capital gain) upon
the sale of the property would be allocated to A to the extent of the
prior allocations of cost recovery deductions to him, and, at end of the
partnership's second taxable year, the partners were confident that the
gain on the sale of the property in the partnership's third taxable year
would be sufficient to offset the expected $5,000 distribution to A.
(vii) Assume the same facts as in (iv) except that the partnership
agreement also provides that any partner with a deficit balance in his
capital account following the liquidation of his interest must restore
that deficit to the partnership (as set forth in paragraph
(b)(2)(ii)(b)(3) of this section). Thus, if the property were sold for
$35,000 immediately after the end of the partnership's second taxable
year, the $35,000 would be distributed to B, A would contribute $5,000
(the deficit balance in his capital account) to the partnership, and
that $5,000 would be distributed to B. The allocation of the entire
$25,000 cost recovery deduction to A in the partnership's second taxable
year has economic effect.
(viii) Assume the same facts as in (vii) except that A's obligation
to restore the deficit balance in his capital account is limited to a
maximum of $5,000. The allocation of the $25,000 cost recovery deduction
to A in the partnership's second taxable year has economic effect under
the alternate economic effect test contained in paragraph (b)(2)(ii)(d)
of this section. At the end of such year, A makes an additional $5,000
contribution to the partnership (thereby eliminating the $5,000 deficit
balance in his capital account). Under paragraph (b)(2)(ii)(f) of this
section, A's obligation to restore up to $5,000 of the deficit balance
in his capital account may be eliminated after he contributes the
additional $5,000 without affecting the validity of prior allocations.
(ix) Assume the same facts as in (iv) except that upon formation of
the partnership A also contributes to the partnership his negotiable
promissory note with a $5,000 principal balance. The note
unconditionally obligates A to pay an additional $5,000 to the
partnership at the earlier of (a) the beginning of the partnership's
fourth taxable year, or (b) the end of the partnership taxable year in
which A's interest is liquidated. Under paragraph (b)(2)(ii)(c) of this
section, A is considered obligated to restore up to $5,000 of the
deficit
[[Page 466]]
balance in his capital account to the partnership. Accordingly, under
the alternate economic effect test contained in paragraph (b)(2)(ii)(d)
of this section, the allocation of the $25,000 cost recovery deduction
to A in the partnership's second taxable year has economic effect. The
results in this example would be the same if (1) the note A contributed
to the partnership were payable only at the end of the partnership's
fourth taxable year (so that A would not be required to satisfy the note
upon liquidation of his interest in the partnership), and (2) the
partnership agreement provided that upon liquidation of A's interest,
the partnership would retain A's note, and A would contribute to the
partnership the excess of the outstanding principal balance of the note
over its then fair market value.
(x) Assume the same facts as in (ix) except that A's obligation to
contribute an additional $5,000 to the partnership is not evidenced by a
promissory note. Instead, the partnership agreement imposes upon A the
obligation to make an additional $5,000 contribution to the partnership
at the earlier of (a) the beginning of the partnership's fourth taxable
year, or (b) the end of the partnership taxable year in which A's
interest is liquidated. Under paragraph (b)(2)(ii)(c) of this section,
as a result of A's deferred contribution requirement, A is considered
obligated to restore up to $5,000 of the deficit balance in his capital
account to the partnership. Accordingly, under the alternate economic
effect test contained in paragraph (b)(2)(ii)(d) of this section, the
allocation of the $25,000 cost recovery deduction to A in the
partnership's second taxable year has economic effect.
(xi) Assume the same facts as in (vii) except that the partnership
agreement also provides that any gain (whether ordinary income or
capital gain) upon the sale of the property will be allocated to A to
the extent of the prior allocations to A of cost recovery deductions
from such property, and additional gain will be allocated equally
between A and B. At the time the allocations of cost recovery deductions
were made to A, the partners believed there would be gain on the sale of
the property in an amount sufficient to offset the allocations of cost
recovery deductions to A. Nevertheless, the existence of the gain
chargeback provision will not cause the economic effect of the
allocations to be insubstantial under paragraph (b)(2)(iii)(c) of this
section, since in testing whether the economic effect of such
allocations is substantial, the recovery property is presumed to
decrease in value by the amount of such deductions.
Example 2. C and D form a general partnership solely to acquire and
lease machinery that is 5-year recovery property under section 168. Each
contributes $100,000, and the partnership obtains an $800,000 recourse
loan to purchase the machinery. The partnership elects under section
48(q)(4) to reduce the amount of investment tax credit in lieu of
adjusting the tax basis of such machinery. The partnership, C, and D
have calendar taxable years. The partnership agreement provides that the
partners' capital accounts will be determined and maintained in
accordance with paragraph (b)(2)(iv) of this section, distributions in
liquidation of the partnership (or any partner's interest) will be made
in accordance with the partners' positive capital account balances, and
any partner with a deficit balance in his capital account following the
liquidation of his interest must restore that deficit to the partnership
(as set forth in paragraphs (b)(2)(ii)(b)(2) and (3) of this section).
The partnership agreement further provides that (a) partnership net
taxable loss will be allocated 90 percent to C and 10 percent to D until
such time as there is partnership net taxable income, and therefore C
will be allocated 90 percent of such taxable income until he has been
allocated partnership net taxable income equal to the partnership net
taxable loss previously allocated to him, (b) all further partnership
net taxable income or loss will be allocated equally between C and D,
and (c) distributions of operating cash flow will be made equally
between C and D. The partnership enters into a 12-year lease with a
financially secure corporation under which the partnership expects to
have a net taxable loss in each of its first 5 partnership taxable years
due to cost recovery deductions with respect to the machinery and net
taxable income in each of its following 7 partnership taxable years, in
part due to the absence of such cost recovery deductions. There is a
strong likelihood that the partnership's net taxable loss in partnership
taxable years 1 through 5 will be $100,000, $90,000, $80,000, $70,000,
and $60,000, respectively, and the partnership's net taxable income in
partnership taxable years 6 through 12 will be $40,000, $50,000,
$60,000, $70,000, $80,000, $90,000, and $100,000, respectively. Even
though there is a strong likelihood that the allocations of net taxable
loss in years 1 through 5 will be largely offset by other allocations in
partnership taxable years 6 through 12, and even if it is assumed that
the total tax liability of the partners in years 1 through 12 will be
less than if the allocations had not been provided in the partnership
agreement, the economic effect of the allocations will not be
insubstantial under paragraph (b)(2)(iii)(c) of this section. This is
because at the time such allocations became part of the partnership
agreement, there was a strong likelihood that the allocations of net
taxable loss in years 1 through 5 would not be largely offset by
allocations of income within 5 years (determined on a first-in, first-
out basis). The year 1 allocation will not be offset until years 6, 7,
and 8, the year 2 allocation will not be offset until
[[Page 467]]
years 8 and 9, the year 3 allocation will not be offset until years 9
and 10, the year 4 allocation will not be offset until years 10 and 11,
and the year 5 allocation will not be offset until years 11 and 12.
Example 3. E and F enter into a partnership agreement to develop and
market experimental electronic devices. E contributes $2,500 cash and
agrees to devote his full-time services to the partnership. F
contributes $100,000 cash and agrees to obtain a loan for the
partnership for any additional capital needs. The partnership agreement
provides that all deductions for research and experimental expenditures
and interest on partnership loans are to be allocated to F. In addition,
F will be allocated 90 percent, and E 10 percent, of partnership taxable
income or loss, computed net of the deductions for such research and
experimental expenditures and interest, until F has received allocations
of such taxable income equal to the sum of such research and
experimental expenditures, such interest expense, and his share of such
taxable loss. Thereafter, E and F will share all taxable income and loss
equally. Operating cash flow will be distributed equally between E and
F. The partnership agreement also provides that E's and F's capital
accounts will be determined and maintained in accordance with paragraph
(b)(2)(iv) of this section, distributions in liquidation of the
partnership (or any partner's interest) will be made in accordance with
the partners' positive capital account balances, and any partner with a
deficit balance in his capital account following the liquidation of his
interest must restore that deficit to the partnership (as set forth in
paragraphs (b)(2)(ii)(b)(2) and (3) of this section). These allocations
have economic effect. In addition, in view of the nature of the
partnership's activities, there is not a strong likelihood at the time
the allocations become part of the partnership agreement that the
economic effect of the allocations to F of deductions for research and
experimental expenditures and interest on partnership loans will be
largely offset by allocations to F of partnership net taxable income.
The economic effect of the allocations is substantial.
Example 4. (i) G and H contribute $75,000 and $25,000, respectively,
in forming a general partnership. The partnership agreement provides
that all income, gain, loss, and deduction will be allocated equally
between the partners, that the partners' capital accounts will be
determined and maintained in accordance with paragraph (b)(2)(iv) of
this section, but that all partnership distributions will, regardless of
capital account balances, be made 75 percent to G and 25 percent to H.
Following the liquidation of the partnership, neither partner is
required to restore the deficit balance in his capital account to the
partnership for distribution to partners with positive capital account
balances. The allocations in the partnership agreement do not have
economic effect. Since contributions were made in a 75/25 ratio and the
partnership agreement indicates that all economic profits and losses of
the partnership are to be shared in a 75/25 ratio, under paragraph
(b)(3) of this section, partnership income, gain, loss, and deduction
will be reallocated 75 percent to G and 25 percent to H.
(ii) Assume the same facts as in (i) except that the partnership
maintains no capital accounts and the partnership agreement provides
that all income, gain, loss, deduction, and credit will be allocated 75
percent to G and 25 percent to H. G and H are ultimately liable (under a
State law right of contribution) for 75 percent and 25 percent,
respectively, of any debts of the partnership. Although the allocations
do not satisfy the requirements of paragraph (b)(2)(ii)(b) of this
section, the allocations have economic effect under the economic effect
equivalence test of paragraph (b)(2)(ii)(i) of this section.
(iii) Assume the same facts as in (i) except that the partnership
agreement provides that any partner with a deficit balance in his
capital account must restore that deficit to the partnership (as set
forth in paragraph (b)(2)(ii)(b)(2) of this section). Although the
allocations do not satisfy the requirements of paragraph (b)(2)(ii)(b)
of this section, the allocations have economic effect under the economic
effect equivalence test of paragraph (b)(2)(ii)(i) of this section.
Example 5. (i) Individuals I and J are the only partners of an
investment partnership. The partnership owns corporate stocks, corporate
debt instruments, and tax-exempt debt instruments. Over the next several
years, I expects to be in the 50 percent marginal tax bracket, and J
expects to be in the 15 percent marginal tax bracket. There is a strong
likelihood that in each of the next several years the partnership will
realize between $450 and $550 of tax-exempt interest and between $450
and $550 of a combination of taxable interest and dividends from its
investments. I and J made equal capital contributions to the
partnership, and they have agreed to share equally in gains and losses
from the sale of the partnership's investment securities. I and J agree,
however, that rather than share interest and dividends of the
partnership equally, they will allocate the partnership's tax-exempt
interest 80 percent to I and 20 percent to J and will distribute cash
derived from interest received on the tax-exempt bonds in the same
percentages. In addition, they agree to allocate 100 percent of the
partnership's taxable interest and dividends to J and to distribute cash
derived from interest and dividends received on the corporate stocks and
debt instruments 100 percent to J. The partnership agreement further
provides that the partners' capital accounts will be determined and
maintained in
[[Page 468]]
accordance with paragraph (b)(2)(iv) of this section, distributions in
liquidation of the partnership (or any partner's interest) will be made
in accordance with the partner's positive capital account balances, and
any partner with a deficit balance in his capital account following the
liquidation of his interest must restore that deficit to the partnership
(as set forth in paragraphs (b)(2)(ii)(b) (2) and (3) of this section).
The allocation of taxable interest and dividends and tax-exempt interest
has economic effect, but that economic effect is not substantial under
the general rules set forth in paragraph (b)(2)(iii) of this section.
Without the allocation I would be allocated between $225 and $275 of
tax-exempt interest and between $225 and $275 of a combination of
taxable interest and dividends, which (net of Federal income taxes he
would owe on such income) would give I between $337.50 and $412.50 after
tax. With the allocation, however, I will be allocated between $360 and
$440 of tax-exempt interest and no taxable interest and dividends, which
(net of Federal income taxes) will give I between $360 and $440 after
tax. Thus, at the time the allocations became part of the partnership
agreement, I is expected to enhance his after-tax economic consequences
as a result of the allocations. On the other hand, there is a strong
likelihood that neither I nor J will substantially diminish his after-
tax economic consequences as a result of the allocations. Under the
combination of likely investment outcomes least favorable for J, the
partnership would realize $550 of tax-exempt interest and $450 of
taxable interest and dividends, giving J $492.50 after tax (which is
more than the $466.25 after tax J would have received if each of such
amounts had been allocated equally between the partners). Under the
combination of likely investment outcomes least favorable for I, the
partnership would realize $450 of tax-exempt interest and $550 of
taxable interest and dividends, giving I $360 after tax (which is not
substantially less than the $362.50 he would have received if each of
such amounts had been allocated equally between the partners).
Accordingly, the allocations in the partnership agreement must be
reallocated in accordance with the partners' interests in the
partnership under paragraph (b)(3) of this section.
(ii) Assume the same facts as in (i). In addition, assume that in
the first partnership taxable year in which the allocation arrangement
described in (i) applies, the partnership realizes $450 of tax-exempt
interest and $550 of taxable interest and dividends, so that, pursuant
to the partnership agreement, I's capital account is credited with $360
(80 percent of the tax-exempt interest), and J's capital account is
credited with $640 (20 percent of the tax-exempt interest and 100
percent of the taxable interest and dividends). The allocations of tax-
exempt interest and taxable interest and dividends (which do not have
substantial economic effect for the reasons stated in (i) will be
disregarded and will be reallocated. Since under the partnership
agreement I will receive 36 percent (360/1,000) and J will receive 64
percent (640/1,000) of the partnership's total investment income in such
year, under paragraph (b)(3) of this section the partnership's tax-
exempt interest and taxable interest and dividends each will be
reallocated 36 percent to I and 64 percent to J.
Example 6. K and L are equal partners in a general partnership
formed to acquire and operate property described in section 1231(b). The
partnership, K, and L have calendar taxable years. The partnership
agreement provides that the partners' capital accounts will be
determined and maintained in accordance with paragraph (b)(2)(iv) of
this section, that distributions in liquidation of the partnership (or
any partner's interest) will be made in accordance with the partners'
positive capital account balances, and that any partner with a deficit
balance in his capital account following the liquidation of his interest
must restore that deficit to the partnership (as set forth in paragraphs
(b)(2)(ii)(b) (2) and (3) of this section). For a taxable year in which
the partnership expects to incur a loss on the sale of a portion of such
property, the partnership agreement is amended (at the beginning of the
taxable year) to allocate such loss to K, who expects to have no gains
from the sale of depreciable property described in section 1231(b) in
that taxable year, and to allocate an equivalent amount of partnership
loss and deduction for that year of a different character to L, who
expects to have such gains. Any partnership loss and deduction in excess
of these allocations will be allocated equally between K and L. The
amendment is effective only for that taxable year. At the time the
partnership agreement is amended, there is a strong likelihood that the
partnership will incur deduction or loss in the taxable year other than
loss from the sale of property described in section 1231(b) in an amount
that will substantially equal or exceed the expected amount of the
section 1231(b) loss. The allocations in such taxable year have economic
effect. However, the economic effect of the allocations is insubstantial
under the test described in paragraph (b)(2)(iii) (b) of this section
because there is a strong likelihood, at the time the allocations become
part of the partnership agreement, that the net increases and decreases
to K's and L's capital accounts will be the same at the end of the
taxable year to which they apply with such allocations in effect as they
would have been in the absence of such allocations, and that the total
taxes of K and L for such year will be reduced as a result of such
allocations. If in fact the partnership incurs deduction or
[[Page 469]]
loss, other than loss from the sale of property described in section
1231(b), in an amount at least equal to the section 1231(b) loss, the
loss and deduction in such taxable year will be reallocated equally
between K and L under paragraph (b)(3) of this section. If not, the loss
from the sale of property described in section 1231(b) and the items of
deduction and other loss realized in such year will be reallocated
between K and L in proportion to the net decreases in their capital
accounts due to the allocation of such items under the partnership
agreement.
Example 7. (i) M and N are partners in the MN general partnership,
which is engaged in an active business. Income, gain, loss, and
deduction from MN's business is allocated equally between M and N. The
partnership, M, and N have calendar taxable years. Under the partnership
agreement the partners' capital accounts will be determined and
maintained in accordance with paragraph (b)(2)(iv) of this section,
distributions in liquidation of the partnership (or any partner's
interest) will be made in accordance with the partner's positive capital
account balances, and any partner with a deficit balance in his capital
account following the liquidation of his interest must restore that
deficit to the partnership (as set forth in paragraphs (b)(2)(ii)(b) (2)
and (3) of this section). In order to enhance the credit standing of the
partnership, the partners contribute surplus funds to the partnership,
which the partners agree to invest in equal dollar amounts of tax-exempt
bonds and corporate stock for the partnership's first 3 taxable years. M
is expected to be in a higher marginal tax bracket than N during those 3
years. At the time the decision to make these investments is made, it is
agreed that, during the 3-year period of the investment, M will be
allocated 90 percent and N 10 percent of the interest income from the
tax-exempt bonds as well as any gain or loss from the sale thereof, and
that M will be allocated 10 percent and N 90 percent of the dividend
income from the corporate stock as well as any gain or loss from the
sale thereof. At the time the allocations concerning the investments
become part of the partnership agreement, there is not a strong
likelihood that the gain or loss from the sale of the stock will be
substantially equal to the gain or loss from the sale of the tax-exempt
bonds, but there is a strong likelihood that the tax-exempt interest and
the taxable dividends realized from these investments during the 3-year
period will not differ substantially. These allocations have economic
effect, and the economic effect of the allocations of the gain or loss
on the sale of the tax-exempt bonds and corporate stock is substantial.
The economic effect of the allocations of the tax-exempt interest and
the taxable dividends, however, is not substantial under the test
described in paragraph (b)(2)(iii)(c) of this section because there is a
strong likelihood, at the time the allocations become part of the
partnership agreement, that at the end of the 3-year period to which
such allocations relate, the net increases and decreases to M's and N's
capital accounts will be the same with such allocations as they would
have been in the absence of such allocations, and that the total taxes
of M and N for the taxable years to which such allocations relate will
be reduced as a result of such allocations. If in fact the amounts of
the tax-exempt interest and taxable dividends earned by the partnership
during the 3-year period are equal, the tax-exempt interest and taxable
dividends will be reallocated to the partners in equal shares under
paragraph (b)(3) of this section. If not, the tax-exempt interest and
taxable dividends will be reallocated between M and N in proportion to
the net increases in their capital accounts during such 3-year period
due to the allocation of such items under the partnership agreement.
(ii) Assume the same facts as in (i) except that gain or loss from
the sale of the tax-exempt bonds and corporate stock will be allocated
equally between M and N and the partnership agreement provides that the
90/10 allocation arrangement with respect to the investment income
applies only to the first $10,000 of interest income from the tax-exempt
bonds and the first $10,000 of dividend income from the corporate stock,
and only to the first taxable year of the partnership. There is a strong
likelihood at the time the 90/10 allocation of the investment income
became part of the partnership agreement that in the first taxable year
of the partnership, the partnership will earn more than $10,000 of tax-
exempt interest and more than $10,000 of taxable dividends. The
allocations of tax-exempt interest and taxable dividends provided in the
partnership agreement have economic effect, but under the test contained
in paragraph (b)(2)(iii)(b) of this section, such economic effect is not
substantial for the same reasons stated in (i) (but applied to the 1
taxable year, rather than to a 3-year period). If in fact the
partnership realizes at least $10,000 of tax-exempt interest and at
least $10,000 of taxable dividends in such year, the allocations of such
interest income and dividend income will be reallocated equally between
M and N under paragraph (b)(3) of this section. If not, the tax-exempt
interest and taxable dividends will be reallocated between M and N in
proportion to the net increases in their capital accounts due to the
allocations of such items under the partnership agreement.
(iii) Assume the same facts as in (ii) except that at the time the
90/10 allocation of investment income becomes part of the partnership
agreement, there is not a strong likelihood that (1) the partnership
will earn $10,000 or more of tax-exempt interest and $10,000 or more of
taxable dividends in the
[[Page 470]]
partnership's first taxable year, and (2) the amount of tax-exempt
interest and taxable dividends earned during such year will be
substantially the same. Under these facts the economic effect of the
allocations generally will be substantial. (Additional facts may exist
in certain cases, however, so that the allocation is insubstantial under
the second sentence of paragraph (b)(2)(iii). See example 5 above.)
Example 8. (i) O and P are equal partners in the OP general
partnership. The partnership, O, and P have calendar taxable years.
Partner O has a net operating loss carryover from another venture that
is due to expire at the end of the partnership's second taxable year.
Otherwise, both partners expect to be in the 50 percent marginal tax
bracket in the next several taxable years. The partnership agreement
provides that the partners' capital accounts will be determined and
maintained in accordance with paragraph (b)(2)(iv) of this section,
distributions in liquidation of the partnership (or any partner's
interest) will be made in accordance with the partners' positive capital
account balances, and any partner with a deficit balance in his capital
account following the liquidation of his interest must restore that
deficit to the partnership (as set forth in paragraphs (b)(2)(ii)(b) (2)
and (3) of this section). The partnership agreement is amended (at the
beginning of the partnership's second taxable year) to allocate all the
partnership net taxable income for that year to O. Future partnership
net taxable loss is to be allocated to O, and future partnership net
taxable income to P, until the allocation of income to O in the
partnership's second taxable year is offset. It is further agreed orally
that in the event the partnership is liquidated prior to completion of
such offset, O's capital account will be adjusted downward to the extent
of one-half of the allocations of income to O in the partnership's
second taxable year that have not been offset by other allocations, P's
capital account will be adjusted upward by a like amount, and
liquidation proceeds will be distributed in accordance with the
partners' adjusted capital account balances. As a result of this oral
amendment, all allocations of partnership net taxable income and net
taxable loss made pursuant to the amendment executed at the beginning of
the partnership's second taxable year lack economic effect and will be
disregarded. Under the partnership agreement other allocations are made
equally to O and P, and O and P will share equally in liquidation
proceeds, indicating that the partners' interests in the partnership are
equal. Thus, the disregarded allocations will be reallocated equally
between the partners under paragraph (b)(3) of this section.
(ii) Assume the same facts as in (i) except that there is no
agreement that O's and P's capital accounts will be adjusted downward
and upward, respectively, to the extent of one-half of the partnership
net taxable income allocated to O in the partnership's second taxable
year that is not offset subsequently by other allocations. The income of
the partnership is generated primarily by fixed interest payments
received with respect to highly rated corporate bonds, which are
expected to produce sufficient net taxable income prior to the end of
the partnership's seventh taxable year to offset in large part the net
taxable income to be allocated to O in the partnership's second taxable
year. Thus, at the time the allocations are made part of the partnership
agreement, there is a strong likelihood that the allocation of net
taxable income to be made to O in the second taxable year will be offset
in large part within 5 taxable years thereafter. These allocations have
economic effect. However, the economic effect of the allocation of
partnership net taxable income to O in the partnership's second taxable
year, as well as the offsetting allocations to P, is not substantial
under the test contained in paragraph (b)(2)(iii)(c) of this section
because there is a strong likelihood that the net increases or decreases
in O's and P's capital accounts will be the same at the end of the
partnership's seventh taxable year with such allocations as they would
have been in the absence of such allocations, and the total taxes of O
and P for the taxable years to which such allocations relate will be
reduced as a result of such allocations. If in fact the partnership, in
its taxable years 3 through 7, realizes sufficient net taxable income to
offset the amount allocated to O in the second taxable year, the
allocations provided in the partnership agreement will be reallocated
equally between the partners under paragraph (b)(3) of this section.
Example 9. Q and R form a limited partnership with contributions of
$20,000 and $180,000, respectively. Q, the limited partner, is a
corporation that has $2,000,000 of net operating loss carryforwards that
will not expire for 8 years. Q does not expect to have sufficient income
(apart from the income of the partnership) to absorb any of such net
operating loss carryforwards. R, the general partner, is a corporation
that expects to be in the 46 percent marginal tax bracket for several
years. The partnership agreement provides that the partners' capital
accounts will be determined and maintained in accordance with paragraph
(b)(2)(iv) of this section, distributions in liquidation of the
partnership (or any partner's interest) will be made in accordance with
the partners' positive capital account balances, and any partner with a
deficit balance in his capital account following the liquidation of his
interest must restore that deficit to the partnership (as set forth in
paragraphs (b)(2)(ii)(b) (2) and (3) of this section). The
[[Page 471]]
partnership's cash, together with the proceeds of an $800,000 loan, are
invested in assets that are expected to produce taxable income and cash
flow (before debt service) of approximately $150,000 a year for the
first 8 years of the partnership's operations. In addition, it is
expected that the partnership's total taxable income in its first 8
taxable years will not exceed $2,000,000. The partnership's $150,000 of
cash flow in each of its first 8 years will be used to retire the
$800,000 loan. The partnership agreement provides that partnership net
taxable income will be allocated 90 percent to Q and 10 percent to R in
the first through eighth partnership taxable years, and 90 percent to R
and 10 percent to Q in all subsequent partnership taxable years. Net
taxable loss will be allocated 90 percent to R and 10 percent to Q in
all partnership taxable years. All distributions of cash from the
partnership to partners (other than the priority distributions to Q
described below) will be made 90 percent to R and 10 percent to Q. At
the end of the partnership's eighth taxable year, the amount of Q's
capital account in excess of one-ninth of R's capital account on such
date will be designated as Q's ``excess capital account.'' Beginning in
the ninth taxable year of the partnership, the undistributed portion of
Q's excess capital account will begin to bear interest (which will be
paid and deducted under section 707(c) at a rate of interest below the
rate that the partnership can borrow from commercial lenders, and over
the next several years (following the eight year) the partnership will
make priority cash distributions to Q in prearranged percentages of Q's
excess capital account designed to amortize Q's excess capital account
and the interest thereon over a prearranged period. In addition, the
partnership's agreement prevents Q from causing his interest in the
partnership from being liquidated (and thereby receiving the balance in
his capital account) without R's consent until Q's excess capital
account has been eliminated. The below market rate of interest and the
period over which the amortization will take place are prescribed such
that, as of the end of the partnership's eighth taxable year, the
present value of Q's right to receive such priority distributions is
approximately 46 percent of the amount of Q's excess capital account as
of such date. However, because the partnership's income for its first 8
taxable years will be realized approximately ratably over that period,
the present value of Q's right to receive the priority distributions
with respect to its excess capital account is, as of the date the
partnership agreement is entered into, less than the present value of
the additional Federal income taxes for which R would be liable if,
during the partnership's first 8 taxable years, all partnership income
were to be allocated 90 percent to R and 10 to Q. The allocations of
partnership taxable income to Q and R in the first through eighth
partnership taxable years have economic effect. However, such economic
effect is not substantial under the general rules set forth in paragraph
(b)(2)(iii) of this section. This is true because R may enhance his
after-tax economic consequences, on a present value basis, as a result
of the allocations to Q of 90 percent of partnership's income during
taxable years 1 through 8, and there is a strong likelihood that neither
R nor Q will substantially diminish its after-tax economic consequences,
on a present value basis, as a result of such allocation. Accordingly,
partnership taxable income for partnership taxable years 1 through 8
will be reallocated in accordance with the partners' interests in the
partnership under paragraph (b)(3) of this section.
Example 10. (i) S and T form a general partnership to operate a
travel agency. The partnership agreement provides that the partners'
capital accounts will be determined and maintained in accordance with
paragraph (b)(2)(iv) of this section, distributions in liquidation of
the partnership (or any partner's interest) will be made in accordance
with the partners' positive capital account balances, and any partner
with a deficit balance in his capital account following the liquidation
of his interest must restore that deficit to the partnership (as set
forth in paragraphs (b)(2)(ii)(b) (2) and (3) of this section). The
partnership agreement provides that T, a resident of a foreign country,
will be allocated 90 percent, and S 10 percent, of the income, gain,
loss, and deduction derived from operations conducted by T within his
country, and all remaining income, gain, loss, and deduction will be
allocated equally. The amount of such income, gain, loss, or deduction
cannot be predicted with any reasonable certainty. The allocations
provided by the partnership agreement have substantial economic effect.
(ii) Assume the same facts as in (i) except that the partnership
agreement provides that all income, gain, loss, and deduction of the
partnership will be shared equally, but that T will be allocated all
income, gain, loss, and deduction derived from operations conducted by
him within his country as a part of his equal share of partnership
income, gain, loss, and deduction, upon to the amount of such share.
Assume the total tax liability of S and T for each year to which these
allocations relate will be reduced as a result of such allocation. These
allocations have economic effect. However, such economic effect is not
substantial under the test stated in paragraph (b)(2)(iii)(b) of this
section because, at the time the allocations became part of the
partnership agreement, there is a strong likelihood that the net
increases and decreases to S's and T's capital accounts will be the same
at the end of each
[[Page 472]]
partnership taxable year with such allocations as they would have been
in the absence of such allocations, and that the total tax liability of
S and T for each year to which such allocations relate will be reduced
as a result of such allocations. Thus, all items of partnership income,
gain, loss, and income, gain, loss, and deduction will be reallocated
equally between S and T under paragraph (b)(3) of this section.
Example 11. (i) U and V share equally all income, gain, loss, and
deduction of the UV general partnership, as well as all non-liquidating
distributions made by the partnership. The partnership agreement
provides that the partners' capital accounts will be determined and
maintained in accordance with paragraph (b)(2)(iv) of this section,
distributions in liquidation of the partnership (or any partner's
interest) will be made in accordance with the partners' positive capital
account balances, and any partner with a deficit balance in his capital
account following the liquidation of his interest must restore such
deficit to the partnership (as set forth in paragraphs (b)(2)(ii)(b) (2)
and (3) of this section). The agreement further provides that the
partners will be allocated equal shares of any section 705(a)(2)(B)
expenditures of the partnership. In the partnership's first taxable
year, it pays qualified first-year wages of $6,000 and is entitled to a
$3,000 targeted jobs tax credit under sections 44B and 51 of the Code.
Under section 280C the partnership must reduce its deduction for wages
paid by the $3,000 credit claimed (which amount constitutes a section
705(a)(2)(B) expenditure). The partnership agreement allocates the
credit to U. Although the allocations of wage deductions and section
705(a)(2)(B) expenditures have substantial economic effect, the
allocation of tax credit cannot have economic effect since it cannot
properly be reflected in the partners' capital accounts. Furthermore,
the allocation is not in accordance with the special partners' interests
in the partnership rule contained in paragraph (b)(4)(ii) of this
section. Under that rule, since the expenses that gave rise to the
credit are shared equally by the partners, the credit will be shared
equally between U and V.
(ii) Assume the same facts as in (i) and that at the beginning of
the partnership's second taxable year, the partnership agreement is
amended to allocate to U all wage expenses incurred in that year
(including wage expenses that constitute section 705(a)(2)(B)
expenditures) whether or not such wages qualify for the credit. The
partnership agreement contains no offsetting allocations. That taxable
year the partnership pays $8,000 in total wages to its employees. Assume
that the partnership has operating income equal to its operating
expenses (exclusive of expenses for wages). Assume further that $6,000
of the $8,000 wage expense constitutes qualified first-year wages. U is
allocated the $3,000 deduction and the $3,000 section 705(a)(2)(B)
expenditure attributable to the $6,000 of qualified first-year wages, as
well as the deduction for the other $2,000 in wage expenses. The
allocations of wage deductions and section 705(a)(2)(B) expenditures
have substantial economic effect. Furthermore, since the wage credit is
allocated in the same proportion as the expenses that gave rise to the
credit, and the allocation of those expenses has substantial economic
effect, the allocation of such credit to U is in accordance with the
special partners' interests in the partnership rule contained in
paragraph (b)(4)(ii) of this section and is recognized thereunder.
Example 12. (i) W and X form a general partnership for the purpose
of mining iron ore. W makes an initial contribution of $75,000, and X
makes an initial contribution of $25,000. The partnership agreement
provides that non-liquidating distributions will be made 75 percent to W
and 25 percent to X, and that all items of income, gain, loss, and
deduction will be allocated 75 percent to W and 25 percent to X, except
that all percentage depletion deductions will be allocated to W. The
agreement further provides that the partners' capital accounts will be
determined and maintained in accordance with paragraphs (b)(2)(iv) of
this section, distributions in liquidation of the partnership (or any
partner's interest) will be made in accordance with the partners'
positive capital account balances, and any partner with a deficit
balance in his capital account following the liquidation of his interest
must restore such deficit to the partnership (as set forth in paragraphs
(b)(2)(ii)(b) (2) and (3) of this section). Assume that the adjusted tax
basis of the partnership's only depletable iron ore property is $1,000
and that the percentage depletion deduction for the taxable year with
respect to such property is $1,500. The allocation of partnership
income, gain, loss, and deduction (excluding the percentage depletion
deduction) as well as the allocation of $1,000 of the percentage
depletion deduction have substantial economic effect. The allocation to
W of the remaining $500 of the percentage depletion deduction,
representing the excess of percentage depletion over adjusted tax basis
of the iron ore property, cannot have economic effect since such amount
cannot properly be reflected in the partners' capital accounts.
Furthermore, the allocation to W of that $500 excess percentage
depletion deduction is not in accordance with the special partners'
interests in the partnership rule contained in paragraph (b)(4)(iii) of
this section, under which such $500 excess depletion deduction (and all
further percentage depletion deductions from the mine) will be
reallocated 75 percent to W and 25 percent to X.
[[Page 473]]
(ii) Assume the same facts as in (i) except that the partnership
agreement provides that all percentage depletion deductions of the
partnership will be allocated 75 percent to W and 25 percent to X. Once
again, the allocation of partnership income, gain, loss, and deduction
(excluding the percentage depletion deduction) as well as the allocation
of $1,000 of the percentage depletion deduction have substantial
economic effect. Furthermore, since the $500 portion of the percentage
depletion deduction that exceeds the adjusted basis of such iron ore
property is allocated in the same manner as valid allocations of the
gross income from such property during the taxable year (i.e., 75
percent to W and 25 percent to X), the allocation of the $500 excess
percentage depletion contained in the partnership agreement is in
accordance with the special partners' interests in the partnership rule
contained in paragraph (b)(4)(iii) of this section.
Example 13. (i) Y and Z form a brokerage general partnership for the
purpose of investing and trading in marketable securities. Y contributes
cash of $10,000, and Z contributes securities of P corporation, which
have an adjusted basis of $3,000 and a fair market value of $10,000. The
partnership would not be an investment company under section 351(e) if
it were incorporated. The partnership agreement provides that the
partners' capital accounts will be determined and maintained in
accordance with paragraph (b)(2)(iv) of this section, distributions in
liquidation of the partnership (or any partner's interest) will be made
in accordance with the partners' positive capital account balances, and
any partner with a deficit balance in his capital account following the
liquidation of his interest must restore that deficit to the partnership
(as set forth in paragraphs (b)(2)(ii)(b) (2) and (3) of this section).
The partnership uses the interim closing of the books method for
purposes of section 706. The initial capital accounts of Y and Z are
fixed at $10,000 each. The agreement further provides that all
partnership distributions, income, gain, loss, deduction, and credit
will be shared equally between Y and Z, except that the taxable gain
attributable to the precontribution appreciation in the value of the
securities of P corporation will be allocated to Z in accordance with
section 704(c). During the partnership's first taxable year, it sells
the securities of P corporation for $12,000, resulting in a $2,000 book
gain ($12,000 less $10,000 book value) and a $9,000 taxable gain
($12,000 less $3,000 adjusted tax basis). The partnership has no other
income, gain, loss, or deductions for the taxable year. The gain from
the sale of the securities is allocated as follows:
------------------------------------------------------------------------
Y Z
---------------------------------------
Tax Book Tax Book
------------------------------------------------------------------------
Capital account upon formation.. $10,000 $10,000 $3,000 $10,000
Plus: gain...................... 1,000 1,000 8,000 1,000
---------------------------------------
Capital account at end of $11,000 $11,000 $11,000 $11,000
year 1...................
------------------------------------------------------------------------
The allocation of the $2,000 book gain, $1,000 each to Y and Z, has
substantial economic effect. Furthermore, under section 704(c) the
partners' distributive shares of the $9,000 taxable gain are $1,000 to Y
and $8,000 to Z.
(ii) Assume the same facts as in (i) and that at the beginning of
the partnership's second taxable year, it invests its $22,000 of cash in
securities of G Corp. The G Corp. securities increase in value to
$40,000, at which time Y sells 50 percent of his partnership interest
(i.e., a 25 percent interest in the partnership) to LK for $10,000. The
partnership does not have a section 754 election in effect for the
partnership taxable year during which such sale occurs. In accordance
with paragraph (b)(2)(iv)(l) of this section, the partnership agreement
provides that LK inherits 50 percent of Y's $11,000 capital account
balance. Thus, following the sale, LK and Y each have a capital account
of $5,500, and Z's capital account remains at $11,000. Prior to the end
of the partnership's second taxable year, the securities are sold for
their $40,000 fair market value, resulting in an $18,000 taxable gain
($40,000 less $22,000 adjusted tax basis). The partnership has no other
income, gain, loss, or deduction in such taxable year. Under the
partnership agreement the $18,000 taxable gain is allocated as follows:
------------------------------------------------------------------------
Y Z LK
------------------------------------------------------------------------
Capital account before sale of securities. $5,500 $11,000 $5,500
Plus: gain................................ 4,500 9,000 4,500
-----------------------------
Capital account at end of year 2.... $10,000 $20,000 $10,000
------------------------------------------------------------------------
The allocation of the $18,000 taxable gain has substantial economic
effect.
(iii) Assume the same facts as in (ii) except that the partnership
has a section 754 election in effect for the partnership taxable year
during which Y sells 50 percent of his interest to LK. Accordingly,
under Sec. 1.743-1 there is a $4,500 basis increase to the G Corp.
securities with respect to LK. Notwithstanding this basis adjustment, as
a result of the sale of the G Corp. securities, LK's capital account is,
as in (ii), increased by $4,500. The fact that LK recognizes no taxable
gain from such sale (due to his $4,500 section 743 basis adjustment) is
irrelevant for capital
[[Page 474]]
accounting purposes since, in accordance with paragraph (b)(2)(iv)(m)(2)
of this section, that basis adjustment is disregarded in the maintenance
and computation of the partners' capital accounts.
(iv) Assume the same facts as in (iii) except that immediately
following Y's sale of 50 percent of this interest to LK, the G Corp.
securities decrease in value to $32,000 and are sold. The $10,000
taxable gain ($32,000 less $22,000 adjusted tax basis) is allocated as
follows:
------------------------------------------------------------------------
Y Z LK
------------------------------------------------------------------------
Capital account before sale of securities. $5,500 $11,000 $5,500
Plus: gain................................ 2,500 5,000 2,500
-----------------------------
Capital account at end of the year 2 $8,000 $16,000 $8,000
------------------------------------------------------------------------
The fact that LK recognizes a $2,000 taxable loss from the sale of the G
Corp. securities (due to his $4,500 section 743 basis adjustment) is
irrelevant for capital accounting purposes since, in accordance with
paragraph (b)(2)(iv)(m)(2) of this section, that basis adjustment is
disregarded in the maintenance and computation of the partners' capital
accounts.
(v) Assume the same facts as in (ii) except that Y sells 100 percent
of his partnership interest (i.e., a 50 percent interest in the
partnership) to LK for $20,000. Under section 708(b)(1)(B) the
partnership terminates. Under paragraph (b)(1)(iv) of Sec. 1.708-1,
there is a constructive liquidation of the partnership. Immediately
preceding the constructive liquidation, the capital accounts of Z and LK
equal $11,000 each (LK having inherited Y's $11,000 capital account) and
the book value of the G Corp. securities is $22,000 (original purchase
price of securities). Under paragraph (b)(2)(iv)(l) of this section, the
deemed contribution of assets and liabilities by the terminated
partnership to the new partnership and the deemed liquidation of the
terminated partnership that occur under Sec. 1.708-1(b)(1)(iv) in
connection with the constructive liquidation of the terminated
partnership are disregarded in the maintenance and computation of the
partners' capital accounts. As a result, the capital accounts of Z and
LK in the new partnership equal $11,000 each (their capital accounts in
the terminated partnership immediately prior to the termination), and
the book value of the G Corp. securities remains $22,000 (its book value
immediately prior to the termination). This Example 13(v) applies to
terminations of partnerships under section 708(b)(1)(B) occurring on or
after May 9, 1997; however, this Example 13(v) may be applied to
terminations occurring on or after May 9, 1996, provided that the
partnership and its partners apply this Example 13(v) to the termination
in a consistent manner.
Example 14. (i) MC and RW form a general partnership to which each
contributes $10,000. The $20,000 is invested in securities of Ventureco
(which are not readily tradable on an established securities market). In
each of the partnership's taxable years, it recognizes operating income
equal to its operating deductions (excluding gain or loss from the sale
of securities). The partnership agreement provides that the partners'
capital accounts will be determined and maintained in accordance with
paragraph (b)(2)(iv) of this section, distributions in liquidation of
the partnership (or any partner's interest) will be made in accordance
with the partners' positive capital account balances, and any partner
with a deficit balance in his capital account following the liquidation
of his interest must restore that deficit to the partnership (as set
forth in paragraphs (b)(2)(ii)(b)(2) and (3) of this section). The
partnership uses the interim closing of the books method for purposes of
section 706. Assume that the Ventureco securities subsequently
appreciate in value to $50,000. At that time SK makes a $25,000 cash
contribution to the partnership (thereby acquiring a one-third interest
in the partnership), and the $25,000 is placed in a bank account. Upon
SK's admission to the partnership, the capital accounts of MC and RW
(which were $10,000 each prior to SK's admission) are, in accordance
with paragraph (b)(2)(iv)(f) of this section, adjusted upward (to
$25,000 each) to reflect their shares of the unrealized appreciation in
the Ventureco securities that occurred before SK was admitted to the
partnership. Immediately after SK's admission to the partnership, the
securities are sold for their $50,000 fair market value, resulting in
taxable gain of $30,000 ($50,000 less $20,000 adjusted tax basis) and no
book gain or loss. An allocation of the $30,000 taxable gain cannot have
economic effect since it cannot properly be reflected in the partners'
book capital accounts. Under paragraph (b)(2)(iv)(f) of this section and
the special partners' interests in the partnership rule contained in
paragraph (b)(4)(i) of this section, unless the partnership agreement
provides that the $30,000 taxable gain will, in accordance with section
704(c) principles, be shared $15,000 to MC and $15,000 to RW, the
partners' capital accounts will not be considered maintained in
accordance with paragraph (b)(2)(iv) of this section.
----------------------------------------------------------------------------------------------------------------
MC RW SK
-----------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account following SK's admission...... $10,000 $25,000 $10,000 $25,000 $25,000 $25,000
[[Page 475]]
Plus: gain.................................... 15,000 0 15,000 0 0 0
-----------------------------------------------------------------
Capital account following sale................ $25,000 $25,000 $25,000 $25,000 $25,000 $25,000
----------------------------------------------------------------------------------------------------------------
(ii) Assume the same facts as (i), except that after SK's admission
to the partnership, the Ventureco securities appreciate in value to
$74,000 and are sold, resulting in taxable gain of $54,000 ($74,000 less
$20,000 adjusted tax basis) and book gain of $24,000 ($74,000 less
$50,000 book value). Under the partnership agreement the $24,000 book
gain (the appreciation in value occurring after SK became a partner) is
allocated equally among MC, RW, and SK, and such allocations have
substantial economic effect. An allocation of the $54,000 taxable gain
cannot have economic effect since it cannot properly be reflected in the
partners' book capital accounts. Under paragraph (b)(2)(iv)(f) of this
section and the special partners' interests in the partnership rule
contained in paragraph (b)(4)(i) of this section, unless the partnership
agreement provides that the taxable gain will, in accordance with
section 704(c) principles, be shared $23,000 to MC $23,000 to RW, and
$8,000 to SK, the partners' capital accounts will not be considered
maintained in accordance with paragraph (b)(2)(iv) of this section.
----------------------------------------------------------------------------------------------------------------
MC RW SK
-----------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account following SK's admission...... $10,000 $25,000 $10,000 $25,000 $25,000 $25,000
Plus: gain.................................... 23,000 8,000 23,000 8,000 8,000 8,000
-----------------------------------------------------------------
Capital account following sale.......... $33,000 $33,000 $33,000 $33,000 $33,000 $33,000
----------------------------------------------------------------------------------------------------------------
(iii) Assume the same facts as (i) except that after SK's admission
to the partnership, the Ventureco securities depreciate in value to
$44,000 and are sold, resulting in taxable gain of $24,000 ($44,000 less
$20,000 adjusted tax basis) and a book loss of $6,000 ($50,000 book
value less $44,000). Under the partnership agreement the $6,000 book
loss is allocated equally among MC, RW, and SK, and such allocations
have substantial economic effect. An allocation of the $24,000 taxable
gain cannot have economic effect since it cannot properly be reflected
in the partners' book capital accounts. Under paragraph (b)(2)(iv)(f) of
this section and the special partners' interests in the partnership rule
contained in paragraph (b)(4)(i) of this section, unless the partnership
agreement provides that the $24,000 taxable gain will, in accordance
with section 704(c) principles, be shared equally between MC and RW, the
partners' capital accounts will not be considered maintained in
accordance with paragraph (b)(2)(iv) of this section.
----------------------------------------------------------------------------------------------------------------
MC RW SK
--------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account following SK's admission... $10,000 $25,000 $10,000 $25,000 $25,000 $25,000
Plus: gain................................. 12,000 0 12,000 0 0 0
Less: loss................................. 0 (2,000) 0 (2,000) 0 (2,000)
--------------------------------------------------------------------
Capital account following sale....... $22,000 $23,000 $22,000 $23,000 $25,000 $25,000
----------------------------------------------------------------------------------------------------------------
That SK bears an economic loss of $2,000 without a corresponding taxable
loss is attributable entirely to the ``ceiling rule.'' See paragraph
(c)(2) of Sec. 1.704-1.
(iv) Assume the same facts as in (ii) except that upon the admission
of SK the capital accounts of MC and RW are not each adjusted upward
from $10,000 to $25,000 to reflect the appreciation in the partnership's
securities that occurred before SK was admitted to the partnership.
Rather, upon SK's admission to the partnership, the partnership
agreement is amended to provide that the first $30,000 of taxable gain
upon the sale of such securities will be allocated equally between MC
and RW, and that all other income, gain, loss, and deduction will be
allocated equally between MC, RW, and SK. When the securities are sold
for $74,000, the $54,000 of taxable gain is so allocated. These
allocations of taxable gain have substantial economic effect. (If the
agreement instead
[[Page 476]]
provides for all taxable gain (including the $30,000 taxable gain
attributable to the appreciation in the securities prior to SK's
admission to the partnership) to be allocated equally between MC, RW,
and SK, the partners should consider whether, and to what extent, the
provisions of paragraphs (b)(1) (iii) and (iv) of this section are
applicable.)
(v) Assume the same facts as in (iv) except that instead of selling
the securities, the partnership makes a distribution of the securities
(which have a fair market value of $74,000). Assume the distribution
does not give rise to a transaction described in section 707(a)(2)(B).
In accordance with paragraph (b)(2)(iv)(e) of this section, the
partners' capital accounts are adjusted immediately prior to the
distribution to reflect how taxable gain ($54,000) would have been
allocated had the securities been sold for their $74,000 fair market
value, and capital account adjustments in respect of the distribution of
the securities are made with reference to the $74,000 ``booked-up'' fair
market value.
------------------------------------------------------------------------
MC RW SK
------------------------------------------------------------------------
Capital account before adjustment...... $10,000 $10,000 $25,000
Deemed sale adjustment................. 23,000 23,000 8,000
Less: distribution..................... (24,667) (24,667) (24,667)
--------------------------------
Capital account after $8,333 $8,333 $8,333
distribution....................
------------------------------------------------------------------------
(vi) Assume the same facts as in (i) except that the partnership
does not sell the Ventureco securities. During the next 3 years the fair
market value of the Ventureco securities remains at $50,000, and the
partnership engages in no other investment activities. Thus, at the end
of that period the balance sheet of the partnership and the partners'
capital accounts are the same as they were at the beginning of such
period. At the end of the 3 years, MC's interest in the partnership is
liquidated for the $25,000 cash held by the partnership. Assume the
distribution does not give rise to a transaction described in section
707(a)(2)(B). Assume further that the partnership has a section 754
election in effect for the taxable year during which such liquidation
occurs. Under sections 734(b) and 755 the partnership increases the
basis of the Ventureco securities by the $15,000 basis adjustment (the
excess of $25,000 over the $10,000 adjusted tax basis of MC's
partnership interest).
----------------------------------------------------------------------------------------------------------------
MC RW SK
-------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account before distribution......... $10,000 $25,000 $10,000 $25,000 $25,000 $25,000
Plus: basis adjustment...................... 15,000 0 0 0 0 0
Less: distribution.......................... (25,000) (25,000) 0 0 0 0
-------------------------------------------------------------------
Capital account account after liquidation... 0 0 $10,000 $25,000 $25,000 $25,000
----------------------------------------------------------------------------------------------------------------
(vii) Assume the same facts as in (vi) except that the partnership
has no section 754 election in effect for the taxable year during which
such liquidation occurs.
----------------------------------------------------------------------------------------------------------------
MC RW SK
-------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account before distribution......... $10,000 $25,000 $10,000 $25,000 $25,000 $25,000
Less: distribution.......................... (25,000) (25,000) 0 0 0 0
-------------------------------------------------------------------
Capital account after liquidation........... ($15,000) 0 $10,000 $25,000 $25,000 $25,000
----------------------------------------------------------------------------------------------------------------
Following the liquidation of MC's interest in the partnership, the
Ventureco securities are sold for their $50,000 fair market value,
resulting in no book gain or loss but a $30,000 taxable gain. An
allocation of this $30,000 taxable gain cannot have economic effect
since it cannot properly be reflected in the partners' book capital
accounts. Under paragraph (b)(2)(iv)(f) of this section and the special
partners' interests in the partnership rule contained in paragraph
(b)(4)(i) of this section, unless the partnership agreement provides
that $15,000 of such taxable gain will, in accordance with section
704(c) principles, be included in RW's distributive share, the partners'
capital accounts will not be considered maintained in accordance with
paragraph (b)(2)(iv) of this section. The remaining $15,000 of such gain
will, under paragraph (b)(3) of this section, be shared equally between
RW and SK.
Example 15. (i) JB and DK form a limited partnership for the purpose
of purchasing residential real estate to lease. JB, the limited partner,
contributes $13,500, and DK, the
[[Page 477]]
general partner, contributes $1,500. The partnership, which uses the
cash receipts and disbursements method of accounting, purchases a
building for $100,000 (on leased land), incurring a recourse mortgage of
$85,000 that requires the payment of interest only for a period of 3
years. The partnership agreement provides that partnership net taxable
income and loss will be allocated 90 percent to JB and 10 percent to DK,
the partners' capital accounts will be determined and maintained in
accordance with paragraph (b)(2)(iv) of this section, distributions in
liquidation of the partnership (or any partner's interest) will be made
in accordance with the partners' positive capital account balances (as
set forth in paragraph (b)(2)(ii)(b)(2) of this section), and JB is not
required to restore any deficit balance in his capital account, but DK
is so required. The partnership agreement contains a qualified income
offset (as defined in paragraph (b)(2)(ii)(d) of this section). As of
the end of each of the partnership's first 3 taxable years, the items
described in paragraphs (b)(2)(ii)(d)(4), (5), and (6) of this section
are not reasonably expected to cause or increase a deficit balance in
JB's capital account. In the partnership's first taxable year, it has
rental income of $10,000, operating expenses of $2,000, interest expense
of $8,000, and cost recovery deductions of $12,000. Under the
partnership agreement JB and DK are allocated $10,800 and $1,200,
respectively, of the $12,000 net taxable loss incurred in the
partnership's first taxable year.
------------------------------------------------------------------------
JB DK
------------------------------------------------------------------------
Capital account upon formation.................... $13,500 $1,500
Less: year 1 net loss............................. (10,800) (1,200)
---------------------
Capital account at end of year 1.................. $2,700 $300
------------------------------------------------------------------------
The alternate economic effect test contained in paragraph (b)(2)(ii)(d)
of this section is satisfied as of the end of the partnership's first
taxable year. Thus, the allocation made in the partnership's first
taxable year has economic effect.
(ii) Assume the same facts as in (i) and that in the partnership's
second taxable year it again has rental income of $10,000, operating
expenses of $2,000, interest expense of $8,000, and cost recovery
deductions of $12,000. Under the partnership agreement JB and DK are
allocated $10,800 and $1,200, respectively, of the $12,000 net taxable
loss incurred in the partnership's second taxable year.
