§668 Interest charge on accumulation distributions from foreign trusts

Summary

When you owe the special tax under section 667(a) for an accumulation distribution from a foreign trust, you must also calculate an interest charge on the partial tax from section 667(b). The interest is figured like underpayment interest under section 6621 for a period that starts a certain number of years before the distribution and ends on the distribution date. That number of years is a weighted average based on how much undistributed net income came from each prior year and how many years each amount sat in the trust. Any accumulation distribution reduces prior years’ undistributed net income proportionally. Interest that falls before January 1, 1996 uses 6% and does not compound until that date. The interest plus the partial tax cannot be more than the accumulation distribution amount (excluding amounts treated as distributed under section 666(b) or (c)). The interest charge is not deductible for tax purposes. Undistributed income year: a prior trust year with undistributed net income, except years when the beneficiary was not a U.S. citizen or resident for the whole year.