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CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER A—INCOME TAX (Parts 1–19) > PART 1—INCOME TAXES > 1.669(e)-2A—Illustration of the provisions of section 669.

CFR

1.669(e)-2A—Illustration of the provisions of section 669.

The application of the provisions of §§ 1.669(a)-1 A, 1.669(d)-1A, and 1.669(e)-1A may be illustrated by the following examples:

Code of Federal Regulations

Example 1. (a) A trust created on January 1, 1974, makes capital gain distributions as follows: 1979 $14,000 1980 60,000 The trust had accumulated income in 1974. For 1974 through 1978, the undistributed portion of capital gain, taxes imposed on the trust attributable to the undistributed capital gain, and undistributed capital gain are as follows:
Year Undistributed portion of capital gain Taxes imposed on the trust attributable to the undistributed capital gain Undistributed capital gain
1974 $24,200 $2,830 $21,370
1975 32,200 4,330 27,870
1976 12,200 1,130 11,070
1977 None None None
1978 10,200 910 9,290
(b) Since the entire amount of the capital gain distribution for 1979 ($14,000), determined without regard to the capital gain distribution for 1980, is less than the undistributed capital gain for 1974 ($21,370), an additional amount of $1,854 (14,000/21,370× $2,830) is deemed distributed under section 669(e). (c) In allocating the capital gain distribution for 1980, the amount of undistributed capital gain for 1974 will reflect the capital gain distribution for 1979. The undistributed capital gain for 1974 will then be $7,370 and the taxes imposed on the trust for 1974 will be $976, determined as follows:
Undistributed capital gain as of the close of 1974 $21,370
Less: Capital gain distribution (1979) 14,000
Balance (undistributed capital gain as of the close of 1979) 7,370
Taxes imposed on the trust attributable to the undistributed capital gain as of the close of 1979 (7,370/ 21,370×2,830) 976
(d) The capital gain distribution of $60,000 for 1980 is deemed to have been made on the last day of the preceding taxable years of the trust to the extent of $55,600, the total of the undistributed capital gain for such years, as shown in the tabulation below. In addition, $7,346, the total taxes imposed on the trust attributable to the undistributed capital gain for such years is also deemed to have been distributed on the last day of such years, as shown below:
Year Undistributed capital gain Taxes imposed on the trust attributable to the undistributed capital gain
1974 $7,370 $976
1975 27,870 4,330
1976 11,070 1,130
1977 None None
1978 9,290 910
1979 None None
Total 55,600 7,346

Code of Federal Regulations

Example 2. (a) Under the terms of a trust instrument, the trustee has discretion to accumulate or distribute the income to X and to invade corpus for the benefit of X. The trust is subject to capital gain throwback. Both X and the trust report on the calendar year basis. All of the income for 1974 was distributed and the capital gain was accumulated. The capital gain of the trust for the taxable year 1974 is $40,200 and the income taxes paid by the trust for 1974 attributable to the undistributed capital gain are $6,070. All of the income and capital gains for 1975 and 1976 were distributed and in addition the trustee made capital gain distributions within the meaning of section 665(g) of $8,000 for each year. (b) The undistributed capital gain of the trust determined under section 665(f) as of the close of 1974 is $34,130, computed as follows:
Code of Federal Regulations 262
Capital gain $40,200
Less: Taxes imposed on the trust attributable to the undistributed capital gain 6,070
Undistributed capital gain as of the close of 1974 34,130
(c) The capital gain distribution of $8,000 made during the taxable year 1975 is deemed under section 669(a) to have been made on December 31, 1974. Since this capital gain distribution is less than the 1974 undistributed capital gain of $34,130, a portion of the taxes imposed on the trust for 1974 is also deemed under section 669(e) to have been distributed on December 31, 1974. The total amount deemed to have been distributed to X on December 31, 1974, is $9,486, computed as follows:
Capital gain distribution $8,000
Taxes deemed distributed (8,000/ 34,130×$6,070) 1,423
Total 9,423
(d) After the application of the provisions of subpart D to the capital gain distribution of 1975, the undistributed capital gain of the trust for 1974 is $26,130, computed as follows:
Undistributed capital gain as of the close of 1974 $34,130
Less: 1975 capital gain distribution deemed distributed on December 31, 1974 (paragraph (c) of this example) 8,000
Undistributed capital gain for 1974 as of the close of 1975 26,130
(e) The taxes imposed on the trust attributable to the undistributed capital gain for the taxable year 1974, as adjusted to give effective to the 1975 capital gain distribution, amount to $4,647, computed as follows:
Taxes imposed on the trust attributable to undistributed capital gain as of the close of 1974 $6,070
Less: Taxes deemed distributed in 1974 1,423
Taxes attributable to the undistributed capital gain determined as of the close of 1975 4,647
(f) The capital gain distribution of $8,000 made during the taxable year 1976 is, under section 669(a), deemed an amount properly distributed to X on December 31, 1974. Since the capital gain distribution is less than the 1974 adjusted undistributed capital gain of $26,130, the trust is deemed under section 669(e) also to have distributed on December 31, 1974, a portion of the taxes imposed on the trust for 1974. The total amount deemed to be distributed on December 31, 1974, with respect to the capital gain distribution made in 1976, is $9,423, computed as follows:
Capital gain distribution $8,000
Taxes deemed distributed (8,000/ 26,130×$4,647) 1,423
Total 9,423
(g) After the application of the provisions of subpart D to the capital gain distribution of 1976, the undistributed capital gain of the trust for 1974 is $18,130, computed as follows:
Undistributed capital gain for 1974 as of the close of 1975 $26,130
Less:
1976 capital gain distribution deemed distributed on December 31, 1974 (paragraph (f) of this example) 8,000
Undistributed capital gain for 1974 as of the close of 1976 18,130
(h) The taxes imposed on the trust attributable to the undistributed capital gain of the trust for the taxable year 1974, determined as of the close of the taxable year 1976, amount to $3,224 ($4,647 less $1,423).

Code of Federal Regulations

[T.D. 7204, 37 FR 17156, Aug. 25, 1972]
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