Title 26 — Internal Revenue CodeRelease 119-73
§584 Common trust funds
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter H— - Banking Institutions › Part PART I— - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS › § 584
Summary
Defines a common trust fund as a pool of money a bank holds and invests collectively for money it manages as a trustee, executor, administrator, guardian, or custodian (including accounts set up under state laws like the Uniform Gifts to Minors Act). The fund must follow the Federal Reserve or Comptroller rules for banks. The fund itself is not taxed and is not treated as a corporation. Each person who owns a share in the fund must report on their tax return their portion of the fund’s income, gains, and losses, whether or not the fund paid them. Short‑term and long‑term capital gains are reported separately. The fund figures its own taxable income like an individual but separates capital gains, cannot claim a charitable contribution deduction, and must use the calendar year. Adding or removing a participant causes no gain or loss for the fund; joining is treated as a purchase by the person and leaving as a sale by the person. If the fund transfers assets into regulated investment companies and swaps interests for stock, the tax bases generally carry over, with special rules if assumed liabilities exceed asset bases. The fund cannot use net operating loss deductions, but participants can under IRS rules.
Full Legal Text
Title 26, §584
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this subtitle, the term “common trust fund” means a fund maintained by a bank—
(1)exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity—
(A)as a trustee, executor, administrator, or guardian, or
(B)as a custodian of accounts—
(i)which the Secretary determines are established pursuant to a State law which is substantially similar to the Uniform Gifts to Minors Act as published by the American Law Institute, and
(ii)with respect to which the bank establishes, to the satisfaction of the Secretary, that it has duties and responsibilities similar to duties and responsibilities of a trustee or guardian; and
(2)in conformity with the rules and regulations, prevailing from time to time, of the Board of Governors of the Federal Reserve System or the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks.
(b)A common trust fund shall not be subject to taxation under this chapter and for purposes of this chapter shall not be considered a corporation.
(c)Each participant in the common trust fund in computing its taxable income shall include, whether or not distributed and whether or not distributable—
(1)as part of its gains and losses from sales or exchanges of capital assets held for not more than 1 year, its proportionate share of the gains and losses of the common trust fund from sales or exchanges of capital assets held for not more than 1 year,
(2)as part of its gains and losses from sales or exchanges of capital assets held for more than 1 year, its proportionate share of the gains and losses of the common trust fund from sales or exchanges of capital assets held for more than 1 year, and
(3)its proportionate share of the ordinary taxable income or the ordinary net loss of the common trust fund, computed as provided in subsection (d).
(d)The taxable income of a common trust fund shall be computed in the same manner and on the same basis as in the case of an individual, except that—
(1)there shall be segregated the gains and losses from sales or exchanges of capital assets;
(2)after excluding all items of gain and loss from sales or exchanges of capital assets, there shall be computed—
(A)an ordinary taxable income which shall consist of the excess of the gross income over deductions; or
(B)an ordinary net loss which shall consist of the excess of the deductions over the gross income; and
(3)the deduction provided by section 170 (relating to charitable, etc., contributions and gifts) shall not be allowed.
(e)No gain or loss shall be realized by the common trust fund by the admission or withdrawal of a participant. The admission of a participant shall be treated with respect to the participant as the purchase of, or an exchange for, the participating interest. The withdrawal of any participating interest by a participant shall be treated as a sale or exchange of such interest by the participant.
(f)If the taxable year of the common trust fund is different from that of a participant, the inclusions with respect to the taxable income of the common trust fund, in computing the taxable income of the participant for its taxable year, shall be based upon the taxable income of the common trust fund for any taxable year of the common trust fund ending within or with the taxable year of the participant.
(g)The benefit of the deduction for net operating losses provided by section 172 shall not be allowed to a common trust fund, but shall be allowed to the participants in the common trust fund under regulations prescribed by the Secretary.
(h)(1)If—
(A)a common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which such assets are so transferred, and
(B)such stock is distributed by such common trust fund to participants in such common trust fund in exchange solely for their interests in such common trust fund,
(2)(A)The basis of any asset received by a regulated investment company in a transfer referred to in paragraph (1)(A) shall be the same as it would be in the hands of the common trust fund.
(B)The basis of the stock which is received in an exchange referred to in paragraph (1)(B) shall be the same as that of the property exchanged. If stock in more than one regulated investment company is received in such exchange, the basis determined under the preceding sentence shall be allocated among the stock in each such company on the basis of respective fair market values.
