§ 643. Definitions applicable to subparts A, B, C, andD
(a)
Distributable net income
For purposes of this part, the term “distributable net income” means, with respect to any taxable year, the taxable income of the estate or trust computed with the following modifications—
(3)
Capital gains and losses
Gains from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not
(B)
paid, permanently set aside, or to be used for the purposes specified in section
642
(c). Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited, or required to be distributed to any beneficiary during the taxable year. The exclusion under section
1202 shall not be taken into account.
(4)
Extraordinary dividends and taxable stock dividends
For purposes only of subpart B (relating to trusts which distribute current income only), there shall be excluded those items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable local law.
(6)
Income of foreign trust
In the case of a foreign trust—
(A)
There shall be included the amounts of gross income from sources without the United States, reduced by any amounts which would be deductible in respect of disbursements allocable to such income but for the provisions of section
265
(a)(1) (relating to disallowance of certain deductions).
(B)
Gross income from sources within the United States shall be determined without regard to section
894 (relating to income exempt under treaty).
(7)
Abusive transactions
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent avoidance of such purposes.
If the estate or trust is allowed a deduction under section
642
(c), the amount of the modifications specified in paragraphs (5) and (6) shall be reduced to the extent that the amount of income which is paid, permanently set aside, or to be used for the purposes specified in section
642
(c) is deemed to consist of items specified in those paragraphs. For this purpose, such amount shall (in the absence of specific provisions in the governing instrument) be deemed to consist of the same proportion of each class of items of income of the estate or trust as the total of each class bears to the total of all classes.
(b)
Income
For purposes of this subpart and subparts B, C, and D, the term “income”, when not preceded by the words “taxable”, “distributable net”, “undistributed net”, or “gross”, means the amount of income of the estate or trust for the taxable year determined under the terms of the governing instrument and applicable local law. Items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income.
(d)
Coordination with back-up withholding
Except to the extent otherwise provided in regulations, this subchapter shall be applied with respect to payments subject to withholding under section
3406—
(1)
by allocating between the estate or trust and its beneficiaries any credit allowable under section
31
(c) (on the basis of their respective shares of any such payment taken into account under this subchapter),
(e)
Treatment of property distributed in kind
(1)
Basis of beneficiary
The basis of any property received by a beneficiary in a distribution from an estate or trust shall be—
(2)
Amount of distribution
In the case of any distribution of property (other than cash), the amount taken into account under sections
661
(a)(2) and
662
(a)(2) shall be the lesser of—
(3)
Election to recognize gain
(f)
Treatment of multiple trusts
For purposes of this subchapter, under regulations prescribed by the Secretary, 2 or more trusts shall be treated as 1 trust if—
(1)
such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries, and
For purposes of the preceding sentence, a husband and wife shall be treated as 1 person.
(g)
Certain payments of estimated tax treated as paid by beneficiary
(1)
In general
In the case of a trust—
(A)
the trustee may elect to treat any portion of a payment of estimated tax made by such trust for any taxable year of the trust as a payment made by a beneficiary of such trust,
(2)
Time for making election
An election under paragraph (1) shall be made on or before the 65th day after the close of the taxable year of the trust and in such manner as the Secretary may prescribe.
(h)
Distributions by certain foreign trusts through nominees
For purposes of this part, any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person.
(i)
Loans from foreign trusts
For purposes of subparts B, C, and D—
(1)
General rule
Except as provided in regulations, if a foreign trust makes a loan of cash or marketable securities (or permits the use of any other trust property) directly or indirectly to or by—
(B)
any United States person not described in subparagraph (A) who is related to such grantor or beneficiary,
the amount of such loan (or the fair market value of the use of such property) shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be).
(2)
Definitions and special rules
For purposes of this subsection—
(B)
Related person
(i)
In general
A person is related to another person if the relationship between such persons would result in a disallowance of losses under section
267 or
707
(b). In applying section
267 for purposes of the preceding sentence, section
267
(c)(4) shall be applied as if the family of an individual includes the spouses of the members of the family.
(C)
Exclusion of tax-exempts
The term “United States person” does not include any entity exempt from tax under this chapter.
(D)
Trust not treated as simple trust
Any trust which is treated under this subsection as making a distribution shall be treated as not described in section
651.
(3)
Subsequent transactions
If any loan (or use of property) is taken into account under paragraph (1), any subsequent transaction between the trust and the original borrower regarding the principal of the loan (by way of complete or partial repayment, satisfaction, cancellation, discharge, or otherwise) or the return of such property shall be disregarded for purposes of this title.