Treasury Regulations, Subchapter A, Sec. 1.643(d)-2
From TaxAlmanac
Sec. 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:
(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). <p> (3) The “distributable net income” determined under section 643(a) amounts to $45,000, computed as follows:</p>
<p>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)).</p>
<p> (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. </p>
<p>[T.D. 6500, 25 FR 11814, Nov. 26, 1960. Redesignated, T.D. 6989, 34 FR 732, Jan. 1, 1969]</p>
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..............................
Dividends from domestic corporations......................... $30,000
Taxable interest.................................. 10,000
Nontaxable interest............................... $10,000
Less: Expenses allocable thereto.................. 1,000
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9,000
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Total......................................... 49,000
Less: Expenses ($5,000 less $1,000 allocable to 4,000
tax-exempt interest).............................
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Distributable net income...................... 45,000
