26 CFR
1.651(a)-2 - Income required to be distributed currently.
§
1.651(a)-2 Income required to be distributed currently.
(a) The determination of whether trust
income is required to be distributed currently depends upon the terms of the
trust instrument and the applicable local law. For this purpose, if the trust
instrument provides that the trustee in determining the distributable income
shall first retain a reserve for depreciation or otherwise make due allowance
for keeping the trust corpus intact by retaining a reasonable amount of the
current income for that purpose, the retention of current income for that
purpose will not disqualify the trust from being a “simple” trust. The
fiduciary must be under a duty to distribute the income currently even if, as a
matter of practical necessity, the income is not distributed until after the
close of the trust's taxable year. For example: Under the terms of the trust
instrument, all of the income is currently distributable to A. The trust
reports on the calendar year basis and as a matter of practical necessity makes
distribution to A of each quarter's income on the fifteenth day of the month
following the close of the quarter. The distribution made by the trust on
January 15, 1955, of the income for the fourth quarter of 1954 does not
disqualify the trust from treatment in 1955 under section 651, since the income
is required to be distributed currently. However, if the terms of a trust
require that none of the income be distributed until after the year of its
receipt by the trust, the income of the trust is not required to be distributed
currently and the trust is not a simple trust. For definition of the term
“income” see section 643(b) and § 1.643(b)-1.
(b) It is immaterial, for purposes of
determining whether all the income is required to be distributed currently,
that the amount of income allocated to a particular beneficiary is not
specified in the instrument. For example, if the fiduciary is required to
distribute all the income currently, but has discretion to “sprinkle” the
income among a class of beneficiaries, or among named beneficiaries, in such
amount as he may see fit, all the income is required to be distributed
currently, even though the amount distributable to a particular beneficiary is
unknown until the fiduciary has exercised his discretion.
(c) If in one taxable year of a trust its
income for that year is required or permitted to be accumulated, and in another
taxable year its income for the year is required to be distributed currently
(and no other amounts are distributed), the trust is a simple trust for the
latter year. For example, a trust under which income may be accumulated until a
beneficiary is 21 years old, and thereafter must be distributed currently, is a
simple trust for taxable years beginning after the beneficiary reaches the age
of 21 years in which no other amounts are distributed.
(d) If a trust distributes property in kind
as part of its requirement to distribute currently all the income as defined
under section 643(b) and the applicable regulations, the trust shall be treated
as having sold the property for its fair market value on the date of
distribution. If no amount in excess of the amount of income as defined under
section 643(b) and the applicable regulations is distributed by the trust
during the year, the trust will qualify for treatment under section 651 even
though property in kind was distributed as part of a distribution of all such
income. This paragraph (d) applies for taxable years of trusts ending after
January 2, 2004.
[T.D.
6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as amended by
T.D. 9102, 69 FR 20, Jan. 2, 2004]
