[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.643(d)-2]

[Page 63]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
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]