Estates and trusts - UncleFed · Estates and trusts 202.1 Accounting period; change; ... children subject to the right of usufruct in favor of ... in the case of an estate or trust,

Estates and trusts202.1 Accounting period; change; inter vivosor testamentary trust. A trustee or co-trusteemay, under prescribed circumstances, expedi-tiously change the annual accounting period of aninter vivos or testamentary trust by filing anapplication with the District Director for the dis-trict in which the return for the trust is filed. Modi-fied by Rev. Proc. 81-40. §1.442-1. (Sec. 601.204S.P.R.; Sec. 442, ’86 Code.)

Rev. Proc. 68-41, 1968–2 C.B. 943.

202.2 Accounting period; change; inter vivosor testamentary trust. Form 1128, Applicationfor Change in Accounting Period, filed by an indi-vidual and trustee or co-trustee, is to be filed at theInternal Revenue Service Center where the tax-payer’s income tax return is filed on or before the15th day of the second calendar month followingthe close of the short period for which a federalincome tax return is required to effect the changeof accounting period. Rev. Procs. 66–50 and68-41 modified. §1.442-1. (Sec. 601, 204, S.P.R.;Sec. 442, ’86 Code.)

Rev. Proc. 81-40, 1981–2 C.B. 604.

202.3 Accounting period; establishment;fiduciaries. The filing of an application for exten-sion of time to file a U.S. Fiduciary Income TaxReturn and payment of estimated tax for an estatebased on a calendar year establishes a calendaryear accounting period for the estate. §1.441-1.(Sec. 441, ’86 Code.)

Rev. Rul. 69-563, 1969-2 C.B. 104.

202.4 Accounting period; revocable trust;first taxable year. Where a trust became irrevoca-ble after the death of the grantor, the trustee mayelect to file the first return for the trust either on acalendar year basis or a fiscal year basis withoutthe consent of the Commissioner. Rev. Rul.56-374 distinguished. (Sec. 441, ’86 Code.)

Rev. Rul. 57-51, 1957-1 C.B. 171.

202.5 Administration expenses; attributableto earning tax-exempt income. The portion ofany administration expenses attributable to theearning of tax-exempt income which is notdeductible by a decedent’s estate for income taxpurposes, is allowable as a deduction for estate taxpurposes. Clarified to provide that the method ofallocating direct expenses to exempt and nonex-empt income set forth in Rev. Rul. 59–32 is notmandatory. §§1.265–1, 1.642(g)–1. (Secs. 265,642; ’86 Code.)

Rev. Rul. 59–32, 1959–1 C.B. 245; Rev. Rul.63-27, 1963-1 C.B. 57.

202.6 Administration expenses of estate.Attorney’s fees and administration expenses paidor incurred by the fiduciary of an estate in connec-tion with the administration of the estate are notdeductible in the fiduciary’s personal income taxreturn, but are deductible in the estate’s income taxreturn for the year in which the payment wasmade, provided such expenses are not claimed asa deduction in computing the net estate subject tothe estate tax. §39.23(a)–15. (Sec. 23(a), ’39Code; Sec. 212, ’86 Code.)

Rev. Rul. 55-190, 1955-1 C.B. 275.

Estates and trusts

202.7 Alimony; lien for taxes. Alimonygranted by decree is subject to distraint for taxesincurred after the entry of such decree andmonthly payments may be reached by service oflevy on the former husband. Where alimony ispaid from a trust created pursuant to a divorcedecree, the Government may reach by distraint theincome from such trust in the hands of the trusteefor satisfaction of unpaid taxes of the beneficiary.(Sec. 3670, ’39 Code; Sec.6321, ’86 Code.)

Rev. Rul. 89, 1953-1 C.B. 474.

202.8 Alimony trust. Distributions to a formerwife from an irrevocable trust created in con-templation of divorce, payable at the discretion ofthe trustees but limited to purposes other than forher support, are not includable in her gross incomeunder either section 71(a)(1) or 682(a). The for-mer husband will be considered the owner, undersections 671 and 677, of amounts applied or dis-tributed from current income for the support of theparties’ minor children but will be considered abeneficiary as to amounts distributed from trustcorpus or from income other than current income.§§1.71-1, 1.641(a)-0, 1.662(a)-4, 1.671-1,1.677(a)–1, 1.677(b)-1, 1.682(a)–1. (Secs. 71,641, 662, 671, 677, 682; ’86 Code.)

Rev. Rul. 74–94, 1974-1 C.B. 26.

202.9 Alimony trust; appreciated securities.The transfer of appreciated securities to a trust,under a separation agreement, results in income tothe transferor to the extent of the appreciation,where his obligation to make payments to the wifeis terminated when he has transferred a specificaggregate amount to the trust. Where such transferis merely a conduit by which he makes paymentsto the wife, and, of itself, does not discharge anyobligation of the transferor, the appreciation doesnot result in income to him. Rev. Rul. 57–506 dis-tinguished from Rev. Rul. 57–507. §1.1002–1.(Sec. 1002, ’86 Code.)

Rev. Rul. 59-47, 1959–1 C.B. 198.

202.10 Alimony trust; charitable remainderinterest. Under a divorce settlement a taxpayermade an irrevocable transfer of securities to a trustfor the benefit of his wife. The trust terminatesupon her death or remarriage, with remained overto a charitable foundation. The husband wasentitled to a deduction for charitable contributionsfor the value of the securities on the date of transferminus the present value of the wife’s income right.He realized no gain on appreciation in value of thesecurities transferred. Distinguished from Rev.Rul. 57-507 by Rev. Rul. 59-47. (Sec. 170, ’86Code.)

Rev. Rul. 57-506, 1957–2 C.B. 65.

202.11 Alimony trust; charitable remainderinterest. Where a taxpayer creates an irrevocabletrust for his wife to provide for the discharge of hisobligation to her for the remainder of her life, withthe remainder interest to an educational organiza-tion, the transfer of property to the trust will resultin the realization of taxable income and a deduct-ible contribution by the grantor. Capital gains real-ized by the trust, from the disposition of property,which are by the terms of the agreement specifi-cally allocated to principal, constitute allowabledeductions under section 642(c). Distinguishedfrom Rev. Rul. 57-506 by Rev. Rul. 59-47. (Sec.642, ’86 Code.)

Rev. Rul. 57-507, 1957-2 C.B. 511.

202.12 Allocation of deductions; commis-sions. Trustees’ commissions paid on terminationof a trust for trustees’ services during the term ofthe trust may not be allocated solely on the basisof the termination year’s income. An appropriatemethod of allocation is illustrated. §1.265–1. (Sec.265, ’86 Code.)

Rev. Rul. 77-466, 1977–2 C.B. 83.

202.13 Allocation of deductions to beneficia-ries; Louisiana. Where a decedent dies intestate

in Louisiana leaving a widow and children but noascendants so that, under State law, the decedent’sshare of community property is inherited by hischildren subject to the right of usufruct in favor ofthe widow until death or remarriage, with respectto property subject to (1) perfect usufruct, the chil-dren are considered to be “beneficiaries succeed-ing to the property of the estate,” and (2) imperfectusufruct, the widow is considered to be “the bene-ficiary succeeding to the property of the estate.”Therefore, an allocation of the deduction forunused loss carryovers and excess deductionsmust be made between the widow and children.§1.642(h)-3. (Sec. 642, ’86 Code.)

Rev. Rul. 60-134, 1960-1 C.B. 259.

202.14 Amended Form 1041; refund claim. Avalid claim for refund may be made on anamended Form 1041, U.S. Fiduciary Income TaxReturn, in the case of an estate or trust, or anamended Form 1120, U.S. Corporation IncomeTax Return, in the case of a corporation.§301.6402-3. (Sec. 6402, ’86 Code.)

Rev. Rul. 57-501, 1957-2 C.B. 849.

202.15 Amounts set aside for charitable pur-poses. The trust instrument provided that statedpercentages of trust “net income,” most of whichwas derived from income producing property, wasto be retained in the trust in an “ImprovementFund,” half of which was permanently set asideand upon termination of the trust, would be distrib-uted with half the then corpus of the trust to a chari-table organization. Trust net income was deter-mined without regard for depreciation. Held,under State law and the trust instrument the setasides were properly computed and were notexcessive. (Sec. 162, ’39 Code; Sec. 642, ’86Code.)

Lambert Tree Trust Estate, 38 T.C. 392, Acq.,1964-2 C.B. 7.

202.16 Appreciated stock transferred insettlement of claim against decedent’s estate. Adecedent’s estate transferring appreciated stock insettlement of a claim against the estate realizesgain measured by the excess of the amount of theclaim over the estate’s basis in the stock. Had theestate’s basis in the stock exceeded the amount ofthe claim it would have sustained a deductibleloss. §§1.1001-1, 1.1014-2. (Secs. 1001, 1014;’86 Code.)

Rev. Rul. 74-178, 1974-1 C.B. 196.

202.17 Assignment; income from lease. Undera trust instrument executed by a husband and wifefor the benefit of their minor children, the husbandand wife, as fee owners and lessors, transferred alease as the corpus of the trust, limited the powersof the trustee, and provided for the return of thelease after a stated period. The assignment of thelease is an assignment of income, and rent payableunder the lease is income to the grantors. §1.61–1.(Sec. 61, ’86 Code.)

Rev. Rul. 58-337, 1958-2 C.B. 13.

202.18 Assignment; l i fet ime services;employee. A corporation’s employee assigned“lifetime services” to a trust, and the trust con-tracted to provide services to the corporation for amonthly fee equal to what otherwise would be theemployee’s gross monthly salary. The employeecontinued to perform the same tasks for the corpo-ration, under the same conditions, and with thesame amount of control as before the assignment.The assignment is ineffective as a means of avoid-ing the employee’s income tax liability withrespect to the payments for the services. §1.61–2.(Secs. 61, 3101, 3111, 3401, 3402; ’86 Code.)

Rev. Rul. 80-321, 1980-2 C.B. 33.

202.19 Assignment; portion of income. Wherethe lifetime beneficiary of a testamentary trustfrom time to time gives his written consent, pur-suant to the terms of the will, to pay a certain por-tion of the trust income to another, the amounts so

paid will be taxable as income to the beneficiary.However, in the case of an irrevocable assignmentof trust income for not less than 10 years, suchincome will be taxable to the assignee, under cer-tain circumstances. §39.162–1. (Sec. 162, ’39Code; Sec. 641, ’86 Code.)

Rev. Rul. 55-38, 1955-1 C.B. 389.

202.20 Assignment of dividends. A brotherand sister, conveying no incidents of ownership,delivered their stock to “trustees” who were topay all dividends therefrom to their mother. Held,the “trust” was merely custodial and the divi-dends received by the mother were not taxable toher. (Sec. 671, ’86 Code.)

Margaret G. Dunham, 35 T.C. 705, Acq.,1961-2 C.B. 4.

202.21 Assignment of overriding oil and gasroyalty. The donative assignment to a trust, estab-lished for the benefit of a college, of an overridingroyalty interest created from an oil and gas lease-hold presently owned and retained by the grantor,is not an anticipatory assignment of income. Thetrust income will not be taxable to the grantor eventhough the term of the trust is less than the eco-nomic life of the overriding royalty, provided thegrantor is not considered the owner of the trust.§1.671-1. (Sec. 671, ’86 Code.)

Rev. Rul. 67-118, 1967-1 C.B. 163.

202.22 Assignment of trust income toreligious order by member. Trust income, theassignment of which is prohibited by the trustinstrument and state law, is includable in the grossincome of a trust income beneficiary who joineda religious order, took a vow of poverty, and, pur-suant to the vow, turned over all payments fromthe trust to the order. The amount turned over to theorder is deductible as a charitable contribution.§§1.61-1, 1.170A-1. (Secs. 61, 170; ’86 Code.)

Rev. Rul. 77-436, 1977-2 C.B. 25.

202.23 Bankrupt partnership. The proceduralobligations and substantive rules applicable to thetrustee in bankruptcy of a bankrupt partnership areset forth. §§1.212–1, 1.641(b)–2, 1.643(a)0,1.651(a)-5, 1.661(a)-2, 1.701-1, 1.1012-1,1.1223-1. (Secs. 212, 641, 643, 651, 661, 701,1012, 1223; ’86 Code.)

Rev. Rul. 68-48, 1968-1 C.B. 301.

202.24 Bankruptcy estate; distribution ofsurplus. The transfer of any surplus of a solventestate in bankruptcy to the bankrupt individualafter the creditors have been paid does not resultin income to the bankrupt under section 662(a) orentitle the estate in bankruptcy to a deductionunder section 661(a). §§1.661(a)–1, 1.662(a)–2.(Secs. 661, 662; ’86 Code.)

Rev. Rul. 78-134, 1978-1 C.B. 197.

202.25 Beneficiaries; income due in year ofdeath. Where all trust income is required to be dis-tributed currently to a beneficiary (now deceased),who reported his income under the accrualmethod, such income earned by the trust to thedate of the beneficiary’s death is includable in thefinal return of the deceased beneficiary.§§1.451-1, 1.652(a)-1. (Secs. 451, 652; ’86Code.)

Rev. Rul. 59-346, 1959-2 C.B. 165.

202.26 Beneficiaries; residence maintainedby estate. Amounts spent by trustees under theterms of a testamentary trust to maintain a resi-dence for a beneficiary of the testator are notincome to the beneficiary. (Sec. 219(b)(2), Reve-nue Acts of 1924 and 1926; Sec. 162(b), RevenueAct of 1928; Sec. 662, ’86 Code.)

Henry B. Plant, 30 B.T.A. 133, Nonacq. with-drawn and Acq. substituted, 1976-1 C.B. 1.

202.27 Beneficiary’s mortgage held by trust;interest deemed paid and distributed. Income ofa testamentry trust required to be distributed peri-odically, and consisting solely of interest from

Estates and trusts

mortgages on the beneficiary’s property must beincluded in the gross income of both the trust andthe beneficiary, and the beneficiary may deductthe interest, even though by agreement it is neitherpaid nor distributed. O.D. 606 superseded.§§1.61-1, 1.163-1, 1.662(c)-4. (Secs. 61, 163,662; ’86 Code.)

Rev. Rul. 75-68, 1975-1 C.B. 184.

202.28 Capital and net operating losses;incurred by decedent. A capital loss and a netoperating loss from business operations sustainedby a decedent during his last taxable year aredeductible only on the final return filed in hisbehalf; such losses are not deductible by his estate.A net operating loss carryback for such periodmay be applied to prior years as provided in sec-tion 172. Rev. Rul. 54–207 superseded.§§1.165-1, 1.172-4. (Secs. 165, 172; ’86 Code.)

Rev. Rul. 74-175, 1974-1 C.B. 52.

202.29 Capital gains; alternative tax; chari-table set-aside. The amount of an estate’s netlong-term capital gain that is subject to the alterna-tive tax under section 1201 may be reduced by theportion of the gain set aside for charitable pur-poses under section 642. §§1.642(c)-3, 1.1201-1,1.1202-1. (Secs. 642, 1201, 1202; ’86 Code.)

United California Bank, 439 U.S. 180, Ct. D.1995, 1979-1 C.B. 268.

202.30 Capital gains; corpus for charitablepurpose remote. Where a charitable bequestunder the terms of a testamentary trust is contin-gent upon the failure of issue by the income bene-ficiary, a childless woman aged 60, the possibilityof the charitable transfer not becoming effective isso remote as to be negligible. Therefore, capitalgains realized by the trust and added to the corpusare considered to be permanently set aside for acharitable purpose and are deductible from thetrust’s gross income. Distinguished by Rev. Rul.74-410. §1.642(c)-3. (Sec. 642, ’86 Code.)

Rev. Rul. 64-253, 1964-2 C.B. 166.

202.31 Capital gains; corpus for noncharit-able purpose possible. No deduction is allowedfor capital gain realized in 1972 on the sale ofproperty by a testamentary trust and allocatedunder local law to trust principal which, under theterms of the trust established in 1960, will pass toa charitable organization provided no natural oradopted children or their descendants survive thelife income beneficiary, a childless 60-year oldwoman who resides in a State having no restric-tions on the age of persons wishing to adopt chil-dren. Rev. Rul. 64-253 distinguished.§1.642(c)-1. (Sec. 642, ’86 Code.)

Rev. Rul. 74-410, 1974-2 C.B. 187.

202.32 Carryover deductions. Where a residu-ary testamentary trust has deductions in excess ofits gross income after the allowance of excessdeductions from an estate, the excess is notdeductible by the income beneficiaries of the trust;if the trust terminated in the year in which it wasallowed the excess deductions, they would beavailable to the remaindermen. §1.642(h)2. (Sec.642, ’86 Code.)

Rev. Rul. 57–31, 1957-1 C.B. 201.

202.33 “Carved-out” oil payment sold byexecutor. The executor of an estate sold to anunrelated third party an oil payment which he hadreserved when he distributed the remaining inter-esting the oil and gas properties to the beneficiaries.The proceeds from the sale of this production pay-ment were used to satisfy Federal and State taxobligations of the estate. The production paymentwas in an amount and payable out of a portion ofthe production so as to be completely paid outbefore the end of the economic life of the proper-ties from which it had been created. Since thebeneficiaries owned the oil payment and underly-ing mineral interest, this is a “carved-out” oil pay-

ment. Therefore, its sale results in the present real-ization of expected future income by the estate,and the gain is ordinary income, subject to deple-tion. §1.61–1. (Sec. 61, ’86 Code.)

Rev. Rul. 66-201, 1966-2 C.B. 19.

202.34 Charitable; divested stock trans-ferred to reversionary trust. The transfer of cer-tain stock to a reversionary trust, part of theincome from which is “divested stock” within themeaning of section 1111(e), where such divestedstock is payable irrevocably for a period of overtwo years to certain designated charities is not,under the circumstances, taxable to the taxpayer-grantor; however, because of his reversionaryinterest in the divested stock he is not allowed acharitable deduction. §§1.170-2, 1.673(b)–1.(Secs. 170, 673; ’86 Code.)

Rev. Rul. 67-42, 1967-1 C.B. 164.

202.35 Charitable; filing requirements. Fil-ing requirements for charitable and split-interesttrusts are provided. Rev. Proc. 73–29 superseded.(Sec. 601.602, S.P.R.)

Rev. Proc. 83-32, 1983-1 C.B. 723.

202.36 Charitable; municipality as trustee.Income from property willed to a municipality thatis used for certain charitable purposes is not sub-ject to tax and the trustee-municipality is notrequired to file annual returns. 0.895 superseded.§1.6012-3. (Secs. 115, 6012; ’86 Code.)

Rev. Rul. 71-589, 1971-2 C.B. 94.

202.37 Charitable; payments from income orprincipal. Where a trust instrument directs thetrustee to make payments to charitable beneficia-ries but does not indicate whether payments are tobe made from income or principal, the grantor’sintent is interpreted and governed by the require-ments of local law. §1.642(c)–1. (Sec. 642, ’86Code.)

Rev. Rul. 71-285, 1971-2 C.B. 248.

202.38 Charitable; prohibited transaction.An exempt charitable trust will not be consideredto be engaging in prohibited transactions by dis-tributing funds to a charitable and/or educationalpublic organization, even though some students atthe local school who may benefit from the dis-tributions by the trust are children of employees ofthe creator corporation. §§29.162-3, 29.3813–1.(Secs. 162(a), 3813, ’39 Code; Secs. 503, 641, ’86Code.)

Rev. Rul. 96, 1953-1 C.B. 264.

202.39 Charitable; reversion of principal tocreator. A trust which provides for the reversionof principal on termination to the creator does notqualify for exemption; however, where the netincome of the trust is required, under the terms ofthe governing trust instrument, to be used exclu-sively for religious, charitable or educational pur-poses, the organization is allowed deductions bysection 642(c) (subject to the limitations of thatsection) of an amount equal to its entire netincome. §§1.501(c)(3)–1, 1.642(c)-1. (Secs. 501,642; ’86 Code.)

Rev. Rul. 66-259, 1966-2 C.B. 214.

202.40 Charitable; set-aside deduction. If atrustee has discretionary power under a will toallocate gains from the sale or other disposition ofproperty constituting principal either to income orto principal, any amount set aside for charitablepurposes is not deductible. §1.642(c)–1. (Sec.642, ’86 Code.)

Rev. Rul. 73-95, 1973-1 C.B. 322.

202.41 Charitable; transfer in trust to chari-table organization. Where a taxpayer irrevocablytransfers property to a trust to be held for a periodof 10 years and 10 days for the benefit of a charita-ble foundation meeting the requirements of sec-tion 23(o)(2) of the ’39 Code, the taxpayer is

entitled to a deduction of the present value of theproperty interest which she contributed to thetrust. §29.23(o)–1. (Sec. 23(o), ’39 Code; Sec.170, ’86 Code.)

Rev. Rul. 194, 1953–2 C.B. 128.

202.42 Charitable; unsecured loan to corpo-ration controlled by creator’s son. A corpora-tion controlled by the son of the creator of anexempt charitable trust is a debarred party. There-fore, by making an unsecured loan to such corpo-ration, the trust is lending its assets to a partywithin the scope of section 501(c) and the loanconstitutes a prohibited transaction. §1.503(c)–1.(Sec. 503, ’86 Code.)

Rev. Rul. 69–221, 1969–1 C.B. 156.

202.43 Charitable contributions; capitalgains. The deduction of 50 percent capital gainsdeduction allowed under section 1202 is not a taxpreference item for determining tax liabiIity undersection 56 for a trust that pays its capital gains toa charitable organization. §§1.642(c)-1,1.1202-1. (Secs. 57, 642, 1202; ’86 Code.)

Rev. Rul. 73-43, 1973–1 C.B. 37.

202.44 Charitable contributions; capitalgains. The capital gain deduction allowed to a Itrust with respect to its net long-term capital gainpermanently set aside for the use of a charitableorganization in accordance with section 642(c) isnot a tax preference item for purposes of the mini-mum tax. §§1.642(c)–3, 1.1202–1. (Secs. 57, 642,1202; ’86 Code.)

Rev. Rul. 74-317, 1974-2 C.B. 13.

202.45 Charitable contributions; politicalsubdivision of foreign government. A trustwhose governing instrument requires it to pay itsincome annually to a political subdivision of a for-eign government, with the principal to revert to thegrantor at the end of twelve years, and suggests,but does not require, that the income be used foreducational purposes may not deduct such unre-stricted income payments to the political subdivi-sion of the foreign government as charitable con-tributions under section 642(c). §1.642(c)–1.(Sec. 642, ’86 Code.)

Rev. Rul. 78-436, 1978-2 C.B. 197.

202.46 Charitable contributions; settlementof will contest. Payments to charity, made by theexecutor of an estate out of estate income, attribut-able to that part of the estate transferred to charity,under the terms of a settlement agreement result-ing from the contest of a will, are deductible by theestate as gifts of income to charity. Rev. Rul.55-122 revoked. §1.642(c)-1. (Sec. 642, ’86Code.)

Rev. Rul. 59–15, 1959–1 C.B. 164.

202.47 Charitable contributions; terminat-ing trust; capital gains. A trust that is terminatingand sells certain assets at a gain to meet therequirements of its governing instrument that it Ipay a bequest of a specified dollar amount from itscorpus in a single payment to a noncharitable trust,the remainder of its corpus being payable to a char-itable organization, is entitled to deduct under sec-tion 642(c)(1) the lesser of the amount of the chari-table distribution or the capital gain realized,subject to the requirements of section 642(c)(4).The amount paid to the noncharitable trust is notdeductible by the terminating trust under section661, nor includible in the noncharitable trust’sgross income. §§1.642(c)-1, 1.661(a)-1,1.662(a)-1, 1.663(a)-1. (Secs. 642, 661, 662, 663;’86 Code.)

Rev. Rul. 78-24, 1978–1 C.B. 196.

202.48 Charitable contributions; trust notterminated. Although the trustees have the powerto terminate the trust at any time and pay over the Ientire corpus or income to certain charities, adonation to a charity made out of income prior toa decision to terminate the trust is not deductible

IEstates and trusts

by the trust estate. §39.162-1. (Sec. 162, ’39Code; Sec. 641, ’86 Code.)

Rev. Rul. 55-92, 1955–1 C.B. 390.

202.49 Charitable deduction; grantor trust.An irrevocable trust whose governing instrumentprovides for distribution of all ordinary income toorganizations described in section 170(c) by theclose of the year following the year of receipt,addition of capital gains to corpus, and termina-tion of the trust and distribution of corpus to thegrantor no sooner than ten years and one monthafter its creation is allowed a deduction under sec-tion 642(c)(1) for amounts of gross income paid tothe charitable organizations, except to the extentthe trust has unrelated business income.§§1.642(c)-1, 1.671-1, 1.677(a)-1. (Secs. 642,671, 677; ’86 Code.)

Rev. Rul. 79-223, 1979-2 C.B. 254.

202.50 Charitable deduction; no payment. Anonexempt charitable trust, whose agreementrequired that income be used for charitable pur-poses, but was unable to pay out any income forcharitable purposes that year due to obligations inconnection with a prior year’s transaction, prop-erly deducted an amount equal to its net income asa charitable contribution. (Sec. 162(a), ’39 Code;Sec. 642, ’86 Code.)

Leon A. Beeghly Fund, 35 T.C. 490, Nonacq.,1962-1 C.B. 4.

202.51 Charitable remainder annuity trusts;qualification. The contingent provision in a trustinstrument, providing that all the trust assets revertto the grantors in the event the Service disallowsa charitable deduction for the value of the remain-der interest, precludes the trust from meeting thedefinition of a charitable remainder annuity trustand the value of the remainder interest contributedto the trust is not deductible as a charitable con-tribution. Rev. Rul. 60-276 distinguished.§§1.170A-1, 1.664-1. (Secs. 170, 664; ’86 Code.)

Rev. Rul. 76-309, 1976-2 C.B. 196.

202.52 Charitable remainder trusts; antiquecollection retained by life income beneficiary.An irrevocable trust to which grantor contributedincome producing assets and an antique collectionto be retained by the sole life income beneficiaryduring her lifetime does not qualify as a charitableremainder annuity trust. §1.664–1. (Sec. 664, ’86Code.)

