§652 Inclusion of Amounts in Gross Income of Beneficiaries of Trusts Distributing Current Income Only

Summary

If a trust is required to pay out its current income, the amount it must pay for the year must be reported as income by the beneficiaries who are supposed to get it, even if they do not actually receive the money. If the amount the trust must pay is more than the trust’s distributable net income (the trust’s taxable income available for distribution), each beneficiary reports a share based on the same ratio that their required payment bears to the total required payments. The income keeps the same tax character for the beneficiary as it had in the trust (for example, interest stays interest), unless the trust specifically assigns different kinds of income to different people. Deductions are divided among the income types under IRS rules. If the beneficiary’s tax year is different from the trust’s, the amount they report is based on trust year(s) that end within or with the beneficiary’s tax year.