26 U.S.C. § 667 — Treatment of amounts deemed distributed

Page 1841 TITLE 26—INTERNAL REVENUE CODE § 667 EFFECTIVE DATE OF 1969 AMENDMENT Amendment by Pub. L. 91–172 applicable to taxable years beginning after Dec. 31, 1968, except that for tax- able years of a trust beginning before Jan. 1, 1970, first sentence of subsec. (a) not applicable and amount of ac- cumulation distribution stated, see section 331(d)(1), (2)(B) of Pub. L. 91–172, set out as a note under section 665 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment by Pub. L. 87–834 applicable with respect to distributions made after Dec. 31, 1962, see section 7(j) of Pub. L. 87–834, set out as a note under section 643 of this title. § 667. Treatment of amounts deemed distributed by trust in preceding years (a) General rule The total of the amounts which are treated under section 666 as having been distributed by a trust in a preceding taxable year shall be in- cluded in the income of a beneficiary of the trust when paid, credited, or required to be dis- tributed to the extent that such total would have been included in the income of such bene- ficiary under section 662(a)(2) (and, with respect to any tax-exempt interest to which section 103 applies, under section 662(b)) if such total had been paid to such beneficiary on the last day of such preceding taxable year. The tax imposed by this subtitle on a beneficiary for a taxable year in which any such amount is included in his in- come shall be determined only as provided in this section and shall consist of the sum of— (1) a partial tax computed on the taxable in- come reduced by an amount equal to the total of such amounts, at the rate and in the man- ner as if this section had not been enacted, (2) a partial tax determined as provided in subsection (b) of this section, and (3) in the case of a foreign trust, the interest charge determined as provided in section 668. (b) Tax on distribution (1) In general The partial tax imposed by subsection (a)(2) shall be determined. (A) by determining the number of pre- ceding taxable years of the trust on the last day of which an amount is deemed under sec- tion 666(a) to have been distributed, (B) by taking from the 5 taxable years im- mediately preceding the year of the accumu- lation distribution the 1 taxable year for which the beneficiary’s taxable income was the highest and the 1 taxable year for which his taxable income was the lowest, (C) by adding to the beneficiary’s taxable income for each of the 3 taxable years re- maining after the application of subpara- graph (B) an amount determined by dividing the amount deemed distributed under sec- tion 666 and required to be included in in- come under subsection (a) by the number of preceding taxable years determined under subparagraph (A), and (D) by determining the average increase in tax for the 3 taxable years referred to in sub- paragraph (C) resulting from the application of such subparagraph. The partial tax imposed by subsection (a)(2) shall be the excess (if any) of the average in- crease in tax determined under subparagraph (D), multiplied by the number of preceding taxable years determined under subparagraph (A), over the amount of taxes (other than the amount of taxes described in section 665(d)(2)) deemed distributed to the beneficiary under sections 666(b) and (c). (2) Treatment of loss years For purposes of paragraph (1), the taxable in- come of the beneficiary for any taxable year shall be deemed to be not less than zero. (3) Certain preceding taxable years not taken into account For purposes of paragraph (1), if the amount of the undistributed net income deemed dis- tributed in any preceding taxable year of the trust is less than 25 percent of the amount of the accumulation distribution divided by the number of preceding taxable years to which the accumulation distribution is allocated under section 666(a), the number of preceding taxable years of the trust with respect to which an amount is deemed distributed to a beneficiary under section 666(a) shall be deter- mined without regard to such year. (4) Effect of other accumulation distributions In computing the partial tax under para- graph (1) for any beneficiary, the income of such beneficiary for each of his prior taxable years shall include amounts previously deemed distributed to such beneficiary in such year under section 666 as a result of prior ac- cumulation distributions (whether from the same or another trust). (5) Multiple distributions in the same taxable year In the case of accumulation distributions made from more than one trust which are in- cludible in the income of a beneficiary in the same taxable year, the distributions shall be deemed to have been made consecutively in whichever order the beneficiary shall deter- mine. (6) Adjustment in partial tax for estate and generation-skipping transfer taxes attrib- utable to partial tax (A) In general The partial tax shall be reduced by an amount which is equal to the pre-death por- tion of the partial tax multiplied by a frac- tion— (i) the numerator of which is that por- tion of the tax imposed by chapter 11 or 13, as the case may be, which is attributable (on a proportionate basis) to amounts in- cluded in the accumulation distribution, and (ii) the denominator of which is the amount of the accumulation distribution which is subject to the tax imposed by chapter 11 or 13, as the case may be. (B) Partial tax determined without regard to this paragraph For purposes of this paragraph, the term ‘‘partial tax’’ means the partial tax imposed by subsection (a)(2) determined under this subsection without regard to this paragraph. Page 1842 TITLE 26—INTERNAL REVENUE CODE § 667 (C) Pre-death