[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(g)-1A]

[Page 270-271]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.665(g)-1A  Capital gain distribution.

    For any taxable year of a trust, the term capital gain distribution 
means, to the extent of the undistributed capital gain of the trust, 
that portion of an accumulation distribution that exceeds the amount of 
such accumulation distribution deemed under section 666(a) to be 
undistributed net income of the trust for all preceding taxable years. 
See Sec. 1.665(b)-1A for the definition of ``accumulation 
distribution''. For any such taxable year the undistributed capital gain 
includes the total undistributed capital gain for all years of the trust 
beginning with the first taxable year beginning after December 31, 1968, 
in which income (as determined under section 643(b)) is accumulated, and 
ending before such taxable year. See Sec. 1.665(g)-2A for application 
of the separate share rule. The application of this section may be 
illustrated by the following example:

    Example. A trust on the calendar year basis made the following 
accumulations. For purposes of this example, the undistributed net 
income is the same as income under applicable local law. No income was 
accumulated prior to 1970.

------------------------------------------------------------------------
                                        Undistributed     Undistributed
                Year                     net income       capital gain
------------------------------------------------------------------------
1969................................         None           $10,000
1970................................       $1,000             3,000
1971................................         None             4,000
------------------------------------------------------------------------

    The trust has distributable net income in 1972 of $2,000 and 
recognizes capital gains of $4,500 that are allocable to corpus. On 
December 31, 1972, the trustee makes a distribution of $20,000 to the 
beneficiary. There is an accumulation distribution of $18,000 $20,000 
distribution less $2,000 d.n.i.) that consists of undistributed net 
income of $1,000 (see Sec. 1.666(a)-1A) and a capital gain distribution 
of $7,000. The capital gain distribution is computed as follows:

[[Page 271]]



Accumulation distribution....................................    $18,000
Less: Undistributed net income...............................      1,000
                                                              ----------
    Balance..................................................     17,000
                                                              ==========
Capital gain distribution (undistributed capital gain of the       7,000
 trust for 1972 ($3,000 from 1970 and $4,000 from 1971)).....
                                                              ----------
    Balance (corpus).........................................     10,000



No undistributed capital gain is deemed distributed from 1969 because 
1969 is a year prior to the first year in which income is accumulated 
(1970). The accumulation distribution is not deemed to consist of any 
part of the capital gains recognized in 1972.

[T.D. 7204, 37 FR 17142, Aug. 25, 1972]