Rev. Rul. 73-610, 1973-2 C.B. 213.

202.53 Charitable remainder trusts; deduc-tion. A trust does not qualify as a charitableremainder trust and no deduction is allowableunder sections 170 and 2522 if it is possible thatfederal estate and state death taxes may be payablefrom the trust assets. However, a trust will qualifyas a charitable remainder trust and a deduction isallowable under sections 170 and 2522 if a sec-ondary life beneficiary furnishes the funds for thepayment of any death taxes for which the trust maybe liable. Rev. Rul. 72–395 modified.§§1.170A-1, 1.664-3, 301.7805-1. (Secs. 170,664, 2036, 2522, 7805; ’86 Code.)

Rev. Rul. 82–128, 1982–2 C.B. 71.

202.54 Charitable remainder trusts; dis-tribution to second trust. An otherwise qualify-ing charitable remainder trust that makes distribu-tions to a second trust whose only function is toreceive and administer those distributions for thebenefit of the named individual lifetime benefi-ciary of the charitable remainder trust is consid-ered to have made the distributions directly to theindividual and qualifies as a charitable remaindertrust. §1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 76-270, 1976-2 C.B. 194.

202.55 Charitable remainder trusts; gainrealized on principal; invasion unlikely. Gainrealized from the sale or exchange of trust assetswhich under state law becomes a part of trust prin-

cipal and which will, upon termination of the trust,go to an organization described in section 170(c)may be regarded as permanently set aside for acharitable purpose where it can be reliably pre-dicted, after considering all the facts, that the prin-cipal of the trust will not be invaded for the benefitof the income beneficiary. §1.642(c)–1. (Sec. 642,’86 Code.)

Rev. Rul. 66-367, 1966-2 C.B. 241.

202.56 Charitable remainder trusts; gover-ning instruments. Illustrations describe manda-tory and optional provisions for inclusion in thegoverning instruments of charitable remainderannuity trusts and charitable remainder unitrusts.Modified by Rev. Ruls. 80–123 and 82–1 28; clari-fied by Rev. Rul. 82-165. §1.664-1. (Sec. 664, ’86Code.)

Rev. Rul. 72-395, 1972-2 C.B. 340.

202.57 Charitable remainder trusts; govern-ing instruments. In order for the charitable inter-est in a testamentary charitable remainder trust toqualify for an estate tax charitable deduction, thegoverning instrument of the trust must providethat the obligation to pay the unitrust or annuityamount begins on the date of death, and for correc-tive payments in the case of an underpayment oroverpayment of the amount determined to be pay-able. Rev. Rul. 72–395 modified. §§1.664–1,301.7805-1. (Secs. 664, 2055, 7805; ’86 Code.)

Rev. Rul. 80-123, 1980-1 C.B. 205.

202.58 Charitable remainder trusts; govern-ing instruments; final year. The governinginstrument of an irrevocable trust contains provi-sions for the payment of a specified distribution toa life beneficiary and payment of any remainingprincipal and undistributed income to an organiza-tion described in section 170. However, the instru-ment contains no provisions regarding the prora-tion of the specified distribution in the finaltaxable year of the trust and no provision allowingtermination of the specified distribution with theregular payment next preceding the date of the lifebeneficiary’s death. The trust is not a charitableremainder trust under section 664. §1.664-1. (Sec.664, ’86 Code.)

Rev. Rul. 79-428, 1979-2 C.B. 253.

202.59 Charitable remainder trusts; govern-ing instruments; sample provisions that satisfyrequirements. Sample provisions for inclusion inthe governing instrument of a testamentary chari-table remainder trust in order for the charitableinterest to qualify for an estate tax deduction. Rev.Ruls. 72–395 and 80-123 clarified. §1.664-1.(Secs. 664, 2055; ’86 Code.)

Rev. Rul. 82-165, 1982-2 C.B. 117.

202.60 Charitable remainder trusts; interre-lated death taxes; stated dollar annuity. A chari-table deduction may not be allowed with respectto the remainder interest of an otherwise qualify-ing charitable remainder annuity trust to which theresidue of decedent’s estate was payable after pay-ment of estate taxes and which, if the taxes werebased upon a charitable deduction with respect tothe entire remainder, would fail to satisfy the 5 per-cent test of section 664 because the decedent spe-cified the annuity amount in stated dollar terms.However, if it is possible to compute a deductionamount that will result in funding the trust in anamount that satisfies the 5 percent test, a deductionwill be allowed in an amount that will cause thetest to be met exactly. §1.664-2. (Secs. 664, 2055;’86 Code.)

Rev. Rul. 78-283, 1978-2 C.B. 243.

202.61 Charitable remainder trusts; invest-ment of assets. The investment by a university, astrustee, of the assets of charitable remainder trustsin its general endowment investment fund will notjeopardize the exempt status of the charitableremainder trusts or the donor’s charitable con-

tribution deductions. Rev. Rul. 73–571 amplified.§§1.170A-6, 1.664-1. (Secs. 170, 664; ’86 Code.)

Rev. Rul. 83-19, 1983-1 C.B. 115.

202.62 Charitable remainder trusts; lifebeneficiary. When a taxpayer creates a trust, nam-ing a designated beneficiary as the life tenant withthe remainder interest to a charitable organization,amounts contributed to the trust are not consideredto be made to the charity. The present value of theremainder interest constitutes an amount contrib-uted for the use of the charity and is deductible inthe taxable year the property is transferred to thetrust. §39.23(o)-1. (Sec. 23(o), ’39 Code; Sec.170, ’86 Code.)

Rev. Rul. 57–562, 1957–2 C.B. 159.

202.63 Charitable remainder trusts; percent-age limitation of deduction. The allowable chari-table deduction for property transferred to a validcharitable remainder trust is subject to the 20 per-cent contributions limitation when the organiza-tions designated to receive the remainder interestmay be redesignated from an organization qualify-ing for the 50 percent limitation to an organizationsubject to the 20 percent limitation. §§1.170A-6,1.664–2, 1.664–3. (Secs. 170, 664; ’86 Code.)

Rev. Rul. 79–368, 1979–2 C.B. 109.

202.64 Charitable remainder trusts; powerof appointment; substitution by beneficiary. Aspecial power of appointment, granted the incomebeneficiary by the governing instrument of anotherwise qualifying charitable remainder trust, todesignate the qualifying charitable organizationsas remaindermen for the charities otherwise desig-nated in the trust instrument is not a power that dis-qualifies the trust. §1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 76-7, 1976-1 C.B. 179.

202.65 Charitable remainder trusts; powerof appointment; substitution by grantor. Areserved power retained by the grantor of an intervivos trust, otherwise qualifying as a charitableremainder trust, to substitute another charity asremainderman for the charity designated in thetrust instrument is not a power that disqualifies thetrust. §1.664–1. (Sec. 664, ’86 Code.)

Rev. Rul. 76-8, 1976-1 C.B. 177.

202.66 Charitable remainder trusts; qualifi-cation. The governing instrument of an otherwisequalifying charitable remainder trust, providingfor designated payments to two beneficiaries andthe balance of the specified distribution to a thirdbeneficiary with any deceased beneficiary’s shareto be retained by the trust until its distribution tothe remainderman, makes it possible for the desig-nated annual payments to fail to meet the require-ments for a charitable remainder annuity trust ora charitable remainder unitrust and the trust failsto qualify as a charitable remainder trust.§1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 76-280, 1976-2 C.B. 195.

202.67 Charitable remainder trusts; qualifi-cations; grantor’s power to remove trustee. Atrust, otherwise qualifying under section 664, thegoverning instrument of which provides that thetrustee will pay the specified distribution to thegrantor for life, will not be prevented from qualify-ing as a charitable remainder trust by a provisionreserving to the grantor the right to remove thetrustee for any reason and substitute any other per-son, including the grantor. However, a similar trustproviding for payment of the specified distribu-tion to two life beneficiaries, one of whom is thegrantor, and for allocation of the specified dis-tribution to or between the beneficiaries, does notqualify. §§1.664-1, 1.674(d)-2. (Secs. 664, 674;’86 Code.)

Rev. Rul. 77-285, 1977-2 C.B. 213.

202.68 Charitable remainder trusts; qualifi-cation; power to invade. An otherwise qualifyingcharitable remainder trust, whose trustee is notprohibited or limited by the trust instrument from

Estates and trusts

exercising the power granted under State law toinvade the trust for the benefit of the donor and thebeneficiary, does not qualify as a charitableremainder trust. §1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 77-58, 1977-1 C.B. 175.

202.69 Charitable remainder trusts; qualifi-cation; term. An otherwise qualifying testamen-tary trust providing for payment until the death orremarriage of the income beneficiary fails to qual-ify as a charitable remainder trust; however a simi-lar trust providing for a reduced payment upon thebeneficiary’s remarriage, with the balance of thebeneficiary’s share distributed to the charitableremainder beneficiaries, does qualify. §1.664-1.(Secs. 664, 2055; ’86 Code.)

Rev. Rul. 76-291, 1976-2 C.B. 284.

202.70 Charitable remainder trusts; qualify-ing amendment. A trust created within the mean-ing of applicable local law after July 31, 1969, andprior to December 31, 1972, which was not a char-itable remainder trust at the date of its creation,may be treated as a charitable remainder trust If itsgoverning instrument is judicially reformed oramended and such amendment is made and imple-mented in the manner and within the time limitsspecified in reg. 1.664-1(f)(3). Also, the prin-ciples set forth in Bosch are not applicable to suchtrust. §1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 74-283, 1974-1 C.B. 157.

202.71 Charitable remainder trusts; succes-sive life beneficiaries; termination date. A trustotherwise qualifying as a charitable remaindertrust whose governing instrument provides thatinstallment payments to named individuals havingsuccessive life interests shall terminate with theregular payment next preceding the date of deathof each such beneficiary complies with therequirements of section 664 and regs.1.664-2(a)(5) and 1.664-3(a)(5). §§1.664-2,1.664-3. (Sec. 664, ’86 Code.)

Rev. Rul. 74-386, 1974-2 C.B. 189.

202.72 Charitable remainder trusts; trust-ee’s power; alternate beneficiary. A taxpayercreated a charitable remainder trust with theremainder interest payable to a public universitydescribed in section 170(b)(1)(A)(ii) and(c)(2)(B). The trust instrument provides that if theuniversity is not an organization described in sec-tion 170(c) when the trust is to be distributed, thetrustee will then select a beneficiary described insection 170(c). The possibility that the remainderwill not go to an organization described in section170(b)(1)(A) is so remote as to be negligible, andthe 50 percent limitation is applicable with respectto the taxpayer’s transfer to the trust. §§1.170A-8,1.664-1. (Secs. 170, 664; ’86 Code.)

Rev. Rul. 80-38, 1980-1 C.B. 56.

202.73 Charitable remainder trusts; trust-ee’s power to allocate distribution. An intervivos trust otherwise qualifying as a charitableremainder trust, the governing instrument ofwhich provides that the sole independent trustee isto allocate the specified distribution among threenamed individuals in such amounts and propor-tions as it shall from time to time determine untilthe death of the survivor of such individuals, quali-fies under section 664. §1.664-1. (Sec. 664, ’86Code.)

Rev. Rul. 77-73, 1977-1 C.B. 175.

202.74 Charitable remainder unitrust; addi-tional contribution; computation of unitrustpayments. The application of reg. 1.664-3(b) isillustrated by examples of the computation of theunitrust amount payable by a charitable remainderunitrust that receives an additional contributionduring any full taxable year or in a taxable yearshortened by the death of the sole life beneficiary.§1.664-3. (Sec. 664, ’86 Code.)

Rev. Rul. 74-481, 1974-2 C.B. 190.

202.75 Charitable remainder unitrust; assetsdivided and separately maintained. A provisionof the governing instrument of an otherwise quali-fying charitable remainder unitrust that providesfor the trust assets to be divided into two equal andseparately administered parts for the benefit of thedesignated life beneficiary of each part makes itpossible for the total payments in a taxable year tobe less than the total aggregate trust incomerequired to be distributed by the trustee andthereby precludes the trust from qualifying as acharitable remainder unitrust. §1.664-3. (Sec.664, ’86 Code.)

Rev. Rul. 76-310, 1976-2 C.B. 197.

202.76 Charitable remainder unitrust;change in percentage paid. The governinginstrument of a trust, which otherwise qualifies asa charitable remainder unitrust, provides for anincrease in the percentage to be paid to the incomebeneficiary upon the death of the donor. The trustagreement of a similar trust provides that upon thedeath of the first income beneficiary, an increasedpercentage will be paid to a new beneficiary.These provisions do not meet the “fixed percent-age” requirement of section 664, and the trusts donot qualify as charitable remainder unitrusts.§1.664-3. (Sec. 664, ’86 Code.)

Rev. Rul. 80-104, 1980-1 C.B. 135.

202.77 Charitable remainder unitrust; com-putation of deferred payments. This ruling clas-sifies the proper method for computing deferredpayments that is prescribed by reg. section1.664-1(a)(5) in the case of a testamentary chari-table remainder unitrust. The ruling contains newsample language that correctly applies the regula-tion. Rev. Ruls. 88-81 and 82–165 modified.§1.664-1. (Secs. 664, 2055; ’86 Code.)

Rev. Rul. 92-57, 1992-2 C.B. 123.

202.78 Charitable remainder unitrust; finaldistribution. The remote possibility that afoundation, an organization qualifying under sec-tion 170(c) and the trustee-charitable remainder-man under a charitable remainder unitrust, wouldnot qualify under section 170(c) upon terminationof the trust will not preclude a charitable contribu-tion deduction of the value of the remainder inter-est where the trust instrument provided in suchevent that distribution be made to other qualifyingcharities selected by the trustees. §§1.170A-6,1.664-1. (Secs. 170, 664, 2055, 2106, 2522; ’86Code.)

Rev. Rul. 76-307, 1976-2 C.B. 56.

202.79 Charitable remainder unitrust;funded by income-producing securities; con-tributions. A contribution of appreciated income-producing securities to a university through acharitable remainder unitrust, whose governinginstrument contained no express or impliedobligation to sell or exchange the securities, is adeductible charitable contribution subject to thelimitations of section 170(b) in an amount equal tothe actuarial computation of the present value ofthe remainder interest valued at net fair marketvalue at the time the securities were transferred tothe trust. §§1.170A-6, 1.170A-8, 1.644-4. (Secs.170, 664; ’86 Code.)

Rev. Rul. 74-53, 1974-1 C.B. 60.

202.80 Charitable remainder unitrust;investment of assets. A bank that, in its capacityas trustee of a trust treated as a charitable remain-der unitrust, invests the assets of the trust in com-mon trust funds maintained by the bank will notjeopardize the exempt status of the charitableremainder unitrust or the donor’s charitable con-tribution deduction by such investment. Ampli-fied by Rev. Rul. 83-19. §1.664-1. (Sec. 664, ’86Code.)

Rev. Rul. 73-571, 1973-2 C.B. 213.

202.81 Charitable remainder unitrust; suc-cessor beneficiary. A trust otherwise qualifying

as a charitable remainder unitrust whose govern-ing instrument provides an income interest to anindividual, or in the event of his death to a succes-sor beneficiary or his heirs for a term of 20 years,qualifies as a charitable remainder unitrust. A con-tribution to the trust is deductible as a charitablecontribution. §1.664–1. (Sec. 664, ’86 Code.)

Rev. Rul. 74-39, 1974-1 C.B. 156.202.82 Charitable remainder unitrust; ter-mination of life interest; additional contribu-tions. A trust, the governing instrument of whichotherwise satisfies the unitrust requirements ofsection 664 and which reserves in the donor therights to terminate by will the spouse’s life interestand to make inter vivos and testamentary addi-tions, qualifies as a charitable remainder unitrust.§1.664-3. (Sec. 664, ’86 Code.)

Rev. Rul. 74-149, 1974–1 C.B. 157.202.83 Charitable remainder unitrust; trust-ee’s fee charged against unitrust amount. Atrust, otherwise qualifying as a charitable remain-der unitrust, whose governing instrument providesthat a portion of a specified trustee’s fee shall becharged against the “unitrust amount” does notmeet the “fixed percentage” requirement of reg.1.664-3 even though the “unitrust amount” maynever be less than five percent of the net fair mar-ket value of the trust assets valued annually.§1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 74-19, 1974-1 C.B. 155.202.84 Charitable remainder unitrust; valu-ation of deferred interest includable in grossestate. The applicable method of computationunder section 2031 is explained for determiningthe present value of a deferred unitrust interest ofa life beneficiary who dies before receiving anydistribution from the trust, the terms of whichspecify that reg. 1.664(a)(5) shall be used to retro-actively determine the unitrust amount due.§1.664-1. (Secs. 664, 2031; ’86 Code.)

Rev. Rul. 77–471, 1977–2 C.B. 322.202.85 Charitable remainder unitrust; valu-ation; unitrust payment prior to annual valua-tion. An acceptable method is set forth for deter-mining the net fair market value of the assets of acharitable remainder unitrust from which pay-ments are made to the income beneficiary prior tothe annual valuation date. §1.664-3. (Sec. 664,’86 Code.)

Rev. Rul. 76-467, 1976–2 C.B. 198.202.86 Charitable reversionary trust; earlytermination; interests to the charity. A taxpay-er’s early termination of an irrevocable ten-yearreversionary trust and the transfer without consid-eration of his income and reversionary interests toa charitable trust which was already receiving aguaranteed annuity from the reversionary trustdoes not result in gain or loss or realized income.§§1.677(a)-1, 1.1001-1. (Secs. 677, 1001; ’86Code.)

Rev. Rul. 75-307, 1975-2 C.B. 256.202.87 Charitable transfer; trustee obligatedto dispose of appreciated property. Where a tax-payer transfers appreciated securities or otherproperty after December 2, 1960, to a tax-exempteducational organization, as trustee, which isunder an express or implied obligation to sell suchproperty and invest the proceeds in tax-exemptsecurities, or exchange the transferred property fortax-exempt securities, and to pay the incometherefrom to the transferor (and a secondary lifebeneficiary, if any), with the trustee acquiring aremainder interest in the trust corpus, the gainfrom the sale or exchange of the transferred prop-erty by the trustee is includible in the gross incomeof the transferor. Tax-exempt income realizedfrom trust investments and distributed by thetrustee to the transferor or to the secondary benefi-ciary retains its exempt status in their hands.§§1.662(b)-1, 1.671-1, 1.677(a)-1. (Secs. 662,671, 677; ’86 Code.)

Rev. Rul. 60-370, 1960-2 C.B. 203.

Estates and trusts

202.88 Claim of right; income restored bydeceased taxpayer’s estate. An estate may utilizethe provisions of Section 1341 in computing its taxwhen it restores an item that was previouslyincluded in income by the decedent under a claimof right. Rev. Rul. 67–355 revoked. §1.1341–1.(Sec. 1341, ’86 Code.)

Rev. Rul. 77-322, 1977-2 C.B. 314.

202.89 Claims for overpayments; assets dis-tributed. Generally, a claim for refund or credit ofan income tax overpayment by a trust or estate dis-covered after the trust or estate has been finally ter-minated may be made by either a single claim filedby all the beneficiaries or by individual claimsfiled by each beneficiary in proportion to the taxpaid from his share; however, if the tax was paidentirely from the residuary estate, the residuarylegatee should file the claim. The information anddocuments required in support of such claims aredescribed. S.M. 1919 and Rev. Rul. 72-428 super-seded. §301.6402–2. (Sec. 6402, ’86 Code.)

Rev. Rul. 73–366, 1973–2 C.B. 408.

202.90 Collective investment fund; assetsfrom employees plan. A transfer of property to aqualified collective investment fund by a partici-pating trust forming part of a qualified employees’pension plan, in exchange for units of the fund,constitutes an exchange of property. Gain or losswill result at the time of such exchange determinedunder the cost method of valuing the trust assets asprovided. §1.404(a)-3. (Sec. 404, ’86 Code.)

Rev. Rul. 57–165, 1957-1 C.B. 167.

202.91 Common trust fund; bank as manag-ing agent for investments. A fund maintained bya bank exclusively for the collective investmentand reinvestment of moneys contributed theretoby the bank, in its capacity as managing agent, willqualify as a “common trust fund” provided thefund is operated in conformity with the rules andregulations of the Comptroller of the Currencypertaining to the collective investment of trustfunds by national banks. §1.584-1. (Sec. 584, ’86Code.)

Rev. Rul. 64-59, 1964-1 (Part 1) C.B. 193.

202.92 Common trust fund; bank conserva-tor. Under the laws of the State in which it islocated, a bank that was appointed by the court asconservator of the property of an adult individualwho could not manage his own affairs but had notbeen declared incompetent has substantially thesame fiduciary responsibilities, powers, andduties as a guardian of an incompetent except foractual custody. The bank’s transfer of the individu-al’s property to a fund it maintains exclusively forthe collective investment and reinvestment ofmoney and securities contributed by the bank in itscapacity as trustee, executor, administrator, guard-ian, or conservator, and operates in conformitywith the rules and regulations of the Comptrollerof the Currency satisfies the requirements of reg.1.584-1(b) for purposes of the fund’s qualificationas a common trust fund. §1.584–1. (Sec. 584, ’86Code.)

Rev. Rul. 74-343, 1974-2 C.B. 136.

202.93 Common trust fund; bank holdingcompany; maintained by members. A trust fundestablished and maintained by member banks of abank holding company for the common invest-ment of moneys each holds in its capacity as afiduciary will not qualify as a common trust fund.Distinguished by Rev. Rul. 76-55. §1.584-1.(Sec. 584, ’86 Code.)

Rev. Rul. 74-213, 1974-1 C.B. 146.

202.94 Common trust fund; bank holdingcompany; member banks as cofiduciaries. Anexisting qualified common trust fund maintainedby a bank holding company member bank, whichas cofiduciary accepts contributions from othermember banks, will continue to qualify as a com-

mon trust fund. Rev. Ruls. 70-302 and 74–213 dis-tinguished. §1.584-1. (Sec. 584, ’86 Code.)

Rev. Rul. 76-55, 1976-1 C.B. 174.

202.95 Common trust fund; bank holdingcompany; trustee for other banks. A fund estab-lished by a member bank of a bank holding com-pany for which it accepts contributions held byother member banks in their capacities as fiducia-ries does not qualify as a “common trust fund”.Distinguished by Rev. Rul. 76-55. §1.584-1.(Sec. 584, ’86 Code.)

Rev. Rul. 70-302, 1970-1 C.B. 140.

202.96 Common trust fund; change to calen-dar year; short taxable year. Guidance thatmodifies and supplements Notice 89–22 is pro-vided concerning the reporting of items from acommon trust fund’s short taxable year as a resultof the common trust fund being required to changeto a calendar year.

Notice 90-1. 1990-1 C.B. 297.

202.97 Common trust fund; changes in unitsof participation. There is no withdrawal of a par-ticipating interest within the meaning of section584(e) when a bank increases or decreases thenumber of units of participation in a common trustfund, thereby decreasing or increasing the value ofeach unit. However, the elimination of fractionalshares by payment is considered a withdrawal.§1.584-1. (Sec. 584, ’86 Code.)

Rev. Rul. 81-124, 1981-1 C.B. 371.

202.98 Common trust fund; consolidatedfunds of security benefit trusts. The consoli-dated funds of separate and independently con-trolled security benefit trusts created for eachemployee pursuant to a collective bargainingagreement to provide unemployment and certainother benefits qualify as common trust funds.§1.584-1. (Sec. 584, ’86 Code.)

Rev. Rul. 57-37, 1957-1 C.B. 18.

202.99 Common trust fund; custodialaccounts. A bank holding assets as custodianunder a state statute corresponding to the UniformGift to Minors Act does not possess a fiduciaryrelationship described in section 584 and the fundsof the custodial account are noneligible for partici-pation in a common trust fund maintained by thebank. §1.584-1. (Sec. 584, ’86 Code.)

Rev. Rul. 76-326 1976-2 C.B. 182.

202.100 Common trust fund; custodialaccounts; Uniform Gift to Minors Act. A list isprovided of state laws that are substantially similarto the Uniform Gift to Minors Act of 1956 or 1966.Banks that are designated custodians under thesestate laws have duties and responsibilities similarto those of a trustee or guardian. Rev. Ruls. 78–290and 79-43 superseded. §1.584-1. (Sec. 584, ’86Code.)

Rev. Rul. 81-102, 1981-1 C.B. 369.

202.101 Common trust fund; division; alloca-tion of basis. The tax consequences of dividing acommon trust fund into two common trust fundsare set forth. A participant’s basis for its units ofparticipation in the original fund may be allocatedto its units of participation in the separate funds bythe subtraction method if the total adjusted basisof the assets transferred to either fund is “veryclose” to the total fair market value of those assetsat the time of division of the fund. §1.584-1. (Sec.584, ’86 Code.)

Rev. Rul. 68–77, 1968-1 C.B. 289.

202.102 Common trust fund; division; alloca-tion of basis. The “adjusted basis” method isacceptable for allocating a participant’s basis forits units of participation in an original commontrust fund to those in two common trust funds

formed from the original fund. §1.584-1. (Sec.584, ’86 Code.)

Rev. Rul. 70-322, 1970-1 C.B. 141.

202.103 Common trust fund; employees’trust. A common trust fund, maintained by a bank,consisting solely of assets held by the bank astrustee of exempt pension and profit-sharingtrusts, may be exempt from income tax under sec-tion 584 without regard to the requirements forexemption of group trust funds under Rev. Rul.56-267. A group trust fund, consisting solely ofassets of exempt pension and profit-sharing trustsand maintained by a bank in compliance with Rev.Rul. 56–267, may be exempt under section 501(a)without regard to the requirements of section 584;however, a group trust will fail to qualify forexemption if it commingles such assets with theassets of other exempt organizations. §§1.401–1,1.501(a)-1, 1.584-1. (Secs. 401, 501, 584; ’86Code.)

Rev. Rul. 66-297, 1966–2 C.B. 234.

