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)-1A]

[Page 187-191]

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)-1A Amount allocated.

(a) In general. In the case of a trust that is subject to subpart C
of part I of subchapter J of chapter 1 of the Code (relating to estates
and trusts that may accumulate income or that distribute corpus),
section 666(a) prescribes rules for determining the taxable years from
which an accumulation distribution will be deemed to have been made and
the extent to which the accumulation distribution is considered to
consist of undistributed net income. In general, an accumulation
distribution made in taxable years beginning after December 31, 1969, is
deemed to have been made first from the earliest preceding taxable year
of the trust for which there is undistributed

[[Page 188]]

net income. An accumulation distribution made in a taxable year
beginning before January 1, 1970, is deemed to have been made first from
the most recent preceding taxable year of the trust for which there is
undistributed net income. See Sec. 1.665(e)-1A for the definition of
``preceding taxable year.''
(b) Distributions by domestic trusts--(1) Taxable years beginning
after December 31, 1973. An accumulation distribution made by a trust
(other than a foreign trust created by a U.S. person) in any taxable
year beginning after December 31, 1973, is allocated to the preceding
taxable years of the trust (defined in Sec. 1.665(e)-1A(a)(1)(ii) as
those beginning after December 31, 1968) according to the amount of
undistributed net income of the trust for such years. For this purpose,
an accumulation distribution is first to be allocated to the earliest
such preceding taxable year in which there is undistributed net income
and shall then be allocated, beginning with the next earliest, to any
remaining preceding taxable years of the trust. The portion of the
accumulation distribution allocated to the earliest preceding taxable
year is the amount of the undistributed net income for that preceding
taxable year. The portion of the accumulation distribution allocated to
any preceding taxable year subsequent to the earliest such preceding
taxable year is the excess of the accumulation distribution over the
aggregate of the undistributed net income for all earlier preceding
taxable years. See paragraph (d) of this section for adjustments to
undistributed net income for prior distributions. The provisions of this
subparagraph may be illustrated by the following example:

Example. In 1977, a domestic trust reporting on the calendar year
basis makes an accumulation distribution of $33,000. Therefore, years
before 1969 are ignored. In 1969, the trust had $6,000 of undistributed
net income; in 1970, $4,000; in 1971, none; in 1972, $7,000; in 1973,
$5,000; in 1974, $8,000; in 1975, $6,000; and $4,000 in 1976. The
accumulation distribution is deemed distributed $6,000 in 1969, $4,000
in 1970, none in 1971, $7,000 in 1972, $5,000 in 1973, $8,000 in 1974,
and $3,000 in 1975.

(2) Taxable years beginning after December 31, 1969, and before
January 1, 1974. If a trust (other than a foreign trust created by a
U.S. person) makes an accumulation distribution in a taxable year
beginning after December 31, 1969, and before January 1, 1974, the
distribution will be deemed distributed in the same manner as
accumulation distributions qualifying under subparagraph (1) of this
paragraph, except that the first year to which the distribution may be
thrown back cannot be earlier than the fifth taxable year of the trust
preceding the year in which the accumulation distribution is made. Thus,
for example, in the case of an accumulation distribution made in the
taxable year of a domestic trust which begins on January 1, 1972, the
taxable year of the trust beginning on January 1, 1967, would be the
first year in which the distribution was deemed made, assuming that
there was undistributed net income for 1967. See also Sec. 1.665(e)-
1A(a)(1). The provisions of this subparagraph may be illustrated by the
following example:

Example. In 1973, a domestic trust, reporting on the calendar year
basis, makes an accumulation distribution of $25,000. In 1968, the fifth
year preceding 1973, the trust had $7,000 of undistributed net income;
in 1969, none; in 1970, $12,000; in 1971, $4,000; in 1972, $4,000. The
accumulation distribution is deemed distributed in the amounts of $7,000
in 1968, none in 1969, $12,000 in 1970, $4,000 in 1971, and $2,000 in
1972.

(3) Taxable years beginning after December 31, 1968, and before
January 1, 1970. Accumulation distributions made in taxable years of the
trust beginning after December 31, 1968, and before January 1, 1970, are
allocated to prior years according to Sec. 1.666(a)-1.
(c) Distributions by foreign trusts-- (1) Foreign trusts created
solely by U.S. persons--(i) Taxable years beginning after December 31,
1969. If a foreign trust created by a U.S. person makes an accumulation
distribution in any taxable year beginning after December 31, 1969, the
distribution is allocated to the trust's preceding taxable years
(defined in Sec. 1.665(e)-1A(a)(2) as those beginning after Dec. 31,
1953, and ending after Aug. 16, 1954) according to the amount of
undistributed net income of the trust for such years. For this purpose,
an accumulation distribution is first allocated to the earliest such
preceding