------------------------------------------------------------------------
JB DK
------------------------------------------------------------------------
Capital account at beginning of year 1............ $2,700 $300
Less: year 2 net loss............................. (10,800) (1,200)
---------------------
Capital account at end of year 2............ ($8,100) ($900)
------------------------------------------------------------------------
Only $2,700 of the $10,800 net taxable loss allocated to JB satisfies
the alternate economic effect test contained in paragraph (b)(2)(ii)(d)
of this section as of the end of the partnership's second taxable year.
The allocation of such $2,700 net taxable loss to JB (consisting of
$2,250 of rental income, $450 of operating expenses, $1,800 of interest
expense, and $2,700 of cost recovery deductions) has economic effect.
The remaining $8,100 of net taxable loss allocated by the partnership
agreement to JB must be reallocated in accordance with the partners'
interests in the partnership. Under paragraph (b)(3)(iii) of this
section, the determination of the partners' interests in the remaining
$8,100 net taxable loss is made by comparing how distributions (and
contributions) would be made if the partnership sold its property at its
adjusted tax basis and liquidated immediately following the end of the
partnership's first taxable year with the results of such a sale and
liquidation immediately following the end of the partnership's second
taxable year. If the partnership's real property were sold for its
$88,000 adjusted tax basis and the partnership were liquidated
immediately following the end of the partnership's first taxable year,
the $88,000 sales proceeds would be used to repay the $85,000 note, and
there would be $3,000 remaining in the partnership, which would be used
to make liquidating distributions to DK and JB of $300 and $2,700,
respectively. If such property were sold for its $76,000 adjusted tax
basis and the partnership were liquidated immediately following the end
of the partnership's second taxable year, DK would be required to
contribute $9,000 to the partnership in order for the partnership to
repay the $85,000 note, and there would be no assets remaining in the
partnership to distribute. A comparison of these outcomes indicates that
JB bore $2,700 and DK $9,300 of the economic burden that corresponds to
the $12,000 net taxable loss. Thus, in addition to the $1,200 net
taxable loss allocated to DK under the partnership agreement, $8,100 of
net taxable loss will be reallocated to DK under paragraph (b)(3)(iii)
of this section. Similarly, for subsequent taxable years, absent an
increase in JB's capital account, all net taxable loss allocated to JB
under the partnership agreement will be reallocated to DK.
(iii) Assume the same facts as in (ii) and that in the partnership's
third taxable year there is rental income of $35,000, operating expenses
of $2,000, interest expense of $8,000, and cost recovery deductions of
$10,000. The capital accounts of the partners maintained on the books of
the partnership do not take into account the reallocation to DK of the
[[Page 478]]
$8,100 net taxable loss in the partnership's second taxable year. Thus,
an allocation of the $15,000 net taxable income $13,500 to JB and $1,500
to DK (as dictated by the partnership agreement and as reflected in the
capital accounts of the partners) does not have economic effect. The
partners' interests in the partnership with respect to such $15,000
taxable gain again is made in the manner described in paragraph (b) (3)
(iii) of this section. If the partnership's real property were sold for
its $76,000 adjusted tax basis and the partnership were liquidated
immediately following the end of the partnership's second taxable year,
DK would be required to contribute $9,000 to the partnership in order
for the partnership to repay the $85,000 note, and there would be no
assets remaining to distribute. If such property were sold for its
$66,000 adjusted tax basis and the partnership were liquidated
immediately following the end of the partnership's third taxable year,
the $91,000 ($66,000 sales proceeds plus $25,000 cash on hand) would be
used to repay the $85,000 note and there would be $6,000 remaining in
the partnership, which would be used to make liquidating distributions
to DK and JB of $600 and $5,400, respectively. Accordingly, under
paragraph (b) (3) (iii) of this section the $15,000 net taxable income
in the partnership's third taxable year will be reallocated $9,600 to DK
(minus $9,000 at end of the second taxable year to positive $600 at end
of the third taxable year) and $5,400 to JB (zero at end of the second
taxable year to positive $5,400 at end of the third taxable year).
Example 16. (i) KG and WN form a limited partnership for the purpose
of investing in improved real estate. KG, the general partner,
contributes $10,000 to the partnership, and WN, the limited partner,
contributes $990,000 to the partnership. The $1,000,000 is used to
purchase an apartment building on leased land. The partnership agreement
provides that (1) the partners' capital accounts will be determined and
maintained in accordance with paragraph (b)(2)(iv) of this section; (2)
cash will be distributed first to WN until such time as he has received
the amount of his original capital contribution ($990,000), next to KG
until such time as he has received the amount of his original capital
contribution ($10,000), and thereafter equally between WN and KG; (3)
partnership net taxable income will be allocated 99 percent to WN and 1
percent to KG until the cumulative net taxable income allocated for all
taxable years is equal to the cumulative net taxable loss previously
allocated to the partners, and thereafter equally between WN and KG; (4)
partnership net taxable loss will be allocated 99 percent to WN and 1
percent to KG, unless net taxable income has previously been allocated
equally between WN and KG, in which case such net taxable loss first
will be allocated equally until the cumulative net taxable loss
allocated for all taxable years is equal to the cumulative net taxable
income previously allocated to the partners; and (5) upon liquidation,
WN is not required to restore any deficit balance in his capital
account, but KG is so required. Since distributions in liquidation are
not required to be made in accordance with the partners' positive
capital account balances, and since WN is not required, upon the
liquidation of his interest, to restore the deficit balance in his
capital account to the partnership, the allocations provided by the
partnership agreement do not have economic effect and will be
reallocated in accordance with the partners' interests in the
partnership under paragraph (b) (3) of this section.
(ii) Assume the same facts as in (i) except that the partnership
agreement further provides that distributions in liquidation of the
partnership (or any partner's interest) are to be made in accordance
with the partners' positive capital account balances (as set forth in
paragraph (b)(2)(ii)(b)(2) of this section). Assume further that the
partnership agreement contains a qualified income offset (as defined in
paragraph (b)(2)(ii)(d) of this section) and that, as of the end of each
partnership taxable year, the items described in paragraphs
(b)(2)(iii)(d) (4), (5), and (6) of this section are not reasonably
expected to cause or increase a deficit balance in WN's capital account.
The allocations provided by the partnership agreement have economic
effect.
Example 17. FG and RP form a partnership with FG contributing cash
of $100 and RP contributing property, with 2 years of cost recovery
deductions remaining, that has an adjusted tax basis of $80 and a fair
market value of $100. The partnership, FG, and RP have calendar taxable
years. The partnership agreement provides that the partners' capital
accounts will be determined and maintained in accordance with paragraph
(b)(2)(iv) of this section, liquidation proceeds will be made in
accordance with capital account balances, and each partner is liable to
restore the deficit balance in his capital account to the partnership
upon liquidation of his interest (as set forth in paragraphs
(b)(2)(ii)(b) (2) and (3) of this section). FG expects to be in a
substantially higher tax bracket than RP in the partnership's first
taxable year. In the partnership's second taxable year, and in
subsequent taxable years, it is expected that both will be in
approximately equivalent tax brackets. The partnership agreement
allocates all items equally except that all $50 of book depreciation is
allocated to FG in the partnership's first taxable year and all $50 of
book depreciation is allocated to RP in the partnership's second taxable
year. If the allocation to FG of all book depreciation in the
partnership's first taxable year is respected, FG would be entitled
under section 704(c) to the entire cost recovery deduction ($40) for
such
[[Page 479]]
year. Likewise, if the allocation to RP of all the book depreciation in
the partnership's second taxable year is respected, RP would be entitled
under section 704(c) to the entire cost recovery deduction ($40) for
such year. The allocation of book depreciation to FG and RP in the
partnership's first 2 taxable years has economic effect within the
meaning of paragraph (b)(2)(ii) of this section. However, the economic
effect of these allocations is not substantial under the test described
in paragraph (b)(2)(iii)(c) of this section since there is a strong
likelihood at the time such allocations became part of the partnership
agreement that at the end of the 2-year period to which such allocations
relate, the net increases and decreases to FG's and RP's capital
accounts will be the same with such allocations as they would have been
in the absence of such allocation, and the total tax liability of FG and
RP for the taxable years to which the section 704(c) determinations
relate would be reduced as a result of the allocations of book
depreciation. As a result the allocations of book depreciation in the
partnership agreement will be disregarded. FG and RP will be allocated
such book depreciation in accordance with the partners' interests in the
partnership under paragraph (b)(3) of this section. Under these facts
the book depreciation deductions will be reallocated equally between the
partners, and section 704(c) will be applied with reference to such
reallocation of book depreciation.
Example 18. (i) WM and JL form a general partnership by each
contributing $300,000 thereto. The partnership uses the $600,000 to
purchase an item of tangible personal property, which it leases out. The
partnership elects under section 48 (q)(4) to reduce the amount of
investment tax credit in lieu of adjusting the tax basis of such
property. The partnership agreement provides that (1) the partners'
capital account will be determined and maintained in accordance with
paragraph (b)(2)(iv) of this section, (2) distributions in liquidation
of the partnership (or any partner's interest) will be made in
accordance with the partners' positive capital account balances (as set
forth in paragraph (b)(2)(ii)(b)(2) of this section), (3) any partner
with a deficit balance in his capital account following the liquidation
of his interest must restore that deficit to the partnership (as set
forth in paragraph (b)(2)(ii)(b)(3) of this section), (4) all income,
gain, loss, and deduction of the partnership will be allocated equally
between the partners, and (5) all non-liquidating distributions of the
partnership will be made equally between the partners. Assume that in
each of the partnership's taxable years, it recognizes operating income
equal to its operating deductions (excluding cost recovery and
depreciation deductions and gain or loss on the sale of its property).
During its first 2 taxable years, the partnership has an additional
$200,000 cost recovery deduction in each year. Pursuant to the
partnership agreement these items are allocated equally between WM and
JL.
------------------------------------------------------------------------
WM JL
------------------------------------------------------------------------
Capital account upon formation.................. $300,000 $300,000
Less: Net loss for years 1 and 2................ (200,000) (200,000)
-----------------------
Capital account at end of year 2.......... $100,000 $100,000
------------------------------------------------------------------------
The allocations made in the partnership's first 2 taxable years have
substantial economic effect.
(ii) Assume the same facts as in (i) and that MK is admitted to the
partnership at the beginning of the partnership's third taxable year. At
the time of his admission, the fair market value of the partnership
property is $600,000. MK contributes $300,000 to the partnership in
exchange for an equal one-third interest in the partnership, and, as
permitted under paragraph (b)(2)(iv)(g), the capital accounts of WM and
JL are adjusted upward to $300,000 each to reflect the fair market value
of partnership property. In addition, the partnership agreement is
modified to provide that depreciation and gain or loss, as computed for
tax purposes, with respect to the partnership property that appreciated
prior to MK's admission will be shared among the partners in a manner
that takes account of the variation between such property's $200,000
adjusted tax basis and its $600,000 book value in accordance with
paragraph (b)(2)(iv)(f) and the special rule contained in paragraph
(b)(4)(i) of this section. Depreciation and gain or loss, as computed
for book purposes, with respect to such property will be allocated
equally among the partners and, in accordance with paragraph
(b)(2)(iv)(g) of this section, will be reflected in the partner's
capital accounts, as will all other partnership income, gain, loss, and
deduction. Since the requirements of (b)(2)(iv)(g) of this section are
satisfied, the capital accounts of the partners (as adjusted) continue
to be maintained in accordance with paragraph (B)(2)(iv) of this
section.
(iii) Assume the same facts as in (ii) and that immediately after
MK's admission to the partnership, the partnership property is sold for
$600,000, resulting in a taxable gain of $400,000 ($600,000 less
$200,000 adjusted tax basis) and no book gain or loss, and the
partnership is liquidated. An allocation of the $400,000 taxable gain
cannot have economic effect because such gain cannot properly be
reflected in the partners' book capital accounts. Consistent with the
special partners' interests in the partnership rule contained in
paragraph (b)(4)(i) of this section, the partnership agreement provides
that the $400,000 taxable gain will, in accordance with section 704(c)
principles, be shared equally between WM and JL.
[[Page 480]]
----------------------------------------------------------------------------------------------------------------
WM JL MK
-----------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3........ $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
Plus: gain.................................... 200,000 0 200,000 0 0 0
-----------------------------------------------------------------
Capital account before liquidation...... $300,000 $300,000 $300,000 $300,000 $300,000 $300,000
----------------------------------------------------------------------------------------------------------------
The $900,000 of partnership cash ($600,000 sales proceeds plus $300,000
contributed by MK) is distributed equally among WM, JL, and MK in
accordance with their adjusted positive capital account balances, each
of which is $300,000.
(iv) Assume the same facts as in (iii) except that prior to
liquidation the property appreciates and is sold for $900,000, resulting
in a taxable gain of $700,000 ($900,000 less $200,000 adjusted tax
basis) and a book gain of $300,000 ($900,000 less $600,000 book value).
Under the partnership agreement the $300,000 of book gain is allocated
equally among the partners, and such allocation has substantial economic
effect.
----------------------------------------------------------------------------------------------------------------
WM JL MK
-----------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3........ $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
Plus: gain.................................... 300,000 100,000 300,000 100,000 100,000 100,000
-----------------------------------------------------------------
Capital account before liquidation...... $400,000 $400,000 $400,000 $400,000 $400,000 $400,000
----------------------------------------------------------------------------------------------------------------
Consistent with the special partners' interests in the partnership rule
contained in paragraph (b)(4)(i) of this section, the partnership
agreement provides that the $700,000 taxable gain is, in accordance with
section 704(c) principles, shared $300,000 to JL, $300,000 to WM, and
$100,000 to MK. This ensures that (1) WM and JL share equally the
$400,000 taxable gain that is attributable to appreciation in the
property that occurred prior to MK's admission to the partnership in the
same manner as it was reflected in their capital accounts upon MK's
admission, and (2) WM, JL, and MK share equally the additional $300,000
taxable gain in the same manner as they shared the $300,000 book gain.
(v) Assume the same facts as in (ii) except that shortly after MK's
admission the property depreciates and is sold for $450,000, resulting
in a taxable gain of $250,000 ($450,000 less $200,000 adjusted tax
basis) and a book loss of $150,000 (450,000 less $600,000 book value).
Under the partnership agreement these items are allocated as follow:
----------------------------------------------------------------------------------------------------------------
WM JL MK
--------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3..... $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
Plus: gain................................. 125,000 0 125,000 0 0 0
Less: loss................................. 0 (50,000) 0 (50,000) 0 (50,000)
--------------------------------------------------------------------
Capital account before liquidation... $225,000 $250,000 $225,000 $250,000 $300,000 $250,000
----------------------------------------------------------------------------------------------------------------
The $150,000 book loss is allocated equally among the partners, and such
allocation has substantial economic effect. Consistent with the special
partners' interests in the partnership rule contained in paragraph
(b)(4)(i) of this section, the partnership agreement provides that the
$250,000 taxable gain is, in accordance with section 704(c) principles,
shared equally between WM and JL. The fact that MK bears an economic
loss of $50,000 without a corresponding taxable loss is attributable
entirely to the ``ceiling rule.'' See paragraph (c)(2) of Sec. 1.704-1.
(vi) Assume the same facts as in (ii) except that the property
depreciates and is sold for $170,000, resulting in a $30,000 taxable
loss ($200,000 adjusted tax basis less $170,000) and a book loss of
$430,000 ($600,000 book value less $170,000). The book loss of $430,000
is allocated equally among the partners ($143,333 each) and has
substantial economic effect. Consistent with the special partners'
interests in the partnership rule contained in paragraph (b)(4)(i) of
this section, the partnership agreement provides that the entire $30,000
taxable loss is, in accordance with
[[Page 481]]
section 704(c) principles, included in MK's distributive share.
----------------------------------------------------------------------------------------------------------------
WM JL MK
---------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3.... $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
Less Loss................................. 0 (143,333) 0 (143,333) (30,000) (143,333)
---------------------------------------------------------------------
Capital account before liquidation........ $100,000 $156,667 $100,000 $156,667 $270,000 $156,667
----------------------------------------------------------------------------------------------------------------
(vii) Assume the same facts as in (ii) and that during the
partnership's third taxable year, the partnership has an additional
$100,000 cost recovery deduction and $300,000 book depreciation
deduction attributable to the property purchased by the partnership in
its first taxable year. The $300,000 book depreciation deduction is
allocated equally among the partners, and that allocation has
substantial economic effect. Consistent with the special partners'
interests in the partnership rule contained in paragraph (b)(4)(i) of
this section, the partnership agreement provides that the $100,000 cost
recovery deduction for the partnership's third taxable year is, in
accordance with section 704(c) principles, included in MK's distributive
share. This is because under these facts those principles require MK to
include the cost recovery deduction for such property in his
distributive share up to the amount of the book depreciation deduction
for such property properly allocated to him.
----------------------------------------------------------------------------------------------------------------
WM JL MK
---------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3.... $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
Less: recovery/depreciation deduction for 0 (100,000) 0 (100,000) (100,000) (100,000)
year 3...................................
---------------------------------------------------------------------
Capital account at end of year 3.......... $100,000 $200,000 $100,000 $200,000 $200,000 $200,000
----------------------------------------------------------------------------------------------------------------
(viii) Assume the same facts as in (vii) except that upon MK's
admission the partnership property has an adjusted tax basis of $220,000
(instead of $200,000), and thus the cost recovery deduction for the
partnership's third taxable year is $110,000. Assume further that upon
MK's admission WM and JL have adjusted capital account balances of
$110,000 and $100,000, respectively. Consistent with the special
partners' interests in the partnership rule contained in paragraph
(b)(4)(i) of this section, the partnership agreement provides that the
excess $10,000 cost recovery deduction ($110,000 less $100,000 included
in MK's distributive share) is, in accordance with section 704 (c)
principles, shared equally between WM and JL and is so included in their
respective distributive shares for the partnership's third taxable year.
(ix) Assume the same facts as in (vii) except that upon MK's
admission the partnership agreement is amended to allocate the first
$400,000 of book depreciation and loss on partnership property equally
between WM and JL and the last $200,000 of such book depreciation and
loss to MK. Assume such allocations have substantial economic effect.
Pursuant to this amendment the $300,000 book depreciation deduction in
the partnership's third taxable year is allocated equally between WM and
JL. Consistent with the special partners' interests in the partnership
rule contained in paragraph (b)(4)(i) of this section, the partnership
agreement provides that the $100,000 cost recovery deduction is, in
accordance with section 704(c) principles, shared equally between WM and
JL. In the partnership's fourth taxable year, it has a $60,000 cost
recovery deduction and a $180,000 book depreciation deduction. Under the
amendment described above, the $180,000 book depreciation deduction is
allocated $50,000 to WM, $50,000 to JL, and $80,000 to MK. Consistent
with the special partners' interests in the partnership rule contained
in paragraph (b)(4)(i) of this section, the partnership agreement
provides that the $60,000 cost recovery deduction is, in accordance with
section 704(c) principles, included entirely in MK's distributive share.
----------------------------------------------------------------------------------------------------------------
WM JL MK
-----------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3.. $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
[[Page 482]]
Less:
(a) recovery/depreciation deduction (50,000) (150,000) (50,000) (150,000) 0 0
for year 3.........................
(b) recovery/depreciation deduction 0 (50,000) 0 (50,000) (60,000) (80,000)
for year 4.........................
-----------------------------------------------------------------------
Capital account at end of year 4.. $50,000 $100,000 $50,000 $100,000 $240,000 $220,000
----------------------------------------------------------------------------------------------------------------
(x) Assume the same facts as in (vii) and that at the beginning of
the partnership's third taxable year, the partnership purchases a second
item of tangible personal property for $300,000 and elects under section
48(q) (4) to reduce the amount of investment tax credit in lieu of
adjusting the tax basis of such property. The partnership agreement is
amended to allocate the first $150,000 of cost recovery deductions and
loss from such property to WM and the next $150,000 of cost recovery
deductions and loss from such property equally between JL and MK. Thus,
in the partnership's third taxable year it has, in addition to the items
specified in (vii), a cost recovery and book depreciation deduction of
$100,000 attributable to the newly acquired property, which is allocated
entirely to WM.
As in (vii), the allocation of the $300,000 book depreciation
attributable to the property purchased in the partnership's first
taxable year equally among the partners has substantial economic effect,
and consistent with the special partners' interests in the partnership
rule contained in paragraph (b)(4)(i) of this section, the partnership
agreement properly provides for the entire $100,000 cost recovery
deduction attributable to such property to be included in MK's
distributive share. Furthermore, the allocation to WM of the $100,000
cost recovery deduction attributable to the property purchased in the
partnership's third taxable year has substantial economic effect.
----------------------------------------------------------------------------------------------------------------
WM JL MK
----------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 3... $100,000 $300,000 $100,000 $300,000 $300,000 $300,000
Less:
(a) recovery/depreciation deduction 0 (100,000) 0 (100,000) (100,000) (100,000)
for property bought in year 1.......
(b) recovery/depreciation deduction (100,000) (100,000) 0 0 0 0
for property bought in year 3.......
----------------------------------------------------------------------
Capital account at end of year 3... 0 $100,000 $100,000 $200,000 $200,000 $200,000
----------------------------------------------------------------------------------------------------------------
(xi) Assume the same facts as in (x) and that at the beginning of
the partnership's fourth taxable year, the properties purchased in the
partnership's first and third taxable years are disposed of for $90,000
and $180,000, respectively, and the partnership is liquidated. With
respect to the property purchased in the first taxable year, there is a
book loss of $210,000 ($300,000 book value less $90,000) and a taxable
loss of $10,000 ($100,000 adjusted tax basis less $90,000). The book
loss is allocated equally among the partners, and such allocation has
substantial economic effect. Consistent with the special partners'
interests in the partnership rule contained in paragraph (b)(4)(i) of
this section, the partnership agreement provides that the taxable loss
of $10,000 will, in accordance with section 704(c) principles, be
included entirely in MK's distributive share. With respect to the
property purchased in the partnership's third taxable year, there is a
book and taxable loss of $20,000. Pursuant to the partnership agreement
this loss is allocated entirely to WM, and such allocation has
substantial economic effect.
----------------------------------------------------------------------------------------------------------------
WM JL MK
----------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 4... 0 $100,000 $100,000 $200,000 $200,000 $200,000
Less:
(a) loss on property bought in year 1 0 (70,000) 0 (70,000) (10,000) (70,000)
(b) loss on property bought in year 3 (20,000) (20,000) 0 0 0 0
----------------------------------------------------------------------
[[Page 483]]
Capital account before liquidation. ($20,000) $10,000 $100,000 $130,000 $190,000 $130,000
----------------------------------------------------------------------------------------------------------------
Partnership liquidation proceeds ($270,000) are properly distributed in
accordance with the partners' adjusted positive book capital account
balances ($10,000 to WM, $130,000 to JL and $130,000 to MK).
(xii) Assume the same facts as in (x) and that in the partnership's
fourth taxable year it has a cost recovery deduction of $60,000 and book
depreciation deduction of $180,000 attributable to the property
purchased in the partnership's first taxable year, and a cost recovery
and book depreciation deduction of $100,000 attributable to the property
purchased in the partnership's third taxable year. The $180,000 book
depreciation deduction attributable to the property purchased in the
partnership's first taxable year is allocated equally among the
partners, and such allocation has substantial economic effect.
Consistent with the special partners' interests in the partnership rule
contained in paragraph (b)(4)(i) of this section, the partnership
agreement provides that the $60,000 cost recovery deduction attributable
to the property purchased in the first taxable year is, in accordance
with section 704(c) principles, included entirely in MK's distributive
share. Furthermore, the $100,000 cost recovery deduction attributable to
the property purchased in the third taxable year is allocated $50,000 to
WM, $25,000 to JL, and $25,000 to MK, and such allocation has
substantial economic effect.
----------------------------------------------------------------------------------------------------------------
WM JL MK
-----------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 4.. 0 $100,000 $100,000 $200,000 $200,000 $200,000
Less:
(a) recovery/depreciation deduction 0 (60,000) 0 (60,000) (60,000) (60,000)
for property bought in year 1......
(b) recovery/depreciation deduction (50,000) (50,000) (25,000) (25,000) (25,000) (25,000)
for property bought in year 3......
-----------------------------------------------------------------------
Capital account at end of year 4.. ($50,000) ($10,000) $75,000 $115,000 $115,000 $115,000
----------------------------------------------------------------------------------------------------------------
At the end of the partnership's fourth taxable year the adjusted tax
bases of the partnership properties acquired in its first and third
taxable years are $40,000 and $100,000, respectively. If the properties
are disposed of at the beginning of the partnership's fifth taxable year
for their adjusted tax bases, there would be no taxable gain or loss, a
book loss of $80,000 on the property purchased in the partnership's
first taxable year ($120,000 book value less $40,000), and cash
available for distribution of $140,000.
----------------------------------------------------------------------------------------------------------------
WM JL MK
---------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of year 5.... ($50,000) ($10,000) $75,000 $115,000 $115,000 $115,000
Less: loss................................ 0 (26,667) 0 (26,667) 0 (26,667)
---------------------------------------------------------------------
Capital account before liquidation.. ($50,000) ($36,667) $75,000 $88,333 $115,000 $88,333
----------------------------------------------------------------------------------------------------------------
If the partnership is then liquidated, the $140,000 of cash on hand plus
the $36,667 balance that WM would be required to contribute to the
partnership (the deficit balance in his book capital account) would be
distributed equally between JL and MK in accordance with their adjusted
positive book capital account balances.
(xiii) Assume the same facts as in (i). Any tax preferences under
section 57(a)(12) attributable to the partnership's cost recovery
deductions in the first 2 taxable years will be taken into account
equally by WM and JL. If the partnership agreement instead provides that
the partnership's cost recovery deductions in its first 2 taxable years
are allocated 25 percent to WM and 75 percent to JL (and such
allocations have substantial economic effect), the tax preferences
attributable to such cost recovery deductions would be taken into
account 25 percent by WM and 75 percent by JL. The conclusion in the
previous sentence is unchanged even if the partnership's operating
expenses (exclusive of
[[Page 484]]
cost recovery and depreciation deductions) exceed its operating income
in each of the partnership's first 2 taxable years, the resulting net
loss is allocated entirely to WM, and the cost recovery deductions are
allocated 25 percent to WM and 75 percent to JL (provided such
allocations have substantial economic effect). If the partnership
agreement instead provides that all income, gain, loss, and deduction
(including cost recovery and depreciations) are allocated equally
between JL and WM, the tax preferences attributable to the cost recovery
deductions would be taken into account equally by JL and WM. In this
case, if the partnership has a $100,000 cost recovery deduction in its
first taxable year and an additional net loss of $100,000 in its first
taxable year (i.e., its operating expenses exceed its operating income
by $100,000) and purports to categorize JL's $100,000 distributive share
of partnership loss as being attributable to the cost recovery deduction
and WM's $100,000 distributive share of partnership loss as being
attributable to the net loss, the economic effect of such allocations is
not substantial, and each partner will be allocated one-half of all
partnership income, gain, loss, and deduction and will take into account
one-half of the tax preferences attributable to the cost recovery
deductions.
Example 19. (i) DG and JC form a general partnership for the purpose
of drilling oil wells. DG contributes an oil lease, which has a fair
market value and adjusted tax basis of $100,000. JC contributes $100,000
in cash, which is used to finance the drilling operations. The
partnership agreement provides that DG is credited with a capital
account of $100,000, and JC is credited with a capital account of
$100,000. The agreement further provides that the partners' capital
accounts will be determined and maintained in accordance with paragraph
(b)(2)(iv) of this section, distributions in liquidation of the
partnership (or any partner's interest) will be made in accordance with
the partners' positive capital account balances, and any partner with a
deficit balance in his capital account following the liquidation of his
interest must restore such deficit to the partnership (as set forth in
paragraphs (b)(2)(ii)(b) (2) and (3) of this section. The partnership
chooses to adjust capital accounts on a simulated cost depletion basis
and elects under section 48(q)(4) to reduce the amount of investment tax
credit in lieu of adjusting the basis of its section 38 property. The
agreement further provides that (1) all additional cash requirements of
the partnership will be borne equally by DG and JC, (2) the deductions
attributable to the property (including money) contributed by each
partner will be allocated to such partner, (3) all other income, gain,
loss, and deductions (and item thereof) will be allocated equally
between DG and JC, and (4) all cash from operations will be distributed
equally between DG and JC. In the partnership's first taxable year
$80,000 of partnership intangible drilling cost deductions and $20,000
of cost recovery deductions on partnership equipment are allocated to
JC, and the $100,000 basis of the lease is, for purposes of the
depletion allowance under sections 611 and 613A(c)(7)(D), allocated to
DG. The allocations of income, gain, loss, and deduction provided in the
partnership agreement have substantial economic effect. Furthermore,
since the allocation of the entire basis of the lease to DG will not
result in capital account adjustments (under paragraph (b)(2)(iv)(k) of
this section) the economic effect of which is insubstantial, and since
all other partnership allocations are recognized under this paragraph,
the allocation of the $100,000 adjusted basis of the lease to DG is,
under paragraph (b)(4)(v) of this section, recognized as being in
accordance with the partners' interests in partnership capital for
purposes of section 613A(c)(7)(D).
(ii) Assume the same facts as in (i) except that the partnership
agreement provides that (1) all additional cash requirements of the
partnership for additional expenses will be funded by additional
contributions from JC, (2) all cash from operations will first be
distributed to JC until the excess of such cash distributions over the
amount of such additional expense equals his initial $100,000
contributions, (3) all deductions attributable to such additional
operating expenses will be allocated to JC, and (4) all income will be
allocated to JC until the aggregate amount of income allocated to him
equals the amount of partnership operating expenses funded by his
initial $100,000 contribution plus the amount of additional operating
expenses paid from contributions made solely by him. The allocations of
income, gain, loss, and deduction provided in partnership agreement have
economic effect. In addition, the economic effect of the allocations
provided in the agreement is substantial. Because the partnership's
drilling activities are sufficiently speculative, there is not a strong
likelihood at the time the disproportionate allocations of loss and
deduction to JC are provided for by the partnership agreement that the
economic effect of such allocations will be largely offset by
allocations of income. In addition, since the allocation of the entire
basis of the lease to DG will not result in capital account adjustments
(under paragraph (b)(2)(iv)(k) of this section) the economic effect of
which is insubstantial, and since all other partnership allocations are
recognized under this paragraph, the allocation of the adjusted basis of
the lease to DG is, under paragraph (b)(4)(v) of this section,
recognized as being in accordance with the partners' interests in
partnership capital under section 613A(c)(7)(D).
(iii) Assume the same facts as in (i) except that all distributions,
including those made
[[Page 485]]
upon liquidation of the partnership, will be made equally between DG and
JC, and no partner is obligated to restore the deficit balance in his
capital account to the partnership following the liquidation of his
interest for distribution to partners with positive capital account
balances. Since liquidation proceeds will be distributed equally between
DG and JC irrespective of their capital account balances, and since no
partner is required to restore the deficit balance in his capital
account to the partnership upon liquidation (in accordance with
paragraph (b)(2)(ii)(b)(3) of this section), the allocations of income,
gain, loss, and deduction provided in the partnership agreement do not
have economic effect and must be reallocated in accordance with the
partners' interests in the partnership under paragraph (b)(3) of this
section. Under these facts all partnership income, gain, loss, and
deduction (and item thereof) will be reallocated equally between JC and
DG. Furthermore, the allocation of the $100,000 adjusted tax basis of
the lease of DG is not, under paragraph (b)(4)(v) of this section,
deemed to be in accordance with the partners' interests in partnership
capital under section 613A(c)(7)(D), and such basis must be reallocated
in accordance with the partners' interests in partnership capital or
income as determined under section 613A(c)(7)(D). The results in this
example would be the same if JC's initial cash contribution were
$1,000,000 (instead of $100,000), but in such case the partners should
consider whether, and to what extent, the provisions of paragraph (b)(1)
of Sec. 1.721-1, and principles related thereto, may be applicable.
(iv) Assume the same facts as in (i) and that for the partnership's
first taxable year the simulated depletion deduction with respect to the
lease is $10,000. Since DG properly was allocated the entire depletable
basis of the lease (such allocation having been recognized as being in
accordance with DG's interest in partnership capital with respect to
such lease), under paragraph (b)(2)(iv)(k)(1) of this section the
partnership's $10,000 simulated depletion deduction is allocated to DG
and will reduce his capital account accordingly. If (prior to any
additional simulated depletion deductions) the lease is sold for
$100,000, paragraph (b)(4)(v) of this section requires that the first
$90,000 (i.e., the partnership's simulated adjusted basis in the lease)
out of the $100,000 amount realized on such sale be allocated to DG (but
does not directly affect his capital account). The partnership agreement
allocates the remaining $10,000 amount realized equally between JC and
DG (but such allocation does not directly affect their capital
accounts). This allocation of the $10,000 portion of amount realized
that exceeds the partnership's simulated adjusted basis in the lease
will be treated as being in accordance with the partners' allocable
shares of such amount realized under section 613A(c)(7)(D) because such
allocation will not result in capital account adjustments (under
paragraph (b)(2)(iv)(k) of this section) the economic effect of which is
insubstantial, and all other partnership allocations are recognized
under this paragraph. Under paragraph (b)(2)(iv)(k) of this section, the
partners' capital accounts are adjusted upward by the partnership's
simulated gain of $10,000 ($100,000 sales price less $90,000 simulated
adjusted basis) in proportion to such partners' allocable shares of the
$10,000 portion of the total amount realized that exceeds the
partnership's $90,000 simulated adjusted basis ($5,000 to JC and $5,000
to DG). If the lease is sold for $50,000, under paragraph (b)(4)(v) of
this section the entire $50,000 amount realized on the sale of the lease
will be allocated to DG (but will not directly affect his capital
account). Under paragraph (b)(2)(iv)(k) of this section the partners'
capital accounts will be adjusted downward by the partnership's $40,000
simulated loss ($50,000 sales price less $90,000 simulated adjusted
basis) in proportion to the partners' allocable shares of the total
amount realized from the property that represents recovery of the
partnership's simulated adjusted basis therein. Accordingly, DG's
capital account will be reduced by such $40,000.
Example 20. (i) A and B form AB, an eligible entity (as defined in
Sec. 301.7701-3(a) of this chapter), treated as a partnership for U.S.
tax purposes. AB operates business M in country X and earns income from
passive investments in country X. Country X imposes a 40 percent tax on
business M income, which tax is a CFTE, but exempts from tax income from
passive investments. In 2007, AB earns $100,000 of income from business
M and $30,000 from passive investments and pays or accrues $40,000 of
country X taxes. For purposes of section 904(d), the income from
business M is general limitation income and the income from the passive
investments is passive income. Pursuant to the partnership agreement,
all partnership items, including CFTEs, from business M are allocated 60
percent to A and 40 percent to B, and all partnership items, including
CFTEs, from passive investments are allocated 80 percent to A and 20
percent to B. Accordingly, A is allocated 60 percent of the business M
income ($60,000) and 60 percent of the country X taxes ($24,000), and B
is allocated 40 percent of the business M income ($40,000) and 40
percent of the country X taxes ($16,000). The income from the passive
investments is allocated $24,000 to A and $6,000 to B. Assume that
allocations of all items other than CFTEs are valid.
(ii) Because the partnership agreement provides for different
allocations of the net income attributable to business M and the passive
investments, the net income attributable to each is income in a separate
CFTE category. See paragraph (b)(4)(viii)(c)(2) of
[[Page 486]]
this section. AB must determine the net income in each CFTE category and
the CFTEs allocable to each CFTE category. Under paragraph
(b)(4)(viii)(c)(3) of this section, the net income in the business M
CFTE category is the $100,000 attributable to business M and the net
income in the passive investments CFTE category is the $30,000
attributable to the passive investments. Under paragraph (b)(4)(viii)(d)
of this section, the $40,000 of country X taxes is allocated to the
business M CFTE category and no portion of the country X taxes is
allocated to the passive investments CFTE category. Therefore, the
$40,000 of country X taxes are related to the $100,000 of net income in
the business M CFTE category. See paragraph (b)(4)(viii)(c)(1) of this
section. Because AB's partnership agreement allocates the net income
from the business M CFTE category 60 percent to A and 40 percent to B,
and the country X taxes 60 percent to A and 40 percent to B, the
allocations of the CFTEs are in proportion to the distributive shares of
income to which the CFTEs relate. Because AB satisfies the requirement
of paragraph (b)(4)(viii) of this section, the allocations of the
country X taxes are deemed to be in accordance with the partners'
interests in the partnership. Because the business M income is general
limitation income, all $40,000 of taxes are attributable to the general
limitation category. See Sec. 1.904-6.
Example 21. (i) A and B form AB, an eligible entity (as defined in
Sec. 301.7701-3(a) of this chapter), treated as a partnership for U.S.
tax purposes. AB operates business M in country X and business N in
country Y. Country X imposes a 40 percent tax on business M income,
country Y imposes a 20 percent tax on business N income, and the country
X and country Y taxes are CFTEs. In 2007, AB has $100,000 of income from
business M and $50,000 of income from business N. Country X imposes
$40,000 of tax on the income from business M and country Y imposes
$10,000 of tax on the income of business N. Pursuant to the partnership
agreement, all partnership items, including CFTEs, from business M are
allocated 75 percent to A and 25 percent to B, and all partnership
items, including CFTEs, from business N are split evenly between A and B
(50 percent each). Accordingly, A is allocated 75 percent of the income
from business M ($75,000), 75 percent of the country X taxes ($30,000),
50 percent of the income from business N ($25,000), and 50 percent of
the country Y taxes ($5,000). B is allocated 25 percent of the income
from business M ($25,000), 25 percent of the country X taxes ($10,000),
50 percent of the income from business N ($25,000), and 50 percent of
the country Y taxes ($5,000). Assume that allocations of all items other
than CFTEs are valid. The income from business M and business N is
general limitation income for purposes of section 904(d).
(ii) Because the partnership agreement provides for different
allocations of the net income attributable to businesses M and N, the
net income attributable to each business is income in a separate CFTE
category even though all of the income is in the general limitation
category for section 904(d) purposes. See paragraph (b)(4)(viii)(c)(2)
of this section. Under paragraph (b)(4)(viii)(c)(3) of this section, the
net income in the business M CFTE category is the $100,000 attributable
to business M and the net income in the business N CFTE category is
$50,000 attributable to business N. Under paragraph (b)(4)(viii)(d) of
this section, the $40,000 of country X taxes is allocated to the
business M CFTE category and the $10,000 of country Y taxes is allocated
to the business N CFTE category. Therefore, the $40,000 of country X
taxes are related to the $100,000 of net income in the business M CFTE
category and the $10,000 of country Y taxes are related to the $50,000
of net income in the business N CFTE category. See paragraph
(b)(4)(viii)(c)(1) of this section. Because AB's partnership agreement
allocates the $40,000 of country X taxes in the same proportion as the
net income in the business M CFTE category, and the $10,000 of country Y
taxes in the same proportion as the net income in the business N CFTE
category, the allocations of the country X taxes and the country Y taxes
are in proportion to the distributive shares of income to which the
foreign taxes relate. Because AB satisfies the requirements of paragraph
(b)(4)(viii) of this section, the allocations of the country X and
country Y taxes are deemed to be in accordance with the partners'
interests in the partnership.
Example 22. (i) The facts are the same as in Example 21, except that
the partnership agreement provides for the following allocations.
Depreciation attributable to machine X, which is used in business M, is
allocated 100 percent to A. B is allocated the first $20,000 of gross
income attributable to business N, which allocation does not result in a
deduction under foreign law. All remaining items, except CFTEs, are
allocated 50 percent to A and 50 percent to B. For 2007, assume that
business M generates $120,000 of income, before taking into account
depreciation attributable to machine X. The total amount of depreciation
attributable to machine X is $20,000, which results in $100,000 of net
income attributable to business M for U.S. and country X tax purposes.
Business N generates $70,000 of gross income and has $20,000 of
expenses, resulting in $50,000 of net income for U.S. and country Y tax
purposes. Pursuant to the partnership agreement, A is allocated $40,000
of the net income attributable to business M ($60,000 of business M
income less $20,000 of depreciation attributable to machine X), and
$15,000 of the net income attributable to business N. B is allocated
$60,000 of the net income attributable
[[Page 487]]
to business M and $35,000 of the net income attributable to business N
($20,000 of gross income, plus $15,000 of net income).
(ii) As a result of the special allocations, the net income
attributable to business M ($100,000) is allocated 40 percent to A and
60 percent to B. The net income attributable to business N ($50,000) is
allocated 30 percent to A and 70 percent to B. Because the partnership
agreement provides for different allocations of the net income
attributable to businesses M and N, the net income from each of
businesses M and N is income in a separate CFTE category. See paragraph
(b)(4)(viii)(c)(2) of this section. Under paragraph (b)(4)(viii)(c)(3)
of this section, the net income in the business M CFTE category is the
$100,000 of net income attributable to business M and the net income in
the business N CFTE category is the $50,000 of net income attributable
to business N. Under paragraph (b)(4)(viii)(d)(1) of this section, the
$40,000 of country X taxes is allocated to the business M CFTE category
and the $10,000 of country Y taxes is allocated to the business N CFTE
category. Therefore, the $40,000 of country X taxes relates to the
$100,000 of net income in the business M CFTE and the $10,000 of country
Y taxes relates to the $50,000 of net income in the business N CFTE
category. See paragraph (b)(4)(viii)(c)(1) of this section. The
allocations of the country X taxes will be in proportion to the
distributive shares of income to which they relate and will be deemed to
be in accordance with the partners' interests in the partnership if such
taxes are allocated 40 percent to A and 60 percent to B. The allocations
of the country Y taxes will be in proportion to the distributive shares
of income to which they relate and will be deemed to be in accordance
with the partners' interests in the partnership if such taxes are
allocated 30 percent to A and 70 percent to B.
(iii) Assume that for 2008, all the facts are the same as in
paragraph (i) of this Example 22, except that business M generates
$60,000 of income before taking into account depreciation attributable
to machine X and country X imposes $16,000 of tax on the $40,000 of net
income attributable to business M. Pursuant to the partnership
agreement, A is allocated 25 percent of the income from business M
($10,000), and B is allocated 75 percent of the income from business M
($30,000). Allocations of the country X taxes will be in proportion to
the distributive shares of income to which they relate and will be
deemed to be in accordance with the partners' interests in the
partnership if such taxes are allocated 25 percent to A and 75 percent
to B.
Example 23. (i) The facts are the same as in Example 21, except that
AB does not actually receive the $50,000 of income accrued in 2007 with
respect to business N until 2008 and AB accrues and receives an
additional $100,000 with respect to business N in 2008. Also assume that
A, B, and AB each report taxable income on an accrual basis for U.S. tax
purposes and AB reports taxable income using the cash receipts and
disbursements method of accounting for country X and country Y purposes.
In 2007, AB pays or accrues country X taxes of $40,000. In 2008, AB pays
or accrues country Y taxes of $30,000. Pursuant to the partnership
agreement, in 2007, A is allocated 75 percent of business M income
($75,000) and country X taxes ($30,000) and 50 percent of business N
income ($25,000). B is allocated 25 percent of business M income
($25,000) and country X taxes ($10,000) and 50 percent of business N
income ($25,000). In 2008, A and B are each allocated 50 percent of the
business N income ($50,000) and country Y taxes ($15,000).
(ii) For 2007, the $40,000 of country X taxes paid or accrued by AB
relates to the $100,000 of net income in the business M CFTE category.
No portion of the country X taxes paid or accrued in 2007 relates to the
$50,000 of net income in the business N CFTE category. For 2008, the net
income in the business N CFTE category is the $100,000 attributable to
business N. See paragraph (b)(4)(viii)(c)(3) of this section. Under
paragraph (b)(4)(viii)(d)(1) of this section, $20,000 of the country Y
tax paid or accrued in 2008 is allocated to the business N CFTE
category. The remaining $10,000 of country Y tax is allocated to the
business N CFTE category under paragraph (b)(4)(viii)(d)(2) of this
section (relating to timing differences). Therefore, the $30,000 of
country Y taxes paid or accrued by AB in 2008 is related to the $100,000
of net income in the business N CFTE category for 2008. See paragraph
(b)(4)(viii)(c)(1) of this section. Because AB's partnership agreement
allocates the $40,000 of country X taxes and the $30,000 of country Y
taxes in proportion to the distributive shares of income to which the
taxes relate, the allocations of the country X and country Y taxes
satisfy the requirements of paragraphs (b)(4)(viii)(a)(1) and (2) of
this section and the allocations of the country X and Y taxes are deemed
to be in accordance with the partners' interests in the partnership
under paragraph (b)(4)(viii) of this section.
Example 24. [Reserved] For further guidance, see Sec. 1.704-
1T(b)(5) Example 24.
Example 25. (i) A contributes $750,000 and B contributes $250,000 to
form AB, an eligible entity (as defined in Sec. 301.7701-3(a) of this
chapter), treated as a partnership for U.S. tax purposes. AB operates
business M in country X. Country X imposes a 20 percent tax on the net
income from business M, which tax is a CFTE. In 2007, AB earns $300,000
of gross income, has deductible expenses of $100,000, and pays or
accrues $40,000 of country X tax. Pursuant to the partnership agreement,
the first $100,000 of gross income each year is allocated to A as a
return
[[Page 488]]
on excess capital contributed by A. All remaining partnership items,
including CFTEs, are split evenly between A and B (50 percent each). The
gross income allocation is not deductible in determining AB's taxable
income under country X law. Assume that allocations of all items other
than CFTEs are valid.
(ii) AB has a single CFTE category because all of AB's net income is
allocated in the same ratio. See paragraph (b)(4)(viii)(c)(2). Under
paragraph (b)(4)(viii)(c)(3) of this section, the net income in the
single CFTE category is $200,000. The $40,000 of taxes is allocated to
the single CFTE category and, thus, related to the $200,000 of net
income in the single CFTE category. In 2007, AB's partnership agreement
allocates $150,000 or 75 percent of the net income to A ($100,000
attributable to the gross income allocation plus $50,000 of the
remaining $100,000 of net income) and $50,000 or 25 percent of the net
income to B. AB's partnership agreement allocates the country X taxes in
accordance with the partners' shares of partnership items remaining
after the $100,000 gross income allocation. Therefore, AB allocates the
country X taxes 50 percent to A ($20,000) and 50 percent to B ($20,000).
AB's allocations of country X taxes are not deemed to be in accordance
with the partners' interests in the partnership under paragraph
(b)(4)(viii) of this section, because they are not in proportion to the
allocations of the distributive shares of income to which the country X
taxes relate. Accordingly, the country X taxes will be reallocated
according to the partners' interests in the partnership. Assuming that
the partners do not reasonably expect to claim a deduction for the CFTE
in determining their U.S. tax liabilities, a reallocation of the CFTEs
under paragraph (b)(3) of this section would be 75 percent to A
($30,000) and 25 percent to B ($10,000). If the reallocation of the
CFTEs causes the partners' capital accounts not to reflect their
contemplated economic arrangement, the partners may need to reallocate
other partnership items to ensure that the tax consequences of the
partnership's allocations are consistent with their contemplated
economic arrangement over the term of the partnership. The Commissioner
will not reallocate other partnership items after the reallocation of
the CFTEs.
(iii) The facts are the same as in paragraph (i) of this Example 25,
except that the $100,000 allocation of gross income is deductible under
country X law and that AB pays or accrues $20,000 of foreign tax. Under
paragraph (b)(4)(viii)(c)(3) of this section, the net income in the
single CFTE category is the $100,000 of net income, determined by
disregarding the $100,000 of gross income that is allocated to A and
deductible in determining AB's taxable income under the law of country
X. See paragraph (b)(4)(viii)(c)(3)(ii) of this section. The $20,000 of
country X tax is allocated to the single CFTE category, and, thus,
related to the $100,000 of net income in the single CFTE category. See
paragraphs (b)(4)(viii)(c)(1) and (d) of this section. No portion of the
tax is related to the $100,000 of gross income allocated to A. Pursuant
to the partnership agreement, AB allocates the country X taxes 50
percent to A ($10,000) and 50 percent to B ($10,000). AB's allocations
of country X taxes are deemed to be in accordance with the partners'
interests in the partnership under paragraph (b)(4)(viii) of this
section.
(iv) The results in (ii) and (iii) of this Example 25 would be the
same assuming all of the facts except that, rather than being a
preferential gross income allocation, the $100,000 was a guaranteed
payment to A within the meaning of section 707(c). See paragraph
(b)(4)(viii)(c)(3) of this section.
Example 26. (i) A and B form AB, an eligible entity (as defined in
Sec. 301.7701-3(a) of this chapter), treated as a partnership for U.S.
tax purposes. AB operates business M in country X and business N in
country Y. A, a U.S. corporation, contributes a building with a fair
market value of $200,000 and an adjusted basis of $50,000 for both U.S.
and country X purposes. The building contributed by A is used in
business M. B, a country X corporation, contributes $800,000 cash. The
AB partnership agreement provides that AB will make allocations under
section 704(c) using the traditional method under Sec. 1.704-3(b) and
that all other items, excluding creditable foreign taxes, will be
allocated 20 percent to A and 80 percent to B. The partnership agreement
provides that creditable foreign taxes will be allocated in proportion
to the partners' distributive shares of net income in each CFTE
category, which shall be determined by taking into accounts items
allocated pursuant to section 704(c). Country X and Country Y impose tax
at a rate of 20 percent and 40 percent, respectively, and such taxes are
CFTEs. In 2007, AB sells the building contributed by A for $200,000,
thereby recognizing taxable income of $150,000 for U.S. and country X
purposes, and recognizes $250,000 of other income from the operation of
business M. AB pays or accrues $80,000 of country X tax on such income.
Also in 2007, business N recognizes $100,000 of taxable income for U.S.
and country Y purposes and pays or accrues $40,000 of country Y tax.
Pursuant to the partnership agreement, A is allocated $200,000 of
business M income ($150,000 of taxable income in accordance with section
704(c) and $50,000 of other business M income) and $40,000 of country X
tax, and 20 percent of both business N income ($20,000) and country Y
tax ($8,000). B is allocated $200,000 of business M income and $40,000
of country X tax and 80 percent of both the business N income ($80,000)
and
[[Page 489]]
country Y tax ($32,000). Assume that allocations of all items other than
CFTEs are valid.
(ii) The net income attributable to business M ($400,000) is
allocated 50 percent to A and 50 percent to B while the net income
attributable to business N ($100,000) is allocated 20 percent to A and
80 percent to B. Because the partnership agreement provides for
different allocations of the net income attributable to businesses M and
N, the net income attributable to each activity is income in a separate
CFTE category. See paragraph (b)(4)(viii)(c)(2) of this section. Under
paragraph (b)(4)(viii)(c)(3) of this section, the net income in the
business M CFTE category is the $400,000 of net income attributable to
business M and the net income in the business N CFTE category is the
$100,000 of net income attributable to business N. Under paragraph
(b)(4)(viii)(d)(1) of this section, the $80,000 of country X tax is
allocated to the business M CFTE category and the $40,000 of country Y
tax is allocated to the business N CFTE category. Therefore, the $80,000
of country X tax relates to the $400,000 of net income in the business M
CFTE category and the $40,000 of country Y tax relates to the $100,000
of net income in the business N CFTE category. See paragraph
(b)(4)(viii)(c)(1) of this section. Because AB's partnership agreement
allocates the $80,000 of country X taxes and $40,000 of country Y taxes
in proportion to the distributive shares of income to which such taxes
relate, the allocations are deemed to be in accordance with the
partners' interests in the partnership under paragraph (b)(4)(viii) of
this section.
Example 27. (i) A, a U.S. citizen, and B, a country X citizen, form
AB, a country X eligible entity (as defined in Sec. 301.7701-3(a) of
this chapter), treated as a partnership for U.S. tax purposes. AB's only
activity is business M, which it operates in country X. Country X
imposes a 40 percent tax on the portion of AB's business M income that
is the allocable share of AB's owners that are not citizens of country
X, which tax is a CFTE. The partnership agreement provides that all
partnership items, excluding CFTEs, from business M are allocated 40
percent to A and 60 percent to B. CFTEs are allocated 100 percent to A.
In 2007, AB earns $100,000 of net income from business M and pays or
accrues $16,000 of country X taxes on A's allocable share of AB's income
($40,000). Pursuant to the partnership agreement, A is allocated 40
percent of the business M income ($40,000) and 100 percent of the
country X taxes ($16,000), and B is allocated 60 percent of the business
M income ($60,000) and no country X taxes. Assume that allocations of
all items other than CFTEs are valid.