202.104 Common trust fund; fractional dis-tributions on merger. No gain or loss is realizedon the merger of two common trust funds by theparticipants or the funds themselves, nor is thereany change in the bases of the assets in the portfo-lios of the funds where there was no distributionexcept for cash to eliminate fractional shares. Cla-rified to provide that distributions of cash or secu-rities to participants, in order to eliminate frac-tional units of participation, shall be treated asproceeds from a sale or exchange.§§39.113(a)(13)-1, 39.169-2, 1.584-4. (Secs.113(a), 169, ’39 Code; Secs. 584, 723, ’86 Code.)

Rev. Rul. 55–299, 1955–1 C.B. 402; Rev. Rul.60-240, 1960-2 C.B. 192.

202.105 Common trust fund; guardian. Anotherwise qualifying fund established and main-tained by a national bank that contributes moneyto the fund in its capacity as “donee of a power dur-ing minority to manage property vested in aninfant” or court appointed “committee”, both ofwhich have substantially the same status as guard-ian under state law, is a common trust fund undersection 584(a). §1.584–1. (Sec. 584, ’86 Code.)

Rev. Rul. 78–319, 1978-2 C.B. 184.

202.106 Common trust fund; insurance com-pany with fiduciary powers. A corporationengaged in the insurance business, with fiduciarypowers similar to those permitted national banks,does not qualify as a bank if it is not subject to thesupervision of the state banking authorities.Accordingly, any collective investment fundwhich it may maintain will not qualify as a com-mon trust fund. §§1.581–1, 1.584–1. (Secs. 581,584; ’86 Code . )

Rev. Rul. 58-605, 1958-2 C.B. 358.

202.107 Common trust fund; inter-trusttransfer. The transfer of units of participation ina common trust between two trusts, in both ofwhich the taxpayer is the sole beneficiary, does notconstitute a withdrawal of a participating interest,provided no funds change hands, there is no sur-render of indicia of ownership, nothing is receivedby the taxpayer, and the trustee of the two trusts isthe same. Under such circumstances, the basis ofthe participating units in the hands of the trans-feree trust is the same as it was in the hands of thetransferor on the date of the transfer. Rev. Rul.59-414 superseded; Rev. Rul. 57–335 modified.§1.584-4. (Sec. 584, ’86 Code.)

Rev. Rul. 60-256, 1960-2 C.B. 193.

202.108 Common trust fund; inter-trusttransfer or redemption. Two factual situationsillustrate that the redemption of participating unitsin a common trust fund or the inter-trust transferof units of participation representing a partici-pant’s interest in such fund were tantamount towithdrawals of a participating interest and, thus,resulted in a recognized gain or loss to the partici-

pant. Modified by Rev. Rul. 60–256 to remove theimplication that all inter-trust transfers of units ofparticipation in a common trust fund constitutewithdrawal of a participating interest. §1.584-4.(Sec. 584, ’86 Code.)

Rev. Rul. 57-335, 1957-2 C.B. 322.

202.109 Common trust fund; loan of securi-ties. A national bank, acting as trustee, executor,administrator, or guardian under a governinginstrument that does not contain specific provi-sions allowing it to relinquish possession of trustassets, will adversely affect qualification of its col-lective investment funds as common trust funds bylending or transferring the assets to a securitiesdealer for use in the dealer’s business. §1.584-1.(Sec. 584, ’86 Code.)

Rev. Rul. 75-162, 1975-1 C.B. 173.

202.110 Common trust fund; maintained bybank; charitable trusts. A collective investmentfund maintained by a bank may qualify as a com-mon trust fund although consisting solely of prop-erty held by the bank in its capacity as trustee ofcommunity trusts and other charitable trusts, all ofwhich are exempt from tax. §1.584–1. (Sec. 584,’86 Code.)

Rev. Rul. 67-73, 1967-1 C.B. 152.

202.111 Common trust fund; maintained bybank; credit unions. A trust fund maintained bya bank qualifies as a “common trust fund”although consisting solely of property held astrustee of individual tax-exempt trusts establishedby Federal and state credit unions. §1.584-1. (Sec.584, ’86 Code.)

Rev. Rul. 69-133, 1969-1 C.B. 165.

202.112 Common trust fund; transfer ofassets. The transfer of assets by a common trustfund, on behalf of certain participating exempttrusts, to another common trust fund establishedby the same bank is treated as a sale or exchangeof a participating interest by the exempt trusts.§1.584-4. (Sec. 584, ’86 Code.)

Rev. Rul. 68-456, 1968-2 C.B. 255.

202.113 Common trust fund; transfer ofinterest. The transfer of units of participation in acommon trust fund from the estate of a decedentto a testamentary trust of the same decedent by thebank that maintained the trust fund and also actedas executor of the estate and trustee of the testa-mentary trust was not a withdrawal of a participat-ing interest to be treated as a sale or an exchange.§1.584-1. (Sec. 584, ’86 Code.)

Rev. Rul. 76-532, 1976-2 C.B. 182.

202.114 Common trust fund; transfer to newfund; participants. Existing common trust funds,exempt under section 584(b), from which a bankin its fiduciary capacity contributed a portion oftheir moneys to its newly established commontrust fund do not become participants in the newfund. The participants, on a pro rata basis, are theindividual trusts and estates whose moneys weremoved and items of income and deduction real-ized or sustained from both the original and thenew common trust funds must be allocated tothem. §1.584–1. (Sec. 584, ’86 Code.)

Rev. Rul. 75-262, 1975-2 C.B. 237.

202.115 Community property; survivingspouse. In Washington and California and otherstates having similar community property laws,the estate of a deceased spouse does not embracethe whole of the community property; one-half ofthe income from the estate is taxable to the surviv-ing spouse. (Secs. 61, 6013; ’86 Code.)

Rev. Rul. 55–726, 1955-2 C.B. 24.

202.116 Community property; transferred torevocable trust. Husband and wife transferredtheir California community property to a revoca-ble trust, reserving to themselves a life incomeinterest therein. The trust agreement provided that

the property was in all respects to retain its charac-ter as community property, including the incomereceived. Upon the death of a spouse, therefore,the basis of the surviving spouse’s one-half inter-est in the property is to be determined under sec-tion 1014(a) as community property acquired, orpassing, from the decedent. §1.1014-2. (Sec.1014, ’86 Code.)

Rev. Rul. 66-283, 1966-2 C.B. 297.

202.117 Corporate grantor; dividendsreceived deduction. Where a trust empowers thecorporate grantor to revest title to stock in thegrantor, dividends received on such stock are con-sidered as received by the corporate grantor andsuch grantor is eligible for the dividend receiveddeduction provided in section 243. §§1.243-1,1.671-4, 1.676(a)-1. (Secs. 243, 671, 676; ’86Code.)

Rev. Rul. 66-72, 1966-1 C.B. 58.

202.118 Death benefits fund for members;securities exchange. A security exchange estab-lished a fund for the sole purpose of paying deathbenefits to beneficiaries of its deceased members.The fund was separately maintained and managedby certain exchange officers and members actingas trustees. It sources of revenue included transfersfrom the exchange, member fees and assessments,and investment income. Held, the exchange andfund were separate tax entities; neither the fund’sincome nor its payments to beneficiaries wereattributable to the exchange. (Sec. 161, ’39 Code;Sec. 641, ’86 Code.)

Philadelphia-Baltimore Stock Exchange, 19T.C. 355, Acq., 1953-2 C.B. 5.

202.119 Deceased partner’s distributiveshare; year of death. The estate of a deceasedpartner must, as the successor in interest to hispartnership interest, include in its gross income forits first taxable year his distributive share of part-nership taxable income for the partnership taxableyear in which he died even though two of the threeacquired interests are assigned to beneficiariespursuant to his will. §1.706-1. (Sec. 706, ’86Code.)

Rev. Rul. 68–215, 1968-1 C.B. 312.

202.120 Deductions; administrationexpenses. When a deduction allowable for eitherestate or income tax purposes, but not both, istaken on the estate tax return, it is “finallyallowed” when the statute of limitations onassessment has expired or, for any other reason,when an assessment of a deficiency resulting fromdisallowance of the deduction is prohibited.Amplified by Rev. Rul. 63-240. §1.642(g)-1.(Sec. 642, ’86 Code.)

Rev. Rul. 58-484, 1958-2 C.B. 363.

202.121 Deductions; administrationexpenses. An estate may deduct administrationexpenses in the year paid on its income tax returnunder section 212 without forfeiting its right todeduct similar payments in another year to deter-mine its net estate under section 2053 provided thestatement and waiver required by section 642(g)are filed. I.T. 4048 superseded. §§1.212–1,1.642(g)-1. (Secs. 212, 642, 2053; ’86 Code.)

Rev. Rul. 70-361, 1970-2 C.B. 133.

202.122 Deductions; administrationexpenses. When no waivers were filed under sec-tion 642(g), all interest expenses actually incurredon the deferred payment of the federal estate taxare deductible under section 2053(a)(2), eventhough the interest expenses were claimed on theestate’s income tax returns and the period oflimitations on assessment of income tax hasexpired for those years. Under the doctrine ofequitable recoupment, the amount of the estate taxoverpayment is offset by the deficiencies and theinterest on them resulting from the deduction ofinterest on income tax returns for the years forwhich the period of limitations on assessment of

Estates and trusts

income tax has expired. §1.642(g)-1. (Secs. 642,2053, 6166, 6166A, 6501; ’86 Code.)

Rev. Rul. 81-287, 1981–2 C.B. 183.

202.123 Deductions; administrationexpenses; attorney fees. An estate which hasdeducted attorney fees in its estate tax return maystill elect to deduct such fees in its income taxreturn, even though the statute of limitations onassessment of estate taxes has expired, where thefees are subject to disallowance in connection withthe disposition of a valid claim for refund of estatetaxes. Rev. Rul. 58-484 amplified. §1.642(g)-1.(Sec. 642, ’86 Code.)

Rev. Rul. 63-240, 1963–2 C.B. 227.

202.124 Deductions; allocation; corporatedistribution. A corporate distribution received bya simple trust that was not paid from earnings andprofits, but was subject to section 301(c)(2), andwas used to reduce the basis of the stock cannot beused in the formula for allocating expenses of thetrust to tax-exempt income. §§1.301-1,1.641(a)-2, 1.643(a)-3, 1.652(a)-1, 1.652(b)-3.(Secs. 301, 641, 643, 652; ’86 Code.)

Rev. Rul. 80-165, 1980-1 C.B. 134.

202.125 Deductions; charitable contribu-tions; income from real property. Incomereceived by executors from realty specificallydevised in trust for charitable purposes, but sub-ject to administration understate law, is includiblein the gross income of the estate and deductible asa charitable donation. §1.642(c)–1. (Sec. 642, ’86Code.)

Rev. Rul. 57-133, 1957-1 C.B. 200.

202.126 Deductions; depreciation. The sur-viving partner exercised the right to continue oper-ating the partnership for a fixed term using thedecedent’s share of funds and assets and sharingprofits with the decedent’s estate. Held, the part-nership interest was the type of asset that could bedepreciated and the Commissioner could not dis-allow the estate’s deduction for depreciation indetermining distributable net income. (Secs. 23(1),126, ’39 Code; Secs. 167, 691, ’86 Code.)

Eleanor S. Howell, 24 T.C. 342, Nonacq.,1963–1 C.B. 5.

202.127 Deductions; estate tax; increment invalue of Series E bonds. The executor of a wid-ow’s cash-basis estate elected to report as grossincome to the estate in the year after death theincrement in value of Series E bonds from the timeof purchase to the end of the year in which the elec-tion was made. Some of the bonds had been pur-chased by her husband and neither he nor his estatehad elected to report as income the interest onthose bonds. Deductions are allowable for theestate tax attributable to inclusion of the interest ineither the husband’s estate or the wife’s estate.§§1.454-1, 1.691(c)-2. (Secs. 454, 691; ’86Code.)

Rev. Rul. 58-435, 1958-2 C.B. 370.

202.128 Deductions; funding of trust duringadministration of estate. Where the decedent’swill provides that a portion of the residue of hisestate be placed in trust and the distributable netincome for the current taxable year exceeds suchamount, the funding of such trust constitutes apayment, under the terms of the will, of a bequestof a specific sum of money, and, as such, is neithertaxable to the trustee nor deductible by the execu-tor. Distinguished by Rev. Rul. 64-307 withrespect to a trust of the entire residue which did notautomatically come into existence under the will.§1.663(a)-1. (Sec. 663, ’86 Code.)

Rev. Rul. 57-214, 1957-1 C.B. 203.

202.129 Deductions; guardian and legal fees.Guardian and legal fees paid for services of theformer guardian of decedent, which were attribut-able to services for the maintenance of incomeproducing property or the production or collectionof income includable in gross income, are deduct-

Estates and trusts

ible by the estate. §§1.212–1, 1.691(b)–1. (Secs.212, 691; ’86 Code.)

Rev. Rul. 71-423, 1971-2 C.B. 255.

202.130 Deductions; i n t e r e s t expenses;delayed legacy payment. Interest required to bepaid by a State law pertaining to delayed paymentsof specific legacies and paid by an estate fromeither income or principal is deductible by theestate under section 163 and includible in the lega-tee’s gross income. I.T. 1720 superseded.§§1.61-7, 1.163-1, 1.661(a)–2, 1.662(a)–1,1.663(a)-1. (Secs. 61, 163, 661, 662, 663; ’86Code.)

Rev. Rul. 73-322, 1973-2 C.B. 44.

202.131 Deductions; real estate taxes paid byexecutor. If, under the laws of a particular juris-diction, the executor of an estate is not required topay real estate taxes on property of the decedent,but pays the taxes, he would not be entitled to adeduction for the taxes. However, if the paymentwas in behalf of a beneficiary of the estate whowas or would be entitled to income from the estate,then the deduction would be allowable if the pay-ment of the taxes was made in lieu of a direct pay-ment to the beneficiary. §1.691(b)–1. (Sec. 691,’86 Code.)

Rev. Rul. 58-69, 1958–1 C.B. 254.

202.132 Deductions; selling expenses of prop-erty. The provisions of section 642(g) are notapplicable to expenses incurred by an estate, not asa dealer, that are proper offsets against the saleprice of property in determining gain and loss forincome tax purposes even though such amountshave been deducted for estate tax purposes. Rev.Rul. 56-43 revoked. §1.642(g)–1. (Sec. 642, ’86Code.)

Rev. Rul. 71–173, 1971–1 C.B. 204; Viola E.Bray, 46 T.C. 577, and Walter E. Dorn, 54 T.C.1651, Acqs., 1971–1 C.B. 1, 2.

202.133 Deductions; State income tax on cap-ital gains. The State income tax paid by an irrevo-cable inter vivos trust, which distributes all of itsnet income currently, on capital gains retained bythe trust in accordance with the terms of its gov-erning instrument for the benefit of noncharitableremaindermen, is allowable as a deduction inarriving at the trust’s taxable income and isdeducted in arriving at its distributable netincome. Further, the deduction for the distributionto the beneficiaries is limited to the trust’s distribu-table net income for the taxable year.§§1.643(a)-0, 1.651(a)-1, 1.652(b)-3. (Secs. 643,651, 652; ’86 Code.)

Rev. Rul. 74-257, 1974-1 C.B. 153.

202.134 Deductions; State tax on income. Inthe case of an estate or trust, only that portion ofits State income taxes which is allocable to exemptincome, other than exempt interest income, is dis-allowed as a deduction under section 265. Thatportion of such taxes attributable to exempt inter-est income and taxable income is deductible undersection 164. §§1.164–1, 1.265–1. (Secs. 164, 265;’86 Code.)

Rev. Rul. 61-86, 1961–1 C.B. 41.

202.135 Deductions; trustees’ commissions.Statutory commissions and expenses paid by theestate of a decedent to the trustees of the dece-dent’s grantor trust, consisting of income produc-ing assets and certain real property not held for theproduction of income, are deductible for incometax and estate tax purposes to the extent that theyare attributable to the income producing assets andrepresent a fee for services rendered through thedate of the decedent’s death. The statutory com-missions and expenses allocable to services per-formed after the decedent’s death, attributable toboth the income producing assets and the realproperty, are deductible as administrationexpenses for estate tax purposes but are notdeductible for income tax purposes. §§1.212-1,

1.642(g)-2, 1.691(b)-1. (Secs. 212, 642, 691,2053; ’86 Code.)

Rev. Rul. 76-498, 1976-2 C.B. 199.

202.136 Deductions; trustees’ fees. A revoca-ble inter vivos trust, included in the decedent’sgross estate but not the probate estate, paid anddeducted for both income and estate tax purposesthe trustees’ fees for services performed attribut-able to the administration of both the trust andestate. Both deductions were disallowed. Held, thesame fees were deductible in part from the incomeof the trust, a taxable entity separate and apartfrom the probate estate, and in part by the estate forestate tax purposes; moreover, both amounts weredeductible simultaneously. (Sec. 642, ’86 Code.)

Mary E. Burrow Trust, 39 T.C. 1080, Acq.,1965-2 C.B. 4.

202.137 Deductions; trustees’ fees paid fromincome. A trustee, also the income and remainderbeneficiary of a trust, entered into an agreementwith the other trustees providing that trustees’ feesbe based in part upon a percentage of the partialvalue of the trust corpus at distribution. Held,under State law, the fees were properly paid out oftrust income and reduced distributable incometaxable to the beneficiary in the termination year.(Sec. 162, ’39 Code; Sec. 652, ’86 Code.)

Norfleet H. Rand, 33 T.C. 548, Acq., 1960-2C.B. 6.

202.138 Deductions; two wills; sale of foreignproperty. A decedent creates only one estate, forincome tax purposes, even though he leaves twowills, one disposing of property located in the U.S.and the other disposing of property in a foreigncountry. Where this estate is a U.S. resident,blocked income from property the decedentowned in the foreign country is includible in thegross income of the estate and must be reported onthe Estate’s income tax return at the rate of cur-rency exchange which most clearly reflects itsincome. In addition, although the “foreign” willprovided for a trust to be setup out of the residuaryestate, under local law no trust automatically cameinto existence on the decedent’s death. Therefore,no deduction is allowable to the estate. A.R.M. 37and Rev. Rul. 57-214 distinguished.§§1.641(a)-2, 1.661(a)-2, 1.663(a)-1, 1.6012-3.(Secs. 641, 661, 663, 6012; ’86 Code.)

Rev. Rul. 64-307, 1964-2 C.B. 163.

202.139 Deficiency; pre-death interest;accrual basis decedent. The estate of an accrualbasis decedent may deduct the pre-death interestpaid by the executor on a tax deficiency that wascontested by the decedent prior to his death. Inaddition, such interest is deductible for estate taxpurposes. §1.691(b)-1. (Sec. 691, ’86 Code.)

Rev. Rul. 71-422, 1971-2 C.B. 255.

202.140 Depletion allowance; allocation. If amineral or timber property is held in trust, theallowable deduction for depletion is to be appor-tioned between the income beneficiaries and thetrustee on the basis of the trust income from suchproperty allocable to each. No effect shall be givento any allocation which gives any beneficiary orthe trustee a share of such deduction greater thanhis pro rata share of the trust income unless thegoverning instrument (or local law) requires orpermits the trustee to maintain a reserve for deple-tion in any amount. Rev. Rul. 56–105 revoked.§1.611-1. (Sec. 611, ’86 Code.)

Rev. Rul. 60-47, 1960-1 C.B. 250.

202.141 Depletion or depreciation; alloca-tion. Where a trust or an estate is entitled, as amember of a partnership or as an income benefi-ciary of another trust, to a portion of the depreci-ation or depletion deduction allowable to the part-nership or the other trust, its distributive share ofsuch deductions may be apportioned between therecipient trust and its beneficiaries or the estateand its heirs, legatees and devises. §§1.167(h)–1,

1.611-1, 1.642(e)-1, 1.702-1. (Secs. 167, 611,642, 702; ’86 Code.)

Rev. Rul. 61–211, 1961–2 C.B. 124; Rev. Rul.66-278, 1966-2 C.B. 243; Rev. Ru1. 74–71,1974-1 C.B. 158.

202.142 Depletion or depreciation; alloca-tion. An estate or a trust must compute the deduc-tions for depreciation under section 167(h) anddepletion under section 611(b) based on propertiesit holds in its capacity as a separate taxable personbefore apportioning these deductions between theestate or the trust and the beneficiaries. The deduc-tions may be allocated to the beneficiaries inamounts greater than their pro rata shares of theestate or trust income. §§1.167(h)–1, 1.611–1,1.642(e)-1, 1.643(b)-1, 301.7701-1. (Secs. 167,611, 642, 643, 7701; ’86 Code.)

Rev. Rul. 74-530, 1974-2 C.B. 188.

202.143 Depreciable property; sale to corpo-ration owned by trustee-beneficiary. The sale ofdepreciable trust property by a trustee of an irrevo-cable trust (established by his father), who is alsothe life income beneficiary, to a corporationowned by him is not considered to be a sale,directly or indirectly, between an individual and acontrolled corporation, since the sale of propertywas between a corporation and a trust which doesnot own any stock of the corporation. §1.1239–1.(Sec. 1239, ’86 Code.)

Rev. Rul. 67-405, 1967-2 C.B. 293.

202.144 Distribution; allocation of incomefrom sale of assets; when taxable. Taxpayer wasthe life income beneficiary of a trust which soldtwo parcels of real property, one in 1944 anotherin 1945, receiving partly cash and partly bonds andmortgages. In 1945, the trustee allocated a portionof the total proceeds to trust principal and allo-cated and distributed a portion to the taxpayer.Held, income was taxable to the beneficiary in theyear of sale, not the year of distribution. (Sec.162(b), ’39 Code; Sec. 661, ’86 Code.)

Robert L. Dula, 23 T.C. 646, Acq., 1956-1 C.B.3 .

202.145 Distribution; annuity in lieu ofmonthly payments. The purchase and distribu-tion by an executor of a non-refundable annuity inlieu of lifelong monthly payments is treated as adistribution of cash equal to the cost of the annuityand as though the beneficiary had purchased theannuity for cash. A deduction for the distributionis allowable to the estate under section 661(a) andthe beneficiary must include a like amount in hisgross income. §1.661(a)-2. (Sec. 661, ’86 Code.)

Rev. Rul. 69-432, 1969-2 C.B. 144.

202.146 Distribution; appreciated assets;cash bequests. Although a final distribution of theappreciated assets of a decedent’s estate is insuffi-cient to completely satisfy the specific amount ofa pecuniary legacy, such bequest does not, for Fed-eral income tax purposes, thereby become abequest of the residue of the estate; and taxablegain will be realized by the estate on the appreci-ation in value of the property distributed.§§1.661(a)-2, 1.663(a)-1. (Secs. 661, 663; ’86Code.)

Rev. Rul. 66-207, 1966–2 C.B. 243.

202.147 Distribution; appreciated property.A partial distribution in kind, in accordance withthe terms of a will, of trust principal which hasappreciated in value does not result in taxableincome. Basis of such property to the beneficiaryfor income tax purposes will be the value of theproperty as appraised for estate tax purposes.§§39.22(a)-1, 39.22(b)(3)-1, 39.113(a)(5)-1.(Secs. 22(a), 22(b), 113(a), ’39 Code; Secs. 61,102, 1014, ’86 Code.)

Rev. Rul. 55-117, 1955-1 C.B. 233.

202.148 Distribution; appreciated securitiesto charitable beneficiary. The distribution by atrust of appreciated securities in satisfaction of its

Estates and trusts

obligation to pay a fixed annuity to a charitableorganization results in a taxable gain to the trust.The trust is entitled to a charitable deduction undersection 642(c) equal to the amount of gain recog-nized upon the distribution after making adjust-ment for any deduction provided under section1202. §§1.642(c)-3, 1.661(a)-2, 1.662(a)-1,1.663(a)-2, 1.1001-1, 1.1202-1. (Secs. 642, 661,662, 663, 1001, 1202; ’86 Code.)

Rev. Rul. 83-75, 1983-1 C.B. 114.

202.149 Distribution; bond approved; Dis-trict of Columbia. Court approval of a specialbond filed in the District of Columbia by an execu-tor, who is the sole beneficiary of the decedent’sestate, constitutes a final distribution of assets andtermination of the estate. Thus in the year of ter-mination the beneficiary must include in his grossincome the estate’s income for its taxable yearending with or within his taxable year. However,if the executor is not the sole beneficiary, the estateis not terminated until final distribution of theassets to the other beneficiaries. I.T. 2925 and I.T.3556 superseded. §§1.622(a)-1, 1.641(b)-3.(Secs. 622, 641; ’86 Code.)

Rev. Rul. 73-397, 1973-2 C.B. 211.

202.150 Distribution; cash in lieu of nontax-able stock dividend. Distribution of principalcash to an income life beneficiary of a trust in lieuof a nontaxable stock dividend which was not per-mitted to be distributed under State law, does notresult in taxable income to the beneficiary exceptto the extent that income was realized by the trustupon conversion of the dividend stock to cash, andwas properly distributed with the principal.§§29.115-7, 29.162-2. (Secs. 115, 162, ’39 Code;Secs. 316, 641, ’86 Code.)

Rev. Rul. 24, 1953-1 C.B. 263.

202.151 Distribution; cash in lieu of nontax-able stock dividend. Nontaxable stock dividendsdo not enter into the computation of the distributa-ble net income even though, under local law, anontaxable stock dividend may be income for trustaccounting purposes. An amount distributed by atrustee equal to the value of a nontaxable stockdividend received by the trust shall be included inthe beneficiary’s gross income only to the extentthat such amount does not exceed the distributablenet income of the trust. The character of the itemscontained in distributable net income determinesthe character of the amount taxable to the benefi-ciary. §§1.643(a)-0, 1.662(a)–1. (Secs. 643, 662;’86 Code.)

Rev. Rul. 67–117, 1967–1 C.B. 161.

202.152 Distribution; cash in lieu of securi-ties; specific bequest. Gain realized on securitiessold by the executor of an estate in compliancewith the request of the beneficiaries (exempt orga-nizations) of a specific bequest of such securitiesis not includable in the gross income of the estate.§1.641(a)-2. (Sec. 641, ’86 Code.)