[[Page 189]]

taxable year in which there is undistributed net income and shall then
be allocated in turn, beginning with the next earliest, to any remaining
preceding taxable years of the trust. The portion of the accumulation
distribution allocated to the earliest preceding taxable year is the
amount of the undistributed net income for that preceding taxable year.
The portion of the accumulation distribution allocated to any preceding
taxable year subsequent to the earliest such preceding taxable year is
the excess of the accumulation distribution over the aggregate of the
undistributed net income for all earlier preceding taxable years. See
paragraph (d) of this section for adjustments to undistributed net
income for prior distributions. The provisions of this subdivision may
be illustrated by the following example:

Example. In 1971, a foreign trust created by a U.S. person,
reporting on the calendar year basis, makes an accumulation distribution
of $50,000. In 1961, the trust had $12,000 of undistributed net income;
in 1962, none; in 1963, $10,000; in 1964, $8,000; in 1965, $5,000; in
1966, $14,000; in 1967, none; in 1968, $3,000; in 1969, $2,000; and in
1970, $1,000. The accumulation distribution is deemed distributed in the
amounts of $12,000 in 1961, none in 1962, $10,000 in 1963, $8,000 in
1964, $5,000 in 1965, $14,000 in 1966, none in 1967, and $1,000 in 1968.

(ii) Taxable years beginning after December 31, 1968, and before
January 1, 1970. Accumulation distributions made in taxable years of the
trust beginning after December 31, 1968, and before January 1, 1970, are
allocated to prior years according to Sec. 1.666(a)-1.
(2) Foreign trusts created partly by U.S. persons--(i) Taxable years
beginning after December 31, 1969. 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, 1969, 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 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
earliest preceding taxable year, as defined in Sec. 1.665(e)-1A(a), of
the applicable foreign trusts, to the extent of the undistributed net
income for the such trust for each of those years. Thus, each portion of
an accumulation distribution is deemed to have been made from the
earliest accumulated income of the applicable trust. If the foreign
trust created by a U.S. person makes an accumulation distribution in any
year beginning after December 31, 1969, the distribution is included in
the beneficiary's 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. The provisions of this subdivision may be illustrated by the
following example:

Example. A trust is created in 1962 under the laws of Country X by
the transfer to a trustee in Country X of 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, 1974, the trust makes an
accumulation distribution of $150,000 to the 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

[[Page 190]]

Sec. 1.665(a)-1A. For taxable years 1962 through 1973, 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 the
Year income-portion of the trust created by a
trust created by a person other than a
U.S. person U.S. person
----------------------------------------------------------------------------------------------------------------
1962............................................................ $7,000 $4,000
1963............................................................ 12,000 7,000
1964............................................................ None None
1965............................................................ 11,000 5,000
1966............................................................ 8,000 3,000
1967............................................................ None None
1968............................................................ 4,000 2,000
1969............................................................ 17,000 8,000
1970............................................................ 16,000 9,000
1971............................................................ None None
1972............................................................ 25,000 12,000
1973............................................................ 20,000 10,000
-----------------------------------------------
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 $39,000, which is less
than $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
Throwback to years of portion of the
preceding years of entire foreign trust
Year foreign trust which is not a foreign
created by a U.S. trust created by a U.S.
person person
----------------------------------------------------------------------------------------------------------------
1962.............................................................. $7,000 None
1963.............................................................. 12,000 None
1964.............................................................. None None
1965.............................................................. $11,000 None
1966.............................................................. 8,000 None
1967.............................................................. None None
1968.............................................................. 4,000 None
1969.............................................................. 17,000 $8,000
1970.............................................................. 16,000 9,000
1971.............................................................. None None
1972.............................................................. $25,000 $12,000
1973.............................................................. None 10,000
---------------------------------------------
Totals........................................................... 100,000 39,000
----------------------------------------------------------------------------------------------------------------

Pursuant to this paragraph, 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 income for
1974, as the 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 income for 1974 to the extent of the undistributed net
income of the trust for the preceding years beginning after December 31,
1968. 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 1969 through 1973, which totals
$39,000, is includible in the beneficiary's income for 1974. Thus, of
the $150,000 distribution made in 1974, the beneficiary is required to
include a total of $139,000 in his income for 1974. The balance of
$11,000 is deemed to represent a distribution of corpus.

[[Page 191]]

year, there is no undistributed net income for a preceding taxable year,
then no portion of the accumulation distribution is undistributed net
income deemed distributed on the last day of such preceding taxable
year. Thus, if an accumulation distribution is made during the taxable
year 1975 from a trust whose earliest preceding taxable year is taxable
year 1970, and the trust had no undistributed net income for 1970, then
no portion of the 1975 accumulation distribution is undistributed net
income deemed distributed on the last day of 1970.

[T.D. 7204, 37 FR 17143, Aug. 25, 1972]