[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)-2]

[Page 211-212]
 
                       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)-2  Allocation among beneficiaries; in general.

    The portion of the total amount includible in gross income under 
Sec. 1.668 (a)-1 which is includible in the gross income of a 
particular beneficiary is based upon the ratio determined under the 
second sentence of section 662(a)(2) for the taxable year (and not for 
the preceding taxable year). This section may be illustrated by the 
following example:

    Example. (a) Under the terms of a trust instrument, the trustee may 
accumulate the income or make distributions to A and B. The trustee may 
also invade corpus for the benefit of A and B. The distributable net 
income of the trust for the taxable year 1955 is $10,000. The trust had 
undistributed net income for the taxable year 1954 of $5,000, to which a 
tax of $1,100 was allocable. During the taxable year 1955, the trustee 
distributes $10,000 to A and $5,000 to B. Thus, of the total 
distribution of $15,000, A received two-thirds and B received one-third.
    (b) For the purposes of determining the amounts includible in the 
beneficiaries' gross income for 1955, the trust is deemed to have made 
the following distributions:

Amount distributed out of 1955 income (distributable net         $10,000
 income).....................................................
Accumulation distribution deemed distributed by the trust on       5,000
 the last day of 1954 under section 666(a)...................
Taxes imposed on the trust deemed distributed under section        1,100
 666(b)......................................................



[[Page 212]]

    (c) A will include in his gross income for 1955 two-thirds of each 
item shown in paragraph (b) of this example. Thus, he will include in 
gross income $6,666.67 (10,000/ 15,000x$10,000) of the 1955 
distributable net income of the trust as provided in section 662(a)(2), 
and $3,333.33 (10,000/ 15,000x$5,000) of the accumulation distribution 
and $733.33 (10,000/15,000x$1,100) of the taxes imposed on the trust as 
provided in section 668(a).
    (d) B will include in his gross income for 1955 one-third of each 
item shown in paragraph (b) of this example, computed in the manner 
shown in paragraph (c) of this example.