§641 Imposition of tax

Summary

Tax under section 1(e) must be paid on the taxable income of estates and trusts. That includes income kept in trust for unborn or contingent beneficiaries or for future distribution, income meant to be paid out now or held by a guardian as a court directs, income the estate gets while it is being settled, and income a trustee may either distribute or keep. Estates and trusts figure their taxable income the same way an individual does unless other rules here change that. The trustee pays the tax. A foreign trust or foreign estate is treated like a nonresident alien individual who is never in the United States. Special rules apply to electing small business trusts. The part made up of S‑corporation stock is treated as a separate trust. That separate trust’s tax is figured using the highest rate in section 1(e) (except as section 1(h) provides) and it gets no exemption under section 55(d). Only certain items count for that tax: the S‑corporation items in section 1366, gain or loss from selling S‑corp stock, state or local taxes or administrative expenses tied to those items (as rules allow), and interest on debt used to buy the S‑corp stock. No amount is allowed under paragraph (1) or (2) of section 1211(b). Section 642(c) does not apply. For section 170(b)(1)(G), adjusted gross income is figured like an individual but allows trust administration costs that would not exist if the property were not in the trust. Rules also cover how to tax the rest of the trust and how to handle any carryovers under section 642(h). “Electing small business trust” means what section 1361(e)(1) defines.