(3)(A)In determining whether the transfer referred to in paragraph (1)(A) is in exchange solely for stock in one or more regulated investment companies, the assumption by any such company of a liability of the common trust fund shall be disregarded.
(B)(i)If, in any transfer referred to in paragraph (1)(A), the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company or companies—
(I)notwithstanding paragraph (1), gain shall be recognized to the common trust fund on such transfer in an amount equal to such excess,
(II)the basis of the assets received by the regulated investment company or companies in such transfer shall be increased by the amount so recognized, and
(III)any adjustment to the basis of a participant’s interest in the common trust fund as a result of the gain so recognized shall be treated as occurring immediately before the exchange referred to in paragraph (1)(B).
(ii)For purposes of clause (i), the term “assumed liabilities” means any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A).
(C)For purposes of this paragraph, in determining the amount of any liability assumed, the rules of section 357(d) shall apply.
(4)This subsection shall not apply to any common trust fund which would not meet the requirements of section 368(a)(2)(F)(ii) if it were a corporation. For purposes of the preceding sentence, Government securities shall not be treated as securities of an issuer in applying the 25-percent and 50-percent test and such securities shall not be excluded for purposes of determining total assets under clause (iv) of section 368(a)(2)(F).
(i)For purposes of this subtitle, the taxable year of any common trust fund shall be the calendar year.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2003—Subsec. (c). Pub. L. 108–27 inserted concluding provisions. 1999—Subsec. (h)(3)(A). Pub. L. 106–36, § 3001(c)(1)(A), struck out “, and the fact that any property transferred by the common trust fund is subject to a liability,” before “shall be disregarded”. Subsec. (h)(3)(B)(ii). Pub. L. 106–36, § 3001(c)(1)(B), added cl. (ii) and struck out heading and text of former cl. (ii). Text read as follows: “For purposes of clause (i), the term ‘assumed liabilities’ means the aggregate of— “(I) any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A), and “(II) any liability to which property so transferred is subject.” Subsec. (h)(3)(C). Pub. L. 106–36, § 3001(c)(1)(B), added subpar. (C). 1996—Subsecs. (h), (i). Pub. L. 104–188 added subsec. (h) and redesignated former subsec. (h) as (i). 1988—Subsec. (h). Pub. L. 100–647 added subsec. (h). 1986—Subsec. (c). Pub. L. 99–514, § 612(b)(2)(B), substituted “1 year” for “6 months” wherever appearing in pars. (1) and (2). Pub. L. 99–514, § 612(b)(2)(A), amended subsec. (c) generally, restating subpars. (A) to (C) of former par. (1) as pars. (1) to (3) and striking out former par. (2) which read as follows: “The proportionate share of each participant in the amount of dividends or interest received by the common trust fund and to which section 116 or 128 applies shall be considered for purposes of such section as having been received by such participant.” 1984—Subsec. (c)(1)(A), (B). Pub. L. 98–369 substituted “6 months” for “1 year”, wherever appearing, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date
of 1984 Amendment note below. 1983—Subsec. (c)(2). Pub. L. 97–448 reenacted par. (2) without change. 1981—Subsec. (c)(2). Pub. L. 97–34, § 301(b)(6)(A), inserted reference to “interest” in heading and text, which continued the amendment made by Pub. L. 96–223. Pub. L. 97–34, § 301(b)(3), inserted “or 128” after “section 116”. 1980—Subsec. (c)(2). Pub. L. 96–223 inserted “or interest” after “dividends” in heading and text. 1977—Subsec. (d)(4). Pub. L. 95–30 struck out par. (4) relating to standard deduction. 1976—Subsec. (a). Pub. L. 94–414 inserted provision relating to treatment of two or more bank members of same affiliated group. Subsec. (a)(1). Pub. L. 94–455, § 2138, designated existing provisions relating to trustee, executor, administrator and guardian as subpar. (A) and added subpar. (B). Subsec. (c)(1)(A), (B). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year” wherever appearing. Pub. L. 94–455, § 1402(b)(1)(H), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977. Subsec. (c)(2). Pub. L. 94–455, § 1901(b)(1)(G), struck out provisions relating to partially tax exempt interest and election of a common trust fund to amortize premiums on bonds and other obligations. Subsec. (e). Pub. L. 94–455, § 2131(d), inserted “The admission of a participant shall be treated with respect to the participant as the purchase of, or exchange for, the participating interest”. Subsec. (g). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. 1964—Subsec. (c)(2). Pub. L. 88–272 struck out “section 34 or” before “section 116 applies”. 1962—Subsec. (a)(2). Pub. L. 87–722 inserted “or the Comptroller of the Currency” after “the Board of Governors of the Federal Reserve System”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2003 AmendmentAmendment by Pub. L. 108–27 applicable, except as otherwise provided, to taxable years beginning after Dec. 31, 2002, see section 302(f) of Pub. L. 108–27, set out as an Effective and Termination Dates of 2003 Amendment note under section 1 of this title.