Rev. Rul. 68-666, 1968-2 C.B. 283.

202.153 Distribution; charitable bequestpaid from corpus. Amounts bequeathed to a char-ity that are paid out of the corpus of an estate pur-suant to state law are not deductible as charitablecontributions nor allowable as distribution deduc-tions to beneficiaries. §§1.642(c)–1, 1.661(a)-2.(Secs. 642, 661; ’86 Code.)

Rev. Rul. 68-667, 1968-2 C.B. 289.

202.154 Distribution; divorce settlement;payments by estate. The commuted value of peri-odic payments by an estate under a property settle-ment agreement incorporated in a divorce decreeis deductible under section 2053(a)(3) as a claimagainst the estate. Thus, deduction by the estate forFederal income tax purposes, as distributions to abeneficiary under section 661, are not denied bysection 642(g). §§1.642(g)–1, 1.661(a)–2. (Secs.642, 661, 2053; ’86 Code.)

Rev. Rul. 67-304, 1967-2 C.B. 224.

202.155 Distribution; employees’ plan; non-exempt. A nonexempt employees’ trust is alloweda deduction under section 661(a) for distributionsto a retired employee under a deferred compensa-tion plan. The separate share rule of section 663applies, and, thus the deduction under section661(a) is limited to the distributee’s separate shareof the distributable net income. In determining thetaxability of beneficiaries of nonexemptemployees’ trusts, the provisions of section 402(b)take precedence over those of section 662(a), andthe fact that section 662(a) is not applicable to thebeneficiary does not in and of itself make section661(a) inapplicable to the trust. §§1.402(b)-1,1.643(a)-0, 1.661(a)-2, 1.662(a)-1. (Secs. 402,643, 661, 662, 663; ’86 Code.)

Rev. Rul. 74-299, 1974-1 C.B. 154.

202.156 Distribution; fiscal and final shorttaxable year. A beneficiary must include in hiscalendar year return any income received from anestate having both a fiscal and short final taxableyear end within his calendar year. §1.662(c)–1.(Sec. 662, ’86 Code.)

Rev. Rul. 71-180, 1971-1 C.B. 204.

202.157 Distribution; future partnershipearnings; cash proceeds from loan. Where anestate distributes the right to receive future pay-ments under section 736(a) or, in lieu of such right,distributes cash representing proceeds of a loan,no deduction is allowable under section 661(a) ofthe Code. §1.661(a)–2. (Sec. 661, ’86 Code.)

Rev. Rul. 68-195, 1968-1 C.B. 305.

202.158 Distribution; income earned duringadministration. In the absence of a testamentaryprovision regarding the disposition of incomeearned by an estate during the period of adminis-tration, the distribution of such income as requiredby State law is deductible in computing the taxableincome of the estate pursuant to section 661(a).G.C.M. 4596 superseded. §1.661(a)-2. (Sec. 661,’86 Code.)

Rev. Rul. 71-335, 1971-2 C.B. 250.

202.159 Distribution; income properly paidor credited. The executors of an estate credited allof the estate’s income to the beneficiaries’accounts. At that time, all of decedent’s debts hadbeen paid, but two lawsuits were pending. Onewas subsequently settled for $30,000, and theother was considered of minor importance. Theassets of the estate amounted to approximately$525,000, including cash of $218.00. Held, theadministration of the estate had progressed to apoint where distribution of the estate’s income wasproper, and a deduction by the estate for income“properly paid” to the beneficiaries was allow-able. (Sec. 162(c), ’39 Code; Sec. 661, ’86 Code.)

John Fossett, 21 T.C. 874, Acq., 1954-2 C.B. 4.

202.160 Distribution; installment obliga-tions. The proceeds of a sale, which resulted inlong-term capital gain reported by a trust on theinstallment basis, consisted of cash and install-ment obligations. When the trust terminated, thecorpus and unpaid installment obligations weretransferred to the beneficiary of the trust. There-fore, the distribution of the installment obligationsto the beneficiary during the taxable year of thetrust effected a “disposition” of such obligationsand resulted in accelerating the capital gains taxthereon to the trust. §§39.44–5, 39.162–1. (Secs.44, 162, ’39 Code; Secs. 453, 641, ’86 Code.)

Rev. Rul. 55-159, 1955-1 C.B. 391.

202.161 Distribution; lifetime transfer;equalization directive. The decedent made a life-time transfer of stock to one of the decedent’s twochildren. The decedent’s will provides that the res-idue of the estate is to be divided equally betweenthe two children, but that the lifetime transfer mustbe taken into account. The distribution of theresiduary estate to one of the two children in accor-dance with the equalization directive is a distribu-

tion in satisfaction of a right to receive a distribu-tion in a specific dollar amount, and the estate mayrealize gain on a distribution of property in kind.§§1.661(a)-2, 1.663(a)-1. (Secs. 661, 663; ’86Code.)

Rev. Rul. 82-4, 1982–1 C.B. 99.

202.162 Distribution; lump sum to inter vivostrust; employees’ profit-sharing plan. A lumpsum distribution from a qualified trust, on accountof the death of an employee, to an inter vivos trustfor the benefit of the surviving spouse and childrenqualifies for special tax treatment under section402(a) and (e). The tax treatment of distributionsfrom the inter vivos trust are determined in accor-dance with the rules under section 643(a). Rev.Rul. 58-423 superseded. §§1.402(a)-1,1.643(a)-3. (Secs. 402, 643; ’86 C0de.)

Rev. Rul. 83-121, 1983-2 C.B. 74.

202.163 Distribution; non-pro rata in kind.Where a trustee of a trust, who has no authority tomake a non-pro rata distribution of property inkind, makes such a distribution of notes and com-mon stock to an individual and an exempt charita-ble organization, pursuant to their mutual agree-ment, the distribution is equivalent to adistribution of the trust corpus to them, followedby an exchange between them of their pro ratashares thereof. The basis of the pro rata shares ofnotes and stock in their hands is the same as theadjusted basis in the hands of the trust. Further-more, since there was an exchange between thebeneficiaries, the amount of recognized gain to theindividual is determined under sections 1001 and1002. The exempt organization has no tax conse-quences as a result of the exchange. Distinguishedby Rev. Rul. 83-61. §1.1001-1. (Sec. 1001, ’86Code.)

Rev. Rul. 69-486, 1969-2 C.B. 159.

202.164 Distribution; property in kind; basis.A method is set forth for determining the basis ofassets distributed in kind by the executor of anestate to a beneficiary where the beneficiary isrequired to include in gross income a portion of thefair market value of the assets distributed by theestate. §§1.661(a)–2, 1.662(a)–1. (Secs. 661, 662;’86 Code.)

Rev. Rul. 64-314, 1964-2 C.B. 167.

202.165 Distribution; real property fromresiduary estate. The distribution of real propertycomprising part of a residuary estate is nondeduct-ible by the estate under section 661, nor is itincludible in the distributee’s gross income undersection 662 since under local law title to the prop-erty passes directly from the decedent to his heirsor devisees. Such a distribution is subject to thegeneral provisions of section 102 relating to giftsand inheritances. §§1.102-1, 1.661(a)-2,1.662(a)-3. (Secs. 102, 661, 662; ’86 Code.)

Rev. Rul. 68-49, 1968-1 C.B. 304.

202.166 Distribution; securities in paymentof annuity. Where income of a trust for its firsttaxable year is insufficient to make an annuitypayment and the trustee distributes securities tothe beneficiary in partial satisfaction of the annu-ity payment, capital gain resulting from the trans-action is excludable from distributable net incomeof the trust. §1.643(a)-3. (Sec. 643, ’86 Code.)

Rev. Rul. 68–392, 1968–2 C.B. 284.

202.167 Distribution; settler; protection oftrust corpus. Settler transferred all the stock ofhis wholly owned corporation to a trust benefitinghis four daughters. The transfer rendered the sett-ler insolvent because of a substantial obligationarising from a judgment in favor of the Common-wealth of Pennsylvania. To protect the trust assetsthe trustees, with the approval of the State court,caused the corporation to make distributions to thesettler to enabIe him to meet his obligations to theState. Held, the trust is liable for tax on theamounts so distributed. The beneficiaries are notliable on said amounts because they were not dis-

Estates and trusts

tributed or distributable to the beneficiaries. (Secs.162(b), 162(d), ’39 Code; Secs. 643, 652, 661, ’86Code.)

Harry Makransky, 36 T.C. 446, Acq., 1966-1C.B. 2.

202.168 Distribution; specified dollars worthof stock. Effect of a bequest requiring the dece-dent’s estate to distribute in kind a specified dol-lars worth of a certain stock but no more than allof such stock owned by decedent, the valuation tobe made on the date of distribution. §§1.661(a)-2,1.662(a)-1, 1.663(a)-1. (Secs. 661, 662, 663; ’86Code.)

Rev. Rul. 72–295, 1972-1 C.B. 197.

202.169 Distribution; State law controlling.The Service will not follow the Ruth H. Bohandecision that a court-ordered partial distributionfrom an estate is not an amount “properly paid”where such distribution may be conditionallyliable, under State law, to be returned to the estateto meet obligations of the estate. §§1.661(a)–2,1.662(a)-3. (Secs. 661, 662; ’86 Code.)

Rev. Rul. 72–396, 1972–2 C.B. 312.

202.170 Distribution; stock in lieu of income.The distribution of stock out of trust corpus in lieuof income required to be distributed currently istreated as a cash distribution and a purchase of thestock by the beneficiary. The trust is allowed adeduction, limited by the distributable net incomerequired to be distributed, and the beneficiarymust report a like amount in gross income. Wherethe value of the stock distributed exceeds the basisin the hands of the trust, the transfer results in capi-tal gain to the trust equal to the difference betweenthe basis and the amount of the obligation satisfiedby the transfer. Further, the basis of the stock in thehands of the beneficiary is the price he is deemedto have paid for it. §§1.1001–1, 1.1012–1. (Secs.1001, 1012; ’86 Code.)

Rev. Rul. 67–74, 1967–1 C.B. 194.

202.171 Distribution; unpaid rental andreserves for trustee's commission and repairs.Income in respect of a decedent, devised to andcollected by a testamentary trust which wasrequired to distribute income currently, wasincluded in the gross estate for estate tax purposesand included as gross income of the trust. Thetrustee, as allowed under State law and the trustinstrument, set aside portions into reserves fortrustee’s commissions and for repairs and then dis-tributed the remainder to the beneficiary. Held, thedistribution represented trust corpus and was notincludable in the beneficiary’s gross income; fur-thermore, no portions of the reserves were includ-able in the distributee’s gross income. (Sec.162(b), ’39 Code; Sec. 652, ’86 Code.)

Ostella Carruth, 28 T.C. 871, Acq., 1957-2 C.B.4.

202.172 Distribution; widow’s or otherdependent’s allowance. The allowance awardedby the probate court for the support of the widowor other dependent of the decedent, to be paid dur-ing the administration of an estate, will be treatedas a distribution to which sections 661 and 662apply even though such payments are considereddebts of the estate under local law. §§1.643(c)-1,1.661(a)-2, 1.662(a)-1. (Secs. 643, 661, 662; ’86Code.)

Rev. Rul. 75–124, 1975-1 C.B. 183.

202.173 Distribution of assets equal to statedfair market value. A bequest of unspecifiedassets with a fair market value specified in dece-dent’s will is a bequest of a “specified sum ofmoney” under section 663(a). Furthermore, thebequest creates a right to receive a specific dollaramount, the satisfaction of which results in the rec-ognition of gain or loss to the estate. §§1.661(a)–2,1.663(a)-1. (Secs. 661, 662, 663; ’86 Code.)

Rev. Rul. 86-105, 1986-2 C.B. 82.

202.174 Dividends received exclusion; bene-ficiaries. Computations of the dividend exclusionon returns filed by individuals which include divi-dends deemed received by them as beneficiaries oftrusts and estates which file fiduciary returns on afiscal year basis, and the time of receipt of divi-dends for purposes of the dividend exclusion inrespect to such dividends. §1.116-1. (Sec. 116, ’86Code.)

Rev. Rul. 66-70, 1966-1 C.B. 5.

202.175 Double deductions; administrationexpenses. Where deductions for executor’s com-missions and attorney’s fees are claimed on theestate tax return of the decedent as filed and someof the amounts have been paid, the estate is notprecluded from deducting such amounts forincome tax purposes provided, at the time therequired statement and waiver are filed, suchamounts have not been allowed as deductions forestate tax purposes, and provided the taxpayer isnot currently claiming the same amounts on theestate tax return. §§39.23(a)–15, 39.162–1. (Secs.23(a), 162, ’39 Code; Secs. 212, 641, ’86 Code.)

Rev. Rul. 240, 1953-2 C.B. 79.

202.176 Dower interest; Florida. The estate ofa decedent is not entitled to deduct any amountwith respect to the distribution of dower assets toa widow, who receives them free from liability forall debts of the decedent and all costs, charges, andexpenses of administration of the estate, pursuantto the laws of Florida. Any amount distributed tothe widow as mesne profits should not be includedin the estate’s gross income. Modified by Rev. Rul.71-167. §§1.102-1, 1.661(a)-2. (Secs. 102, 661;’86 Code.)

Rev. Rul. 64-101, 1964-1 (Part 1) C.B. 77.

202.177 Dower interest; Florida. From thedate of decedent’s death to final judgment andassignment of dower, income earned by an estatesubject to a dower interest arising under Floridalaw is includable in the estate’s gross income. Anamount received by the widow representing prof-its from her dower interest during that period isdeductible by the estate to the extent of the estate’sdistributable net income, and a correspondingamount is includable in the gross income of thewidow. An amount received by the widow insettlement of her dower interest is excludable fromher gross income under section 102(a). Rev. Rul.64-101 modified. §§1.102-1, 1.641(a)-2,1.661(a)-2, 1.662(a)-1. (Secs. 102, 641, 661, 662;’86 Code.)

Rev. Rul. 71-167, 1971-1 C.B. 163.

202.178 Duration of trust; returns. A trustcontinues in existence during the period the trusteeis allowed by State law to distribute the assets tothe distributes on the termination of the trust.Form 1041, U.S. Fiduciary Income Tax Return,should be filed for each year the trust continues inexistence and has taxable income, or gross incomeof $600 or over, regardless of the amount of tax-able income. (Sec. 6012, ’86 Code.)

Rev. Rul. 55-287, 1955–1 C.B. 130.

202.179 Electronic filing; fiduciary; 1986 taxyears. Specifications are set forth for electronicfiling of Form 1041. U.S. Fiduciary Income TaxReturn, for the 1986 tax year pilot project. (Sec.601.602, S.P.R.)

Rev. Proc. 87-26, 1987–1 C.B. 583.

202.180 Employees’ plan; carryover to estateof employer. The estate of a sole proprietor maynot claim a deduction for any part of a contributionmade by the sole proprietor to a qualified and tax-exempt employees’ pension trust with regard topast service credits, which had not been deductedby the sole proprietor prior to his death.§1.404(a)-1. (Sec. 404, ’86 Code.)

Rev. Rul. 58-193, 1958-1 C.B. 208.

202.181 Estates; information return. Theinformation return requirements will be met if theexecutor files Forms 1096 and 1099 showing theaggregate of reportable payments made to noncor-porate payees by an individual and by the decedentand the estate. I.T. 1631 superseded. §1.6041-1.(Sec. 6041, ’86 Code.)

Rev. Rul. 69-601, 1969-2 C.B. 243.

202.182 Estates; replacement of involun-tarily converted property; trustee. The nonrec-ognition-of-gain benefits of section 1033 do notapply where the taxpayer who receives the pro-ceeds of an involuntary conversion dies andreplacement of the converted property is thereaf-ter made by a testamentary trustee who succeedsto the ownership of a fund resulting from such con-version. The decision in Isaac Goodman, 199 Fed.(2d) 895, Ct. D. 1763, 1954-1 C.B. 296, will notbe followed. Rev. Rul. 58-407 revoked.§§29.112(f)-1, 1.1033(a)-2. (Sec. 112(f), ’39Code; Sec. 1033, ’86 Code.)

Rev. Ru1. 64-161, 1964-1 (Part 1) C.B. 298.

202.183 Estates; replacement of involun-tarily converted property; trustees. The tax-payer received the proceeds of an involuntary con-version but died before reinvesting them.Replacement of the converted property was com-pleted by testamentary trustees. The trustees wereacting on behalf of the taxpayer and an election onthe final return of the taxpayer to defer recognitionof the gain realized on the conversion under sec-tion 1033 is valid. (Sec. 1033, ’86 Code.)

John E. Morris, 55 T.C. 636, Nonacq., 1978-2C.B. 4.

202.184 Estates; settlement; monthly pay-ments by trustee. A widow released her statutoryclaim against her husband’s estate in return formonthly payments from the income of an irrevo-cable inter vivos spendthrift trust setup by her hus-band for his son, the trustee and life income bene-ficiary who agreed to be liable for the widow’spayments if the trust income became insufficient.Held, the payments were not required to be cur-rently distributable to the son nor were they in dis-charge of a personal liability of his; therefore, theywere not taxable income to him. (Sec. 162(b), ’39Code; Sec. 652, ’86 Code.)

James F. Edwards, 37 T.C. 1107, Acq., 1963-1C.B. 4.

202.185 Estates; shareholder in small busi-ness corporation. The term “estate,” as used insection 1371, relating to the definition of a smallbusiness corporation, includes only the estate of adecedent; however, a corporation may qualify asa small business corporation even though it hasamong its shareholders the estate of an individualwho is under a disability, other than an individualin bankruptcy, since in such a case the individualrather than the estate is considered to be the share-holder. Rev. Rul. 65-90 superseded. §1.1371-1.(Sec. 1371, ’86 Code.)

Rev. Rul. 66-266, 1966–2 C.B. 356.

202.186 Estimated tax; trusts and certainestates. Guidance is provided, in the form of ques-tions and answers, with respect to sections 1403and 1404 of the Tax Reform Act of 1986 (the Act),which extended section 6654 of the Code to trustsand certain estates. In addition, this notice advisesfiduciaries of the circumstances in which the Ser-vice will waive penalties for underpayment of esti-mated tax installments due before July 1, 1987.

Notice 87-32, 1987-1 C.B. 477.

202.187 Estimated tax; underpayments;waiver of addition. Taxpayers are informed of theprocedure to be used to obtain a waiver of the addi-tion to tax for underpayment of estimated tax byestates and trusts.

Notice 88-15, 1988–1 C.B. 482.

202.188 Family Estate trust; deduction fortrust material. No deduction is allowed under

I

I

Estates and trusts

section 212 for amounts paid for a trust forminstrument and related materials used to createa “family estate trust,” to which all the taxpayer’sproperty and “lifetime services” are transferredand over which the trustees (the taxpayer, the tax-payer’s spouse, and a third party) have completediscretionary control. §§1.212–1, 1.262–1. (Secs.212, 262; ’86 Code.)

Rev. Rul. 79-324, 1979-2 C.B. 119.

202.189 Family Estate trust; income forbenefit of grantor. An individual grantor, whotransferred his personal residence, rental property,and income producing securities to a so-called “Family Estate” trust in exchange for all the“units of beneficial interest” therein, with him-self, his spouse, and a third party as trustees, isconsidered the owner of the trust under either sec-tions 674, 676, or 677. Assignment of his “life-time services” to the trust, which included allremuneration earned by him regardless of itssource, is ineffective to shift his tax burden to thetrust. §§1.61–2, 1.671–1, 1.672(a)–1, 1.674(a)–1,1.676(a)-1, 1.677(a)–1. (Secs. 61, 671, 672, 674,676, 677; ’86 Code.)

Rev. Rul. 75-257, 1975-2 C.B. 251.

202.190 Family Estate trust; tax classifica-tion. A so-called “Family Estate” trust, to whichthe grantor transferred substantially all of his realand personal property, including his retail busi-ness, in exchange for freely transferable “units ofbeneficial interest” therein half of which beassigned to his wife and son, is an association tax-able as a corporation. §301.7701–2. (Sec. 7701,’86 Code.)

Rev. Rul. 75-258, 1975-2 C.B. 503.

202.191 Family trust. The taxpayer transferredto irrevocable trusts, created for his wife andminor children, the exclusive right, title, and inter-est in and to a patent application, receiving fromthe trusts a license to make, use, and sell the articlecovered in the application at a graduated royaltyrate. The trusts were to continue until the childrenreached majority. The taxpayer retained no powerto change the beneficiaries, direct the accumula-tion or withholding of income, or change trustees.Held, the trust income was not taxable to the tax-payer, and be could deduct the royalties paid underthe license agreement as a business expense.(Secs. 22(a), 23(a), ’39 Code; Secs. 61, 162, ’86Code.)

John T. Potter, 27 T.C. 200, Acq., 1957-2 C.B.6 .

202.192 FHLMC participation certificates.The tax consequences of the purchase of mortgageparticipation certificates from an insured savingsand loan association by the Federal Home LoanMortgage Corporation (FHLMC) and the sale ofcorresponding participation sales certificates toother savings and loan associations and exemptemployees’ trusts are set forth. §§1.61–1,1.162-1, 1.451-1, 1.501(a)-1, 1.593-11,1.671-1, 1.856-2, 1.1232-1, 301.7701-2,301.7701–13A. (Secs. 61, 162, 451, 501, 593, 671,756, 1232, 7701; ’86 Code.)

Rev. Rul. 71–399, 1971-2 C.B. 433; Rev. Rul.72-376, 1979-2 C.B. 647; Rev. Rul. 74-221,1974-1 C.B. 365; Rev. Rul. 74-300, 1974-1 C.B.169; Rev. Rul. 80-96, 1980 C.B. 317; Rev. Rul.81-203, 1981-2 C.B. 137.

202.193 Fiduciary return; bank escrowee;accumulated interest. A bank that merely holdsmoney for an estate and pays interest on theaccount, but performs no administrative duties, isnot a fiduciary and is not required to file Form1041, U.S. Fiduciary Income Tax Return, for theestate. §§1.6012–3, 301.6020-1, 301.7701-6.(Secs. 6012, 6020, 7701; ’86 Code.)

Rev. Rul. 82-177, 1982-2 C.B. 365.

202.194 Fiduciary return; court appointedbank custodian of trust property. A bank

appointed as custodian of property pending finaldetermination of the rightful owner, with broaddiscretionary powers of administration and man-agement, is a fiduciary for unascertained personsand is liable for filing Form 1041 and paying taxon income from the property. §§1.641(b)–2,1.6012-3, 301.7701-6. (Secs. 641, 6012, 7701;’86 Code.)

Rev. Rul. 69-300, 1969-1 C.B. 167.

202.195 Fiduciary returns; grantor incomefrom trust. A trust dividing its income, asrequired by its governing instrument, equallybetween its grantor and a named beneficiary, eachof whom has taxable years differing from thetrust’s, is not relieved from the filing requirementsof section 6012(a)(4) with respect to the grantor’sportion and should attach a statement to its returnto show the income, deductions, or credits attribut-able to each of the grantor’s taxable years.§§1.652(c)-1, 1.671-4, 1.677(a)-1, 1.6012-3.(Secs. 652, 671, 677, 6012; ’86 Code.)

Rev. Rul. 75-278, 1975-2 C.B. 461.

202.196 Gain or loss; sale of S stock by quali-fied subchapter S trust. If a “qualified sub-chapter S trust” (QSST) sells all or part of its stockin an S corporation, the beneficiary rather than thetrust is the taxpayer who recognizes gain or loss onthe sale of the stock, even if under local trust lawgain or loss on the sale is allocable to corpus ratherthan income. §§1.672–1, 1.671–3. (Secs. 643,671, 678, 1361; ’86 Code.)

Rev. Rul. 92-84, 1992-2 C.B. 216.

202.197 Generation-skipping transfers; ter-mination; recapitalization. A donor has made atransfer subject to gift tax and an addition to trustcorpus for generation-skipping transfer tax pur-poses, where, pursuant to a plan of recapitaliza-tion, the donor exchanges voting common stockfor stock with voting rights that terminate at thedonor’s death, and the balance of the outstandingstock is held by a generation-skipping trust.§§1.354–1, 1.368-2. (Secs. 354, 368, 2501, 2601,2612; ’86 Code.)

Rev. Rul. 89-3, 1989-1 C.B. 278.

202.198 Grantor foreign trust. Treatment ofaccumulation distributions by a domestic trust thatwas previously a foreign trust. (Secs. 665, 666,667, 668; ’86 Code.)

Rev. Ru1. 91-6, 1991-1 C.B. 89.

202.199 Grantor trust; employer contribu-tions. Contributions by an employer to a trustformed to pay its obligations to its employeesunder the state workmen’s compensation act arenot deductible under section 162 until the trustactually pays benefits to the employees becausethe trust is a grantor trust. Rev. Rul. 72–191 dis-tinguished and Rev. Rul. 71–209 distinguishedand clarified. §§1.162–10, 1.671–2, 1.671–3,1.677(a)-1. (Secs. 162, 671, 677; ’86 Code.)

Rev. Rul. 82–95, 1982-1 C.B. 101.

202.200 Grantor trust; limitation on loss;amount at risk. The owner-grantor of a trust is atrisk under section 465(b) only for the amount ofcash transferred to the trust that was used as partof the purchase price of an interest in an oil and gasactivity described in section 465(c) with the bal-ance of the purchase price represented by thetrust’s note, secured by the interest, upon whichthe grantor was not personally liable. (Sec. 465,’86 Code.)

Rev. Rul. 78-175, 1978-1 C.B. 144.

202.201 Grantor trust; transfer of corpus tograntor in exchange for unsecured promissorynote. A grantor who acquires the corpus of a trustin exchange for the grantor’s unsecured promis-sory note will be considered to have indirectly bor-rowed the trust corpus. As a result, the grantor willbe treated as the owner of the trust and the grant-or’s acquisition of the trust corpus will not be

viewed as a sale for federal income tax purposes.§§1.671-3, 1.675-1. (Secs. 671, 675; ’86 Code.)

Rev. Rul. 85-13, 1985–1 C.B. 184.