portion For purposes of this paragraph, the pre- death portion of the partial tax shall be an amount which bears the same ratio to the partial tax as the portion of the accumula- tion distribution which is attributable to the period before the date of the death of the de- cedent or the date of the generation-skip- ping transfer bears to the total accumula- tion distribution. (c) Special rule for multiple trusts (1) In general If, in the same prior taxable year of the ben- eficiary in which any part of the accumulation distribution from a trust (hereinafter in this paragraph referred to as ‘‘third trust’’) is deemed under section 666(a) to have been dis- tributed to such beneficiary, some part of prior distributions by each of 2 or more other trusts is deemed under section 666(a) to have been distributed to such beneficiary, then sub- sections (b) and (c) of section 666 shall not apply with respect to such part of the accumu- lation distribution from such third trust. (2) Accumulation distributions from trust not taken into account unless they equal or ex- ceed $1,000 For purposes of paragraph (1), an accumula- tion distribution from a trust to a beneficiary shall be taken into account only if such dis- tribution, when added to any prior accumula- tion distributions from such trust which are deemed under section 666(a) to have been dis- tributed to such beneficiary for the same prior taxable year of the beneficiary, equals or ex- ceeds $1,000. (d) Special rules for foreign trust (1) Foreign tax deemed paid by beneficiary (A) In general In determining the increase in tax under subsection (b)(1)(D) for any computation year, the taxes described in section 665(d)(2) which are deemed distributed under section 666(b) or (c) and added under subsection (b)(1)(C) to the taxable income of the bene- ficiary for any computation year shall, ex- cept as provided in subparagraphs (B) and (C), be treated as a credit against the in- crease in tax for such computation year under subsection (b)(1)(D). (B) Deduction in lieu of credit If the beneficiary did not choose the bene- fits of subpart A of part III of subchapter N with respect to the computation year, the beneficiary may in lieu of treating the amounts described in subparagraph (A) (without regard to subparagraph (C)) as a credit may treat such amounts as a deduc- tion in computing the beneficiary’s taxable income under subsection (b)(1)(C) for the computation year. (C) Limitation on credit; retention of char- acter (i) Limitation on credit For purposes of determining under sub- paragraph (A) the amount treated as a credit for any computation year, the limi- tations under subpart A of part III of sub- chapter N shall be applied separately with respect to amounts added under subsection (b)(1)(C) to the taxable income of the bene- ficiary for such computation year. For purposes of computing the increase in tax under subsection (b)(1)(D) for any com- putation year for which the beneficiary did not choose the benefits of subpart A of part III of subchapter N, the beneficiary shall be treated as having chosen such ben- efits for such computation year. (ii) Retention of character The items of income, deduction, and credit of the Trust shall retain their char- acter (subject to the application of section 904(f)(5)) to the extent necessary to apply this paragraph. (D) Computation year For purposes of this paragraph, the term ‘‘computation year’’ means any of the three taxable years remaining after application of subsection (b)(1)(B). (e) Retention of character of amounts distrib- uted from accumulation trust to nonresident aliens and foreign corporations In the case of a distribution from a trust to a nonresident alien individual or to a foreign cor- poration, the first sentence of subsection (a) shall be applied as if the reference to the deter- mination of character under section 662(b) ap- plied to all amounts instead of just to tax-ex- empt interest. (Aug. 16, 1954, ch. 736, 68A Stat. 225; Pub. L. 91–172, title III, § 331(a), Dec. 30, 1969, 83 Stat. 594; Pub. L. 94–455, title VII, § 701(a)(1), title X, § 1014(a), Oct. 4, 1976, 90 Stat. 1575, 1617; Pub. L. 95–30, title I, § 102(b)(8), May 23, 1977, 91 Stat. 138; Pub. L. 95–600, title VII, §§ 701(q)(1)(B), (C), (r)(1), 702(o)(1), Nov. 6, 1978, 92 Stat. 2909, 2910, 2936; Pub. L. 99–514, title I, § 104(b)(10), Oct. 22, 1986, 100 Stat. 2105.) Editorial Notes AMENDMENTS 1986—Subsec. (b)(2). Pub. L. 99–514 amended par. (2) generally. Prior to amendment, par. (2) read as follows: ‘‘For purposes of paragraph (1), the taxable income of the beneficiary for any taxable year shall be deemed to be not less than— ‘‘(A) in the case of a beneficiary who is an indi- vidual, the zero bracket amount for such year, or ‘‘(B) in the case of a beneficiary who is a corpora- tion, zero.’’ 1978—Subsec. (b)(1). Pub. L. 95–600, § 701(q)(1)(C), in- serted in last sentence ‘‘(other than the amount of taxes described in section 665(d)(2))’’ after ‘‘taxes’’. Subsec. (b)(6). Pub. L. 95–600, § 702(o)(1), added par. (6). Subsec. (d). Pub. L. 95–600, § 701(q)(1)(B), added subsec. (d). Subsec. (e). Pub. L. 95–600, § 701(r)(1), added subsec. (e). 1977—Subsec. (b)(2). Pub. L. 95–30 substituted ‘‘not less than (A) in the case of a beneficiary who is an indi- vidual, the zero bracket amount for such year, or (B) in the case of a beneficiary who is a corporation, zero’’ for ‘‘not less than zero’’. 