Title 26 — Internal Revenue CodeRelease 119-73
§643 Definitions applicable to subparts A, B, C, and D
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter J— - Estates, Trusts, Beneficiaries, and Decedents › Part PART I— - ESTATES, TRUSTS, AND BENEFICIARIES › Subpart Subpart A— - General Rules for Taxation of Estates and Trusts › § 643
Summary
Sets rules for figuring an estate’s or trust’s taxable income that can be passed to beneficiaries. It explains how to work out "distributable net income" (DNI): start with the estate or trust’s taxable income, then make several specific adjustments. Some deductions are not allowed, some capital gains and losses may be left out if they are kept as principal, tax‑exempt interest can be included, and foreign trusts follow special rules for foreign‑source income and capital gains. The Treasury can make rules to carry out these ideas and to stop people from avoiding them. Key terms and what they mean in simple words: "Distributable net income" — the taxable income of the estate or trust after the special adjustments above. "Income" (plain) — the income measured under the trust’s documents and local law. "Beneficiary" — includes heirs, legatees, and devisees. Withholding credits — tax credits from withholding are split between the trust and beneficiaries, treated as if paid to beneficiaries, and the trust gets a deduction for the credit given to them. Basis of distributed property — a beneficiary’s basis usually equals the trust’s adjusted basis, adjusted for any gain the trust recognizes; the amount counted for distribution rules is usually the lesser of that basis or fair market value unless the trust elects to recognize gain and use fair market value for all distributions that year. Two or more trusts can be treated as one if they have the same grantor and main beneficiaries and were mainly set up to avoid tax. Trustees can elect, within 65 days after year end, to treat trust estimated tax payments as paid by a beneficiary (counted for the beneficiary on January 15). Money paid to a U.S. person from a foreign trust is treated as paid by the trust. Loans or use of trust property by U.S. persons related to grantors or beneficiaries are treated as distributions unless the trust is paid fair value; later repayments or returns of property are ignored for tax purposes.
Full Legal Text
Title 26, §643
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this part, the term “distributable net income” means, with respect to any taxable year, the taxable income of the estate or trust computed with the following modifications—
(1)No deduction shall be taken under section 651 and 661 (relating to additional deductions).
(2)No deduction shall be taken under section 642(b) (relating to deduction for personal exemptions).
(3)Gains from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during the taxable year, or (B) paid, permanently set aside, or to be used for the purposes specified in section 642(c). Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited, or required to be distributed to any beneficiary during the taxable year. The exclusion under section 1202 shall not be taken into account.
(4)For purposes only of subpart B (relating to trusts which distribute current income only), there shall be excluded those items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable local law.
(5)There shall be included any tax-exempt interest to which section 103 applies, reduced by any amounts which would be deductible in respect of disbursements allocable to such interest but for the provisions of section 265 (relating to disallowance of certain deductions).
(6)In the case of a foreign trust—
(A)There shall be included the amounts of gross income from sources without the United States, reduced by any amounts which would be deductible in respect of disbursements allocable to such income but for the provisions of section 265(a)(1) (relating to disallowance of certain deductions).
(B)Gross income from sources within the United States shall be determined without regard to section 894 (relating to income exempt under treaty).
(C)Paragraph (3) shall not apply to a foreign trust. In the case of such a trust, there shall be included gains from the sale or exchange of capital assets, reduced by losses from such sales or exchanges to the extent such losses do not exceed gains from such sales or exchanges.
(7)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent avoidance of such purposes.
(b)For purposes of this subpart and subparts B, C, and D, the term “income”, when not preceded by the words “taxable”, “distributable net”, “undistributed net”, or “gross”, means the amount of income of the estate or trust for the taxable year determined under the terms of the governing instrument and applicable local law. Items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income.
(c)For purposes of this part, the term “beneficiary” includes heir, legatee, devisee.
