[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: 26CFR1.651(a)-2]

[Page 97]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
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]