[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: 26CFR1.662(a)-2]

[Page 106-107]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
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

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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 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]

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