[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.584-4]

[Page 314-316]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.584-4  Admission and withdrawal of participants in the common trust fund.

    (a) Gain or loss. The common trust fund realizes no gain or loss by 
the admission or withdrawal of a participant, and the basis of the 
assets and the period for which they are deemed to have been held by the 
common trust fund for the purposes of section 1202 are unaffected by 
such an admission or withdrawal. For taxable years of participants 
ending after April 7, 1976, and for transfers occurring after that date, 
the transfer of property by a participant to a common trust fund is 
treated as a sale or exchange of the property transferred. If a 
participant withdraws the whole or any part of its participating 
interest from the common trust fund, such withdrawal shall be treated as 
a sale or exchange by the participant of the participating interest or 
portion thereof which is so withdrawn. A participant is not deemed to 
have withdrawn any part of its participating interest in the common 
trust fund so as to have completed a closed transaction by reason of the 
segregation and administration of an investment of the fund, pursuant to 
the provisions of 12 CFR 9.18(b)(7) (or, for periods before September 
28, 1962, 12 CFR206.17(c)(7)), for the benefit of all the then 
participants in the common trust fund. Such segregated investment shall 
be considered as held by, or on behalf of, the common trust fund for the 
benefit ratably of all participants in the common trust fund at the time 
of segregation, and any income or loss arising from its administration 
and liquidation shall constitute income or loss to the common trust fund 
apportionable among the participants for whose benefit the investment 
was segregated. When a participating interest is transferred by a bank, 
or by two or more banks that are members of the same affiliated group 
(within the meaning of section 1504), as a result of the combination of 
two or more common trust funds or the division of a single common trust 
fund, the transfer to the surviving or divided fund is not considered to 
be an admission or a withdrawal if the combining, dividing, and 
resulting common trust funds have diversified portfolios. For purposes 
of this paragraph (a), a common trust fund has a diversified portfolio 
if it satisfies the 25 and 50-percent tests of section 368(a)(2)(F)(ii), 
applying the relevant provisions of section 368(a)(2)(F). However, 
Government securities are included in total assets for purposes of the 
denominator of the 25 and 50-percent tests (unless the Government 
securities are acquired to meet the 25 and 50-percent tests), but are 
not treated as securities of an issuer for purposes of the numerator of 
the 25 and 50-percent tests. In addition, for a transfer of a 
participating interest in a division of a common trust fund not to be 
considered an admission or withdrawal, each participant's pro 
ratainterest in each of the resulting common trust funds must be 
substantially the same as was the participant's pro rata interest in the 
dividing fund. However, in the case of the division of a common trust 
fund maintained by

[[Page 315]]

two or more banks that are members of the same affiliated group 
resulting from the termination of such affiliation, the division will be 
treated as meeting the requirements of the preceding sentence if the 
written plans of operation of the resulting common trust funds are 
substantially identical to the plan of operation of the dividing common 
trust fund, each of the assets of the dividing common trust fund are 
distributed substantially pro rata to each of the resulting common trust 
funds, and each participant's aggregate interest in the assets of the 
resulting common trust funds of which he or she is a participant is 
substantially the same as was the participant's pro rata interest in the 
assets of the dividing common trust fund. The plan of operation of a 
resulting common trust fund will not be considered to be substantially 
identical to that of the dividing common trust fund where, for example, 
the plan of operation of the resulting common trust fund contains 
restrictions as to the types of participants that may invest in the 
common trust fund where such restrictions were not present in the plan 
of operation of the dividing common trust fund.
    (b) Basis for gain or loss upon withdrawal. The participant's gain 
or loss upon withdrawal of its participating interest or portion thereof 
shall be measured by the difference between the amount received upon 
such withdrawal and the adjusted basis of the participating interest or 
portion thereof withdrawn plus the additions prescribed in paragraph (c) 
of this section and minus the reductions prescribed in paragraph (d) of 
this section. The amount received by the participant shall be the sum of 
any money plus the fair market value of property (other than money) 
received upon such withdrawal. The basis of the participating interest 
or portion thereof withdrawn shall be the sum of any money plus the fair 
market value of any property (other than money) contributed by the 
participant to the common trust fund to acquire the participating 
interest or portion thereof withdrawn. Such basis shall not be reduced 
on account of the segregation of any investment in the common trust fund 
pursuant to the provisions of 12 CFR 9.18(b)(7) (or, for periods before 
September 28, 1962, 12 CFR 206.17(c)(7)). For the purpose of making the 
adjustments, additions, and reductions with respect to basis as 
prescribed in this paragraph, the ward, rather than the guardian, shall 
be deemed to be the participant; and the grantor, rather than the trust, 
shall be deemed to be the participant, to the extent that the income of 
the trust is taxable to the grantor under subpart E (section 671 and 
following), part I, subchapter J, chapter 1 of the Code.
    (c) Additions to basis. As prescribed in paragraph (b) of this 
section, in computing the gain or loss upon the withdrawal of a 
participating interest or portion thereof, there shall be added to the 
basis of the participating interest or portion thereof withdrawn an 
amount equal to the aggregate of the following items (to the extent that 
they were properly allocated to the participant for a taxable year of 
the common trust fund and were not distributed to the participant prior 
to withdrawal):
    (1) Wholly exempt income of the common trust fund for any taxable 
year,
    (2) Net income of the common trust fund for the taxable years 
beginning after December 31, 1935, and prior to January 1, 1938,
    (3) Net short-term capital gain of the common trust fund for each 
taxable year beginning after December 31, 1937,
    (4) The excess of the gains over the losses recognized to the common 
trust fund upon sales or exchanges of capital assets held (i) for more 
than 18 months for taxable years beginning after December 31, 1937, and 
before January 1, 1942, (ii) for more than 6 months for taxable years 
beginning after December 31, 1941, and before January 1, 1977, (iii) for 
more than 9 months for taxable years beginning in 1977, and (iv) for 
more than 1 year for taxable years beginning after December 31, 1977, 
and
    (5) Ordinary net or taxable income of the common trust fund for each 
taxable year beginning after December 31, 1937.
    (d) Reductions in basis. As prescribed in paragraph (b) of this 
section, in computing the gain or loss upon the withdrawal of a 
participating interest or

[[Page 316]]

portion thereof, the basis of the participating interest or portion 
thereof withdrawn shall be reduced by such portions of the following 
items as were allocable to the participant with respect to the 
participating interest or portion thereof withdrawn:
    (1) The amount of the excess of the allowable deductions of the 
common trust fund over its gross income for the taxable years beginning 
after December 31, 1935, and before January 1, 1938, and
    (2) The amount of the net short-term capital loss, net long-term 
capital loss, and ordinary net loss of the common trust fund for each 
taxable year beginning after December 31, 1937.
    (e) Effective date. The eighth sentence of paragraph (a) of this 
section is effective for combinations and divisions of common trust 
funds completed on or after May 2, 1996.

[T.D. 6500, 25 FR 11737, Nov. 26, 1960, as amended by T.D. 6651, 28 FR 
4950, May 17, 1963; T.D. 7935, 49 FR 1695, Jan. 13, 1984; T.D. 8662, 61 
FR 19546, May 2, 1996; 61 FR 39072, July 26, 1996]