202.202 Grantor trusts; public utility divi-dends reinvested. An individual shareholder willbe treated as the true owner of a corporations stockfor purposes of being eligible to make an electionunder section 305(e)(8), even though the corpora-tion’s stock is actually held by a trust of which theindividual shareholder is the grantor. §1.305–1.(Sec. 305, ’86 Code.)

Rev. Rul. 82–164, 1982-2 C.B. 77.

202.203 Grantor trust; transfer of partner-ship interest upon death of grantor-partner. Apartnership interest that was contributed to agrantor trust, prior to the death of the grantor-part-ner in 1976, is considered to have been owned bythe partner until death, at which time the interestwas transferred to the trust. The partnership,which made an election under section 754, mustadjust its basis in partnership property pursuant tosection 743(b) at the time of the grantor-partner’sdeath when the interest is considered transferred.§§1.676(a)-1, 1.677(a)-1, 1.743-1, 1.754-1.(Secs. 676, 677, 743, 754; ’86 Code.)

Rev. Rul. 79–84, 1979–1 C.B. 223.

202.204 Grantor trust funded by commodityexchange clearing house; deductibility of con-tributions. A commodity futures exchange clear-ing house corporation that funds a trust to protectcustomers of the exchange from financial lossresulting from the insolvency of any clearingmember is the grantor of the trust because theexchange requires that the clearing house assumeall legal obligations arising out of any tradecleared. The clearing house cannot deduct con-tributions to the trust. It can deduct paymentsmade by the trust in satisfaction of the clearinghouse’s legal obligations when paid or incurred.§1.671-3. (Secs. 62, 671, 677; ’86 Code.)

Rev. Rul. 85-158, 1985-2 C.B. 175.

202.205 Grantor trust powers renounced;transfer of partnership interest. An individualwho creates an irrevocable trust classified as agrantor trust, purchases, as trustee, an interest in apartnership generating losses derived from accel-erated depreciation deductions that reduce thebasis of the partnership interest almost to zero, andwho renounces the powers that cause the grantortrust classification just before the partnershipbegins generating income has recognized gain orloss under section 741 measured by the differencebetween the trust’s adjusted basis of the partner-ship interest and its share of the Partnership’s liabi-lities. §§1.671-1, 1.741-1, 1.752-1. (Secs. 671,741, 752; ’86 Code.)

Rev. Rul. 77-402, 1977-2 C.B. 222.

202.206 Guidelines for common trust fundplans. This procedure provides guidance to banksthat want to draft common trust fund plans thatwill meet requirements of section 584. §1.584-1.(Sec. 601.201, S.P.R.; Sec. 584, ’86 Code.)

Rev. Proc. 92-51, 1992-1 C.B. 988.

202.207 Identifying numbers. An employeridentification number must be obtained for anestate or a trust which will be closed during theyear if any return or other document is required tobe filed with respect to the estate or the trust. Astatement of facts concerning an account which isinactive because it is in the name of a deceasedadministrator of an state will be sufficient toidentify the account. §1.6109–1. (Sec. 6109, ’86Code.)

Rev. Rul. 64-99, 1964-1 (Part 1) C.B. 482.

202.208 Income for benefit of grantor; bene-ficiary’s power to revoke. Where the net incomeand/or principal of a trust is, in the discretion of thetrustee, to be paid to the grantor or applied for hisbenefit so long as he shall live, the grantor will betreated as the owner of the trust and the income

Estates and trusts

therefrom, including any capital gains realized bythe trust, shall be taxable to him even though areserved power to revoke may be exercised onlywith the consent of his wife, the surviving incomebeneficiary of the trust. (Secs. 676, 677; ’86Code.)

Rev. Rul. 57-8, 1957-1 C.B. 204.

202.209 Income for benefit of grantor; capi-tal gain or loss accumulated. Capital gain or lossmust be recognized by the grantor of an inter-vivostrust, the corpus of which reverts to the grantor orhis estate at the end of its ten year and one monthterm, and whose trustee is required to pay the trustincome to the grantor’s son or the son’s estate andto accumulate the net capital gain for payment attermination. Capital gain or loss realized after thegrantor’s death, but during the term of the trust, isrecognized by the trust and not by the grantor’sestate. §§1.671–3, 1.673(a)–1, 1.677(a)–1. (Secs.671, 673, 677; ’86 Code.)

Rev. Rul. 75–267, 1975–2 C.B. 254.

202.210 Income for benefit of grantor; capi-tal gains. Where, under the terms of a trust inden-ture, corpus is to revert to the grantor after tenyears, capital gains are to be added to corpus andall such gains as are taxable to the grantor are, sub-ject to his demand, payable to him, then all capitalgains plus income attributable to the portion of thetrust, title to which the grantor may revest in him-self, must be included in the computation of thegrantor’s taxable income for the taxable year inwhich the items of income are realized.§§1.671-3, 1.676(a)-1, 1.677(a)-1. (Secs. 671,676, 677; ’86 Code.)

Rev. Rul. 66-161, 1966-1 C.B. 164.

202.211 Income for benefit of grantor; dam-age award transferred to trust for minor’sbenefit. A minor will be treated as the owner of atrust created for the minor’s benefit by court orderfor the receipt of damages awarded as a result ofa personal injury suit filed on the minor’s behalf.§§1.61-7, 1.104-1, 1.671-1, 1.672(a)1,1.677(a)-1. (Secs. 61, 104, 671, 672, 677; ’86Code.)

Rev. Rul. 83-25, 1983-1 C.B. 116.

202.212 Income for benefit of grantor; debtpaid by trust. Taxpayers, husband and wife,transferred improved land, encumbered by a firstmortgage for which they were primarily liable, tothe husband as trustee for their minor children.Subsequent to the transfer, further improvementswere financed by a second mortgage for which thehusband was liable as trustee. Trust income wasused to make payments on both mortgages. Held,under Texas law the taxpayers had no reversionaryinterest and the husband was only liable on thesecond mortgage as trustee; therefore, the taxpay-ers are not taxable on payments made on thesecond mortgage. (Sec. 677, ’86 Code.)

Jack Wiles, 59 T.C. 289, Acq., 1973-2 C.B. 4.

202.213 Income for benefit of grantor; def-erred interest on U.S. bonds. A valid short-termreversionary trust was created to which the grantortransferred a Series H bond, on which the interestfrom exchanged Series E bonds had been deferred.Since the trust instrument provided that theaccrued bond interest was to be allocated to cor-pus, the transfer did not result in such a dispositionof the bond as to require the owner to include in hisgross income in the year of transfer the interest onthe bonds not previously returned as income.§§1.671-3, 1.677(a)-1. (Secs. 671, 677; ’86Code.)

Rev. Rul. 64-302, 1964–2 C.B. 170.

202.214 Income for benefit of grantor;dependent’s support; charitable contribution.The grantor of a trust created for both private andcharitable purposes has a reversionary interestunder section 170 when there is a possibility thatincome or corpus in excess of five percent may be

used for the benefit of the grantor in supporting hisminor child, even though the grantor does not havea reversionary interest within the meaning of sec-tion 673. Therefore, no deduction is allowable tothe grantor for charitable charges placed upon thetrust, and income from the trust is not taxable to thegrantor except to the extent actually used for thesupport and maintenance of the minor child.§§1.170-2, 1.673(a)-1, 1.677(b)-1. (Secs. 170,673, 677; ’86 Code.)

Rev. Rul. 61-223, 1961-2 C.B. 125.

202.215 Income for benefit of grantor; dis-tribution withheld from beneficiary. Where atrustee of an inter vivos trust has the power to with-hold distribution of trust income from the benefi-ciary and accumulate the amount so withheld forultimate distribution to the grantor or to his estate,the grantor will be treated as the owner of the trust,and the income therefrom will be taxable to him.§1.677(a)-1. (Sec. 677, ’86 Code.)

Rev. Rul. 57-363, 1957-2 C.B. 326.

202.216 Income for benefit of grantor;“divested stock” transferred in trust. Tax con-sequences of a trust arrangement where an indi-vidual taxpayer transfers in trust, prior to a divesti-ture distribution, stock in a company which issubject to an “antitrust order” within the meaningof section 1111(d) and the divested stock is paidover by the trustee to become the corpus of asecond trust, created under the same instrument,income of which is payable to the grantor and oth-ers with remainder to charitable organizations.§§1.170-2, 1.677(a)-1. (Secs. 170, 677; ’86Code.)

Rev. Rul. 68-440, 1968-2 C.B. 289.

202.217 Income for benefit of grantor; gifttax on trust transfer. A sole shareholder trans-ferred his stock of a corporation to a trust for thebenefit of his nephew on the condition that thetrustees promptly pay the gift taxes due on thetransfer with funds to be borrowed by the trustfrom a bank on security of the donated stock. Theincome of the trust which is applied by the trusteesin satisfying the obligation incurred to pay the gifttaxes of the donor is taxable to the donor.§1.677(a)-1. (Sec. 677, ’54, Code.)

Rev. Rul. 57-564, 1957-2 C.B. 328.

202.218 Income for benefit of grantor; lifeinsurance premiums. A grantor proposes tocreate an irrevocable trust A for the benefit of herthree children. She also proposes to create asecond trust B with corpus consisting of policiesof insurance on her life which she had taken out,having the trustee as beneficiary of the policies.Each child will have one-third interest in the cor-pus and income from both trusts. The grantor rep-resented that each beneficiary of trust A will con-sent in writing (revocable at will) to have his shareof the income from trust A applied toward pay-ment of the premiums on the life insurance poli-cies in trust B. Held, the grantor will be consideredthe owner of the amount of trust income which isused to pay the premiums on the policies of insur-ance on her life. Such amount will be includible inher gross income. §1.677(a)-1. (Sec. 677, ’86Code.)

Rev. Rul. 66-313, 1966-2 C.B. 245.

202.219 Income for benefit of grantor; loansrepaid in same year. A grantor-trustee is treatedas owner of trust assets where grantor-trustee bor-rows trust funds and repays the funds with interestin the same year they were borrowed. §1.675–1.(Secs. 671, 675; ’86 Code.)

Rev. Rul. 86-82, 1986-1 C.B. 253.

202.220 Income for benefit of grantor; powerof disposition. The income of a trust created underan instrument which vests in the grantor-trusteethe power to distribute from trust income or corpussuch amounts at such time as he in his sole discre-tion shall determine to be necessary for certain

needs of the beneficiary, and provides that upondeath of the beneficiary the remainder shall bepaid over to a designated educational organiza-tion, is taxable income to the grantor.§39.22(a)-21. (Sec. 22(a), ’39 Code; Sec. 61, ’86Code.)

Rev. Rul. 54-41, 1954–1 C.B. 22.

202.221 Income for benefit of grantor; powerto terminate or revoke. Tax consequences wherethe grantor of a trust transfers all of a corporation’sstock for assignable certificates of beneficialinterest giving majority holders the power to ter-minate the trust. §1.676(a)–1. (Secs. 676, 677; ’86Code.)

Rev. Rul. 71–548, 1971-2 C.B. 250.

202.222 Income for benefit of grantor; sav-ings bank trust; New York. A depositor whoplaces his own funds in a New York savings bankin his own name “as trustee” for another person isdeemed, in the absence of evidence of a differentintention on his part, to have created a revocabletrust. Accordingly, the depositor is treated as theowner of the trust and is required to include theincome of the trust in his gross income.§§1.671-2, 1.676(a)-1. (Secs. 671, 676; ’86Code.)

Rev. Rul. 62-148, 1962-2 C.B. 153.

202.223 Income for benefit of grantor; stockexchanged for annuity. A grantor created a trustfor the benefit of a grandchild, funding it with cor-porate stock. Later, he transferred additional stockto the trust in exchange for the trust’s contractualobligation to pay him annually for life a fixedamount equal to the then-current income yield ofthe entire property held in trust. While the transac-tion purported to be a sale, in substance it was acontribution to the trust with a reservation by thegrantor. Since all of the trust income is, or may be,used to make the payments to the grantor, he istreated as the owner of the trust and taxed on all theincome therefrom. §1.677(a)–1. (Sec. 677, ’86Code.)

Rev. Rul. 68-183, 1968-1 C.B. 308.

202.224 Income for benefit of grantor; trustas grantor’s business partner. Long-term irrevo-cable trusts created with independent trustees bytaxpayers for the benefit of their minor childrenand made special partners in the husband’s busi-ness were bona fide partners over which the tax-payers retained insufficient control to make thetrust income taxable to them. (Sec. 167(a), ’39Code; Sec. 677, ’86 Code.)

Thomas H. Brodhead, 18 T.C. 726, Acq.,1956-1 C.B. 3.

202.225 Income for benefit of grantor; undis-tributable capital gain. The taxpayer was thesettler, life beneficiary, and co-trustee of an irrevo-cable trust over which she retained a limited powerto invade the corpus; a right to alter the shares ofa designated class of remaindermen; and a contin-gent right to dispose of the trust corpus by will ifshe survived certain beneficiaries. The trust real-ized capital gains which were not distributable tothe taxpayer. Held, the rights and powers retainedby the taxpayer did not justify the inclusion of thenon-distributable capital gains in her taxableincome. (Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)

Hiram Solomon, 27 T.C. 426, Acq., 1957-1C.B. 5.

202.226 Income for benefit of grantor; U.S. asgrantor. The U.S. is considered the owner of atrust established as a result of an individual’s suitfor injuries sustained at a Government facilityunder a settlement agreement requiring paymentof the individual’s future medical expenses fromthe trust, accumulation of net income in excess ofmedical expenses, and reversion of trust corpus tothe U.S. on the individual’s death. Income earnedby the trust will not be subject to tax, Distributionsfrom the trust to pay medical expenses are exclud-able from the individual’s gross income and no

Estates and trusts

deduction may be taken for medical expenses paidby such distribution. §§1.104-1, 1.213-1,1.677(a)-1. (Secs. 104, 213, 677; ’86 Code.)

Rev. Rul. 77-230, 1977-2 C.B. 214.

202.227 Income for benefit of grantor; warclause. Income accumulated for future distribu-tion to the grantor of a trust during the time that aso-called “war clause” in the trust agreement is ineffect will be taxable to the grantor and not to thetrustees. §39.167–1. (Sec. 167, ’39 Code; Sec.677, ’86 Code.)

Rev. Rul. 54-306, 1954-2 C.B. 240.

202.228 Income for benefit of minor child;accounts receivable. Unpaid accounts receiv-able, which represent compensation for personalservices, transferred to an irrevocable trust for thebenefit of the grantor’s minor child are, uponcollection, taxable to the grantor and not to thetrust. §39.22(a)–1. (Sec. 22(a), ’39 Code; Sec. 61,’86 Code.)

Rev. Rul. 55-2, 1955-1 C.B. 211.

202.229 Income for benefit of minor children.Where the grantor of a trust has named himself astrustee and his minor children as beneficiaries andretained no reversionary interest in the trustincome or corpus nor any power to control thebeneficial enjoyment thereof, the trust income istaxable to the trust and not the grantor. However,any income of the trust distributed and applied forthe support or maintenance of a beneficiary whomthe grantor is legally obligated to support or main-tain will be taxable to him. §39.22(a)–21. (Sec.22(a), ’39 Code; Sec. 61, ’86 Code.)

Rev. Rul. 54-516, 1954-2 C.B. 54.

202.230 Income from community property;deceased husband; Texas. The Court held thatduring administration of the estate of a husbandwho predeceased his wife, only one-half of theTexas community property income was taxable tohis estate. (Sec. 161(a), ’39 Code; Sec. 692, ’86Code.)

J. F. Hargis, 19 T.C. 842, Nonacq., 1953-2 C.B.8 .

202.231 Income from community property;liability of survivor. The sole beneficiary andexecutor of his wife’s estate had a communityproperty interest in and control of the husband-wife partnership assets during the period ofadministration. Held, half, not all, of the incomeattributable to the community assets was taxableto the husband; half the income was taxable to thewife’s estate. (Sec. 161, ’39 Code; Sec. 641, ’86Code.)

Edwin M. Peterson, 35 T.C. 962, Acq., 1962-1C.B. 4.

202.232 Income from properties; contestedwill. Income from personal property collected andnot distributed by a decedent’s executor during thependency of a will contest must be included in thegross income of the estate. Income collected onbehalf of a devisee, with no restriction on its dis-position, is includible in the gross income of thedevisee. §1.641(a)-2. (Sec. 641, ’86 Code.)

Rev. Rul. 75-339, 1975-2 C.B. 244.

202.233 Income in respect of decedent;bonuses. Compensation for services rendered, inthe form of bonuses awarded to a decedent beforehis death but payable to his estate thereafter, andbonuses awarded and payable after his death, bothunder a corporate bonus plan, are income inrespect of a decedent subject to Federal incometax. Amplified by Rev. Rul. 68–124. §1.691(a)–1.(Secs. 691, 2033; ’86 Code.)

Rev. Rul. 65-217, 1965-2 C.B. 214.

202.234 Income in respect of decedent;bonuses. Where bonuses awarded to a decedentbefore his death but payable thereafter andbonuses awarded after his death were forfeitable

immediately before his death, the aggregateamount of such bonuses (not in excess of $5,000)is excludable from the gross income of the benefi-ciaries or the estate of the decedent. Any amountin excess of $5,000, together with all nonforfeit-able amounts, is includible as income in respect ofa decedent subject to income tax. Rev. Rul.65–217 amplified. §§1.101–2, 1.691(a)–1. (Secs.101, 691; ’86 Code.)

Rev. Rul. 68-124, 1968-1 C.B. 44.

202.235 Income in respect of decedent; claimfor patent infringement. Income realized by theestate of a decedent from a claim for patentinfringement which was in the process of litigationat the date of his death is income acquired by rea-son of the death of the decedent and is includablein the moss income of the estate in the taxable yearreceived. (Sec. 691, ’86 Code.)

Rev. Rul. 55-463, 1955-2 C.B. 277.

202.236 Income in respect of decedent; estatetax deduction. The estate tax deduction allowedunder section 691(c), to a taxpayer who includesin income capital gains which are income inrespect of a decedent, may be used first to offsetordinary income from other sources and then tooffset the capital gain income before making thesection 1201(b) alternative tax computation,rather than solely to offset income in respect of thedecedent. (Sec. 691, ’86 Code.)

Harry B. Sidles, 65 T.C. 873, Acq., 1976-2 C.B.2 .

202.237 Income in respect of decedent; estatetax deduction. The Service explains and demon-strates the proper method of computing the deduc-tion allowed by section 691(c) for that portion ofthe estate tax on a decedent’s estate which is attrib-utable to the inclusion in the estate of the value ofthe right to receive income in respect of the dece-dent. §1.691(c)-1. (Sec. 691, ’86 Code.)

Rev. Rul. 67-242, 1967-2 C.B. 227.

202.238 Income in respect of decedent; estatetax deduction. The deduction allowed under sec-tion 691(c) for estate tax attributable to income inrespect of a decedent that is ordinary income mustbe claimed as an itemized deduction and not as adeduction from gross income in arriving atadjusted gross income. §1.691(c)–1. (Sec. 691,’86 Code.)

Rev. Rul. 78-203, 1978-1 C.B. 199.

202.239 Income in respect of decedent; estatetax deduction; capital gains. The taxpayers, asbeneficiaries of an estate, received long term capi-tal gains in the form of annual payments on groundlease and timber cutting contracts qualifying asincome in respect of the decedent. After applyingthe provisions of section 1202 to arrive at theadjusted gross income, the taxpayers deductedunder section 691(c) a ratable portion of the estatetax. Held, section 691(c) allows a deduction fromadjusted gross income, not an offset against thelong term capital gain before applying the provi-sions of section 1202. (Sec. 691, ’86 Code.)

J.T. Bridges, Jr., 64 T.C. 968, Acq., 1976-2 C.B.1 .

202.240 Income in respect of decedent; medi-cal expense reimbursements. Insurance reim-bursements of previously deducted medicalexpenses that were due a decedent at the time ofdeath and were subsequently received by the dece-dent’s estate are includible in the gross income ofthe estate under section 691(a) for the year inwhich the reimbursements were received.§§1.213–1, 1.691(a)–1, 1.1014-1. (Secs. 213,691, 1014, ’2033; ’86 Code.)

Rev. Rul. 78-292, 1978-2 C.B. 233.

202.241 Income in respect of decedent; min-eral production sold. Proceeds received by theestate from the extraction and sale of minerals donot constitute “amounts to which a decedent was

entitled as gross income” and, therefore, cannotgive rise to a deduction by the estate (or any of thebeneficiaries) for estate tax attributable to incomein respect of a decedent. §1.691(a)–1. (Sec. 691,’86 Code.)

Rev. Rul. 66-348, 1966-2 C.B. 433.

202.242 Income in respect of decedent; part-nership annuity; surviving spouse. Amountsreceived by a surviving spouse as successor to herdecedent husband’s right to receive a share of part-nership income for a specified period as a retire-ment benefit are includible in the survivingspouse’s gross income; a deduction is allowablefor the portion of the estate tax attributable to theinclusion in her deceased husband’s estate of theright to receive such amounts. §1.691(c)–1,1.736-1. (Secs. 691, 736; ’86 Code.)

Rev. Rul. 71–507, 1971–2 C.B. 331.

202.243 Income in respect of decedent; part-nership income. In computing the deductionallowable under section 691(c), a deceased part-ner’s distributive share of partnership income isnot reduced by the amounts which the deceasedpartner withdrew before his death, even thoughthe amount is not includable in his gross estate forestate tax purposes. §§1.691(c)–1, 1.753–1. (Secs.691, 753; ’86 Code.)

Rev. Rul. 67-305, 1967–2 C.B. 229.

202.244 Income in respect of decedent; pat-ent royalties; death of patent-holder. Where acontract between a patent owner and a manufac-turer constitutes merely a “license” arrangementto manufacture and sell articles under the patent inreturn for the payment of royalties, and not a“sale,” royalty payments due and accrued underthe contract at the date of the death of the inventorconstitutes income in respect of a decedent. Roy-alty payments accrued after the date of death of thepatent owner are ordinary income, includable inthe gross income of the recipient. Rev. Rul.57-544 clarified and distinguished. §§1.61-8,1.691(a)-1. (Secs. 61, 691; ’86 Code.)

Rev. Rul. 60-227, 1960-1 C.B. 262.

202.245 Income in respect of decedent; royal-ties pursuant to contract. Royalty paymentsreceived by a taxpayer under a contract executedby her mother (now deceased) as executrix of theestate of her father constitute taxable income to thetaxpayer. However, she is entitled to deduct thatportion of the estate tax paid which is attributableto the including in the widow’s estate of the rightto receive such royalty payments. Clarified anddistinguished by Rev. Rul. 60-227. §1.691(a)-2.(Sec. 691, ’86 Code.)

Rev. Rul. 57-544, 1957-2 C.B. 361.

202.246 Income in respect of decedent; unex-ercised employee stock options. Payments by anemployer to the estate of an employee as consider-ation for the surrender of employee stock optionsare included in the income of the employee’sestate. The excess of the fair market value of thestock over the price at which the employee couldhave purchased it under the options is includiblein the decedent’s gross estate. The estate tax attrib-utable to such excess may be deducted by theestate in computing its income tax. §29.126–1.(Sec. 126, ’39 Code; Sec. 691, ’86 Code.)

Rev. Rul. 196, 1953-2 C.B. 178.

202.247 Income of beneficiaries; short tax-able year. Guidance is provided to trusts, requiredto use the calendar year as their taxable year, tospread over 4 years the income of beneficiariesattributable to a short taxable year.

Notice 88-45, 1988-1 C.B. 529.

202.248 Income to discharge charitablepledge of grantor. The grantor will not be treatedas the owner of a trust, under section 677, wheretrust income is applied to discharge a charitablepledge made by the grantor, if he would have beenentitled to a deduction under section 170 if he had

I

Estates and trusts

personally satisfied the pledge. The grantor willnot be entitled to any charitable deduction onaccount of payments of trust income; however,such payments will be deductible by the trust.§§1.170-1, 1.677(a)-1. (Secs. 170, 677; ’86Code.)

Rev. Rul. 64-240, 1964–2 C.B. 172.

202.249 Installment obligations acquiredfrom decedent; bond to defer gain. Income taxbonds executed under the 1939 Code to defer thegain from installment obligations transmitted atdeath remain in force until satisfied, even thoughthey are not required under the 1954 Code.§39.44-5. (Sec. 44, ’39 Code; Secs. 453, 691, ’86Code.)

Rev. Rul. 55–627, 1955-2 C.B. 550.

202.250 Installment obligations transferredto irrevocable reversionary trust. A taxpayerreported a gain using the installment method andlater transferred the installment note to an irrevo-cable reversionary trust, which would be termi-nated 10 years and 1 month after the transfer.Under the terms of the trust, the taxpayer receiveddeferred profit and return of capital, and anotherindividual to whom the taxpayer owed no duty ofsupport received the interest. The transfer is not adisposition of the installment note, and the tax-payer must continue to include the deferred profitand interest in gross income. §§1.61–1, 1.671–2,1.677(a)-1. (Secs. 61, 453, 453B, 671, 677; ’86Code.)

Rev. Rul. 81–98, 1981–1 C.B. 40.

202.251 Installment obligations transferredto revocable trust. The transfer of an installmentobligation to a trust by a grantor who retained theright to revoke the trust and revest title to the trustassets in himself is not a “disposition” of suchobligation within the meaning of section 453(d).Rev. Rul. 73-584 superseded. §§1.453-9,1.676(a)-1. (Secs. 453, 676; ’86 Code.)

Rev. Rul. 74–613, 1974-2 C.B. 153.

202.252 Installment obligations transferredto trust. The transfer of an installment obligationto a reversionary trust is not a disposition wherethe grantor is treated as the owner of a portion ofthe trust consisting of the deferred profit includedin the installment obligation. The grantor is tax-able on the deferred profit as the installment pay-ments are received by the trust, however, he is nottaxable on the interest income earned by the trustand paid to a charitable beneficiary for a period oftwo years and one month from the date of thetransfer of the installment obligation to the trust.§§1.453-9, 1.673(b)-1, 1.677(a)-1. (Secs. 453,673, 677; ’86 Code.)

Rev. Rul. 67–70, 1967–1 C.B. 106.