(ii) AB has a single CFTE category because all of AB's net income is
allocated in the same ratio. See paragraph (b)(4)(viii)(c)(2). Under
paragraph (b)(4)(viii)(c)(3) of this section, the $40,000 of business M
income that is allocated to A is included in the single CFTE category.
Under paragraph (b)(4)(viii)(c)(3)(ii) of this section, no portion of
the $60,000 allocated to B is included in the single CFTE category.
Under paragraph (b)(4)(viii)(d) of this section, the $16,000 of taxes is
allocated to the single CFTE category.
Therefore, the $16,000 of country X taxes is related to the $40,000
of net income in the single CFTE category that is allocated to A. See
paragraph (b)(4)(viii)(c)(1) of this section. Because AB's partnership
agreement allocates the country X taxes in proportion to the
distributive share of income to which the taxes relate, AB satisfies the
requirement of paragraph (b)(4)(viii) of this section, and the
allocation of the country X taxes is deemed to be in accordance with the
partners' interests in the partnership.
Example 28. (i) B, a domestic corporation, and C, a controlled
foreign corporation, form BC, a partnership organized under the laws of
country X. B and C each contribute 50 percent of the capital of BC. B
and C are wholly-owned subsidiaries of A, a domestic corporation.
Substantially all of BC's income would not be subpart F income if earned
directly by C. The BC partnership agreement provides that, for the first
fifteen years, BC's gross income will be allocated 10 percent to B and
90 percent to C, and BC's deductions and losses will be allocated 90
percent to B and 10 percent to C. The partnership agreement also
provides that, after the initial fifteen year period, BC's gross income
will be allocated 90 percent to B and 10 percent to C, and BC's
deductions and losses will be allocated 10 percent to B and 90 percent
to C.
(ii) Apart from the application of section 704(b), the Commissioner
may reallocate or otherwise not respect the allocations under other
sections. See paragraph (b)(1)(iii) of this section. For example, BC's
allocations of gross income, deductions, and losses may be evaluated and
reallocated (or not respected), as appropriate, if it is determined that
the allocations result in the evasion of tax or do not clearly reflect
income under section 482.
Example 29. PRS is a partnership with three equal partners, A, B,
and C. A is a corporation that is a member of a consolidated group
within the meaning of Sec. 1.1502-1(h). B is a subchapter S corporation
that is wholly owned by D, an individual. C is a partnership with two
partners, E, an individual, and F, a corporation that is a member of a
consolidated group within the meaning of Sec. 1.1502-1(h). For purposes
of paragraph (b)(2)(iii) of this section, in determining the after-tax
economic benefit or detriment of an allocation to A, the tax
consequences that result from the interaction of the allocation to A
with the tax attributes of the consolidated group of which A is a member
must be taken into account. In determining the after-tax
[[Page 490]]
economic benefit or detriment of an allocation to B, the tax
consequences that result from the interaction of the allocation with the
tax attributes of D must be taken into account. In determining the
after-tax economic benefit or detriment of an allocation to C, the tax
consequences that result from the interaction of the allocation with the
tax attributes of E and the consolidated group of which F is a member
must be taken into account.
Example 30. (i) A, a controlled foreign corporation, and B, a
foreign corporation that is not a controlled foreign corporation, form
AB, a partnership organized under the laws of country X. The partnership
agreement contains the provisions necessary to comply with the economic
effect safe harbor of paragraph (b)(2)(ii)(b) of this section. A is
wholly-owned by C, a domestic corporation that is not a member of a
consolidated group within the meaning of Sec. 1.1502-1(h). B is wholly
owned by an individual who is a citizen and resident of country X and is
not related to A. Neither A, B, nor AB, is engaged in a trade or
business in the United States. A and B each contribute 50 percent of the
capital of AB. There is a strong likelihood that in each of the next
several years AB will realize equal amounts of gross income that would
constitute subpart F income if allocated to A, and gross income that
would not constitute subpart F income if allocated to A (``non-subpart F
income''). A and B agree to share bottom-line net income from AB
equally; however, rather than share all items of gross income equally, A
and B agree that B will be allocated all of AB's subpart F income to the
extent of its 50 percent share of bottom-line net income. In year 1, AB
earns $60x of income, $30x of which is subpart F income and is allocated
to B, and $30x of which is non-subpart F income and is allocated to A.
(ii) Although neither A nor B is subject to U.S. tax with respect to
its distributive share of the income of AB, under paragraph
(b)(2)(iii)(d) of this section, the tax attributes of C must be taken
into account with respect to A for purposes of applying the tests
described in paragraphs (b)(2)(iii)(a), (b), and (c) of this section.
The allocations in year 1 have economic effect. However, the economic
effect of the allocations is not substantial under the test described in
paragraph (b)(2)(iii)(b) of this section because there was a strong
likelihood, at the time the allocations became part of the AB
partnership agreement, that the net increases and decreases to A's and
B's capital accounts in year 1 would not differ substantially when
compared to the net increases and decreases to A's and B's capital
accounts for year 1 if the allocations were not contained in the
partnership agreement, and the total tax liability from the income
earned by AB in year 1 (taking into account the tax attributes of the
allocations to C) would be reduced as a result of such allocations.
Under paragraph (b)(3) of this section, the subpart F income and non-
subpart F income earned by AB in year 1 must each be reallocated 50
percent to A and 50 percent to B.
Example 31. (i) In Year 1, A and B each contribute cash of $9,000 to
LLC, a newly formed limited liability company classified as a
partnership for Federal tax purposes, in exchange for 100 units in LLC.
Under the LLC agreement, each unit is entitled to participate equally in
the profits and losses of LLC. LLC uses the cash contributions to
purchase a nondepreciable property, Property A, for $18,000. Later in
Year 1, at a time when Property A is valued at $20,000, LLC issues an
option to C. The option allows C to buy 100 units in LLC for an exercise
price of $15,000 in Year 2. C pays $1,000 to LLC to purchase the option.
Assume that the LLC agreement satisfies the requirements of paragraph
(b)(2) of this section and requires that, on the exercise of a
noncompensatory option, LLC comply with the rules of paragraph
(b)(2)(iv)(s) of this section. Also assume that C's option is a
noncompensatory option under Sec. 1.721-2(f), and that C is not treated
as a partner with respect to the option. Under paragraph
(b)(2)(iv)(f)(5)(iv) of this section, LLC revalues its property in
connection with the issuance of the option. The $2,000 unrealized gain
in Property A is allocated equally to A and B under the LLC agreement.
In Year 2, C exercises the option, contributing the $15,000 exercise
price to the partnership. At the time the option is exercised, the value
of Property A is $35,000.
------------------------------------------------------------------------
Basis Value
------------------------------------------------------------------------
Year 1 After Issuance of the Option
------------------------------------------------------------------------
Assets:
Cash Premium........................................ $1,000 $1,000
Property A.......................................... 18,000 20,000
-----------------
Total............................................. 19,000 21,000
=================
Liabilities and Capital:
Cash Premium........................................ 1,000 1,000
A................................................... 9,000 10,000
B................................................... 9,000 10,000
-----------------
Total............................................. 19,000 21,000
------------------------------------------------------------------------
Year 2 After Exercise of the Option
------------------------------------------------------------------------
Assets:
Property A Cash..................................... 18,000 35,000
Premium............................................. 1,000 1,000
Exercise Price...................................... 15,000 15,000
-----------------
Total............................................. 34,000 51,000
=================
Liabilities and Capital:
A................................................... 9,000 17,000
B................................................... 9,000 17,000
C................................................... 16,000 17,000
[[Page 491]]
Total............................................. 34,000 51,000
------------------------------------------------------------------------
(ii) In lieu of revaluing LLC's property under paragraph
(b)(2)(iv)(f) of this section immediately before the option is
exercised, under paragraph (b)(2)(iv)(s)(1) of this section LLC must
revalue its property under the principles of paragraph (b)(2)(iv)(f) of
this section immediately after the exercise of the option. Under
paragraphs (b)(2)(iv)(b) and (b)(2)(iv)(d)(4) of this section, C's
capital account is credited with the amount paid for the option ($1,000)
and the exercise price of the option ($15,000). Under the LLC agreement,
however, C is entitled to LLC capital corresponding to 100 units of LLC
(\1/3\ of LLC's capital). Immediately after the exercise of the option,
LLC's properties are cash of $16,000 ($1,000 premium and $15,000
exercise price contributed by C) and Property A, which has a value of
$35,000. Thus, the total value of LLC's property is $51,000. C is
entitled to LLC capital equal to \1/3\ of this value, or $17,000. As C
is entitled to $1,000 more LLC capital than C's capital contributions to
LLC, the provisions of paragraph (b)(2)(iv)(s) of this section apply.
(iii) Under paragraph (b)(2)(iv)(s)(2) of this section, LLC must
increase C's capital account from $16,000 to $17,000 by, first,
revaluing LLC property in accordance with the principles of paragraph
(b)(2)(iv)(f) of this section. The unrealized gain in LLC's property
(Property A) which has not been reflected in the capital accounts
previously is $15,000 ($35,000 value less $20,000 book value). Under
paragraph (b)(2)(iv)(s)(2) of this section, the first $1,000 of this
gain must be allocated to C, and the remaining $14,000 of this gain is
allocated equally to A and B in accordance with the LLC agreement.
Because the revaluation of LLC property under paragraph (b)(2)(iv)(s)(2)
of this section increases C's capital account to the amount agreed on by
the members, LLC is not required to make a capital account reallocation
under paragraph (b)(2)(iv)(s)(3) of this section. The $17,000 of
unrealized booked gain in Property A ($35,000 value less $18,000 basis)
is shared $8,000 to each A and B, and $1,000 to C. Under paragraph
(b)(2)(iv)(f)(4) of this section, the tax items from the revalued
property must be allocated in accordance with section 704(c) principles.
----------------------------------------------------------------------------------------------------------------
A B C
-----------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account after exercise................ $9,000 $10,000 $9,000 $10,000 $16,000 $16,000
Revaluation amount............................ 0 7,000 0 7,000 0 1,000
-----------------------------------------------------------------
Capital account after revaluation......... 9,000 17,000 9,000 17,000 16,000 17,000
----------------------------------------------------------------------------------------------------------------
Example 32. (i) Assume the same facts as in Example 31, except that,
in Year 2, before the exercise of the option, LLC sells Property A for
$40,000, recognizing gain of $22,000. LLC does not distribute the sale
proceeds to its partners and it has no other earnings in Year 2. With
the proceeds ($40,000), LLC purchases Property B, a nondepreciable
property. Also assume that C exercises the noncompensatory option at the
beginning of Year 3 and that, at the time C exercises the option, the
value of Property B is $41,000. In Year 3, LLC has gross income of
$3,000 and deductions of $1,500.
------------------------------------------------------------------------
Basis Value
------------------------------------------------------------------------
Year 2 After Purchase of Property B
------------------------------------------------------------------------
Assets:
Cash Premium........................................ $1,000 $1,000
Property B.......................................... 40,000 40,000
-----------------
Total............................................. 41,000 41,000
=================
Liabilities and Capital:
Cash Premium........................................ 1,000 1,000
A................................................... 20,000 20,000
B................................................... 20,000 20,000
-----------------
Total............................................. 41,000 41,000
------------------------------------------------------------------------
Year 3 After Exercise of the Option
------------------------------------------------------------------------
Assets:
Property B.......................................... 40,000 41,000
Cash................................................ 16,000 16,000
-----------------
Total............................................. 56,000 57,000
=================
Liabilities and Capital:
A................................................... 20,000 19,000
B................................................... 20,000 19,000
C................................................... 16,000 19,000
-----------------
Total............................................. 56,000 57,000
------------------------------------------------------------------------
(ii) Under paragraphs (b)(2)(iv)(b) and (b)(2)(iv)(d)(4) of this
section, C's capital account is credited with the amount paid for the
option ($1,000) and the exercise price of the option ($15,000). Under
the LLC agreement, however, C is entitled to LLC capital corresponding
to 100 units of LLC (\1/3\ of LLC's capital). Immediately after the
exercise of the option, LLC's properties are
[[Page 492]]
$16,000 cash ($1,000 option premium and $15,000 exercise price
contributed by C) and Property B, which has a value of $41,000. Thus,
the total value of LLC's property is $57,000. C is entitled to LLC
capital equal to \1/3\ of this amount, or $19,000. As C is entitled to
$3,000 more LLC capital than C's capital contributions to LLC, the
provisions of paragraph (b)(2)(iv)(s) of this section apply.
(iii) In lieu of revaluing LLC's property under paragraph
(b)(2)(iv)(f) of this section immediately before the option is
exercised, under paragraph (b)(2)(iv)(s)(1) of this section LLC must
revalue its property under the principles of paragraph (b)(2)(iv)(f) of
this section immediately after the exercise of the option. Under
paragraph (b)(2)(iv)(s) of this section, LLC must increase C's capital
account from $16,000 to $19,000 by, first, revaluing LLC property in
accordance with the principles of paragraph (b)(2)(iv)(f) of this
section, and allocating all $1,000 of unrealized gain from the
revaluation to C under paragraph (b)(2)(iv)(s)(2). This brings C's
capital account to $17,000.
(iv) Next, under paragraph (b)(2)(iv)(s)(3) of this section, LLC
must reallocate $2,000 of capital from the existing partners (A and B)
to C to bring C's capital account to $19,000 (the capital account
reallocation). As A and B shared equally in all items from Property A,
whose sale gave rise to the need for the capital account reallocation,
each member's capital account is reduced by \1/2\ of the $2,000
reduction ($1,000).
(v) Under paragraph (b)(2)(iv)(s)(4) of this section, beginning in
the year in which the option is exercised, LLC must make corrective
allocations so as to take into account the capital account reallocation.
In Year 3, LLC has gross income of $3,000 and deductions of $1,500.
Under paragraph (b)(4)(x)(c), LLC must allocate the book gross income of
$3,000 equally among A, B, and C, but for tax purposes, however, LLC
must allocate all of its gross income ($3,000) to C. LLC's book and tax
deductions ($1,500) will then be allocated equally among A, B, and C.
The $1,000 unrealized booked gain in Property B has been allocated
entirely to C. Under paragraph (b)(2)(iv)(f)(4) of this section, the tax
items from Property B must be allocated in accordance with section
704(c) principles.
----------------------------------------------------------------------------------------------------------------
A B C
-----------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account after exercise................ $20,000 $20,000 $20,000 $20,000 $16,000 $16,000
Revaluation................................... 0 0 0 0 0 1,000
-----------------------------------------------------------------
Capital account after revaluation......... 20,000 20,000 20,000 20,000 16,000 17,000
Capital account reallocation.................. 0 (1,000) 0 (1,000) 0 2,000
-----------------------------------------------------------------
Capital account after capital account 20,000 19,000 20,000 19,000 16,000 19,000
reallocation.............................
Income allocation (Yr. 3)..................... 0 1,000 0 1,000 3,000 1,000
Deduction allocation (Yr. 3).................. (500) (500) (500) (500) (500) (500)
-----------------------------------------------------------------
Capital account at end of year 3.......... 19,500 19,500 19,500 19,500 18,500 19,500
----------------------------------------------------------------------------------------------------------------
Example 33. (i) In Year 1, D and E each contribute cash of $10,000
to LLC, a newly formed limited liability company classified as a
partnership for Federal tax purposes, in exchange for 100 units in LLC.
Under the LLC agreement, each unit is entitled to participate equally in
the profits and losses of LLC. LLC uses the cash contributions to
purchase two nondepreciable properties, Property A and Property B, for
$10,000 each. Also in Year 1, at a time when Property A and Property B
are still valued at $10,000 each, LLC issues an option to F. The option
allows F to buy 100 units in LLC for an exercise price of $15,000 in
Year 2. F pays $2,000 to LLC to purchase the option. Assume that the LLC
agreement satisfies the requirements of paragraph (b)(2) of this section
and requires that, on the exercise of a noncompensatory option, LLC
comply with the rules of paragraph (b)(2)(iv)(s) of this section. Also
assume that F's option is a noncompensatory option under Sec. 1.721-
2(f), and that F is not treated as a partner with respect to the option.
------------------------------------------------------------------------
Basis Value
------------------------------------------------------------------------
End of Year 1
------------------------------------------------------------------------
Assets:
Cash................................................
Premium............................................. $2,000 $2,000
Property A.......................................... 10,000 10,000
Property B.......................................... 10,000 10,000
-----------------
Total............................................. 22,000 22,000
=================
Liabilities and Capital:
Cash................................................
Premium............................................. 2,000 2,000
D................................................... 10,000 10,000
E................................................... 10,000 10,000
-----------------
Total............................................. 22,000 22,000
------------------------------------------------------------------------
[[Page 493]]
(ii) In year 2, prior to the exercise of F's option, G contributes
$18,000 to LLC for 100 units in LLC. At the time of G's contribution,
Property A has a value of $32,000 and a basis of $10,000, Property B has
a value of $5,000 and a basis of $10,000, and the fair market value of
F's option is $3,000. In year 2, LLC has no item of income, gain, loss,
deduction, or credit.
(iii) Upon G's admission to the partnership, the capital accounts of
D and E (which were $10,000 each prior to G's admission) are, in
accordance with paragraph (b)(2)(iv)(f) of this section, adjusted upward
to reflect their shares of the unrealized appreciation in the
partnership's property. Property A has $22,000 of unrealized gain and
Property B has $5,000 of unrealized loss. Under paragraph
(b)(2)(iv)(f)(1) of this section, the adjustments must be based on the
fair market value of LLC property (taking section 7701(g) into account)
on the date of the adjustment, as determined under paragraph
(b)(2)(iv)(h) of this section. The fair market value of partnership
property must be reduced by the excess of the fair market value of the
option as of the date of the adjustment over the consideration paid by F
to acquire the option ($3,000 -$2,000 = $1,000) (under paragraph
(b)(2)(iv)(h)(2) of this section), but only to the extent of the
unrealized appreciation in LLC property that has not been reflected in
the capital accounts previously ($22,000). This $1,000 reduction is
allocated entirely to Property A, the only asset having unrealized
appreciation not reflected in the capital accounts previously.
Therefore, the book value of Property A is $31,000. Accordingly, the
revaluation adjustments must reflect only $16,000 of the net
appreciation in LLC's property ($21,000 of unrealized gain in Property A
and $5,000 of unrealized loss in Property B). Thus, D's and E's capital
accounts (which were $10,000 each prior to G's admission) must be
adjusted upward (by $8,000) to $18,000 each. The $21,000 of built-in
gain in Property A and the $5,000 of built-in loss in Property B must be
allocated equally between D and E in accordance with section 704(c)
principles.
----------------------------------------------------------------------------------------------------------------
Option
Basis Value adjustment 704(b) Book
----------------------------------------------------------------------------------------------------------------
Assets:
Property A...................................... $10,000 $32,000 ($1,000) $31,000
Property B...................................... 10,000 5,000 0 5,000
Cash............................................ 2,000 2,000 0 2,000
---------------------------------------------------------------
Subtotal.................................... 22,000 39,000 (1,000) 38,000
Cash Contributed by G........................... 18,000 18,000 0 18,000
---------------------------------------------------------------
Total................................... 40,000 57,000 (1,000) 56,000
----------------------------------------------------------------------------------------------------------------
Tax Value 704(b) Book
----------------------------------------------------------------------------------------------------------------
Liabilities and Capital:
Cash Premium (option value)..................................... $ 2,000 $ 3,000 $ 2,000
D............................................................... 10,000 18,000 18,000
E............................................................... 10,000 18,000 18,000
G............................................................... 18,000 18,000 18,000
-----------------------------------------------
Total....................................................... 40,000 57,000 56,000
----------------------------------------------------------------------------------------------------------------
(iv) In year 2, after the admission of G, when Property A still has
a value of $32,000 and a basis of $10,000 and Property B still has a
value of $5,000 and a basis of $10,000, F exercises the option. On the
exercise of the option, F's capital account is credited with the amount
paid for the option ($2,000) and the exercise price of the option
($15,000). Under the LLC agreement, however, F is entitled to LLC
capital corresponding to 100 units of LLC (1/4 of LLC's capital).
Immediately after the exercise of the option, LLC's properties are worth
$72,000 ($15,000 contributed by F, plus the value of LLC property prior
to the exercise of the option, $57,000). F is entitled to LLC capital
equal to 1/4 of this value, or $18,000. As F is entitled to $1,000 more
LLC capital than F's capital contributions to LLC, the provisions of
paragraph (b)(2)(iv)(s) of this section apply.
(v) Under paragraph (b)(2)(iv)(s) of this section, LLC must increase
F's capital account from $17,000 to $18,000 by, first, revaluing LLC
property in accordance with the principles of paragraph (b)(2)(iv)(f) of
this section and allocating the first $1,000 of unrealized gain to F.
The total unrealized gain which has not been reflected in the capital
accounts previously is $1,000 (the difference between the actual value
of Property A, $32,000, and the book value of Property A, $31,000). The
entire $1,000 of book gain is allocated to F under paragraph
(b)(2)(iv)(s)(2) of this section. Because the revaluation of LLC
property under paragraph (b)(2)(iv)(s)(2) of this section increases F's
capital account to the amount agreed on by the members, LLC is
[[Page 494]]
not required to make a capital account reallocation under paragraph
(b)(2)(iv)(s)(3) of this section. The ($5,000) of unrealized booked loss
in Property B has been allocated ($2,500) to each D and E, and the
$22,000 of unrealized booked gain in Property A has been allocated
$10,500 to each D and E, and $1,000 to F. Under paragraph
(b)(2)(iv)(f)(4) of this section, the tax items from Properties A and B
must be allocated in accordance with section 704(c) principles.
----------------------------------------------------------------------------------------------------------------
D E G F
-----------------------------------------------------------------------------
Tax Book Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account after admission of $10,000 $18,000 $10,000 $18,000 $18,000 $18,000 0 0
G................................
Capital account after exercise of 10,000 18,000 10,000 18,000 18,000 18,000 17,000 17,000
F's option.......................
Revaluation....................... 0 0 0 0 0 0 0 1,000
-----------------------------------------------------------------------------
Capital account after 10,000 18,000 10,000 18,000 18,000 18,000 17,000 18,000
revaluation..................
----------------------------------------------------------------------------------------------------------------
Example 34. (i) On the first day of Year 1, H, I, and J form LLC, a
limited liability company classified as a partnership for Federal tax
purposes. H and I each contribute $10,000 cash to LLC for 100 units of
common interest in LLC. J contributes $10,000 cash for a convertible
preferred interest in LLC. J's convertible preferred interest entitles J
to receive an annual allocation and distribution of cumulative LLC net
profits in an amount equal to 10 percent of J's unreturned capital. J's
convertible preferred interest also entitles J to convert, in Year 3,
J's preferred interest into 100 units of common interest. If J converts,
J has the right to the same share of LLC capital as J would have had if
J had held the 100 units of common interest since the formation of LLC.
Under the LLC agreement, each unit of common interest has an equal right
to share in any LLC net profits that remain after payment of the
preferred return. Assume that the LLC agreement satisfies the
requirements of paragraph (b)(2) of this section and requires that, on
the exercise of a noncompensatory option, LLC comply with the rules of
paragraph (b)(2)(iv)(s) of this section. Also assume that J's right to
convert the preferred interest into a common interest qualifies as a
noncompensatory option under Sec. 1.721-2(f), and that, prior to the
exercise of the conversion right, the conversion right is not treated as
a partnership interest.
(ii) LLC uses the $30,000 to purchase Property Z, a property that is
depreciable on a straight-line basis over 15 years. In each of Years 1
and 2, LLC has net income of $2,500, comprised of $4,500 of gross income
and $2,000 of depreciation. It allocates $1,000 of net income to J and
distributes $1,000 to J in each year. LLC allocates the remaining $1,500
of net income equally to H and I in each year but makes no distributions
to H and I.
----------------------------------------------------------------------------------------------------------------
H I J
-----------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account upon formation...................... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Allocation of income Years 1 and 2.................. 1,500 1,500 1,500 1,500 2,000 2,000
Distributions Years 1 and 2......................... 0 0 0 0 (2,000) (2,000)
-----------------------------------------------------------
Capital account at end of Year 2.................... 11,500 11,500 11,500 11,500 10,000 10,000
----------------------------------------------------------------------------------------------------------------
(iii) At the beginning of Year 3, when Property Z has a value of
$38,000 and a basis of $26,000 ($30,000 original basis less $4,000 of
depreciation) and LLC has accumulated undistributed cash of $7,000
($9,000 gross receipts less $2,000 distributions), J converts J's
preferred interest into a common interest. Under paragraphs
(b)(2)(iv)(b) and (b)(2)(iv)(d)(4) of this section, J's capital account
after the conversion equals J's capital account before the conversion,
$10,000. On the conversion of the preferred interest, however, J is
entitled to LLC capital corresponding to 100 units of common interest in
LLC (\1/3\ of LLC's capital). At the time of the conversion, the total
value of LLC property is $45,000. J is entitled to LLC capital equal to
\1/3\ of this value, or $15,000. As J is entitled to $5,000 more LLC
capital than J's capital account immediately after the conversion, the
provisions of paragraph (b)(2)(iv)(s) of this section apply.
------------------------------------------------------------------------
Basis Value
------------------------------------------------------------------------
Assets:
Property Z........................................ $26,000 $38,000
Undistributed Income.............................. 7,000 7,000
---------------------
Total......................................... 33,000 45,000
=====================
Liabilities and Capital:
[[Page 495]]
H................................................. 11,500 15,000
I................................................. 11,500 15,000
J................................................. 10,500 15,000
---------------------
Total......................................... 33,000 45,000
=====================
------------------------------------------------------------------------
(iv) Under paragraph (b)(2)(iv)(s) of this section, LLC must
increase J's capital account from $10,000 to $15,000 by, first,
revaluing LLC property in accordance with the principles of paragraph
(b)(2)(iv)(f) of this section, and allocating the first $5,000 of
unrealized gain from that revaluation to J. The unrealized gain in
Property Z is $12,000 ($38,000 value less $26,000 basis). The first
$5,000 of this unrealized gain must be allocated to J under paragraph
(b)(2)(iv)(s)(2) of this section. The remaining $7,000 of the unrealized
gain must be allocated equally to H and I in accordance with the LLC
agreement. Because the revaluation of LLC property under paragraph
(b)(2)(iv)(s)(2) of this section increases J's capital account to the
amount agreed on by the members, LLC is not required to make a capital
account reallocation under paragraph (b)(2)(iv)(s)(3) of this section.
The $12,000 of unrealized booked gain in Property Z has been allocated
$3,500 to each H and I, and $5,000 to J. Under paragraph
(b)(2)(iv)(f)(4) of this section, the tax items from the revalued
property must be allocated in accordance with section 704(c) principles.
----------------------------------------------------------------------------------------------------------------
H I J
-----------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account prior to conversion................. $11,500 $11,500 $11,500 $11,500 $10,000 $10,000
Revaluation on conversion........................... 0 3,500 0 3,500 0 5,000
-----------------------------------------------------------
Capital account after conversion................ 11,500 15,000 11,500 15,000 10,000 15,000
----------------------------------------------------------------------------------------------------------------
Example 35. (i) On the first day of Year 1, K and L each contribute
cash of $10,000 to LLC, a newly formed limited liability company
classified as a partnership for Federal tax purposes, in exchange for
100 units in LLC. Immediately after its formation, LLC borrows $10,000
from M. Under the terms of the debt instrument, interest of $1,000 is
unconditionally payable at the end of each year and the $10,000 stated
principal is repayable in five years. Throughout the term of the
indebtedness, M has the right to convert the debt instrument into 100
units in LLC. If M converts, M has the right to the same share of LLC
capital as M would have had if M had held 100 units in LLC since the
formation of LLC. Under the LLC agreement, each unit participates
equally in the profits and losses of LLC and has an equal right to share
in LLC capital. Assume that the LLC agreement satisfies the requirements
of paragraph (b)(2) of this section and requires that, on the exercise
of a noncompensatory option, LLC comply with the rules of paragraph
(b)(2)(iv)(s) of this section. Also assume that M's right to convert the
debt into an interest in LLC qualifies as a noncompensatory option under
Sec. 1.721-2(f), and that, prior to the exercise of the conversion
right, M is not treated as a partner with respect to the convertible
debt.
(ii) LLC uses the $30,000 to purchase Property D, property that is
depreciable on a straight-line basis over 15 years. In each of Years 1,
2, and 3, LLC has net income of $2,000, comprised of $5,000 of gross
income, $2,000 of depreciation, and interest expense (representing
payments of interest on the loan from M) of $1,000. LLC allocates this
income equally to K and L but makes no distributions to either K or L.
----------------------------------------------------------------------------------------------------------------
K L M
-----------------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Initial capital account........... $10,000 $10,000 $10,000 $10,000 0 0
Year 1 net income................. 1,000 1,000 1,000 1,000 0 0
Year 2 net income................. 1,000 1,000 1,000 1,000 0 0
Year 3 net income................. 1,000 1,000 1,000 1,000 0 0
-----------------------------------------------------------------------------
Year 4 initial capital account.... 13,000 13,000 13,000 13,000 0 0
----------------------------------------------------------------------------------------------------------------
(iii) At the beginning of Year 4, at a time when property D, LLC's
only asset, has a value of $33,000 and basis of $24,000 ($30,000
original basis less $6,000 depreciation in Years 1 through 3), and LLC
has accumulated undistributed cash of $12,000 ($15,000 gross income less
$3,000 of interest payments) in LLC, M converts the debt into a \1/3\
interest in LLC. Under paragraphs (b)(2)(iv)(b) and
[[Page 496]]
(b)(2)(iv)(d)(4) of this section, M's capital account after the
conversion is the adjusted issue price of the debt immediately before
M's conversion of the debt, $10,000, plus any accrued but unpaid
qualified stated interest on the debt, $0. On the conversion of the
debt, however, M is entitled to receive LLC capital corresponding to 100
units of LLC (\1/3\ of LLC's capital). At the time of the conversion,
the total value of LLC's property is $45,000. M is entitled to LLC
capital equal to \1/3\ of this value, or $15,000. As M is entitled to
$5,000 more LLC capital than M's capital contribution to LLC ($10,000),
the provisions of paragraph (b)(2)(iv)(s) of this section apply.
------------------------------------------------------------------------
Basis Value
------------------------------------------------------------------------
Assets:
Property D.................................... $24,000 $33,000
Cash.......................................... $12,000 $12,000
---------------------
Total..................................... $36,000 $45,000
Liabilities and Capital:
K............................................. $13,000 $15,000
L............................................. $13,000 $15,000
M............................................. $10,000 $15,000
---------------------
$36,000 $45,000
------------------------------------------------------------------------
(iv) Under paragraph (b)(2)(iv)(s) of this section, LLC must
increase M's capital account from $10,000 to $15,000 by, first,
revaluing LLC property in accordance with the principles of paragraph
(b)(2)(iv)(f) of this section, and allocating the first $5,000 of
unrealized gain from that revaluation to M. The unrealized gain in
Property D is $9,000 ($33,000 value less $24,000 basis). The first
$5,000 of this unrealized gain must be allocated to M under paragraph
(b)(2)(iv)(s)(2) of this section, and the remaining $4,000 of the
unrealized gain must be allocated equally to K and L in accordance with
the LLC agreement. Because the revaluation of LLC property under
paragraph (b)(2)(iv)(s)(2) of this section increases M's capital account
to the amount agreed upon by the members, LLC is not required to make a
capital account reallocation under paragraph (b)(2)(iv)(s)(3) of this
section. The $9,000 unrealized booked gain in property D has been
allocated $2,000 to each K and L, and $5,000 to M. Under paragraph
(b)(2)(iv)(f)(4) of this section, the tax items from the revalued
property must be allocated in accordance with section 704(c) principles.
----------------------------------------------------------------------------------------------------------------
K L M
---------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Year 4 capital account prior to exercise.............. $13,000 $13,000 $13,000 $13,000 0 0
Capital account after exercise........................ 13,000 13,000 13,000 13,000 10,000 10,000
Revaluation........................................... 0 2,000 0 2,000 0 5,000
---------------------------------------------------------
Capital account after revaluation................. 13,000 15,000 13,000 15,000 10,000 15,000
----------------------------------------------------------------------------------------------------------------
(c) Contributed property; cross-reference. See Sec. 1.704-3 for
methods of making allocations that take into account precontribution
appreciation or diminution in value of property contributed by a partner
to a partnership.
(d) Limitation on allowance of losses. (1) A partner's distributive
share of partnership loss will be allowed only to the extent of the
adjusted basis (before reduction by current year's losses) of such
partner's interest in the partnership at the end of the partnership
taxable year in which such loss occurred. A partner's share of loss in
excess of his adjusted basis at the end of the partnership taxable year
will not be allowed for that year. However, any loss so disallowed shall
be allowed as a deduction at the end of the first succeeding partnership
taxable year, and subsequent partnership taxable years, to the extent
that the partner's adjusted basis for his partnership interest at the
end of any such year exceeds zero (before reduction by such loss for
such year).
(2) In computing the adjusted basis of a partner's interest for the
purpose of ascertaining the extent to which a partner's distributive
share of partnership loss shall be allowed as a deduction for the
taxable year, the basis shall first be increased under section 705(a)(1)
and decreased under section 705(a)(2), except for losses of the taxable
year and losses previously disallowed. If the partner's distributive
share of the aggregate of items of loss specified in section 702(a) (1),
(2), (3), (8), and (9) exceeds the basis of the partner's interest
computed under the preceding sentence, the limitation on losses under
section 704(d) must be allocated to his distributive share of each such
loss. This allocation shall be determined by taking the proportion that
each loss bears to the total of all
[[Page 497]]
such losses. For purposes of the preceding sentence, the total losses
for the taxable year shall be the sum of his distributive share of
losses for the current year and his losses disallowed and carried
forward from prior years.
(3) For the treatment of certain liabilities of the partner or
partnership, see section 752 and Sec. 1.752-1.
(4) The provisions of this paragraph may be illustrated by the
following examples:
Example 1. At the end of the partnership taxable year 1955,
partnership AB has a loss of $20,000. Partner A's distributive share of
this loss is $10,000. At the end of such year, A's adjusted basis for
his interest in the partnership (not taking into account his
distributive share of the loss) is $6,000. Under section 704(d), A's
distributive share of partnership loss is allowed to him (in his taxable
year within or with which the partnership taxable year ends) only to the
extent of his adjusted basis of $6,000. The $6,000 loss allowed for 1955
decreases the adjusted basis of A's interest to zero. Assume that, at
the end of partnership taxable year 1956, A's share of partnership
income has increased the adjusted basis of A's interest in the
partnership to $3,000 (not taking into account the $4,000 loss
disallowed in 1955). Of the $4,000 loss disallowed for the partnership
taxable year 1955, $3,000 is allowed A for the partnership taxable year
1956, thus again decreasing the adjusted basis of his interest to zero.
If, at the end of partnership taxable year 1957, A has an adjusted basis
of his interest of at least $1,000 (not taking into account the
disallowed loss of $1,000), he will be allowed the $1,000 loss
previously disallowed.
Example 2. At the end of partnership taxable year 1955, partnership
CD has a loss of $20,000. Partner C's distributive share of this loss is
$10,000. The adjusted basis of his interest in the partnership (not
taking into account his distributive share of such loss) is $6,000.
Therefore, $4,000 of the loss is disallowed. At the end of partnership
taxable year 1956, the partnership has no taxable income or loss, but
owes $8,000 to a bank for money borrowed. Since C's share of this
liability is $4,000, the basis of his partnership interest is increased
from zero to $4,000. (See sections 752 and 722, and Sec. Sec. 1.752-1
and 1.722-1.) C is allowed the $4,000 loss, disallowed for the preceding
year under section 704(d), for his taxable year within or with which
partnership taxable year 1956 ends.
Example 3. At the end of partnership taxable year 1955, partner C
has the following distributive share of partnership items described in
section 702(a): Long-term capital loss, $4,000; short-term capital loss,
$2,000; income as described in section 702(a)(9), $4,000. Partner C's
adjusted basis for his partnership interest at the end of 1955, before
adjustment for any of the above items, is $1,000. As adjusted under
section 705(a)(1)(A), C's basis is increased from $1,000 to $5,000 at
the end of the year. C's total distributive share of partnership loss is
$6,000. Since without regard to losses, C has a basis of only $5,000, C
is allowed only $5,000/$6,000 of each loss, that is, $3,333 of his long-
term capital loss, and $1,667 of his short-term capital loss. C must
carry forward to succeeding taxable years $667 as a long-term capital
loss and $333 as a short-term capital loss.
(e) Family partnerships--(1) In general--(i) Introduction. The
production of income by a partnership is attributable to the capital or
services, or both, contributed by the partners. The provisions of
subchapter K, chapter 1 of the Code, are to be read in the light of
their relationship to section 61, which requires, inter alia, that
income be taxed to the person who earns it through his own labor and
skill and the utilization of his own capital.
(ii) Recognition of donee as partner. With respect to partnerships
in which capital is a material income-producing factor, section
704(e)(1) provides that a person shall be recognized as a partner for
income tax purposes if he owns a capital interest in such a partnership
whether or not such interest is derived by purchase or gift from any
other person. If a capital interest in a partnership in which capital is
a material income-producing factor is created by gift, section 704(e)(2)
provides that the distributive share of the donee under the partnership
agreement shall be includible in his gross income, except to the extent
that such distributive share is determined without allowance of
reasonable compensation for services rendered to the partnership by the
donor, and except to the extent that the portion of such distributive
share attributable to donated capital is proportionately greater than
the share of the donor attributable to the donor's capital. For rules of
allocation in such cases, see subparagraph (3) of this paragraph.
(iii) Requirement of complete transfer to donee. A donee or
purchaser of a capital interest in a partnership is not recognized as a
partner under the principles of section 704(e)(1) unless such interest
is acquired in a bona fide transaction, not a mere sham for tax
avoidance or
[[Page 498]]
evasion purposes, and the donee or purchaser is the real owner of such
interest. To be recognized, a transfer must vest dominion and control of
the partnership interest in the transferee. The existence of such
dominion and control in the donee is to be determined from all the facts
and circumstances. A transfer is not recognized if the transferor
retains such incidents of ownership that the transferee has not acquired
full and complete ownership of the partnership interest. Transactions
between members of a family will be closely scrutinized, and the
circumstances, not only at the time of the purported transfer but also
during the periods preceding and following it, will be taken into
consideration in determining the bona fides or lack of bona fides of the
purported gift or sale. A partnership may be recognized for income tax
purposes as to some partners but not as to others.
(iv) Capital as a material income-producing factor. For purposes of
section 704(e)(1), the determination as to whether capital is a material
income-producing factor must be made by reference to all the facts of
each case. Capital is a material income-producing factor if a
substantial portion of the gross income of the business is attributable
to the employment of capital in the business conducted by the
partnership. In general, capital is not a material income-producing
factor where the income of the business consists principally of fees,
commissions, or other compensation for personal services performed by
members or employees of the partnership. On the other hand, capital is
ordinarily a material income-producing factor if the operation of the
business requires substantial inventories or a substantial investment in
plant, machinery, or other equipment.
(v) Capital interest in a partnership. For purposes of section
704(e), a capital interest in a partnership means an interest in the
assets of the partnership, which is distributable to the owner of the
capital interest upon his withdrawal from the partnership or upon
liquidation of the partnership. The mere right to participate in the
earnings and profits of a partnership is not a capital interest in the
partnership.
(2) Basic tests as to ownership--(i) In general. Whether an alleged
partner who is a donee of a capital interest in a partnership is the
real owner of such capital interest, and whether the donee has dominion
and control over such interest, must be ascertained from all the facts
and circumstances of the particular case. Isolated facts are not
determinative; the reality of the donee's ownership is to be determined
in the light of the transaction as a whole. The execution of legally
sufficient and irrevocable deeds or other instruments of gift under
State law is a factor to be taken into account but is not determinative
of ownership by the donee for the purposes of section 704(e). The
reality of the transfer and of the donee's ownership of the property
attributed to him are to be ascertained from the conduct of the parties
with respect to the alleged gift and not by any mechanical or formal
test. Some of the more important factors to be considered in determining
whether the donee has acquired ownership of the capital interest in a
partnership are indicated in subdivisions (ii) to (x), inclusive, of
this subparagraph.
(ii) Retained controls. The donor may have retained such controls of
the interest which he has purported to transfer to the donee that the
donor should be treated as remaining the substantial owner of the
interest. Controls of particular significance include, for example, the
following:
(a) Retention of control of the distribution of amounts of income or
restrictions on the distributions of amounts of income (other than
amounts retained in the partnership annually with the consent of the
partners, including the donee partner, for the reasonable needs of the
business). If there is a partnership agreement providing for a managing
partner or partners, then amounts of income may be retained in the
partnership without the acquiescence of all the partners if such amounts
are retained for the reasonable needs of the business.
(b) Limitation of the right of the donee to liquidate or sell his
interest in the partnership at his discretion without financial
detriment.
(c) Retention of control of assets essential to the business (for
example,
[[Page 499]]
through retention of assets leased to the alleged partnership).
(d) Retention of management powers inconsistent with normal
relationships among partners. Retention by the donor of control of
business management or of voting control, such as is common in ordinary
business relationships, is not by itself to be considered as
inconsistent with normal relationships among partners, provided the
donee is free to liquidate his interest at his discretion without
financial detriment. The donee shall not be considered free to liquidate
his interest unless, considering all the facts, it is evident that the
donee is independent of the donor and has such maturity and
understanding of his rights as to be capable of deciding to exercise,
and capable of exercising, his right to withdraw his capital interest
from the partnership.
The existence of some of the indicated controls, though amounting to
less than substantial ownership retained by the donor, may be considered
along with other facts and circumstances as tending to show the lack of
reality of the partnership interest of the donee.
(iii) Indirect controls. Controls inconsistent with ownership by the
donee may be exercised indirectly as well as directly, for example,
through a separate business organization, estate, trust, individual, or
other partnership. Where such indirect controls exist, the reality of
the donee's interest will be determined as if such controls were
exercisable directly.
(iv) Participation in management. Substantial participation by the
donee in the control and management of the business (including
participation in the major policy decisions affecting the business) is
strong evidence of a donee partner's exercise of dominion and control
over his interest. Such participation presupposes sufficient maturity
and experience on the part of the donee to deal with the business
problems of the partnership.
(v) Income distributions. The actual distribution to a donee partner
of the entire amount or a major portion of his distributive share of the
business income for the sole benefit and use of the donee is substantial
evidence of the reality of the donee's interest, provided the donor has
not retained controls inconsistent with real ownership by the donee.
Amounts distributed are not considered to be used for the donee's sole
benefit if, for example, they are deposited, loaned, or invested in such
manner that the donor controls or can control the use or enjoyment of
such funds.
(vi) Conduct of partnership business. In determining the reality of
the donee's ownership of a capital interest in a partnership,
consideration shall be given to whether the donee is actually treated as
a partner in the operation of the business. Whether or not the donee has
been held out publicly as a partner in the conduct of the business, in
relations with customers, or with creditors or other sources of
financing, is of primary significance. Other factors of significance in
this connection include:
(a) Compliance with local partnership, fictitious names, and
business registration statutes.
(b) Control of business bank accounts.
(c) Recognition of the donee's rights in distributions of
partnership property and profits.
(d) Recognition of the donee's interest in insurance policies,
leases, and other business contracts and in litigation affecting
business.
(e) The existence of written agreements, records, or memoranda,
contemporaneous with the taxable year or years concerned, establishing
the nature of the partnership agreement and the rights and liabilities
of the respective partners.
(f) Filing of partnership tax returns as required by law.
However, despite formal compliance with the above factors, other
circumstances may indicate that the donor has retained substantial
ownership of the interest purportedly transferred to the donee.
(vii) Trustees as partners. A trustee may be recognized as a partner
for income tax purposes under the principles relating to family
partnerships generally as applied to the particular facts of the trust-
partnership arrangement. A trustee who is unrelated to and independent
of the grantor, and who participates as a partner and receives
distribution of the income distributable
[[Page 500]]
to the trust, will ordinarily be recognized as the legal owner of the
partnership interest which he holds in trust unless the grantor has
retained controls inconsistent with such ownership. However, if the
grantor is the trustee, or if the trustee is amenable to the will of the
grantor, the provisions of the trust instrument (particularly as to
whether the trustee is subject to the responsibilities of a fiduciary),
the provisions of the partnership agreement, and the conduct of the
parties must all be taken into account in determining whether the
trustee in a fiduciary capacity has become the real owner of the
partnership interest. Where the grantor (or person amenable to his will)
is the trustee, the trust may be recognized as a partner only if the
grantor (or such other person) in his participation in the affairs of
the partnership actively represents and protects the interests of the
beneficiaries in accordance with the obligations of a fiduciary and does
not subordinate such interests to the interests of the grantor.
Furthermore, if the grantor (or person amenable to his will) is the
trustee, the following factors will be given particular consideration:
(a) Whether the trust is recognized as a partner in business
dealings with customers and creditors, and
(b) Whether, if any amount of the partnership income is not properly
retained for the reasonable needs of the business, the trust's share of
such amount is distributed to the trust annually and paid to the
beneficiaries or reinvested with regard solely to the interests of the
beneficiaries.
(viii) Interests (not held in trust) of minor children. Except where
a minor child is shown to be competent to manage his own property and
participate in the partnership activities in accordance with his
interest in the property, a minor child generally will not be recognized
as a member of a partnership unless control of the property is exercised
by another person as fiduciary for the sole benefit of the child, and
unless there is such judicial supervision of the conduct of the
fiduciary as is required by law. The use of the child's property or
income for support for which a parent is legally responsible will be
considered a use for the parent's benefit. ``Judicial supervision of the
conduct of the fiduciary'' includes filing of such accountings and
reports as are required by law of the fiduciary who participates in the
affairs of the partnership on behalf of the minor. A minor child will be
considered as competent to manage his own property if he actually has
sufficient maturity and experience to be treated by disinterested
persons as competent to enter business dealings and otherwise to conduct
his affairs on a basis of equality with adult persons, notwithstanding
legal disabilities of the minor under State law.
(ix) Donees as limited partners. The recognition of a donee's
interest in a limited partnership will depend, as in the case of other
donated interests, on whether the transfer of property is real and on
whether the donee has acquired dominion and control over the interest
purportedly transferred to him. To be recognized for Federal income tax
purposes, a limited partnership must be organized and conducted in
accordance with the requirements of the applicable State limited-
partnership law. The absence of services and participation in management
by a donee in a limited partnership is immaterial if the limited
partnership meets all the other requirements prescribed in this
paragraph. If the limited partner's right to transfer or liquidate his
interest is subject to substantial restrictions (for example, where the
interest of the limited partner is not assignable in a real sense or
where such interest may be required to be left in the business for a
long term of years), or if the general partner retains any other control
which substantially limits any of the rights which would ordinarily be
exercisable by unrelated limited partners in normal business
relationships, such restrictions on the right to transfer or liquidate,
or retention of other control, will be considered strong evidence as to
the lack of reality of ownership by the donee.
(x) Motive. If the reality of the transfer of interest is
satisfactorily established, the motives for the transaction are
generally immaterial. However, the presence or absence of a tax-
avoidance motive is one of many factors to be considered in determining
the reality
[[Page 501]]
of the ownership of a capital interest acquired by gift.
(3) Allocation of family partnership income--(i) In general. (a)
Where a capital interest in a partnership in which capital is a material
income-producing factor is created by gift, the donee's distributive
share shall be includible in his gross income, except to the extent that
such share is determined without allowance of reasonable compensation
for services rendered to the partnership by the donor, and except to the
extent that the portion of such distributive share attributable to
donated capital is proportionately greater than the distributive share
attributable to the donor's capital. For the purpose of section 704, a
capital interest in a partnership purchased by one member of a family
from another shall be considered to be created by gift from the seller,
and the fair market value of the purchased interest shall be considered
to be donated capital. The ``family'' of any individual, for the purpose
of the preceding sentence, shall include only his spouse, ancestors, and
lineal descendants, and any trust for the primary benefit of such
persons.
(b) To the extent that the partnership agreement does not allocate
the partnership income in accordance with (a) of this subdivision, the
distributive shares of the partnership income of the donor and donee
shall be reallocated by making a reasonable allowance for the services
of the donor and by attributing the balance of such income (other than a
reasonable allowance for the services, if any, rendered by the donee) to
the partnership capital of the donor and donee. The portion of income,
if any, thus attributable to partnership capital for the taxable year
shall be allocated between the donor and donee in accordance with their
respective interests in partnership capital.
(c) In determining a reasonable allowance for services rendered by
the partners, consideration shall be given to all the facts and
circumstances of the business, including the fact that some of the
partners may have greater managerial responsibility than others. There
shall also be considered the amount that would ordinarily be paid in
order to obtain comparable services from a person not having an interest
in the partnership.
(d) The distributive share of partnership income, as determined
under (b) of this subdivision, of a partner who rendered services to the
partnership before entering the Armed Forces of the United States shall
not be diminished because of absence due to military service. Such
distributive share shall be adjusted to reflect increases or decreases
in the capital interest of the absent partner. However, the partners may
by agreement allocate a smaller share to the absent partner due to his
absence.
(ii) Special rules. (a) The provisions of subdivision (i) of this
subparagraph, relating to allocation of family partnership income, are
applicable where the interest in the partnership is created by gift,
indirectly or directly. Where the partnership interest is created
indirectly, the term donor may include persons other than the nominal
transferor. This rule may be illustrated by the following examples:
Example 1. A father gives property to his son who shortly thereafter
conveys the property to a partnership consisting of the father and the
son. The partnership interest of the son may be considered created by
gift and the father may be considered the donor of the son's partnership
interest.
Example 2. A father, the owner of a business conducted as a sole
proprietorship, transfers the business to a partnership consisting of
his wife and himself. The wife subsequently conveys her interest to
their son. In such case, the father, as well as the mother, may be
considered the donor of the son's partnership interest.
Example 3. A father makes a gift to his son of stock in the family
corporation. The corporation is subsequently liquidated. The son later
contributes the property received in the liquidation of the corporation
to a partnership consisting of his father and himself. In such case, for
purposes of section 704, the son's partnership interest may be
considered created by gift and the father may be considered the donor of
his son's partnership interest.
(b) The allocation rules set forth in section 704(e) and subdivision
(i) of this subparagraph apply in any case in which the transfer or
creation of the partnership interest has any of the substantial
characteristics of a gift. Thus, allocation may be required where
transfer of a partnership interest is
[[Page 502]]
made between members of a family (including collaterals) under a
purported purchase agreement, if the characteristics of a gift are
ascertained from the terms of the purchase agreement, the terms of any
loan or credit arrangements made to finance the purchase, or from other
relevant data.
(c) In the case of a limited partnership, for the purpose of the
allocation provisions of subdivision (i) of this subparagraph,
consideration shall be given to the fact that a general partner, unlike
a limited partner, risks his credit in the partnership business.
(4) Purchased interest--(i) In general. If a purported purchase of a
capital interest in a partnership does not meet the requirements of
subdivision (ii) of this subparagraph, the ownership by the transferee
of such capital interest will be recognized only if it qualifies under
the requirements applicable to a transfer of a partnership interest by
gifts. In a case not qualifying under subdivision (ii) of this
subparagraph, if payment of any part of the purchase price is made out
of partnership earnings, the transaction may be regarded in the same
light as a purported gift subject to deferred enjoyment of income. Such
a transaction may be lacking in reality either as a gift or as a bona
fide purchase.
(ii) Tests as to reality of purchased interests. A purchase of a
capital interest in a partnership, either directly or by means of a loan
or credit extended by a member of the family, will be recognized as bona
fide if:
(a) It can be shown that the purchase has the usual characteristics
of an arm's-length transaction, considering all relevant factors,
including the terms of the purchase agreement (as to price, due date of
payment, rate of interest, and security, if any) and the terms of any
loan or credit arrangement collateral to the purchase agreement; the
credit standing of the purchaser (apart from relationship to the seller)
and the capacity of the purchaser to incur a legally binding obligation;
or
(b) It can be shown, in the absence of characteristics of an arm's-
length transaction, that the purchase was genuinely intended to promote
the success of the business by securing participation of the purchaser
in the business or by adding his credit to that of the other
participants.
However, if the alleged purchase price or loan has not been paid or the
obligation otherwise discharged, the factors indicated in (a) and (b) of
this subdivision shall be taken into account only as an aid in
determining whether a bona fide purchase or loan obligation existed.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.704-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 1.704-1T Partner's distributive share (temporary).
(a) Through (b)(1)(ii)(b)(2) [Reserved] For further guidance, see
Sec. 1.704-1(a) through (b)(1)(ii)(b)(2).
(3) Special rules for certain inter-branch payments--(A) In general.
The provisions of Sec. 1.704-1(b)(4)(viii)(c)(3)(ii) and Sec. 1.704-
1(b)(4)(viii)(d)(3) apply for partnership taxable years beginning on or
after January 1, 2012.
