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Title 26 — Internal Revenue CodeRelease 119-73

§663 Special rules applicable to sections 661 and 662

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 C— - Estates and Trusts Which May Accumulate Income or Which Distribute Corpus › § 663

Last updated Apr 6, 2026|Official source

Summary

Excludes certain payments from being treated as distributable under sections 661(a) or 662(a). It does not count (1) a specific cash gift or specific property left by the governing document if it is paid all at once or in no more than 3 installments (but not amounts that can only be paid from the trust or estate’s income), (2) amounts paid or permanently set aside that qualify for the deduction under section 642(c) (computed without regard to sections 508(d), 681, and 4948(c)(4)), and (3) amounts paid, credited, or distributed in a year if they were already subject to section 651 or 661 in an earlier year. If an amount is properly paid or credited within the first 65 days of a taxable year, it is treated as paid on the last day of the prior year, but only if the executor or fiduciary makes the election the Secretary’s regulations require. For figuring distributable net income, clearly separate and independent shares for different beneficiaries are treated as separate trusts (and similar rules apply to estates); the Secretary will issue rules on what counts as separate shares and how related rules, including subpart D, apply.

Full Legal Text

Title 26, §663

Internal Revenue Code — Source: USLM XML via OLRC

(a)There shall not be included as amounts falling within section 661(a) or 662(a)—
(1)Any amount which, under the terms of the governing instrument, is properly paid or credited as a gift or bequest of a specific sum of money or of specific property and which is paid or credited all at once or in not more than 3 installments. For this purpose an amount which can be paid or credited only from the income of the estate or trust shall not be considered as a gift or bequest of a specific sum of money.
(2)Any amount paid or permanently set aside or otherwise qualifying for the deduction provided in section 642(c) (computed without regard to section 508(d), 681, and 4948(c)(4)).
(3)Any amount paid, credited, or distributed in the taxable year, if section 651 or section 661 applied to such amount for a preceding taxable year of an estate or trust because credited or required to be distributed in such preceding taxable year.
(b)(1)If within the first 65 days of any taxable year of an estate or a trust, an amount is properly paid or credited, such amount shall be considered paid or credited on the last day of the preceding taxable year.
(2)Paragraph (1) shall apply with respect to any taxable year of an estate or a trust only if the executor of such estate or the fiduciary of such trust (as the case may be) elects, in such manner and at such time as the Secretary prescribes by regulations, to have paragraph (1) apply for such taxable year.
(c)For the sole purpose of determining the amount of distributable net income in the application of section 661 and 662, in the case of a single trust having more than one beneficiary, substantially separate and independent shares of different beneficiaries in the trust shall be treated as separate trusts. Rules similar to the rules of the preceding provisions of this subsection shall apply to treat substantially separate and independent shares of different beneficiaries in an estate having more than 1 beneficiary as separate estates. The existence of such substantially separate and independent shares and the manner of treatment as separate trusts or estates, including the application of subpart D, shall be determined in accordance with regulations prescribed by the Secretary.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1997—Subsec. (b). Pub. L. 105–34, § 1306(a), inserted “an estate or” before “a trust” in pars. (1) and (2). Subsec. (b)(2). Pub. L. 105–34, § 1306(b), substituted “the executor of such estate or the fiduciary of such trust (as the case may be)” for “the fiduciary of such trust”. Subsec. (c). Pub. L. 105–34, § 1307(a), (b), inserted “estates or” before “trusts” in heading, “Rules similar to the rules of the preceding provisions of this subsection shall apply to treat substantially separate and independent shares of different beneficiaries in an estate having more than 1 beneficiary as separate estates.” before last sentence, and “or estates” after “trusts” in last sentence. 1976—Subsecs. (b)(2), (c). Pub. L. 94–455 struck out “or his delegate” after “Secretary”. 1969—Subsec. (a)(2). Pub. L. 91–172, § 101(j)(17), substituted “section 508(d), 681, and 4948(c)(4)” for “section 681”. Subsec. (b)(2). Pub. L. 91–172, § 331(b), incorporated existing provisions of subpar. (C) of former first sentence making subsec. (b) applicable only to a trust where the fiduciary elected to have the subsec. apply and part of former second sentence making the election applicable in accordance with prescribed

Regulations

substituted provisions for

Regulations

to spell out manner and time of election for part of former second sentence requiring the election to be made not later than the time prescribed by law for filing the return for the year, including any extension; and omitted: subpars. (A) and (B) of former first sentence which had provided for application of subsec. (b) only to a trust “(A) which was in existence prior to January 1, 1954” and “(B) which, under the terms of its governing instrument, may not distribute in any taxable year amounts in excess of the income of the preceding taxable year”; part of former second sentence which required the election to be made for first taxable year to which this part is applicable; and third sentence that “If such election is made with respect to a taxable year, this subsection shall apply to all amounts properly paid or credited within the first 65 days of all subsequent taxable years of such trust.”

Statutory Notes and Related Subsidiaries

Effective Date

of 1997 Amendment Pub. L. 105–34, title XIII, § 1306(c), Aug. 5, 1997, 111 Stat. 1041, provided that: “The

Amendments

made by this section [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 5, 1997].” Pub. L. 105–34, title XIII, § 1307(c), Aug. 5, 1997, 111 Stat. 1041, provided that: “The

Amendments

made by this section [amending this section] shall apply to estates of decedents dying after the date of the enactment of this Act [Aug. 5, 1997].”

Effective Date

of 1969 AmendmentAmendment by section 101(j)(17) of Pub. L. 91–172 effective Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91–172, set out as an

Effective Date

note under section 4940 of this title. Amendment by section 331(b) of Pub. L. 91–172 applicable to taxable years beginning before Jan. 1, 1970, see section 331(d) of Pub. L. 91–172, set out as a note under section 665 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 663

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73