[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)-2]

[Page 117-118]
 
                       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)-2  Rules of administration.

    (a) When separate shares come into existence. A separate share comes 
into existence upon the earliest moment that a fiduciary may reasonably 
determine, based upon the known facts, that a separate economic interest 
exists.
    (b) Computation of distributable net income for each separate 
share--(1) General rule. The amount of distributable net income for any 
share under section 663(c) is computed as if each share constituted a 
separate trust or estate. Accordingly, each separate share shall 
calculate its distributable net income based upon its portion of gross 
income that is includible in distributable net income and its portion of 
any applicable deductions or losses.
    (2) Section 643(b) income. This paragraph (b)(2) governs the 
allocation of the portion of gross income includible in distributable 
net income that is income within the meaning of section 643(b). Such 
gross income is allocated among the separate shares in accordance with 
the amount of income that each share is entitled to under the terms of 
the governing instrument or applicable local law.
    (3) Income in respect of a decedent. This paragraph (b)(3) governs 
the allocation of the portion of gross income includible in 
distributable net income that is income in respect of a decedent within 
the meaning of section 691(a) and is not income within the meaning of 
section 643(b). Such gross income is allocated among the separate shares 
that could potentially be funded with these amounts irrespective of 
whether the share is entitled to receive any income under the terms of 
the governing instrument or applicable local law. The amount of such 
gross income allocated to each share is based on the relative value of 
each share that could potentially be funded with such amounts.
    (4) Gross income not attributable to cash. This paragraph (b)(4) 
governs the allocation of the portion of gross income includible in 
distributable net income that is not attributable to cash

[[Page 118]]

received by the estate or trust (for example, original issue discount, a 
distributive share of partnership tax items, and the pro rata share of 
an S corporation's tax items). Such gross income is allocated among the 
separate shares in the same proportion as section 643(b) income from the 
same source would be allocated under the terms of the governing 
instrument or applicable local law.
    (5) Deductions and losses. Any deduction or any loss which is 
applicable solely to one separate share of the trust or estate is not 
available to any other share of the same trust or estate.
    (c) Computations and valuations. For purposes of calculating 
distributable net income for each separate share, the fiduciary must use 
a reasonable and equitable method to make the allocations, calculations, 
and valuations required by paragraph (b) of this section.

[T.D. 8849, 64 FR 72543, Dec. 28, 1999]