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TITLE 26 - INTERNAL REVENUE
CHAPTER I - INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
SUBCHAPTER A - INCOME TAX
PART 1 - INCOME TAXES
1.643(d) - 2 - Illustration of the provisions of section 643.
(a) The provisions of section 643 may be illustrated by the following example: Example. (1) Under the terms of the trust instrument, the income of a trust is required to be currently distributed to W during her life.
Capital gains are allocable to corpus and all expenses are charges against corpus. During the taxable year the trust has the following items of income and expenses: Dividends from domestic corporations......................... $30,000 Extraordinary dividends allocated to corpus by the 20,000 trustee in good faith............................
Taxable interest.................................. 10,000 Tax-exempt interest............................... 10,000 Long-term capital gains........................... 10,000 Trustee's commissions and miscellaneous expenses 5,000 allocable to corpus..............................
(2) The income of the trust determined under section 643(b) which is currently distributable to W is $50,000, consisting of dividends of $30,000, taxable interest of $10,000, and tax-exempt interest of $10,000. The trustee's commissions and miscellaneous expenses allocable to tax-exempt interest amount to $1,000 (10,000/50,000 $5,000).
(3) The distributable net income determined under section 643(a) amounts to $45,000, computed as follows: Dividends from domestic corporations......................... $30,000 Taxable interest.................................. 10,000 Nontaxable interest............................... $10,000 Less: Expenses allocable thereto.................. 1,000 ----------- 9,000 ------------ Total......................................... 49,000 Less: Expenses ($5,000 less $1,000 allocable to 4,000 tax-exempt interest).............................
------------ Distributable net income...................... 45,000 In determining the distributable net income of $45,000, the taxable income of the trust is computed with the following modifications: No deductions are allowed for distributions to W and for personal exemption of the trust (section 643(a) (1) and (2)); capital gains allocable to corpus are excluded and the deduction allowable under section 1202 is not taken into account (section 643(a)(3)): the extraordinary dividends allocated to corpus by the trustee in good faith are excluded (sections 643(a)(4)); and the tax- exempt interest (as adjusted for expenses) and the dividend exclusion of $50 are included) section 643(a) (5) and (7)).
(b) See paragraph (c) of the example in 1.661(c)2 for the computation of distributable net income where there is a charitable contributions deduction.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960. Redesignated, T.D. 6989, 34 FR 732, Jan. 1, 1969]
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