[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: 26CFR1.668(a)-1A]

[Page 202-203]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.668(a)-1A  Amounts treated as received in prior taxable years; 
inclusion in gross income.

    (a) Section 668(a) provides that the total of the amounts treated 
under sections 666 and 669 as having been distributed by the trust on 
the last day of a preceding taxable year of the trust shall be included 
in the income of the beneficiary or beneficiaries receiving them. The 
total of such amounts is includable in the income of each beneficiary to 
the extent the amounts would have been included under section 662 (a)(2) 
and (b) as if the total had actually been an amount properly paid by the 
trust under section 661 (a)(2) on the last day of such preceding taxable 
year. The total is included in the income of the beneficiary for the 
taxable year of the beneficiary in which such amounts are in fact paid, 
credited, or required to be distributed unless the taxable year of the 
beneficiary differs from the taxable year of the trust (see section 
662(c) and the regulations thereunder). The character of the amounts 
treated as received by a beneficiary in prior taxable years, including 
taxes deemed distributed, in the hands of the beneficiary is determined 
by the rules set forth in section 662(b) and the regulations thereunder.
    (b) Any deduction allowed to the trust in computing distributable 
net income for a preceding taxable year (such as depreciation, 
depletion, etc.) is not deemed allocable to a beneficiary because of 
amounts included in a beneficiary's gross income under this section 
since the deduction has already been utilized in reducing the amount 
included in the beneficiary's income.
    (c) For purposes of applying section 668(a)(3), a trust shall be 
considered to be other than a ``trust which is not required to 
distribute all of its income currently'' for each taxable year prior to 
the first taxable year beginning after December 31, 1968, and ending 
after November 30, 1969, in which income is accumulated. Income will not 
be deemed to have been accumulated for purposes of applying section 
668(a)(3) in a year if the trustee makes

[[Page 203]]

a determination, as evidenced by a statement on the return, to 
distribute all of the trust's income for such year and also makes a good 
faith determination as to the amount of such income and actually 
distributed for such year the entire amount so determined. The term 
``income,'' as used in the preceding two sentences, is defined in 
Sec. Sec. 1.643(b)-1 and 1.643(b)-2. Since, under such definitions, 
certain items may be included in distributable net income but are not, 
under applicable local law, ``income'' (as, for example, certain 
extraordinary dividends), a trust that has undistributed net income from 
such sources might still qualify as a trust that has not accumulated 
income. Also, for example, if a trust establishes a reserve for 
depreciation or depletion and applicable local law permits the deduction 
for such reserve in the computation of ``income,'' amounts so added to 
the reserve do not constitute an accumulation of income. If a trust has 
separate shares, and any share accumulates income, all shares of the 
trust will be considered to have accumulated income for purposes of 
section 668(a)(3). Amounts retained by a trust or a portion of a trust 
that is subject to subpart E (sections 671-678) shall not be considered 
accumulated income.
    (d) See section 1302(a)(2)(B) to the effect that amounts included in 
the income of a beneficiary of a trust under section 668(a) are not 
eligible for income averaging.

[T.D. 7204, 37 FR 17148, Aug. 25, 1972]