202.253 Installment obligations transferredto trust. The transfer of an installment obligationin trust is a “disposition” of the obligation whenthe grantor is not the owner of any part of the trustand the transfer results in recognition of the def-erred gain to the grantor in the taxable year inwhich the disposition occurred. The gain is the dif-ference between the basis of the obligation and itsfair market value at the time of transfer. §1.453-9.(Sec. 453, ’86 Code.)

Rev. Rul. 67-167, 1967-1 C.B. 107.

202.254 Insurance company retaining policyproceeds. A trust is not created where, under asettlement agreement, a life insurance companyretains the proceeds of an insurance policy at itsmaturity, commingles such proceeds with its otherfunds, and pays a fixed rate of interest to the bene-ficiaries. Therefore, a fiduciary income tax returnis not required to be filed. §§1.641(a)–1,1.6012-3. (Secs. 641, 6012; ’86 Code.)

Rev. Rul. 68-47, 1968–1 C.B. 300.

202.255 Interest on bonds transferred totrust. Interest accrued on bonds prior to their

transfer to a trust is includible in the gross incomeof a cash basis donor for the taxable year duringwhich such interest is actually or constructivelyreceived by the trust. However, amounts receivedrepresenting interest accruing after the transfer areincludible in the trust’s moss income. I.T.s 3011and 3097 superseded. §§1.61–1, 1.102–1. (Secs.61, 102; ’86 Code.)

Rev. Rul. 72-312, 1972-1 C.B. 22.

202.256 Investment trust; credit support. Thepower of a trustee to consent to changes in thecredit support of debt obligations held in an invest-ment trust, is not a “power to vary the investment”under section 301.7701-4(c) of the regulationswhere the power is exercisable only to the extentthe trustee reasonably believes the change isadvisable to maintain the value of trust assets bypreserving the credit rating of the obligations.§301.7701-4. (Sec. 7701, ’86 Code.)

Rev. Rul. 90-63, 1990-2 C.B. 270.

202.257 Investment trust; tax classification.A fixed investment trust consisting of municipalobligations, which will terminate on a specifieddate, upon the disposition of the last obligationheld, or upon a specified decrease in the value ofthe trust assets and whose trustees have limitedpower to reinvest certain funds under specifiedconditions during the first 20 years of the trust’sexistence, is an association taxable as a corpora-tion. Rev. Rul . 73-460 distinguished.§301.7701-4. (Sec. 7701, ’86 Code.)

Rev. Rul. 78-149, 1978-1 C.B. 448.

202.258 Investment trust; New York. Aninvestment trust created by savings banks underNew York Banking Law in which each of severalgrantor-banks reserves an income interest in pro-portion to its contribution with power to controlbeneficial enjoyment is treated as owned propor-tionately by each grantor bank and all income,deductions and credits attributable thereto areconsidered as those of the contributing bank.§§1.674(a)-1, 1.677(a)-1, 301.7701-4. (Secs.674, 677, 7701; ’86 Code.)

Rev. Rul. 61-175, 1961-2 C.B. 128.

202.259 Investment trusts; power to vary theinvestment. The power to transfer additionalsecurities into an investment trust in an investmenttrust in exchange for interests in the trust is not apower to vary the investment within the meaningof section 301.7701-4(c) if the power is exercis-able for only a limited period at the inception of thetrust and if the additional securities are substan-tially similar to those initially deposited in thetrust. §301.7701-4. (Sec. 7701, ’86 Code.)

Rev. Ru1. 89-124, 1989-2 C.B. 262.

202.260 Investment trust; tax classification.An oil royalty investment trust instrument con-tained a provision requiring the trustee to set aparta portion of the income as a reserve fund to acquireadditional properties for the trust. Held, thereserve fund existed because of the wasting qual-ity of the assets involved and the trustee’s powerswere not sufficient to cause the trust to be consid-ered an association taxable as a corporation. (Sec.3797, ’39 Code; Sec. 7701, ’86 Code.)

Royalty Participation Trust, 20 T.C. 466, Acq.,1953-2 C.B. 6.

202.261 Investment trust; tax classification.A fixed investment trust established by a stock bro-kerage firm that deposited municipal obligationswith a trustee bank in exchange for a certificate for20,000 ownership units and sold the units to inves-tor clients, under a trust agreement prohibiting thestockbrokerage firm and the trustee from reinvest-ing moneys in additional obligations or varyinginvestments and requiring semiannual principaland interest distributions, qualifies as a trust underreg. 301.7701-4(c). Distinguished by Rev. Rul.78-149. §301.7701-4. (Sec. 7701, ’86 Code.)

Rev. Rul. 73-460, 1973–2 C.B. 424.

202.262 Investment trust; tax classification.Investment groups, with fixed capitalization andminimum investment requirements, formed forthe purpose of investing in specified quality exist-ing FHA and VA mortgages purchased and col-lected by a specified service corporation turningover all proceeds, less its fees, to each group’ s cho-sen trustee who makes quarterly distributions ofthe proceeds proportionately to the group mem-bers and who between distributions is required toinvest in and hold to maturity certain short-termobligations maturing before the next distributiondate, qualify as trusts and the investor-grantors areconsidered owners in proportion to their invest-ments. §§1.677(a)–1, 301.7701-4. (Secs. 677,7701; ’86 Code.)

Rev. Rul. 75-192, 1975-1 C.B. 384.

202.263 Leasebacks. Rental payments to a trustby a grantor are not deductible business expenseswhere real property is transferred to the trust for aten-year period for the benefit of grantor’s chil-dren with his wife as one of two trustees, with thecorpus to go to the wife in the event of the grantor’sdeath prior to the expiration of the ten-year period,and with the privilege of leaseback retained by thegrantor. Modified by Rev. Rul. 57–315 to providethat the rental payments will constitute a com-pleted gift at the time of the transfer for gift taxpurposes, provided the right to such rentals is,under the terms of the transfer and applicable Statelaw, fixed or vested. §§39.22(a)-21, 39.23(a)-10.(Secs. 22(a), 23(a), ’39 Code; Secs. 61, 162, ’86Code.)

Rev. Rul. 54-9, 1954-1 C.B. 20.

202.264 Legal expenses paid by trustee. Atrust instrument provided for the trust income to bepaid to the beneficiary upon receipt and for thetrustee to pay legal expenses from such income.Held, the legal expenses are not included in com-puting the beneficiary’s taxable net income. (Sec.162(d), ’39 Code; Sec. 661, ’86 Code.)

Bessie B. Hopkinson, 42 B.T.A. 580, Acq.1962-2 C.B. 4.

202.265 Life tenant’s interest in trust; sale toremainderman. The life tenant’s sale of the entireinterest in a testamentary trust to the remainder-man is a sale of a capital asset. The Beulah EatonMcAllister decision followed. §§1.1001-1,1.1014-5, 1.1222-1. (Secs. 1001, 1014, 1222; ’86Code.)

Rev. Ru1. 72-243, 1972-1 C.B. 233.

202.266 Liquidating trust; assets acquired indebt satisfaction. A trust formed by a group ofcreditors to acquire the assets of a debtor partner-ship from the trustee in bankruptcy, sell the assets,and distribute proceeds, is considered a liquidat-ing trust. All items of income, deduction, or credit,with respect to sale of the property, are includiblein computing tax liability of the creditors in theyear of sale to the extent such items would be takeninto account had the trust not been formed. Theunadjusted basis of the property is that portion ofthe fair market value which is allocable to eachcreditor’s claim plus their pro rata share of anamount paid for the release of the Federal tax lien.Amounts expended which are proper additions tobasis and amounts which may be deducted cur-rently or offset against the selling price of suchproperty are set forth. §§1.671-1, 1.671-2,1.671-3, 1.677(a)-1, 1.1011-1. (Secs. 671, 677,1011; ’86 Code.)

Rev. Rul. 63-228, 1963-2 C.B. 229.

202.267 Liquidating trust; distributions.Ordinary income or capital gain realized by a liq-uidating trust currently distributed to a benefi-ciary, is includable in the gross income of the recip-ient for his taxable year in which or with which thetaxable year of the trust ends. Capital gain realizedby the trustee on sale of the trust property, whichis distributed to the beneficiary, would also be cap-ital gain in the hands of the certificate holders.

Estates and trusts

Gain or loss is also realized by the certificate hold-ers with respect to distribution of trust principalother than proceeds of capital gain measured withrespect to the certificate holder’s basis in his trustcertificate, and constitutes ordinary income orlos. §39.162-1. (Sec. 162, ’39 Code; Sec. 641,’86 Code.)

Rev. Rul. 56-78, 1956-1 C.B. 648.

202.268 Liquidating trust; ruling require-ment. Revised conditions are specified that mustbe met before the Service will consider issuingadvance rulings concerning the classification oforganizations as liquidating trusts. Rev. Procs.80-54 and 81–51 modified and superseded.§301.7701-4. (Sec. 601.201, S.P.R.; Sec. 7701,’86 Code.)

Rev. Proc. 82-58, 1982-2 C.B. 847.

202.269 Liquidating trust holding assets;classification. A trust established under state lawfor the purpose of liquidating and distributingassets (land, a heating plant located theron, a right-of-way to the land, and mining claims) that weretransferred by a liquidating corporation and thatcould not be sold other than under distress condi-tions within the 12-month period following thecorporation’s adoption of a plan of liquidation isclassified as a liquidating trust under reg.301.7701-4(d). The shareholders of the liquidat-ing corporation are considered the owners of thetrust and are taxable on the trust income.§301.7701-4. (Sec. 7701, ’86 Code.)

Rev. Rul. 80-150, 1980-1 C.B. 316.

202.270 Liquidating trust holding long-termnotes; classification. A trust established understate law for the purpose of liquidating for thebenefit of shareholders a corporation’s assets notdistributable in kind, including two notes from anunrelated corporation that were due in ten yearsand were not salable at or near face value, will beconsidered a liquidating trust within the meaningof reg. 301.7701-4(d). The shareholders are con-sidered the owners of the trust and are taxable ontrust income. §301.7701-4. (Sec. 7701, ’86Code.)

Rev. Rul. 75-379, 1975-2 C.B. 505.

202.271 Livestock and crop shares as rent;deceased farmer. Crop shares or livestockreceived as rent by a decedent, who had employedthe cash method of accounting, prior to his death,and owned by him at the time of his death, as wellas crop shares or livestock which he had a right toreceive as rent at the time of his death for eco-nomic activities occurring before his death,constitute income in respect of a decedent report-able in the year the crop shares or livestock aresold, or disposed of. Where the decedent dies dur-ing a rent period, then only the net proceeds attrib-utable to the portion of the rent period ending withhis death are income in respect of a decedent. Theproceeds attributable to the portion of the rentperiod which runs from the day after death to theend of the rent period are ordinary income to theestate. Rev. Rul. 58-436 modified. §§1.61-4,1.691(a)–1. (Secs. 61, 691; ’86 Code.)

Rev. Rul. 64-289, 1964-2 C.B. 173.

202.272 Livestock and crops; deceasedfarmer. Livestock and farm crops, harvested orunharvested, raised by a decedent prior to hisdeath, or received from tenants as rent for farmlands, held for sale or feeding purposes, which adecedent, who had reported his income on the cashmethod of accounting, owned at the time of hisdeath, constitute items of property or inventoryand not rights to, or items of, income in respect ofa decedent. Modified by Rev. Rul. 64-289.§§1.61-4, 1.102–1, 1.691(a)–1, 1.1014–1. (Secs.61, 102, 691, 1014; ’86 Code.)

Rev. Rul. 58-436, 1958-2 C.B. 366.

202.273 Losses; stock sold to trust. Loss on thesale of stock by the executor of an estate to an inter

vivos trust which the decedent had created for hiswidow, is a capital loss deductible from the grossincome of the estate to the extent provided in sec-tion 1211(b) of the Code. (Sec. 267, ’86 Code.)

Rev. Rul. 56-222, 1956-1 C.B. 155.

202.274 Marital deduction trust. A bequest toa marital trust in an amount sufficient to obtain themaximum marital deduction for estate tax pur-poses constitutes a fixed and definite “dollaramount.” Capital gains are realized by the estateto the extent that the fair market value of the prop-erty distributed to the trust on the date of distribu-tion exceeds the value as determined for estate taxpurposes. Clarified by Rev. Rul. 60-87. (Sec.1014, ’86 Code.)

Rev. Rul. 56-270, 1956-1 C.B. 325.

202.275 Marital deduction trust. Gain or lossis recognized on the distribution of property by theexecutor of an estate to a marital deduction trustcomprising a portion of the residue of a decedent’sestate, where such portion is measured by a per-centage of the adjusted gross estate. The maritaldeduction trust fund is considered as being pro-vided for in a fixed and definite “dollar amount.”Gain or loss is realized by the estate measured bythe difference between the fair market value of theproperty at the date of the distribution and thevalue as determined for estate tax purposes. Rev.Rul. 56-270 clarified. §§1.663(a)-1, 1.1002-1,1.1014-1. (Secs. 663, 1002, 1014; ’86 Code.)

Rev. Rul. 60-87, 1960-1 C.B. 286.

202.276 Mortgage-backed certificates; resi-dential mortgage “pool”. Tax consequencesassociated with purchases by various investors(savings and loan associations, real estate invest-ment trusts, individuals and exempt employees’trusts) of “straight pass-through” or “fully-modi-fied pass-through” mortgage-backed certificateswhich are guaranteed by the Government NationalMortgage Association and issued by savings andloan associations engaged in the financing of resi-dential mortgages against a “pool” of mortgagesinsured by Federal Housing Administration,Farmers Home Administration or are insured andguaranteed by the Veterans Administration. Modi-fied by Rev. Rul. 74-169. §§1.61-1, 1.162-1,1.212-1, 1.501(a)-1, 1.671-1, 1.856-1,1.1232-1, 301.7701-2, 301.7701-13. (Secs. 61,162, 212, 501, 671, 856, 1232, 7701; ’86 Code.)

Rev. Rul. 70-544, 1970-2 C.B. 6; Rev. Rul.70-545, 1970-2 C.B. 7.

202.277 Mortgage-backed certificates; resi-dential mortgage “pools”. Tax consequencesassociated with “straight pass-through” mort-gage-backed certificates, representing undividedinterests in a “pool” of residential mortgage loanscreated by the Federal National MortgageAssociation and sold to investors are explained.Rev. Ruls. 70–544 and 70–545 clarified.§§1.61-1, 1.162-1, 1.671-1, 1.171-1, 1.212-1,1.593-11, 1.856-2, 1.1232-1, 301.7701-4,301.7701-13A. (Secs. 61, 162, 171, 212, 593, 856,1232, 1232A, 7701; ’86 Code.)

Rev. Rul. 84-10, 1984-1 C.B. 155.

202.278 Mortgage-backed certificates; resi-dential mortgage “pool”. Tax consequencesassociated with “straight pass-through” mort-gage-backed certificates, representing undividedinterests in a “pool” of residential mortgageloans, sold to building and loan associations, realestate investment trusts, and individuals areexplained. §§1.61–1, 1.162–1, 1.212–1, 1.671–1,1.856-2, 1.1232-1, 301.7701-2, 301.7701-13.(Secs. 61, 162, 212, 671, 856, 1232, 7701; ’86Code.)

Rev. Rul. 77-349, 1977–2 C.B. 20.

202.279 Multiple trusts vs. single trust. A trustinstrument and its subsequent amendment pro-vided for afternoon and unascertainable beneficia-ries to acquire proportionate interests in the trust

property, and for the share of a deceased benefi-ciary without issue to be divided among theremaining beneficiaries. It did not contain specificlanguage for the creation of separate trusts, andwas administered by a trustee who neither made aphysical division of the trust property nor keptseparate bank accounts for each share. Held, sepa-rate trusts were created for each beneficiary ratherthan a single trust for the benefit of all. (Sec. 641,’86 Code.)

Robert L. Moody Trust, 65 T.C. 932, Acq.,1976-2 C.B. 2.

202.280 Net operating loss carryback; dis-tributable net income. The net operating loss car-ryback allowable to an estate has the effect ofreducing the distributable net income of the estatefor the prior taxable year to which the net operat-ing loss is carried, thereby permitting the estatebeneficiary to recompute his tax liability for suchprior year based upon the revised estate’s distribu-table net income after allowance of the net operat-ing loss deduction. Any resulting overpayment oftaxes may be refunded to the beneficiary providedthe refund is allowed or a claim for refund or creditis timely filed by the beneficiary. §§1.172-4,1.641(a)-1, 1.642(d)-1, 1.643-1, 1.662(a)-1,301.6511(d)-2. (Secs. 172, 641, 642, 643, 662,6511; ’86 Code.)

Rev. Rul. 61-20, 1961-1 C.B. 248.

202.281 Nonresident alien beneficiary;income from foreign trust that is limited part-ner in U.S. partnership. Income received by anonresident alien beneficiary of a foreign trust thatis a limited partner in a U.S. partnership, which hasa permanent establishment in the U.S., is notexempt from federal income tax under any incometax treaty where the beneficiary is considered to bein receipt of business profits attributable to thatpartnership’s permanent establishment. Suchincome will be included in the gross income of thebeneficiary under section 871(b). §§1.651(a)-1,1.652(b)-1, 1.871-8, 1.875-2. (Secs. 651, 652,871, 875; ’86 Code.)

Rev. Rul. 85-60, 1985-1 C.B. 187.

202.282 Nonresident alien beneficiary; inter-est income. Interest income on U.S. bank depositsthat is received by a nonresident alien beneficiaryas a distribution from a U.S. trust is not U.S. sourceincome within the meaning of section861(a)(1)(A). Rev. Rul. 59–245 revoked.§§1.861-2, 1.871-7, 1.1441-4. (Secs. 861, 871,1441; ’86 Code.)

Rev. Rul. 81–244, 1981-42 I.R.B. 13; IsidroMartin-Montis Trust, 75 T.C. 381, Acq., 1981-2C.B. 2.

202.283 Nonresident alien beneficiary; inter-est income. Interest income from savings depositswith a domestic branch of a U.S. bank that isreceived by a domestic estate and is distributed tononresident alien beneficiaries in the year ofreceipt is not from U.S. sources and is not subjectto U.S. taxation in the hands of the beneficiaries.If such income is not distributed in the year ofreceipt, it is income to the estate and subject toU.S. taxation. Rev. Rul. 81–244 amplified.§§1.661(a)-2, 1.861-2, 1.871-7, 1.1441-4. (Secs.661, 861, 871, 1441; ’86 Code.)

Rev. Rul. 86-76, 1986-1 C.B. 284.

202.284 Nonresident alien beneficiary; sale ofU.S. property; withholding. A domestic fidu-ciary is not required to withhold tax at the sourcefrom that portion of a trust’s net income represent-ing gain from the sale of property in the U.S. whichis distributable currently to a nonresident alienbeneficiary, or properly paid or credited to himduring the taxable year. I.T. 3495 superseded.§1.1441-2. (Sec. 1441, ’86 Code.)

Rev. Rul. 70-599, 1970-2 C.B. 172.

202.285 Nonresident alien decedent; domicil-iary administration in foreign country. Whetherthe estate of a nonresident alien decedent, which

I

Estates and trusts

is subject to domiciliary administration in a for-eign country and ancillary administration in theU.S., is a resident or nonresident alien entitydepends upon all of the facts involved, includingthe appointment of an ancillary administrator whois a citizen or resident of the U.S. and the extentand duration of the activities of such ancillaryadministrator in the U.S. Rev. Rul. 57–245 modi-fied; Rev. Rul. 58-232 superseded. §§1.641(a)-2,1.871-2. (Secs. 641, 871; ’86 Code.)

Rev. Rul. 62-154, 1962-2 C.B. 148.

202.286 Nonresident alien decedent; with-holding. The estate of a citizen of a foreign coun-try domiciled therein or in another foreign countryat the date of his death is classified as a nonresidentalien entity, even though the will of the decedentwas admitted to original probate in a U.S. court. Adomestic branch of a foreign bank, which is hold-ing shares of stock of U.S. corporations for theaccount of the executor of the estate, is required towithhold tax from the dividends received by it forthe benefit of the estate. Modified by Rev. Rul.62-154 with respect to the classification of suchestate as a nonresident alien entity. §1.1441–1.(Sec. 1441, ’86 Code.)

Rev. Rul. 57-245, 1957-1 C.B. 286.

202.287 Nonresident alien entity; U.S. citizenwith foreign residency. A U.S. citizen had beena resident of a foreign country for 20 years beforedying. The decedent’s spouse, who is a citzen andresident of the foreign country, is the primarybeneficiary of the decedent’s estate. The adminis-trators and executors are entities of the foreigncountry, and all the estate’s assets are located in,and administered under the laws of, the foreigncountry. The estate is a foreign estate for purposesof section 7701(a)(31). §301.7701–31. (Sec. 7701,’86 Code.)

Rev. Rul. 81-112, 1981-1 C.B. 598.

202.288 Nonresident alien estate; ancillaryadministration in U.S. A nonresident alienestate, subject to ancillary administration in theU.S., is liable for U.S. income tax on gains derivedfrom the sales of securities in the U.S., but theestate is entitled to a deduction in computing tax-able income for the distribution of the gain to thenonresident alien beneficiaries. The gain distrib-uted to the nonresident alien beneficiaries is notsubject to withholding of tax at the source; how-ever, the distribution of dividends to the beneficia-ries are subject to the withholding of tax at thesource. §§1.661(a)–2, 1.1441–2. (Secs. 661, 1441;’86 Code.)

Rev. Rul. 68-621, 1968-2 C.B. 286.

202.289 Nonresident beneficiary; accumula-tion distribution. A resident fiduciary of adomestic trust is required to withhold income taxfrom an accumulation distribution made to a non-resident alien beneficiary to the extent the itemsarc gross income from sources within the U.S., andto the extent provided in a treaty or tax convention,if any, between the U.S. and the country of whichthe nonresident alien beneficiary is a resident. Thebeneficiary is entitled to credit for the tax withheldand the tax credit provided for in section 668(b).Rev. Rul. 59-177 distinguished. §§1.688(b)-1,1.1441-2. (Secs. 668, 1441; ’86 Code.)

Rev. Rul. 68-605, 1968–2 C.B. 390.

202.290 Nonresident beneficiary; distributa-ble net income. Where, under the terms of a trust,a resident fiduciary of a trust pays, credits or isrequired to distribute amounts to a nonresidentalien beneficiary which constitute income fromsources within the U.S., the fiduciary is notrequired to withhold income tax on the amount ofthe distribution which exceeds the beneficiary’sshare of the distributable net income of the trust.Distinguished by Rev. Rul. 68-605. §§1.61-1,

1.652(a)-1, 1.662(a)-1, 1.1441-1. (Secs. 61, 652,662, 1441; ’86 Code.)

Rev. Rul. 59–177, 1959–1 C.B. 229.

202.291 Obsolete. For taxable years endingafter October 4, 1976, expenses incurred in thesale of property by an estate, not as a dealer, maynot be used to offset the amount of the sales priceof the property in determining gain or loss for fed-eral income tax purposes if the expenses areallowed as a deduction for federal estate tax pur-poses. Rev. Rul. 71–173 is obsolete.§§1.642(g)-1, 301.7805-1. (Secs. 642, 7805; ’86Code.)

Rev. Rul. 89-75, 1989-1 C.B. 319.

202.292 Oil and gas leases; royalty income;transferred in trust. Royalty income attributableto an undivided one-half of one-eighth nonpartici-pating royalty interest in an oil and gas lease,transferred to an irrevocable trust by a husbandand wife for the benefit of their minor children, isincludible in the trust’s gross income. However,any of the trust income used for the support ormaintenance of the minors is included in the grant-or’s gross income. §§1.61–1, 1.671–1. (Secs. 61,671; ’86 Code.)

Rev. Rul. 71-130, 1971-1 C.B. 28.

202.293 Partnership interest transferred toreversionary trust. Where a taxpayer-grantortransfers his partnership interest, including all hisrights and duties with respect to the partnership, toa trust with a two-year term and retains a rever-sionary interest in the trust’s corpus, no part of thetrust’s income is taxable to him if, under the termsof the trust instrument, the trustee must pay allincome of the trust irrevocably to a designatedcharitable beneficiary. §1.673(b)–1. (Sec. 673,’86 Code.)

Rev. Rul. 68–196, 1968–1 C.B. 307.

202.294 Personal trust; interest on Series Ebonds. An individual who transferred to a revoca-ble personal trust Series E U.S. savings bonds onwhich he had elected not to report the increment invalue in his individual income tax returns for prioryears did not realize income from the increment invalue of the bonds on their transfer to the trust.§1.676(a)-1. (Secs. 454, 676; ’86 Code.)

Rev. Rul. 58-2, 1958-1 C.B. 236.

202.295 Pooled income fund; beneficiary’sincome interest based on another’s life. Anotherwise qualifying fund whose governinginstrument permits the duration of a beneficiary’sincome interest to be measured by the life ofanother does not qualify as a pooled income fundunder section 642(c)(5), and the value of a remain-der interest in property transferred to the fund isnot deductible under section 170, 2055, 2106, or2522, even though the instrument of transfer basesthe duration of the designated beneficiary’sincome interest on the beneficiary’s life. Thefund’s governing instrument may be amended toqualify prospectively if the fund has not acceptedproperty under a defective instrument of transfer.§§1.170A-6, 1.642(c)-5. (Secs. 170, 642, 2055,2106, 2522; ’86 Code.)

Rev. Rul. 79-61, 1979-1 C.B. 220.

202.296 Pooled income fund; beneficiary’slife income interest in transferred property. Afund established by a charitable organization to beused exclusively for the investment of propertiesin which it has remainder interests, whose govern-ing instrument requires that income accumulatedduring the period of administration of a donor’sestate and payable to the fund under state law bepaid to the life income beneficiary without beingincluded in determining the beneficiary’s units ofparticipation in the fund, will not qualify as apooled income fund. §1.642(c)-5. (Sec. 642, ’86Code.)

Rev. Rul. 76-445, 1976-2 C.B. 193.