(d)Except to the extent otherwise provided in regulations, this subchapter shall be applied with respect to payments subject to withholding under section 3406—
(1)by allocating between the estate or trust and its beneficiaries any credit allowable under section 31(c) (on the basis of their respective shares of any such payment taken into account under this subchapter),
(2)by treating each beneficiary to whom such credit is allocated as if an amount equal to such credit has been paid to him by the estate or trust, and
(3)by allowing the estate or trust a deduction in an amount equal to the credit so allocated to beneficiaries.
(e)(1)The basis of any property received by a beneficiary in a distribution from an estate or trust shall be—
(A)the adjusted basis of such property in the hands of the estate or trust immediately before the distribution, adjusted for
(B)any gain or loss recognized to the estate or trust on the distribution.
(2)In the case of any distribution of property (other than cash), the amount taken into account under section 661(a)(2) and 662(a)(2) shall be the lesser of—
(A)the basis of such property in the hands of the beneficiary (as determined under paragraph (1)), or
(B)the fair market value of such property.
(3)(A)In the case of any distribution of property (other than cash) to which an election under this paragraph applies—
(i)paragraph (2) shall not apply,
(ii)gain or loss shall be recognized by the estate or trust in the same manner as if such property had been sold to the distributee at its fair market value, and
(iii)the amount taken into account under section 661(a)(2) and 662(a)(2) shall be the fair market value of such property.
(B)Any election under this paragraph shall apply to all distributions made by the estate or trust during a taxable year and shall be made on the return of such estate or trust for such taxable year.
(4)This subsection shall not apply to any distribution described in section 663(a).
(f)For purposes of this subchapter, under regulations prescribed by the Secretary, 2 or more trusts shall be treated as 1 trust if—
(1)such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries, and
(2)a principal purpose of such trusts is the avoidance of the tax imposed by this chapter.
(g)(1)In the case of a trust—
(A)the trustee may elect to treat any portion of a payment of estimated tax made by such trust for any taxable year of the trust as a payment made by a beneficiary of such trust,
(B)any amount so treated shall be treated as paid or credited to the beneficiary on the last day of such taxable year, and
(C)for purposes of subtitle F, the amount so treated—
(i)shall not be treated as a payment of estimated tax made by the trust, but
(ii)shall be treated as a payment of estimated tax made by such beneficiary on January 15 following the taxable year.
(2)An election under paragraph (1) shall be made on or before the 65th day after the close of the taxable year of the trust and in such manner as the Secretary may prescribe.
(3)In the case of a taxable year reasonably expected to be the last taxable year of an estate—
(A)any reference in this subsection to a trust shall be treated as including a reference to an estate, and
(B)the fiduciary of the estate shall be treated as the trustee.
(h)For purposes of this part, any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person.
(i)For purposes of subparts B, C, and D—
(1)Except as provided in regulations, if a foreign trust makes a loan of cash or marketable securities (or permits the use of any other trust property) directly or indirectly to or by—
(A)any grantor or beneficiary of such trust who is a United States person, or
(B)any United States person not described in subparagraph (A) who is related to such grantor or beneficiary,
(2)For purposes of this subsection—
(A)The term “cash” includes foreign currencies and cash equivalents.
(B)(i)A person is related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). In applying section 267 for purposes of the preceding sentence, section 267(c)(4) shall be applied as if the family of an individual includes the spouses of the members of the family.
(ii)If any person described in paragraph (1)(B) is related to more than one person, the grantor or beneficiary to whom the treatment under this subsection applies shall be determined under regulations prescribed by the Secretary.
(C)The term “United States person” does not include any entity exempt from tax under this chapter.
(D)Any trust which is treated under this subsection as making a distribution shall be treated as not described in section 651.
(E)In the case of the use of any trust property other than a loan of cash or marketable securities, paragraph (1) shall not apply to the extent that the trust is paid the fair market value of such use within a reasonable period of time of such use.
