[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: 26CFR1.669(a)-1A]

[Page 220-221]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.669(a)-1A  Amount allocated.

    (a) In general. After a trust has distributed all of its 
undistributed net income, the rules concerning the treatment of capital 
gain distributions (prescribed under section 669) may become applicable 
to an accumulation distribution. This section prescribes rules to 
determine from which years capital gain distributions are considered to 
be made. For the definition of ``capital

[[Page 221]]

gain distribution,'' see Sec. 1.665(g)-1A. Section 669 does not apply 
to a trust that has distributed all of its income currently since its 
inception. See Sec. 1.668(a)-1A(c). Capital gain retains its character 
in the hands of the beneficiary. See Sec. 1.669(f)-1A. A capital gain 
distribution to more than one beneficiary will be allocated among them. 
See Sec. 16.668(a)-2A.
    (b) First-in, first-out rule. A capital gain distribution is 
allocated to the preceding taxable years of the trust (as defined in 
Sec. 1.665(e)-1A(a)(1)(iii)), according to the undistributed capital 
gain of the trust for such years. For this purpose, a capital gain 
distribution is first allocated to the earliest such preceding taxable 
year in which there is undistributed capital gain 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 capital gain 
distribution allocated to the earliest preceding taxable year is the 
amount of undistributed capital gain for that preceding taxable year. 
The portion of the capital gain distribution allocated to any preceding 
taxable year subsequent to the earliest such preceding taxable year is 
the excess of the capital gain distribution over the aggregate of the 
undistributed capital gain for all earlier preceding taxable years. See 
paragraph (c) of this section for adjustments to undistributed capital 
gain for prior distributions.
    (c) Reduction of undistributed capital gain for prior capital gain 
distributions. For the purposes of allocating to any preceding taxable 
year a capital gain distribution of the taxable year, the undistributed 
capital gain of such preceding taxable year is reduced by the amount 
from such year deemed distributed in any capital gain distribution made 
in any taxable year intervening between such preceding taxable year and 
the taxable year. Accordingly, for example, if a trust subject to the 
capital gain throwback has no undistributed net income but has 
undistributed capital gain for 1974, and makes capital gain 
distributions during the taxable years 1978 and 1979, then in 
determining that part of the 1979 capital gain distribution that is 
thrown back to 1974, the undistributed capital gain for 1974 is reduced 
by the amount of such undistributed capital gain for 1974 deemed 
distributed in the 1978 capital gain distribution.
    (d) Rule when no undistributed capital gain. If, before the 
application of the provisions of subpart D to a capital gain 
distribution for the taxable year, there is no undistributed capital 
gain for a preceding taxable year, then no portion of the capital gain 
distribution is deemed distributed on the last day of such preceding 
taxable year. Thus, for example, if a capital gain 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 
capital gain for 1970, then no portion of the 1975 capital gain 
distribution is deemed distributed on the last day of 1970.
    (e) Example. The provisions of this section may be illustrated by 
the following example:

    Example. In 1977, a trust reporting on the calendar year basis makes 
a capital gain distribution of $33,000. In 1969, the trust had $6,000 of 
undistributed capital gain; in 1970, $4,000; in 1971, none; in 1972, 
$7,000; in 1973, $5,000; in 1974, $8,000; in 1975, $6,000; in 1976, 
$4,000; and $6,000 in 1977. The capital gain 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.

[T.D. 7204, 37 FR 17153, Aug. 25, 1972]