202.297 Pooled income fund; governinginstruments; deductibility. The Service will notchallenge the deductibility of contributions madeafter February 15, 1991, to a pooled income fundthat holds depreciable or depletable property if thefund disposes of such property before January 1,1993. Rev. Rul. 90-103 modified. §§1.642(c)-5,1.170A-6. (Secs. 170, 642, 2055, 2106, 2522; ’86Code.)

Rev. Rul. 92–81, 1992–2 C.B. 119.

202.298 Pooled income fund; governinginstruments; sample provisions. Sample provi-sions for inclusion in Declaration of Trust andInstrument of Transfer that may be used to satisfysection 642(c)(5) are set forth to serve as a guidein developing governing instruments for pooledincome funds. Rev. Rul. 72-196 amplified, clari-fied, and superseded. §1.642(c)-5. (Sec. 642, ’86Code.)

Rev. Rul. 82-38, 1982-1 C.B. 96.

202.299 Pooled income fund; governinginstruments; sample provisions. Guidance isprovided to trustees of pooled income funds sothat provisions can be made in the Declaration ofTrust for selection of an alternate charitableremainderman in the event that the designatedpublic charity goes out of existence or loses itsqualification. Rev. Rul. 82–38 amplified.§1.642(c)-5. (Sec. 642, ’86 Code.)

Rev. Rul. 85-57, 1985-1 C.B. 182.

202-300 Pooled income fund; governinginstruments; sample provisions. A trust does no-t meet the requirements for a pooled income fundunder section 642(c)(5)(A) of the Code where thetrustee is not prohibited from accepting or invest-ing in depreciable property and the governinginstrument does not provide that the trustee shallestablish a depreciation reserve in accordancewith generally accepted accounting principles.Rev. Rul. 82-38 amplified. §1.642(c)-5. (Sec.642, ’86 Code.)

Rev. Rul. 90-103, 1990-2 C.B. 159.

202.301 Pooled income fund; investment incommon trust fund. The investment of moneysof pooled income funds by a bank, as trustee ofsuch funds, in the bank’s common trust fund, willnot disqualify the funds under section 642(c)(5)provided the common trust fund does not containor acquire any tax-exempt securities. §§1.584-1,1.642(c)-5. (Secs. 584, 642; ’86 Code.)

Rev. Rul. 74-247, 1974-1 C.B. 152.

202.302 Pooled income fund; maintenance bypublic charity. The power of a public charity’sboard of directors to remove the members of a sup-porting foundation’s board of directors andappoint new directors is substantially equivalentto the power to remove the foundation as trustee ofa pooled income fund that qualifies under section642(c)(5). Thus, the requirement that the pooledincome fund must be maintained by the publiccharity has been met. §§1.170A-1, 1.509(a)-4,1.545-2, 1.556-2, 1.642(c)-5. (Secs. 170, 509,545, 556, 642; ’86 Code.)

Rev. Rul. 74-132, 1974–1 C.B. 152.

202.303 Pooled income fund; maintenance bypublic charity. The requirement that a pooledincome fund must be maintained by a public char-ity will not be met by an investment fund estab-lished by a bank trustee that controls the fund’sinvestment policies and assets, because the trustagreement does not authorize the public charityremainderman to remove the trustee and appointa new trustee. §1.642(c)–5. (Sec. 642, ’86 Code.)

Rev. Rul. 75-116, 1975–1 C.B. 182.

202.304 Pooled income fund; maintenancerequirement. This ruling considers two differentfactual situations in determining whether a fundmaintained by a community trust meets the main-tenance requirement of section 642(c)(5)(E) to be

Estates and trusts

qualified pooled income fund. §1.642(c)-5. (Sec.642, ’86 Code.)

Rev. Rul. 92-108, 1992-2 C.B. 121.

202.305 Pooled income fund; maintenancerequirement. This ruling describes a factual situ-ation in which a fund that is maintained by anational organization for itself and its local orga-nizations meets the maintenance requirements ofsection 642(c)(5)(E) to be qualified pooledincome fund. §1.642(c)–5. (Sec. 642, ’86 Code.)

Rev. Rul. 92-107, 1992-2 C.B. 120.

202.306 Pooled income fund; maintenancerequirement. The Service revokes Rev. Rul.92-108 effective as of December 21, 1992, thedate of its publication in the Internal Revenue Bul-letin. §1.642(c)-5. (Sec. 642, ’86 Code.)

Rev. Rul. 93-8, 1993-1 C.B. 125.

202.307 Pooled income fund; maintenancerequirement. The Service announces that pend-ing further study, Rev. Rul. 92–108 is revoked,effective as of December 21, 1992.

Notice 93-9, 1993-1 C.B. 297.

202.308 Pooled income fund; ownership ofotllce building. A pooled income fund whosegoverning instrument authorizes the trustees toinvest in real estate will not be disqualified by itsownership of an office building managed andoperated by the fund. §1.642(c)–5. (Sec. 642, ’86Code.)

Rev. Rul. 79-387, 1979-2 C.B. 247.

202.309 Pooled income fund; qualified donor.A donor to a pooled income fund may be a personother than an individual. §1.642(c)–5. (Sec. 642,’86 Code.)

Rev. Rul. 85-69, 1985-1 C.B. 183.

202.310 Pooled income fund; sample forms.The purpose of this revenue procedure is to makeavailable a sample form of declaration of trust andinstruments of transfer that meet the requirementsfor a pooled income fund as described in section642(c)(5). §§1.170A-6, 1.642(c)-5. (Sec.601.201, S.P.R.; Secs. 170, 642, 2055, 2522, ’86Code.)

Rev. Proc. 88-53, 1988-2 C.B. 712.

202.311 Pooled income fund; valuation of lifeincome interests. For purposes of determining thepresent value of life income interests in a pooledincome fund, the first taxable year of a pooledincome fund is the year in which the fund firstreceives assets. §1.642(c)-6. (Sec. 642, ’86Code.)

Rev. Rul. 85-20, 1985-1 C.B. 183.

202.312 Pooled income fund; valuation ofremainder interest. A fund established by a char-itable organization whose governing instrumentprovides for termination of a beneficiary’s incomeinterest at the time of the last payment precedingthe beneficiary’s death and for an amount to besevered from the fund equal to the value of theproperty on which the income interest is based onthe valuation dates beginning January 1 and quar-terly payment dates beginning March 15, does notqualify as a pooled income fund. §1.642(c)-5.(Sec. 642, ’86 Code.)

Rev. Rul. 76-196, 1976-1 C.B. 178.

202.313 Power to distribute income; trusteenot grantor. A discretionary power in a personother than a grantor to distribute income to a bene-ficiary who is his wife is not a power to vestincome in himself so as to cause him to be treatedas the owner of the trust; the wife, as cotrustee, isnot treated as the owner of the trust, since she didnot have a power exercisable solely by herseIf tovest the corpus, or the income therefrom, in her-self. §1.678(a)–1. (Sec. 678, ’86 Code.)

Rev. Rul. 67-268, 1967-2 C.B. 226.

202.314 Prepaid expenses; allocation toexempt income. When the grantor of a revocabletrust prepays the trustee’s commission for severalyears, the deduction allowed in any year is limitedto the proportion attributable to the services per-formed in that year even though the taxpayer is ona cash basis. The grantor may not deduct any partof a commission that is allocable to tax-exemptincome. §1.671–3. (Secs. 212, 671; ’86 Code.)

Rev. Rul. 58-53, 1958-1 C.B. 152.

202.315 Property acquired from missing per-son; basis; date death presumed. A missing per-son is considered dead for purposes of determin-ing the basis of property under section 1014(a) inthe hands of an individual acquiring the propertyfrom the missing person when the missing personis presumed dead under state or local law, unlessthere is evidence establishing that death occurredearlier. If state or local law does not specify a timeat which a missing person will be presumed dead,the person will be considered dead for income taxpurposes after 7 years of continuous and unex-plained absence, unless death is established ear-lier. Rev. Rul. 66-286 clarified. §1.1014–1. (Sec.1014, ’86 Code.)

Rev. Rul. 82-189, 1982-2 C.B. 189.

202.316 Property acquired from nonresidentalien decedent. Foreign real property that isinherited by a United States citizen from a nonresi-dent alien will receive a step-up in basis under sec-tion 1014 even though the property is not includ-ible in the value of the decedent’s gross estate.§1.1014-1. (Sec. 1014, ’86 Code.)

Rev. Rul. 84-139, 1984-2 C.B. 168.

202.317 Property reconveyed to decedent’sestate. The nonrecognition provisions of section1038 do not apply to a reconveyance of real prop-erty to the estate of the deceased seller. §1.1038–1.(Sec. 1038, ’86 Code.)

Rev. Rul. 69-83, 1969-1 C.B. 202.

202.318 Property title in beneficiaries; fidu-ciary return. A Fiduciary Income Tax Returnmust be filed by an executor with respect to theincome from realty subject to administration priorto its transfer to the decedent’s widow in satisfac-tion of her dower interest and by a trustee under apower in trust created by the will with respect toincome he received from realty to which the bene-ficiaries held legal title. S.M. 4945 and Rev. Rul.59-154 superseded. §§1.641(a)-2, 301.7701-4.(Secs. 641, 7701; ’86 Code.)

Rev. Ru1. 75-61, 1975-1 C.B. 180.

202.319 Real property sold to pay estatedebts. The part of the gain from the sales of anintestate decedent’s real estate which is propor-tionate to the portion of the proceeds payable to theadministrator under North Carolina law for thedischarge of the debts of the estate is includible inthe gross income of the estate. The remainder ofthe gain which arises from the partition of the realestate at the suit of the heirs is not an amountreceived by the estate. §§1.641(a)–2, 1.643(b)–1.(Secs. 641, 643; ’86 Code.)

Rev. Rul. 59-375, 1959-2 C.B. 161.

202.320 Real property taxes paid by benefi-ciary. A taxpayer, the income beneficiary of anestate, authorized the executor-trustee to withholddistributions of income due her to pay taxes onestate property in danger of being sold for nonpay-ment of property taxes. Held, payment of the taxesprotected her beneficial interest in the propertyand were deductible by her. (Sec. 23(c), ’39 Code;Sec. 164, ’86 Code.)

Mary Rumsey Movius, 22 T.C. 391, Acq.,1954-2 C.B. 5.

202.321 Refunding bonds required from leg-atees. A decedent’s will provided that all incomewas to be distributed currently and that the execu-

tors, at their discretion, could require refundingbonds before paying such income to the legatees.Held, the legatees had no vested and absolute rightto current income and only income actually dis-tributed was taxable to them. (Sec. 162(b), ’39Code; Sec. 652, ’86 Code.)

Horace Greeley Hill, Jr., 24 T.C. 1133, Acq.,1956-2 C.B. 6.

202.322 Related or subordinate party; corpo-ration director. A director of a corporation is notan “employee”, as the term is used in section672(c) in defining the term “related or subordinateparty”, merely because he is a director.§1.672(c)-1. (Sec. 672, ’86 Code.)

Rev. Rul. 66-160, 1966-1 C.B. 164.

202.323 Related or subordinate party;defined. The term “related or subordinate party”is held to include a brother and sister whether bythe whole or half blood. §1.672(c)-1. (Sec. 672,’86 Code.)

Rev. Rul. 58-19, 1958-1 C.B. 251.

202.324 Residences; trust funds. The sale of aresidence which was purchased with trust fundsand occupied by the beneficiary of the trust and thepurchase of a new residence by the trust does notfall within the provisions of section 112(n) of the’39 Code. The trust, and not the beneficiary, is thetaxpayer, and the trust cannot qualify as a personwho used the property as its principal residence.§39.112(n)-1. (Sec. 112(n), ’39 Code; Sec. 1034,’86 Code.)

Rev. Rul. 54-583, 1954–2 C.B. 158.

202.325 Residuary testamentary trust;constructive ownership of stock. Where a corpo-ration redeems its own stock from an estate, theresidue of which is to be placed in trust for the soleremaining shareholder, the residuary testamentarytrust is a trust under section 318(a)(3)(B) eventhough the residue will not be transferred to thetrustee until administration of the estate is con-cluded, and the trust is a beneficiary of the estateunder section 318(a)(3)(A); accordingly, the cor-porate stock owned by the beneficiary is attributedto the trust and is in turn attributed to the estate.§1.318-1. (Sec. 318, ’86 Code.)

Rev. Rul. 67-24, 1967-1 C.B. 75.

202.326 Residuary trust; amounts annuallywithdrawable from corpus. A widow with solepower to vest in herself certain amounts annuallyfrom corpus of a residuary trust, is treated undersection 678(a), as the owner of that portion of thecorpus which she may vest in herself in the taxableyear even though her right as to any calendar yearlapses upon her failure to exercise it before the endof the year. The portions of trust corpus consideredowned by her are not subject to the provisions ofsections 661(a)(2) and 662(a)(2) when distributedto her. §§1.661(a)-2, 1.662(a)–3, 1.678(a)–1.(Secs. 661, 662, 678; ’86 Code.)

Rev. Rul. 67-241, 1967–2 C.B. 225.

202.327 Retirement income credit. Taxabledividends, interest, and rents derived from anestate or trust by an individual beneficiary who hasreached the age of 65 constitute retirement incomein computing retirement income credit. §§1.37–3,1.652(b)-1, 1.661(b)–1, 1.662(b)-1. (Secs. 37,652, 661, 662; ’86 Code.)

Rev. Rul. 57-277, 1957-1 C.B. 12.

202.328 Reversionary interest; additions totrust principal. Where the grantor of a trust hasa reversionary interest in the corpus, the incomewill not be taxable to him if his life expectancy ismore than ten years at the dale of transfer. How-ever, he will be taxable on the income from thatportion of the trust attributable to additions to theprincipal of the trust after the date of its creationand within ten years prior to its termination date,measured by the life expectancy of the grantor onthe date that such additions are made. Rev. Rul.

I

I

I

I

Estates and trusts

55-34 amplified. Modified by Rev. Rul. 73-251.(Sec. 673, ’86 Code.)

Rev. Rul. 56-601, 1956-2 C.B. 458.

202.329 Reversionary interest; life expec-tancy. Income of a trust is taxable to the grantorwhere he has a reversionary interest in the corpuswhich will revert to his estate at his death if his lifeexpectancy, according to appropriate U.S. life andactuarial tables, is less than 10 or 15 years, which-ever is applicable. Amplified by Rev. Rul. 56-601.(§39.22(a)-21. (Sec. 22(a), ’39 Code; Sec. 61, ’86Code.)

Rev. Rul. 55-34, 1955-1 C.B. 226.

202.330 Reversionary interest; transfer intrust. The grantor of a trust is not considered to bethe owner of a portion of the trust, thereby realiz-ing taxable income, merely because a reversionaryinterest in such portion passes to his estate in theevent of his death prior to the expiration of tenyears, where his estate cannot possess or enjoy theproperty until the expiration of ten years. How-ever, the grantor will be taxable on the income ofthat portion of the trust attributable to propertyadded to the original trust corpus after the creationof the trust and within ten years of its terminationdate. Modified by Rev. Rul. 73-251. §1.673(a)-1.(Sec. 673, ’86 Code.)

Rev. Rul. 58-567, 1958-2 C.B. 365.

202.331 Reversionary interest; transfer intrust. For transfers to a trust after December 31,1970, a grantor of a trust in which he has a rever-sionary interest is considered to be the owner ofonly that portion of the trust attributable to prop-erty transferred on a date when his life expectancyis less than ten years based on actuarial value com-putation Table LN of reg. 20.2031-10(f). Rev.Ruls. 56–601 and 58-567 modified. §1.673(a)–1.(Sec. 673, ’86 Code.)

Rev. Rul. 73-251, 1973-1 C.B. 324.

202.332 Reversionary interest; transfer intrust; determination of life expectancy. Actuar-ial tables are adopted for determining life expec-tancy for purposes of section 673, for transfers toa trust occurring after November 30, 1983,§1.673(a)-1. (Sec. 673, ’86 Code.)

Rev. Rul. 86-32, 1986–1 C.B. 252.

202.333 Reversionary trust; additions to cor-pus. The grantor of an irrevocable, reversionarytrust which terminates ten years and six monthsfrom its creation or upon the earlier death of thebeneficiaries, and the income from which is dis-tributable to another, is taxed on the capital gainsof the trust when, under state law, capital gains areadded to corpus. The ordinary income of the trustis taxable to the beneficiaries. §§1.673( a)–1,1.677(a)-1. (Secs. 673, 677; ’86 Code.)

Rev. Rul. 58-242, 1958–1 C.B. 251.

202.334 Reversionary trust; involuntary con-version of property; election. The grantor of areversionary trust, not the trust, is the “taxpayer”to make the election to have the provisions of sec-tion 1033 apply to gains from the sale of involun-tary converted property that is the corpus of thetrust where the trust instrument provides that gainfrom sales by the trust of items comprising trustcorpus were to be added to trust corpus and heldfor distribution to the grantor upon termination ofthe trust. §§1.671–2, 1.677(a)–1, 1.1033(a)–2.(Secs. 671, 677, 1033; ’86 Code.)

Rev. Rul. 70-376, 1970-2 C.B. 164.

202.335 Revocable trust; accounting methodand taxable year; trust grantor. The grantor-corporation of a revocable trust, in computing itstaxable income, is required to include the grossincome from all the trust properties. The taxableyear of, and the method of accounting used by, thetrust should be disregarded and the gross incomefrom the trust properties must be determined by

the grantor-corporation as if the trust had not beencreated. §1.671–2. (Sec. 671, ’86 Code.)

Rev. Rul. 57-390, 1957-2 C.B. 326.

202.336 Revocable trust; joint power ofrevocation; basis of property. Properties of aspendthrift trust created by five related taxpayersare entitled to new bases in the hands of the trust-ees upon the death of any one of the donors wherethe trust indenture provides that the income is pay-able to the grantor during their lifetime andreserves to the grantor the right to revoke the trustwith the consent of all of the then living grantors-beneficiaries, none of which have any adverseinterest in the disposition of the property orincome of any of the other grantor-beneficiary’strust fund. §1.1014–2. (Sec. 1014, ’86 Code.)

Rev. Rul. 58-395, 1958-2 C.B. 398.

202.337 Revocable trust; U.S. savings bonds;decedent’s unreported interest. A decedent whohad transferred Series E U.S. savings bonds to arevocable trust made no election during life toinclude in gross income each year the annualincrement in the bonds’ value. The executor of thedecedent’s estate may elect to include the pre-viously unreported increment in the bonds’ valueas interest in the decedent’s final return.§§1.454-1, 1.676(a)-1, 1.6012-3. (Secs. 454,676, 6012; ’86 Code.)

Rev. Rul. 79-409, 1979-2 C.B. 208.

202.338 Sample provisions for charitableremainder trusts. Sample provisions for charita-ble remainder trusts are provided for futurechanges to the applicable interest rates prescribedin the regulations. Rev. Ruls. 72–395, 80-123, and82-165 modified. §1.664-1. (Sec. 664, ’86 Code.)

Rev. Rul. 88-81, 1988-2 C.B. 127.

202.339 Securities transferred to Canadiansecurity holder. A domestic insurance corpora-rion’s transfer of securities to a Canadian securityholder to meet the asset maintenance requirementsof the Canadian Foreign Insurance Companies Actdoes not create a trust if ownership and discretion-ary powers to deal with the securities are retainedby the corporation. §301.7701-4. (Sec. 7701, ’86Code.)

Rev. Rul. 73-100, 1973-1 C.B. 613.

202.340 Senior/Subordinated investmenttrust; transfer of subordinate interest. A subor-dinated interest of a senior/subordinated invest-ment trust may be transferred without causing thetrust to be classified as an association, taxable asa corporation. §301.7701-4. (Sec. 7701, ’86Code.)

Rev. Rul. 92-32, 1992-1 C.B. 434.

202.341 Settlement funds and similar funds.Rev. Rul. 71-119, Rev. Rul. 70-567, and Rev. Rul.64-131, to the extent of its third fact situation, arerendered obsolete by section 468B(g). Rev. Rul.82–177 and Rev. Rul. 76-50 are modified to deletereferences to Rev. Rul. 70-567, Rev. Rul. 64–131,and any inference that the income earned on fundsor assets described therein is not subject to currenttax. §1.641(a)–1. (Secs. 468B, 641; ’86 Code.)

Rev. Rul. 92-51, 1992-2 C.B. 102.

202.342 Settlement under aircraft liabilityinsurance policy. An amount received by theestate of an employee killed while a passenger inhis employer’s airplane, under the employer’s air-craft liability insurance policy that provided speci-fied payments for injury or death while a passen-ger of the plane and upon execution of a fullrelease from all claims for damage against theemployer, is excludable from the gross income ofthe estate. Rev. Rul. 58–578 superseded.§1.104-1. (Sec. 104, ’86 Code.)

Rev. Rul. 75-45, 1975-1 C.B. 47.

202.343 Shareholder in small business corpo-ration. The estate of a deceased shareholder that

holds stock in a small business corporation solelyto facilitate the payment of Federal estate tax willcontinue to be an eligible shareholder within themeaning of section 1371(a) for the period duringwhich the estate complies with the provisions ofsection 6166. §§1.641(b)–3, 1.1371–1. (Secs. 641,1371, 6166; ’86 Code.)

Rev. Rul. 76-23, 1976-1 C.B. 264.

202.344 Soil and water conservation expendi-tures. Income received by a beneficiary from atrust engaged in farming cannot be used by him forthe purpose of computing the amount of his deduc-tions for soil or water conservation expendituresof his own farm within the purview of section 175.If, on termination, the trust has for its last taxableyear, deductions (including expenditures for soilor water conservation to the extent deductibleonder section 175) in excess of gross income forsuch year, then such excess is allowable under sec-tion 642(h)(2) as a deduction to the beneficiarysucceeding to the property of the trust. §§1.175–3,1.642(h)-1, 1.642(h)-2. (Secs. 175, 642; ’86Code.)

Rev. Rul. 58-191, 1958-1 C.B. 149.

202.345 Spend thrift trust; beneficiary’s dis-claimer of right to income. An individual whomakes a clear and irrevocable disclaimer, effec-tive under Pennsylvania law, of her right to incomewhich she is entitled to receive from a simplePennsylvania spendthrift trust, is not required toinclude in gross income the income accruing to thetrust subsequent to her disclaimer. §1.652(a)–1.(Sec. 652, ’86 Code.)

Rev. Rul. 64-62, 1964-1 (Part 1) C.B. 221.

202.346 Stock redeemed with insurance pro-ceeds. The redemption of a portion of capital stockof a corporation held by the estate of a deceasedstockholder, pursuant to an agreement wherebythe proceeds of life insurance policies will be usedby the corporation to redeem the capital stock heldby his estate, in case of death, will constitute a par-tial liquidation. The total amount received by theestate upon surrender of the stock will be treatedas in payment in exchange for the stock and gainor loss will be capital gain or loss. The excess ofthe insurance proceeds received by the corpora-tion over the sum of the premiums paid will consti-tute earnings and profits available for distribution.§§39.115(c)-1. (Sec. 115(c), ’39 Code; Sec. 331,’86 Code.)

Rev. Rul. 54-230, 1954-1 C.B. 114.

202.347 Stock redemption; constructive own-ership. in the event of a redemption of stock of acorporation where section 318(a) is applied todetermine the constructive ownership of stock forpurposes of section 302, the beneficiaries’ propor-tionate interests in the stock owned by an estateshould be determined as of the date of the redemp-tion. §§1.302–3, 1.318–3. (Secs. 302, 318; ’86Code.)

Rev. Rul. 58-111, 1958-1 C.B. 173.

202.348 Stock redemption; constructive own-ership. All the stock of a corporation is owned bya trust and one of its beneficiaries who has aremainder interest in the trust, valued at 4.16 per-cent of the total trust property, contingent uponsurviving the grantor’s wife. The trust is not con-sidered as owning the beneficiary’s stock undersection 318(a)(3)(B)(i) and a redemption of thetrust’s stock will be a complete termination undersection 302(b)(3). §1.302-4, 1.318–3. (Secs.302, 318; ’86 Code.)

Rev. Rul. 76-213, 1976-1 C.B. 92.

202.349 Stock redemption; family attribu-tion; termination of interest. A husband and wifeowned one-third of the stock of two corporationsas community property, and their sons owned theremaining stock. Pursuant to stock purchaseagreements, the corporations redeemed the com-munity property stock after the husband’s death.The wife and the husband’s estate, of which she

Estates and trusts

was sole beneficiary, then had no interest in thecorporations other than as creditors. Both filedagreements under section 302(c)(2) to waive thefamily attribution rules. Held, the estate was eligi-ble to waive family attribution rules, and the dis-tributions in redemption of the stock should betreated as payment in exchange for such stock.(Secs. 302, 318; ’86 Code.)

Lillian M. Crawford, 59 T.C. 830, Nonacq.,1974–2 C.B. 5.

202.350 Stock redemption; family attribu-tion; termination of interest. A trust, the stock ofwhich was redeemed with the stock of its solebeneficiary, whose father is also a shareholder, isconsidered to own the father’s stock and the trust’sinterest is not terminated under section 302(b)(3)even though the son files the required agreement.§§1.302-4, 1.318-3. (Secs. 302, 318; ’86 Code.)

Rev. Rul. 72-472, 1972-2 C.B. 202.

202.351 Stock redemption; family corpora-tion; termination of interest. Stock was distrib-uted from an estate to a taxpayer who was theestate’s sole beneficiary and then was redeemed,in a redemption to which section 303(a) did notapply, to enable the only other shareholder, thetaxpayer’s child, to have complete ownership ofthe corporation. The distribution of stock did nothave as one of its principal purposes the avoidanceof federal income tax, and the attribution rules ofsection 318(a)(1) do not apply to the redemption.The taxpayer’s interest is completely terminatedwithin the meaning of section 302(b)(3). Rev. Rul.68-388 distinguished. §1.302-1. (Sec. 302, ’86Code.)

Rev. Rul. 79-67, 1979-1 C.B. 128.

