§662 Inclusion of Amounts in Gross Income of Beneficiaries of Estates and Trusts Accumulating Income or Distributing Corpus

Summary

You must include on your tax return the money an estate or trust pays, credits, or must give you. That covers income that must be paid now and any other amounts paid or required to be paid. If the total promised to all beneficiaries is more than the estate or trust’s distributable net income (DNI), each beneficiary’s reportable share is reduced in proportion so the group does not exceed DNI. For required current distributions the DNI is figured without the charitable deduction under section 642(c). For other amounts the DNI limit is applied after subtracting the required current distributions. Amounts keep the same tax type for the beneficiary as they had in the estate or trust (for example, interest or capital gains). Different kinds of income are split in the same proportions they appear in the trust unless the trust document says otherwise, and deductions are allocated under IRS rules. If the beneficiary’s tax year differs from the trust’s, include amounts from trust years that end within or with the beneficiary’s year.