(3)If any loan (or use of property) is taken into account under paragraph (1), any subsequent transaction between the trust and the original borrower regarding the principal of the loan (by way of complete or partial repayment, satisfaction, cancellation, discharge, or otherwise) or the return of such property shall be disregarded for purposes of this title.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2010—Subsec. (i)(1). Pub. L. 111–147, § 533(a), substituted “(or permits the use of any other trust property) directly or indirectly to or by” for “directly or indirectly to” in introductory provisions and inserted “(or the fair market value of the use of such property)” after “the amount of such loan” in concluding provisions. Subsec. (i)(2)(E). Pub. L. 111–147, § 533(b), added subpar. (E). Subsec. (i)(3). Pub. L. 111–147, § 533(d), struck out “regarding loan principal” after “transactions” in heading and inserted “(or use of property)” after “If any loan” and “or the return of such property” after “otherwise)”. 1996—Subsec. (a)(7). Pub. L. 104–188, § 1906(b), added par. (7). Subsec. (h). Pub. L. 104–188, § 1904(c)(1), added subsec. (h). Subsec. (i). Pub. L. 104–188, § 1906(c)(1), added subsec. (i). 1993—Subsec. (a)(3). Pub. L. 103–66 inserted at end “The exclusion under section 1202 shall not be taken into account.” 1989—Subsec. (a)(6)(A). Pub. L. 101–239, § 7811(f)(1), substituted “section 265(a)(1)” for “section 265(1)”. Subsec. (a)(6)(C). Pub. L. 101–239, § 7811(b)(1), struck out “(i)” after “such a trust,” and “, and (ii) the deduction under section 1202 (relating to deduction for excess of capital gains over capital losses) shall not be taken into account” before period at end. Subsec. (a)(6)(D). Pub. L. 101–239, § 7811(b)(2), struck out subpar. (D) which read as follows: “Effective for distributions made in taxable years beginning after
December 31, 1975, the undistributed net income of each foreign trust for each taxable year beginning on or before
December 31, 1975, remaining undistributed at the close of the last taxable year beginning on or before
December 31, 1975, shall be redetermined by taking into account the deduction allowed by section 1202.” 1988—Subsec. (g)(1). Pub. L. 100–647, § 1014(d)(3)(A), struck out at end “The preceding sentence shall apply only to the extent the payments of estimated tax made by the trust for the taxable year exceed the tax imposed by this chapter shown on its return for the taxable year.” Subsec. (g)(2). Pub. L. 100–647, § 1014(d)(3)(B), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “An election under paragraph (1) may be made— “(A) only on the trust’s return of the tax imposed by this chapter for the taxable year, and “(B) only if such return is filed on or before the 65th day after the close of the taxable year.” Subsec. (g)(3). Pub. L. 100–647, § 1014(d)(4), added par. (3). 1986—Subsec. (a)(3). Pub. L. 99–514, § 301(b)(7), struck out “The deduction under section 1202 (relating to deduction for excess of capital gains over capital losses) shall not be taken into account.” Subsec. (a)(7). Pub. L. 99–514, § 612(b)(4), struck out par. (7), dividends or interest, which read as follows: “There shall be included the amount of any dividends or interest excluded from gross income pursuant to section 116 (relating to partial exclusion of dividends) or section 128 (relating to certain interest).” Subsec. (d). Pub. L. 99–514, § 1806(c)(1), redesignated subsec. (d), relating to treatment of property distributed in kind, as (e). Former subsec. (e) redesignated (f). Subsec. (e). Pub. L. 99–514, § 1806(a), (c)(1), redesignated subsec. (d) relating to treatment of property distributed in kind as (e) and amended par. (3)(B) generally, substituting “shall apply to all distributions made by the estate or trust during a taxable year and shall be made on the return of such estate or trust for such taxable year” for “shall be made by the estate or trust on its return for the taxable year for which the distribution was made”. Former subsec. (e) redesignated (f). Subsec. (f). Pub. L. 99–514, § 1806(c)(2), redesignated subsec. (e) as (f). Subsec. (g). Pub. L. 99–514, § 1404(b), added subsec. (g). 