202.352 Stock redemption; family corpora-tion; trust for children; termination of interest.A corporation, whose entire stock is owned by afather and a trust, the beneficiaries of which are hischildren, made a distribution of property to thetrust in return for all the corporation stock ownedby the trust. The redemption of stock does notqualify under section 302(b)(3) as a termination ofinterest since the trust is deemed to be theconstructive owner of the remaining stock by vir-tue of section 318(a)(2)(B). The waiver providedby section 302(c), of the family attribution rules ofstock ownership, is not applicable to trust.§§1.302-4, 1.318-3. (Secs. 302, 318; ’86 Code.)

Rev. Rul. 59-233, 1959-2 C.B. 106.

202.353 Stock redemption; residuary testa-mentary trust; constructive ownership. Wherethe deceased has bequeathed part of his stock to aresiduary trust and subsequently a corporationredeems that part of its stock held by the estate ofthe deceased, the estate is considered to own theshares of stock held by the residuary trust and suchredemption is a distribution essentially equivalentto a dividend. §§1.301–1, 1.302-4, 1.316–1,1.318-3. (Secs. 301, 302, 316, 318; ’86 Code.)

Rev. Rul. 60-18, 1960-1 C.B. 145.

202.354 Stock redemption; trust beneficiary;termination of interest. The beneficiary of atrust, who is treated as the owner of the trust, is theshareholder from whom the stock held by the trustis redeemed by the corporation and the redemptionqualifies as a termination of interest under section302(b)(3) if the beneficiary, whose son is the onlyother shareholder, files the required agreement.§1.302A. (Sec. 302, ’86 Code.)

Rev. Rul. 72-471, 1972-2 C.B. 201.

202.355 Stock redemption; trust beneficia-ry’s renunciation; termination of interest. Arenunciation by a trust beneficiary of all interest inthe trust prior to the redemption of his stock in acorporation is effective to avoid attribution of thecorporation’s stock held by the trust. §§1.302-4,1.318-3. (Secs. 302, 318; ’86 Code.)

Rev. Rul. 71-211, 1971-1 C.B. 112.

202.356 Stock redemption to pay death taxes;stock acquired in reorganization. Section115(g)(3) of the ’39 Code applies to amounts dis-tributed in redemption of stock, acquired in a non-taxable reorganization effecting a change only inname, state of incorporation, and number of sharesof the corporate entity, where the value of the stockof the former corporation was included in thegross estate of the decedent. Any gain or loss real-ized by the estate upon the redemption of the stockwill be treated as a capital gain or loss.§§39.115(g)-1, 39.117(b)-1. (Secs. 115(g), 117,’39 Code; Secs. 302, 1202, ’86 Code.)

Rev. Rul. 55-91, 1955-1 C.B. 364.

202.357 Tax benefit rule; charitable trust;corpus returned to grantor. The William F. Perrydecision holding that the return to the grantor ofthe corpus of a charitable trust constitutes a non-taxable return of capital even though the grantorhad realized full tax benefits from charitabledeductions allowed for transfers to the trust inprior tax years, will not be followed. (Sec. 61, ’86Code.)

Rev. Rul. 59-141, 1959–1 C.B. 17.

202.358 Taxable year of trusts. Trusts that aretreated as wholly-owned by the grantor under thegrantor trust rules of subpart E of subchapter J(sections 671-679 of the Code) are not required toadopt the calendar year as their tax year under sec-tion 645(a). §§1.641(a)–0, 1.671–3, 1.676(a)-1.(Secs. 641, 645, 671, 676; ’86 Code.)

Rev. Rul. 90-55, 1990-2 C.B. 161.

202.359 Ten-year rule. The Rurh S. Clark deci-sion which held that the income from the trustthere involved was non taxable to the grant or underthe 10-year short-term trust rule will be followed.§§29.22(a)21, 39.22(a)-21. (Sec. 22(a), ’39Code; Sec. 61, ’86 Code.)

Rev. Rul. 54-48, 1954-1 C.B. 24.

202.360 Trust; alimony; income partially tax-exempt. A wife, who, under the terms of a separa-tion agreement, was assigned trust income includ-ing both taxable and tax-exempt income, was atrust beneficiary and properly excluded the tax-exempt income. (Secs. 22(k), 171(b), ’39 Code;Secs. 71,682, ’86 Code.)

Anita Quinby Stewart, 9 T.C. 195, Nonacq.,1965-2 C.B. 7.

202.361 Trust; alimony; nonresident alien.Annual payments received by a nonresident wifeas beneficiary of a trust, pursuant to a divorcedecree incorporating a separation agreement withher former husband, are alimony payments subjectto Federal income tax and income tax withholdingat the rate of thirty percent; the trust conduit rulesdo not apply. §§1.71-1, 1.682(a)-1, 1.871-7,1.1441-1. (Secs. 71, 682, 871, 1441; ’86 Code.)

Rev. Rul. 65-283, 1965-2 C.B. 25.

202.362 Trust; annuities or gifts to employee-beneficiaries. Income of an irrevocable trust setaside in a separate fund and used by the trustee forannuities and gifts for the grantor’s employees isdeductible by the trust to the extent of its distribu-table net income and taxable to the recipients.§39.162-1. (Sec. 162, ’39 Code; Secs. 641, 661,662; ’86 Code.)

Rev. Rul. 55-286, 1955-1 C.B. 75.

202.363 Trust; basis of corpus. Where, duringhis lifetime, the deceased grantor of a trust, whodied prior to January 1, 1954, retained no power torevoke the trust, or in any way to change, alter ormodify the provisions thereof, the basis of the trustproperty in the hands of the trustee or beneficiariesis the value determined under section 1015 ratherthan under section 1014 of the Code. (Secs. 1014,1015; ’86 Code.)

Rev. Rul. 57-543, 1957-2 C.B. 518.

202.364 Trust; basis of stock transferred bydecedent. The proper method for determining thebasis of stock held in trust that was the object of acompromised suit and partial refund of estate taxfollowing the executor’s payment of additional taxresulting from an audit determination that thestock was transferred in contemplation of death.§§1.1012-1, 1.1014-1. (Secs. 1012, 1014; ’86Code.)

Rev. Rul. 72-441, 1972–2 C.B. 465.

202.365 Trust; created by Italian corporationto recover U.S. royalties. An Italian corporationset up a domestic trust to commence and conducta civil suit against a domestic corporation torecover patent royalties payable by the domesticcorporation. The trust agreement limits the author-ity of the trustee, a U.S. citizen and resident, tocommencing and maintaining the legal action, set-tling the claim, and receiving all sums of moneydue as a result of the claim. The trustee receivedand remitted to the Italian corporation a sum ofmoney in settlement of the claim. The trust is nota permanent establishment under Article II(1)(c)of the United States-Italy Income Tax Convention,and the payment to the trust is treated as royaltieswithin the meaning of Article VIII. §§1.671–1,1.676(a)-1. (Secs. 671, 676; ’86 Code.)

Rev. Rul. 80-15, 1980-1 C.B. 365.

202.366 Trust; created by nonresident alienforotbernonresident aliens. The taxable incomeof a discretionary trust created in the U.S. by anonresident alien for the benefit of other nonresi-dent aliens, unless otherwise exempt under spe-cific provisions of the Code, is taxable to the trustnotwithstanding that such income is derived frominterest on bonds of foreign corporations and gov-ernments. O.D. 743 superseded. §§1.61–13,1.641(b)-2. (Secs. 61, 641; ’86 Code.)

Rev. Rul. 73-521, 1973–2 C.B. 209.

202.367 Trust; distributable net income; cap-ital gains allocable to corpus. For purposes ofcomputing distributable net income, a simple trustthat does not distribute capital gains, because theyare allocable to corpus under the trust instrumentor applicable local law, may not include capitalgains in the formula for allocating indirectexpenses to tax-exempt income. Rev. Rul. 73–565distinguished. §§1.265-1, 1.641(b)-2,1.643(a)-0, 1.652(a)-1. (Secs. 265, 641, 643, 652;’54 Code.)

Rev. Rul. 77-355, 1977-2 C.B. 82.

202.368 Trust; distribution to cemetery forgrave care and maintenance. Funds distributedby a perpetual care trust fund to a cemetery corpo-ration for the care and maintenance of gravesitesare compensation for services taxable to the cor-poration under section 61. §1.652(b)–1. (Secs. 61,642, 652, 662; ’86 Code.)

Rev. Rul. 87–97, 1987-2 C.B. 155.

202.369 Trust; distribution withheld pendinglitigation. Where the terms of a trust instrumentrequire that trust income is to be distributed cur-rently, suspension of distribution by the trusteepending termination of a legal dispute as to theamounts properly distributable does not shift theliability for the tax from the beneficiary to thetrust. Whether trust income is required to be dis-tributed currently depends upon the terms of thetrust instrument and not on any action of thetrustee. I.T. 1733 revoked. §§1.651(a)-2,1.652(a)-1. (Secs. 651, 652; ’86 Code.)

Rev. Rul. 62–147, 1962–2 C.B. 151.

202.370 Trust; excess income distributed. Awidow was to receive a determinable amount fromtrust income or principal each year. If trust incomeexceeded such amount, she received a third of theexcess with the balance added to the principal ofthe trust if she failed to designate its distribution toother qualified recipients. Held, the excess income

Estates and trusts

added to the trust is not taxable to her. (Secs. 22(a),166, 167, ’39 Code; Secs. 61, 676, 677, ’86Code.)

Nicholas A. Stavroudis, 27 T.C. 583, Acq.,1957-1 C.B. 5.

202.371 Trust; financing arrangementbetween U.S. agency and bank; tax classifica-tion. A contractual arrangement between a U.S.agency and a bank, under which the bank sells par-ticipating certificates in a trust created by theagency, receives moneys, holds assets, and makespayments on behalf of the U.S. for the purpose ofconstructing public buildings and satisfying theobligation of the U.S. to bolders of the participat-ing certificates, is a security arrangement and nota trust for Federal income tax purposes.§301.7701-1. (Sec. 7701, ’86 Code.)

Rev. Rul. 76-265, 1976-2 C.B. 448.

202.372 Trust; formed to hold real property.A trust that was established by the heirs tocontigu-ous parcels of real estate to hold title to, conserve,and hold for investment purposes their undividedinterests under a trust instrument empowering thetrustees to acquire certain contiguous or adjacentproperty, sell existing trust property, raze or erectbuildings, and perform certain other functions isnot a fixed investment trust but is classified as anassociation taxable as a corporation. Distin-guished by Rev. Rul. 79–77. §301.7701–1. (Sec.7701, ’86 Code.)

Rev. Rul. 78-371, 1978-2 C.B. 344.

202.373 Trust; formed to hold real property;tax classification. A trust was formed to hold titleto land and a building situated thereon and to theproceeds and income of the property, to act as sig-natory of leasing and management agreements, todistribute all trust income, and to protect and con-serve the property. The trust is classified as a trustfor federal income tax purposes. Rev. Rul. 78-371distinguished. §301.7701-4. (Sec. 7701, ’86Code.)

Rev. Rul. 79-77, 1979–1 C.B. 448.

202.374 Trust; holding assets of dissolvedcorporation. A ten-year trust formed to hold thepatent license and sub-license agreements of a dis-solved corporation (formed originally to manufac-ture the patented appliance), receive the incomedue under the license agreements, pay all taxes,and make quarterly statements and remittances oftrust income to the beneficiaries is not an associa-tion taxable as a corporation where the trustee hasonly ministerial duties and powers. The tax effectof the dissolution of the corporation is explained.(Sec. 7701, ’86 Code.)

Rev. Rul. 57-607, 1957–2 C.B. 887.

202.375 Trust; landlord-tenant securitydeposits. The record keeping and filing require-ments are explained that apply to a landlord, a ten-ant, and a bank under a state law providing thateach landlord deposit tenants’ security deposistsin interest bearing bank accounts and act as trusteefor the grantor-trust created, from which the land-lord receives one percent a year for administrationexpenses, with the deposits and interest earnedremaining the property of the tenants. Rev. Rul.75-363 superseded. §§1.212-1, 1.6012-3,1.6049-1, 301.6109–1. (Secs. 212, 6012, 6049;’86 Code.)

Rev. Rul. 77-260, 1977-2 C.B. 466.

202.376 Trust; mineral fee interests. Wheremineral fee interests are included in a trust corpusand under the trust agreement the trustee does nothave a right to exploit the mineral by developingthe property but may only, with approval in writ-ing of the particular contract by all owners of bene-ficial interests, lease to an operating company forsuch purpose, the inclusion of the mineral feeinterests in the trust corpus does not, in itself,result in the trust being treated as an associationtaxable as a corporation. (Sec. 7701, ’86 Code.)

Rev. Rul. 57-112, 1957-1 C.B. 494.

202.377 Trust; nonbusiness expenses.Amounts which are properly chargeable only tothe corpus of a trust as nonbusiness expensesincurred by the trustees are available as a deduc-tion only to the trustees and may not serve toreduce the amount of distributable capital gainwhich is taxable to the beneficiaries. §39.162–1.(Sec. 162, ’39 Code; Sec. 641, ’86 Code.)

Rev. Rul. 55-574, 1955-2 C.B. 584.

202.378 Trust; perpetual cemetery care fund.A formal trust, the funds of which are irrevocablydedicated to the perpetual care of a nonprofit cem-etery as a whole, may qualify for exemption as acemetery organization. Where funds are receivedby a cemetery company for the perpetual care ofan individual lot or crypt, a trust is created whichis subject to the tax imposed by section 641. Theincome of any trust which is used for the care of anindividual lot or crypt is not allowable as a deduc-tion under section 642(c) in computing the netincome of such a trust. §1.61–1. (Secs. 61, 642;’86 Code.)

Rev. Rul. 58-190, 1958-1 C.B. 15.

202.379 Trust; perpetual cemetery care fund.A contract entered into between a cemetery corpo-ration and a local bank designating the bank to pro-vide for perpetual care of cemetery lots throughthe creation of a perpetual care fund constitutes atrust instrument; however, since the income of thetrust is used for the general care of all the lots andthe benefit of all of the owners, it will be treated asincome from a single trust. §1.641(b)-1. (Sec.641, ’86 Code.)

Rev. Rul. 59-30, 1959–1 C.B. 161.

202.380 Trust; pet animal care. In the absenceof a state law to the contrary, a bequest in trust toprovide for the care of a decedent’s pet animal isvoid from its inception, and unless otherwise indi-cated in the will or specified by statute, the trustproperty passes to the residuary legatee andincome earned on such property is includible inthe income of such legatee. In jurisdictions wheresuch a trust is not invalid, it is subject to theimposition of the tax of section 1(d) pursuant tosection 641 and no deductions are allowable fordistributions under sections 651 and 661.§§1.641(a)-0, 1.651(a)-2, 1.661(a)-2. (Secs. 641,651, 661; ’86 Code.)

Rev. Rul. 76-486, 1976-2 C.B. 192.

202.381 Trust; pre-need funeral services,payments received by seller. The purchasers ofpre-need funeral services, rather than the sellers,are the grantors and the owners of pre-need funeraltrusts established under state laws. Any moneyreceived from the trust by a seller of a pre-needfuneral is a payment for merchandise and servicesincludible in the seller’s gross income under sec-tion 61 of the Code. Rev. Rul. 73–140 superseded.§§1.61-1, 1.671-1, 1.673(d)-1, 1.676(a)-1,1.677(a)-1, 301.7805-1. (Secs. 61, 671, 673, 676,677, 7805; ’86 Code.)

Rev. Rul. 87-127, 1987-2 C.B. 156.

202.382 Trust; substitution of investments;tax classification. A limited power to substitutecertain investment contracts for contracts that failduring the first 90 days of an investment trust is nota power to vary the beneficiaries investment;accordingly, such power will not cause the trust tobe classified as an association taxable as a corpo-ration. §301.7701-4. (Sec. 7701, ’86 Code.)

Rev. Rul. 86-92, 1986-2 C.B. 214.

202.383 Trust; treated as association; incomebeneficiaries’ deduction. An example is pro-vided of a business arrangement that is a trustunder local law, but is classified as an associationtaxable as a corporation for federal tax purposes.The income beneficiaries of such an arrangementmay not deduct any depreciation or amortizationon any property held by the association.

§§1.167(h)-1, 1.641(a)-0, 301.7701-2. (Secs.167, 465, 641, 7701; ’86 Code.)

Rev. Rul. 80-75, 1980-1 C.B. 314.

202.384 Trust depreciation deduction alloca-tion; mortgaged property. A trust that holdsmortgaged property and that charges payments ofprincipal on the mortgage note against trustincome in determining amounts to be distributedto the trust’s beneficiaries must allocate a portionof the depreciation deduction attributable to themortgaged property to the trust. §§1.167(h)–1,1.643(b)-1. (Secs. 167, 643; ’86 Code.)

Rev. Rul. 90-82, 1990-2 C.B. 44.

202.385 Trust established by corporation; in-substance defeasance transaction. A corpora-tion that transfers assets to a trust that it has estab-lished for the sole purpose of making payments ofprincipal and interest on its outstanding bondscontinues to be regarded as the owner of the trustassets and must include in its gross income anyincome generated by the trust assets. §1.61–13.(Sec. 61, ’86 Code.)

Rev. Rul. 85-42, 1985-1 C.B. 36.

202.386 Trust owner; minor beneficiary. Asituation is described in which a minor beneficiaryis the owner, under section 678, of a portion of atrust in which the beneficiary has the power towithdraw certain amounts from principal andincome, even though, under local law, the minor islegally prevented from exercising that powerbecause no guardian has been appointed.§1.678(a)-1. (Sec. 678, ’86 Code.)

Rev. Rul. 81-6, 1981-1 C.B. 385.

202.387 Trust property; basis; power toappoint by will exercised. The method of deter-mining basis of property distributed to a trust isexplained where the primary beneficiary of aninter vivos trust was given a general power toappoint by will the remainder interest of the trustand she exercised her power by appointing theremainder interest to another trust which shecreated by her will. §1.1014–8. (Sec. 1014, ’86Code.)

Rev. Rul. 69-239, 1969-1 C.B. 198.

202.388 Trust property; basis; survivingbeneficiary. Method of determining the basis ofproperty held in trust that is included in the estateof the grantor who retained a reversionary interestand predeceased the income beneficiary.§1.1014-6. (Sec. 1014, ’86 Code.)

Rev. Rul. 72-466, 1972-2 C.B. 465.

202.389 Trust property; power of appoint-ment; basis. Where the lifetime income benefi-ciary of a testamentary trust exercises during hislifetime a general power of appointment over thetrust corpus and appoints the property to himself,the basis of the property shall be the same in hishands as it was in the hands of the trustees, subjectto adjustment as provided in section 113(b) of the’39 Code. §39.113(a)(5)–1. (Sec. 113(a), ’39Code; Sec. 1014, ’86 Code.)

Rev. Rul. 55–293, 1955–1 C.B. 352.

202.390 Trust property; right of revocation.The basis of property transferred before death bya decedent/grantor to a trust, the income fromwhich was payable to the grantor for life with thegrantor retaining the right to revoke the trust at anytime with the consent of one ormore specified per-sons, is the fair market value of the property on thedate of the grantor’s death (or optional valuationdate), if and only if such specified person(s) haveno adverse interest in the trust. (Sec. 113(a), ’39Code; Sec. 1014, ’86 Code.)

Rev. Rul. 55–502, 1955–2 C.B. 560; Rev. Rul.57–287, 1957–1 C.B. 517; Hazel B. BeckmanTrust, 26 T.C. 1172, Acq., 1957-1 C.B. 3.

202.391 Trust property sold; corpus. Whereproperty forming the corpus of a trust is sold pre-paratory to termination of the trust and distribution

of the trust’s assets to the beneficiaries and inaccordance with the trust instrument, the proceedsare currently distributable; the entire amount ofgain realized on the sale is taxable to the beneficia-ries for the year in which the sale occurs and isdeductible by the trust. §39.162-1. (Sec. 162, ’39Code; Sec. 641, ’86 Code.)

Rev. Rul. 54-503, 1954-2 C.B. 237.

202.392 Trust property sold; principal resi-dence of beneficiary. A beneficiary who is treatedas the owner of a trust that owns the beneficiary’sresidence is entitled to the one-time exclusion ofgain from the sale of a residence. §§1.121-1,1.671-1, 1.678(a)-1. (Secs. 121, 671, 678; ’86Code.)

Rev. Rul. 85-45, 1985-1 C.B. 183.

202.393 Trust property sold; residence usedby grantor. Gain will not be recognized to eitherthe trust or the grantor upon a sale by the trust ofproperty used by the grantor as his principal resi-dence, if such grantor is considered as the ownerof the trust, and the trust acquires new property,which is used by the grantor as his principal resi-dence, at a cost equal to or in excess of the sellingprice of the old residence. §§1.671-2, 1.676(a)-1,1.1034-1. (Secs. 671, 676, 1034; ’86 Code.)

Rev. Rul. 66-159, 1966-1 C.B. 162.

202.394 Trust property sold; “under produc-tive property” under state law. Where state lawtreats stock held by a simple trust as “under pro-ductive property”, the income beneficiary isentitled to a statutory portion of any capital gainassociated with proceeds from the disposition ofthe stock and that amount is includible in the dis-tributable net income of the trust. §§1.643(a)-3,1.651(a)-1, 1.652(a)-1. (Secs. 643, 651, 652; ’86Code.)

Rev. Rul. 85-116, 1985–2 C.B. 174.

202.395 Trust remainder; capital gain dis-tributions from mutual funds. Where local lawauthorizes a trustee to invest corpus in the stock ofregulated investment companies and to pay outcapital gains distributions received therefrom asincome under the general provisions of the gov-erning instrument, a charitable deduction is notallowable with respect to a charitable remainderinterest as the charitable interest is not severablefrom the non charitable interest. This ruling willnot be applied with respect to transfer completedprior to May 1, 1967, or, under certain circum-stances, to transfers made under instrumentsexecuted prior to that date. Rev. Rul. 60-385 sup-plemented. §§1.170-1, 301.7805-1. (Secs. 170,7805; ’86 Code.)

Rev. Rul. 67-33, 1967-1 C.B. 62.

202.396 Trust remainder; capital gain divi-dends as corpus. Where an irrevocable trust pro-vides that capital gain dividends received fromstock in regulated investment companies shall betreated as corpus and held for the charitableremainderman rather than distributed to the non-charitable life tenant, such dividends are deduct-ible and may be valued by the use of the appropri-ate actuarial remainder table. However, wheresuch capital gain dividends are treated as incomeand paid to the life tenant, no deduction for chari-table contributions is allowable. Rev. Rul. 55-620revoked. Supplemented by Rev. Rul. 67–33.§1.170-1. (Sec. 170, ’86 Code.)

Rev. Rul. 60-385, 1960-2 C.B. 77.

202.397 Trust termination; capital gainsdeduction. The capital gains deduction is a propertrust termination year deduction even though itresults in trust deductions in excess of grossincome. Upon termination of the trust, the excessis allowable as a deduction to the beneficiariessucceeding to the trust property. §§1.642(h)–2,1.1202-1. (Secs. 642, 1202; ’86 Code.)

Rev. Rul. 59-392, 1959-2 C.B. 163.

202.398 Trust termination; excess deduc-tions. A beneficiary of a trust may not avail him-self of the dividend exclusion where the trust in itslast taxable year has excess deductions.§§1.116-1, 1.642(h)-2, 1.643(a)-1, 1.651(a)-1,1.652(b)-1. (Secs. 116, 642, 643, 651, 652; ’86Code.)

Rev. Rul. 59-100, 1959-1 C.B. 165.

202.399 Trust termination; partnershipinterest distributed. Termination of a trust anddistribution of its interest in a partnership to aremainderman does not terminate the partner-ship’s taxable year but the trust must include ingross income its distributive share of partnershipitems to the date of termination. Tax consequencesaffecting the trust and its beneficiaries are setforth. §§1.706-1, 1.708-1. (Secs. 706, 708; ’86Code.)

Rev. Rul. 72-352, 1972-2 C.B. 395.

202.400 Trust used to satisfy hospital’s mal-practice claims. A trust created by an exempt hos-pital for the sole purpose of accumulating andholding funds to be used to satify malpracticeclaims against the hospital, and from which thehospital directs the bank-trustee to make pay-ments to claimants, is operated exclusively forcharitable purposes and is exempt from tax.§§1.501(c)(3)-1. (Sec. 501, ’86 Code.)

Rev. Rul. 78-41, 1978-1 C.B. 148.

202.401 Trust utilized to carry on joint enter-prise. A trust utilized by the beneficiaries as amedium to carry on a joint enterprise for their jointprofit may constitute an association taxable as acorporation even though the beneficiaries had nopart in establishing the trust and are without powerto modify the trust agreement or to terminate thetrust. Decision in Lyman not followed.§39.3797-3. (Sec. 3797, ‘39 Code; Sec. 7701, ’86Code.)

Rev. Rul. 57–534, 1957-2 C.B. 924; Harry E.Lyman, 36 B.T.A. 161, Nonacq. 1957-2 C.B. 8.

202.402 Trustee for insolvent taxpayer;responsibility. A fiduciary assigned under statelaw for an insolvent taxpayer’s estate should filereturns to report liquidation proceeds andexpenses and otherwise assume responsibilitiesapplicable to a trustee in bankruptcy as set forth inRev. Rul. 68-48. §1.641(a)-1. (Sec. 641, ’86Code.)

Rev. Rul. 73-94, 1973-1 C.B. 322.

202.403 U.S. real property interest; foreignpersons. The disposition by foreign persons of aninterest in a partnership, trust or estate owningU.S. real property interests is subject to tax undersection 897.

Notice 88-72, 1988-2 C.B. 383.

202.404 United Kingdom convention;exemption; capital gains retained by trust.Article XIV of the U.S.-United Kingdom IncomeTax Convention, exempting capital gains of a resi-dent of the United Kingdom from the U.S. in cometax, does not extend to capital gains realized by,and retained as part of the corpus of, an Americantrust, even though the trust grantor and all trustbeneficiaries are residents and subjects of theUnited Kingdom. §§1.641(a)-2, 1.894-1. (Secs.641, 894; ’86 Code.)

Maximov, 373 U.S. 49, Ct. D. 1880, 1963-2C.B. 689.