Section

[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: 26CFR1.666(a)-1]

[Page 194-197]

TITLE 26--INTERNAL REVENUE

CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)

PART 1_INCOME TAXES--Table of Contents

Sec. 1.666(a)-1 Amount allocated.

(a)(1) If a trust other than a foreign trust created by a U.S.
person makes an accumulation distribution in any taxable year, the
distribution is included in the beneficiary's gross income for that year
to the extent of the undistributed net income of the trust for the
preceding 5 years. It is therefore necessary to determine the extent to
which there is undistributed net income for the preceding 5 years. For
this purpose, an accumulation distribution made in any taxable year is
allocated to each of the 5 preceding taxable years in turn, beginning
with the most recent year, to the extent of the undistributed net income
of each of those years. Thus, an accumulation distribution is deemed to
have been made from the most recently accumulated income of the trust.
(2) If a foreign trust created by a U.S. person makes an
accumulation distribution in any year after December 31, 1962, the
distribution is included in the beneficiary's gross income for that year
to the extent of the undistributed net income of the trust for the
trust's preceding taxable years which began after December 31, 1953, and
ended after August 16, 1954. It is therefore necessary to determine the
extent to which there is undistributed net income for such preceding
taxable years. For this purpose, an accumulation distribution made in
any taxable year is first allocated to each of such preceding taxable
years in turn, beginning with the most recent year, to the extent of the
undistributed net income of each of those years. Thus, an accumulation
distribution is deemed to have been made from the most recently
accumulated income of the trust.
(3) If a trust that is in part a foreign trust created by a U.S.
person and in part a foreign trust created by a person other than a U.S.
person makes an accumulation distribution in any year after December 31,
1962, the distribution is deemed made from the undistributed net income
of the foreign trust created by a U.S. person in the proportion that the
total undistributed net income for all preceding years of the foreign
trust created by the U.S. person bears to the total undistributed net
income for all years of the entire foreign trust. In addition, such
distribution is deemed made from the undistributed net income of the
foreign trust created by a person other than a U.S. person in the
proportion that the total undistributed net income for all preceding
years of the foreign trust created by a person other than a U.S. person
bears to the total undistributed net income for all years of the entire

[[Page 195]]

foreign trust. Accordingly, an accumulation distribution of such a trust
is composed of two portions with one portion relating to the
undistributed net income of the foreign trust created by the U.S. person
and the other portion relating to the undistributed net income of the
foreign trust created by the person other than a U.S. person. For these
purposes, each portion of an accumulation distribution made in any
taxable year is first allocated to each of such preceding taxable years
in turn, beginning with the most recent year, to the extent of the
undistributed net income for the applicable foreign trust for each of
those years. Thus, each portion of an accumulation distribution is
deemed to have been made from the most recently accumulated income of
the applicable trust. If the foreign trust created by a U.S. person
makes an accumulation distribution in any year after December 31, 1962,
the distribution is included in the beneficiary's gross income for that
year to the extent of the undistributed net income of the trust for the
trust's preceding taxable years which began after December 31, 1953, and
ended after August 16, 1954. If the foreign trust created by a person
other than a U.S. person makes an accumulation distribution in any
taxable year, the distribution is included in the beneficiary's gross
income for that year to the extent of the undistributed net income of
the trust for the preceding 5 years.
(b) If, before the application of the provisions of subpart D
(section 665 and following), part I, subchapter J, chapter 1 of the
Code, to an accumulation distribution for the taxable year, there is no
undistributed net income for a preceding taxable year, then no portion
of the accumulation distribution is deemed distributed on the last day
of such preceding taxable year. Thus, if an accumulation distribution is
made during the taxable year 1960 and the trust had no undistributed net
income for the taxable year 1959, then no portion of the 1960
accumulation distribution is deemed distributed on the last day of 1959.
For purposes of subpart D, the term 5 preceding taxable years includes
only the 5 taxable years immediately preceding the taxable year in which
the accumulation distribution is made and which are subject to part I
(section 641 and following) of such subchapter J even though the trust
has no undistributed net income during one or more of those years.
(c) Paragraphs (a) and (b) of this section may be illustrated by the
following examples:

