26 U.S.C. § 662

Inclusion of amounts in gross income of beneficiaries of estates and trusts accumulating income or distributing corpus

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(a) InclusionSubject to subsection (b), there shall be included in the gross income of a beneficiary to whom an amount specified in section 661(a) is paid, credited, or required to be distributed (by an estate or trust described in section 661), the sum of the following amounts:(1) Amounts required to be distributed currently

The amount of income for the taxable year required to be distributed currently to such beneficiary, whether distributed or not. If the amount of income required to be distributed currently to all beneficiaries exceeds the distributable net income (computed without the deduction allowed by section 642(c), relating to deduction for charitable, etc., purposes) of the estate or trust, then, in lieu of the amount provided in the preceding sentence, there shall be included in the gross income of the beneficiary an amount which bears the same ratio to distributable net income (as so computed) as the amount of income required to be distributed currently to such beneficiary bears to the amount required to be distributed currently to all beneficiaries. For purposes of this section, the phrase “the amount of income for the taxable year required to be distributed currently” includes any amount required to be paid out of income or corpus to the extent such amount is paid out of income for such taxable year.

(2) Other amounts distributedAll other amounts properly paid, credited, or required to be distributed to such beneficiary for the taxable year. If the sum of—(A) the amount of income for the taxable year required to be distributed currently to all beneficiaries, and(B) all other amounts properly paid, credited, or required to be distributed to all beneficiariesexceeds the distributable net income of the estate or trust, then, in lieu of the amount provided in the preceding sentence, there shall be included in the gross income of the beneficiary an amount which bears the same ratio to distributable net income (reduced by the amounts specified in (A)) as the other amounts properly paid, credited or required to be distributed to the beneficiary bear to the other amounts properly paid, credited, or required to be distributed to all beneficiaries.(b) Character of amounts

The amounts determined under subsection (a) shall have the same character in the hands of the beneficiary as in the hands of the estate or trust. For this purpose, the amounts shall be treated as consisting of the same proportion of each class of items entering into the computation of distributable net income as the total of each class bears to the total distributable net income of the estate or trust unless the terms of the governing instrument specifically allocate different classes of income to different beneficiaries. In the application of the preceding sentence, the items of deduction entering into the computation of distributable net income (including the deduction allowed under section 642(c)) shall be allocated among the items of distributable net income in accordance with regulations prescribed by the Secretary. In the application of this subsection to the amount determined under paragraph (1) of subsection (a), distributable net income shall be computed without regard to any portion of the deduction under section 642(c) which is not attributable to income of the taxable year.

If the taxable year of a beneficiary is different from that of the estate or trust, the amount to be included in the gross income of the beneficiary shall be based on the distributable net income of the estate or trust and the amounts properly paid, credited, or required to be distributed to the beneficiary during any taxable year or years of the estate or trust ending within or with his taxable year.

(Aug. 16, 1954, ch. 736, 68A Stat. 220; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)Editorial NotesAmendments

1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Notes of Decisions

Cited in 20 cases, 1956–2018 · leading case: Jonathan B. Geftman v. Commissioner of Internal Revenue

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Jonathan B. Geftman v. Commissioner of Internal Revenue (1998) ca3 · cites it 6× “He contended that his entire distribution from Trust C, which the Commissioner now stipulates totaled $46,936 rather than $101,890, was nontaxable pursuant to 26 U.S.C. § 662 (b) and Treas. Reg. § 1.662 (b)-l because, contrary to the trustees’ representations on the Form 1041,…”

United California Bank v. United States (1978) scotus · cites it 3× “26 U. S. C. § 662 (b) (1964 ed.). If such distributions are wholly or partly composed of capital gain, the distributee treats them as such in his own return.”

Wicks v. United States (2018) oknd · cites it 2× “183-2 (b), engaged in their cattle ranching activity for profit? And, if not, are they liable for the accuracy-related penalty that the IRS imposed on them pursuant to 26 U.S.C. § 662 ? Also before the Court are plaintiffs' motion to strike evidence (Dkt.”

United States v. Roger S. Baskes (1980) ca7 “Further, under the Internal Revenue Code, if the common stockholder were a foreign trust, no tax would be paid by such foreign trust on the sale of that capital asset after liquidation.”

L. B. Whitfield, Jr., and Virginia G. Whitfield v. Commissioner of Internal Revenue (1962) ca5 “The Tax Court concluded that “upon consideration of all the facts,” the debt was cancelled, creating taxable income to the estate, taxable under 26 U.S.C.A. § 662 to the beneficiaries. “In form this indebtedness was not cancelled; in substance, it was.”

Gloria M. Packard Polt, Estate of Robert L. Dula, Deceased v. Commissioner of Internal Revenue (1956) ca2 “117, 142-144, but is more favorably regarded in Note, 1 Tax L.”

Monte Vista Burial Park, Inc. v. United States (1965) ca6 “…money did not belong to it. Affirmed. 1 . 8 Tenn.Code Ann. § 40-110. 2 . 26 U.S.O. § 243. 3 . 26 U.S.O. § 103. 4 . 26 U.S.C. § 662 (b).”

Hopper v. Government of the Virgin Islands (1977) ca3 · cites it 5× “The only significant question is whether the payments to Adelaide Thomas, aggregating $35,000 in the years 1968-1970, require that appellant’s tax deficiency for those years be recomputed in accordance with 26 U.S.C. § 662 (a) (2). The allocation required by that section is to…”

Hay v. United States (1967) txnd “trust income distributed to them? The plaintiffs contend that the two payments involved, paid to them by the *816 trust in separate checks dated December 1, 1962, and February 1, 1963, were improperly reported on their 1962 income tax return as income received for that year, and…”

Dominion Trust Co. of Tennessee v. United States (1991) tnmd · cites it 2× “Under 26 U.S.C. § 662 (a) and 26 C.F.R. § 1.662 (a)-3(a), that deductible amount is passed on as gross income to the beneficiary, regardless of whether or not it is actually distributed.”

U.S. Commodity Futures Trading Commission v. States (2009) flsd “Prejudgment interest from October 2004, to the date of entry of this Order shall be determined by using the underpayment rate established quarterly by the Internal Revenue Service pursuant to 26 U.S.C. § 662 (a)(2). Post-judgment interest shall accrue beginning on the date of…”

Harkness v. United States (1972) cc · cites it 2× “Section 662(a) (2) (B) of the Internal Revenue Code of 1954 ( 26 U.S.C. § 662 (a) (2) (B) (1958)) provides that, where the amounts distributed to all beneficiaries of an estate accumulating income or distributing corpus exceed the distributable net income of the estate, each…”

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— 26 U.S.C. § 662(c) — 1 case

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