1984—Subsec. (d). Pub. L. 98–369, § 81(a), added subsec. (d) relating to treatment of property distributed in kind. Pub. L. 98–369, § 722(h)(3), added subsec. (d) relating to coordination with back-up withholding. Subsec. (e). Pub. L. 98–369, § 82(a), added subsec. (e). 1983—Subsec. (a)(7). Pub. L. 97–448 substituted “section 116 (relating to partial exclusion of dividends) or section 128 (relating to certain interest)” for “section 116 (relating to partial exclusion of dividends or interest received) or section 128 (relating to interest on certain savings certificates)”. Subsec. (d). Pub. L. 98–67 repealed
Amendments
made by Pub. L. 97–248. See 1982 Amendment note below. 1982—Subsec. (d). Pub. L. 97–248 provided that, applicable to payments of interest, dividends, and patronage dividends paid or credited after
June 30, 1983, this section is amended by adding subsec. (d) relating to coordination with withholding on interest and dividends. section 102(a), (b) of Pub. L. 98–67, title I, Aug. 5, 1983, 97 Stat. 369, repealed subtitle A (§§ 301–308) of title III of Pub. L. 97–248 as of the close of
June 30, 1983, and provided that the Internal Revenue Code of 1954 (this title) shall be applied and administered (subject to certain exceptions) as if such subtitle A (and the
Amendments
made by such subtitle A) had not been enacted. 1981—Subsec. (a)(7). 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)(4), inserted “or section 128 (relating to interest on certain savings certificates)” after “received)”. 1980—Subsec. (a)(7). Pub. L. 96–223 inserted “or interest” after “dividends” in heading and text. 1976—Subsec. (a)(6)(C). Pub. L. 94–455, § 1013(c)(1), struck out “created by a United States person” after “foreign trust”. Subsec. (a)(6)(D). Pub. L. 94–455, § 1013(c)(2), added subpar. (D). Subsec. (d). Pub. L. 94–455, § 1013(e)(2), struck out subsec. (a) which defined a foreign trust created by a United States person. 1962—Subsec. (a)(6). Pub. L. 87–834, § 7(a)(1), substituted “Income of foreign trust” for “Foreign income” in heading, designated existing provisions as subpar. (A), and added subpars. (B) and (C). Subsec. (d). Pub. L. 87–834, § 7(a)(2), added subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date
of 2010 Amendment Pub. L. 111–147, title V, § 533(e), Mar. 18, 2010, 124 Stat. 114, provided that: “The
Amendments
made by this section [amending this section and section 679 of this title] shall apply to loans made, and uses of property, after the date of the enactment of this Act [Mar. 18, 2010].”
Effective Date
of 1996 Amendment Pub. L. 104–188, title I, § 1904(d), Aug. 20, 1996, 110 Stat. 1912, provided that: “(1) In general.—Except as provided by paragraph (2), the
Amendments
made by this section [amending this section and section 665, 672, and 901 of this title] shall take effect on the date of the enactment of this Act [Aug. 20, 1996]. “(2) Exception for certain trusts.—The
Amendments
made by this section shall not apply to any trust—“(A) which is treated as owned by the grantor under section 676 or 677 (other than subsection (a)(3) thereof) of the Internal Revenue Code of 1986, and “(B) which is in existence on
September 19, 1995. The preceding sentence shall not apply to the portion of any such trust attributable to any transfer to such trust after
September 19, 1995.” Pub. L. 104–188, title I, § 1906(d)(2), (3), Aug. 20, 1996, 110 Stat. 1916, provided that: “(2) Abusive transactions.—The amendment made by subsection (b) [amending this section] shall take effect on the date of the enactment of this Act [Aug. 20, 1996]. “(3) Loans from trusts.—The amendment made by subsection (c) [amending this section and section 7872 of this title] shall apply to loans of cash or marketable securities made after
September 19, 1995.”
Effective Date
of 1993 AmendmentAmendment by Pub. L. 103–66 applicable to stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L. 103–66, set out as a note under section 53 of this title.
