Title 26 — Internal Revenue CodeRelease 119-73not60
§667 Treatment of Amounts Deemed Distributed by Trust in Preceding Years
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter J— Estates, Trusts, Beneficiaries, and Decedents › Part I— ESTATES, TRUSTS, AND BENEFICIARIES › Subpart D— Treatment of Excess Distributions by Trusts › § 667
Summary
Explains how to tax a beneficiary when a trust’s income is treated as if it had been paid in earlier years. When the beneficiary actually gets (or is credited with or must receive) those amounts, they must report them as income. The amounts are counted the same way they would have been if paid on the last day of the earlier year (including the special rule for tax‑exempt interest). The tax for the year the beneficiary reports the money is worked out only by these rules and has three parts: the regular tax on the beneficiary’s income after reducing it by the distributed amount, an extra tax found by spreading the distribution over prior years, and, for foreign trusts, an interest charge under section 668. The extra tax is figured by a special averaging method. First count how many prior trust years are involved. Then look at the 5 taxable years before the accumulation distribution, drop the beneficiary’s highest and lowest income years, and use the remaining 3 years. Add to each of those 3 years an equal share of the distribution (the total divided by the number of prior years), and compute the average tax increase for those 3 years. Rules to note: treat any year’s taxable income as at least zero; ignore a prior year if its deemed distributed amount is less than 25 percent of the per‑year share; include past deemed distributions when computing prior years; if distributions from more than one trust are includible in the same year, the beneficiary picks the order; reduce the extra tax by a pre‑death portion tied to taxes under chapter 11 or 13; taxes described in section 665(d)(2) that are added back are usually a credit against the extra tax (or may be treated as a deduction instead); “computation year” means any of the 3 years used for averaging; for nonresident aliens or foreign corporations, treat the character rules for tax‑exempt interest as applying to all amounts; and an accumulation distribution from a trust counts only if the total deemed for that same prior beneficiary year from that trust is at least $1,000.
Full Legal Text
Title 26, §667
Internal Revenue Code — Source: USLM XML via OLRC
(a)The total of the amounts which are treated under section 666 as having been distributed by a trust in a preceding taxable year shall be included in the income of a beneficiary of the trust when paid, credited, or required to be distributed to the extent that such total would have been included in the income of such beneficiary under section 662(a)(2) (and, with respect to any tax-exempt interest to which section 103 applies, under section 662(b)) if such total had been paid to such beneficiary on the last day of such preceding taxable year. The tax imposed by this subtitle on a beneficiary for a taxable year in which any such amount is included in his income shall be determined only as provided in this section and shall consist of the sum of—
(1)a partial tax computed on the taxable income reduced by an amount equal to the total of such amounts, at the rate and in the manner as if this section had not been enacted,
(2)a partial tax determined as provided in subsection (b) of this section, and
(3)in the case of a foreign trust, the interest charge determined as provided in section 668.
(b)(1)The partial tax imposed by subsection (a)(2) shall be determined.
(A)by determining the number of preceding taxable years of the trust on the last day of which an amount is deemed under section 666(a) to have been distributed,
(B)by taking from the 5 taxable years immediately preceding the year of the accumulation distribution the 1 taxable year for which the beneficiary’s taxable income was the highest and the 1 taxable year for which his taxable income was the lowest,
(C)by adding to the beneficiary’s taxable income for each of the 3 taxable years remaining after the application of subparagraph (B) an amount determined by dividing the amount deemed distributed under section 666 and required to be included in income under subsection (a) by the number of preceding taxable years determined under subparagraph (A), and
(D)by determining the average increase in tax for the 3 taxable years referred to in subparagraph (C) resulting from the application of such subparagraph.
(2)For purposes of paragraph (1), the taxable income of the beneficiary for any taxable year shall be deemed to be not less than zero.
(3)For purposes of paragraph (1), if the amount of the undistributed net income deemed distributed in any preceding taxable year of the trust is less than 25 percent of the amount of the accumulation distribution divided by the number of preceding taxable years to which the accumulation distribution is allocated under section 666(a), the number of preceding taxable years of the trust with respect to which an amount is deemed distributed to a beneficiary under section 666(a) shall be determined without regard to such year.
(4)In computing the partial tax under paragraph (1) for any beneficiary, the income of such beneficiary for each of his prior taxable years shall include amounts previously deemed distributed to such beneficiary in such year under section 666 as a result of prior accumulation distributions (whether from the same or another trust).
(5)In the case of accumulation distributions made from more than one trust which are includible in the income of a beneficiary in the same taxable year, the distributions shall be deemed to have been made consecutively in whichever order the beneficiary shall determine.
(6)(A)The partial tax shall be reduced by an amount which is equal to the pre-death portion of the partial tax multiplied by a fraction—
(i)the numerator of which is that portion of the tax imposed by chapter 11 or 13, as the case may be, which is attributable (on a proportionate basis) to amounts included in the accumulation distribution, and
(ii)the denominator of which is the amount of the accumulation distribution which is subject to the tax imposed by chapter 11 or 13, as the case may be.
