Internal Revenue Code:Sec. 671. Trust income, deductions, and credits attributable to grantors and others as substantial owners

From TaxAlmanac

Location in Internal Revenue Code

     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
         PART I - ESTATES, TRUSTS, AND BENEFICIARIES
          Subpart E - Grantors and Others Treated as Substantial Owners
        

Statute

    Sec. 671. Trust income, deductions, and credits attributable to
        grantors and others as substantial owners
 
      Where it is specified in this subpart that the grantor or another
    person shall be treated as the owner of any portion of a trust,
    there shall then be included in computing the taxable income and
    credits of the grantor or the other person those items of income,
    deductions, and credits against tax of the trust which are
    attributable to that portion of the trust to the extent that such
    items would be taken into account under this chapter in computing
    taxable income or credits against the tax of an individual.  Any
    remaining portion of the trust shall be subject to subparts A
    through D. No items of a trust shall be included in computing the
    taxable income and credits of the grantor or of any other person
    solely on the grounds of his dominion and control over the trust
    under section 61 (relating to definition of gross income) or any
    other provision of this title, except as specified in this subpart.
 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 226.)
 

Miscellaneous

                CERTAIN ENTITIES NOT TREATED AS CORPORATIONS
      Pub. L. 99-514, title VI, Sec. 646, Oct. 22, 1986, 100 Stat.
    2292, as amended by Pub. L. 100-647, title I, Sec. 1006(k), Nov.
    10, 1988, 102 Stat. 3411, provided that:
      ''(a) General Rule. - For purposes of the Internal Revenue Code
    of 1986, if the entity described in subsection (b) makes an
    election under subsection (c), such entity shall be treated as a
    trust to which subpart E of part 1 of subchapter J of chapter 1 of
    such Code applies.
      ''(b) Entity. - An entity is described in this subsection if -
        ''(1) such entity was created in 1906 as a common law trust and
      is governed by the trust laws of the State of Minnesota,
        ''(2) such entity is exclusively engaged in the leasing of
      mineral property and activities incidental thereto, and
        ''(3) income interests in such entity are publicly traded as of
      October 22, 1986, on a national stock exchange.
      ''(c) Election. -
        ''(1) In general. - An election under this subsection to have
      the provisions of this section apply -
          ''(A) shall be made by the board of trustees of the entity
        before January 1, 1991, and
          ''(B) shall not be valid unless accompanied by an agreement
        described in paragraph (2).
        ''(2) Agreement. -
          ''(A) In general. - The agreement described in this paragraph
        is a written agreement signed by the board of trustees of the
        entity which provides that the entity will not acquire any
        additional property other than property described in
        subparagraph (B).
          ''(B) Permissible acquisitions. - Property is described in
        this paragraph if it is -
            ''(i) surface rights to property the acquisition of which -
     ''(I) is necessary to mine mineral rights held on October 22,
            1986, and
     ''(II) is required by a written binding agreement between the
            entity and an unrelated person entered into on or before
            October 22, 1986,
            ''(ii) surface rights to property which are not described
          in clause (i) and which -
     ''(I) are acquired in an exchange to which section 1031 (probably
            means section 1031 of this title) applies, and
     ''(II) are necessary to mine mineral rights held on October 22,
            1986,
            ''(iii) tangible personal property incidental to the
          leasing of mineral property and activities incidental
          thereto, or
            ''(iv) part of any required reserves of the entity.
        ''(3) Beginning of period for which election is in effect. -
      The period during which an election is in effect under this
      subsection shall begin on the 1st day of the 1st taxable year
      beginning after the date of the enactment of this Act (Oct. 22,
      1986) and following the taxable year in which the election is
      made.
        ''(4) Manner of election. - Any election under this subsection
      shall be made in such manner as the Secretary of the Treasury or
      his delegate may prescribe.
      ''(d) Special Rules for Taxation of Trust. -
        ''(1) Election treated as a liquidation. - If an election is
      made under subsection (c) with respect to any entity -
          ''(A) such entity shall be treated as having been liquidated
        into a trust immediately before the period described in
        subsection (c)(3) in a liquidation to which section 333 of the
        Internal Revenue Code of 1954 (as in effect before the
        amendments made by this Act) applies, and
          ''(B) for purposes of section 333 of such Code (as so in
        effect) -
            ''(i) any person holding an income interest in such entity
          as of such time shall be treated as a qualified electing
          shareholder, and
            ''(ii) the earnings and profits, and the value of money or
          stock or securities, of such entity shall be apportioned
          ratably among persons described in clause (i).
      The amendments made by subtitle D of this title (subtitle D (Sec.
      631-634) of title VI of Pub. L. 99-514, see Tables for
      classification) and section 1804 of this Act (see Tables for
      classification) shall not apply to any liquidation under this
      paragraph.
        ''(2) Termination of election. - If an entity ceases to be
      described in subsection (b) or violates any term of the agreement
      described in subsection (c)(2), the entity shall, for purposes of
      the Internal Revenue Code of 1986, be treated as a corporation
      for the taxable year in which such cessation or violation occurs
      and for all subsequent taxable years.
        ''(3) Trust ceasing to exist. - Paragraph (2) shall not apply
      if the trust ceases to be described in subsection (b) or violates
      the agreement in subsection (c)(2) because the trust ceases to
      exist.
      ''(e) Special Rule for Persons Holding Income Interests. - In
    applying subpart E of part I of subchapter J of chapter 1 of the
    Internal Revenue Code of 1986 to any entity to which this section
    applies -
        ''(1) a reversionary interest shall not be taken into account
      until it comes into possession, and
        ''(2) all items of income, gain, loss, deduction, and credit
      shall be allocated to persons holding income interests for the
      period of the allocation.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 170, 678, 684 of this
    title.