Example 1. In 1964, a domestic trust, reporting on the calendar year
basis, makes an accumulation distribution of $25,000. In 1963, the trust
had $7,000 of undistributed net income; in 1962, none; in 1961, $12,000;
in 1960, $4,000; in 1959, $4,000. The accumulation distribution is
deemed distributed $7,000 in 1963, none in 1962, $12,000 in 1961, $4,000
in 1960, and $2,000 in 1959.
Example 2. In 1964, a foreign trust created by a U.S. person,
reporting on the calendar year basis, makes an accumulation distribution
of $50,000. In 1963, the trust had $12,000 of undistributed net income;
in 1962, none; in 1961, $10,000; in 1960, $8,000; in 1959, $5,000; in
1958, $14,000; in 1957, none; in 1956, $3,000; in 1955, $2,000; and in
1954, $1,000. The accumulation distribution is deemed distributed
$12,000 in 1963, none in 1962, $10,000 in 1961, $8,000 in 1960, $5,000
in 1959, $14,000 in 1958, none in 1957, $1,000 in 1956.
Example 3. A trust is created in 1952 under the laws of Country X by
the transfer to a trustee in Country X of money and property by both a
U.S. person and a person other than a U.S. person. Both the trust and
the only beneficiary of the trust (who is a U.S. person) report their
taxable income on a calendar year basis. On March 31, 1964, the trust
makes an accumulation distribution of $150,000 to the U.S. beneficiary.
The distributable net income of both the portion of the trust which is a
foreign trust created by a U.S. person and the portion of the trust
which is a foreign trust created by a person other than a U.S. person
for each year is computed in accordance with the provisions of paragraph
(b)(3) of Sec. 1.643(d)-1 and the undistributed net income for each
portion of the trust for each year is computed as described in paragraph
(b) of Sec. 1.665(a)-1. For the taxable years 1952 through 1963, the
portion of the trust which is a foreign trust created by a U.S. person
and the portion of the trust which is a foreign trust created by a
person other than a U.S. person had the following amounts of
undistributed net income:

[[Page 196]]

1958.............................................................. 4,000 2,000
1957.............................................................. None None
1956.............................................................. 8,000 3,000
1955.............................................................. 11,000 5,000
1954.............................................................. None None
1953.............................................................. 12,000 7,000
1952.............................................................. 7,000 4,000
---------------------------------------------
Totals.......................................................... 120,000 60,000
----------------------------------------------------------------------------------------------------------------

The accumulation distribution in the amount of $150,000 is deemed to
have been distributed in the amount of $100,000 (120,000/
180,000x$150,000) from the portion of the trust which is a foreign trust
created by a U.S. person, and in the amount of $50,000 (60,000/
180,000x$150,000) from the portion of the trust which is a foreign trust
created by a person other than a U.S. person computed as follows:

----------------------------------------------------------------------------------------------------------------
Throwback to
preceding years of
Throwback to portion of the entire
Year preceding years of foreign trust which
foreign trust created is not a foreign
by a U.S. person trust created by a
U.S. person
----------------------------------------------------------------------------------------------------------------
1963.............................................................. $20,000 $10,000
1962.............................................................. 25,000 12,000
1961.............................................................. None None
1960.............................................................. 16,000 9,000
1959.............................................................. 17,000 8,000
1958.............................................................. 4,000 2,000
1957.............................................................. None None
1956.............................................................. 8,000 3,000
1955.............................................................. 10,000 5,000
1954.............................................................. None None
1953.............................................................. None 1,000
1952.............................................................. None None
---------------------------------------------
Totals.......................................................... 100,000 50,000
----------------------------------------------------------------------------------------------------------------

Pursuant to paragraph (a)(3) of this section, the accumulation
distribution in the amount of $100,000 from the portion of the trust
which is a foreign trust created by a U.S. person is included in the
beneficiary's gross income for 1964, as this amount represents
undistributed net income of the trust for the trust's preceding taxable
years which began after December 31, 1953, and ended after August 16,
1954. The accumulation distribution in the amount of $50,000 from the
portion of the trust which is a foreign trust created by a person other
than a U.S. person is included in the beneficiary's gross income for
1964 to the extent of the undistributed net income of the trust for the
preceding 5 years. Accordingly, with respect to the portion of the trust
which is a foreign trust created by a person other than a U.S. person
only the undistributed net income for the years 1959 through 1963 which
totals $39,000 is includible in the beneficiary's gross income for 1964.
Thus, of the $150,000 distribution made in 1964, the beneficiary is
required to include a total of $139,000 in his gross income for 1964.
Example 4. Assume the same facts as in example 3 and, in addition,
that by December 31, 1964, the undistributed net income for 1964 is
determined to be $20,000, and that in accordance with the provisions of
paragraph (b)(3) of Sec. 1.643(d)-1 and paragraph (b) of Sec.
1.665(a)-1, $10,000 is allocated to the portion of the trust which is a
foreign trust created by a U.S. person and $10,000 is allocated to the
portion of the trust which is a foreign trust created by a person other
than a U.S. person. On March 31, 1965, the trust makes an accumulation
distribution of $25,000 to the U.S. beneficiary. For the taxable years
1952 through 1964, the portion of the trust which is a foreign trust
created by a U.S. person and the portion of the trust which is a foreign
trust created by a person other than a U.S. person had the following
amounts of undistributed net income:

