U.S. Code
»
Title 26
» Subtitle Subtitle A— Income Taxes › Chapter CHAPTER 1— NORMAL TAXES AND SURTAXES › Subchapter Subchapter J— Estates, Trusts, Beneficiaries, and Decedents › Part PART I— ESTATES, TRUSTS, AND BENEFICIARIES › Subpart Subpart E— Grantors and Others Treated as Substantial Owners
26 U.S.C. § 677
Income for benefit of grantor
(a) General ruleThe grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under section 674, whose income without the approval or consent of any adverse party is, or, in the discretion of the grantor or a nonadverse party, or both, may be—(1) distributed to the grantor or the grantor’s spouse;(2) held or accumulated for future distribution to the grantor or the grantor’s spouse; or(3) applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse (except policies of insurance irrevocably payable for a purpose specified in section 170(c) (relating to definition of charitable contributions)).This subsection shall not apply to a power the exercise of which can only affect the beneficial enjoyment of the income for a period commencing after the occurrence of an event such that the grantor would not be treated as the owner under section 673 if the power were a reversionary interest; but the grantor may be treated as the owner after the occurrence of the event unless the power is relinquished.(b) Obligations of supportIncome of a trust shall not be considered taxable to the grantor under subsection (a) or any other provision of this chapter merely because such income in the discretion of another person, the trustee, or the grantor acting as trustee or co-trustee, may be applied or distributed for the support or maintenance of a beneficiary (other than the grantor’s spouse) whom the grantor is legally obligated to support or maintain, except to the extent that such income is so applied or distributed. In cases where the amounts so applied or distributed are paid out of corpus or out of other than income for the taxable year, such amounts shall be considered to be an amount paid or credited within the meaning of paragraph (2) of section 661(a) and shall be taxed to the grantor under section 662.
(Aug. 16, 1954, ch. 736, 68A Stat. 230; Pub. L. 91–172, title III, § 332(a), Dec. 30, 1969, 83 Stat. 599; Pub. L. 99–514, title XIV, § 1402(b)(3), Oct. 22, 1986, 100 Stat. 2712.)Editorial NotesAmendments1986—Subsec. (a). Pub. L. 99–514 substituted “the occurrence of an event” for “the expiration of a period” and “the occurrence of the event” for “the expiration of the period” in last sentence.
1969—Subsec. (a)(1) to (3). Pub. L. 91–172, § 332(a)(1), inserted “or the grantor’s spouse” after “the grantor” in pars. (1), (2), and (3).
Subsec. (b). Pub. L. 91–172, § 332(a)(2), inserted “(other than the grantor’s spouse)” after “beneficiary”.
Statutory Notes and Related SubsidiariesEffective Date of 1986 AmendmentAmendment by Pub. L. 99–514 applicable with respect to transfers in trust made after Mar. 1, 1986, except for transfers pursuant to a certain binding property settlement agreement, see section 1402(c) of Pub. L. 99–514, set out as a note under section 673 of this title.
Effective Date of 1969 AmendmentPub. L. 91–172, title III, § 332(b), Dec. 30, 1969, 83 Stat. 599, provided that: “The amendments made by subsection (a) [amending this section] shall apply in respect of property transferred in trust after October 9, 1969.”
Notes of Decisions
United States v. Staniford A. Sorrentino, 726 F.2d 876 (1st Cir. 1984).
“627, 633 (1972), the very existence of such powers was sufficient to trigger the provisions of 26 U.S.C. § 677 (a): The grantor shall be treated as the owner of any portion of a trust .”
Daley v. Sec'y of the Exec. Off. of Health & Human Servs., 477 Mass. 188 (Mass. 2017).
“Second, because the trust is intended to be construed as a ‘“grantors trust” under the Internal Revenue Code, 26 U.S.C. § 677 (a), with all income distributed to the grantors taxable to them, the trustee may pay any tax liability arising from such distributions from the corpus…”
Harold O. Fulp, Jr. v. Nancy A. Gilliland, 998 N.E.2d 204 (Ind. 2013).
“2d at 83 (finding settlor of trust could vote shares of stock held by the trust because he was the stock's beneficial and record owner); see also 26 U.S.C. § 677 (a) (2006) (taxing income from revocable trust property as if it was the settlor's property because the settlor has…”
Smith v. United States (In Re Holywell Corp.), 85 B.R. 898 (Bankr. S.D. Florida 1988).
· cites it 3× “Pursuant to 26 U.S.C. § 677 (a), the grantor of a trust is treated as the owner if the income of the trust is “or, in the discretion of the grantor or a non-adverse party, *902 or both, may be” applied to discharge a legal obligation of the grantor.”
In the Matter of Richard L. Kochell, Debtor. Appeal of United States of Am., 804 F.2d 84 (7th Cir. 1986).
“These and related cases show that appointments of income from employers and trusts to third parties are treated as three-cornered transactions: the payment of the money to the person who earned it (or has the power of appointment), followed by a transfer to the third party.”
C. P. & Helen Brooke v. United States, 468 F.2d 1155 (9th Cir. 1972).
· cites it 2× “§ 162(a) are allowable, expenditures for the children’s benefit merely serve to satisfy the taxpayer’s legal obligations to support them imposed by 26 U.S.C. § 677 (b) and therefore are not allowable.”
Ahern v. Thomas, 733 A.2d 756 (Conn. 1999).
“) Because, in the present case, article I of the trust instrument directs the trustees to distribute the net trust income to the plaintiff, the trust is a “grantor trust”; see 26 U.S.C. § 677 ; 26 C.F.R. § 1.671-3 (a) (1); and consequently, the trust’s income is subject to…”
In Re Sonner, 53 B.R. 859 (Bankr. E.D. Va. 1985).
· cites it 2× “Under section 677(a) of the Internal Revenue Code, a grantor of a trust is treated as the owner of the trust if the income of the trust is “or, in the discretion of the grantor or a non-adverse party, or both, may be” applied in discharge of a legal obligation of the grantor.”
Stern v. United States, 563 F. Supp. 484 (D. Nev. 1983).
“By opinion filed September 21, 1981, the Tax Court ruled in favor of the Government.”
Athanasius Y. Samuel v. Comm'r of Internal Revenue, 306 F.2d 682 (1st Cir. 1962).
“In concluding that the gain on the sale of the scrolls by the trust should be taxed to the Archbishop, the Tax Court found that the Samuel Trust fell within the purview of Section 677(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 677 (a). Section 677(a), the pertinent…”
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