[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: 26CFR1.665(d)-1]

[Page 185-186]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.665(d)-1  Taxes imposed on the trust.

    (a) For the purpose of subpart D (section 665 and following), part 
I, subchapter J, chapter 1 of the Code, the term taxes imposed on the 
trust means (for any taxable year) the amount of Federal income taxes 
which are properly allocable to the undistributed portion of the 
distributable net income. This amount is the difference between the 
total taxes of the trust for the year and the amount which would have 
been paid by the trust had all of the distributable net income, as 
determined under section 643(a), been distributed. Thus, in determining 
the amount of taxes imposed on the trust for the purposes of subpart D, 
there is excluded the portion of the taxes paid by the trust which is 
attributable to items of gross income which are not includible in 
distributable net income, such as capital gains allocable to corpus. The 
rule stated in this paragraph may be illustrated by the following 
example:

    Example. (1) Under the terms of a trust which reports on the 
calendar year basis the income may be accumulated or distributed to A in 
the discretion of the trustee and capital gains are allocable to corpus. 
During the taxable year 1954, the trust had income of $20,000 from 
royalties, long-term capital

[[Page 186]]

gains of $10,000, and expenses of $2,000. The trustee in his discretion 
made a distribution of $10,000 to A. The taxes imposed on the trust for 
the purposes of this subpart are $2,713, determined as shown below.
    (2) The distributable net income of the trust computed under section 
643(a) is $18,000 (royalties of $20,000 less expenses of $2,000). The 
total taxes paid by the trust are $3,787, computed as follows:

Royalties....................................................    $20,000
Capital gains................................................     10,000
                                                   ------------
    Gross income.............................................     30,000
Deductions:
  Expenses........................................     $2,000
  Distributions to A..............................     10,000
  Capital gain deduction..........................      5,000
  Personal exemption..............................        100
                                                   -----------
                                                                  17,100
                                                   ------------
    Taxable income...........................................     12,900
Total income taxes...........................................      3,787


    (3) The amount of taxes which would have been paid by the trust, had 
all of the distributable net income ($18,000) of the trust been 
distributed to A, is $1,074, computed as follows:

Taxable income of the trust..................................    $12,900
Less: Undistributed portion of distributable net income            8,000
 ($18,000-$10,000)...........................................
                                                   ------------
    Balance of taxable income................................      4,900
Income taxes on $4,900.......................................      1,074


    (4) The amount of taxes imposed on the trust as defined in this 
paragraph is $2,713, computed as follows:

Total taxes.......................................     $3,787
  Taxes which would have been paid by the trust         1,074
   had all of the distributable net income been
   distributed....................................
                                                   ------------
  Taxes imposed on the trust as defined in this         2,713
   paragraph......................................


    (b) If in any subsequent year an accumulation distribution is made 
by the trust which results in a throwback to the taxable year, the taxes 
of the taxable year allocable to the undistributed portion of 
distributable net income (the taxes imposed on the trust), after the 
close of the subsequent year, are the taxes prescribed in paragraph (a) 
of this section reduced by the taxes of the taxable year allowed as 
credits to beneficiaries on account of amounts deemed distributed on the 
last day of the taxable year under section 666. See paragraph (f)(4) of 
Sec. 1.668(b)-2 for an illustration of the application of this 
paragraph.

[T.D. 6500, 25 FR 11814, Nov. 26, 1960. Redesignated by T.D. 6989, 34 FR 
735, Jan. 17, 1969]