(B) Transition rule. Transition relief is provided herein to
partnerships whose agreements were entered into prior to February 14,
2012. In such case, if there has been no material modification to the
partnership agreement on or after February 14, 2012, then the
partnership may apply the provisions of Sec. 1.704-
1(b)(4)(viii)(c)(3)(ii) and Sec. 1.704-1(b)(4)(viii)(d)(3) (revised as
of April 1, 2011). For purposes of this paragraph (b)(1)(ii)(b)(3), any
change in ownership constitutes a material modification to the
partnership agreement. This transition rule does not apply to any
taxable year in which persons bearing a relationship to each other that
is specified in section 267(b) or section 707(b) collectively have the
power to amend the partnership agreement without the consent of any
unrelated party (and all subsequent taxable years).
(b)(1)(iii) through (b)(4)(viii)(d)(2) [Reserved] For further
guidance, see Sec. 1.704-1(b)(1)(iii) through (b)(4)(viii)(d)(2).
(3) Special rules for inter-branch payments. For rules relating to
foreign tax paid or accrued in partnership taxable years beginning
before January 1, 2012
[[Page 503]]
in respect of certain inter-branch payments, see 26 CFR 1.704-
1(b)(4)(viii)(d)(3) (revised as of April 1, 2011).
(b)(4)(ix) through (b)(5) Example 23 [Reserved] For further
guidance, see Sec. 1.704-1(b)(4)(ix) through (b)(5) Example 23.
Example 24. (i) The facts are the same as in Example 21, except that
businesses M and N are conducted by entities (DE1 and DE2, respectively)
that are corporations for country X and Y tax purposes and disregarded
entities for U.S. tax purposes. Also, assume that DE1 makes payments of
$75,000 during 2012 to DE2 that are deductible by DE1 for country X tax
purposes and includible in income of DE2 for country Y tax purposes. As
a result of such payments, DE1 has taxable income of $25,000 for country
X purposes on which $10,000 of taxes are imposed and DE2 has taxable
income of $125,000 for country Y purposes on which $25,000 of taxes are
imposed. For U.S. tax purposes, $100,000 of AB's income is attributable
to the activities of DE1 and $50,000 of AB's income is attributable to
the activities of DE2. Pursuant to the partnership agreement, all
partnership items from business M, excluding CFTEs paid or accrued by
business M, are allocated 75 percent to A and 25 percent to B, and all
partnership items from business N, excluding CFTEs paid or accrued by
business N, are split evenly between A and B (50 percent each).
Accordingly, A is allocated 75 percent of the income from business M
($75,000), and 50 percent of the income from business N ($25,000). B is
allocated 25 percent of the income from business M ($25,000), and 50
percent of the income from business N ($25,000).
(ii) Because the partnership agreement provides for different
allocations of the net income attributable to businesses M and N, the
net income attributable to each of business M and business N is income
in separate CFTE categories. See paragraph (b)(4)(viii)(c)(2) of this
section. Under paragraph (b)(4)(viii)(c)(3) of this section, the
$100,000 of net income attributable to business M is in the business M
CFTE category and the $50,000 of net income attributable to business N
is in the business N CFTE category. Under paragraph (b)(4)(viii)(d)(1)
of this section, the $10,000 of country X taxes is allocated to the
business M CFTE category and $10,000 of the country Y taxes is allocated
to the business N CFTE category. The additional $15,000 of country Y tax
imposed with respect to the inter-branch payment is assigned to the
business M CFTE category because for U.S. tax purposes, the related
$75,000 of income that country Y is taxing is in the business M CFTE
category. Therefore, $25,000 of taxes ($10,000 of country X taxes and
$15,000 of the country Y taxes) is related to the $100,000 of net income
in the business M CFTE category and the other $10,000 of country Y taxes
is related to the $50,000 of net income in the business N CFTE category.
See paragraph (b)(4)(viii)(c)(1) of this section. The allocations of
country X taxes will be in proportion to the distributive shares of
income to which they relate and will be deemed to be in accordance with
the partners' interests in the partnership if such taxes are allocated
75 percent to A and 25 percent to B. The allocations of country Y taxes
will be in proportion to the distributive shares of income to which they
relate and will be deemed to be in accordance with the partners'
interests in the partnership if $15,000 of such taxes is allocated 75
percent to A and 25 percent to B and the other $10,000 of such taxes is
allocated 50 percent to A and 50 percent to B. No inference is intended
with respect to the application of other provisions to arrangements that
involve disregarded payments.
(iii) Assume that the facts are the same as in paragraph (i) of this
Example 24, except that in order to reflect the $75,000 payment from DE1
to DE2, the partnership agreement allocates $75,000 of the income
attributable to business M equally between A and B (50 percent each). In
order to prevent separating the CFTEs from the related foreign income,
the $75,000 payment is treated as a divisible part of the business M
activity and, therefore, a separate activity. See paragraph
(b)(4)(viii)(c)(2)(iii) of this section. Because items from the
disregarded payment and business N are both shared equally between A and
B, the disregarded payment activity and the business N activity are
treated as a single CFTE category. See paragraph (b)(4)(viii)(c)(2)(i)
of this section. Accordingly, $25,000 of net income attributable to
business M is in the business M CFTE category and $75,000 of income of
business M attributable to the disregarded payment and the $50,000 of
net income attributable to business N are in the business N CFTE
category. Under paragraph (b)(4)(viii)(d)(1) of this section, the
$10,000 of country X taxes is allocated to the business M CFTE category
and all $25,000 of the country Y taxes is allocated to the business N
CFTE category. The allocations of country X taxes will be in proportion
to the distributive shares of income to which they relate and will be
deemed to be in accordance with the partners' interests in the
partnership if such taxes are allocated 75 percent to A and 25 percent
to B. The allocations of country Y taxes will be in proportion to the
distributive shares of income to which they relate and will be deemed to
be in accordance with the partners' interests in the partnership if such
taxes are allocated 50 percent to A and 50 percent to B.
[[Page 504]]
Example 25 through (e) [Reserved] For further guidance, see Sec.
1.704-1(b)(5) Example 25 through (e).
(f) Expiration date. The applicability of this section expires on
February 9, 2015.
[T.D. 9577, 77 FR 8134, Feb. 14, 2012]
Sec. 1.704-2 Allocations attributable to nonrecourse liabilities.
(a) Table of contents. This paragraph contains a listing of the
major headings of this Sec. 1.704-2.
Sec. 1.704-2 Allocations attributable to nonrecourse liabilities.
(a) Table of contents.
(b) General principles and definitions.
(1) Definition of and allocations of nonrecourse deductions.
(2) Definition of and allocations pursuant to a minimum gain
chargeback.
(3) Definition of nonrecourse liability.
(4) Definition of partner nonrecourse debt.
(c) Amount of nonrecourse deductions.
(d) Partnership minimum gain.
(1) Amount of partnership minimum gain.
(2) Property subject to more than one liability.
(i) In general.
(ii) Allocating liabilities.
(3) Partnership minimum gain if there is a book/tax disparity.
(4) Special rule for year of revaluation.
(e) Requirements to be satisfied.
(f) Minimum gain chargeback requirement.
(1) In general.
(2) Exception for certain conversions and refinancings.
(3) Exception for certain capital contributions.
(4) Waiver for certain income allocations that fail to meet minimum
gain chargeback requirement if minimum gain chargeback distorts economic
arrangement.
(5) Additional exceptions.
(6) Partnership items subject to the minimum gain chargeback
requirement.
(7) Examples.
(g) Shares of partnership minimum gain.
(1) Partner's share of partnership minimum gain.
(2) Partner's share of the net decrease in partnership minimum gain.
(3) Conversions of recourse or partner nonrecourse debt into
nonrecourse debt.
(h) Distribution of nonrecourse liability proceeds allocable to an
increase in partnership minimum gain.
(1) In general.
(2) Distribution allocable to nonrecourse liability proceeds.
(3) Option when there is an obligation to restore.
(4) Carryover to immediately succeeding taxable year.
(i) Partnership nonrecourse liabilities where a partner bears the
economic risk of loss.
(1) In general.
(2) Definition of and determination of partner nonrecourse
deductions.
(3) Determination of partner nonrecourse debt minimum gain.
(4) Chargeback of partner nonrecourse debt minimum gain.
(5) Partner's share of partner nonrecourse debt minimum gain.
(6) Distribution of partner nonrecourse debt proceeds allocable to
an increase in partner nonrecourse debt minimum gain.
(j) Ordering rules.
(1) Treatment of partnership losses and deductions.
(i) Partner nonrecourse deductions.
(ii) Partnership nonrecourse deductions.
(iii) Carryover to succeeding taxable year.
(2) Treatment of partnership income and gains.
(i) Minimum gain chargeback.
(ii) Chargeback attributable to decrease in partner nonrecourse debt
minimum gain.
(iii) Carryover to succeeding taxable year.
(k) Tiered partnerships.
(1) Increase in upper-tier partnership's minimum gain.
(2) Decrease in upper-tier partnership's minimum gain.
(3) Nonrecourse debt proceeds distributed from the lower-tier
partnership to the upper-tier partnership.
(4) Nonrecourse deductions of lower-tier partnership treated as
depreciation by upper-tier partnership.
(5) Coordination with partner nonrecourse debt rules.
(l) Effective dates.
(1) In general.
(i) Prospective application.
(ii) Partnerships subject to temporary regulations.
(iii) Partnerships subject to former regulations.
(2) Special rule applicable to pre-January 30, 1989, related party
nonrecourse debt.
(3) Transition rule for pre-March 1, 1984, partner nonrecourse debt.
(4) Election.
(m) Examples.
(b) General principles and definitions--(1) Definition of and
allocations of nonrecourse deductions. Allocations of losses,
deductions, or section 705(a)(2)(B) expenditures attributable to
partnership nonrecourse liabilities (``nonrecourse deductions'') cannot
have economic effect because the creditor alone bears any economic
burden that corresponds to those allocations.
[[Page 505]]
Thus, nonrecourse deductions must be allocated in accordance with the
partners' interests in the partnership. Paragraph (e) of this section
provides a test that deems allocations of nonrecourse deductions to be
in accordance with the partners' interests in the partnership. If that
test is not satisfied, the partners' distributive shares of nonrecourse
deductions are determined under Sec. 1.704-1(b)(3), according to the
partners' overall economic interests in the partnership. See also
paragraph (i) of this section for special rules regarding the allocation
of deductions attributable to nonrecourse liabilities for which a
partner bears the economic risk of loss (as described in paragraph
(b)(4) of this section).
(2) Definition of and allocations pursuant to a minimum gain
chargeback. To the extent a nonrecourse liability exceeds the adjusted
tax basis of the partnership property it encumbers, a disposition of
that property will generate gain that at least equals that excess
(``partnership minimum gain''). An increase in partnership minimum gain
is created by a decrease in the adjusted tax basis of property
encumbered by a nonrecourse liability below the amount of that liability
and by a partnership nonrecourse borrowing that exceeds the adjusted tax
basis of the property encumbered by the borrowing. Partnership minimum
gain decreases as reductions occur in the amount by which the
nonrecourse liability exceeds the adjusted tax basis of the property
encumbered by the liability. Allocations of gain attributable to a
decrease in partnership minimum gain (a ``minimum gain chargeback,'' as
required under paragraph (f) of this section) cannot have economic
effect because the gain merely offsets nonrecourse deductions previously
claimed by the partnership. Thus, to avoid impairing the economic effect
of other allocations, allocations pursuant to a minimum gain chargeback
must be made to the partners that either were allocated nonrecourse
deductions or received distributions of proceeds attributable to a
nonrecourse borrowing. Paragraph (e) of this section provides a test
that, if met, deems allocations of partnership income pursuant to a
minimum gain chargeback to be in accordance with the partners' interests
in the partnership. If property encumbered by a nonrecourse liability is
reflected on the partnership's books at a value that differs from its
adjusted tax basis, paragraph (d)(3) of this section provides that
minimum gain is determined with reference to the property's book basis.
See also paragraph (i)(4) of this section for special rules regarding
the minimum gain chargeback requirement for partner nonrecourse debt.
(3) Definition of nonrecourse liability. Nonrecourse liability means
a nonrecourse liability as defined in Sec. 1.752-1(a)(2) or a Sec.
1.752-7 liability (as defined in Sec. 1.752-7(b)(3)(i)) assumed by the
partnership from a partner on or after June 24, 2003.
(4) Definition of partner nonrecourse debt. Partner nonrecourse debt
or partner nonrecourse liability means any partnership liability to the
extent the liability is nonrecourse for purposes of Sec. 1.1001-2, and
a partner or related person (within the meaning of Sec. 1.752-4(b))
bears the economic risk of loss under Sec. 1.752-2 because, for
example, the partner or related person is the creditor or a guarantor.
(c) Amount of nonrecourse deductions. The amount of nonrecourse
deductions for a partnership taxable year equals the net increase in
partnership minimum gain during the year (determined under paragraph (d)
of this section), reduced (but not below zero) by the aggregate
distributions made during the year of proceeds of a nonrecourse
liability that are allocable to an increase in partnership minimum gain
(determined under paragraph (h) of this section). See paragraph (m),
Examples (1)(i) and (vi), (2), and (3) of this section. However,
increases in partnership minimum gain resulting from conversions,
refinancings, or other changes to a debt instrument (as described in
paragraph (g)(3)) do not generate nonrecourse deductions. Generally,
nonrecourse deductions consist first of certain depreciation or cost
recovery deductions and then, if necessary, a pro rata portion of other
partnership losses, deductions, and section 705(a)(2)(B) expenditures
for that year; excess nonrecourse deductions are carried over. See
paragraphs (j)(1) (ii) and
[[Page 506]]
(iii) of this section for more specific ordering rules. See also
paragraph (m), Example (1)(iv) of this section.
(d) Partnership minimum gain--(1) Amount of partnership minimum
gain. The amount of partnership minimum gain is determined by first
computing for each partnership nonrecourse liability any gain the
partnership would realize if it disposed of the property subject to that
liability for no consideration other than full satisfaction of the
liability, and then aggregating the separately computed gains. The
amount of partnership minimum gain includes minimum gain arising from a
conversion, refinancing, or other change to a debt instrument, as
described in paragraph (g)(3) of this section, only to the extent a
partner is allocated a share of that minimum gain. For any partnership
taxable year, the net increase or decrease in partnership minimum gain
is determined by comparing the partnership minimum gain on the last day
of the immediately preceding taxable year with the partnership minimum
gain on the last day of the current taxable year. See paragraph (m),
Examples (1) (i) and (iv), (2), and (3) of this section.
(2) Property subject to more than one liability. (i) In general. If
property is subject to more than one liability, only the portion of the
property's adjusted tax basis that is allocated to a nonrecourse
liability under paragraph (d)(2)(ii) of this section is used to compute
minimum gain with respect to that liability.
(ii) Allocating liabilities. If property is subject to two or more
liabilities of equal priority, the property's adjusted tax basis is
allocated among the liabilities in proportion to their outstanding
balances. If property is subject to two or more liabilities of unequal
priority, the adjusted tax basis is allocated first to the liability of
the highest priority to the extent of its outstanding balance and then
to each liability in descending order of priority to the extent of its
outstanding balance, until fully allocated. See paragraph (m), Example
(1) (v) and (vii) of this section.
(3) Partnership minimum gain if there is a book/tax disparity. If
partnership property subject to one or more nonrecourse liabilities is,
under Sec. 1.704-1(b)(2)(iv) (d), (f), or (r), reflected on the
partnership's books at a value that differs from its adjusted tax basis,
the determinations under this section are made with reference to the
property's book value. See section 704(c) and Sec. 1.704-1(b)(4)(i) for
principles that govern the treatment of a partner's share of minimum
gain that is eliminated by the revaluation. See also paragraph (m),
Example (3) of this section.
(4) Special rule for year of revaluation. If the partners' capital
accounts are increased pursuant to Sec. 1.704-1(b)(2)(iv) (d), (f), or
(r) to reflect a revaluation of partnership property subject to a
nonrecourse liability, the net increase or decrease in partnership
minimum gain for the partnership taxable year of the revaluation is
determined by:
(i) First calculating the net decrease or increase in partnership
minimum gain using the current year's book values and the prior year's
partnership minimum gain amount; and
(ii) Then adding back any decrease in minimum gain arising solely
from the revaluation.
See paragraph (m), Example (3)(iii) of this section. If the partners'
capital accounts are decreased to reflect a revaluation, the net
increases or decreases in partnership minimum gain are determined in the
same manner as in the year before the revaluation, but by using book
values rather than adjusted tax bases. See section 7701(g) and Sec.
1.704-1(b)(2)(iv)(f)(1) (property being revalued cannot be booked down
below the amount of any nonrecourse liability to which the property is
subject).
(e) Requirements to be satisfied. Allocations of nonrecourse
deductions are deemed to be in accordance with the partners' interests
in the partnership only if--
(1) Throughout the full term of the partnership requirements (1) and
(2) of Sec. 1.704-1(b)(2)(ii)(b) are satisfied (i.e., capital accounts
are maintained in accordance with Sec. 1.704-1(b)(2)(iv) and
liquidating distributions are required to be made in accordance with
positive capital account balances), and requirement (3) of either Sec.
1.704-1(b)(2)(ii)(b) or Sec. 1.704-1(b)(2)(ii)(d) is satisfied (i.e.,
partners with deficit capital accounts
[[Page 507]]
have an unconditional deficit restoration obligation or agree to a
qualified income offset);
(2) Beginning in the first taxable year of the partnership in which
there are nonrecourse deductions and thereafter throughout the full term
of the partnership, the partnership agreement provides for allocations
of nonrecourse deductions in a manner that is reasonably consistent with
allocations that have substantial economic effect of some other
significant partnership item attributable to the property securing the
nonrecourse liabilities;
(3) Beginning in the first taxable year of the partnership that it
has nonrecourse deductions or makes a distribution of proceeds of a
nonrecourse liability that are allocable to an increase in partnership
minimum gain, and thereafter throughout the full term of the
partnership, the partnership agreement contains a provision that
complies with the minimum gain chargeback requirement of paragraph (f)
of this section; and
(4) All other material allocations and capital account adjustments
under the partnership agreement are recognized under Sec. 1.704-1(b)
(without regard to whether allocations of adjusted tax basis and amount
realized under section 613A(c)(7)(D) are recognized under Sec. 1.704-
1(b)(4)(v)).
(f) Minimum gain chargeback requirement--(1) In general. If there is
a net decrease in partnership minimum gain for a partnership taxable
year, the minimum gain chargeback requirement applies and each partner
must be allocated items of partnership income and gain for that year
equal to that partner's share of the net decrease in partnership minimum
gain (within the meaning of paragraph (g)(2)).
(2) Exception for certain conversions and refinancings. A partner is
not subject to the minimum gain chargeback requirement to the extent the
partner's share of the net decrease in partnership minimum gain is
caused by a recharacterization of nonrecourse partnership debt as
partially or wholly recourse debt or partner nonrecourse debt, and the
partner bears the economic risk of loss (within the meaning of Sec.
1.752-2) for the liability.
(3) Exception for certain capital contributions. A partner is not
subject to the minimum gain chargeback requirement to the extent the
partner contributes capital to the partnership that is used to repay the
nonrecourse liability or is used to increase the basis of the property
subject to the nonrecourse liability, and the partner's share of the net
decrease in partnership minimum gain results from the repayment or the
increase to the property's basis. See paragraph (m), Example (1)(iv) of
this section.
(4) Waiver for certain income allocations that fail to meet minimum
gain chargeback requirement if minimum gain chargeback distorts economic
arrangement. In any taxable year that a partnership has a net decrease
in partnership minimum gain, if the minimum gain chargeback requirement
would cause a distortion in the economic arrangement among the partners
and it is not expected that the partnership will have sufficient other
income to correct that distortion, the Commissioner has the discretion,
if requested by the partnership, to waive the minimum gain chargeback
requirement. The following facts must be demonstrated in order for a
request for a waiver to be considered:
(i) The partners have made capital contributions or received net
income allocations that have restored the previous nonrecourse
deductions and the distributions attributable to proceeds of a
nonrecourse liability; and
(ii) The minimum gain chargeback requirement would distort the
partners' economic arrangement as reflected in the partnership agreement
and as evidenced over the term of the partnership by the partnership's
allocations and distributions and the partners' contributions.
(5) Additional exceptions. The Commissioner may, by revenue ruling,
provide additional exceptions to the minimum gain chargeback
requirement.
(6) Partnership items subject to the minimum gain chargeback
requirement. Any minimum gain chargeback required for a partnership
taxable year consists first of a pro rata portion of certain gains
recognized from the disposition of partnership property subject to one
[[Page 508]]
or more partnership nonrecourse liabilities and income from the
discharge of indebtedness relating to one or more partnership
nonrecourse liabilities to which partnership property is subject, and
then, if necessary, consists of a pro rata portion of the partnership's
other items of income and gain for that year. If the amount of the
minimum gain chargeback requirement exceeds the partnership's income and
gains for the taxable year, the excess carries over. See paragraphs
(j)(2)(i) and (j)(2)(iii) of this section for more specific ordering
rules.
(7) Examples. The following examples illustrate the provisions in
Sec. 1.704-2(f).
Example 1. Partnership AB consists of two partners, limited partner
A and general partner B. Partner A contributes $90 and Partner B
contributes $10 to the partnership. The partnership agreement has a
minimum gain chargeback provision and provides that, except as otherwise
required by section 704(c), all losses will be allocated 90 percent to A
and 10 percent to B; and that all income will be allocated first to
restore previous losses and thereafter 50 percent to A and 50 percent to
B. Distributions are made first to return initial capital to the
partners and then 50 percent to A and 50 percent to B. Final
distributions are made in accordance with capital account balances. The
partnership borrows $200 on a nonrecourse basis from an unrelated third
party and purchases an asset for $300. The partnership's only tax item
for each of the first three years in $100 of depreciation on the asset.
A's and B's shares of minimum gain (under paragraph (g) of this section)
and deficit capital account balances are $180 and $20 respectively at
the end of the third year. In the fourth year, the partnership earns
$400 of net operating income and allocates the first $300 to restore the
previous losses (i.e., $270 to A and $30 to B); the last $100 is
allocated $50 each. The partnership distributes $200 of the available
cash that same year; the first $100 is distributed $90 to A and $10 to B
to return their capital contributions; the last $100 is distributed $50
each to reflect their ratio for sharing profits.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account on formation.......................... $90 $10
Less: Net loss in years 1-3....................... ($270) ($30)
-----------------
Capital account at end of year 3...................... ($180) ($20)
Allocation of operating income to restore nonrecourse $180 $20
deductions...........................................
=================
Allocation of operating income to restore capital $90 $10
contributions........................................
Allocation of operating income to reflect profits..... $50 $50
-----------------
Capital accounts after allocation of operating income. $140 $60
Distribution reflecting capital contribution.......... ($90) ($10)
Distribution in profit-sharing ratio.................. ($50) ($50)
-----------------
Capital accounts following distribution............... ($0) ($0)
------------------------------------------------------------------------
In the fifth year, the partnership sells the property for $300 and
realizes $300 of gain. $200 of the proceeds are used to pay the
nonrecourse lender. The partnership has $300 to distribute, and the
partners expect to share that equally. Absent a waiver under paragraph
(f)(4) of this section, the minimum gain chargeback would require the
partnership to allocate the first $200 of the gain $180 to A and $20 to
B, which would distort their economic arrangement. This allocation,
together with the allocation of the $100 profit $50 to each partner,
would result in A having a positive capital account balance of $230 and
B having a positive capital account balance of $70. The allocation of
income in year 4 in effect anticipated the minimum gain chargeback that
did not occur until year 5. Assuming the partnership would not have
sufficient other income to correct the distortion that would otherwise
result, the partnership may request that the Commissioner exercise his
or her discretion to waive the minimum gain chargeback requirement and
recognize allocations that would allow A and B to share equally the gain
on the sale of the property. These allocations would bring the partners'
capital accounts to $150 each, allowing them to share the last $300
equally. The Commissioner may, in his or her discretion, permit this
allocation pursuant to paragraph (f)(4) of this section because the
minimum gain chargeback would distort the partners' economic arrangement
over the term of the partnership as reflected in the partnership
agreement and as evidenced by the partners' contributions and the
partnership's allocations and distributions.
Example 2. A and B form a partnership, contribute $25 each to the
partnership's capital, and agree to share all losses and profits 50
percent each. Neither partner has an unconditional deficit restoration
obligation and all the requirements in paragraph (e) of this section are
met. The partnership obtains a nonrecourse loan from an unrelated third
party of $100 and purchases two assets, stock for $50 and depreciable
property for $100. The nonrecourse loan is secured by the partnership's
depreciable property. The partnership generates $20 of depreciation in
each of the first five years as its only tax item. These deductions are
properly treated as nonrecourse deductions and the allocation of these
deductions 50 percent to A and 50 percent to B is deemed to be in
accordance with the partners' interests in the partnership. At the end
of year five, A and B each have a $25
[[Page 509]]
deficit capital account and a $50 share of partnership minimum gain. In
the beginning of year six, (at the lender's request), A guarantees the
entire nonrecourse liability. Pursuant to paragraph (d)(1) of this
section, the partnership has a net decrease in minimum gain of $100 and
under paragraph (g)(2) of this section, A's and B's shares of that net
decrease are $50 each. Under paragraph (f)(1) of this section (the
minimum gain chargeback requirement), B is subject to a $50 minimum gain
chargeback. Because the partnership has no gross income in year six, the
entire $50 carries over as a minimum gain chargeback requirement to
succeeding taxable years until their is enough income to cover the
minimum gain chargeback requirement. Under the exception to the minimum
gain chargeback in paragraph (f)(2) of this section, A is not subject to
a minimum gain chargeback for A's $50 share of the net decrease because
A bears the economic risk of loss for the liability. Instead, A's share
of partner nonrecourse debt minimum gain is $50 pursuant to paragraph
(i)(3) of this section. In year seven, the partnership earns $100 of net
operating income and uses the money to repay the entire $100 nonrecourse
debt (that A has guaranteed). Under paragraph (i)(3) of this section,
the partnership has a net decrease in partner nonrecourse debt minimum
gain of $50. B must be allocated $50 of the operating income pursuant to
the carried over minimum gain chargeback requirement; pursuant to
paragraph (i)(4) of this section, the other $50 of operating income must
be allocated to A as a partner nonrecourse debt minimum gain chargeback.
(g) Shares of partnership minimum gain--(1) Partner's share of
partnership minimum gain. Except as increased in paragraph (g) (3) of
this section, a partner's share of partnership minimum gain at the end
of any partnership taxable year equals:
(i) The sum of nonrecourse deductions allocated to that partner (and
to that partner's predecessors in interest) up to that time and the
distributions made to that partner (and to that partner's predecessors'
in interest) up to that time of proceeds of a nonrecourse liability
allocable to an increase in partnership minimum gain (see paragraph
(h)(1) of this section); minus
(ii) The sum of that partner's (and that partner's predecessors' in
interest) aggregate share of the net decreases in partnership minimum
gain plus their aggregate share of decreases resulting from revaluations
of partnership property subject to one or more partnership nonrecourse
liabilities.
For purposes of Sec. 1.704-1(b)(2)(ii)(d), a partner's share of
partnership minimum gain is added to the limited dollar amount, if any,
of the deficit balance in the partner's capital account that the partner
is obligated to restore. See paragraph (m), Examples (1)(i) and (3)(i)
of this section.
(2) Partner's share of the net decrease in partnership minimum gain.
A partner's share of the net decrease in partnership minimum gain is the
amount of the total net decrease multiplied by the partner's percentage
share of the partnership's minimum gain at the end of the immediately
preceding taxable year. A partner's share of any decrease in partnership
minimum gain resulting from a revaluation of partnership property equals
the increase in the partner's capital account attributable to the
revaluation to the extent the reduction in minimum gain is caused by the
revaluation. See paragraph (m), Example (3)(ii) of this section.
(3) Conversions of recourse or partner nonrecourse debt into
nonrecourse debt. A partner's share of partnership minimum gain is
increased to the extent provided in this paragraph (g)(3) if a recourse
or partner nonrecourse liability becomes partially or wholly
nonrecourse. If a recourse liability becomes a nonrecourse liability, a
partner has a share of the partnership's minimum gain that results from
the conversion equal to the partner's deficit capital account
(determined under Sec. 1.704-1(b)(2)(iv)) to the extent the partner no
longer bears the economic burden for the entire deficit capital account
as a result of the conversion. For purposes of the preceding sentence,
the determination of the extent to which a partner bears the economic
burden for a deficit capital account is made by determining the
consequences to the partner in the case of a complete liquidation of the
partnership immediately after the conversion applying the rules
described in Sec. 1.704-1(b)(2)(iii)(c) that deem the value of
partnership property to equal its basis, taking into account section
7701(g) in the case of property that secures nonrecourse indebtedness.
If a partner nonrecourse debt becomes a nonrecourse
[[Page 510]]
liability, the partner's share of partnership minimum gain is increased
to the extent the partner is not subject to the minimum gain chargeback
requirement under paragraph (i)(4) of this section.
(h) Distribution of nonrecourse liability proceeds allocable to an
increase in partnership minimum gain--(1) In general. If during its
taxable year a partnership makes a distribution to the partners
allocable to the proceeds of a nonrecourse liability, the distribution
is allocable to an increase in partnership minimum gain to the extent
the increase results from encumbering partnership property with
aggregate nonrecourse liabilities that exceed the property's adjusted
tax basis. See paragraph (m), Example (1)(vi) of this section. If the
net increase in partnership minimum gain for a partnership taxable year
is allocable to more than one nonrecourse liability, the net increase is
allocated among the liabilities in proportion to the amount each
liability contributed to the increase in minimum gain.
(2) Distribution allocable to nonrecourse liability proceeds. A
partnership may use any reasonable method to determine whether a
distribution by the partnership to one or more partners is allocable to
proceeds of a nonrecourse liability. The rules prescribed under Sec.
1.163-8T for allocating debt proceeds among expenditures (applying those
rules to the partnership as if it were an individual) constitute a
reasonable method for determining whether the nonrecourse liability
proceeds are distributed to the partners and the partners to whom the
proceeds are distributed.
(3) Option when there is an obligation to restore. A partnership may
treat any distribution to a partner of the proceeds of a nonrecourse
liability (that would otherwise be allocable to an increase in
partnership minimum gain) as a distribution that is not allocable to an
increase in partnership minimum gain to the extent the distribution does
not cause or increase a deficit balance in the partner's capital account
that exceeds the amount the partner is otherwise obligated to restore
(within the meaning of Sec. 1.704-1(b)(2)(ii)(c)) as of the end of the
partnership taxable year in which the distribution occurs.
(4) Carryover to immediately succeeding taxable year. The carryover
rule of this paragraph applies if the net increase in partnership
minimum gain for a partnership taxable year that is allocable to a
nonrecourse liability under paragraph (h)(2) of this section exceeds the
distributions allocable to the proceeds of the liability (``excess
allocable amount''), and all or part of the net increase in partnership
minimum gain for the year is carried over as an increase in partnership
minimum gain for the immediately succeeding taxable year (pursuant to
paragraph (j)(1)(iii) of this section). If the carryover rule of this
paragraph applies, the excess allocable amount (or the amount carried
over under paragraph (j)(1)(iii) of this section, if less) is treated in
the succeeding taxable year as an increase in partnership minimum gain
that arose in that year as a result of incurring the nonrecourse
liability to which the excess allocable amount is attributable. See
paragraph (m), Example (1)(vi) of this section. If for a partnership
taxable year there is an excess allocable amount with respect to more
than one partnership nonrecourse liability, the excess allocable amount
is allocated to each liability in proportion to the amount each
liability contributed to the increase in minimum gain.
(i) Partnership nonrecourse liabilities where a partner bears the
economic risk of loss--(1) In general. Partnership losses, deductions,
or section 705(a)(2)(B) expenditures that are attributable to a
particular partner nonrecourse liability (``partner nonrecourse
deductions,'' as defined in paragraph (i)(2) of this section) must be
allocated to the partner that bears the economic risk of loss for the
liability. If more than one partner bears the economic risk of loss for
a partner nonrecourse liability, any partner nonrecourse deductions
attributable to that liability must be allocated among the partners
according to the ratio in which they bear the economic risk of loss. If
partners bear the economic risk of loss for different portions of a
liability, each portion is treated as a separate partner nonrecourse
liability.
[[Page 511]]
(2) Definition of and determination of partner nonrecourse
deductions. For any partnership taxable year, the amount of partner
nonrecourse deductions with respect to a partner nonrecourse debt equals
the net increase during the year in minimum gain attributable to the
partner nonrecourse debt (``partner nonrecourse debt minimum gain''),
reduced (but not below zero) by proceeds of the liability distributed
during the year to the partner bearing the economic risk of loss for the
liability that are both attributable to the liability and allocable to
an increase in the partner nonrecourse debt minimum gain. See paragraph
(m), Example (1) (viii) and (ix) of this section. The determination of
which partnership items constitute the partner nonrecourse deductions
with respect to a partner nonrecourse debt must be made in a manner
consistent with the provisions of paragraphs (c) and (j)(1) (i) and
(iii) of this section.
(3) Determination of partner nonrecourse debt minimum gain. For any
partnership taxable year, the determination of partner nonrecourse debt
minimum gain and the net increase or decrease in partner nonrecourse
debt minimum gain must be made in a manner consistent with the
provisions of paragraphs (d) and (g)(3) of this section.
(4) Chargeback of partner nonrecourse debt minimum gain. If during a
partnership taxable year there is a net decrease in partner nonrecourse
debt minimum gain, any partner with a share of that partner nonrecourse
debt minimum gain (determined under paragraph (i)(5) of this section) as
of the beginning of the year must be allocated items of income and gain
for the year (and, if necessary, for succeeding years) equal to that
partner's share of the net decrease in the partner nonrecourse debt
minimum gain. A partner's share of the net decrease in partner
nonrecourse debt minimum gain is determined in a manner consistent with
the provisions of paragraph (g)(2) of this section. A partner is not
subject to this minimum gain chargeback, however, to the extent the net
decrease in partner nonrecourse debt minimum gain arises because a
partner nonrecourse liability becomes partially or wholly a nonrecourse
liability. The amount that would otherwise be subject to the partner
nonrecourse debt minimum gain chargeback is added to the partner's share
of partnership minimum gain under paragraph (g)(3) of this section. In
addition, rules consistent with the provisions of paragraphs (f) (2),
(3), (4), and (5) of this section apply with respect to partner
nonrecourse debt in appropriate circumstances. The determination of
which items of partnership income and gain must be allocated pursuant to
this paragraph (i)(4) is made in a manner that is consistent with the
provisions of paragraph (f)(6) of this section. See paragraph (j)(2)
(ii) and (iii) of this section for more specific rules.
(5) Partner's share of partner nonrecourse debt minimum gain. A
partner's share of partner nonrecourse debt minimum gain at the end of
any partnership taxable year is determined in a manner consistent with
the provisions of paragraphs (g)(1) and (g)(3) of this section with
respect to each particular partner nonrecourse debt for which the
partner bears the economic risk of loss. For purposes of Sec. 1.704-
1(b)(2)(ii)(d), a partner's share of partner nonrecourse debt minimum
gain is added to the limited dollar amount, if any, of the deficit
balance in the partner's capital account that the partner is obligated
to restore, and the partner is not otherwise considered to have a
deficit restoration obligation as a result of bearing the economic risk
of loss for any partner nonrecourse debt. See paragraph (m), Example
(1)(viii) of this section.
(6) Distribution of partner nonrecourse debt proceeds allocable to
an increase in partner nonrecourse debt minimum gain. Rules consistent
with the provisions of paragraph (h) of this section apply to
distributions of the proceeds of partner nonrecourse debt.
(j) Ordering rules. For purposes of this section, the following
ordering rules apply to partnership items. Notwithstanding any other
provision in this section and Sec. 1.704-1, allocations of partner
nonrecourse deductions, nonrecourse deductions, and minimum gain
chargebacks are made before any other allocations.
[[Page 512]]
(1) Treatment of partnership losses and deductions. (i) Partner
nonrecourse deductions. Partnership losses, deductions, and section
705(a)(2)(B) expenditures are treated as partner nonrecourse deductions
in the amount determined under paragraph (i)(2) of this section
(determining partner nonrecourse deductions) in the following order:
(A) First, depreciation or cost recovery deductions with respect to
property that is subject to partner nonrecourse debt;
(B) Then, if necessary, a pro rata portion of the partnership's
other deductions, losses, and section 705(a)(2)(B) items.
Depreciation or cost recovery deductions with respect to property that
is subject to a partnership nonrecourse liability is first treated as a
partnership nonrecourse deduction and any excess is treated as a partner
nonrecourse deduction under this paragraph (j)(1)(i).
(ii) Partnership nonrecourse deductions. Partnership losses,
deductions, and section 705(a)(2)(B) expenditures are treated as
partnership nonrecourse deductions in the amount determined under
paragraph (c) of this section (determining nonrecourse deductions) in
the following order:
(A) First, depreciation or cost recovery deductions with respect to
property that is subject to partnership nonrecourse liabilities;
(B) Then, if necessary, a pro rata portion of the partnership's
other deductions, losses, and section 705(a)(2)(B) items.
Depreciation or cost recovery deductions with respect to property that
is subject to partner nonrecourse debt is first treated as a partner
nonrecourse deduction and any excess is treated as a partnership
nonrecourse deduction under this paragraph (j)(1)(ii). Any other item
that is treated as a partner nonrecourse deduction will in no event be
treated as a partnership nonrecourse deduction.
(iii) Carryover to succeeding taxable year. If the amount of partner
nonrecourse deductions or nonrecourse deductions exceeds the
partnership's losses, deductions, and section 705(a)(2)(B) expenditures
for the taxable year (determined under paragraphs (j)(1) (i) and (ii) of
this section), the excess is treated as an increase in partner
nonrecourse debt minimum gain or partnership minimum gain in the
immediately succeeding partnership taxable year. See paragraph (m),
Example (1)(vi) of this section.
(2) Treatment of partnership income and gains. (i) Minimum gain
chargeback. Items of partnership income and gain equal to the minimum
gain chargeback requirement (determined under paragraph (f) of this
section) are allocated as a minimum gain chargeback in the following
order:
(A) First, a pro rata portion of gain from the disposition of
property subject to partnership nonrecourse liabilities and discharge of
indebtedness income relating to partnership nonrecourse liabilities to
which property is subject;
(B) Then, if necessary, a pro rata portion of the partnership's
other items of income and gain for that year.
Gain from the disposition of property subject to partner nonrecourse
debt is allocated to satisfy a minimum gain chargeback requirement for
partnership nonrecourse debt only to the extent not allocated under
paragraph (j)(2)(ii) of this section.
(ii) Chargeback attributable to decrease in partner nonrecourse debt
minimum gain. Items of partnership income and gain equal to the partner
nonrecourse debt minimum gain chargeback (determined under paragraph
(i)(4) of this section) are allocated to satisfy a partner nonrecourse
debt minimum gain chargeback in the following order:
(A) First, a pro rata portion of gain from the disposition of
property subject to partner nonrecourse debt and discharge of
indebtedness income relating to partner nonrecourse debt to which
property is subject.
(B) Then, if necessary, a pro rata portion of the partnership's
other items of income and gain for that year.
Gain from the disposition of property subject to a partnership
nonrecourse liability is allocated to satisfy a partner nonrecourse debt
minimum gain chargeback only to the extent not allocated under paragraph
(j)(2)(i) of this section. An item of partnership income and gain that
is allocated to satisfy a
[[Page 513]]
minimum gain chargeback under paragraph (f) of this section is not
allocated to satisfy a minimum gain chargeback under paragraph (i)(4).
(iii) Carryover to succeeding taxable year. If a minimum gain
chargeback requirement (determined under paragraphs (f) and (i)(4) of
this section) exceeds the partnership's income and gains for the taxable
year, the excess is treated as a minimum gain chargeback requirement in
the immediately succeeding partnership taxable years until fully charged
back.
(k) Tiered partnerships. For purposes of this section, the following
rules determine the effect on partnership minimum gain when a
partnership (``upper-tier partnership'') is a partner in another
partnership (``lower-tier partnership'').
(1) Increase in upper-tier partnership's minimum gain. The sum of
the nonrecourse deductions that the lower-tier partnership allocates to
the upper-tier partnership for any taxable year of the upper-tier
partnership, and the distributions made during that taxable year from
the lower-tier partnership to the upper-tier partnership of proceeds of
nonrecourse debt that are allocable to an increase in the lower-tier
partnership's minimum gain, is treated as an increase in the upper-tier
partnership's minimum gain.
(2) Decrease in upper-tier partnership's minimum gain. The upper-
tier partnership's share for its taxable year of the lower-tier
partnership's net decrease in its minimum gain is treated as a decrease
in the upper-tier partnership's minimum gain for that taxable year.
(3) Nonrecourse debt proceeds distributed from the lower-tier
partnership to the upper-tier partnership. All distributions from the
lower-tier partnership to the upper-tier partnership during the upper-
tier partnership's taxable year of proceeds of a nonrecourse liability
allocable to an increase in the lower-tier partnership's minimum gain
are treated as proceeds of a nonrecourse liability of the upper-tier
partnership. The increase in the upper-tier partnership's minimum gain
(under paragraph (k)(1) of this section) attributable to the receipt of
those distributions is, for purposes of paragraph (h) of this section,
treated as an increase in the upper-tier partnership's minimum gain
arising from encumbering property of the upper-tier partnership with a
nonrecourse liability of the upper-tier partnership.
(4) Nonrecourse deductions of lower-tier partnership treated as
depreciation by upper-tier partnership. For purposes of paragraph (c) of
this section, all nonrecourse deductions allocated by the lower-tier
partnership to the upper-tier partnership for the upper-tier
partnership's taxable year are treated as depreciation or cost recovery
deductions with respect to property owned by the upper-tier partnership
and subject to a nonrecourse liability of the upper-tier partnership
with respect to which minimum gain increased during the year by the
amount of the nonrecourse deductions.
(5) Coordination with partner nonrecourse debt rules. The lower-tier
partnership's liabilities that are treated as the upper-tier
partnership's liabilities under Sec. 1.752-4(a) are treated as the
upper-tier partnership's liabilities for purposes of applying paragraph
(i) of this section. Rules consistent with the provisions of paragraphs
(k)(1) through (k)(4) of this section apply to determine the allocations
that the upper-tier partnership must make with respect to any liability
that constitutes a nonrecourse debt for which one or more partners of
the upper-tier partnership bear the economic risk of loss.
(l) Effective/applicability dates.--(1) In general--(i) Prospective
application. Except as otherwise provided in this paragraph (l), this
section applies for partnership taxable years beginning on or after
December 28, 1991. For the rules applicable to taxable years beginning
after December 29, 1988, and before December 28, 1991, see former Sec.
1.704-1T(b)(4)(iv). For the rules applicable to taxable years beginning
on or before December 29, 1988, see former Sec. 1.704-1(b)(4)(iv).
(ii) Partnerships subject to temporary regulations. If a partnership
agreement entered into after December 29, 1988, and before December 28,
1991, or a partnership agreement entered into on or before December 29,
1988, that elected to apply former Sec. 1.704-1T(b)(4)(iv) (as
contained in the CFR edition revised as
[[Page 514]]
of April 1, 1991), complied with the provisions of former Sec. 1.704-
1T(b)(4)(iv) before December 28, 1991--
(A) The provisions of former Sec. 1.704-1T(b)(4)(iv) continue to
apply to the partnership for any taxable year beginning on or after
December 28, 1991, (unless the partnership makes an election under
paragraph (l)(4) of this section) and ending before any subsequent
material modification to the partnership agreement; and
(B) The provisions of this section do not apply to the partnership
for any of those taxable years.
(iii) Partnerships subject to former regulations. If a partnership
agreement entered into on or before December 29, 1988, complied with the
provisions of former Sec. 1.704-1(b)(4)(iv)(d) on or before that date--
(A) The provisions of former Sec. 1.704-1(b)(4)(iv) (a) through (f)
continue to apply to the partnership for any taxable year beginning
after that date (unless the partnership made an election under Sec.
1.704-1T(b)(4)(iv)(m)(4) in a partnership taxable year ending before
December 28, 1991, or makes an election under paragraph (l)(4) of this
section) and ending before any subsequent material modification to the
partnership agreement; and
(B) The provisions of this section do not apply to the partnership
for any of those taxable years.
(iv) Paragraph (f)(2), the first sentence of paragraph (g)(3), and
the third sentence of paragraph (i)(4) of this section apply to
liabilities incurred or assumed by a partnership on or after October 11,
2006 other than liabilities incurred or assumed by a partnership
pursuant to a written binding contract in effect prior to October 11,
2006. The rules applicable to liabilities incurred or assumed (or
subject to a binding contract in effect) prior to October 11, 2006 are
contained in this section in effect prior to October 11, 2006. (See 26
CFR part 1 revised as of April 1, 2006.)
(v) The first sentence of paragraph (f)(6) of this section and
paragraphs (j)(2)(i)(A) and (j)(2)(ii)(A) of this section apply on and
after November 17, 2011.
(2) Special rule applicable to pre-January 30, 1989, related party
nonrecourse debt. For purposes of this section and former Sec. 1.704-
1T(b)(4)(iv), if--
(i) A partnership liability would, but for this paragraph (l)(2) of
this section, constitute a partner nonrecourse debt; and
(ii) Sections 1.752-1 through 1.752-3 or former Sec. Sec. 1.752-1T
through -3T (whichever is applicable) do not apply to the liability;
the liability is, notwithstanding paragraphs (i) and (b)(4) of this
section, treated as a nonrecourse liability of the partnership, and not
as a partner nonrecourse debt, to the extent the liability would be so
treated under this section (or Sec. 1.704-1T(b)(4)(iv)) if the
determination of the extent to which one or more partners bears the
economic risk of loss for the liability under Sec. 1.752-1 or former
Sec. 1.752-1T were made without regard to the economic risk of loss
that any partner would otherwise be considered to bear for the liability
by reason of any obligation undertaken or interest as a creditor
acquired prior to January 30, 1989, by a person related to the partner
(within the meaning of Sec. 1.752-4(b) or former Sec. 1.752-1T(h)).
For purposes of the preceding sentence, if a related person undertakes
an obligation or acquires an interest as a creditor on or after January
30, 1989, pursuant to a written binding contract in effect prior to
January 30, 1989, and at all times thereafter, the obligation or
interest as a creditor is treated as if it were undertaken or acquired
prior to January 30, 1989. However, for partnership taxable years
beginning on or after December 29, 1988, a pre-January 30, 1989,
liability, other than a liability subject to paragraph (l)(3) of this
section or former Sec. 1.704-1T(b)(4)(iv)(m)(3) (whichever is
applicable), that is treated as grandfathered under former Sec. Sec.
1.752-1T through -3T (whichever is applicable) will be treated as a
nonrecourse liability for purposes of this section provided that all
partners in the partnership consistently treat the liability as
nonrecourse for partnership taxable years beginning on or after December
29, 1988.
(3) Transition rule for pre-March 1, 1984, partner nonrecourse debt.
If a partnership liability would, but for this paragraph (l)(3) or
former Sec. 1.704-
[[Page 515]]
1T(b)(4)(iv), constitute a partner nonrecourse debt and the liability
constitutes grandfathered partner nonrecourse debt that is appropriately
treated as a nonrecourse liability of the partnership under Sec. 1.752-
1 (as in effect prior to December 29, 1988)--
(i) The liability is, notwithstanding paragraphs (i) and (b)(4) of
this section, former Sec. 1.704-1T(b)(4)(iv), and former Sec. 1.704-
1(b)(4)(iv), treated as a nonrecourse liability of the partnership for
purposes of this section and for purposes of former Sec. 1.704-
1T(b)(4)(iv) and former Sec. 1.704-1(b)(4)(iv) to the extent of the
amount, if any, by which the smallest outstanding balance of the
liability during the period beginning at the end of the first
partnership taxable year ending on or after December 31, 1986, and
ending at the time of any determination under this paragraph (l)(3)(i)
or former Sec. 1.704-1T(b)(4)(iv)(m)(3)(i) exceeds the aggregate amount
of the adjusted basis (or book value) of partnership property allocable
to the liability (determined in accordance with former Sec. 1.704-
1(b)(4)(iv)(c) (1) and (2) at the end of the first partnership taxable
year ending on or after December 31, 1986); and
(ii) In applying this section to the liability, former Sec. 1.704-
1(b)(4)(iv)(c) (1) and (2) is applied as if all of the adjusted basis of
partnership property allocable to the liability is allocable to the
portion of the liability that is treated as a partner nonrecourse debt
and as if none of the adjusted basis of partnership property that is
allocable to the liability is allocable to the portion of the liability
that is treated as a nonrecourse liability under this paragraph (l)(3)
and former Sec. 1.704-1T (b)(4)(iv)(m)(3)(i).
For purposes of the preceding sentence, a grandfathered partner debt is
any partnership liability that was not subject to former Sec. Sec.
1.752-1T and -3T but that would have been subject to those sections
under Sec. 1.752-4T(b) if the liability had arisen (other than pursuant
to a written binding contract) on or after March 1, 1984. A partnership
liability is not considered to have been subject to Sec. Sec. 1.752-2T
and -3T solely because a portion of the liability was treated as a
liability to which those sections apply under Sec. 1.752-4(e).
(4) Election. A partnership may elect to apply the provisions of
this section to the first taxable year of the partnership ending on or
after December 28, 1991. An election under this paragraph (l)(4) is made
by attaching a written statement to the partnership return for the first
taxable year of the partnership ending on or after December 28, 1991.
The written statement must include the name, address, and taxpayer
identification number of the partnership making the statement and must
declare that an election is made under this paragraph (l)(4).
(m) Examples. The principles of this section are illustrated by the
following examples:
Example 1. Nonrecourse deductions and partnerships minimum gain. For
Example 1, unless otherwise provided, the following facts are assumed.
LP, the limited partner, and GP, the general partner, form a limited
partnership to acquire and operate a commercial office building. LP
contributes $180,000, and GP contributes $20,000. The partnership
obtains an $800,000 nonrecourse loan and purchases the building (on
leased land) for $1,000,000. The nonrecourse loan is secured only by the
building, and no principal payments are due for 5 years. The partnership
agreement provides that GP will be required to restore any deficit
balance in GP's capital account following the liquidation of GP's
interest (as set forth in Sec. 1.704-1 (b) (2)(ii)(b)(3)), and LP will
not be required to restore any deficit balance in LP's capital account
following the liquidation of LP's interest. The partnership agreement
contains the following provisions required by paragraph (e) of this
section: a qualified income offset (as defined in Sec. 1.704-
1(b)(2)(ii)(d)); a minimum gain chargeback (in accordance with paragraph
(f) of this section); a provision that the partners' capital accounts
will be determined and maintained in accordance with Sec. 1.704-
1(b)(2)(ii)(b)(1); and a provision that distributions will be made in
accordance with partners' positive capital account balances (as set
forth in Sec. 1.704-1(b)(2)(ii)(b)(2)). In addition, as of the end of
each partnership taxable year discussed herein, the items described in
Sec. 1.704-1(b)(2)(ii)(d) (4), (5), and (6) are not reasonably expected
to cause or increase a deficit balance in LP's capital account. The
partnership agreement provides that, except as otherwise required by its
qualified income offset and minimum gain chargeback provisions, all
partnership items will be allocated 90 percent to LP and 10 percent to
GP until the first time when the partnership has recognized items of
income and gain that exceed the items of loss and deduction it has
recognized over its life, and
[[Page 516]]
all further partnership items will be allocated equally between LP and
GP. Finally, the partnership agreement provides that all distributions,
other than distributions in liquidation of the partnership or of a
partner's interest in the partnership, will be made 90 percent to LP and
10 percent to GP until a total of $200,000 has been distributed, and
thereafter all the distributions will be made equally to LP and GP. In
each of the partnership's first 2 taxable years, it generates rental
income of $95,000, operating expenses (including land lease payments) of
$10,000, interest expense of $80,000, and a depreciation deduction of
$90,000, resulting in a net taxable loss of $85,000 in each of those
years. The allocations of these losses 90 per percent to LP and 10
percent to GP have substantial economic effect.
------------------------------------------------------------------------
LP GP
------------------------------------------------------------------------
Capital account on formation..................... $180,000 $20,000
Less: net loss in years 1 and 2.............. (153,000) (17,000)
----------------------
Capital account at end of year 2................. $27,000 $3,000
------------------------------------------------------------------------
In the partnership's third taxable year, it again generates rental
income of $95,000, operating expenses of $10,000, interest expense of
$80,000, and a depreciation deduction of $90,000, resulting in net
taxable loss of $85,000. The partnership makes no distributions.
