[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(e)-2]

[Page 187]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.665(e)-2  Application of separate share rule.

    In trusts to which the separate share rule of section 663(c) is 
applicable for any taxable year, subpart D (section 665 and following), 
part I, subchapter J, of the Code, is applied as if each share were a 
separate trust. Thus, ``undistributed net income'' and the amount of an 
``accumulation distribution'' are computed separately for each share. 
The ``taxes imposed on the trust'' are allocated as follows:
    (a) There is first allocated to each separate share that portion of 
the ``taxes imposed on the trust'', computed before the allowance of 
credits under section 642(a), which bears the same relation to the total 
that the distributable net income of the separate share bears to the 
distributable net income of the trust, adjusted for this purpose as 
follows:
    (1) There is excluded from distributable net income of the trust and 
of each separate share any tax-exempt interest, foreign income of a 
foreign trust, and excluded dividends, to the extent such amounts are 
included in distributable net income pursuant to section 643(a) (5), 
(6), and (7); and
    (2) The distributable net income of the trust is reduced by any 
deductions allowable under section 661 for amounts paid, credited, or 
required to be distributed during the taxable year, and the 
distributable net income of each separate share is reduced by any such 
deduction allocable to that share.
    (b) The taxes so determined for each separate share are then reduced 
by that portion of the credits against tax allowable to the trust under 
section 642(a) in computing the ``taxes imposed on the trust'' which 
bear the same relation to the total that the items of income allocable 
to the separate share with respect to which the credit is allowed bear 
to the total of such items of the trust. The amount of taxes imposed on 
the trust allocable to a separate share as so determined is then reduced 
by the amount of the taxes allowed under sections 667 and 668 as a 
credit to a beneficiary of the separate share on account of any 
accumulation distribution determined for any taxable year intervening 
between the year for which the determination is made and the year of an 
accumulation distribution with respect to which the determination is 
made. See paragraph (b) of Sec. 1.665(d)-1.

[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6989, 34 FR 
741, Jan. 17, 1969. Redesignated by T.D. 6989, 34 FR 736, Jan. 17, 1969]