26 U.S.C. § 663 — Special rules applicable to sections 661 and

Page 1831 TITLE 26—INTERNAL REVENUE CODE § 663 which is treated under subsection (b) as con- sisting of any item of distributable net income which is not included in the gross income of the estate or trust. (Aug. 16, 1954, ch. 736, 68A Stat. 220; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97–248, title III, §§ 302(b)(2), 308(a), Sept. 3, 1982, 96 Stat. 586, 591; Pub. L. 98–67, title I, § 102(a), Aug. 5, 1983, 97 Stat. 369.) Editorial Notes AMENDMENTS 1983—Subsec. (a). Pub. L. 98–67 repealed amendments made by Pub. L. 97–248. See 1982 Amendment note below. 1982—Subsec. (a). Pub. L. 97–248 provided that, appli- cable to payments of interest, dividends, and patronage dividends paid or credited after June 30, 1983, subsec. (a) is amended by inserting at end ‘‘For purposes of para- graph (1), the amount of distributable net income shall be computed without the deduction allowed by section 642(c).’’. Section 102(a), (b) of Pub. L. 98–67, title I, Aug. 5, 1983, 97 Stat. 369, repealed subtitle A (§§ 301–308) of title III of Pub. L. 97–248 as of the close of June 30, 1983, and provided that the Internal Revenue Code of 1954 (this title) shall be applied and administered (subject to certain exceptions) as if such subtitle A (and the amendments made by such subtitle A) had not been en- acted. 1976—Subsec. (b). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. § 662. Inclusion of amounts in gross income of beneficiaries of estates and trusts accumu- lating income or distributing corpus (a) Inclusion Subject to subsection (b), there shall be in- cluded 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 cur- rently 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 dis- tributable 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 bene- ficiary an amount which bears the same ratio to distributable net income (as so computed) as the amount of income required to be dis- tributed currently to such beneficiary bears to the amount required to be distributed cur- rently 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 distributed All 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, cred- ited, or required to be distributed to all beneficiaries exceeds the distributable net income of the es- tate or trust, then, in lieu of the amount pro- vided in the preceding sentence, there shall be included in the gross income of the beneficiary an amount which bears the same ratio to dis- tributable net income (reduced by the amounts specified in (A)) as the other amounts properly paid, credited or required to be dis- tributed 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 computa- tion 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 bene- ficiaries. In the application of the preceding sen- tence, the items of deduction entering into the computation of distributable net income (in- cluding the deduction allowed under section 642(c)) shall be allocated among the items of dis- tributable net income in accordance with regu- lations prescribed by the Secretary. In the appli- cation of this subsection to the amount deter- mined under paragraph (1) of subsection (a), dis- tributable net income shall be computed with- out regard to any portion of the deduction under section 642(c) which is not attributable to in- come of the taxable year. (c) Different taxable years 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 bene- ficiary shall be based on the distributable net income of the estate or trust and the amounts properly paid, credited, or required to be distrib- uted 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 Notes AMENDMENTS 1976—Subsec. (b). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. § 663. Special rules applicable to sections 661 and 662 (a) Exclusions There shall not be included as amounts falling within section 661(a) or 662(a)— (1) Gifts, bequests, etc. Any amount which, under the terms of the governing instrument, is properly paid or Page 1832 TITLE 26—INTERNAL REVENUE CODE § 664 credited as a gift or bequest of a specific sum of money or of specific property and which is paid or credited all at once or in not more than 3 installments. For this purpose an amount which can be paid or credited only from the income of the estate or trust shall not be considered as a gift or bequest of a spe- cific sum of money. (2) Charitable, etc., distributions Any amount paid or permanently set aside or otherwise qualifying for the deduction pro- vided in section 642(c) (computed without re- gard to sections 508(d), 681, and 4948(c)(4)). (3) Denial of double deduction Any amount paid, credited, or distributed in the taxable year, if section 651 or section 661 applied to such amount for a preceding taxable year of an estate or trust because credited or required to be distributed in such preceding taxable year. (b) Distributions in first sixty-five days of tax- able year (1) General rule If within the first 65 days of any taxable year of an estate or a trust, an amount is properly paid or credited, such amount shall be considered paid or