[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: 26CFR1.667-1]

[Page 199-200]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.667-1  Denial of refund to trusts.

    (a) If an amount is deemed under section 666 to be an amount paid, 
credited, or required to be distributed on the last day of a preceding 
taxable year, the trust is not allowed a refund or credit of the amount 
of ``taxes imposed on the trust'', as defined in Sec. 1.665(d)-1, which 
would not have been payable for the preceding taxable year had the

[[Page 200]]

trust in fact made such distribution on the last day of such year. 
However, such taxes are allowed as a credit under section 668(b) against 
the tax of the beneficiaries who are treated as having received the 
distributions in the preceding taxable year. The amount of taxes which 
may not be refunded or credited to the trust under this paragraph and 
which are allowed as a credit under section 668(b) against the tax of 
the beneficiaries, is an amount equal to the excess of:
    (1) The taxes imposed on the trust (as defined in section 665(d) and 
Sec. 1.655(d)-1) for any preceding taxable year (computed without 
regard to the accumulation distribution for the taxable year) over
    (2) The amount of taxes for such preceding taxable year which would 
be imposed on the undistributed portion of distributable net income of 
the trust for such preceding taxable year after the application of 
subpart D (section 665 and following), part I, subchapter J, chapter 1 
of the Code, on account of the accumulation distribution determined for 
the taxable year.

It should be noted that the credit under section 667 is computed by the 
use of a different ratio from that used for computing the amount of 
taxes deemed distributed under section 666(c).
    (b) Paragraph (a) of this section may be illustrated by the 
following examples:

    Example 1. In 1954, a trust of which A is the sole beneficiary has 
taxable income of $20,000 (including capital gains of $5,100 allocable 
to corpus less a personal exemption of $100), on which a tax of $7,260 
is paid.

The undistributed portion of distributable net income is $15,000, to 
which $6,160 of the tax is allocable under section 665. The 
undistributed net income is therefore $8,840 ($15,000 minus $6,160). In 
1955, the trust makes an accumulation distribution of $8,840. Under 
section 666(b), the total taxes for 1954 attributable to the 
undistributed net income are deemed distributed, so $15,000 is deemed 
distributed. The amount of the tax which may not be refunded to the 
trust under section 667 and the credit to which A is entitled under 
section 668(b) is the excess of $6,160 over zero, since after the 
distribution and the application of subpart D there is no remaining 
undistributed portion of distributable net income for 1954.
    Example 2. The same trust as in example 1 of this paragraph 
distributes $5,000 in 1955, rather than $8,840. The amount of the tax 
which may not be refunded to the trust but which is available to A as a 
credit is $4,044, computed as follows:

Accumulation distribution in 1955............................     $5,000
Taxes deemed distributed under section 666(c) (5,000/              3,484
 8,840x$6,160)...............................................
                                                   ------------
    Total amount deemed distributed out of the undistributed       8,484
     portion of distributable net income.....................
                                                   ============
Tax attributable to the undistributed portion of                   6,160
 distributable net income ($15,000) before 1955 distribution
 (see example 1 of this paragraph)...........................
Tax on $11,516 (taxable income of $20,000 minus        $3,216
 $8,484, amount deemed distributed)...............
Tax on $5,000 (capital gains of $5,100, less            1,100
 personal exemption of $100, allocable to corpus).
                                                   -----------
Tax attributable to undistributed portion of distributable         2,116
 net income after 1955 distribution..........................
                                                   ------------
    Refund disallowed to the trust and credit available to A       4,044
     in 1955.................................................



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