Effective Date
of 1999 AmendmentAmendment by Pub. L. 106–36 applicable to transfers after Oct. 18, 1998, see section 3001(e) of Pub. L. 106–36, set out as a note under section 351 of this title.
Effective Date
of 1996 Amendment Pub. L. 104–188, title I, § 1805(b), Aug. 20, 1996, 110 Stat. 1895, provided that: “The amendment made by subsection (a) [amending this section] shall apply to transfers after December 31, 1995.”
Effective Date
of 1988 Amendment Pub. L. 100–647, title I, § 1008(e)(5)(B), Nov. 10, 1988, 102 Stat. 3440, provided that: “The amendment made by subparagraph (A) [amending this section] shall take effect as if included in the
Amendments
made by section 806 of the Reform Act [Pub. L. 99–514], except that section 806(e)(1) [set out as a note under section 1378 of this title] shall be applied by substituting ‘
December 31, 1987’ for ‘
December 31, 1986’. For purposes of section 806(e)(2) of the Reform Act [set out as a note under section 1378 of this title]— “(i) a participant in a common trust fund shall be treated in the same manner as a partner, and “(ii) subparagraph (C) thereof shall be applied by substituting ‘
December 31, 1987’ for ‘
December 31, 1986’ and as if it did not contain the election to include all income in the short taxable year.”
Effective Date
of 1986 Amendment Pub. L. 99–514, title VI, § 612(b)(2)(B), Oct. 22, 1986, 100 Stat. 2250, provided that: “If the
Amendments
made by section 1001 of the Tax Reform Act of 1984 [Pub. L. 98–369, amending this section and section 166, 341, 402, 403, 423, 582, 631, 642, 702, 818, 852, 856, 857, 1222, 1223, 1231, 1232, 1233, 1234, 1235, 1246, 1247, and 1248 of this title] cease to apply [see
Effective Date
of 1984 Amendment note below], effective with respect to property to which such
Amendments
do not apply, subsection (c) of section 584 is amended by striking out ‘6 months’ each place it appears and inserting in lieu thereof ‘1 year’.” Amendment by section 612(b)(2) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 612(c) of Pub. L. 99–514, set out as a note under section 301 of this title.
Effective Date
of 1984 AmendmentAmendment by Pub. L. 98–369 applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title.
Effective Date
of 1983 AmendmentAmendment by Pub. L. 97–448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title.
Effective Date
of 1981 AmendmentAmendment by section 301(b)(3) of Pub. L. 97–34 applicable to taxable years ending after Sept. 30, 1981, and amendment by section 301(b)(6)(A) of Pub. L. 97–34 applicable to taxable years beginning after Dec. 31, 1981, see section 301(d) of Pub. L. 97–34, set out as a note under section 265 of this title. Effective and Termination Dates of 1980 AmendmentAmendment by Pub. L. 96–223 applicable with respect to taxable years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see section 404(c) of Pub. L. 96–223, set out as a note under section 265 of this title.
Effective Date
of 1977 AmendmentAmendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title.
Effective Date
of 1976 Amendment Pub. L. 94–455, title XXI, § 2131(f)(6), Oct. 4, 1976, 90 Stat. 1925, provided that: “The
Amendments
made by subsections (d) and (e) [amending this section and section 683 of this title] shall take effect on April 8, 1976, in taxable years ending on or after such date.” Pub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977. Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977. Amendment by section 1901(b)(1)(G) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as an
Effective Date
of 1976 Amendment note under section 2 of this title. Pub. L. 94–414, § 2, Sept. 17, 1976, 90 Stat. 1273, provided that: “The amendment made by the first section of this Act [amending this section] shall apply to taxable years beginning after December 31, 1975.”
Effective Date
of 1964 AmendmentAmendment by Pub. L. 88–272 applicable with respect to dividends received after Dec. 31, 1964, in taxable years ending after such date, see section 201(e) of Pub. L. 88–272, set out as a note under section 22 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 584
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73