(i) Calculation of nonrecourse deductions and partnership minimum
gain. If the partnership were to dispose of the building in full
satisfaction of the nonrecourse liability at the end of the third year,
it would realize $70,000 of gain ($800,000 amount realized less $730,000
adjusted tax basis). Because the amount of partnership minimum gain at
the end of the third year (and the net increase in partnership minimum
gain during the year) is $70,000, there are partnership nonrecourse
deductions for that year of $70,000, consisting of depreciation
deductions allowable with respect to the building of $70,000. Pursuant
to the partnership agreement, all partnership items comprising the net
taxable loss of $85,000, including the $70,000 nonrecourse deduction,
are allocated 90 percent to LP and 10 percent to GP. The allocation of
these items, other than the nonrecourse deductions, has substantial
economic effect.
------------------------------------------------------------------------
LP GP
------------------------------------------------------------------------
Capital account at end of year 2................. $27,000 $3,000
Less: net loss in year 3 (without nonrecourse (13,500) (1,500)
deductions).................................
Less: nonrecourse deductions in year 3....... (63,000) (7,000)
----------------------
Capital account at end of year 3................. ($49,500) ($5,500)
------------------------------------------------------------------------
The allocation of the $70,000 nonrecourse deduction satisfies
requirement (2) of paragraph (e) of this section because it is
consistent with allocations having substantial economic effect of other
significant partnership items attributable to the building. Because the
remaining requirements of paragraph (e) of this section are satisfied,
the allocation of nonrecourse deductions is deemed to be in accordance
with the partners' interests in the partnership. At the end of the
partnership's third taxable year, LP's and GP's shares of partnership
minimum gain are $63,000 and $7,000, respectively. Therefore, pursuant
to paragraph (g)(1) of this section, LP is treated as obligated to
restore a deficit capital account balance of $63,000, so that in the
succeeding year LP could be allocated up to an additional $13,500 of
partnership deductions, losses, and section 705(a)(2)(B) items that are
not nonrecourse deductions. Even though this allocation would increase a
deficit capital account balance, it would be considered to have economic
effect under the alternate economic effect test contained in Sec.
1.704-1(b)(2)(ii)(d). If the partnership were to dispose of the building
in full satisfaction of the nonrecourse liability at the beginning of
the partnership's fourth taxable year (and had no other economic
activity in that year), the partnership minimum gain would be decreased
from $70,000 to zero, and the minimum gain chargeback would require that
LP and GP be allocated $63,000 and $7,000, respectively, of the gain
from that disposition.
(ii) Illustration of reasonable consistency requirement. Assume
instead that the partnership agreement provides that all nonrecourse
deductions of the partnership will be allocated equally between LP and
GP. Furthermore, at the time the partnership agreement is entered into,
there is a reasonable likelihood that over the partnership's life it
will realize amounts of income and gain significantly in excess of
amounts of loss and deduction (other than nonrecourse deductions). The
equal allocation of excess income and gain has substantial economic
effect.
------------------------------------------------------------------------
LP GP
------------------------------------------------------------------------
Capital account on formation..................... $180,000 $20,000
Less: net loss in years 1 and 2.............. (153,000) (17,000)
Less: net loss in year (without nonrecourse (13,500) (1,500)
deductions).................................
Less: nonrecourse deductions in year 3....... (35,000) (35,000)
----------------------
Capital account at end of year 3................. ($21,500) ($33,500)
------------------------------------------------------------------------
The allocation of the $70,000 nonrecourse deduction equally between LP
and GP satisfies requirement (2) of paragraph (e) of this section
because the allocation is consistent with allocations, which will have
substantial
[[Page 517]]
economic effect, of other significant partnership items attributable to
the building. Because the remaining requirements of paragraph (e) of
this section are satisfied, the allocation of nonrecourse deductions is
deemed to be in accordance with the partners' interests in the
partnership. The allocation of the nonrecourse deductions 75 percent to
LP and 25 percent to GP (or in any other ratio between 90 percent to LP/
10 percent to GP and 50 percent to LP/50 percent to GP) also would
satisfy requirement (2) of paragraph (e) of this section.
(iii) Allocation of nonrecourse deductions that fails reasonable
consistency requirement. Assume instead that the partnership agreement
provides that LP will be allocated 99 percent, and GP 1 percent, of all
nonrecourse deductions of the partnership. Allocating nonrecourse
deductions this way does not satisfy requirement (2) of paragraph (e) of
this section because the allocations are not reasonably consistent with
allocations, having substantial economic effect, of any other
significant partnership item attributable to the building. Therefore,
the allocation of nonrecourse deductions will be disregarded, and the
nonrecourse deductions of the partnership will be reallocated according
to the partners' overall economic interests in the partnership,
determined under Sec. 1.704-1(b)(3)(ii).
(iv) Capital contribution to pay down nonrecourse debt. At the
beginning of the partnership's fourth taxable year, LP contributes
$144,000 and GP contributes $16,000 of addition capital to the
partnership, which the partnership immediately uses to reduce the amount
of its nonrecourse liability from $800,000 to $640,000. In addition, in
the partnership's fourth taxable year, it generates rental income of
$95,000, operating expenses of $10,000, interest expense of $64,000
(consistent with the debt reduction), and a depreciation deduction of
$90,000, resulting in a net taxable loss of $69,000. If the partnership
were to dispose of the building in full satisfaction of the nonrecourse
liability at the end of that year, it would realize no gain ($640,000
amount realized less $640,000 adjusted tax basis). Therefore, the amount
of partnership minimum gain at the end of the year is zero, which
represents a net decrease in partnership minimum gain of $70,000 during
the year. LP's and GP's shares of this net decrease are $63,000 and
$7,000 respectively, so that at the end of the partnership's fourth
taxable year, LP's and GP's shares of partnership minimum gain are zero.
Although there has been a net decrease in partnership minimum gain,
pursuant to paragraph (f)(3) of this section LP and GP are not subject
to a minimum gain chargeback.
------------------------------------------------------------------------
LP GP
------------------------------------------------------------------------
Capital account at end of year 3................. ($49,500) ($5,500)
Plus: contribution........................... 144,000 16,000
Less: net loss in year 4..................... (62,100) (6,900)
----------------------
Capital account at end of year 4................. $32,400 $3,600
Minimum gain chargeback carryforward............. $0 $0
------------------------------------------------------------------------
(v) Loans of unequal priority. Assume instead that the building
acquired by the partnership is secured by a $700,000 nonrecourse loan
and a $100,000 recourse loan, subordinate in priority to the nonrecourse
loan. Under paragraph (d)(2) of this section, $700,000 of the adjusted
basis of the building at the end of the partnership's third taxable year
is allocated to the nonrecourse liability (with the remaining $30,000
allocated to the recourse liability) so that if the partnership disposed
of the building in full satisfaction of the nonrecourse liability at the
end of that year, it would realize no gain ($700,000 amount realized
less $700,000 adjusted tax basis). Therefore, there is no minimum gain
(or increase in minimum gain) at the end of the partnership's third
taxable year. If, however, the $700,000 nonrecourse loan were
subordinate in priority to the $100,000 recourse loan, under paragraph
(d)(2) of this section, the first $100,000 of adjusted tax basis in the
building would be allocated to the recourse liability, leaving only
$630,000 of the adjusted basis of the building to be allocated to the
$700,000 nonrecourse loan. In that case, the balance of the $700,000
nonrecourse liability would exceed the adjusted tax basis of the
building by $70,000, so that there would be $70,000 of minimum gain (and
a $70,000 increase in partnership minimum gain) in the partnership's
third taxable year.
(vi) Nonrecourse borrowing; distribution of proceeds in subsequent
year. The partnership obtains an additional nonrecourse loan of $200,000
at the end of its fourth taxable year, secured by a second mortgage on
the building, and distributes $180,000 of this cash to its partners at
the beginning of its fifth taxable year. In addition, in its fourth and
fifth taxable years, the partnership again generates rental income of
$95,000, operating expenses of $10,000, interest expense of $80,000
($100,000 in the fifth taxable year reflecting the interest paid on both
liabilities), and a depreciation deduction of $90,000, resulting in a
net taxable loss of $85,000 ($105,000 in the fifth taxable year
reflecting the interest paid on both liabilities). The partnership has
distributed its $5,000 of operating cash flow in each year ($95,000 of
rental income less $10,000 of operating expense and $80,000 of interest
expense) to LP and GP at the end of each year. If the partnership were
to dispose of the building in full satisfaction of both nonrecourse
liabilities at the end of its fourth taxable year, the partnership would
realize $360,000 of gain ($1,000,000 amount realized less $640,000
adjusted tax basis). Thus,
[[Page 518]]
the net increase in partnership minimum gain during the partnership's
fourth taxable year is $290,000 ($360,000 of minimum gain at the end of
the fourth year less $70,000 of minimum gain at the end of the third
year). Because the partnership did not distribute any of the proceeds of
the loan it obtained in its fourth year during that year, the potential
amount of partnership nonrecourse deductions for that year is $290,000.
Under paragraph (c) of this section, if the partnership had distributed
the proceeds of that loan to its partners at the end of its fourth year,
the partnership's nonrecourse deductions for that year would have been
reduced by the amount of that distribution because the proceeds of that
loan are allocable to an increase in partnership minimum gain under
paragraph (h)(1) of this section. Because the nonrecourse deductions of
$290,000 for the partnership's fourth taxable year exceed its total
deductions for that year, all $180,000 of the partnership's deductions
for that year are treated as nonrecourse deductions, and the $110,000
excess nonrecourse deductions are treated as an increase in partnership
minimum gain in the partnership's fifth taxable year under paragraph (c)
of this section.
------------------------------------------------------------------------
LP GP
------------------------------------------------------------------------
Capital account at end of year 3 (including cash ($63,000) ($7,000)
flow distributions).............................
Plus: rental income in year 4.................... 85,500 9,500
Less: nonrecourse deductions in year 4....... (162,000) (18,000)
Less: cash flow distributions in year 4...... (4,500) (500)
----------------------
Capital account at end of year 4................. ($144,000) ($16,000)
------------------------------------------------------------------------
At the end of the partnership's fourth taxable year, LP's and GP's
shares of partnership minimum gain are $225,000 and $25,000,
respectively (because the $110,000 excess of nonrecourse deductions is
carried forward to the next year). If the partnership were to dispose of
the building in full satisfaction of the nonrecourse liabilities at the
end of its fifth taxable year, the partnership would realize $450,000 of
gain ($1,000,000 amount realized less $550,000 adjusted tax basis).
Therefore, the net increase in partnership minimum gain during the
partnership's fifth taxable year is $200,000 ($110,000 deemed increase
plus the $90,000 by which minimum gain at the end of the fifth year
exceeds minimum gain at the end of the fourth year ($450,000 less
$360,000)). At the beginning of its fifth year, the partnership
distributes $180,000 of the loan proceeds (retaining $20,000 to pay the
additional interest expense). Under paragraph (h) of this section, the
first $110,000 of this distribution (an amount equal to the deemed
increase in partnership minimum gain for the year) is considered
allocable to an increase in partnership minimum gain for the year. As a
result, the amount of nonrecourse deductions for the partnership's fifth
taxable year is $90,000 ($200,000 net increase in minimum gain less
$110,000 distribution of nonrecourse liability proceeds allocable to an
increase in partnership minimum gain), and the nonrecourse deductions
consist solely of the $90,000 depreciation deduction allowable with
respect to the building. As a result of the distributions during the
partnership's fifth taxable year, the total distributions to the
partners over the partnership's life equal $205,000. Therefore, the last
$5,000 distributed to the partners during the fifth year will be divided
equally between them under the partnership agreement. Thus, out of the
$185,000 total distribution during the partnership's fifth taxable year,
the first $180,000 is distributed 90 percent to LP and 10 percent to GP,
and the last $5,000 is divided equally between them.
------------------------------------------------------------------------
LP GP
------------------------------------------------------------------------
Capital account at end of year 4............... ($144,000) ($16,000)
Less: net loss in year 5 (without (13,500) (1,500)
nonrecourse deductions)...................
Less: nonrecourse deductions in year 5..... (81,000) (9,000)
Less: distribution of loan proceeds........ (162,000) (18,000)
Less: cash flow distribution in year 5..... (2,500) (2,500)
------------------------
Capital account at end of year 5............... ($403,000) ($47,000)
------------------------------------------------------------------------
At the end of the partnership's fifth taxable year, LP's share of
partnership minimum gain is $405,000 ($225,000 share of minimum gain at
the end of the fourth year plus $81,000 of nonrecourse deductions for
the fifth year and a $99,000 distribution of nonrecourse liability
proceeds that are allocable to an increase in minimum gain) and GP's
share of partnership minimum gain is $45,000 ($25,000 share of minimum
gain at the end of the fourth year plus $9,000 of nonrecourse deductions
for the fifth year and an $11,000 distribution of nonrecourse liability
proceeds that are allocable to an increase in minimum gain).
(vii) Partner guarantee of nonrecourse debt. LP and GP personally
guarantee the ``first'' $100,000 of the $800,000 nonrecourse loan (i.e.,
only if the building is worth less than $100,000 will they be called
upon to make up any deficiency). Under paragraph (d)(2) of this section,
only $630,000 of the adjusted tax basis of the building is allocated to
the $700,000 nonrecourse portion of the loan because the collateral will
be applied first to satisfy the $100,000 guaranteed portion, making it
superior in priority to the remainder of the loan. On the other hand, if
LP and GP were to guarantee the ``last'' $100,000 (i.e., if the building
is worth less than $800,000, they will be called upon to make up the
deficiency up to $100,000), $700,000 of the adjusted tax basis of the
building would be allocated to
[[Page 519]]
the $700,000 nonrecourse portion of the loan because the guaranteed
portion would be inferior in priority to it.
(viii) Partner nonrecourse debt. Assume instead that the $800,000
loan is made by LP, the limited partner. Under paragraph (b)(4) of this
section, the $800,000 obligation does not constitute a nonrecourse
liability of the partnership for purposes of this section because LP, a
partner, bears the economic risk of loss for that loan within the
meaning of Sec. 1.752-2. Instead, the $800,000 loan constitutes a
partner nonrecourse debt under paragraph (b)(4) of this section. In the
partnership's third taxable year, partnership minimum gain would have
increased by $70,000 if the debt were a nonrecourse liability of the
partnership. Thus, under paragraph (i)(3) of this section, there is a
net increase of $70,000 in the minimum gain attributable to the $800,000
partner nonrecourse debt for the partnership's third taxable year, and
$70,000 of the $90,000 depreciation deduction from the building for the
partnership's third taxable year constitutes a partner nonrecourse
deduction with respect to the debt. See paragraph (i)(4) of this
section. Under paragraph (i)(2) of this section, this partner
nonrecourse deduction must be allocated to LP, the partner that bears
the economic risk of loss for that liability.
(ix) Nonrecourse debt and partner nonrecourse debt of differing
priorities. As in Example 1 (viii) of this paragraph (m), the $800,000
loan is made to the partnership by LP, the limited partner, but the loan
is a purchase money loan that ``wraps around'' a $700,000 underlying
nonrecourse note (also secured by the building) issued by LP to an
unrelated person in connection with LP's acquisition of the building.
Under these circumstances, LP bears the economic risk of loss with
respect to only $100,000 of the liability within the meaning of Sec.
1.752-2. See Sec. 1.752-2(f) (Example 6). Therefore, for purposes of
paragraph (d) of this section, the $800,000 liability is treated as a
$700,000 nonrecourse liability of the partnership and a $100,000 partner
nonrecourse debt (inferior in priority to the $700,000 liability) of the
partnership for which LP bears the economic risk of loss. Under
paragraph (i)(2) of this section, $70,000 of the $90,000 depreciation
deduction realized in the partnership's third taxable year constitutes a
partner nonrecourse deduction that must be allocated to LP.
Example 2. Netting of increases and decreases in partnership minimum
gain. For Example 2 unless otherwise provided, the following facts are
assumed. X and Y form a general partnership to acquire and operate
residential real properties. Each partner contributes $150,000 to the
partnership. The partnership obtains a $1,500,000 nonrecourse loan and
purchases 3 apartment buildings (on leased land) for $720,000
(``Property A''), $540,000 (``Property B''), and $540,000 (``Property
C''). The nonrecourse loan is secured only by the 3 buildings, and no
principal payments are due for 5 years. In each of the partnership's
first 3 taxable years, it generates rental income of $225,000, operating
expenses (including land lease payments) of $50,000, interest expense of
$175,000, and depreciation deductions on the 3 properties of $150,000
($60,000 on Property A and $45,000 on each of Property B and Property
C), resulting in a net taxable loss of $150,000 in each of those years.
The partnership makes no distributions to X or Y.
(i) Calculation of net increases and decreases in partnership
minimum gain. If the partnership were to dispose of the 3 apartment
buildings in full satisfaction of its nonrecourse liability at the end
of its third taxable year, it would realize $150,000 of gain ($1,500,000
amount realized less $1,350,000 adjusted tax basis). Because the amount
of partnership minimum gain at the end of that year (and the net
increase in partnership minimum gain during that year) is $150,000, the
amount of partnership nonrecourse deductions for that year is $150,000,
consisting of depreciation deductions allowable with respect to the 3
apartment buildings of $150,000. The result would be the same if the
partnership obtained 3 separate nonrecourse loans that were ``cross-
collateralized'' (i.e., if each separate loan were secured by all 3 of
the apartment buildings).
(ii) Netting of increases and decreases in partnership minimum gain
when there is a disposition. At the beginning of the partnership's
fourth taxable year, the partnership (with the permission of the
nonrecourse lender) disposes of Property A for $835,000 and uses a
portion of the proceeds to repay $600,000 of the nonrecourse liability
(the principal amount attributable to Property A), reducing the balance
to $900,000. As a result of the disposition, the partnership realizes
gain of $295,000 ($835,000 amount realized less $540,000 adjusted tax
basis). If the disposition is viewed in isolation, the partnership has
generated minimum gain of $60,000 on the sale of Property A ($600,000 of
debt reduction less $540,000 adjusted tax basis). However, during the
partnership's fourth taxable year it also generates rental income of
$135,000, operating expenses of $30,000, interest expense of $105,000,
and depreciation deductions of $90,000 ($45,000 on each remaining
building). If the partnership were to dispose of the remaining two
buildings in full satisfaction of its nonrecourse liability at the end
of the partnership's fourth taxable year, it would realize gain of
$180,000 ($900,000 amount realized less $720,000 aggregate adjusted tax
basis), which is the amount of partnership minimum gain at the end of
the year. Because the partnership minimum gain increased from $150,000
to $180,000 during the partnership's fourth taxable year, the amount of
partnership nonrecourse deductions for that year is $30,000, consisting
of a
[[Page 520]]
ratable portion of depreciation deductions allowable with respect to the
two remaining apartment buildings. No minimum gain chargeback is
required for the taxable year, even though the partnership disposed of
one of the properties subject to the nonrecourse liability during the
year, because there is no net decrease in partnership minimum gain for
the year. See paragraph (f)(1) of this section.
Example 3. Nonrecourse deductions and partnership minimum gain
before third partner is admitted. For purposes of Example 3, unless
otherwise provided, the following facts are assumed. Additional facts
are given in each of Examples 3 (ii), (iii), and (iv). A and B form a
limited partnership to acquire and lease machinery that is 5-year
recovery property. A, the limited partner, and B, the general partner,
contribute $100,000 each to the partnership, which obtains an $800,000
nonrecourse loan and purchases the machinery for $1,000,000. The
nonrecourse loan is secured only by the machinery. The principal amount
of the loan is to be repaid $50,000 per year during each of the
partnership's first 5 taxable years, with the remaining $550,000 of
unpaid principal due on the first day of the partnership's sixth taxable
year. The partnership agreement contains all of the provisions required
by paragraph (e) of this section, and, as of the end of each partnership
taxable year discussed herein, the items described in Sec. 1.704-
1(b)(2)(ii)(d) (4), (5), and (6) are not reasonably expected to cause or
increase a deficit balance in A's or B's capital account. The
partnership agreement provides that, except as otherwise required by its
qualified income offset and minimum gain chargeback provisions, all
partnership items will be allocated equally between A and B. Finally,
the partnership agreement provides that all distributions, other than
distributions in liquidation of the partnership or of a partner's
interest in the partnership, will be made equally between A and B. In
the partnership's first taxable year it generates rental income of
$130,000, interest expense of $80,000, and a depreciation deduction of
$150,000, resulting in a net taxable loss of $100,000. In addition, the
partnership repays $50,000 of the nonrecourse liability, reducing that
liability to $750,000. Allocations of these losses equally between A and
B have substantial economic effect.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account on formation.................... $100,000 $100,000
Less: net loss in year 1.................... (50,000) (50,000)
-----------------------
Capital account at end of year 1................ $50,000 $50,000
------------------------------------------------------------------------
In the partnership's second taxable year, it generates rental income of
$130,000, interest expense of $75,000, and a depreciation deduction of
$220,000, resulting in a net taxable loss of $165,000. In addition, the
partnership repays $50,000 of the nonrecourse liability, reducing that
liability to $700,000, and distributes $2,500 of cash to each partner.
If the partnership were to dispose of the machinery in full satisfaction
of the nonrecourse liability at the end of that year, it would realize
$70,000 of gain ($700,000 amount realized less $630,000 adjusted tax
basis). Therefore, the amount of partnership minimum gain at the end of
that year (and the net increase in partnership minimum gain during the
year) is $70,000, and the amount of partnership nonrecourse deductions
for the year is $70,000. The partnership nonrecourse deductions for its
second taxable year consist of $70,000 of the depreciation deductions
allowable with respect to the machinery. Pursuant to the partnership
agreement, all partnership items comprising the net taxable loss of
$165,000, including the $70,000 nonrecourse deduction, are allocated
equally between A and B. The allocation of these items, other than the
nonrecourse deductions, has substantial economic effect.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account at end of year 1.................. $50,000 $50,000
Less: net loss in year 2 (without nonrecourse (47,500) (47,500)
deductions)..................................
Less: nonrecourse deductions in year 2........ (35,000) (35,000)
Less: distribution............................ (2,500) (2,500)
---------------------
Capital account at end of year 2.................. ($35,000) ($35,000)
------------------------------------------------------------------------
(i) Calculation of nonrecourse deductions and partnership minimum
gain. Because all of the requirements of paragraph (e) of this section
are satisfied, the allocation of nonrecourse deductions is deemed to be
made in accordance with the partners' interests in the partnership. At
the end of the partnership's second taxable year, A's and B's shares of
partnership minimum gain are $35,000 each. Therefore, pursuant to
paragraph (g)(1) of this section, A and B are treated as obligated to
restore deficit balances in their capital accounts of $35,000 each. If
the partnership were to dispose of the machinery in full satisfaction of
the nonrecourse liability at the beginning of the partnership's third
taxable year (and had no other economic activity in that year), the
partnership minimum gain would be decreased from $70,000 to zero. A's
and B's shares of that net decrease would be $35,000 each. Upon that
disposition, the minimum gain chargeback would require that A and B each
be allocated $35,000 of that gain before any other allocation is made
under section 704 (b) with respect to partnership items for the
partnership's third taxable year.
(ii) Nonrecourse deductions and restatement of capital accounts. (a)
Additional facts. C is admitted to the partnership at the beginning
[[Page 521]]
of the partnership's third taxable year. At the time of C's admission,
the fair market value of the machinery is $900,000. C contributes
$100,000 to the partnership (the partnership invests $95,000 of this in
undeveloped land and holds the other $5,000 in cash) in exchange for an
interest in the partnership. In connection with C's admission to the
partnership, the partnership's machinery is revalued on the
partnership's books to reflect its fair market value of $900,000.
Pursuant to Sec. 1.704-1(b)(2)(iv)(f), the capital accounts of A and B
are adjusted upwards to $100,000 each to reflect the revaluation of the
partnership's machinery. This adjustment reflects the manner in which
the partnership gain of $270,000 ($900,000 fair market value minus
$630,000 adjusted tax basis) would be shared if the machinery were sold
for its fair market value immediately prior to C's admission to the
partnership.
------------------------------------------------------------------------
A B
------------------------------------------------------------------------
Capital account before C's admission............ ($35,000) ($35,000)
Deemed sale adjustment...................... 135,000 135,000
-----------------------
Capital account adjusted for C's admission...... $100,000 $100,000
------------------------------------------------------------------------
The partnership agreement is modified to provide that, except as
otherwise required by its qualified income offset and minimum gain
chargeback provisions, partnership income, gain, loss, and deduction, as
computed for book purposes, are allocated equally among the partners,
and those allocations are reflected in the partners' capital accounts.
The partnership agreement also is modified to provide that depreciation
and gain or loss, as computed for tax purposes, with respect to the
machinery will be shared among the partners in a manner that takes
account of the variation between the property's $630,000 adjusted tax
basis and its $900,000 book value, in accordance with Sec. 1.704-
1(b)(2)(iv)(f) and the special rule contained in Sec. 1.704-1(b)(4)(i).
(b) Effect of revaluation. Because the requirements of Sec. 1.704-
1(b)(2)(iv)(g) are satisfied, the capital accounts of the partners (as
adjusted) continue to be maintained in accordance with Sec. 1.704-
1(b)(2)(iv). If the partnership were to dispose of the machinery in full
satisfaction of the nonrecourse liability immediately following the
revaluation of the machinery, it would realize no book gain ($700,000
amount realized less $900,000 book value). As a result of the
revaluation of the machinery upward by $270,000, under part (i) of
paragraph (d)(4) of this section, the partnership minimum gain is
reduced from $70,000 immediately prior to the revaluation to zero; but
under part (ii) of paragraph (d)(4) of this section, the partnership
minimum gain is increased by the $70,000 decrease arising solely from
the revaluation. Accordingly, there is no net increase or decrease
solely on account of the revaluation, and so no minimum gain chargeback
is triggered. All future nonrecourse deductions that occur will be the
nonrecourse deductions as calculated for book purposes, and will be
charged to all 3 partners in accordance with the partnership agreement.
For purposes of determining the partners' shares of minimum gain under
paragraph (g) of this section, A's and B's shares of the decrease
resulting from the revaluation are $35,000 each. However, as illustrated
below, under section 704(c) principles, the tax capital accounts of A
and B will eventually be charged $35,000 each, reflecting their 50
percent shares of the decrease in partnership minimum gain that resulted
from the revaluation.
(iii) Allocation of nonrecourse deductions following restatement of
capital accounts. (a) Additional facts. During the partnership's third
taxable year, the partnership generates rental income of $130,000,
interest expense of $70,000 a tax depreciation deduction of $210,000,
and a book depreciation deduction (attributable to the machinery) of
$300,000. As a result, the partnership has a net taxable loss of
$150,000 and a net book loss of $240,000. In addition, the partnership
repays $50,000 of the nonrecourse liability (after the data of C's
admission), reducing the liability to $650,000 and distributes $5,000 of
cash to each partner.
(b) Allocations. If the partnership were to dispose of the machinery
in full satisfaction of the nonrecourse liability at the end of the
year, $50,000 of book gain would result ($650,000 amount realized less
$600,000 book basis). Therefore, the amount of partnership minimum gain
at the end of the year is $50,000, which represents a net decrease in
partnership minimum gain of $20,000 during the year. (This is so even
though there would be an increase in partnership minimum gain in the
partnership's third taxable year if minimum gain were computed with
reference to the adjusted tax basis of the machinery.) Nevertheless,
pursuant to paragraph (d)(4) of this section, the amount of nonrecourse
deductions of the partnership for its third taxable year is $50,000 (the
net increase in partnership minimum gain during the year determined by
adding back the $70,000 decrease in partnership minimum gain
attributable to the revaluation of the machinery to the $20,000 net
decrease in partnership minimum gain during the year). The $50,000 of
partnership nonrecourse deductions for the year consist of book
depreciation deductions allowable with respect to the machinery of
$50,000. Pursuant to the partnership agreement, all partnership items
comprising the net book loss of $240,000, including the $50,000
nonrecourse deduction, are allocated equally among the partners. The
allocation of these
[[Page 522]]
items, other than the nonrecourse deductions, has substantial economic
effect. Consistent with the special partners' interests in the
partnership rule contained in Sec. 1.704-1(b)(4)(i), the partnership
agreement provides that the depreciation deduction for tax purposes of
$210,000 for the partnership's third taxable year is, in accordance with
section 704(c) principles, shared $55,000 to A, $55,000 to B, and
$100,000 to C.
----------------------------------------------------------------------------------------------------------------
A B C
-----------------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at beginning of ($35,000) $100,000 ($35,000) $100,0000 $100,000 $100,000
year 3...........................
Less: nonrecourse deductions...... (9,166) (16,666) (9,166) (16,666) (16,666) (16,666)
Less: items other than nonrecourse (25,834) (63,334) (25,834) (63,334) (63,334) (63,334)
deductions in year 3.............
Less: distribution................ (5,000) (5,000) (5,000) (5,000) (5,000) (5,000)
-----------------------------------------------------------------------------
Capital account at end of year 3.. ($75,000) $15,000 ($75,000) $15,000 $15,000 $15,000
----------------------------------------------------------------------------------------------------------------
Because the requirements of paragraph (e) of this section are satisfied,
the allocation of the nonrecourse deduction is deemed to be made in
accordance with the partners' interests in the partnership. At the end
of the partnership's third taxable year, A's, B's, and C's shares of
partnership minimum gain are $16,666 each.
(iv) Subsequent allocation of nonrecourse deductions following
restatement of capital accounts. (a) Additional facts. The partners'
capital accounts at the end of the second and third taxable years of the
partnership are as stated in Example 3(iii) of this paragraph (m). In
addition, during the partnership's fourth taxable year the partnership
generates rental income of $130,000, interest expense of $65,000, a tax
depreciation deduction of $210,000, and a book depreciation deduction
(attributable to the machinery) of $300,000. As a result, the
partnership has a net taxable loss of $145,000 and a net book loss of
$235,000. In addition, the partnership repays $50,000 of the nonrecourse
liability, reducing that liability to $600,000, and distributes $5,000
of cash to each partner.
(b) Allocations. If the partnership were to dispose of the machinery
in full satisfaction of the nonrecourse liability at the end of the
fourth year, $300,000 of book gain would result ($600,000 amount
realized less $300,000 book value). Therefore, the amount of partnership
minimum gain as of the end of the year is $300,000, which represents a
net increase in partnership minimum gain during the year of $250,000.
Thus, the amount of partnership nonrecourse deductions for that year
equals $250,000, consisting of book depreciation deductions of $250,000.
Pursuant to the partnership agreement, all partnership items comprising
the net book loss of $235,000, including the $250,000 nonrecourse
deduction, are allocated equally among the partners. That allocation of
all items, other than the nonrecourse deductions, has substantial
economic effect. Consistent with the special partners' interests in the
partnership rule contained in Sec. 1.704-1(b)(4)(i), the partnership
agreement provides that the depreciation deduction for tax purposes of
$210,000 in the partnership's fourth taxable year is, in accordance with
section 704(c) principles, allocated $55,000 to A, $55,000 to B, and
$100,000 to C.
----------------------------------------------------------------------------------------------------------------
A B C
-----------------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at end year 3..... ($75,000) $15,000 ($75,000) $15,000 $15,000 $15,000
Less: nonrecourse deductions...... (45,833) (83,333) (45,833) (83,333) (83,333) (83,333)
Plus: items other than nonrecourse 12,499 5,000 12,499 5,000 5,000 5,000
deduction in year 4..............
Less: distribution................ (5,000) (5,000) (5,000) (5,000) (5,000) (5,000)
-----------------------------------------------------------------------------
Capital account at end of year 4.. ($113,334) ($68,333) ($113,333) ($68,333) ($68,333) ($68,333)
----------------------------------------------------------------------------------------------------------------
The allocation of the $250,000 nonrecourse deduction equally among A, B,
and C satisfies requirement (2) of paragraph (e) of this section.
Because all of the requirements of paragraph (e) of this section are
satisfied, the allocation is deemed to be in accordance with the
partners' interests in the partnership. At the end of the partnership's
fourth taxable year, A's, B's, and C's shares of partnership minimum
gain are $100,000 each.
(v) Disposition of partnership property following restatement of
capital accounts. (a) Additional facts. The partners' capital accounts
at the end of the fourth taxable year of the partnership are as stated
above in (iv). In addition, at the beginning of the partnership's
[[Page 523]]
fifth taxable year it sells the machinery for $650,000 (using $600,000
of the proceeds to repay the nonrecourse liability), resulting in a
taxable gain of $440,000 ($650,000 amount realized less $210,000
adjusted tax basis) and a book gain of $350,000 ($650,000 amount
realized less $300,000 book basis). The partnership has no other items
of income, gain, loss, or deduction for the year.
(b) Effect of disposition. As a result of the sale, partnership
minimum gain is reduced from $300,000 to zero, reducing A's, B's, and
C's shares of partnership minimum gain to zero from $100,000 each. The
minimum gain chargeback requires that A, B, and C each be allocated
$100,000 of that gain (an amount equal to each partner's share of the
net decrease in partnership minimum gain resulting from the sale) before
any allocation is made to them under section 704(b) with respect to
partnership items for the partnership's fifth taxable year. Thus, the
allocation of the first $300,000 of book gain $100,000 to each of the
partners is deemed to be in accordance with the partners' interests in
the partnership under paragraph (e) of this section. The allocation of
the remaining $50,000 of book gain equally among the partners has
substantial economic effect. Consistent with the special partners'
interests in the partnership rule contained in Sec. 1.704-1(b)(4)(i),
the partnership agreement provides that the $440,000 taxable gain is, in
accordance with section 704(c) principles, allocated $161,667 to A,
$161,667 to B, and $116,666 to C.
----------------------------------------------------------------------------------------------------------------
A B C
-----------------------------------------------------------------------------
Tax Book Tax Book Tax Book
----------------------------------------------------------------------------------------------------------------
Capital account at end of year 4.. ($113,334) ($68,333) ($113,334) ($68,333) ($68,333) ($68,333)
Plus: minimum gain chargeback..... 138,573 100,000 138,573 100,000 100,000 100,000
Plus: additional gain............. 23,094 16,666 23,094 16,666 16,666 16,666
-----------------------------------------------------------------------------
Capital account before liquidation $48,333 $48,333 $48,333 $48,333 $48,333 $48,333
----------------------------------------------------------------------------------------------------------------
Example 4. Allocations of increase in partnership minimum gain among
partnership properties. For Example 4, unless otherwise provided, the
following facts are assumed. A partnership owns 4 properties, each of
which is subject to a nonrecourse liability of the partnership. During a
taxable year of the partnership, the following events take place. First,
the partnership generates a depreciation deduction (for both book and
tax purposes) with respect to Property W of $10,000 and repays $5,000 of
the nonrecourse liability secured only by that property, resulting in an
increase in minimum gain with respect to that liability of $5,000.
Second, the partnership generates a depreciation deduction (for both
book and tax purposes) with respect to Property X of $10,000 and repays
none of the nonrecourse liability secured by that property, resulting in
an increase in minimum gain with respect to that liability of $10,000.
Third, the partnership generates a depreciation deduction (for both book
and tax purposes) of $2,000 with respect to Property Y and repays
$11,000 of the nonrecourse liability secured only by that property,
resulting in a decrease in minimum gain with respect to that liability
of $9,000 (although at the end of that year, there remains minimum gain
with respect to that liability). Finally, the partnership borrows $5,000
on a nonrecourse basis, giving as the only security for that liability
Property Z, a parcel of undeveloped land with an adjusted tax basis (and
book value) of $2,000, resulting in a net increase in minimum gain with
respect to that liability of $3,000.
(i) Allocation of increase in partnership minimum gain. The net
increase in partnership minimum gain during that partnership taxable
year is $9,000, so that the amount of nonrecourse deductions of the
partnership for that taxable year is $9,000. Those nonrecourse
deductions consist of $3,000 of depreciation deductions with respect to
Property W and $6,000 of depreciation deductions with respect to
Property X. See paragraph (c) of this section. The amount of nonrecourse
deductions consisting of depreciation deductions is determined as
follows. With respect to the nonrecourse liability secured by Property
Z, for which there is no depreciation deduction, the amount of
depreciation deductions that constitutes nonrecourse deductions is zero.
Similarly, with respect to the nonrecourse liability secured by Property
Y, for which there is no increase in minimum gain, the amount of
depreciation deductions that constitutes nonrecourse deductions is zero.
With respect to each of the nonrecourse liabilities secured by
Properties W and X, which are secured by property for which there are
depreciation deductions and for which there is an increase in minimum
gain, the amount of depreciation deductions that constitutes nonrecourse
deductions is determined by the following formula:
net increase in the partnership minimum gain for that taxable year X
total depreciation deductions for that taxable year on the specific
property securing the nonrecourse liability to the extent minimum gain
increased on that liability (divided by) total depreciation deductions
for that taxable year
[[Page 524]]
on all properties securing nonrecourse liabilities to the extent of the
aggregate increase in minimum gain on all those liabilities.
Thus, for the liability secured by Property W, the amount is $9,000
times $5,000/$15,000, or $3,000. For the liability secured by Property
X, the amount is $9,000 times $10,000/$15,000, or $6,000. (If one
depreciable property secured two partnership nonrecourse liabilities,
the amount of depreciation or book depreciation with respect to that
property would be allocated among those liabilities in accordance with
the method by which adjusted basis is allocated under paragraph (d)(2)
of this section).
(ii) Alternative allocation of increase in partnership minimum gain
among partnership properties. Assume instead that the loan secured by
Property Z is $15,000 (rather than $5,000), resulting in a net increase
in minimum gain with respect to that liability of $13,000. Thus, the net
increase in partnership minimum gain is $19,000, and the amount of
nonrecourse deductions of the partnership for that taxable year is
$19,000. Those nonrecourse deductions consist of $5,000 of depreciation
deductions with respect to Property W, $10,000 of depreciation
deductions with respect to Property X, and a pro rata portion of the
partnership's other items of deduction, loss, and section 705(a)(2)(B)
expenditure for that year. The method for computing the amounts of
depreciation deductions that constitute nonrecourse deductions is the
same as in (i) of this Example 4 for the liabilities secured by
Properties Y and Z. With respect to each of the nonrecourse liabilities
secured by Properties W and X, the amount of depreciation deductions
that constitutes nonrecourse deductions equals the total depreciation
deductions with respect to the partnership property securing that
particular liability to the extent of the increase in minimum gain with
respect to that liability.
[T.D. 8385, 56 FR 66983, Dec. 27, 1991; 57 FR 6073, Feb. 20, 1992; 57 FR
8961, 8962, Mar. 13, 1992; 57 FR 11430, Apr. 3, 1992; 57 FR 28611, June
26, 1992; 57 FR 37189, Aug. 18, 1992; T.D. 9207, 70 FR 30342, May 26,
2005; T.D. 9289, 71 FR 59672, Oct. 11, 2006; T.D. 9557, 76 FR 71258,
Nov. 17, 2011]
Sec. 1.704-3 Contributed property.
(a) In general--(1) General principles. The purpose of section
704(c) is to prevent the shifting of tax consequences among partners
with respect to precontribution gain or loss. Under section 704(c), a
partnership must allocate income, gain, loss, and deduction with respect
to property contributed by a partner to the partnership so as to take
into account any variation between the adjusted tax basis of the
property and its fair market value at the time of contribution.
Notwithstanding any other provision of this section, the allocations
must be made using a reasonable method that is consistent with the
purpose of section 704(c). For this purpose, an allocation method
includes the application of all of the rules of this section (e.g.,
aggregation rules). An allocation method is not necessarily unreasonable
merely because another allocation method would result in a higher
aggregate tax liability. Paragraphs (b), (c), and (d) of this section
describe allocation methods that are generally reasonable. Other methods
may be reasonable in appropriate circumstances. Nevertheless, in the
absence of specific published guidance, it is not reasonable to use an
allocation method in which the basis of property contributed to the
partnership is increased (or decreased) to reflect built-in gain (or
loss), or a method under which the partnership creates tax allocations
of income, gain, loss, or deduction independent of allocations affecting
book capital accounts. See Sec. 1.704-3(d). Paragraph (e) of this
section contains special rules and exceptions. The principles of this
paragraph (a)(1), together with the methods described in paragraphs (b),
(c) and (d) of this section, apply only to contributions of property
that are otherwise respected. See for example Sec. 1.701-2.
Accordingly, even though a partnership's allocation method may be
described in the literal language of paragraphs (b), (c) or (d) of this
section, based on the particular facts and circumstances, the
Commissioner can recast the contribution as appropriate to avoid tax
results inconsistent with the intent of subchapter K. One factor that
may be considered by the Commissioner is the use of the remedial
allocation method by related partners in which allocations of remedial
items of income, gain, loss or deduction are made to one partner and the
allocations of offsetting remedial items are made to a related partner.
(2) Operating rules. Except as provided in paragraphs (e)(2) and
(e)(3) of this section, section 704(c) and this section apply on a
property-by-property basis. Therefore, in determining whether there is a
disparity between adjusted
[[Page 525]]
tax basis and fair market value, the built-in gains and built-in losses
on items of contributed property cannot be aggregated. A partnership may
use different methods with respect to different items of contributed
property, provided that the partnership and the partners consistently
apply a single reasonable method for each item of contributed property
and that the overall method or combination of methods are reasonable
based on the facts and circumstances and consistent with the purpose of
section 704(c). It may be unreasonable to use one method for appreciated
property and another method for depreciated property. Similarly, it may
be unreasonable to use the traditional method for built-in gain property
contributed by a partner with a high marginal tax rate while using
curative allocations for built-in gain property contributed by a partner
with a low marginal tax rate. A new partnership formed as the result of
the termination of a partnership under section 708(b)(1)(B) is not
required to use the same method as the terminated partnership with
respect to section 704(c) property deemed contributed to the new
partnership by the terminated partnership under Sec. 1.708-1(b)(1)(iv).
The previous sentence applies to terminations of partnerships under
section 708(b)(1)(B) occurring on or after May 9, 1997; however, the
sentence may be applied to terminations occurring on or after May 9,
1996, provided that the partnership and its partners apply the sentence
to the termination in a consistent manner.
(3) Definitions--(i) Section 704(c) property. Property contributed
to a partnership is section 704(c) property if at the time of
contribution its book value differs from the contributing partner's
adjusted tax basis. For purposes of this section, book value is
determined as contemplated by Sec. 1.704-1(b). Therefore, book value is
equal to fair market value at the time of contribution and is
subsequently adjusted for cost recovery and other events that affect the
basis of the property. For a partnership that maintains capital accounts
in accordance with Sec. 1.704-1(b)(2)(iv), the book value of property
is initially the value used in determining the contributing partner's
capital account under Sec. 1.704-1(b)(2)(iv)(d), and is appropriately
adjusted thereafter (e.g., for book cost recovery under Sec. Sec.
1.704-1(b)(2)(iv)(g)(3) and 1.704-3(d)(2) and other events that affect
the basis of the property). A partnership that does not maintain capital
accounts under Sec. 1.704-1(b)(2)(iv) must comply with this section
using a book capital account based on the same principles (i.e., a book
capital account that reflects the fair market value of property at the
time of contribution and that is subsequently adjusted for cost recovery
and other events that affect the basis of the property). Property deemed
contributed to a new partnership as the result of the termination of a
partnership under section 708(b)(1)(B) is treated as section 704(c)
property in the hands of the new partnership only to the extent that the
property was section 704(c) property in the hands of the terminated
partnership immediately prior to the termination. See Sec. 1.708-
1(b)(1)(iv) for an example of the application of this rule. The previous
two sentences apply to terminations of partnerships under section
708(b)(1)(B) occurring on or after May 9, 1997; however, the sentences
may be applied to terminations occurring on or after May 9, 1996,
provided that the partnership and its partners apply the sentences to
the termination in a consistent manner.
(ii) Built-in gain and built-in loss. The built-in gain on section
704(c) property is the excess of the property's book value over the
contributing partner's adjusted tax basis upon contribution. The built-
in gain is thereafter reduced by decreases in the difference between the
property's book value and adjusted tax basis. The built-in loss on
section 704(c) property is the excess of the contributing partner's
adjusted tax basis over the property's book value upon contribution. The
built-in loss is thereafter reduced by decreases in the difference
between the property's adjusted tax basis and book value. See Sec.
1.460-4(k)(3)(v)(A) for a rule relating to the amount of built-in income
or built-in loss attributable to a contract accounted for under a long-
term contract method of accounting.
(4) Accounts payable and other accrued but unpaid items. Accounts
payable and
[[Page 526]]
other accrued but unpaid items contributed by a partner using the cash
receipts and disbursements method of accounting are treated as section
704(c) property for purposes of applying the rules of this section.
(5) Other provisions of the Internal Revenue Code. Section 704(c)
and this section apply to a contribution of property to the partnership
only if the contribution is governed by section 721, taking into account
other provisions of the Internal Revenue Code. For example, to the
extent that a transfer of property to a partnership is a sale under
section 707, the transfer is not a contribution of property to which
section 704(c) applies.
(6) Other applications of section 704(c) principles--(i)
Revaluations under section 704(b). The principles of this section apply
to allocations with respect to property for which differences between
book value and adjusted tax basis are created when a partnership
revalues partnership property pursuant to Sec. 1.704-1(b)(2)(iv)(f) or
1.704-1(b)(2)(iv)(s) (reverse section 704(c) allocations). Partnerships
are not required to use the same allocation method for reverse section
704(c) allocations as for contributed property, even if at the time of
revaluation the property is already subject to section 704(c) and
paragraph (a) of this section. In addition, partnerships are not
required to use the same allocation method for reverse section 704(c)
allocations each time the partnership revalues its property. A
partnership that makes allocations with respect to revalued property
must use a reasonable method that is consistent with the purposes of
section 704(b) and (c).
(ii) Basis adjustments. A partnership making adjustments under Sec.
1.743-1(b) or 1.751-1(a)(2) must account for built-in gain or loss under
section 704(c) in accordance with the principles of this section.
(7) Transfer of a partnership interest. If a contributing partner
transfers a partnership interest, built-in gain or loss must be
allocated to the transferee partner as it would have been allocated to
the transferor partner. If the contributing partner transfers a portion
of the partnership interest, the share of built-in gain or loss
proportionate to the interest transferred must be allocated to the
transferee partner. This rule does not apply to any person who acquired
a partnership interest from a Sec. 1.752-7 liability partner in a
transaction to which paragraph (e)(1) of Sec. 1.752-7 applies. See
Sec. 1.752-7(c)(1).
(8) Special rules--(i) Disposition in a nonrecognition transaction.
If a partnership disposes of section 704(c) property in a nonrecognition
transaction, the substituted basis property (within the meaning of
section 7701(a)(42)) is treated as section 704(c) property with the same
amount of built-in gain or loss as the section 704(c) property disposed
of by the partnership. If gain or loss is recognized in such a
transaction, appropriate adjustments must be made. The allocation method
for the substituted basis property must be consistent with the
allocation method chosen for the original property. If a partnership
transfers an item of section 704(c) property together with other
property to a corporation under section 351, in order to preserve that
item's built-in gain or loss, the basis in the stock received in
exchange for the section 704(c) property is determined as if each item
of section 704(c) property had been the only property transferred to the
corporation by the partnership.
(ii) Disposition in an installment sale. If a partnership disposes
of section 704(c) property in an installment sale as defined in section
453(b), the installment obligation received by the partnership is
treated as the section 704(c) property with the same amount of built-in
gain as the section 704(c) property disposed of by the partnership (with
appropriate adjustments for any gain recognized on the installment
sale). The allocation method for the installment obligation must be
consistent with the allocation method chosen for the original property.
(iii) Contributed contracts. If a partner contributes to a
partnership a contract that is section 704(c) property, and the
partnership subsequently acquires property pursuant to the contract in a
transaction in which less than all of the gain or loss is recognized,
then the acquired property is treated as the section 704(c) property
with the same amount of built-in gain or loss as the contract (with
appropriate adjustments
[[Page 527]]
for any gain or loss recognized on the acquisition). For this purpose,
the term contract includes, but is not limited to, options, forward
contracts, and futures contracts. The allocation method for the acquired
property must be consistent with the allocation method chosen for the
contributed contract.
(iv) Capitalized amounts. To the extent that a partnership properly
capitalizes all or a portion of an item as described in paragraph
(a)(12) of this section, then the item or items to which such cost is
properly capitalized is treated as section 704(c) property with the same
amount of built-in loss as corresponds to the amount capitalized.
(9) Tiered partnerships. If a partnership contributes section 704(c)
property to a second partnership (the lower-tier partnership), or if a
partner that has contributed section 704(c) property to a partnership
contributes that partnership interest to a second partnership (the
upper-tier partnership), the upper-tier partnership must allocate its
distributive share of lower-tier partnership items with respect to that
section 704(c) property in a manner that takes into account the
contributing partner's remaining built-in gain or loss. Allocations made
under this paragraph will be considered to be made in a manner that
meets the requirements of Sec. 1.704-1(b)(2)(iv)(q) (relating to
capital account adjustments where guidance is lacking).
(10) Anti-abuse rule--(i) In general. An allocation method (or
combination of methods) is not reasonable if the contribution of
property (or event that results in reverse section 704(c) allocations)
and the corresponding allocation of tax items with respect to the
property are made with a view to shifting the tax consequences of built-
in gain or loss among the partners in a manner that substantially
reduces the present value of the partners' aggregate tax liability. For
purposes of this paragraph (a)(10), all references to the partners shall
include both direct and indirect partners.
(ii) Definition of indirect partner. An indirect partner is any
direct or indirect owner of a partnership, S corporation, or controlled
foreign corporation (as defined in section 957(a) or 953(c)), or direct
or indirect beneficiary of a trust or estate, that is a partner in the
partnership, and any consolidated group of which the partner in the
partnership is a member (within the meaning of Sec. 1.1502-1(h)). An
owner (whether directly or through tiers of entities) of a controlled
foreign corporation is treated as an indirect partner only with respect
to allocations of items of income, gain, loss, or deduction that enter
into the computation of a United States shareholder's inclusion under
section 951(a) with respect to the controlled foreign corporation, enter
into any person's income attributable to a United States shareholder's
inclusion under section 951(a) with respect to the controlled foreign
corporation, or would enter into the computations described in this
sentence if such items were allocated to the controlled foreign
corporation.
(11) Contributing and noncontributing partners' recapture shares.
For special rules applicable to the allocation of depreciation recapture
with respect to property contributed by a partner to a partnership, see
Sec. Sec. 1.1245-1(e)(2) and 1.1250-1(f).
(12) Sec. 1.752-7 liabilities. Except as otherwise provided in
Sec. 1.752-7, Sec. 1.752-7 liabilities (within the meaning of Sec.
1.752-7(b)(2)) are section 704(c) property (built-in loss property that
at the time of contribution has a book value that differs from the
contributing partner's adjusted tax basis) for purposes of applying the
rules of this section. See Sec. 1.752-7(c). To the extent that the
built-in loss associated with the Sec. 1.752-7 liability exceeds the
cost of satisfying the Sec. 1.752-7 liability (as defined in Sec.
1.752-7(b)(3)), the excess creates a ``ceiling rule'' limitation, within
the meaning of Sec. 1.704-3(b)(1), subject to the methods of allocation
set forth in Sec. 1.704-3(b), (c) and (d).
(b) Traditional method--(1) In general. This paragraph (b) describes
the traditional method of making section 704(c) allocations. In general,
the traditional method requires that when the partnership has income,
gain, loss, or deduction attributable to section 704(c) property, it
must make appropriate allocations to the partners to avoid shifting the
tax consequences of the built-in gain or loss. Under this rule, if the
[[Page 528]]
partnership sells section 704(c) property and recognizes gain or loss,
built-in gain or loss on the property is allocated to the contributing
partner. If the partnership sells a portion of, or an interest in,
section 704(c) property, a proportionate part of the built-in gain or
loss is allocated to the contributing partner. For section 704(c)
property subject to amortization, depletion, depreciation, or other cost
recovery, the allocation of deductions attributable to these items takes
into account built-in gain or loss on the property. For example, tax
allocations to the noncontributing partners of cost recovery deductions
with respect to section 704(c) property generally must, to the extent
possible, equal book allocations to those partners. However, the total
income, gain, loss, or deduction allocated to the partners for a taxable
year with respect to a property cannot exceed the total partnership
income, gain, loss, or deduction with respect to that property for the
taxable year (the ceiling rule). If a partnership has no property the
allocations from which are limited by the ceiling rule, the traditional
method is reasonable when used for all contributed property.
(2) Examples. The following examples illustrate the principles of
the traditional method.
Example 1. Operation of the traditional method. (i) Calculation of
built-in gain on contribution. A and B form partnership AB and agree
that each will be allocated a 50 percent share of all partnership items
and that AB will make allocations under section 704(c) using the
traditional method under paragraph (b) of this section. A contributes
depreciable property with an adjusted tax basis of $4,000 and a book
value of $10,000, and B contributes $10,000 cash. Under paragraph (a)(3)
of this section, A has built-in gain of $6,000, the excess of the
partnership's book value for the property ($10,000) over A's adjusted
tax basis in the property at the time of contribution ($4,000).
