CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER A—INCOME TAX (Parts 1–19) > PART 1—INCOME TAXES > 1.665(g)-1A—Capital gain distribution.

1.665(g)-1A—Capital gain distribution.

For any taxable year of a trust, the term capital gain distribution means, to the extent of the undistributed capital gain of the trust, that portion of an accumulation distribution that exceeds the amount of such accumulation distribution deemed under section 666(a) to be undistributed net income of the trust for all preceding taxable years. See § 1.665(b)-1 A for the definition of “accumulation distribution”. For any such taxable year the undistributed capital gain includes the total undistributed capital gain for all years of the trust beginning with the first taxable year beginning after December 31, 1968, in which income (as determined under section 643(b)) is accumulated, and ending before such taxable year. See § 1.665(g)-2 A for application of the separate share rule. The application of this section may be illustrated by the following example:

Code of Federal Regulations

Example. A trust on the calendar year basis made the following accumulations. For purposes of this example, the undistributed net income is the same as income under applicable local law. No income was accumulated prior to 1970.
Year Undistributed net income Undistributed capital gain
1969 None $10,000
1970 $1,000 3,000
1971 None 4,000
The trust has distributable net income in 1972 of $2,000 and recognizes capital gains of $4,500 that are allocable to corpus. On December 31, 1972, the trustee makes a distribution of $20,000 to the beneficiary. There is an accumulation distribution of $18,000 $20,000 distribution less $2,000 d.n.i.) that consists of undistributed net income of $1,000 (see § 1.666(a)-1 A) and a capital gain distribution of $7,000. The capital gain distribution is computed as follows:
Accumulation distribution $18,000
Less: Undistributed net income 1,000
Balance 17,000
Capital gain distribution (undistributed capital gain of the trust for 1972 ($3,000 from 1970 and $4,000 from 1971)) 7,000
Balance (corpus) 10,000
No undistributed capital gain is deemed distributed from 1969 because 1969 is a year prior to the first year in which income is accumulated (1970). The accumulation distribution is not deemed to consist of any part of the capital gains recognized in 1972.

Code of Federal Regulations

[T.D. 7204, 37 FR 17142, Aug. 25, 1972]