----------------------------------------------------------------------------------------------------------------
Undistributed net
Undistributed net income--portion of
Year income--portion of the trust created by
the trust created by a person other than a
a U.S. person U.S. person
----------------------------------------------------------------------------------------------------------------
1964.............................................................. $10,000 $10,000
1963.............................................................. None None
1962.............................................................. None None
1961.............................................................. None None
1960.............................................................. None None
1959.............................................................. None None
1958.............................................................. None None
1957.............................................................. None None
1956.............................................................. None None
1955.............................................................. 1,000 None
1954.............................................................. None None
1953.............................................................. 12,000 6,000
1952.............................................................. 7,000 4,000
---------------------------------------------
Totals.......................................................... 30,000 20,000
----------------------------------------------------------------------------------------------------------------

The accumulation distribution is deemed to have been distributed in the
amount of $15,000 (30,000/50,000x$25,000), from the portion of the trust
which is a foreign trust created by a U.S. person, and in the amount of
$10,000 (20,000/50,000x$25,000) from the portion of the trust which is a
foreign trust created by a person other than a U.S. person computed as
follows:

----------------------------------------------------------------------------------------------------------------
Throwback to
preceding years of
Throwback to portion of the entire
Year preceding years of foreign trust which
foreign trust created is not a foreign
by U.S. person trust created by a
U.S. person
----------------------------------------------------------------------------------------------------------------
1964.............................................................. $10,000 $10,000
1963.............................................................. None None
1962.............................................................. None None
1961.............................................................. None None
1960.............................................................. None None
1959.............................................................. None None
1958.............................................................. None None
1957.............................................................. None None
1956.............................................................. None None
1955.............................................................. 1,000 None
1954.............................................................. None None

[[Page 197]]

1953.............................................................. 4,000 None
1952.............................................................. None None
---------------------------------------------
Totals.......................................................... 15,000 10,000
----------------------------------------------------------------------------------------------------------------

Pursuant to paragraph (a)(3) of this section, only $11,000 of the
accumulation distribution in the amount of $15,000 from the portion of
the trust which is a foreign trust created by a U.S. person is
includible in the beneficiary's gross income for 1965 as the $11,000
amount represents undistributed net income of the trust for the trust's
preceding taxable years which began after December 31, 1953, and ended
after August 16, 1954. The accumulation distribution in the amount of
$10,000 from the portion of the trust which is a foreign trust created
by a person other than a U.S. person is included in the beneficiary's
gross income for 1965 to the extent of the undistributed net income of
the trust for the preceding 5 years. Accordingly, the entire $10,000
(representing the undistributed net income for the year 1964) is
includible in the beneficiary's gross income for 1965. Thus, of the
$25,000 distribution made in 1965, the beneficiary is required to
include a total of $21,000 in his gross income for 1965.

(d) For the purposes of allocating to any preceding taxable year an
accumulation distribution of the taxable year, the undistributed net
income of such preceding taxable year is computed without regard to the
accumulation distribution of the taxable year or of taxable years
following the taxable year. However, accumulation distributions of any
taxable years intervening between such preceding taxable year and the
taxable year are taken into account. Accordingly, if a trust has
undistributed net income for the taxable year 1954 and makes an
accumulation distribution during the taxable year 1955, the
undistributed net income for 1954 is computed without regard to the
accumulation distribution for 1955 or any subsequent year. If the trust
makes a further accumulation distribution for 1956, the undistributed
net income for 1954 is computed without regard to the accumulation
distribution for 1956 or subsequent years; but in determining the
undistributed net income for 1954 for purposes of the 1956 accumulation
distribution the accumulation distribution for 1955 will be taken into
account.

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