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Title 26 — Internal Revenue CodeRelease 119-73

§678 Person other than grantor treated as substantial owner

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 E— - Grantors and Others Treated as Substantial Owners › § 678

Last updated Apr 6, 2026|Official source

Summary

Treats a person who is not the trust maker as the owner of part of a trust when that person can, by themselves, make the trust principal or its income belong to them, or when they gave up or changed that power but still keep enough control that, under sections 671–677, the trust maker would be treated like the owner. That rule does not apply if the grantor or a transferor (see section 679) is already treated as owner under other rules in this part. It also does not apply to a trustee’s power to use income to support someone the trustee must support, except for the income actually used; amounts paid from principal are treated under paragraph (2) of section 661(a) and taxed to the power holder under section 662. A power that is properly renounced soon after the holder learns of it is also excluded. For rules about trust ownership of S corporation stock, see section 1361(d).

Full Legal Text

Title 26, §678

Internal Revenue Code — Source: USLM XML via OLRC

(a)A person other than the grantor shall be treated as the owner of any portion of a trust with respect to which:
(1)such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself, or
(2)such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would, within the principles of sections 671 to 677, inclusive, subject a grantor of a trust to treatment as the owner thereof.
(b)Subsection (a) shall not apply with respect to a power over income, as originally granted or thereafter modified, if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section.
(c)Subsection (a) shall not apply to a power which enables such person, in the capacity of trustee or cotrustee, merely to apply the income of the trust to the support or maintenance of a person whom the holder of the power is obligated to support or maintain except to the extent that such income is so applied. In cases where the amounts so applied or distributed are paid out of corpus or out of other than income of the taxable year, such amounts shall be considered to be an amount paid or credited within the meaning of paragraph (2) of section 661(a) and shall be taxed to the holder of the power under section 662.
(d)Subsection (a) shall not apply with respect to a power which has been renounced or disclaimed within a reasonable time after the holder of the power first became aware of its existence.
(e)For provision under which beneficiary of trust is treated as owner of the portion of the trust which consists of stock in an S corporation, see section 1361(d).

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2000—Subsec. (e). Pub. L. 106–554 substituted “an S corporation” for “an electing small business corporation”. 1983—Subsec. (e). Pub. L. 97–448 added subsec. (e). 1976—Subsec. (b). Pub. L. 94–455 substituted “if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section” for “if the grantor of the trust is otherwise treated as the owner under sections 671 to 677, inclusive”.

Statutory Notes and Related Subsidiaries

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 1976 AmendmentFor

Effective Date

of amendment by 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.

Reference

Citations & Metadata

Citation

26 U.S.C. § 678

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73