§652 Inclusion of amounts in gross income of beneficiaries of trusts distributing current income only

Summary

If a trust must pay out its current income, the people who are supposed to get that income must count it as their taxable income for the year, even if they did not actually receive the money. If the total required payouts are more than the trust’s distributable net income, each person includes a share of the trust’s distributable net income in the same ratio as their required share of the total payouts. The type of income (for example, interest, dividends, or capital gains) keeps the same tax character for the person as it had in the trust, unless the trust says otherwise. Deductions are split among income types under IRS rules. If the beneficiary’s tax year is different from the trust’s, use the trust tax year(s) that end during the beneficiary’s tax year to figure the amount.