(ii) Allocation of tax depreciation. The property is depreciated
using the straight-line method over a 10-year recovery period. Because
the property depreciates at an annual rate of 10 percent, B would have
been entitled to a depreciation deduction of $500 per year for both book
and tax purposes if the adjusted tax basis of the property equalled its
fair market value at the time of contribution. Although each partner is
allocated $500 of book depreciation per year, the partnership is allowed
a tax depreciation deduction of only $400 per year (10 percent of
$4,000). The partnership can allocate only $400 of tax depreciation
under the ceiling rule of paragraph (b)(1) of this section, and it must
be allocated entirely to B. In AB's first year, the proceeds generated
by the equipment exactly equal AB's operating expenses. At the end of
that year, the book value of the property is $9,000 ($10,000 less the
$1,000 book depreciation deduction), and the adjusted tax basis is
$3,600 ($4,000 less the $400 tax depreciation deduction). A's built-in
gain with respect to the property decreases to $5,400 ($9,000 book value
less $3,600 adjusted tax basis). Also, at the end of AB's first year, A
has a $9,500 book capital account and a $4,000 tax basis in A's
partnership interest. B has a $9,500 book capital account and a $9,600
adjusted tax basis in B's partnership interest.
(iii) Sale of the property. If AB sells the property at the
beginning of AB's second year for $9,000, AB realizes tax gain of $5,400
($9,000, the amount realized, less the adjusted tax basis of $3,600).
Under paragraph (b)(1) of this section, the entire $5,400 gain must be
allocated to A because the property A contributed has that much built-in
gain remaining. If AB sells the property at the beginning of AB's second
year for $10,000, AB realizes tax gain of $6,400 ($10,000, the amount
realized, less the adjusted tax basis of $3,600). Under paragraph (b)(1)
of this section, only $5,400 of gain must be allocated to A to account
for A's built-in gain. The remaining $1,000 of gain is allocated equally
between A and B in accordance with the partnership agreement. If AB
sells the property for less than the $9,000 book value, AB realizes tax
gain of less than $5,400, and the entire gain must be allocated to A.
(iv) Termination and liquidation of partnership. If AB sells the
property at the beginning of AB's second year for $9,000, and AB engages
in no other transactions that year, A will recognize a gain of $5,400,
and B will recognize no income or loss. A's adjusted tax basis for A's
interest in AB will then be $9,400 ($4,000, A's original tax basis,
increased by the gain of $5,400). B's adjusted tax basis for B's
interest in AB will be $9,600 ($10,000, B's original tax basis, less the
$400 depreciation deduction in the first partnership year). If the
partnership then terminates and distributes its assets ($19,000 in cash)
to A and B in proportion to their capital account balances, A will
recognize a capital gain of $100 ($9,500, the amount distributed to A,
less $9,400, the adjusted tax basis of A's interest). B will recognize a
capital loss of $100 (the excess of B's adjusted tax basis, $9,600, over
the amount received, $9,500).
Example 2. Unreasonable use of the traditional method. (i) Facts. C
and D form partnership CD and agree that each will be allocated a 50
percent share of all partnership items and that CD will make allocations
under section 704(c) using the traditional method
[[Page 529]]
under paragraph (b) of this section. C contributes equipment with an
adjusted tax basis of $1,000 and a book value of $10,000, with a view to
taking advantage of the fact that the equipment has only one year
remaining on its cost recovery schedule although its remaining economic
life is significantly longer. At the time of contribution, C has a
built-in gain of $9,000 and the equipment is section 704(c) property. D
contributes $10,000 of cash, which CD uses to buy securities. D has
substantial net operating loss carryforwards that D anticipates will
otherwise expire unused. Under Sec. 1.704-1(b)(2)(iv)(g)(3), the
partnership must allocate the $10,000 of book depreciation to the
partners in the first year of the partnership. Thus, there is $10,000 of
book depreciation and $1,000 of tax depreciation in the partnership's
first year. CD sells the equipment during the second year for $10,000
and recognizes a $10,000 gain ($10,000, the amount realized, less the
adjusted tax basis of $0).
(ii) Unreasonable use of method--(A) At the beginning of the second
year, both the book value and adjusted tax basis of the equipment are
$0. Therefore, there is no remaining built-in gain. The $10,000 gain on
the sale of the equipment in the second year is allocated $5,000 each to
C and D. The interaction of the partnership's one-year write-off of the
entire book value of the equipment and the use of the traditional method
results in a shift of $4,000 of the precontribution gain in the
equipment from C to D (D's $5,000 share of CD's $10,000 gain, less the
$1,000 tax depreciation deduction previously allocated to D).
(B) The traditional method is not reasonable under paragraph (a)(10)
of this section because the contribution of property is made, and the
traditional method is used, with a view to shifting a significant amount
of taxable income to a partner with a low marginal tax rate and away
from a partner with a high marginal tax rate.
(C) Under these facts, if the partnership agreement in effect for
the year of contribution had provided that tax gain from the sale of the
property (if any) would always be allocated first to C to offset the
effect of the ceiling rule limitation, the allocation method would not
violate the anti-abuse rule of paragraph (a)(10) of this section. See
paragraph (c)(3) of this section. Under other facts, (for example, if
the partnership holds multiple section 704(c) properties and either uses
multiple allocation methods or uses a single allocation method where one
or more of the properties are subject to the ceiling rule) the
allocation to C may not be reasonable.
(c) Traditional method with curative allocations--(1) In general. To
correct distortions created by the ceiling rule, a partnership using the
traditional method under paragraph (b) of this section may make
reasonable curative allocations to reduce or eliminate disparities
between book and tax items of noncontributing partners. A curative
allocation is an allocation of income, gain, loss, or deduction for tax
purposes that differs from the partnership's allocation of the
corresponding book item. For example, if a noncontributing partner is
allocated less tax depreciation than book depreciation with respect to
an item of section 704(c) property, the partnership may make a curative
allocation to that partner of tax depreciation from another item of
partnership property to make up the difference, notwithstanding that the
corresponding book depreciation is allocated to the contributing
partner. A partnership may limit its curative allocations to allocations
of one or more particular tax items (e.g., only depreciation from a
specific property or properties) even if the allocation of those
available items does not offset fully the effect of the ceiling rule.
(2) Consistency. A partnership must be consistent in its application
of curative allocations with respect to each item of section 704(c)
property from year to year.
(3) Reasonable curative allocations--(i) Amount. A curative
allocation is not reasonable to the extent it exceeds the amount
necessary to offset the effect of the ceiling rule for the current
taxable year or, in the case of a curative allocation upon disposition
of the property, for prior taxable years.
(ii) Timing. The period of time over which the curative allocations
are made is a factor in determining whether the allocations are
reasonable. Notwithstanding paragraph (c)(3)(i) of this section, a
partnership may make curative allocations in a taxable year to offset
the effect of the ceiling rule for a prior taxable year if those
allocations are made over a reasonable period of time, such as over the
property's economic life, and are provided for under the partnership
agreement in effect for the year of contribution. See paragraph (c)(4)
Example 3 (ii)(C) of this section.
(iii) Type--(A) In general. To be reasonable, a curative allocation
of income, gain, loss, or deduction must be expected to have
substantially the
[[Page 530]]
same effect on each partner's tax liability as the tax item limited by
the ceiling rule. The expectation must exist at the time the section
704(c) property is obligated to be (or is) contributed to the
partnership and the allocation with respect to that property becomes
part of the partnership agreement. However, the expectation is tested at
the time the allocation with respect to that property is actually made
if the partnership agreement is not sufficiently specific as to the
precise manner in which allocations are to be made with respect to that
property. Under this paragraph (c), if the item limited by the ceiling
rule is loss from the sale of property, a curative allocation of gain
must be expected to have substantially the same effect as would an
allocation to that partner of gain with respect to the sale of the
property. If the item limited by the ceiling rule is depreciation or
other cost recovery, a curative allocation of income to the contributing
partner must be expected to have substantially the same effect as would
an allocation to that partner of partnership income with respect to the
contributed property. For example, if depreciation deductions with
respect to leased equipment contributed by a tax-exempt partner are
limited by the ceiling rule, a curative allocation of dividend or
interest income to that partner generally is not reasonable, although a
curative allocation of depreciation deductions from other leased
equipment to the noncontributing partner is reasonable. Similarly, under
this rule, if depreciation deductions apportioned to foreign source
income in a particular statutory grouping under section 904(d) are
limited by the ceiling rule, a curative allocation of income from
another statutory grouping to the contributing partner generally is not
reasonable, although a curative allocation of income from the same
statutory grouping and of the same character is reasonable.
(B) Exception for allocation from disposition of contributed
property. If cost recovery has been limited by the ceiling rule, the
general limitation on character does not apply to income from the
disposition of contributed property subject to the ceiling rule, but
only if properly provided for in the partnership agreement in effect for
the year of contribution or revaluation. For example, if allocations of
depreciation deductions to a noncontributing partner have been limited
by the ceiling rule, a curative allocation to the contributing partner
of gain from the sale of that property, if properly provided for in the
partnership agreement, is reasonable for purposes of paragraph
(c)(3)(iii)(A) of this section even if not of the same character.
(4) Examples. The following examples illustrate the principles of
this paragraph (c).
Example 1. Reasonable and unreasonable curative allocations. (i)
Facts. E and F form partnership EF and agree that each will be allocated
a 50 percent share of all partnership items and that EF will make
allocations under section 704(c) using the traditional method with
curative allocations under paragraph (c) of this section. E contributes
equipment with an adjusted tax basis of $4,000 and a book value of
$10,000. The equipment has 10 years remaining on its cost recovery
schedule and is depreciable using the straight-line method. At the time
of contribution, E has a built-in gain of $6,000, and therefore, the
equipment is section 704(c) property. F contributes $10,000 of cash,
which EF uses to buy inventory for resale. In EF's first year, the
revenue generated by the equipment equals EF's operating expenses. The
equipment generates $1,000 of book depreciation and $400 of tax
depreciation for each of 10 years. At the end of the first year EF sells
all the inventory for $10,700, recognizing $700 of income. The partners
anticipate that the inventory income will have substantially the same
effect on their tax liabilities as income from E's contributed
equipment. Under the traditional method of paragraph (b) of this
section, E and F would each be allocated $350 of income from the sale of
inventory for book and tax purposes and $500 of depreciation for book
purposes. The $400 of tax depreciation would all be allocated to F.
Thus, at the end of the first year, E and F's book and tax capital
accounts would be as follows:
----------------------------------------------------------------------------------------------------------------
E F
---------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
$10,000 $4,000 $10,000 $10,000 Initial contribution.
<500 <500 > >
[[Page 531]]
350 350 350 350 Sales income.
---------------------------------------------------------------
9,850 4,350 9,850 9,950
----------------------------------------------------------------------------------------------------------------
(ii) Reasonable curative allocation. Because the ceiling rule would
cause a disparity of $100 between F's book and tax capital accounts, EF
may properly allocate to E under paragraph (c) of this section an
additional $100 of income from the sale of inventory for tax purposes.
This allocation results in capital accounts at the end of EF's first
year as follows:
----------------------------------------------------------------------------------------------------------------
E F
---------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
$10,000 $4,000 $10,000 $10,000 Initial contribution.
<500 <500 > >
350 450 350 250 Sales income.
---------------------------------------------------------------
9,850 4,450 9,850 9,850
----------------------------------------------------------------------------------------------------------------
(iii) Unreasonable curative allocation. (A) The facts are the same
as in paragraphs (i) and (ii) of this Example 1, except that E and F
choose to allocate all the income from the sale of the inventory to E
for tax purposes, although they share it equally for book purposes. This
allocation results in capital accounts at the end of EF's first year as
follows:
----------------------------------------------------------------------------------------------------------------
E F
---------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
$10,000 $4,000 $10,000 $10,000 Initial contribution.
<500 <500 > >
350 700 350 0 Sales income.
---------------------------------------------------------------
9,850 4,700 9,850 9,600
----------------------------------------------------------------------------------------------------------------
(B) This curative allocation is not reasonable under paragraph
(c)(3)(i) of this section because the allocation exceeds the amount
necessary to offset the disparity caused by the ceiling rule.
Example 2. Curative allocations limited to depreciation. (i) Facts.
G and H form partnership GH and agree that each will be allocated a 50
percent share of all partnership items and that GH will make allocations
under section 704(c) using the traditional method with curative
allocations under paragraph (c) of this section, but only to the extent
that the partnership has sufficient tax depreciation deductions. G
contributes property G1, with an adjusted tax basis of $3,000 and a fair
market value of $10,000, and H contributes property H1, with an adjusted
tax basis of $6,000 and a fair market value of $10,000. Both properties
have 5 years remaining on their cost recovery schedules and are
depreciable using the straight-line method. At the time of contribution,
G1 has a built-in gain of $7,000 and H1 has a built-in gain of $4,000,
and therefore, both properties are section 704(c) property. G1 generates
$600 of tax depreciation and $2,000 of book depreciation for each of
five years. H1 generates $1,200 of tax depreciation and $2,000 of book
depreciation for each of 5 years. In addition, the properties each
generate $500 of operating income annually. G and H are each allocated
$1,000 of book depreciation for each property. Under the traditional
method of paragraph (b) of this section, G would be allocated $0 of tax
depreciation for G1 and $1,000 for H1, and H would be allocated $600 of
tax depreciation for G1 and $200 for H1. Thus, at the end of the first
year, G and H's book and tax capital accounts would be as follows:
----------------------------------------------------------------------------------------------------------------
G H
---------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
$10,000 $3,000 $10,000 $6,000 Initial contribution.
[[Page 532]]
<1,000 <1,000
<1,000
500 500 500 500 Operating income.
---------------------------------------------------------------
8,500 2,500 8,500 5,700
----------------------------------------------------------------------------------------------------------------
(ii) Curative allocations. Under the traditional method, G is
allocated more depreciation deductions than H, even though H contributed
property with a smaller disparity reflected on GH's book and tax capital
accounts. GH makes curative allocations to H of an additional $400 of
tax depreciation each year, which reduces the disparities between G and
H's book and tax capital accounts ratably each year. These allocations
are reasonable provided the allocations meet the other requirements of
this section. As a result of their agreement, at the end of the first
year, G and H's capital accounts are as follows:
----------------------------------------------------------------------------------------------------------------
G H
---------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
$10,000 $3,000 $10,000 $6,000 Initial contribution.
<1,000 <1,000
<1,000 e >
500 500 500 500 Operating income.
---------------------------------------------------------------
8,500 2,900 8,500 5,300
----------------------------------------------------------------------------------------------------------------
Example 3. Unreasonable use of curative allocations. (i) Facts. J
and K form partnership JK and agree that each will receive a 50 percent
share of all partnership items and that JK will make allocations under
section 704(c) using the traditional method with curative allocations
under paragraph (c) of this section. J contributes equipment with an
adjusted tax basis of $1,000 and a book value of $10,000, with a view to
taking advantage of the fact that the equipment has only one year
remaining on its cost recovery schedule although it has an estimated
remaining economic life of 10 years. J has substantial net operating
loss carryforwards that J anticipates will otherwise expire unused. At
the time of contribution, J has a built-in gain of $9,000, and
therefore, the equipment is section 704(c) property. K contributes
$10,000 of cash, which JK uses to buy inventory for resale. In JK's
first year, the revenues generated by the equipment exactly equal JK's
operating expenses. Under Sec. 1.704-1(b)(2)(iv)(g)(3), the partnership
must allocate the $10,000 of book depreciation to the partners in the
first year of the partnership. Thus, there is $10,000 of book
depreciation and $1,000 of tax depreciation in the partnership's first
year. In addition, at the end of the first year JK sells all of the
inventory for $18,000, recognizing $8,000 of income. The partners
anticipate that the inventory income will have substantially the same
effect on their tax liabilities as income from J's contributed
equipment. Under the traditional method of paragraph (b) of this
section, J and K's book and tax capital accounts at the end of the first
year would be as follows:
----------------------------------------------------------------------------------------------------------------
J K
---------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
$10,000 $1,000 $10,000 $10,000 Initial contribution.
<5,000 <5,000 <5,000 <5,000
FINDING AIDS
--------------------------------------------------------------------
A list of CFR titles, subtitles, chapters, subchapters and parts and
an alphabetical list of agencies publishing in the CFR are included in
the CFR Index and Finding Aids volume to the Code of Federal Regulations
which is published separately and revised annually.
Table of CFR Titles and Chapters
Alphabetical List of Agencies Appearing in the CFR
Table of OMB Control Numbers
List of CFR Sections Affected
[[Page 909]]
Table of CFR Titles and Chapters
(Revised as of April 1, 2014)
Title 1--General Provisions
I Administrative Committee of the Federal Register
(Parts 1--49)
II Office of the Federal Register (Parts 50--299)
III Administrative Conference of the United States (Parts
300--399)
IV Miscellaneous Agencies (Parts 400--500)
Title 2--Grants and Agreements
Subtitle A--Office of Management and Budget Guidance
for Grants and Agreements
I Office of Management and Budget Governmentwide
Guidance for Grants and Agreements (Parts 2--199)
II Office of Management and Budget Guidance (Parts 200--
299)
Subtitle B--Federal Agency Regulations for Grants and
Agreements
III Department of Health and Human Services (Parts 300--
399)
IV Department of Agriculture (Parts 400--499)
VI Department of State (Parts 600--699)
VII Agency for International Development (Parts 700--799)
VIII Department of Veterans Affairs (Parts 800--899)
IX Department of Energy (Parts 900--999)
XI Department of Defense (Parts 1100--1199)
XII Department of Transportation (Parts 1200--1299)
XIII Department of Commerce (Parts 1300--1399)
XIV Department of the Interior (Parts 1400--1499)
XV Environmental Protection Agency (Parts 1500--1599)
XVIII National Aeronautics and Space Administration (Parts
1800--1899)
XX United States Nuclear Regulatory Commission (Parts
2000--2099)
XXII Corporation for National and Community Service (Parts
2200--2299)
XXIII Social Security Administration (Parts 2300--2399)
XXIV Housing and Urban Development (Parts 2400--2499)
XXV National Science Foundation (Parts 2500--2599)
XXVI National Archives and Records Administration (Parts
2600--2699)
XXVII Small Business Administration (Parts 2700--2799)
XXVIII Department of Justice (Parts 2800--2899)
[[Page 910]]
XXX Department of Homeland Security (Parts 3000--3099)
XXXI Institute of Museum and Library Services (Parts 3100--
3199)
XXXII National Endowment for the Arts (Parts 3200--3299)
XXXIII National Endowment for the Humanities (Parts 3300--
3399)
XXXIV Department of Education (Parts 3400--3499)
XXXV Export-Import Bank of the United States (Parts 3500--
3599)
XXXVII Peace Corps (Parts 3700--3799)
LVIII Election Assistance Commission (Parts 5800--5899)
Title 3--The President
I Executive Office of the President (Parts 100--199)
Title 4--Accounts
I Government Accountability Office (Parts 1--199)
II Recovery Accountability and Transparency Board (Parts
200--299)
Title 5--Administrative Personnel
I Office of Personnel Management (Parts 1--1199)
II Merit Systems Protection Board (Parts 1200--1299)
III Office of Management and Budget (Parts 1300--1399)
V The International Organizations Employees Loyalty
Board (Parts 1500--1599)
VI Federal Retirement Thrift Investment Board (Parts
1600--1699)
VIII Office of Special Counsel (Parts 1800--1899)
IX Appalachian Regional Commission (Parts 1900--1999)
XI Armed Forces Retirement Home (Parts 2100--2199)
XIV Federal Labor Relations Authority, General Counsel of
the Federal Labor Relations Authority and Federal
Service Impasses Panel (Parts 2400--2499)
XV Office of Administration, Executive Office of the
President (Parts 2500--2599)
XVI Office of Government Ethics (Parts 2600--2699)
XXI Department of the Treasury (Parts 3100--3199)
XXII Federal Deposit Insurance Corporation (Parts 3200--
3299)
XXIII Department of Energy (Parts 3300--3399)
XXIV Federal Energy Regulatory Commission (Parts 3400--
3499)
XXV Department of the Interior (Parts 3500--3599)
XXVI Department of Defense (Parts 3600-- 3699)
XXVIII Department of Justice (Parts 3800--3899)
XXIX Federal Communications Commission (Parts 3900--3999)
XXX Farm Credit System Insurance Corporation (Parts 4000--
4099)
XXXI Farm Credit Administration (Parts 4100--4199)
[[Page 911]]
XXXIII Overseas Private Investment Corporation (Parts 4300--
4399)
XXXIV Securities and Exchange Commission (Parts 4400--4499)
XXXV Office of Personnel Management (Parts 4500--4599)
XXXVII Federal Election Commission (Parts 4700--4799)
XL Interstate Commerce Commission (Parts 5000--5099)
XLI Commodity Futures Trading Commission (Parts 5100--
5199)
XLII Department of Labor (Parts 5200--5299)
XLIII National Science Foundation (Parts 5300--5399)
XLV Department of Health and Human Services (Parts 5500--
5599)
XLVI Postal Rate Commission (Parts 5600--5699)
XLVII Federal Trade Commission (Parts 5700--5799)
XLVIII Nuclear Regulatory Commission (Parts 5800--5899)
XLIX Federal Labor Relations Authority (Parts 5900--5999)
L Department of Transportation (Parts 6000--6099)
LII Export-Import Bank of the United States (Parts 6200--
6299)
LIII Department of Education (Parts 6300--6399)
LIV Environmental Protection Agency (Parts 6400--6499)
LV National Endowment for the Arts (Parts 6500--6599)
LVI National Endowment for the Humanities (Parts 6600--
6699)
LVII General Services Administration (Parts 6700--6799)
LVIII Board of Governors of the Federal Reserve System
(Parts 6800--6899)
LIX National Aeronautics and Space Administration (Parts
6900--6999)
LX United States Postal Service (Parts 7000--7099)
LXI National Labor Relations Board (Parts 7100--7199)
LXII Equal Employment Opportunity Commission (Parts 7200--
7299)
LXIII Inter-American Foundation (Parts 7300--7399)
LXIV Merit Systems Protection Board (Parts 7400--7499)
LXV Department of Housing and Urban Development (Parts
7500--7599)
LXVI National Archives and Records Administration (Parts
7600--7699)
LXVII Institute of Museum and Library Services (Parts 7700--
7799)
LXVIII Commission on Civil Rights (Parts 7800--7899)
LXIX Tennessee Valley Authority (Parts 7900--7999)
LXX Court Services and Offender Supervision Agency for the
District of Columbia (Parts 8000--8099)
LXXI Consumer Product Safety Commission (Parts 8100--8199)
LXXIII Department of Agriculture (Parts 8300--8399)
LXXIV Federal Mine Safety and Health Review Commission
(Parts 8400--8499)
LXXVI Federal Retirement Thrift Investment Board (Parts
8600--8699)
LXXVII Office of Management and Budget (Parts 8700--8799)
LXXX Federal Housing Finance Agency (Parts 9000--9099)
LXXXIII Special Inspector General for Afghanistan
Reconstruction (Parts 9300--9399)
[[Page 912]]
LXXXIV Bureau of Consumer Financial Protection (Parts 9400--
9499)
LXXXVI National Credit Union Administration (Parts 9600--
9699)
XCVII Department of Homeland Security Human Resources
Management System (Department of Homeland
Security--Office of Personnel Management) (Parts
9700--9799)
XCVII Council of the Inspectors General on Integrity and
Efficiency (Parts 9800--9899)
Title 6--Domestic Security
I Department of Homeland Security, Office of the
Secretary (Parts 1--99)
X Privacy and Civil Liberties Oversight Board (Parts
1000--1099)
Title 7--Agriculture
Subtitle A--Office of the Secretary of Agriculture
(Parts 0--26)
Subtitle B--Regulations of the Department of
Agriculture
I Agricultural Marketing Service (Standards,
Inspections, Marketing Practices), Department of
Agriculture (Parts 27--209)
II Food and Nutrition Service, Department of Agriculture
(Parts 210--299)
III Animal and Plant Health Inspection Service, Department
of Agriculture (Parts 300--399)
IV Federal Crop Insurance Corporation, Department of
Agriculture (Parts 400--499)
V Agricultural Research Service, Department of
Agriculture (Parts 500--599)
VI Natural Resources Conservation Service, Department of
Agriculture (Parts 600--699)
VII Farm Service Agency, Department of Agriculture (Parts
700--799)
VIII Grain Inspection, Packers and Stockyards
Administration (Federal Grain Inspection Service),
Department of Agriculture (Parts 800--899)
IX Agricultural Marketing Service (Marketing Agreements
and Orders; Fruits, Vegetables, Nuts), Department
of Agriculture (Parts 900--999)
X Agricultural Marketing Service (Marketing Agreements
and Orders; Milk), Department of Agriculture
(Parts 1000--1199)
XI Agricultural Marketing Service (Marketing Agreements
and Orders; Miscellaneous Commodities), Department
of Agriculture (Parts 1200--1299)
XIV Commodity Credit Corporation, Department of
Agriculture (Parts 1400--1499)
XV Foreign Agricultural Service, Department of
Agriculture (Parts 1500--1599)
XVI Rural Telephone Bank, Department of Agriculture (Parts
1600--1699)
[[Page 913]]
XVII Rural Utilities Service, Department of Agriculture
(Parts 1700--1799)
XVIII Rural Housing Service, Rural Business-Cooperative
Service, Rural Utilities Service, and Farm Service
Agency, Department of Agriculture (Parts 1800--
2099)
XX Local Television Loan Guarantee Board (Parts 2200--
2299)
XXV Office of Advocacy and Outreach, Department of
Agriculture (Parts 2500--2599)
XXVI Office of Inspector General, Department of Agriculture
(Parts 2600--2699)
XXVII Office of Information Resources Management, Department
of Agriculture (Parts 2700--2799)
XXVIII Office of Operations, Department of Agriculture (Parts
2800--2899)
XXIX Office of Energy Policy and New Uses, Department of
Agriculture (Parts 2900--2999)
XXX Office of the Chief Financial Officer, Department of
Agriculture (Parts 3000--3099)
XXXI Office of Environmental Quality, Department of
Agriculture (Parts 3100--3199)
XXXII Office of Procurement and Property Management,
Department of Agriculture (Parts 3200--3299)
XXXIII Office of Transportation, Department of Agriculture
(Parts 3300--3399)
XXXIV National Institute of Food and Agriculture (Parts
3400--3499)
XXXV Rural Housing Service, Department of Agriculture
(Parts 3500--3599)
XXXVI National Agricultural Statistics Service, Department
of Agriculture (Parts 3600--3699)
XXXVII Economic Research Service, Department of Agriculture
(Parts 3700--3799)
XXXVIII World Agricultural Outlook Board, Department of
Agriculture (Parts 3800--3899)
XLI [Reserved]
XLII Rural Business-Cooperative Service and Rural Utilities
Service, Department of Agriculture (Parts 4200--
4299)
Title 8--Aliens and Nationality
I Department of Homeland Security (Immigration and
Naturalization) (Parts 1--499)
V Executive Office for Immigration Review, Department of
Justice (Parts 1000--1399)
Title 9--Animals and Animal Products
I Animal and Plant Health Inspection Service, Department
of Agriculture (Parts 1--199)
[[Page 914]]
II Grain Inspection, Packers and Stockyards
Administration (Packers and Stockyards Programs),
Department of Agriculture (Parts 200--299)
III Food Safety and Inspection Service, Department of
Agriculture (Parts 300--599)
Title 10--Energy
I Nuclear Regulatory Commission (Parts 0--199)
II Department of Energy (Parts 200--699)
III Department of Energy (Parts 700--999)
X Department of Energy (General Provisions) (Parts
1000--1099)
XIII Nuclear Waste Technical Review Board (Parts 1300--
1399)
XVII Defense Nuclear Facilities Safety Board (Parts 1700--
1799)
XVIII Northeast Interstate Low-Level Radioactive Waste
Commission (Parts 1800--1899)
Title 11--Federal Elections
I Federal Election Commission (Parts 1--9099)
II Election Assistance Commission (Parts 9400--9499)
Title 12--Banks and Banking
I Comptroller of the Currency, Department of the
Treasury (Parts 1--199)
II Federal Reserve System (Parts 200--299)
III Federal Deposit Insurance Corporation (Parts 300--399)
IV Export-Import Bank of the United States (Parts 400--
499)
V Office of Thrift Supervision, Department of the
Treasury (Parts 500--599)
VI Farm Credit Administration (Parts 600--699)
VII National Credit Union Administration (Parts 700--799)
VIII Federal Financing Bank (Parts 800--899)
IX Federal Housing Finance Board (Parts 900--999)
X Bureau of Consumer Financial Protection (Parts 1000--
1099)
XI Federal Financial Institutions Examination Council
(Parts 1100--1199)
XII Federal Housing Finance Agency (Parts 1200--1299)
XIII Financial Stability Oversight Council (Parts 1300--
1399)
XIV Farm Credit System Insurance Corporation (Parts 1400--
1499)
XV Department of the Treasury (Parts 1500--1599)
XVI Office of Financial Research (Parts 1600--1699)
XVII Office of Federal Housing Enterprise Oversight,
Department of Housing and Urban Development (Parts
1700--1799)
XVIII Community Development Financial Institutions Fund,
Department of the Treasury (Parts 1800--1899)
[[Page 915]]
Title 13--Business Credit and Assistance
I Small Business Administration (Parts 1--199)
III Economic Development Administration, Department of
Commerce (Parts 300--399)
IV Emergency Steel Guarantee Loan Board (Parts 400--499)
V Emergency Oil and Gas Guaranteed Loan Board (Parts
500--599)
Title 14--Aeronautics and Space
I Federal Aviation Administration, Department of
Transportation (Parts 1--199)
II Office of the Secretary, Department of Transportation
(Aviation Proceedings) (Parts 200--399)
III Commercial Space Transportation, Federal Aviation
Administration, Department of Transportation
(Parts 400--1199)
V National Aeronautics and Space Administration (Parts
1200--1299)
VI Air Transportation System Stabilization (Parts 1300--
1399)
Title 15--Commerce and Foreign Trade
Subtitle A--Office of the Secretary of Commerce (Parts
0--29)
Subtitle B--Regulations Relating to Commerce and
Foreign Trade
I Bureau of the Census, Department of Commerce (Parts
30--199)
II National Institute of Standards and Technology,
Department of Commerce (Parts 200--299)
III International Trade Administration, Department of
Commerce (Parts 300--399)
IV Foreign-Trade Zones Board, Department of Commerce
(Parts 400--499)
VII Bureau of Industry and Security, Department of
Commerce (Parts 700--799)
VIII Bureau of Economic Analysis, Department of Commerce
(Parts 800--899)
IX National Oceanic and Atmospheric Administration,
Department of Commerce (Parts 900--999)
XI Technology Administration, Department of Commerce
(Parts 1100--1199)
XIII East-West Foreign Trade Board (Parts 1300--1399)
XIV Minority Business Development Agency (Parts 1400--
1499)
Subtitle C--Regulations Relating to Foreign Trade
Agreements
XX Office of the United States Trade Representative
(Parts 2000--2099)
Subtitle D--Regulations Relating to Telecommunications
and Information
XXIII National Telecommunications and Information
Administration, Department of Commerce (Parts
2300--2399)
[[Page 916]]
Title 16--Commercial Practices
I Federal Trade Commission (Parts 0--999)
II Consumer Product Safety Commission (Parts 1000--1799)
Title 17--Commodity and Securities Exchanges
I Commodity Futures Trading Commission (Parts 1--199)
II Securities and Exchange Commission (Parts 200--399)
IV Department of the Treasury (Parts 400--499)
Title 18--Conservation of Power and Water Resources
I Federal Energy Regulatory Commission, Department of
Energy (Parts 1--399)
III Delaware River Basin Commission (Parts 400--499)
VI Water Resources Council (Parts 700--799)
VIII Susquehanna River Basin Commission (Parts 800--899)
XIII Tennessee Valley Authority (Parts 1300--1399)
Title 19--Customs Duties
I U.S. Customs and Border Protection, Department of
Homeland Security; Department of the Treasury
(Parts 0--199)
II United States International Trade Commission (Parts
200--299)
III International Trade Administration, Department of
Commerce (Parts 300--399)
IV U.S. Immigration and Customs Enforcement, Department
of Homeland Security (Parts 400--599)
Title 20--Employees' Benefits
I Office of Workers' Compensation Programs, Department
of Labor (Parts 1--199)
II Railroad Retirement Board (Parts 200--399)
III Social Security Administration (Parts 400--499)
IV Employees' Compensation Appeals Board, Department of
Labor (Parts 500--599)
V Employment and Training Administration, Department of
Labor (Parts 600--699)
VI Office of Workers' Compensation Programs, Department
of Labor (Parts 700--799)
VII Benefits Review Board, Department of Labor (Parts
800--899)
VIII Joint Board for the Enrollment of Actuaries (Parts
900--999)
IX Office of the Assistant Secretary for Veterans'
Employment and Training Service, Department of
Labor (Parts 1000--1099)
[[Page 917]]
Title 21--Food and Drugs
I Food and Drug Administration, Department of Health and
Human Services (Parts 1--1299)
II Drug Enforcement Administration, Department of Justice
(Parts 1300--1399)
III Office of National Drug Control Policy (Parts 1400--
1499)
Title 22--Foreign Relations
I Department of State (Parts 1--199)
II Agency for International Development (Parts 200--299)
III Peace Corps (Parts 300--399)
IV International Joint Commission, United States and
Canada (Parts 400--499)
V Broadcasting Board of Governors (Parts 500--599)
VII Overseas Private Investment Corporation (Parts 700--
799)
IX Foreign Service Grievance Board (Parts 900--999)
X Inter-American Foundation (Parts 1000--1099)
XI International Boundary and Water Commission, United
States and Mexico, United States Section (Parts
1100--1199)
XII United States International Development Cooperation
Agency (Parts 1200--1299)
XIII Millennium Challenge Corporation (Parts 1300--1399)
XIV Foreign Service Labor Relations Board; Federal Labor
Relations Authority; General Counsel of the
Federal Labor Relations Authority; and the Foreign
Service Impasse Disputes Panel (Parts 1400--1499)
XV African Development Foundation (Parts 1500--1599)
XVI Japan-United States Friendship Commission (Parts
1600--1699)
XVII United States Institute of Peace (Parts 1700--1799)
Title 23--Highways
I Federal Highway Administration, Department of
Transportation (Parts 1--999)
II National Highway Traffic Safety Administration and
Federal Highway Administration, Department of
Transportation (Parts 1200--1299)
III National Highway Traffic Safety Administration,
Department of Transportation (Parts 1300--1399)
Title 24--Housing and Urban Development
Subtitle A--Office of the Secretary, Department of
Housing and Urban Development (Parts 0--99)
Subtitle B--Regulations Relating to Housing and Urban
Development
I Office of Assistant Secretary for Equal Opportunity,
Department of Housing and Urban Development (Parts
100--199)
[[Page 918]]
II Office of Assistant Secretary for Housing-Federal
Housing Commissioner, Department of Housing and
Urban Development (Parts 200--299)
III Government National Mortgage Association, Department
of Housing and Urban Development (Parts 300--399)
IV Office of Housing and Office of Multifamily Housing
Assistance Restructuring, Department of Housing
and Urban Development (Parts 400--499)
V Office of Assistant Secretary for Community Planning
and Development, Department of Housing and Urban
Development (Parts 500--599)
VI Office of Assistant Secretary for Community Planning
and Development, Department of Housing and Urban
Development (Parts 600--699) [Reserved]
VII Office of the Secretary, Department of Housing and
Urban Development (Housing Assistance Programs and
Public and Indian Housing Programs) (Parts 700--
799)
VIII Office of the Assistant Secretary for Housing--Federal
Housing Commissioner, Department of Housing and
Urban Development (Section 8 Housing Assistance
Programs, Section 202 Direct Loan Program, Section
202 Supportive Housing for the Elderly Program and
Section 811 Supportive Housing for Persons With
Disabilities Program) (Parts 800--899)
IX Office of Assistant Secretary for Public and Indian
Housing, Department of Housing and Urban
Development (Parts 900--1699)
X Office of Assistant Secretary for Housing--Federal
Housing Commissioner, Department of Housing and
Urban Development (Interstate Land Sales
Registration Program) (Parts 1700--1799)
XII Office of Inspector General, Department of Housing and
Urban Development (Parts 2000--2099)
XV Emergency Mortgage Insurance and Loan Programs,
Department of Housing and Urban Development (Parts
2700--2799)
XX Office of Assistant Secretary for Housing--Federal
Housing Commissioner, Department of Housing and
Urban Development (Parts 3200--3899)
XXIV Board of Directors of the HOPE for Homeowners Program
(Parts 4000--4099)
XXV Neighborhood Reinvestment Corporation (Parts 4100--
4199)
Title 25--Indians
I Bureau of Indian Affairs, Department of the Interior
(Parts 1--299)
II Indian Arts and Crafts Board, Department of the
Interior (Parts 300--399)
III National Indian Gaming Commission, Department of the
Interior (Parts 500--599)
IV Office of Navajo and Hopi Indian Relocation (Parts
700--799)
V Bureau of Indian Affairs, Department of the Interior,
and Indian Health Service, Department of Health
and Human Services (Part 900)
[[Page 919]]
VI Office of the Assistant Secretary-Indian Affairs,
Department of the Interior (Parts 1000--1199)
VII Office of the Special Trustee for American Indians,
Department of the Interior (Parts 1200--1299)
Title 26--Internal Revenue
I Internal Revenue Service, Department of the Treasury
(Parts 1--End)
Title 27--Alcohol, Tobacco Products and Firearms
I Alcohol and Tobacco Tax and Trade Bureau, Department
of the Treasury (Parts 1--399)
II Bureau of Alcohol, Tobacco, Firearms, and Explosives,
Department of Justice (Parts 400--699)
Title 28--Judicial Administration
I Department of Justice (Parts 0--299)
III Federal Prison Industries, Inc., Department of Justice
(Parts 300--399)
V Bureau of Prisons, Department of Justice (Parts 500--
599)
VI Offices of Independent Counsel, Department of Justice
(Parts 600--699)
VII Office of Independent Counsel (Parts 700--799)
VIII Court Services and Offender Supervision Agency for the
District of Columbia (Parts 800--899)
IX National Crime Prevention and Privacy Compact Council
(Parts 900--999)
XI Department of Justice and Department of State (Parts
1100--1199)
Title 29--Labor
Subtitle A--Office of the Secretary of Labor (Parts
0--99)
Subtitle B--Regulations Relating to Labor
I National Labor Relations Board (Parts 100--199)
II Office of Labor-Management Standards, Department of
Labor (Parts 200--299)
III National Railroad Adjustment Board (Parts 300--399)
IV Office of Labor-Management Standards, Department of
Labor (Parts 400--499)
V Wage and Hour Division, Department of Labor (Parts
500--899)
IX Construction Industry Collective Bargaining Commission
(Parts 900--999)
X National Mediation Board (Parts 1200--1299)
XII Federal Mediation and Conciliation Service (Parts
1400--1499)
XIV Equal Employment Opportunity Commission (Parts 1600--
1699)
[[Page 920]]
XVII Occupational Safety and Health Administration,
Department of Labor (Parts 1900--1999)
XX Occupational Safety and Health Review Commission
(Parts 2200--2499)
XXV Employee Benefits Security Administration, Department
of Labor (Parts 2500--2599)
XXVII Federal Mine Safety and Health Review Commission
(Parts 2700--2799)
XL Pension Benefit Guaranty Corporation (Parts 4000--
4999)
Title 30--Mineral Resources
I Mine Safety and Health Administration, Department of
Labor (Parts 1--199)
II Bureau of Safety and Environmental Enforcement,
Department of the Interior (Parts 200--299)
IV Geological Survey, Department of the Interior (Parts
400--499)
V Bureau of Ocean Energy Management, Department of the
Interior (Parts 500--599)
VII Office of Surface Mining Reclamation and Enforcement,
Department of the Interior (Parts 700--999)
XII Office of Natural Resources Revenue, Department of the
Interior (Parts 1200--1299)
Title 31--Money and Finance: Treasury
Subtitle A--Office of the Secretary of the Treasury
(Parts 0--50)
Subtitle B--Regulations Relating to Money and Finance
I Monetary Offices, Department of the Treasury (Parts
51--199)
II Fiscal Service, Department of the Treasury (Parts
200--399)
IV Secret Service, Department of the Treasury (Parts
400--499)
V Office of Foreign Assets Control, Department of the
Treasury (Parts 500--599)
VI Bureau of Engraving and Printing, Department of the
Treasury (Parts 600--699)
VII Federal Law Enforcement Training Center, Department of
the Treasury (Parts 700--799)
VIII Office of International Investment, Department of the
Treasury (Parts 800--899)
IX Federal Claims Collection Standards (Department of the
Treasury--Department of Justice) (Parts 900--999)
X Financial Crimes Enforcement Network, Department of
the Treasury (Parts 1000--1099)
Title 32--National Defense
Subtitle A--Department of Defense
I Office of the Secretary of Defense (Parts 1--399)
[[Page 921]]
V Department of the Army (Parts 400--699)
VI Department of the Navy (Parts 700--799)
VII Department of the Air Force (Parts 800--1099)
Subtitle B--Other Regulations Relating to National
Defense
XII Defense Logistics Agency (Parts 1200--1299)
XVI Selective Service System (Parts 1600--1699)
XVII Office of the Director of National Intelligence (Parts
1700--1799)
XVIII National Counterintelligence Center (Parts 1800--1899)
XIX Central Intelligence Agency (Parts 1900--1999)
XX Information Security Oversight Office, National
Archives and Records Administration (Parts 2000--
2099)
XXI National Security Council (Parts 2100--2199)
XXIV Office of Science and Technology Policy (Parts 2400--
2499)
XXVII Office for Micronesian Status Negotiations (Parts
2700--2799)
XXVIII Office of the Vice President of the United States
(Parts 2800--2899)
Title 33--Navigation and Navigable Waters
I Coast Guard, Department of Homeland Security (Parts
1--199)
II Corps of Engineers, Department of the Army (Parts
200--399)
IV Saint Lawrence Seaway Development Corporation,
Department of Transportation (Parts 400--499)
Title 34--Education
Subtitle A--Office of the Secretary, Department of
Education (Parts 1--99)
Subtitle B--Regulations of the Offices of the
Department of Education
I Office for Civil Rights, Department of Education
(Parts 100--199)
II Office of Elementary and Secondary Education,
Department of Education (Parts 200--299)
III Office of Special Education and Rehabilitative
Services, Department of Education (Parts 300--399)
IV Office of Vocational and Adult Education, Department
of Education (Parts 400--499)
V Office of Bilingual Education and Minority Languages
Affairs, Department of Education (Parts 500--599)
VI Office of Postsecondary Education, Department of
Education (Parts 600--699)
VII Office of Educational Research and Improvement,
Department of Education (Parts 700--799)[Reserved]
Subtitle C--Regulations Relating to Education
XI National Institute for Literacy (Parts 1100--1199)
XII National Council on Disability (Parts 1200--1299)
[[Page 922]]
Title 35 [Reserved]
Title 36--Parks, Forests, and Public Property
I National Park Service, Department of the Interior
(Parts 1--199)
II Forest Service, Department of Agriculture (Parts 200--
299)
III Corps of Engineers, Department of the Army (Parts
300--399)
IV American Battle Monuments Commission (Parts 400--499)
V Smithsonian Institution (Parts 500--599)
VI [Reserved]
VII Library of Congress (Parts 700--799)
VIII Advisory Council on Historic Preservation (Parts 800--
899)
IX Pennsylvania Avenue Development Corporation (Parts
900--999)
X Presidio Trust (Parts 1000--1099)
XI Architectural and Transportation Barriers Compliance
Board (Parts 1100--1199)
XII National Archives and Records Administration (Parts
1200--1299)
XV Oklahoma City National Memorial Trust (Parts 1500--
1599)
XVI Morris K. Udall Scholarship and Excellence in National
Environmental Policy Foundation (Parts 1600--1699)
Title 37--Patents, Trademarks, and Copyrights
I United States Patent and Trademark Office, Department
of Commerce (Parts 1--199)
II U.S. Copyright Office, Library of Congress (Parts
200--299)
III Copyright Royalty Board, Library of Congress (Parts
300--399)
IV Assistant Secretary for Technology Policy, Department
of Commerce (Parts 400--599)
Title 38--Pensions, Bonuses, and Veterans' Relief
I Department of Veterans Affairs (Parts 0--199)
II Armed Forces Retirement Home (Parts 200--299)
Title 39--Postal Service
I United States Postal Service (Parts 1--999)
III Postal Regulatory Commission (Parts 3000--3099)
Title 40--Protection of Environment
I Environmental Protection Agency (Parts 1--1099)
IV Environmental Protection Agency and Department of
Justice (Parts 1400--1499)
V Council on Environmental Quality (Parts 1500--1599)
VI Chemical Safety and Hazard Investigation Board (Parts
1600--1699)
[[Page 923]]
VII Environmental Protection Agency and Department of
Defense; Uniform National Discharge Standards for
Vessels of the Armed Forces (Parts 1700--1799)
Title 41--Public Contracts and Property Management
Subtitle A--Federal Procurement Regulations System
[Note]
Subtitle B--Other Provisions Relating to Public
Contracts
50 Public Contracts, Department of Labor (Parts 50-1--50-
999)
51 Committee for Purchase From People Who Are Blind or
Severely Disabled (Parts 51-1--51-99)
60 Office of Federal Contract Compliance Programs, Equal
Employment Opportunity, Department of Labor (Parts
60-1--60-999)
61 Office of the Assistant Secretary for Veterans'
Employment and Training Service, Department of
Labor (Parts 61-1--61-999)
62--100 [Reserved]
Subtitle C--Federal Property Management Regulations
System
101 Federal Property Management Regulations (Parts 101-1--
101-99)
102 Federal Management Regulation (Parts 102-1--102-299)
103--104 [Reserved]
105 General Services Administration (Parts 105-1--105-999)
109 Department of Energy Property Management Regulations
(Parts 109-1--109-99)
114 Department of the Interior (Parts 114-1--114-99)
115 Environmental Protection Agency (Parts 115-1--115-99)
128 Department of Justice (Parts 128-1--128-99)
129--200 [Reserved]
Subtitle D--Other Provisions Relating to Property
Management [Reserved]
Subtitle E--Federal Information Resources Management
Regulations System [Reserved]
Subtitle F--Federal Travel Regulation System
300 General (Parts 300-1--300-99)
301 Temporary Duty (TDY) Travel Allowances (Parts 301-1--
301-99)
302 Relocation Allowances (Parts 302-1--302-99)
303 Payment of Expenses Connected with the Death of
Certain Employees (Part 303-1--303-99)
304 Payment of Travel Expenses from a Non-Federal Source
(Parts 304-1--304-99)
Title 42--Public Health
I Public Health Service, Department of Health and Human
Services (Parts 1--199)
IV Centers for Medicare & Medicaid Services, Department
of Health and Human Services (Parts 400--599)
[[Page 924]]
V Office of Inspector General-Health Care, Department of
Health and Human Services (Parts 1000--1999)
Title 43--Public Lands: Interior
Subtitle A--Office of the Secretary of the Interior
(Parts 1--199)
Subtitle B--Regulations Relating to Public Lands
I Bureau of Reclamation, Department of the Interior
(Parts 400--999)
II Bureau of Land Management, Department of the Interior
(Parts 1000--9999)
III Utah Reclamation Mitigation and Conservation
Commission (Parts 10000--10099)
Title 44--Emergency Management and Assistance
I Federal Emergency Management Agency, Department of
Homeland Security (Parts 0--399)
IV Department of Commerce and Department of
Transportation (Parts 400--499)
Title 45--Public Welfare
Subtitle A--Department of Health and Human Services
(Parts 1--199)
Subtitle B--Regulations Relating to Public Welfare
II Office of Family Assistance (Assistance Programs),
Administration for Children and Families,
Department of Health and Human Services (Parts
200--299)
III Office of Child Support Enforcement (Child Support
Enforcement Program), Administration for Children
and Families, Department of Health and Human
Services (Parts 300--399)
IV Office of Refugee Resettlement, Administration for
Children and Families, Department of Health and
Human Services (Parts 400--499)
V Foreign Claims Settlement Commission of the United
States, Department of Justice (Parts 500--599)
VI National Science Foundation (Parts 600--699)
VII Commission on Civil Rights (Parts 700--799)
VIII Office of Personnel Management (Parts 800--899)
X Office of Community Services, Administration for
Children and Families, Department of Health and
Human Services (Parts 1000--1099)
XI National Foundation on the Arts and the Humanities
(Parts 1100--1199)
XII Corporation for National and Community Service (Parts
1200--1299)
XIII Office of Human Development Services, Department of
Health and Human Services (Parts 1300--1399)
[[Page 925]]
XVI Legal Services Corporation (Parts 1600--1699)
XVII National Commission on Libraries and Information
Science (Parts 1700--1799)
XVIII Harry S. Truman Scholarship Foundation (Parts 1800--
1899)
XXI Commission on Fine Arts (Parts 2100--2199)
XXIII Arctic Research Commission (Part 2301)
XXIV James Madison Memorial Fellowship Foundation (Parts
2400--2499)
XXV Corporation for National and Community Service (Parts
2500--2599)
Title 46--Shipping
I Coast Guard, Department of Homeland Security (Parts
1--199)
II Maritime Administration, Department of Transportation
(Parts 200--399)
III Coast Guard (Great Lakes Pilotage), Department of
Homeland Security (Parts 400--499)
IV Federal Maritime Commission (Parts 500--599)
Title 47--Telecommunication
I Federal Communications Commission (Parts 0--199)
II Office of Science and Technology Policy and National
Security Council (Parts 200--299)
III National Telecommunications and Information
Administration, Department of Commerce (Parts
300--399)
IV National Telecommunications and Information
Administration, Department of Commerce, and
National Highway Traffic Safety Administration,
Department of Transportation (Parts 400--499)
Title 48--Federal Acquisition Regulations System
1 Federal Acquisition Regulation (Parts 1--99)
2 Defense Acquisition Regulations System, Department of
Defense (Parts 200--299)
3 Health and Human Services (Parts 300--399)
4 Department of Agriculture (Parts 400--499)
5 General Services Administration (Parts 500--599)
6 Department of State (Parts 600--699)
7 Agency for International Development (Parts 700--799)
8 Department of Veterans Affairs (Parts 800--899)
9 Department of Energy (Parts 900--999)
10 Department of the Treasury (Parts 1000--1099)
12 Department of Transportation (Parts 1200--1299)
13 Department of Commerce (Parts 1300--1399)
14 Department of the Interior (Parts 1400--1499)
[[Page 926]]
15 Environmental Protection Agency (Parts 1500--1599)
16 Office of Personnel Management, Federal Employees
Health Benefits Acquisition Regulation (Parts
1600--1699)
17 Office of Personnel Management (Parts 1700--1799)
18 National Aeronautics and Space Administration (Parts
1800--1899)
19 Broadcasting Board of Governors (Parts 1900--1999)
20 Nuclear Regulatory Commission (Parts 2000--2099)
21 Office of Personnel Management, Federal Employees
Group Life Insurance Federal Acquisition
Regulation (Parts 2100--2199)
23 Social Security Administration (Parts 2300--2399)
24 Department of Housing and Urban Development (Parts
2400--2499)
25 National Science Foundation (Parts 2500--2599)
28 Department of Justice (Parts 2800--2899)
29 Department of Labor (Parts 2900--2999)
30 Department of Homeland Security, Homeland Security
Acquisition Regulation (HSAR) (Parts 3000--3099)
34 Department of Education Acquisition Regulation (Parts
3400--3499)
51 Department of the Army Acquisition Regulations (Parts
5100--5199)
52 Department of the Navy Acquisition Regulations (Parts
5200--5299)
53 Department of the Air Force Federal Acquisition
Regulation Supplement (Parts 5300--5399)
[Reserved]
54 Defense Logistics Agency, Department of Defense (Parts
5400--5499)
57 African Development Foundation (Parts 5700--5799)
61 Civilian Board of Contract Appeals, General Services
Administration (Parts 6100--6199)
63 Department of Transportation Board of Contract Appeals
(Parts 6300--6399)
99 Cost Accounting Standards Board, Office of Federal
Procurement Policy, Office of Management and
Budget (Parts 9900--9999)
Title 49--Transportation
Subtitle A--Office of the Secretary of Transportation
(Parts 1--99)
Subtitle B--Other Regulations Relating to
Transportation
I Pipeline and Hazardous Materials Safety
Administration, Department of Transportation
(Parts 100--199)
II Federal Railroad Administration, Department of
Transportation (Parts 200--299)
III Federal Motor Carrier Safety Administration,
Department of Transportation (Parts 300--399)
IV Coast Guard, Department of Homeland Security (Parts
400--499)
[[Page 927]]
V National Highway Traffic Safety Administration,
Department of Transportation (Parts 500--599)
VI Federal Transit Administration, Department of
Transportation (Parts 600--699)
VII National Railroad Passenger Corporation (AMTRAK)
(Parts 700--799)
VIII National Transportation Safety Board (Parts 800--999)
X Surface Transportation Board, Department of
Transportation (Parts 1000--1399)
XI Research and Innovative Technology Administration,
Department of Transportation (Parts 1400--1499)
[Reserved]
XII Transportation Security Administration, Department of
Homeland Security (Parts 1500--1699)
Title 50--Wildlife and Fisheries
I United States Fish and Wildlife Service, Department of
the Interior (Parts 1--199)
II National Marine Fisheries Service, National Oceanic
and Atmospheric Administration, Department of
Commerce (Parts 200--299)
III International Fishing and Related Activities (Parts
300--399)
IV Joint Regulations (United States Fish and Wildlife
Service, Department of the Interior and National
Marine Fisheries Service, National Oceanic and
Atmospheric Administration, Department of
Commerce); Endangered Species Committee
Regulations (Parts 400--499)
V Marine Mammal Commission (Parts 500--599)
VI Fishery Conservation and Management, National Oceanic
and Atmospheric Administration, Department of
Commerce (Parts 600--699)
[[Page 929]]
Alphabetical List of Agencies Appearing in the CFR
(Revised as of April 1, 2014)
CFR Title, Subtitle or
Agency Chapter
Administrative Committee of the Federal Register 1, I
Administrative Conference of the United States 1, III
Advisory Council on Historic Preservation 36, VIII
Advocacy and Outreach, Office of 7, XXV
Afghanistan Reconstruction, Special Inspector 22, LXXXIII
General for
African Development Foundation 22, XV
Federal Acquisition Regulation 48, 57
Agency for International Development 2, VII; 22, II
Federal Acquisition Regulation 48, 7
Agricultural Marketing Service 7, I, IX, X, XI
Agricultural Research Service 7, V
Agriculture Department 2, IV; 5, LXXIII
Advocacy and Outreach, Office of 7, XXV
Agricultural Marketing Service 7, I, IX, X, XI
Agricultural Research Service 7, V
Animal and Plant Health Inspection Service 7, III; 9, I
Chief Financial Officer, Office of 7, XXX
Commodity Credit Corporation 7, XIV
Economic Research Service 7, XXXVII
Energy Policy and New Uses, Office of 2, IX; 7, XXIX
Environmental Quality, Office of 7, XXXI
Farm Service Agency 7, VII, XVIII
Federal Acquisition Regulation 48, 4
Federal Crop Insurance Corporation 7, IV
Food and Nutrition Service 7, II
Food Safety and Inspection Service 9, III
Foreign Agricultural Service 7, XV
Forest Service 36, II
Grain Inspection, Packers and Stockyards 7, VIII; 9, II
Administration
Information Resources Management, Office of 7, XXVII
Inspector General, Office of 7, XXVI
National Agricultural Library 7, XLI
National Agricultural Statistics Service 7, XXXVI
National Institute of Food and Agriculture 7, XXXIV
Natural Resources Conservation Service 7, VI
Operations, Office of 7, XXVIII
Procurement and Property Management, Office of 7, XXXII
Rural Business-Cooperative Service 7, XVIII, XLII, L
Rural Development Administration 7, XLII
Rural Housing Service 7, XVIII, XXXV, L
Rural Telephone Bank 7, XVI
Rural Utilities Service 7, XVII, XVIII, XLII, L
Secretary of Agriculture, Office of 7, Subtitle A
Transportation, Office of 7, XXXIII
World Agricultural Outlook Board 7, XXXVIII
Air Force Department 32, VII
Federal Acquisition Regulation Supplement 48, 53
Air Transportation Stabilization Board 14, VI
Alcohol and Tobacco Tax and Trade Bureau 27, I
Alcohol, Tobacco, Firearms, and Explosives, 27, II
Bureau of
AMTRAK 49, VII
American Battle Monuments Commission 36, IV
American Indians, Office of the Special Trustee 25, VII
[[Page 930]]
Animal and Plant Health Inspection Service 7, III; 9, I
Appalachian Regional Commission 5, IX
Architectural and Transportation Barriers 36, XI
Compliance Board
Arctic Research Commission 45, XXIII
Armed Forces Retirement Home 5, XI
Army Department 32, V
Engineers, Corps of 33, II; 36, III
Federal Acquisition Regulation 48, 51
Bilingual Education and Minority Languages 34, V
Affairs, Office of
Blind or Severely Disabled, Committee for 41, 51
Purchase from People Who Are
Broadcasting Board of Governors 22, V
Federal Acquisition Regulation 48, 19
Bureau of Ocean Energy Management, Regulation, 30, II
and Enforcement
Census Bureau 15, I
Centers for Medicare & Medicaid Services 42, IV
Central Intelligence Agency 32, XIX
Chemical Safety and Hazardous Investigation 40, VI
Board
Chief Financial Officer, Office of 7, XXX
Child Support Enforcement, Office of 45, III
Children and Families, Administration for 45, II, III, IV, X
Civil Rights, Commission on 5, LXVIII; 45, VII
Civil Rights, Office for 34, I
Council of the Inspectors General on Integrity 5, XCVIII
and Efficiency
Court Services and Offender Supervision Agency 5, LXX
for the District of Columbia
Coast Guard 33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage) 46, III
Commerce Department 2, XIII; 44, IV; 50, VI
Census Bureau 15, I
Economic Analysis, Bureau of 15, VIII
Economic Development Administration 13, III
Emergency Management and Assistance 44, IV
Federal Acquisition Regulation 48, 13
Foreign-Trade Zones Board 15, IV
Industry and Security, Bureau of 15, VII
International Trade Administration 15, III; 19, III
National Institute of Standards and Technology 15, II
National Marine Fisheries Service 50, II, IV
National Oceanic and Atmospheric 15, IX; 50, II, III, IV,
Administration VI
National Telecommunications and Information 15, XXIII; 47, III, IV
Administration
National Weather Service 15, IX
Patent and Trademark Office, United States 37, I
Productivity, Technology and Innovation, 37, IV
Assistant Secretary for
Secretary of Commerce, Office of 15, Subtitle A
Technology Administration 15, XI
Technology Policy, Assistant Secretary for 37, IV
Commercial Space Transportation 14, III
Commodity Credit Corporation 7, XIV
Commodity Futures Trading Commission 5, XLI; 17, I
Community Planning and Development, Office of 24, V, VI
Assistant Secretary for
Community Services, Office of 45, X
Comptroller of the Currency 12, I
Construction Industry Collective Bargaining 29, IX
Commission
Consumer Financial Protection Bureau 5, LXXXIV; 12, X
Consumer Product Safety Commission 5, LXXI; 16, II
Copyright Royalty Board 37, III
Corporation for National and Community Service 2, XXII; 45, XII, XXV
Cost Accounting Standards Board 48, 99
Council on Environmental Quality 40, V
Court Services and Offender Supervision Agency 5, LXX; 28, VIII
for the District of Columbia
Customs and Border Protection 19, I
[[Page 931]]
Defense Contract Audit Agency 32, I
Defense Department 2, XI; 5, XXVI; 32,
Subtitle A; 40, VII
Advanced Research Projects Agency 32, I
Air Force Department 32, VII
Army Department 32, V; 33, II; 36, III,
48, 51
Defense Acquisition Regulations System 48, 2
Defense Intelligence Agency 32, I
Defense Logistics Agency 32, I, XII; 48, 54
Engineers, Corps of 33, II; 36, III
National Imagery and Mapping Agency 32, I
Navy Department 32, VI; 48, 52
Secretary of Defense, Office of 2, XI; 32, I
Defense Contract Audit Agency 32, I
Defense Intelligence Agency 32, I
Defense Logistics Agency 32, XII; 48, 54
Defense Nuclear Facilities Safety Board 10, XVII
Delaware River Basin Commission 18, III
District of Columbia, Court Services and 5, LXX; 28, VIII
Offender Supervision Agency for the
Drug Enforcement Administration 21, II
East-West Foreign Trade Board 15, XIII
Economic Analysis, Bureau of 15, VIII
Economic Development Administration 13, III
Economic Research Service 7, XXXVII
Education, Department of 2, XXXIV; 5, LIII
Bilingual Education and Minority Languages 34, V
Affairs, Office of
Civil Rights, Office for 34, I
Educational Research and Improvement, Office 34, VII
of
Elementary and Secondary Education, Office of 34, II
Federal Acquisition Regulation 48, 34
Postsecondary Education, Office of 34, VI
Secretary of Education, Office of 34, Subtitle A
Special Education and Rehabilitative Services, 34, III
Office of
Vocational and Adult Education, Office of 34, IV
Educational Research and Improvement, Office of 34, VII
Election Assistance Commission 2, LVIII; 11, II
Elementary and Secondary Education, Office of 34, II
Emergency Oil and Gas Guaranteed Loan Board 13, V
Emergency Steel Guarantee Loan Board 13, IV
Employee Benefits Security Administration 29, XXV
Employees' Compensation Appeals Board 20, IV
Employees Loyalty Board 5, V
Employment and Training Administration 20, V
Employment Standards Administration 20, VI
Endangered Species Committee 50, IV
Energy, Department of 2, IX; 5, XXIII; 10, II,
III, X
Federal Acquisition Regulation 48, 9
Federal Energy Regulatory Commission 5, XXIV; 18, I
Property Management Regulations 41, 109
Energy, Office of 7, XXIX
Engineers, Corps of 33, II; 36, III
Engraving and Printing, Bureau of 31, VI
Environmental Protection Agency 2, XV; 5, LIV; 40, I, IV,
VII
Federal Acquisition Regulation 48, 15
Property Management Regulations 41, 115
Environmental Quality, Office of 7, XXXI
Equal Employment Opportunity Commission 5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary 24, I
for
Executive Office of the President 3, I
Administration, Office of 5, XV
Environmental Quality, Council on 40, V
Management and Budget, Office of 2, Subtitle A; 5, III,
LXXVII; 14, VI; 48, 99
[[Page 932]]
National Drug Control Policy, Office of 21, III
National Security Council 32, XXI; 47, 2
Presidential Documents 3
Science and Technology Policy, Office of 32, XXIV; 47, II
Trade Representative, Office of the United 15, XX
States
Export-Import Bank of the United States 2, XXXV; 5, LII; 12, IV
Family Assistance, Office of 45, II