credited on the last day of the preceding taxable year. (2) Limitation Paragraph (1) shall apply with respect to any taxable year of an estate or a trust only if the executor of such estate or the fiduciary of such trust (as the case may be) elects, in such manner and at such time as the Secretary pre- scribes by regulations, to have paragraph (1) apply for such taxable year. (c) Separate shares treated as separate estates or trusts For the sole purpose of determining the amount of distributable net income in the appli- cation of sections 661 and 662, in the case of a single trust having more than one beneficiary, substantially separate and independent shares of different beneficiaries in the trust shall be treated as separate trusts. Rules similar to the rules of the preceding provisions of this sub- section shall apply to treat substantially sepa- rate and independent shares of different bene- ficiaries in an estate having more than 1 bene- ficiary as separate estates. The existence of such substantially separate and independent shares and the manner of treatment as separate trusts or estates, including the application of subpart D, shall be determined in accordance with regu- lations prescribed by the Secretary. (Aug. 16, 1954, ch. 736, 68A Stat. 222; Pub. L. 91–172, title I, § 101(j)(17), title III, § 331(b), Dec. 30, 1969, 83 Stat. 528, 598; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105–34, title XIII, §§ 1306(a), (b), 1307(a), (b), Aug. 5, 1997, 111 Stat. 1041.) Editorial Notes AMENDMENTS 1997—Subsec. (b). Pub. L. 105–34, § 1306(a), inserted ‘‘an estate or’’ before ‘‘a trust’’ in pars. (1) and (2). Subsec. (b)(2). Pub. L. 105–34, § 1306(b), substituted ‘‘the executor of such estate or the fiduciary of such trust (as the case may be)’’ for ‘‘the fiduciary of such trust’’. Subsec. (c). Pub. L. 105–34, § 1307(a), (b), inserted ‘‘es- tates or’’ before ‘‘trusts’’ in heading, ‘‘Rules similar to the rules of the preceding provisions of this subsection shall apply to treat substantially separate and inde- pendent shares of different beneficiaries in an estate having more than 1 beneficiary as separate estates.’’ before last sentence, and ‘‘or estates’’ after ‘‘trusts’’ in last sentence. 1976—Subsecs. (b)(2), (c). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. 1969—Subsec. (a)(2). Pub. L. 91–172, § 101(j)(17), sub- stituted ‘‘sections 508(d), 681, and 4948(c)(4)’’ for ‘‘sec- tion 681’’. Subsec. (b)(2). Pub. L. 91–172, § 331(b), incorporated ex- isting provisions of subpar. (C) of former first sentence making subsec. (b) applicable only to a trust where the fiduciary elected to have the subsec. apply and part of former second sentence making the election applicable in accordance with prescribed regulations; substituted provisions for regulations to spell out manner and time of election for part of former second sentence requiring the election to be made not later than the time pre- scribed by law for filing the return for the year, includ- ing any extension; and omitted: subpars. (A) and (B) of former first sentence which had provided for applica- tion of subsec. (b) only to a trust ‘‘(A) which was in ex- istence prior to January 1, 1954’’ and ‘‘(B) which, under the terms of its governing instrument, may not dis- tribute in any taxable year amounts in excess of the in- come of the preceding taxable year’’; part of former second sentence which required the election to be made for first taxable year to which this part is applicable; and third sentence that ‘‘If such election is made with respect to a taxable year, this subsection shall apply to all amounts properly paid or credited within the first 65 days of all subsequent taxable years of such trust.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title XIII, § 1306(c), Aug. 5, 1997, 111 Stat. 1041, provided that: ‘‘The amendments made by this section [amending this section] shall apply to tax- able years beginning after the date of the enactment of this Act [Aug. 5, 1997].’’ Pub. L. 105–34, title XIII, § 1307(c), Aug. 5, 1997, 111 Stat. 1041, provided that: ‘‘The amendments made by this section [amending this section] shall apply to es- tates of decedents dying after the date of the enact- ment of this Act [Aug. 5, 1997].’’ EFFECTIVE DATE OF 1969 AMENDMENT Amendment by section 101(j)(17) of Pub. L. 91–172 ef- fective Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91–172, set out as an Effective Date note under section 4940 of this title. Amendment by section 331(b) of Pub. L. 91–172 appli- cable to taxable years beginning before Jan. 1, 1970, see section 331(d) of Pub. L. 91–172, set out as a note under section 665 of this title. § 664. Charitable remainder trusts (a) General rule Notwithstanding any other provision of this subchapter, the provisions of this section shall, in accordance with regulations prescribed by the Secretary, apply in the case of a charitable re- mainder annuity trust and a charitable remain- der unitrust. (b) Character of distributions Amounts distributed by a charitable remain- der annuity trust or by a charitable remainder