1976—Pub. L. 94–455, §§ 701(a)(1), 1014(a), substituted provisions relating to the treatment of amounts Page 1843 TITLE 26—INTERNAL REVENUE CODE § 668 deemed distributed by trust in preceding years for pro- visions that no refund or credit be allowed to a trust for any preceding taxable year by reason of a distribu- tion deemed to have been made by such trust in such year under section 666 or 669 and that there be allowed as a credit against the tax imposed by this subtitle on the beneficiary an amount equal to the amount of the taxes deemed distributed to such beneficiary by the trust under sections 666(b) and (c) and 669(d) and (e) during preceding taxable years of the trust on the last day of which the beneficiary was in being, reduced by the amount of the taxes deemed distributed to such beneficiary for such preceding taxable years to the ex- tent that such taxes are taken into account under sec- tions 668(b)(1) and 669(b) in determining the amount of the tax imposed by section 668. See section 666(e) of this title. 1969—Subsec. (a). Pub. L. 91–172 incorporated existing provisions of first sentence in provisions designated as subsec. (a), included distributions made under section 669 of this title, and struck out provisions for credit of taxes imposed on the trust against tax of beneficiary. See subsec. (b) of this section. Subsec. (b). Pub. L. 91–172 incorporated provision of first sentence for credit of taxes imposed on the trust against tax of beneficiary, and provided for interest free credit and method of computation of its amount. The second sentence had provided that the amount of taxes which may not be refunded or credited to the trust shall be an amount equal to the excess of (1) the taxes imposed on the trust for any preceding taxable year (computed without regard to the accumulation distribution for the taxable year) over (2) the amount of taxes for such preceding taxable year imposed on the undistributed portion of distributable net income of the trust for such preceding taxable year after the applica- tion of this subpart on account of the accumulation distribution determined for such taxable year. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99–514, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Amendment by section 701(q)(1)(B), (C) of Pub. L. 95–600 applicable to distributions made in taxable years beginning after Dec. 31, 1975, see section 701(q)(3)(A) of Pub. L. 95–600, set out as a note under section 665 of this title. Pub. L. 95–600, title VII, § 702(o)(2), Nov. 6, 1978, 92 Stat. 2937, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendment made by paragraph (1) [amending this section] shall apply— ‘‘(A) in the case of the tax imposed by chapter 11 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954, section 2001 et seq. of this title], to the estates of decedents dying after December 31, 1979, and ‘‘(B) in the case of the tax imposed by chapter 13 [section 2601 et seq. of this title], to any generation- skipping transfer (within the meaning of section 2611(a) of such Code) made after June 11, 1976.’’ Pub. L. 95–600, title VII, § 701(r)(2), Nov. 6, 1978, 92 Stat. 2911, provided that: ‘‘The amendment made by paragraph (1) [amending this section] shall apply to distributions made in taxable years beginning after De- cember 31, 1975.’’ EFFECTIVE DATE OF 1977 AMENDMENT Amendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title VII, § 701(h), Oct. 4, 1976, 90 Stat. 1580, provided that: ‘‘The amendments made by sub- sections (a), (b), (c), (d), and (f) of this section [amend- ing this section and sections 665, 666, 1302, and 6401 of this title and repealing sections 668 and 669 of this title] shall apply to distributions made in taxable years be- ginning after December 31, 1975. The amendments made by subsection (e) of this section [enacting section 644 of this title and amending section 641 of this title] shall apply to transfers in trust made after May 21, 1976.’’ EFFECTIVE DATE OF 1969 AMENDMENT Amendment by Pub. L. 91–172 applicable to taxable years beginning after Dec. 31, 1968, see section 331(d) of Pub. L. 91–172, set out as a note under section 665 of this title. § 668. Interest charge on accumulation distribu- tions from foreign trusts (a) General rule For purposes of the tax determined under sec- tion 667(a)— (1) Interest determined using underpayment rates The interest charge determined under this section with respect to any distribution is the amount of interest which would be determined on the partial tax computed under section 667(b) for the period described in paragraph (2) using the rates and the method under section 6621 applicable to underpayments of tax. (2) Period For purposes of paragraph (1), the period de- scribed in this paragraph is the period which begins on the date which is the applicable number of years before the date of the dis- tribution and which ends on the date of the distribution. (3) Applicable number of years For purposes of paragraph (2)— (A) In general The applicable number of years with re- spect to a distribution is the number deter- mined by dividing— (i) the sum of the products described in subparagraph (B) with respect to each un- distributed income year, by (ii) the aggregate undistributed net in- come. The quotient determined under the pre- ceding sentence shall be rounded under pro- cedures prescribed by the Secretary. (B) Product described For purposes of subparagraph (A), the product described in this subparagraph with respect to any undistributed income year is the product of— (i) the undistributed net income for such year, and (ii) the sum of the number of taxable years between such year and the taxable year of the distribution (counting in each case the undistributed income year but not counting the taxable year of the distribu- tion). (4) Undistributed income year For purposes of this subsection, the term ‘‘undistributed income year’’ means any prior taxable year of the trust for which there is un-