Farm Credit Administration 5, XXXI; 12, VI
Farm Credit System Insurance Corporation 5, XXX; 12, XIV
Farm Service Agency 7, VII, XVIII
Federal Acquisition Regulation 48, 1
Federal Aviation Administration 14, I
Commercial Space Transportation 14, III
Federal Claims Collection Standards 31, IX
Federal Communications Commission 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of 41, 60
Federal Crop Insurance Corporation 7, IV
Federal Deposit Insurance Corporation 5, XXII; 12, III
Federal Election Commission 5, XXXVII; 11, I
Federal Emergency Management Agency 44, I
Federal Employees Group Life Insurance Federal 48, 21
Acquisition Regulation
Federal Employees Health Benefits Acquisition 48, 16
Regulation
Federal Energy Regulatory Commission 5, XXIV; 18, I
Federal Financial Institutions Examination 12, XI
Council
Federal Financing Bank 12, VIII
Federal Highway Administration 23, I, II
Federal Home Loan Mortgage Corporation 1, IV
Federal Housing Enterprise Oversight Office 12, XVII
Federal Housing Finance Agency 5, LXXX; 12, XII
Federal Housing Finance Board 12, IX
Federal Labor Relations Authority 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center 31, VII
Federal Management Regulation 41, 102
Federal Maritime Commission 46, IV
Federal Mediation and Conciliation Service 29, XII
Federal Mine Safety and Health Review Commission 5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration 49, III
Federal Prison Industries, Inc. 28, III
Federal Procurement Policy Office 48, 99
Federal Property Management Regulations 41, 101
Federal Railroad Administration 49, II
Federal Register, Administrative Committee of 1, I
Federal Register, Office of 1, II
Federal Reserve System 12, II
Board of Governors 5, LVIII
Federal Retirement Thrift Investment Board 5, VI, LXXVI
Federal Service Impasses Panel 5, XIV
Federal Trade Commission 5, XLVII; 16, I
Federal Transit Administration 49, VI
Federal Travel Regulation System 41, Subtitle F
Financial Crimes Enforcement Network 31, X
Financial Research Office 12, XVI
Financial Stability Oversight Council 12, XIII
Fine Arts, Commission on 45, XXI
Fiscal Service 31, II
Fish and Wildlife Service, United States 50, I, IV
Food and Drug Administration 21, I
Food and Nutrition Service 7, II
Food Safety and Inspection Service 9, III
Foreign Agricultural Service 7, XV
Foreign Assets Control, Office of 31, V
Foreign Claims Settlement Commission of the 45, V
United States
Foreign Service Grievance Board 22, IX
Foreign Service Impasse Disputes Panel 22, XIV
Foreign Service Labor Relations Board 22, XIV
Foreign-Trade Zones Board 15, IV
[[Page 933]]
Forest Service 36, II
General Services Administration 5, LVII; 41, 105
Contract Appeals, Board of 48, 61
Federal Acquisition Regulation 48, 5
Federal Management Regulation 41, 102
Federal Property Management Regulations 41, 101
Federal Travel Regulation System 41, Subtitle F
General 41, 300
Payment From a Non-Federal Source for Travel 41, 304
Expenses
Payment of Expenses Connected With the Death 41, 303
of Certain Employees
Relocation Allowances 41, 302
Temporary Duty (TDY) Travel Allowances 41, 301
Geological Survey 30, IV
Government Accountability Office 4, I
Government Ethics, Office of 5, XVI
Government National Mortgage Association 24, III
Grain Inspection, Packers and Stockyards 7, VIII; 9, II
Administration
Harry S. Truman Scholarship Foundation 45, XVIII
Health and Human Services, Department of 2, III; 5, XLV; 45,
Subtitle A,
Centers for Medicare & Medicaid Services 42, IV
Child Support Enforcement, Office of 45, III
Children and Families, Administration for 45, II, III, IV, X
Community Services, Office of 45, X
Family Assistance, Office of 45, II
Federal Acquisition Regulation 48, 3
Food and Drug Administration 21, I
Human Development Services, Office of 45, XIII
Indian Health Service 25, V
Inspector General (Health Care), Office of 42, V
Public Health Service 42, I
Refugee Resettlement, Office of 45, IV
Homeland Security, Department of 2, XXX; 6, I; 8, I
Coast Guard 33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage) 46, III
Customs and Border Protection 19, I
Federal Emergency Management Agency 44, I
Human Resources Management and Labor Relations 5, XCVII
Systems
Immigration and Customs Enforcement Bureau 19, IV
Transportation Security Administration 49, XII
HOPE for Homeowners Program, Board of Directors 24, XXIV
of
Housing and Urban Development, Department of 2, XXIV; 5, LXV; 24,
Subtitle B
Community Planning and Development, Office of 24, V, VI
Assistant Secretary for
Equal Opportunity, Office of Assistant 24, I
Secretary for
Federal Acquisition Regulation 48, 24
Federal Housing Enterprise Oversight, Office 12, XVII
of
Government National Mortgage Association 24, III
Housing--Federal Housing Commissioner, Office 24, II, VIII, X, XX
of Assistant Secretary for
Housing, Office of, and Multifamily Housing 24, IV
Assistance Restructuring, Office of
Inspector General, Office of 24, XII
Public and Indian Housing, Office of Assistant 24, IX
Secretary for
Secretary, Office of 24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of 24, II, VIII, X, XX
Assistant Secretary for
Housing, Office of, and Multifamily Housing 24, IV
Assistance Restructuring, Office of
Human Development Services, Office of 45, XIII
Immigration and Customs Enforcement Bureau 19, IV
Immigration Review, Executive Office for 8, V
Independent Counsel, Office of 28, VII
Indian Affairs, Bureau of 25, I, V
[[Page 934]]
Indian Affairs, Office of the Assistant 25, VI
Secretary
Indian Arts and Crafts Board 25, II
Indian Health Service 25, V
Industry and Security, Bureau of 15, VII
Information Resources Management, Office of 7, XXVII
Information Security Oversight Office, National 32, XX
Archives and Records Administration
Inspector General
Agriculture Department 7, XXVI
Health and Human Services Department 42, V
Housing and Urban Development Department 24, XII, XV
Institute of Peace, United States 22, XVII
Inter-American Foundation 5, LXIII; 22, X
Interior Department 2, XIV
American Indians, Office of the Special 25, VII
Trustee
Bureau of Ocean Energy Management, Regulation, 30, II
and Enforcement
Endangered Species Committee 50, IV
Federal Acquisition Regulation 48, 14
Federal Property Management Regulations System 41, 114
Fish and Wildlife Service, United States 50, I, IV
Geological Survey 30, IV
Indian Affairs, Bureau of 25, I, V
Indian Affairs, Office of the Assistant 25, VI
Secretary
Indian Arts and Crafts Board 25, II
Land Management, Bureau of 43, II
National Indian Gaming Commission 25, III
National Park Service 36, I
Natural Resource Revenue, Office of 30, XII
Ocean Energy Management, Bureau of 30, V
Reclamation, Bureau of 43, I
Secretary of the Interior, Office of 2, XIV; 43, Subtitle A
Surface Mining Reclamation and Enforcement, 30, VII
Office of
Internal Revenue Service 26, I
International Boundary and Water Commission, 22, XI
United States and Mexico, United States
Section
International Development, United States Agency 22, II
for
Federal Acquisition Regulation 48, 7
International Development Cooperation Agency, 22, XII
United States
International Joint Commission, United States 22, IV
and Canada
International Organizations Employees Loyalty 5, V
Board
International Trade Administration 15, III; 19, III
International Trade Commission, United States 19, II
Interstate Commerce Commission 5, XL
Investment Security, Office of 31, VIII
James Madison Memorial Fellowship Foundation 45, XXIV
Japan-United States Friendship Commission 22, XVI
Joint Board for the Enrollment of Actuaries 20, VIII
Justice Department 2, XXVIII; 5, XXVIII; 28,
I, XI; 40, IV
Alcohol, Tobacco, Firearms, and Explosives, 27, II
Bureau of
Drug Enforcement Administration 21, II
Federal Acquisition Regulation 48, 28
Federal Claims Collection Standards 31, IX
Federal Prison Industries, Inc. 28, III
Foreign Claims Settlement Commission of the 45, V
United States
Immigration Review, Executive Office for 8, V
Offices of Independent Counsel 28, VI
Prisons, Bureau of 28, V
Property Management Regulations 41, 128
Labor Department 5, XLII
Employee Benefits Security Administration 29, XXV
Employees' Compensation Appeals Board 20, IV
Employment and Training Administration 20, V
Employment Standards Administration 20, VI
[[Page 935]]
Federal Acquisition Regulation 48, 29
Federal Contract Compliance Programs, Office 41, 60
of
Federal Procurement Regulations System 41, 50
Labor-Management Standards, Office of 29, II, IV
Mine Safety and Health Administration 30, I
Occupational Safety and Health Administration 29, XVII
Office of Workers' Compensation Programs 20, VII
Public Contracts 41, 50
Secretary of Labor, Office of 29, Subtitle A
Veterans' Employment and Training Service, 41, 61; 20, IX
Office of the Assistant Secretary for
Wage and Hour Division 29, V
Workers' Compensation Programs, Office of 20, I
Labor-Management Standards, Office of 29, II, IV
Land Management, Bureau of 43, II
Legal Services Corporation 45, XVI
Library of Congress 36, VII
Copyright Royalty Board 37, III
U.S. Copyright Office 37, II
Local Television Loan Guarantee Board 7, XX
Management and Budget, Office of 5, III, LXXVII; 14, VI;
48, 99
Marine Mammal Commission 50, V
Maritime Administration 46, II
Merit Systems Protection Board 5, II, LXIV
Micronesian Status Negotiations, Office for 32, XXVII
Millennium Challenge Corporation 22, XIII
Mine Safety and Health Administration 30, I
Minority Business Development Agency 15, XIV
Miscellaneous Agencies 1, IV
Monetary Offices 31, I
Morris K. Udall Scholarship and Excellence in 36, XVI
National Environmental Policy Foundation
Museum and Library Services, Institute of 2, XXXI
National Aeronautics and Space Administration 2, XVIII; 5, LIX; 14, V
Federal Acquisition Regulation 48, 18
National Agricultural Library 7, XLI
National Agricultural Statistics Service 7, XXXVI
National and Community Service, Corporation for 2, XXII; 45, XII, XXV
National Archives and Records Administration 2, XXVI; 5, LXVI; 36, XII
Information Security Oversight Office 32, XX
National Capital Planning Commission 1, IV
National Commission for Employment Policy 1, IV
National Commission on Libraries and Information 45, XVII
Science
National Council on Disability 34, XII
National Counterintelligence Center 32, XVIII
National Credit Union Administration 5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact 28, IX
Council
National Drug Control Policy, Office of 21, III
National Endowment for the Arts 2, XXXII
National Endowment for the Humanities 2, XXXIII
National Foundation on the Arts and the 45, XI
Humanities
National Highway Traffic Safety Administration 23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency 32, I
National Indian Gaming Commission 25, III
National Institute for Literacy 34, XI
National Institute of Food and Agriculture 7, XXXIV
National Institute of Standards and Technology 15, II
National Intelligence, Office of Director of 32, XVII
National Labor Relations Board 5, LXI; 29, I
National Marine Fisheries Service 50, II, IV
National Mediation Board 29, X
National Oceanic and Atmospheric Administration 15, IX; 50, II, III, IV,
VI
National Park Service 36, I
National Railroad Adjustment Board 29, III
National Railroad Passenger Corporation (AMTRAK) 49, VII
[[Page 936]]
National Science Foundation 2, XXV; 5, XLIII; 45, VI
Federal Acquisition Regulation 48, 25
National Security Council 32, XXI
National Security Council and Office of Science 47, II
and Technology Policy
National Telecommunications and Information 15, XXIII; 47, III, IV
Administration
National Transportation Safety Board 49, VIII
Natural Resources Conservation Service 7, VI
Natural Resource Revenue, Office of 30, XII
Navajo and Hopi Indian Relocation, Office of 25, IV
Navy Department 32, VI
Federal Acquisition Regulation 48, 52
Neighborhood Reinvestment Corporation 24, XXV
Northeast Interstate Low-Level Radioactive Waste 10, XVIII
Commission
Nuclear Regulatory Commission 2, XX; 5, XLVIII; 10, I
Federal Acquisition Regulation 48, 20
Occupational Safety and Health Administration 29, XVII
Occupational Safety and Health Review Commission 29, XX
Ocean Energy Management, Bureau of 30, V
Offices of Independent Counsel 28, VI
Office of Workers' Compensation Programs 20, VII
Oklahoma City National Memorial Trust 36, XV
Operations Office 7, XXVIII
Overseas Private Investment Corporation 5, XXXIII; 22, VII
Patent and Trademark Office, United States 37, I
Payment From a Non-Federal Source for Travel 41, 304
Expenses
Payment of Expenses Connected With the Death of 41, 303
Certain Employees
Peace Corps 2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation 36, IX
Pension Benefit Guaranty Corporation 29, XL
Personnel Management, Office of 5, I, XXXV; 45, VIII
Human Resources Management and Labor Relations 5, XCVII
Systems, Department of Homeland Security
Federal Acquisition Regulation 48, 17
Federal Employees Group Life Insurance Federal 48, 21
Acquisition Regulation
Federal Employees Health Benefits Acquisition 48, 16
Regulation
Pipeline and Hazardous Materials Safety 49, I
Administration
Postal Regulatory Commission 5, XLVI; 39, III
Postal Service, United States 5, LX; 39, I
Postsecondary Education, Office of 34, VI
President's Commission on White House 1, IV
Fellowships
Presidential Documents 3
Presidio Trust 36, X
Prisons, Bureau of 28, V
Privacy and Civil Liberties Oversight Board 6, X
Procurement and Property Management, Office of 7, XXXII
Productivity, Technology and Innovation, 37, IV
Assistant Secretary
Public Contracts, Department of Labor 41, 50
Public and Indian Housing, Office of Assistant 24, IX
Secretary for
Public Health Service 42, I
Railroad Retirement Board 20, II
Reclamation, Bureau of 43, I
Recovery Accountability and Transparency Board 4, II
Refugee Resettlement, Office of 45, IV
Relocation Allowances 41, 302
Research and Innovative Technology 49, XI
Administration
Rural Business-Cooperative Service 7, XVIII, XLII, L
Rural Development Administration 7, XLII
Rural Housing Service 7, XVIII, XXXV, L
Rural Telephone Bank 7, XVI
Rural Utilities Service 7, XVII, XVIII, XLII, L
Saint Lawrence Seaway Development Corporation 33, IV
[[Page 937]]
Science and Technology Policy, Office of 32, XXIV
Science and Technology Policy, Office of, and 47, II
National Security Council
Secret Service 31, IV
Securities and Exchange Commission 5, XXXIV; 17, II
Selective Service System 32, XVI
Small Business Administration 2, XXVII; 13, I
Smithsonian Institution 36, V
Social Security Administration 2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States 5, XI
Special Counsel, Office of 5, VIII
Special Education and Rehabilitative Services, 34, III
Office of
State Department 2, VI; 22, I; 28, XI
Federal Acquisition Regulation 48, 6
Surface Mining Reclamation and Enforcement, 30, VII
Office of
Surface Transportation Board 49, X
Susquehanna River Basin Commission 18, VIII
Technology Administration 15, XI
Technology Policy, Assistant Secretary for 37, IV
Tennessee Valley Authority 5, LXIX; 18, XIII
Thrift Supervision Office, Department of the 12, V
Treasury
Trade Representative, United States, Office of 15, XX
Transportation, Department of 2, XII; 5, L
Commercial Space Transportation 14, III
Contract Appeals, Board of 48, 63
Emergency Management and Assistance 44, IV
Federal Acquisition Regulation 48, 12
Federal Aviation Administration 14, I
Federal Highway Administration 23, I, II
Federal Motor Carrier Safety Administration 49, III
Federal Railroad Administration 49, II
Federal Transit Administration 49, VI
Maritime Administration 46, II
National Highway Traffic Safety Administration 23, II, III; 47, IV; 49, V
Pipeline and Hazardous Materials Safety 49, I
Administration
Saint Lawrence Seaway Development Corporation 33, IV
Secretary of Transportation, Office of 14, II; 49, Subtitle A
Surface Transportation Board 49, X
Transportation Statistics Bureau 49, XI
Transportation, Office of 7, XXXIII
Transportation Security Administration 49, XII
Transportation Statistics Bureau 49, XI
Travel Allowances, Temporary Duty (TDY) 41, 301
Treasury Department 5, XXI; 12, XV; 17, IV;
31, IX
Alcohol and Tobacco Tax and Trade Bureau 27, I
Community Development Financial Institutions 12, XVIII
Fund
Comptroller of the Currency 12, I
Customs and Border Protection 19, I
Engraving and Printing, Bureau of 31, VI
Federal Acquisition Regulation 48, 10
Federal Claims Collection Standards 31, IX
Federal Law Enforcement Training Center 31, VII
Financial Crimes Enforcement Network 31, X
Fiscal Service 31, II
Foreign Assets Control, Office of 31, V
Internal Revenue Service 26, I
Investment Security, Office of 31, VIII
Monetary Offices 31, I
Secret Service 31, IV
Secretary of the Treasury, Office of 31, Subtitle A
Thrift Supervision, Office of 12, V
Truman, Harry S. Scholarship Foundation 45, XVIII
United States and Canada, International Joint 22, IV
Commission
United States and Mexico, International Boundary 22, XI
and Water Commission, United States Section
U.S. Copyright Office 37, II
[[Page 938]]
Utah Reclamation Mitigation and Conservation 43, III
Commission
Veterans Affairs Department 2, VIII; 38, I
Federal Acquisition Regulation 48, 8
Veterans' Employment and Training Service, 41, 61; 20, IX
Office of the Assistant Secretary for
Vice President of the United States, Office of 32, XXVIII
Vocational and Adult Education, Office of 34, IV
Wage and Hour Division 29, V
Water Resources Council 18, VI
Workers' Compensation Programs, Office of 20, I
World Agricultural Outlook Board 7, XXXVIII
[[Page 939]]
Table of OMB Control Numbers
The OMB control numbers for chapter I of title 26 were consolidated into
Sec. Sec. 601.9000 and 602.101 at 50 FR 10221, Mar. 14, 1985. At 61 FR
58008, Nov. 12, 1996, Sec. 601.9000 was removed. Section 602.101 is
reprinted below for the convenience of the user.
PART 602_OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Sec. 602.101 OMB Control numbers.
(a) Purpose. This part collects and displays the control numbers
assigned to collections of information in Internal Revenue Service
regulations by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1980. The Internal Revenue Service intends
that this part comply with the requirements of Sec. Sec. 1320.7(f),
1320.12, 1320.13, and 1320.14 of 5 CFR part 1320 (OMB regulations
implementing the Paperwork Reduction Act), for the display of control
numbers assigned by OMB to collections of information in Internal
Revenue Service regulations. This part does not display control numbers
assigned by the Office of Management and Budget to collections of
information of the Bureau of Alcohol, Tobacco, and Firearms.
(b) Display.
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
1.1(h)-1(e)................................................ 1545-1654
1.23-5..................................................... 1545-0074
1.25-1T.................................................... 1545-0922
1545-0930
1.25-2T.................................................... 1545-0922
1545-0930
1.25-3T.................................................... 1545-0922
1545-0930
1.25-4T.................................................... 1545-0922
1.25-5T.................................................... 1545-0922
1.25-6T.................................................... 1545-0922
1.25-7T.................................................... 1545-0922
1.25-8T.................................................... 1545-0922
1.25A-1.................................................... 1545-1630
1.28-1..................................................... 1545-0619
1.31-2..................................................... 1545-0074
1.32-2..................................................... 1545-0074
1.32-3..................................................... 1545-1575
1.36B-5.................................................... 1545-2232
1.37-1..................................................... 1545-0074
1.37-3..................................................... 1545-0074
1.41-2..................................................... 1545-0619
1.41-3..................................................... 1545-0619
1.41-4A.................................................... 1545-0074
1.41-4 (b) and (c)......................................... 1545-0074
1.41-8(b).................................................. 1545-1625
1.41-8(d).................................................. 1545-0732
1.41-9..................................................... 1545-0619
1.42-1T.................................................... 1545-0984
1545-0988
1.42-2..................................................... 1545-1005
1.42-5..................................................... 1545-1357
1.42-6..................................................... 1545-1102
1.42-8..................................................... 1545-1102
1.42-10.................................................... 1545-1102
1.42-13.................................................... 1545-1357
1.42-14.................................................... 1545-1423
1.42-17.................................................... 1545-1357
1.42-18.................................................... 1545-2088
1.43-3(a)(3)............................................... 1545-1292
1.43-3(b)(3)............................................... 1545-1292
1.44B-1.................................................... 1545-0219
1.45D-1.................................................... 1545-1765
1.45G-1.................................................... 1545-2031
1.46-1..................................................... 1545-0123
1545-0155
1.46-3..................................................... 1545-0155
1.46-4..................................................... 1545-0155
1.46-5..................................................... 1545-0155
1.46-6..................................................... 1545-0155
1.46-8..................................................... 1545-0155
1.46-9..................................................... 1545-0155
1.46-10.................................................... 1545-0118
1.46-11.................................................... 1545-0155
1.47-1..................................................... 1545-0155
1545-0166
1.47-3..................................................... 1545-0155
1545-0166
1.47-4..................................................... 1545-0123
1.47-5..................................................... 1545-0092
1.47-6..................................................... 1545-0099
1.48-3..................................................... 1545-0155
1.48-4..................................................... 1545-0155
1545-0808
1.48-5..................................................... 1545-0155
1.48-6..................................................... 1545-0155
1.48-12.................................................... 1545-0155
1545-1783
1.50A-1.................................................... 1545-0895
1.50A-2.................................................... 1545-0895
1.50A-3.................................................... 1545-0895
1.50A-4.................................................... 1545-0895
1.50A-5.................................................... 1545-0895
1.50A-6.................................................... 1545-0895
1.50A-7.................................................... 1545-0895
1.50B-1.................................................... 1545-0895
1.50B-2.................................................... 1545-0895
1.50B-3.................................................... 1545-0895
[[Page 940]]
1.50B-4.................................................... 1545-0895
1.50B-5.................................................... 1545-0895
1.51-1..................................................... 1545-0219
1545-0241
1545-0244
1545-0797
1.52-2..................................................... 1545-0219
1.52-3..................................................... 1545-0219
1.56-1..................................................... 1545-0123
1.56(g)-1.................................................. 1545-1233
1.56A-1.................................................... 1545-0227
1.56A-2.................................................... 1545-0227
1.56A-3.................................................... 1545-0227
1.56A-4.................................................... 1545-0227
1.56A-5.................................................... 1545-0227
1.57-5..................................................... 1545-0227
1.58-1..................................................... 1545-0175
1.58-9(c)(5)(iii)(B)....................................... 1545-1093
1.58-9(e)(3)............................................... 1545-1093
1.59-1..................................................... 1545-1903
1.61-2..................................................... 1545-0771
1.61-2T.................................................... 1545-0771
1.61-4..................................................... 1545-0187
1.61-15.................................................... 1545-0074
1.62-2..................................................... 1545-1148
1.63-1..................................................... 1545-0074
1.66-4..................................................... 1545-1770
1.67-2T.................................................... 1545-0110
1.67-3..................................................... 1545-1018
1.67-3T.................................................... 1545-0118
1.71-1T.................................................... 1545-0074
1.72-4..................................................... 1545-0074
1.72-6..................................................... 1545-0074
1.72-9..................................................... 1545-0074
1.72-17.................................................... 1545-0074
1.72-17A................................................... 1545-0074
1.72-18.................................................... 1545-0074
1.74-1..................................................... 1545-1100
1.79-2..................................................... 1545-0074
1.79-3..................................................... 1545-0074
1.83-2..................................................... 1545-0074
1.83-5..................................................... 1545-0074
1.83-6..................................................... 1545-1448
1.103-10................................................... 1545-0123
1545-0940
1.103-15AT................................................. 1545-0720
1.103-18................................................... 1545-1226
1.103(n)-2T................................................ 1545-0874
1.103(n)-4T................................................ 1545-0874
1.103A-2................................................... 1545-0720
1.105-4.................................................... 1545-0074
1.105-5.................................................... 1545-0074
1.105-6.................................................... 1545-0074
1.108-4.................................................... 1545-1539
1.108-5.................................................... 1545-1421
1.108-7.................................................... 1545-2155
1.108(i)-1................................................. 1545-2147
1.108(i)-2................................................. 1545-2147
1.110-1.................................................... 1545-1661
1.117-5.................................................... 1545-0869
1.118-2.................................................... 1545-1639
1.119-1.................................................... 1545-0067
1.120-3.................................................... 1545-0057
1.121-1.................................................... 1545-0072
1.121-2.................................................... 1545-0072
1.121-3.................................................... 1545-0072
1.121-4.................................................... 1545-0072
1545-0091
1.121-5.................................................... 1545-0072
1.127-2.................................................... 1545-0768
1.132-1T................................................... 1545-0771
1.132-2.................................................... 1545-0771
1.132-2T................................................... 1545-0771
1.132-5.................................................... 1545-0771
1.132-5T................................................... 1545-0771
1545-1098
1.132-9(b)................................................. 1545-1676
1.141-1.................................................... 1545-1451
1.141-12................................................... 1545-1451
1.142-2.................................................... 1545-1451
1.142(f)(4)-1.............................................. 1545-1730
1.148-0.................................................... 1545-1098
1.148-1.................................................... 1545-1098
1.148-2.................................................... 1545-1098
1545-1347
1.148-3.................................................... 1545-1098
1545-1347
1.148-4.................................................... 1545-1098
1545-1347
1.148-5.................................................... 1545-1098
1545-1490
1.148-6.................................................... 1545-1098
1545-1451
1.148-7.................................................... 1545-1098
1545-1347
1.148-8.................................................... 1545-1098
1.148-11................................................... 1545-1098
1545-1347
1.149(e)-1................................................. 1545-0720
1.150-1.................................................... 1545-1347
1.151-1.................................................... 1545-0074
1.152-3.................................................... 1545-0071
1545-1783
1.152-4.................................................... 1545-0074
1.152-4T................................................... 1545-0074
1.162-1.................................................... 1545-0139
1.162-2.................................................... 1545-0139
1.162-3.................................................... 1545-0139
1.162-4.................................................... 1545-0139
1.162-5.................................................... 1545-0139
1.162-6.................................................... 1545-0139
1.162-7.................................................... 1545-0139
1.162-8.................................................... 1545-0139
1.162-9.................................................... 1545-0139
1.162-10................................................... 1545-0139
1.162-11................................................... 1545-0139
1.162-12................................................... 1545-0139
1.162-13................................................... 1545-0139
1.162-14................................................... 1545-0139
1.162-15................................................... 1545-0139
1.162-16................................................... 1545-0139
1.162-17................................................... 1545-0139
1.162-18................................................... 1545-0139
1.162-19................................................... 1545-0139
1.162-20................................................... 1545-0139
1.162-24................................................... 1545-2115
1.162-27................................................... 1545-1466
1.163-5.................................................... 1545-0786
1545-1132
1.163-8T................................................... 1545-0995
1.163-10T.................................................. 1545-0074
1.163-13................................................... 1545-1491
1.163(d)-1................................................. 1545-1421
1.165-1.................................................... 1545-0177
1.165-2.................................................... 1545-0177
1.165-3.................................................... 1545-0177
1.165-4.................................................... 1545-0177
1.165-5.................................................... 1545-0177
1.165-6.................................................... 1545-0177
1.165-7.................................................... 1545-0177
1.165-8.................................................... 1545-0177
1.165-9.................................................... 1545-0177
1.165-10................................................... 1545-0177
1.165-11................................................... 1545-0074
[[Page 941]]
1545-0177
1545-0786
1.165-12................................................... 1545-0786
1.166-1.................................................... 1545-0123
1.166-2.................................................... 1545-1254
1.166-4.................................................... 1545-0123
1.166-10................................................... 1545-0123
1.167(a)-5T................................................ 1545-1021
1.167(a)-7................................................. 1545-0172
1.167(a)-11................................................ 1545-0152
1545-0172
1.167(a)-12................................................ 1545-0172
1.167(d)-1................................................. 1545-0172
1.167(e)-1................................................. 1545-0172
1.167(f)-11................................................ 1545-0172
1.167(l)-1................................................. 1545-0172
1.168(d)-1................................................. 1545-1146
1.168(f)(8)-1T............................................. 1545-0923
1.168(i)-1................................................. 1545-1331
1.168-5.................................................... 1545-0172
1.169-4.................................................... 1545-0172
1.170-1.................................................... 1545-0074
1.170-2.................................................... 1545-0074
1.170-3.................................................... 1545-0123
1.170A-1................................................... 1545-0074
1.170A-2................................................... 1545-0074
1.170A-4(A)(b)............................................. 1545-0123
1.170A-8................................................... 1545-0074
1.170A-9................................................... 1545-0052
1545-0074
1.170A-11.................................................. 1545-0074
1545-0123
1545-1868
1.170A-12.................................................. 1545-0020
1545-0074
1.170A-13.................................................. 1545-0074
1545-0754
1545-0908
1545-1431
1.170A-13(f)............................................... 1545-1464
1.170A-14.................................................. 1545-0763
1.171-4.................................................... 1545-1491
1.171-5.................................................... 1545-1491
1.172-1.................................................... 1545-0172
1.172-13................................................... 1545-0863
1.173-1.................................................... 1545-0172
1.174-3.................................................... 1545-0152
1.174-4.................................................... 1545-0152
1.175-3.................................................... 1545-0187
1.175-6.................................................... 1545-0152
1.177-1.................................................... 1545-0172
1.179-2.................................................... 1545-1201
1.179-3.................................................... 1545-1201
1.179-5.................................................... 1545-0172
1545-1201
1.179B-1T.................................................. 1545-2076
1.179C-1................................................... 1545-2103
1.179C-1T.................................................. 1545-2103
1.180-2.................................................... 1545-0074
1.181-1.................................................... 1545-2059
1.181-2.................................................... 1545-2059
1.181-3.................................................... 1545-2059
1.182-6.................................................... 1545-0074
1.183-1.................................................... 1545-0195
1.183-2.................................................... 1545-0195
1.183-3.................................................... 1545-0195
1.183-4.................................................... 1545-0195
1.190-3.................................................... 1545-0074
1.194-2.................................................... 1545-0735
1.194-4.................................................... 1545-0735
1.195-1.................................................... 1545-1582
1.197-1T................................................... 1545-1425
1.197-2.................................................... 1545-1671
1.199-6.................................................... 1545-1966
1.213-1.................................................... 1545-0074
1.215-1T................................................... 1545-0074
1.217-2.................................................... 1545-0182
1.243-3.................................................... 1545-0123
1.243-4.................................................... 1545-0123
1.243-5.................................................... 1545-0123
1.248-1.................................................... 1545-0172
1.261-1.................................................... 1545-1041
1.263(a)-1................................................. 1545-2248
1.263(a)-3................................................. 1545-2248
1.263(a)-5................................................. 1545-1870
1.263(e)-1................................................. 1545-0123
1.263A-1................................................... 1545-0987
1.263A-1T.................................................. 1545-0187
1.263A-2................................................... 1545-0987
1.263A-3................................................... 1545-0987
1.263A-8(b)(2)(iii)........................................ 1545-1265
1.263A-9(d)(1)............................................. 1545-1265
1.263A-9(f)(1)(ii)......................................... 1545-1265
1.263A-9(f)(2)(iv)......................................... 1545-1265
1.263A-9(g)(2)(iv)(C)...................................... 1545-1265
1.263A-9(g)(3)(iv)......................................... 1545-1265
1.265-1.................................................... 1545-0074
1.265-2.................................................... 1545-0123
1.266-1.................................................... 1545-0123
1.267(f)-1................................................. 1545-0885
1.268-1.................................................... 1545-0184
1.274-1.................................................... 1545-0139
1.274-2.................................................... 1545-0139
1.274-3.................................................... 1545-0139
1.274-4.................................................... 1545-0139
1.274-5.................................................... 1545-0771
1.274-5A................................................... 1545-0139
1545-0771
1.274-5T................................................... 1545-0074
1545-0172
1545-0771
1.274-6.................................................... 1545-0139
1545-0771
1.274-6T................................................... 1545-0074
1545-0771
1.274-7.................................................... 1545-0139
1.274-8.................................................... 1545-0139
1.279-6.................................................... 1545-0123
1.280C-4................................................... 1545-1155
1.280F-3T.................................................. 1545-0074
1.280G-1................................................... 1545-1851
1.281-4.................................................... 1545-0123
1.302-4.................................................... 1545-0074
1.305-3.................................................... 1545-0123
1.305-5.................................................... 1545-1438
1.307-2.................................................... 1545-0074
1.312-15................................................... 1545-0172
1.316-1.................................................... 1545-0123
1.331-1.................................................... 1545-0074
1.332-4.................................................... 1545-0123
1.332-6.................................................... 1545-2019
1.336-2.................................................... 1545-2125
1.336-4.................................................... 1545-2125
1.337(d)-1................................................. 1545-1160
1.337(d)-2................................................. 1545-1160
1545-1774
1.337(d)-4................................................. 1545-1633
1.337(d)-5................................................. 1545-1672
1.337(d)-6................................................. 1545-1672
1.337(d)-7................................................. 1545-1672
1.338-2.................................................... 1545-1658
1.338-5.................................................... 1545-1658
1.338-10................................................... 1545-1658
1.338-11................................................... 1545-1990
[[Page 942]]
1.338(h)(10)-1............................................. 1545-1658
1.338(i)-1................................................. 1545-1990
1.341-7.................................................... 1545-0123
1.351-3.................................................... 1545-2019
1.355-5.................................................... 1545-2019
1.362-2.................................................... 1545-0123
1.362-4.................................................... 1545-2247
1.367(a)-1T................................................ 1545-0026
1.367(a)-2T................................................ 1545-0026
1.367(a)-3................................................. 1545-0026
1545-1478
1.367(a)-3T................................................ 1545-2183
1.367(a)-6T................................................ 1545-0026
1.367(a)-7................................................. 1545-2183
1.367(a)-7T................................................ 1545-2183
1.367(a)-8................................................. 1545-1271
1545-2056
1545-2183
1.367(b)-1................................................. 1545-1271
1.367(b)-3T................................................ 1545-1666
1.367(d)-1T................................................ 1545-0026
1.367(e)-1................................................. 1545-1487
1.367(e)-2................................................. 1545-1487
1.368-1.................................................... 1545-1691
1.368-3.................................................... 1545-2019
1.371-1.................................................... 1545-0123
1.371-2.................................................... 1545-0123
1.374-3.................................................... 1545-0123
1.381(b)-1................................................. 1545-0123
1.381(c)(4)-1.............................................. 1545-0123
1545-0152
1545-0879
1.381(c)(5)-1.............................................. 1545-0123
1545-0152
1.381(c)(6)-1.............................................. 1545-0123
1545-0152
1.381(c)(8)-1.............................................. 1545-0123
1.381(c)(10)-1............................................. 1545-0123
1.381(c)(11)-1(k).......................................... 1545-0123
1.381(c)(13)-1............................................. 1545-0123
1.381(c)(17)-1............................................. 1545-0045
1.381(c)(22)-1............................................. 1545-1990
1.381(c)(25)-1............................................. 1545-0045
1.382-1T................................................... 1545-0123
1.382-2.................................................... 1545-0123
1.382-2T................................................... 1545-0123
1.382-3.................................................... 1545-1281
1545-1345
1.382-4.................................................... 1545-1120
1.382-6.................................................... 1545-1381
1.382-8.................................................... 1545-1434
1.382-9.................................................... 1545-1120
1545-1260
1545-1275
1545-1324
1.382-11................................................... 1545-2019
1.382-91................................................... 1545-1260
1545-1324
1.383-1.................................................... 1545-0074
1545-1120
1.401-1.................................................... 1545-0020
1545-0197
1545-0200
1545-0534
1545-0710
1.401(a)-11................................................ 1545-0710
1.401(a)-20................................................ 1545-0928
1.401(a)-31................................................ 1545-1341
1.401(a)-50................................................ 1545-0710
1.401(a)(31)-1............................................. 1545-1341
1.401(b)-1................................................. 1545-0197
1.401(f)-1................................................. 1545-0710
1.401(k)-1................................................. 1545-1039
1545-1069
1545-1669
1545-1930
1.401(k)-2................................................. 1545-1669
1.401(k)-3................................................. 1545-1669
1.401(k)-4................................................. 1545-1669
1.401(m)-3................................................. 1545-1699
1.401(a)(9)-1.............................................. 1545-1573
1.401(a)(9)-3.............................................. 1545-1466
1.401(a)(9)-4.............................................. 1545-1573
1.401-12(n)................................................ 1545-0806
1.401-14................................................... 1545-0710
1.402(c)-2................................................. 1545-1341
1.402(f)-1................................................. 1545-1341
1545-1632
1.402A-1................................................... 1545-1992
1.403(b)-1................................................. 1545-0710
1.403(b)-3................................................. 1545-0996
1.403(b)-7................................................. 1545-1341
1.403(b)-10................................................ 1545-2068
1.404(a)-4................................................. 1545-0710
1.404(a)-12................................................ 1545-0710
1.404A-2................................................... 1545-0123
1.404A-6................................................... 1545-0123
1.408-2.................................................... 1545-0390
1.408-5.................................................... 1545-0747
1.408-6.................................................... 1545-0203
1545-0390
1.408-7.................................................... 1545-0119
1.408(q)-1................................................. 1545-1841
1.408A-2................................................... 1545-1616
1.408A-4................................................... 1545-1616
1.408A-5................................................... 1545-1616
1.408A-7................................................... 1545-1616
1.410(a)-2................................................. 1545-0710
1.410(d)-1................................................. 1545-0710
1.411(a)-11................................................ 1545-1471
1545-1632
1.411(d)-4................................................. 1545-1545
1.411(d)-6................................................. 1545-1477
1.412(b)-5................................................. 1545-0710
1.412(c)(1)-2.............................................. 1545-0710
1.412(c)(2)-1.............................................. 1545-0710
1.412(c)(3)-2.............................................. 1545-0710
1.414(c)-5................................................. 1545-0797
1.414(r)-1................................................. 1545-1221
1.415-2.................................................... 1545-0710
1.415-6.................................................... 1545-0710
1.417(a)(3)-1.............................................. 1545-0928
1.417(e)-1................................................. 1545-1471
1545-1724
1.417(e)-1T................................................ 1545-1471
1.419A(f)(6)-1............................................. 1545-1795
1.422-1.................................................... 1545-0820
1.430(f)-1................................................. 1545-2095
1.430(g)-1................................................. 1545-2095
1.430(h)(2)-1.............................................. 1545-2095
1.436-1.................................................... 1545-2095
1.441-2.................................................... 1545-1748
1.442-1.................................................... 1545-0074
1545-0123
1545-0134
1545-0152
1545-0820
1545-1748
1.443-1.................................................... 1545-0123
1.444-3T................................................... 1545-1036
1.444-4.................................................... 1545-1591
1.446-1.................................................... 1545-0074
1545-0152
1.446-4(d)................................................. 1545-1412
[[Page 943]]
1.448-1(g)................................................. 1545-0152
1.448-1(h)................................................. 1545-0152
1.448-1(i)................................................. 1545-0152
1.448-2.................................................... 1545-1855
1.448-2T................................................... 1545-0152
1545-1855
1.451-1.................................................... 1545-0091
1.451-4.................................................... 1545-0123
1.451-5.................................................... 1545-0074
1.451-6.................................................... 1545-0074
1.451-7.................................................... 1545-0074
1.453-1.................................................... 1545-0152
1.453-2.................................................... 1545-0152
1.453-8.................................................... 1545-0152
1545-0228
1.453-10................................................... 1545-0152
1.453A-1................................................... 1545-0152
1545-1134
1.453A-2................................................... 1545-0152
1545-1134
1.453A-3................................................... 1545-0963
1.454-1.................................................... 1545-0074
1.455-2.................................................... 1545-0152
1.455-6.................................................... 1545-0123
1.456-2.................................................... 1545-0123
1.456-6.................................................... 1545-0123
1.456-7.................................................... 1545-0123
1.457-8.................................................... 1545-1580
1.458-1.................................................... 1545-0879
1.458-2.................................................... 1545-0152
1.460-1.................................................... 1545-1650
1.460-6.................................................... 1545-1031
1545-1572
1545-1732
1.461-1.................................................... 1545-0074
1.461-2.................................................... 1545-0096
1.461-4.................................................... 1545-0917
1.461-5.................................................... 1545-0917
1.463-1T................................................... 1545-0916
1.465-1T................................................... 1545-0712
1.466-1T................................................... 1545-0152
1.466-4.................................................... 1545-0152
1.468A-3................................................... 1545-1269
1545-1378
1545-1511
1.468A-3(h), 1.468A-7, and 1.468A-8(d)..................... 1545-2091
1.468A-4................................................... 1545-0954
1.468A-7................................................... 1545-0954
1545-1511
1.468A-8................................................... 1545-1269
1.468B-1................................................... 1545-1631
1.468B-1(j)................................................ 1545-1299
1.468B-2(k)................................................ 1545-1299
1.468B-2(l)................................................ 1545-1299
1.468B-3(b)................................................ 1545-1299
1.468B-3(e)................................................ 1545-1299
1.468B-5(b)................................................ 1545-1299
1.468B-9................................................... 1545-1631
1.469-1.................................................... 1545-1008
1.469-2T................................................... 1545-0712
1545-1091
1.469-4T................................................... 1545-0985
1545-1037
1.469-7.................................................... 1545-1244
1.471-2.................................................... 1545-0123
1.471-5.................................................... 1545-0123
1.471-6.................................................... 1545-0123
1.471-8.................................................... 1545-0123
1.471-11................................................... 1545-0123
1545-0152
1.472-1.................................................... 1545-0042
1545-0152
1.472-2.................................................... 1545-0152
1.472-3.................................................... 1545-0042
1.472-5.................................................... 1545-0152
1.472-8.................................................... 1545-0028
1545-0042
1545-1767
1.475(a)-4................................................. 1545-1945
1.475(b)-4................................................. 1545-1496
1.481-4.................................................... 1545-0152
1.481-5.................................................... 1545-0152
1.482-1.................................................... 1545-1364
1.482-4.................................................... 1545-1364
1.482-7.................................................... 1545-1364
1545-1794
1.482-9(b)................................................. 1545-2149
1.501(a)-1................................................. 1545-0056
1545-0057
1.501(c)(3)-1.............................................. 1545-0056
1.501(c)(9)-5.............................................. 1545-0047
1.501(c)(17)-3............................................. 1545-0047
1.501(e)-1................................................. 1545-0814
1.503(c)-1................................................. 1545-0047
1545-0052
1.505(c)-1T................................................ 1545-0916
1.507-1.................................................... 1545-0052
1.507-2.................................................... 1545-0052
1.508-1.................................................... 1545-0052
1545-0056
1.509(a)-3................................................. 1545-0047
1.509(a)-4................................................. 1545-2157
1.509(a)-5................................................. 1545-0047
1.509(c)-1................................................. 1545-0052
1.512(a)-1................................................. 1545-0687
1.512(a)-4................................................. 1545-0047
1545-0687
1.521-1.................................................... 1545-0051
1545-0058
1.527-2.................................................... 1545-0129
1.527-5.................................................... 1545-0129
1.527-6.................................................... 1545-0129
1.527-9.................................................... 1545-0129
1.528-8.................................................... 1545-0127
1.533-2.................................................... 1545-0123
1.534-2.................................................... 1545-0123
1.542-3.................................................... 1545-0123
1.545-2.................................................... 1545-0123
1.545-3.................................................... 1545-0123
1.547-2.................................................... 1545-0045
1545-0123
1.547-3.................................................... 1545-0123
1.551-4.................................................... 1545-0074
1.552-3.................................................... 1545-0099
1.552-4.................................................... 1545-0099
1.552-5.................................................... 1545-0099
1.556-2.................................................... 1545-0704
1.561-1.................................................... 1545-0044
1.561-2.................................................... 1545-0123
1.562-3.................................................... 1545-0123
1.563-2.................................................... 1545-0123
1.564-1.................................................... 1545-0123
1.565-1.................................................... 1545-0043
1545-0123
1.565-2.................................................... 1545-0043
1.565-3.................................................... 1545-0043
1.565-5.................................................... 1545-0043
1.565-6.................................................... 1545-0043
1.585-1.................................................... 1545-0123
1.585-3.................................................... 1545-0123
1.585-8.................................................... 1545-1290
1.586-2.................................................... 1545-0123
1.593-1.................................................... 1545-0123
1.593-6.................................................... 1545-0123
[[Page 944]]
1.593-6A................................................... 1545-0123
1.593-7.................................................... 1545-0123
1.595-1.................................................... 1545-0123
1.597-2.................................................... 1545-1300
1.597-4.................................................... 1545-1300
1.597-6.................................................... 1545-1300
1.597-7.................................................... 1545-1300
1.611-2.................................................... 1545-0099
1.611-3.................................................... 1545-0007
1545-0099
1545-1784
1.612-4.................................................... 1545-0074
1.612-5.................................................... 1545-0099
1.613-3.................................................... 1545-0099
1.613-4.................................................... 1545-0099
1.613-6.................................................... 1545-0099
1.613-7.................................................... 1545-0099
1.613A-3................................................... 1545-0919
1.613A-3(e)................................................ 1545-1251
1.613A-3(l)................................................ 1545-0919
1.613A-5................................................... 1545-0099
1.613A-6................................................... 1545-0099
1.614-2.................................................... 1545-0099
1.614-3.................................................... 1545-0099
1.614-5.................................................... 1545-0099
1.614-6.................................................... 1545-0099
1.614-8.................................................... 1545-0099
1.617-1.................................................... 1545-0099
1.617-3.................................................... 1545-0099
1.617-4.................................................... 1545-0099
1.631-1.................................................... 1545-0007
1.631-2.................................................... 1545-0007
1.641(b)-2................................................. 1545-0092
1.642(c)-1................................................. 1545-0092
1.642(c)-2................................................. 1545-0092
1.642(c)-5................................................. 1545-0074
1.642(c)-6................................................. 1545-0020
1545-0074
1545-0092
1.642(g)-1................................................. 1545-0092
1.642(i)-1................................................. 1545-0092
1.645-1.................................................... 1545-1578
1.663(b)-2................................................. 1545-0092
1.664-1.................................................... 1545-0196
1.664-1(a)(7).............................................. 1545-1536
1.664-1(c)................................................. 1545-2101
1.664-2.................................................... 1545-0196
1.664-3.................................................... 1545-0196
1.664-4.................................................... 1545-0020
1545-0196
1.665(a)-0A through
1.665(g)-2A................................................ 1545-0192
1.666(d)-1A................................................ 1545-0092
1.671-4.................................................... 1545-1442
1.671-5.................................................... 1545-1540
1.701-1.................................................... 1545-0099
1.702-1.................................................... 1545-0074
1.703-1.................................................... 1545-0099
1.704-2.................................................... 1545-1090
1.706-1.................................................... 1545-0074
1545-0099
1545-0134
1.706-1T................................................... 1545-0099
1.707-3(c)(2).............................................. 1545-1243
1.707-5(a)(7)(ii).......................................... 1545-1243
1.707-6(c)................................................. 1545-1243
1.707-8.................................................... 1545-1243
1.708-1.................................................... 1545-0099
1.732-1.................................................... 1545-0099
1545-1588
1.736-1.................................................... 1545-0074
1.743-1.................................................... 1545-0074
1545-1588
1.751-1.................................................... 1545-0074
1545-0099
1545-0941
1.752-2.................................................... 1545-1905
1.752-5.................................................... 1545-1090
1.752-7.................................................... 1545-1843
1.754-1.................................................... 1545-0099
1.755-1.................................................... 1545-0099
1.761-2.................................................... 1545-1338
1.801-1.................................................... 1545-0123
1545-0128
1.801-3.................................................... 1545-0123
1.801-5.................................................... 1545-0128
1.801-8.................................................... 1545-0128
1.804-4.................................................... 1545-0128
1.811-2.................................................... 1545-0128
1.812-2.................................................... 1545-0128
1.815-6.................................................... 1545-0128
1.818-4.................................................... 1545-0128
1.818-5.................................................... 1545-0128
1.818-8.................................................... 1545-0128
1.819-2.................................................... 1545-0128
1.821-1.................................................... 1545-1027
1.821-3.................................................... 1545-1027
1.821-4.................................................... 1545-1027
1.822-5.................................................... 1545-1027
1.822-6.................................................... 1545-1027
1.822-8.................................................... 1545-1027
1.822-9.................................................... 1545-1027
1.823-2.................................................... 1545-1027
1.823-5.................................................... 1545-1027
1.823-6.................................................... 1545-1027
1.825-1.................................................... 1545-1027
1.826-1.................................................... 1545-1027
1.826-2.................................................... 1545-1027
1.826-3.................................................... 1545-1027
1.826-4.................................................... 1545-1027
1.826-6.................................................... 1545-1027
1.831-3.................................................... 1545-0123
1.831-4.................................................... 1545-0123
1.832-4.................................................... 1545-1227
1.832-5.................................................... 1545-0123
1.848-2(g)(8).............................................. 1545-1287
