[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: 26CFR1.663(c)-1]

[Page 116-117]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
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

[[Page 117]]

(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 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]