Effective Date
of 1989 AmendmentAmendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
of 1986 AmendmentAmendment by section 301(b)(7) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 301(c) of Pub. L. 99–514, set out as a note under section 62 of this title. Amendment by section 612(b)(4) 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. Pub. L. 99–514, title XIV, § 1404(d), Oct. 22, 1986, 100 Stat. 2714, provided that: “The
Amendments
made by this section [amending this section and section 6215, 6601, and 6654 of this title and repealing section 6152 of this title] shall apply to taxable years beginning after December 31, 1986.” Amendment by section 1806(a), (c) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Effective Date
of 1984 Amendment Pub. L. 98–369, div. A, title I, § 81(b),
July 18, 1984, 98 Stat. 598, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “(1) In general.—The amendment made by subsection (a) [amending this section] shall apply to distributions after
June 1, 1984, in taxable years ending after such date. “(2) Time for making election.—In the case of any distribution before the date of the enactment of this Act [
July 18, 1984]—“(A) the time for making an election under section 643(d)(3) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section) shall not expire before
January 1, 1985, and “(B) the requirement that such election be made on the return of the estate or trust shall not apply.” Pub. L. 98–369, div. A, title I, § 82(b),
July 18, 1984, 98 Stat. 598, as amended by Pub. L. 99–514, title XVIII, § 1806(b), Oct. 22, 1986, 100 Stat. 2811, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after
March 1, 1984; except that, in the case of a trust which was irrevocable on
March 1, 1984, such amendment shall so apply only to that portion of the trust which is attributable to contributions to corpus after
March 1, 1984.” Pub. L. 98–369, div. A, title VII, § 722(h)(5),
July 18, 1984, 98 Stat. 976, provided that: “(A) Except as provided in this paragraph, the
Amendments
made by this subsection [amending this section and section 3405, 3406, and 6041 of this title] shall apply as if included in the
Amendments
made by the Interest and Dividend Tax Compliance Act of 1983 [Pub. L. 98–67]. “(B) The
Amendments
made by paragraph (4) [amending section 3405 and 6041 of this title] shall apply to payments or distributions after December 31, 1984, unless the payor elects to have such
Amendments
apply to payments or distributions before January 1, 1985.”
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)(4) 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 1976 AmendmentFor
Effective Date
of amendment by section 1013(e)(2) of Pub. L. 94–455, see section 1013(f)(1) of Pub. L. 94–455, set out as an
Effective Date
note under section 679 of this title. Pub. L. 94–455, title X, § 1013(f)(2), Oct. 4, 1976, 90 Stat. 1617, provided that: “The
Amendments
made by subsection (c) [amending this section] shall apply to taxable years beginning after December 31, 1975.”
Effective Date
of 1962 Amendment Pub. L. 87–834, § 7(j), Oct. 16, 1962, 76 Stat. 989, provided that: “The
Amendments
made by this section [amending this section and section 665, 666, and 668 of this title and enacting section 669 of this title] (other than by subsections (f), (g) and (h) [enacting section 6048 and 6677 of this title and amending section 7701 of this title]), shall apply with respect to distributions made after
December 31, 1962.” Treatment as Single Trust Pub. L. 100–647, title X, § 1018(e), Nov. 10, 1988, 102 Stat. 3581, provided that: “If—“(1) on a return for the 1st taxable year of the trusts involved beginning after
March 1, 1984, 2 or more trusts were treated as a single trust for purposes of the tax imposed by chapter 1 of the Internal Revenue Code of 1954 [now 1986], “(2) such trusts would have been required to be so treated but for the amendment made by section 1806(b) of the Reform Act [Pub. L. 99–514, which amended provisions set out as an
Effective Date
of 1984 Amendment note above], and “(3) such trusts did not accumulate any income during such taxable year and did not make any accumulation distributions during such taxable year, then, notwithstanding the amendment made by section 1806(b) of the Reform Act, such trusts shall be treated as one trust for purposes of such taxable year.” Plan
Amendments
Not Required Until January 1, 1989For provisions directing that if any
Amendments
made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 643
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73