1.848-2(h)(3).............................................. 1545-1287
1.848-2(i)(4).............................................. 1545-1287
1.851-2.................................................... 1545-1010
1.851-4.................................................... 1545-0123
1.852-1.................................................... 1545-0123
1.852-4.................................................... 1545-0123
1545-0145
1.852-6.................................................... 1545-0123
1545-0144
1.852-7.................................................... 1545-0074
1.852-9.................................................... 1545-0074
1545-0123
1545-0144
1545-0145
1545-1783
1.852-11................................................... 1545-1094
1.853-3.................................................... 1545-2035
1.853-4.................................................... 1545-2035
1.854-2.................................................... 1545-0123
1.855-1.................................................... 1545-0123
1.856-2.................................................... 1545-0123
1545-1004
1.856-6.................................................... 1545-0123
1.856-7.................................................... 1545-0123
1.856-8.................................................... 1545-0123
1.857-8.................................................... 1545-0123
1.857-9.................................................... 1545-0074
1.858-1.................................................... 1545-0123
1.860-2.................................................... 1545-0045
[[Page 945]]
1.860-4.................................................... 1545-0045
1545-1054
1545-1057
1.860E-1................................................... 1545-1675
1.860E-2(a)(5)............................................. 1545-1276
1.860E-2(a)(7)............................................. 1545-1276
1.860E-2(b)(2)............................................. 1545-1276
1.860G-2................................................... 1545-2110
1.861-2.................................................... 1545-0089
1.861-3.................................................... 1545-0089
1.861-4.................................................... 1545-1900
1.861-8.................................................... 1545-0126
1.861-8(e)(6) and (g)...................................... 1545-1224
1.861-9T................................................... 1545-0121
1545-1072
1.861-18................................................... 1545-1594
1.863-1.................................................... 1545-1476
1.863-3.................................................... 1545-1476
1545-1556
1.863-3A................................................... 1545-0126
1.863-4.................................................... 1545-0126
1.863-7.................................................... 1545-0132
1.863-8.................................................... 1545-1718
1.863-9.................................................... 1545-1718
1.864-4.................................................... 1545-0126
1.871-1.................................................... 1545-0096
1.871-6.................................................... 1545-0795
1.871-7.................................................... 1545-0089
1.871-10................................................... 1545-0089
1545-0165
1.874-1.................................................... 1545-0089
1.881-4.................................................... 1545-1440
1.882-4.................................................... 1545-0126
1.883-0.................................................... 1545-1677
1.883-1.................................................... 1545-1677
1.883-2.................................................... 1545-1677
1.883-3.................................................... 1545-1677
1.883-4.................................................... 1545-1677
1.883-5.................................................... 1545-1677
1.884-0.................................................... 1545-1070
1.884-1.................................................... 1545-1070
1.884-2.................................................... 1545-1070
1.884-2T................................................... 1545-0126
1545-1070
1.884-4.................................................... 1545-1070
1.884-5.................................................... 1545-1070
1.892-1T................................................... 1545-1053
1.892-2T................................................... 1545-1053
1.892-3T................................................... 1545-1053
1.892-4T................................................... 1545-1053
1.892-5T................................................... 1545-1053
1.892-6T................................................... 1545-1053
1.892-7T................................................... 1545-1053
1.897-2.................................................... 1545-0123
1545-0902
1.897-3.................................................... 1545-0123
1.897-5T................................................... 1545-0902
1.897-6T................................................... 1545-0902
1.901-2.................................................... 1545-0746
1.901-2A................................................... 1545-0746
1.901-3.................................................... 1545-0122
1.902-1.................................................... 1545-0122
1545-1458
1.904-1.................................................... 1545-0121
1545-0122
1.904-2.................................................... 1545-0121
1545-0122
1.904-3.................................................... 1545-0121
1.904-4.................................................... 1545-0121
1.904-5.................................................... 1545-0121
1.904-7.................................................... 1545-2104
1.904-7T................................................... 1545-2104
1.904(f)-1................................................. 1545-0121
1545-0122
1.904(f)-2................................................. 1545-0121
1.904(f)-3................................................. 1545-0121
1.904(f)-4................................................. 1545-0121
1.904(f)-5................................................. 1545-0121
1.904(f)-6................................................. 1545-0121
1.904(f)-7................................................. 1545-1127
1.905-2.................................................... 1545-0122
1.905-3T................................................... 1545-1056
1.905-4T................................................... 1545-1056
1.905-5T................................................... 1545-1056
1.911-1.................................................... 1545-0067
1545-0070
1.911-2.................................................... 1545-0067
1545-0070
1.911-3.................................................... 1545-0067
1545-0070
1.911-4.................................................... 1545-0067
1545-0070
1.911-5.................................................... 1545-0067
1545-0070
1.911-6.................................................... 1545-0067
1545-0070
1.911-7.................................................... 1545-0067
1545-0070
1.913-13................................................... 1545-0067
1.921-1T................................................... 1545-0190
1545-0884
1545-0935
1545-0939
1.921-2.................................................... 1545-0884
1.921-3T................................................... 1545-0935
1.923-1T................................................... 1545-0935
1.924(a)-1T................................................ 1545-0935
1.925(a)-1T................................................ 1545-0935
1.925(b)-1T................................................ 1545-0935
1.926(a)-1T................................................ 1545-0935
1.927(a)-1T................................................ 1545-0935
1.927(b)-1T................................................ 1545-0935
1.927(d)-1................................................. 1545-0884
1.927(d)-2T................................................ 1545-0935
1.927(e)-1T................................................ 1545-0935
1.927(e)-2T................................................ 1545-0935
1.927(f)-1................................................. 1545-0884
1.931-1.................................................... 1545-0074
1545-0123
1.934-1.................................................... 1545-0782
1.935-1.................................................... 1545-0074
1545-0087
1545-0803
1.936-1.................................................... 1545-0215
1545-0217
1.936-4.................................................... 1545-0215
1.936-5.................................................... 1545-0704
1.936-6.................................................... 1545-0215
1.936-7.................................................... 1545-0215
1.936-10(c)................................................ 1545-1138
1.937-1.................................................... 1545-1930
1.952-2.................................................... 1545-0126
1.953-2.................................................... 1545-0126
1.954-1.................................................... 1545-1068
1.954-2.................................................... 1545-1068
1.955-2.................................................... 1545-0123
1.955-3.................................................... 1545-0123
1.955A-2................................................... 1545-0755
1.955A-3................................................... 1545-0755
1.956-1.................................................... 1545-0704
1.956-2.................................................... 1545-0704
1.959-1.................................................... 1545-0704
1.959-2.................................................... 1545-0704
1.960-1.................................................... 1545-0122
[[Page 946]]
1.962-2.................................................... 1545-0704
1.962-3.................................................... 1545-0704
1.962-4.................................................... 1545-0704
1.964-1.................................................... 1545-0126
1545-0704
1545-1072
1545-2104
1.964-3.................................................... 1545-0126
1.970-2.................................................... 1545-0126
1.985-2.................................................... 1545-1051
1545-1131
1.985-3.................................................... 1545-1051
1.988-0.................................................... 1545-1131
1.988-1.................................................... 1545-1131
1.988-2.................................................... 1545-1131
1.988-3.................................................... 1545-1131
1.988-4.................................................... 1545-1131
1.988-5.................................................... 1545-1131
1.988-6.................................................... 1545-1831
1.992-1.................................................... 1545-0190
1545-0938
1.992-2.................................................... 1545-0190
1545-0884
1545-0938
1.992-3.................................................... 1545-0190
1545-0938
1.992-4.................................................... 1545-0190
1545-0938
1.993-3.................................................... 1545-0938
1.993-4.................................................... 1545-0938
1.994-1.................................................... 1545-0938
1.995-5.................................................... 1545-0938
1.1001-1................................................... 1545-1902
1.1012-1................................................... 1545-0074
1545-1139
1.1014-4................................................... 1545-0184
1.1015-1................................................... 1545-0020
1.1017-1................................................... 1545-1539
1.1031(d)-1T............................................... 1545-1021
1.1033(a)-2................................................ 1545-0184
1.1033(g)-1................................................ 1545-0184
1.1034-1................................................... 1545-0072
1.1039-1................................................... 1545-0184
1.1041-1T.................................................. 1545-0074
1.1041-2................................................... 1545-1751
1.1042-1T.................................................. 1545-0916
1.1044(a)-1................................................ 1545-1421
1.1045-1................................................... 1545-1893
1.1060-1................................................... 1545-1658
1545-1990
1.1071-1................................................... 1545-0184
1.1071-4................................................... 1545-0184
1.1081-4................................................... 1545-0028
1545-0046
1545-0123
1.1081-11.................................................. 1545-2019
1.1082-1................................................... 1545-0046
1.1082-2................................................... 1545-0046
1.1082-3................................................... 1545-0046
1545-0184
1.1082-4................................................... 1545-0046
1.1082-5................................................... 1545-0046
1.1082-6................................................... 1545-0046
1.1083-1................................................... 1545-0123
1.1092(b)-1T............................................... 1545-0644
1.1092(b)-2T............................................... 1545-0644
1.1092(b)-3T............................................... 1545-0644
1.1092(b)-4T............................................... 1545-0644
1.1092(b)-5T............................................... 1545-0644
1.1211-1................................................... 1545-0074
1.1212-1................................................... 1545-0074
1.1221-2................................................... 1545-1480
1.1231-1................................................... 1545-0177
1545-0184
1.1231-2................................................... 1545-0177
1545-0184
1.1231-2................................................... 1545-0074
1.1232-3................................................... 1545-0074
1.1237-1................................................... 1545-0184
1.1239-1................................................... 1545-0091
1.1242-1................................................... 1545-0184
1.1243-1................................................... 1545-0123
1.1244(e)-1................................................ 1545-0123
1545-1447
1.1245-1................................................... 1545-0184
1.1245-2................................................... 1545-0184
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[[Page 950]]
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1.6694-2(c)................................................ 1545-1231
1.6694-2(c)(3)............................................. 1545-1231
1.6694-3(e)................................................ 1545-1231
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5c.168(f)(8)-6............................................. 1545-0123
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6a.103A-2.................................................. 1545-0123
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11.410-1................................................... 1545-0710
11.412(c)-7................................................ 1545-0710
11.412(c)-11............................................... 1545-0710
12.7....................................................... 1545-0190
12.8....................................................... 1545-0191
12.9....................................................... 1545-0195
14a.422A-1................................................. 1545-0123
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20.2010-2T................................................. 1545-0015
20.2011-1.................................................. 1545-0015
20.2014-5.................................................. 1545-0015
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1545-0092
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20.2056(b)-7............................................... 1545-0015
1545-1612
20.2056A-2................................................. 1545-1443
20.2056A-3................................................. 1545-1360
20.2056A-4................................................. 1545-1360
20.2056A-10................................................ 1545-1360
20.2106-1.................................................. 1545-0015
20.2106-2.................................................. 1545-0015
20.2204-1.................................................. 1545-0015
20.2204-2.................................................. 1545-0015
20.6001-1.................................................. 1545-0015
20.6011-1.................................................. 1545-0015
20.6018-1.................................................. 1545-0015
1545-0531
20.6018-2.................................................. 1545-0015
20.6018-3.................................................. 1545-0015
20.6018-4.................................................. 1545-0015
1545-0022
20.6036-2.................................................. 1545-0015
20.6060-1(a)(1)............................................ 1545-1231
20.6061-1.................................................. 1545-0015
20.6065-1.................................................. 1545-0015
20.6075-1.................................................. 1545-0015
20.6081-1.................................................. 1545-0015
1545-0181
1545-1707
20.6091-1.................................................. 1545-0015
20.6107-1.................................................. 1545-1231
20.6161-1.................................................. 1545-0015
1545-0181
20.6161-2.................................................. 1545-0015
1545-0181
[[Page 951]]
20.6163-1.................................................. 1545-0015
20.6166-1.................................................. 1545-0181
20.6166A-1................................................. 1545-0015
20.6166A-3................................................. 1545-0015
20.6324A-1................................................. 1545-0754
20.7520-1.................................................. 1545-1343
20.7520-2.................................................. 1545-1343
20.7520-3.................................................. 1545-1343
20.7520-4.................................................. 1545-1343
22.0....................................................... 1545-0015
25.2511-2.................................................. 1545-0020
25.2512-2.................................................. 1545-0020
25.2512-3.................................................. 1545-0020
25.2512-5.................................................. 1545-0020
25.2512-9.................................................. 1545-0020
25.2513-1.................................................. 1545-0020
25.2513-2.................................................. 1545-0020
1545-0021
25.2513-3.................................................. 1545-0020
25.2518-2.................................................. 1545-0959
25.2522(a)-1............................................... 1545-0196
25.2522(c)-3............................................... 1545-0020
1545-0196
25.2523(a)-1............................................... 1545-0020
1545-0196
25.2523(f)-1............................................... 1545-0015
25.2701-2.................................................. 1545-1241
25.2701-4.................................................. 1545-1241
25.2701-5.................................................. 1545-1273
25.2702-5.................................................. 1545-1485
25.2702-6.................................................. 1545-1273
25.6001-1.................................................. 1545-0020
1545-0022
25.6011-1.................................................. 1545-0020
25.6019-1.................................................. 1545-0020
25.6019-2.................................................. 1545-0020
25.6019-3.................................................. 1545-0020
25.6019-4.................................................. 1545-0020
25.6060-1(a)(1)............................................ 1545-1231
25.6061-1.................................................. 1545-0020
25.6065-1.................................................. 1545-0020
25.6075-1.................................................. 1545-0020
25.6081-1.................................................. 1545-0020
25.6091-1.................................................. 1545-0020
25.6091-2.................................................. 1545-0020
25.6107-1.................................................. 1545-1231
25.6151-1.................................................. 1545-0020
25.6161-1.................................................. 1545-0020
25.7520-1.................................................. 1545-1343
25.7520-2.................................................. 1545-1343
25.7520-3.................................................. 1545-1343
25.7520-4.................................................. 1545-1343
26.2601-1.................................................. 1545-0985
26.2632-1.................................................. 1545-0985
1545-1892
26.2642-1.................................................. 1545-0985
26.2642-2.................................................. 1545-0985
26.2642-3.................................................. 1545-0985
26.2642-4.................................................. 1545-0985
26.2642-6.................................................. 1545-1902
26.2652-2.................................................. 1545-0985
26.2654-1.................................................. 1545-1902
26.2662-1.................................................. 1545-0015
1545-0985
26.2662-2.................................................. 1545-0985
26.6060-1(a)(1)............................................ 1545-1231
26.6107-1.................................................. 1545-1231
31.3102-3.................................................. 1545-0029
1545-0059
1545-0065
31.3121(b)(19)-1........................................... 1545-0029
31.3121(d)-1............................................... 1545-0004
31.3121(i)-1............................................... 1545-0034
31.3121(k)-4............................................... 1545-0137
31.3121(r)-1............................................... 1545-0029
31.3121(s)-1............................................... 1545-0029
31.3121(v)(2)-1............................................ 1545-1643
31.3302(a)-2............................................... 1545-0028
31.3302(a)-3............................................... 1545-0028
31.3302(b)-2............................................... 1545-0028
31.3302(e)-1............................................... 1545-0028
31.3306(c)(18)-1........................................... 1545-0029
31.3401(a)-1............................................... 1545-0029
31.3401(a)(6).............................................. 1545-1484
31.3401(a)(6)-1............................................ 1545-0029
1545-0096
1545-0795
31.3401(a)(7)-1............................................ 1545-0029
31.3401(a)(8)(A)-1 ........................................ 1545-0029
1545-0666
31.3401(a)(8)(C)-1 ........................................ 1545-0029
31.3401(a)(15)-1........................................... 1545-0182
31.3401(c)-1............................................... 1545-0004
31.3402(b)-1............................................... 1545-0010
31.3402(c)-1............................................... 1545-0010
31.3402(f)(1)-1............................................ 1545-0010
31.3402(f)(2)-1............................................ 1545-0010
1545-0410
31.3402(f)(3)-1............................................ 1545-0010
31.3402(f)(4)-1............................................ 1545-0010
31.3402(f)(4)-2............................................ 1545-0010
31.3402(f)(5)-1............................................ 1545-0010
1545-1435
31.3402(h)(1)-1............................................ 1545-0029
31.3402(h)(3)-1............................................ 1545-0010
1545-0029
31.3402(h)(4)-1............................................ 1545-0010
31.3402(i)-(1)............................................. 1545-0010
31.3402(i)-(2)............................................. 1545-0010
31.3402(k)-1............................................... 1545-0065
31.3402(l)-(1)............................................. 1545-0010
31.3402(m)-(1)............................................. 1545-0010
31.3402(n)-(1)............................................. 1545-0010
31.3402(o)-2............................................... 1545-0415
31.3402(o)-3............................................... 1545-0008
1545-0010
1545-0415
1545-0717
31.3402(p)-1............................................... 1545-0415
1545-0717
31.3402(q)-1............................................... 1545-0238
1545-0239
31.3404-1.................................................. 1545-0029
31.3405(c)-1............................................... 1545-1341
31.3406(a)-1............................................... 1545-0112
31.3406(a)-2............................................... 1545-0112
31.3406(a)-3............................................... 1545-0112
31.3406(a)-4............................................... 1545-0112
31.3406(b)(2)-1............................................ 1545-0112
31.3406(b)(2)-2............................................ 1545-0112
31.3406(b)(2)-3............................................ 1545-0112
31.3406(b)(2)-4............................................ 1545-0112
31.3406(b)(2)-5............................................ 1545-0112
31.3406(b)(3)-1............................................ 1545-0112
31.3406(b)(3)-2............................................ 1545-0112
31.3406(b)(3)-3............................................ 1545-0112
31.3406(b)(3)-4............................................ 1545-0112
31.3406(b)(4)-1............................................ 1545-0112
31.3406(c)-1............................................... 1545-0112
31.3406(d)-1............................................... 1545-0112
31.3406(d)-2............................................... 1545-0112
31.3406(d)-3............................................... 1545-0112
31.3406(d)-4............................................... 1545-0112
31.3406(d)-5............................................... 1545-0112
[[Page 952]]
31.3406(e)-1............................................... 1545-0112
31.3406(f)-1............................................... 1545-0112
31.3406(g)-1............................................... 1545-0096
1545-0112
1545-1819
31.3406(g)-2............................................... 1545-0112
31.3406(g)-3............................................... 1545-0112
31.3406(h)-1............................................... 1545-0112
31.3406(h)-2............................................... 1545-0112
31.3406(h)-3............................................... 1545-0112
31.3406(i)-1............................................... 1545-0112
31.3501(a)-1T.............................................. 1545-0771
31.3503-1.................................................. 1545-0024
31.3504-1.................................................. 1545-0029
31.6001-1.................................................. 1545-0798
31.6001-2.................................................. 1545-0034
1545-0798
31.6001-3.................................................. 1545-0798
31.6001-4.................................................. 1545-0028
31.6001-5.................................................. 1545-0798
31.6001-6.................................................. 1545-0029
1459-0798
31.6011(a)-1............................................... 1545-0029
1545-0034
1545-0035
1545-0059
1545-0074
1545-0256
1545-0718
1545-2097
31.6011(a)-2............................................... 1545-0001
1545-0002
31.6011(a)-3............................................... 1545-0028
31.6011(a)-3A.............................................. 1545-0955
31.6011(a)-4............................................... 1545-0034
1545-0035
1545-0718
1545-1413
1545-2097
31.6011(a)-5............................................... 1545-0028
1545-0718
1545-2097
31.6011(a)-6............................................... 1545-0028
31.6011(a)-7............................................... 1545-0074
31.6011(a)-8............................................... 1545-0028
31.6011(a)-9............................................... 1545-0028
31.6011(a)-10.............................................. 1545-0112
31.6011(b)-1............................................... 1545-0003
31.6011(b)-2............................................... 1545-0029
31.6051-1.................................................. 1545-0008
1545-0182
1545-0458
1545-1729
31.6051-2.................................................. 1545-0008
31.6051-3.................................................. 1545-0008
31.6053-1.................................................. 1545-0029
1545-0062
1545-0064
1545-0065
1545-1603
31.6053-2.................................................. 1545-0008
31.6053-3.................................................. 1545-0065
1545-0714
31.6053-4.................................................. 1545-0065
1545-1603
31.6060-1(a)(1)............................................ 1545-1231
31.6065(a)-1............................................... 1545-0029
31.6071(a)-1............................................... 1545-0001
1545-0028
1545-0029
31.6071(a)-1A.............................................. 1545-0955
31.6081(a)-1............................................... 1545-0008
1545-0028
31.6091-1.................................................. 1545-0028
1545-0029
31.6107-1.................................................. 1545-1231
31.6157-1.................................................. 1545-0955
31.6205-1.................................................. 1545-0029
1545-2097
31.6301(c)-1AT............................................. 1545-0035
1545-0112
1545-0257
31.6302-1.................................................. 1545-1413
31.6302-2.................................................. 1545-1413
31.6302-3.................................................. 1545-1413
31.6302-4.................................................. 1545-1413
31.6302(c)-2............................................... 1545-0001
1545-0257
31.6302(c)-2A.............................................. 1545-0955
31.6302(c)-3............................................... 1545-0257
31.6402(a)-2............................................... 1545-0256
1545-2097
31.6413(a)-1............................................... 1545-0029
1545-2097
31.6413(a)-2............................................... 1545-0029
1545-0256
1545-2097
31.6413(c)-1............................................... 1545-0029
1545-0171
31.6414-1.................................................. 1545-0029
1545-2097
32.1....................................................... 1545-0029
1545-0415
32.2....................................................... 1545-0029
35a.3406-2................................................. 1545-0112
35a.9999-5................................................. 1545-0029
36.3121(l)(1)-1............................................ 1545-0137
36.3121(l)(1)-2............................................ 1545-0137
36.3121(l)(3)-1............................................ 1545-0123
36.3121(1)(7)-1............................................ 1545-0123
36.3121(1)(10)-1........................................... 1545-0029
36.3121(1)(10)-3........................................... 1545-0029
36.3121(1)(10)-4........................................... 1545-0257
40.6060-1(a)(1)............................................ 1545-1231
40.6107-1.................................................. 1545-1231
40.6302(c)-3(b)(2)(ii)..................................... 1545-1296
40.6302(c)-3(b)(2)(iii).................................... 1545-1296
40.6302(c)-3(e)............................................ 1545-1296
40.6302(c)-3(f)(2)(ii)..................................... 1545-1296
41.4481-1.................................................. 1545-0143
41.4481-2.................................................. 1545-0143
41.4483-3.................................................. 1545-0143
41.6001-1.................................................. 1545-0143
41.6001-2.................................................. 1545-0143
41.6001-3.................................................. 1545-0143
41.6060-1(a)(1)............................................ 1545-1231
41.6071(a)-1............................................... 1545-0143
41.6081(a)-1............................................... 1545-0143
41.6091-1.................................................. 1545-0143
41.6107-1.................................................. 1545-1231
41.6109-1.................................................. 1545-0143
41.6151(a)-1............................................... 1545-0143
41.6156-1.................................................. 1545-0143
41.6161(a)(1)-1............................................ 1545-0143
44.4401-1.................................................. 1545-0235
44.4403-1.................................................. 1545-0235
44.4412-1.................................................. 1545-0236
44.4901-1.................................................. 1545-0236
44.4905-1.................................................. 1545-0236
44.4905-2.................................................. 1545-0236
44.6001-1.................................................. 1545-0235
44.6011(a)-1............................................... 1545-0235
1545-0236
44.6060-1(a)(1)............................................ 1545-1231
[[Page 953]]
44.6071-1.................................................. 1545-0235
44.6091-1.................................................. 1545-0235
44.6107-1.................................................. 1545-1231
44.6151-1.................................................. 1545-0235
44.6419-1.................................................. 1545-0235
44.6419-2.................................................. 1545-0235
46.4371-4.................................................. 1545-0023
46.4374-1.................................................. 1545-0023
46.4375-1.................................................. 1545-2238
46.4376-1.................................................. 1545-2238
46.4701-1.................................................. 1545-0023
1545-0257
48.4041-4.................................................. 1545-0023
48.4041-5.................................................. 1545-0023
48.4041-6.................................................. 1545-0023
48.4041-7.................................................. 1545-0023
48.4041-9.................................................. 1545-0023
48.4041-10................................................. 1545-0023
48.4041-11................................................. 1545-0023
48.4041-12................................................. 1545-0023
48.4041-13................................................. 1545-0023
48.4041-18................................................. 1545-0023
48.4041-19................................................. 1545-0023
48.4041-20................................................. 1545-0023
48.4041-21................................................. 1545-1270
48.4042-2.................................................. 1545-0023
48.4052-1.................................................. 1545-1418
48.4061(a)-1............................................... 1545-0023
48.4061(a)-2............................................... 1545-0023
48.4061(b)-3............................................... 1545-0023
48.4064-1.................................................. 1545-0014
1545-0242
48.4071-1.................................................. 1545-0023
48.4073-1.................................................. 1545-0023
48.4073-3.................................................. 1545-0023
1545-1074
1545-1087
48.4081-2.................................................. 1545-1270
1545-1418
48.4081-3.................................................. 1545-1270
1545-1418
1545-1897
48.4081-4(b)(2)(ii)........................................ 1545-1270
48.4081-4(b)(3)(i)......................................... 1545-1270
48.4081-4(c)............................................... 1545-1270
48.4081-6(c)(1)(ii)........................................ 1545-1270
48.4081-7.................................................. 1545-1270
1545-1418
48.4082-1T................................................. 1545-1418
48.4082-2.................................................. 1545-1418
48.4082-6.................................................. 1545-1418
48.4082-7.................................................. 1545-1418
48.4091-3.................................................. 1545-1418
48.4101-1.................................................. 1545-1418
48.4101-1T................................................. 1545-1418
48.4101-2.................................................. 1545-1418
48.4161(a)-1............................................... 1545-0723
48.4161(a)-2............................................... 1545-0723
48.4161(a)-3............................................... 1545-0723
48.4161(b)-1............................................... 1545-0723
48.4216(a)-2............................................... 1545-0023
48.4216(a)-3............................................... 1545-0023
48.4216(c)-1............................................... 1545-0023
48.4221-1.................................................. 1545-0023
48.4221-2.................................................. 1545-0023
48.4221-3.................................................. 1545-0023
48.4221-4.................................................. 1545-0023
48.4221-5.................................................. 1545-0023
48.4221-6.................................................. 1545-0023
48.4221-7.................................................. 1545-0023
48.4222(a)-1............................................... 1545-0014
1545-0023
48.4223-1.................................................. 1545-0023
1545-0257
1545-0723
48.6302(c)-1............................................... 1545-0023
1545-0257
48.6412-1.................................................. 1545-0723
48.6416(a)-1............................................... 1545-0023
1545-0723
48.6416(a)-2............................................... 1545-0723
48.6416(a)-3............................................... 1545-0723
48.6416(b)(1)-1............................................ 1545-0723
48.6416(b)(1)-2............................................ 1545-0723
48.6416(b)(1)-3............................................ 1545-0723
48.6416(b)(1)-4............................................ 1545-0723
48.6416(b)(2)-1............................................ 1545-0723
48.6416(b)(2)-2............................................ 1545-0723
48.6416(b)(2)-3............................................ 1545-0723
1545-1087
48.6416(b)(2)-4............................................ 1545-0723
48.6416(b)(3)-1............................................ 1545-0723
48.6416(b)(3)-2............................................ 1545-0723
48.6416(b)(3)-3............................................ 1545-0723
48.6416(b)(4)-1............................................ 1545-0723
48.6416(b)(5)-1............................................ 1545-0723
48.6416(c)-1............................................... 1545-0723
48.6416(e)-1............................................... 1545-0023
1545-0723
48.6416(f)-1............................................... 1545-0023
1545-0723
48.6416(g)-1............................................... 1545-0723
48.6416(h)-1............................................... 1545-0723
48.6420(c)-2............................................... 1545-0023
48.6420(f)-1............................................... 1545-0023
48.6420-1.................................................. 1545-0162
1545-0723
48.6420-2.................................................. 1545-0162
1545-0723
48.6420-3.................................................. 1545-0162
1545-0723
48.6420-4.................................................. 1545-0162
1545-0723
48.6420-5.................................................. 1545-0162
1545-0723
48.6420-6.................................................. 1545-0162
1545-0723
48.6421-0.................................................. 1545-0162
1545-0723
48.6421-1.................................................. 1545-0162
1545-0723
48.6421-2.................................................. 1545-0162
1545-0723
48.6421-3.................................................. 1545-0162
1545-0723
48.6421-4.................................................. 1545-0162
1545-0723
48.6421-5.................................................. 1545-0162
1545-0723
48.6421-6.................................................. 1545-0162
1545-0723
48.6421-7.................................................. 1545-0162
1545-0723
48.6424-0.................................................. 1545-0723
48.6424-1.................................................. 1545-0723
48.6424-2.................................................. 1545-0723
48.6424-3.................................................. 1545-0723
48.6424-4.................................................. 1545-0723
48.6424-5.................................................. 1545-0723
48.6424-6.................................................. 1545-0723
48.6427-0.................................................. 1545-0723
48.6427-1.................................................. 1545-0023
1545-0162
1545-0723
[[Page 954]]
48.6427-2.................................................. 1545-0162
1545-0723
48.6427-3.................................................. 1545-0723
48.6427-4.................................................. 1545-0723
48.6427-5.................................................. 1545-0723
48.6427-8.................................................. 1545-1418
48.6427-9.................................................. 1545-1418
48.6427-10................................................. 1545-1418
48.6427-11................................................. 1545-1418
49.4251-1.................................................. 1545-1075
49.4251-2.................................................. 1545-1075
49.4251-4(d)(2)............................................ 1545-1628
49.4253-3.................................................. 1545-0023
49.4253-4.................................................. 1545-0023
49.4264(b)-1............................................... 1545-0023
1545-0224
1545-0225
1545-0226
1545-0230
1545-0257
1545-0912
49.4271-1(d)............................................... 1545-0685
49.5000B-1................................................. 1545-2177
51.8T...................................................... 1545-2209
52.4682-1(b)(2)(iii)....................................... 1545-1153
52.4682-2(b)............................................... 1545-1153
1545-1361
52.4682-2(d)............................................... 1545-1153
1545-1361
52.4682-3(c)(2)............................................ 1545-1153
52.4682-3(g)............................................... 1545-1153
52.4682-4(f)............................................... 1545-0257
1545-1153
52.4682-5(d)............................................... 1545-1361
52.4682-5(f)............................................... 1545-1361
53.4940-1.................................................. 1545-0052
1545-0196
53.4942(a)-1............................................... 1545-0052
53.4942(a)-2............................................... 1545-0052
53.4942(a)-3............................................... 1545-0052
53.4942(b)-3............................................... 1545-0052
53.4945-1.................................................. 1545-0052
53.4945-4.................................................. 1545-0052
53.4945-5.................................................. 1545-0052
53.4945-6.................................................. 1545-0052
53.4947-1.................................................. 1545-0196
53.4947-2.................................................. 1545-0196
53.4948-1.................................................. 1545-0052
53.4958-6.................................................. 1545-1623
53.4961-2.................................................. 1545-0024
53.4963-1.................................................. 1545-0024
53.6001-1.................................................. 1545-0052
53.6011-1.................................................. 1545-0049
1545-0052
1545-0092
1545-0196
53.6060-1(a)(1)............................................ 1545-1231
53.6065-1.................................................. 1545-0052
53.6071-1.................................................. 1545-0049
53.6081-1.................................................. 1545-0066
1545-0148
53.6107-1.................................................. 1545-1231
53.6161-1.................................................. 1545-0575
54.4972-1.................................................. 1545-0197
54.4975-7.................................................. 1545-0575
54.4977-1T................................................. 1545-0771
54.4980B-6................................................. 1545-1581
54.4980B-7................................................. 1545-1581
54.4980B-8................................................. 1545-1581
54.4980F-1................................................. 1545-1780
54.4981A-1T................................................ 1545-0203
54.6011-1.................................................. 1545-0575
54.6011-1T................................................. 1545-0575
54.6060-1(a)(1)............................................ 1545-1231
54.6107-1.................................................. 1545-1231
54.9801-3.................................................. 1545-1537
54.9801-4.................................................. 1545-1537
54.9801-5.................................................. 1545-1537
54.9801-6.................................................. 1545-1537
54.9812-1T................................................. 1545-2165
54.9815-1251T.............................................. 1545-2178
54.9815-2711T.............................................. 1545-2179
54.9815-2712T.............................................. 1545-2180
54.9815-2714T.............................................. 1545-2172
54.9815-2715............................................... 1545-2229
54.9815-2719AT............................................. 1545-2181
54.9815-2719T.............................................. 1545-2182
55.6001-1.................................................. 1545-0123
55.6011-1.................................................. 1545-0123
1545-0999
1545-1016
55.6060-1(a)(1)............................................ 1545-1231
55.6061-1.................................................. 1545-0999
55.6071-1.................................................. 1545-0999
55.6107-1.................................................. 1545-1231
56.4911-6.................................................. 1545-0052
56.4911-7.................................................. 1545-0052
56.4911-9.................................................. 1545-0052
56.4911-10................................................. 1545-0052
56.6001-1.................................................. 1545-1049
56.6011-1.................................................. 1545-1049
56.6060-1(a)(1)............................................ 1545-1231
56.6081-1.................................................. 1545-1049
56.6107-1.................................................. 1545-1231
56.6161-1.................................................. 1545-0257
1545-1049
57.2(e)(2)(i).............................................. 1545-2249
145.4051-1................................................. 1545-0745
145.4052-1................................................. 1545-0120
1545-0745
1545-1076
145.4061-1................................................. 1545-0224
1545-0230
1545-0257
1545-0745
156.6001-1................................................. 1545-1049
156.6011-1................................................. 1545-1049
156.6060-1(a)(1)........................................... 1545-1231
156.6081-1................................................. 1545-1049
156.6107-1................................................. 1545-1231
156.6161-1................................................. 1545-1049
157.6001-1................................................. 1545-1824
157.6011-1................................................. 1545-1824
157.6060-1(a)(1)........................................... 1545-1231
157.6081-1................................................. 1545-1824
157.6107-1................................................. 1545-1231
157.6161-1................................................. 1545-1824
301.6011-2................................................. 1545-0225
1545-0350
1545-0387
1545-0441
1545-0957
301.6011(g)-1.............................................. 1545-2079
301.6017-1................................................. 1545-0090
301.6034-1................................................. 1545-0092
301.6035-1................................................. 1545-0123
301.6036-1................................................. 1545-0013
1545-0773
301.6047-1................................................. 1545-0367
1545-0957
301.6056-1................................................. 1545-2251
301.6056-2................................................. 1545-2251
301.6057-1................................................. 1545-0710
301.6057-2................................................. 1545-0710
[[Page 955]]
301.6058-1................................................. 1545-0710
301.6059-1................................................. 1545-0710
301.6103(c)-1.............................................. 1545-1816
301.6103(n)-1.............................................. 1545-1841
301.6103(p)(2)(B)-1........................................ 1545-1757
301.6104(a)-1.............................................. 1545-0495
301.6104(a)-5.............................................. 1545-0056
301.6104(a)-6.............................................. 1545-0056
301.6104(b)-1.............................................. 1545-0094
1545-0742
301.6104(d)-1.............................................. 1545-1655
301.6104(d)-2.............................................. 1545-1655
301.6104(d)-3.............................................. 1545-1655
301.6109-1................................................. 1545-0003
1545-0295
1545-0367
1545-0387
1545-0957
1545-1461
1545-2242
301.6109-3................................................. 1545-1564
301.6110-3................................................. 1545-0074
301.6110-5................................................. 1545-0074
301.6111-1T................................................ 1545-0865
1545-0881
301.6111-2................................................. 1545-0865
1545-1687
301.6112-1................................................. 1545-0865
1545-1686
301.6112-1T................................................ 1545-0865
1545-1686
301.6114-1................................................. 1545-1126
1545-1484
301.6222(a)-2.............................................. 1545-0790
301.6222(b)-1.............................................. 1545-0790
301.6222(b)-2.............................................. 1545-0790
301.6222(b)-3.............................................. 1545-0790
301.6223(b)-1.............................................. 1545-0790
301.6223(c)-1.............................................. 1545-0790
301.6223(e)-2.............................................. 1545-0790
301.6223(g)-1.............................................. 1545-0790
301.6223(h)-1.............................................. 1545-0790
301.6224(b)-1.............................................. 1545-0790
301.6224(c)-1.............................................. 1545-0790
301.6224(c)-3.............................................. 1545-0790
301.6227(c)-1.............................................. 1545-0790
301.6227(d)-1.............................................. 1545-0790
301.6229(b)-2.............................................. 1545-0790
301.6230(b)-1.............................................. 1545-0790
301.6230(e)-1.............................................. 1545-0790
301.6231(a)(1)-1........................................... 1545-0790
301.6231(a)(7)-1........................................... 1545-0790
301.6231(c)-1.............................................. 1545-0790
301.6231(c)-2.............................................. 1545-0790
301.6241-1T................................................ 1545-0130
301.6316-4................................................. 1545-0074
301.6316-5................................................. 1545-0074
301.6316-6................................................. 1545-0074
301.6316-7................................................. 1545-0029
301.6324A-1................................................ 1545-0015
301.6361-1................................................. 1545-0024
1545-0074
301.6361-2................................................. 1545-0024
301.6361-3................................................. 1545-0074
301.6402-2................................................. 1545-0024
1545-0073
1545-0091
301.6402-3................................................. 1545-0055
1545-0073
1545-0091
1545-0132
1545-1484
301.6402-5................................................. 1545-0928
301.6404-1................................................. 1545-0024
301.6404-2T................................................ 1545-0024
301.6404-3................................................. 1545-0024
301.6405-1................................................. 1545-0024
301.6501(c)-1.............................................. 1545-1241
1545-1637
301.6501(d)-1.............................................. 1545-0074
1545-0430
301.6501(o)-2.............................................. 1545-0728
301.6511(d)-1.............................................. 1545-0024
1545-0582
301.6511(d)-2.............................................. 1545-0024
1545-0582
301.6511(d)-3.............................................. 1545-0024
1545-0582
301.6652-2................................................. 1545-0092
301.6685-1................................................. 1545-0092
301.6689-1T................................................ 1545-1056
301.6707-1T................................................ 1545-0865
1545-0881
301.6708-1T................................................ 1545-0865
301.6712-1................................................. 1545-1126
301.6723-1A(d)............................................. 1545-0909
301.6903-1................................................. 1545-0013
1545-1783
301.6905-1................................................. 1545-0074
301.7001-1................................................. 1545-0123
301.7101-1................................................. 1545-1029
301.7207-1................................................. 1545-0092
301.7216-2................................................. 1545-0074
301.7216-2(o).............................................. 1545-1209
301.7425-3................................................. 1545-0854
301.7430-2(c).............................................. 1545-1356
301.7502-1................................................. 1545-1899
301.7507-8................................................. 1545-0123
301.7507-9................................................. 1545-0123
301.7513-1................................................. 1545-0429
301.7517-1................................................. 1545-0015
301.7605-1................................................. 1545-0795
301.7623-1................................................. 1545-0409
1545-1534
301.7654-1................................................. 1545-0803
301.7701-3................................................. 1545-1486
301.7701-4................................................. 1545-1465
301.7701-7................................................. 1545-1600
301.7701-16................................................ 1545-0795
301.7701(b)-1.............................................. 1545-0089
301.7701(b)-2.............................................. 1545-0089
301.7701(b)-3.............................................. 1545-0089
301.7701(b)-4.............................................. 1545-0089
301.7701(b)-5.............................................. 1545-0089
301.7701(b)-6.............................................. 1545-0089
301.7701(b)-7.............................................. 1545-0089
1545-1126
301.7701(b)-9.............................................. 1545-0089
301.7805-1................................................. 1545-0805
301.9000-5................................................. 1545-1850
301.9001-1................................................. 1545-0220
301.9100-2................................................. 1545-1488
301.9100-3................................................. 1545-1488
301.9100-4T................................................ 1545-0016
1545-0042
1545-0074
1545-0129
1545-0172
1545-0619
301.9100-6T................................................ 1545-0872
301.9100-7T................................................ 1545-0982
301.9100-8................................................. 1545-1112
301.9100-11T............................................... 1545-0123
301.9100-12T............................................... 1545-0026
[[Page 956]]
1545-0074
1545-0172
1545-1027
301.9100-14T............................................... 1545-0046
301.9100-15T............................................... 1545-0046
301.9100-16T............................................... 1545-0152
302.1-7.................................................... 1545-0024
305.7701-1................................................. 1545-0823
305.7871-1................................................. 1545-0823
404.6048-1................................................. 1545-0160
420.0-1.................................................... 1545-0710
Part 509................................................... 1545-0846
Part 513................................................... 1545-0834
Part 514................................................... 1545-0845
Part 521................................................... 1545-0848
601.104.................................................... 1545-0233
601.105.................................................... 1545-0091
601.201.................................................... 1545-0019
1545-0819
601.204.................................................... 1545-0152
601.401.................................................... 1545-0257
601.504.................................................... 1545-0150
601.601.................................................... 1545-0800
601.602.................................................... 1545-0295
1545-0387
1545-0957
601.702.................................................... 1545-0429
------------------------------------------------------------------------
(26 U.S.C. 7805)
[T.D. 8011, 50 FR 10222, Mar. 14, 1985]
Editorial Note: For Federal Register citations affecting Sec.
602.101, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.fdsys.gov.
[[Page 957]]
List of CFR Sections Affected
All changes in this volume of the Code of Federal Regulations (CFR) that
were made by documents published in the Federal Register since January
1, 2009 are enumerated in the following list. Entries indicate the
nature of the changes effected. Page numbers refer to Federal Register
pages. The user should consult the entries for chapters, parts and
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the
annual edition of the monthly List of CFR Sections Affected (LSA). The
LSA is available at www.fdsys.gov. For changes to this volume of the CFR
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The
``List of CFR Sections Affected 1986-2000'' is available at
www.fdsys.gov.
2009
26 CFR
74 FR
Page
Chapter I
1.642(c)-6 (d) removed; (e) redesignated as 1.642(c)-6A(f); new
(d) and (e) added; (f) revised.............................21440
1.642(c)-6T Added..................................................21440
1.642(c)-6A Undesignated center heading, section heading, new (f)
heading, (1) through (5), (6) introductory text and Table
S heading revised; (f)(7) added............................21464
1.664-1 (a)(6) introductory text amended...........................21518
1.664-2 (c) revised; (e) added.....................................21464
1.664-4 (a)(1), (e)(6) heading, introductory text and (f) revised;
(d) removed; (e) heading, (1), (2), (5) and (7)
redesignated as 1.664-4A(f) heading, (1), (2), (5) and
(6); new (d), (e)(1), (2), (5) and (7) added...............21465
1.664-4T Added.....................................................21465
1.664-4A Undesignated center heading, section heading, new (f)
heading, (1), (2) and (5) revised; (f)(3), (4) and (7)
added; (f)(6) and Table U amended..........................21482
2010
26 CFR
75 FR
Page
Chapter I
1.704-3 (a)(1) and (f) amended; (a)(10) revised....................32660
2011
26 CFR
76 FR
Page
Chapter I
1.642(c)-6 (d), (e) and (f) revised................................49572
1.642(c)-6T Removed................................................49595
1.642(c)-6A (f)(3)(ii), (4) and (5) amended........................49612
1.664-1 (a)(6) introductory text amended...........................49612
1.664-2 (c) and (e) revised........................................49595
1.664-4 (a)(1), (d), (e) heading, (1), (2), (5), (7) and (f)
revised....................................................49595
1.664-4T Removed...................................................49611
1.664-4A (f)(5) amended............................................49612
1.704-2 (f)(6) amended; (j)(2)(i)(A), (ii)(A) and (l) heading
revised; (l)(1)(v) added...................................71258
1.709-1 (b) revised................................................50890
(b)(4) Example 2, Example 5 and Example 6 correctly amended....56973
1.709-1T Removed...................................................50891
1.721-1 (d) added..................................................71259
[[Page 958]]
2012
26 CFR
77 FR
Page
Chapter I
1.642(c)-3 (b) heading and (2) revised; (b)(1) heading and (3)
heading added; (b)(4) removed..............................22484
1.643(a)-5 (b) revised.............................................22485
1.704-1 (b)(0) table amended; (b)(1)(ii)(b)(3) added;
(b)(4)(viii)(c)(3)(ii), (d)(3) and (5) Example 24 revised
8134
(b)(2)(iii)(e) revised.........................................76382
1.704-1T Added......................................................8134
1.706-1 (c)(6) added................................................8124
2013
26 CFR
78 FR
Page
Chapter I
1.704-1 (b)(0) table, (1)(ii) and (2)(iv)(f)(5)(iii) amended;
(b)(1)(ii) heading and (2)(iv)(f)(1) revised;
(b)(2)(iv)(f)(5)(iv) and (h) redesignated as
(b)(2)(iv)(f)(5)(v) and (h)(1); undesignated text
following (b)(2)(iv)(r)(2) designated as (b)(2)(iv)(r)(3);
(b)(2)(iv)(d)(4), new (b)(2)(iv)(f)(5)(iv), (h)(1)
heading, (2), (s), (4)(ix), (x) and (5) Examples 31
through 35 added............................................8006
(b)(5) Example 35 table and section correctly amended..........17868
Table corrected................................................19100
(b)(5) Example 32 (v) correctly amended........................35559
1.704-3 (a)(6)(i) amended...........................................8012
(a)(9) added...................................................54168
1.721-2 Added.......................................................8012
1.761-3 Added.......................................................8013
(b)(3) and (f) correctly amended; (f) introductory text
correctly revised..................................................17869
2014
(Regulations published from January 1, 2014, through April 1, 2014)
26 CFR
79 FR
Page
Chapter I
1.833-1 Added........................................................757
[all]