(B)For purposes of this paragraph, the term “partial tax” means the partial tax imposed by subsection (a)(2) determined under this subsection without regard to this paragraph.
(C)For purposes of this paragraph, the pre-death portion of the partial tax shall be an amount which bears the same ratio to the partial tax as the portion of the accumulation distribution which is attributable to the period before the date of the death of the decedent or the date of the generation-skipping transfer bears to the total accumulation distribution.
(c)(1)If, in the same prior taxable year of the beneficiary in which any part of the accumulation distribution from a trust (hereinafter in this paragraph referred to as “third trust”) is deemed under section 666(a) to have been distributed to such beneficiary, some part of prior distributions by each of 2 or more other trusts is deemed under section 666(a) to have been distributed to such beneficiary, then subsections (b) and (c) of section 666 shall not apply with respect to such part of the accumulation distribution from such third trust.
(2)For purposes of paragraph (1), an accumulation distribution from a trust to a beneficiary shall be taken into account only if such distribution, when added to any prior accumulation distributions from such trust which are deemed under section 666(a) to have been distributed to such beneficiary for the same prior taxable year of the beneficiary, equals or exceeds $1,000.
(d)(1)(A)In determining the increase in tax under subsection (b)(1)(D) for any computation year, the taxes described in section 665(d)(2) which are deemed distributed under section 666(b) or (c) and added under subsection (b)(1)(C) to the taxable income of the beneficiary for any computation year shall, except as provided in subparagraphs (B) and (C), be treated as a credit against the increase in tax for such computation year under subsection (b)(1)(D).
(B)If the beneficiary did not choose the benefits of subpart A of part III of subchapter N with respect to the computation year, the beneficiary may in lieu of treating the amounts described in subparagraph (A) (without regard to subparagraph (C)) as a credit may treat such amounts as a deduction in computing the beneficiary’s taxable income under subsection (b)(1)(C) for the computation year.
(C)(i)For purposes of determining under subparagraph (A) the amount treated as a credit for any computation year, the limitations under subpart A of part III of subchapter N shall be applied separately with respect to amounts added under subsection (b)(1)(C) to the taxable income of the beneficiary for such computation year. For purposes of computing the increase in tax under subsection (b)(1)(D) for any computation year for which the beneficiary did not choose the benefits of subpart A of part III of subchapter N, the beneficiary shall be treated as having chosen such benefits for such computation year.
(ii)The items of income, deduction, and credit of the Trust shall retain their character (subject to the application of section 904(f)(5)) to the extent necessary to apply this paragraph.
(D)For purposes of this paragraph, the term “computation year” means any of the three taxable years remaining after application of subsection (b)(1)(B).
(e)In the case of a distribution from a trust to a nonresident alien individual or to a foreign corporation, the first sentence of subsection (a) shall be applied as if the reference to the determination of character under section 662(b) applied to all amounts instead of just to tax-exempt interest.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
1986—Subsec. (b)(2). Pub. L. 99–514 amended par. (2) generally. Prior to amendment, par. (2) read as follows: “For purposes of paragraph (1), the taxable income of the beneficiary for any taxable year shall be deemed to be not less than— “(A) in the case of a beneficiary who is an individual, the zero bracket amount for such year, or “(B) in the case of a beneficiary who is a corporation, zero.” 1978—Subsec. (b)(1). Pub. L. 95–600, § 701(q)(1)(C), inserted in last sentence “(other than the amount of taxes described in section 665(d)(2))” after “taxes”. Subsec. (b)(6). Pub. L. 95–600, § 702(o)(1), added par. (6). Subsec. (d). Pub. L. 95–600, § 701(q)(1)(B), added subsec. (d). Subsec. (e). Pub. L. 95–600, § 701(r)(1), added subsec. (e). 1977—Subsec. (b)(2). Pub. L. 95–30 substituted “not less than (A) in the case of a beneficiary who is an individual, the zero bracket amount for such year, or (B) in the case of a beneficiary who is a corporation, zero” for “not less than zero”. 1976—Pub. L. 94–455, §§ 701(a)(1), 1014(a), substituted provisions relating to the treatment of amounts deemed distributed by trust in preceding years for provisions that no refund or credit be allowed to a trust for any preceding taxable year by reason of a distribution deemed to have been made by such trust in such year under section 666 or 669 and that there be allowed as a credit against the tax imposed by this subtitle on the beneficiary an amount equal to the amount of the taxes deemed distributed to such beneficiary by the trust under section 666(b) and (c) and 669(d) and (e) during preceding taxable years of the trust on the last day of which the beneficiary was in being, reduced by the amount of the taxes deemed distributed to such beneficiary for such preceding taxable years to the extent that such taxes are taken into account under section 668(b)(1) and 669(b) in determining the amount of the tax imposed by section 668. See section 666(e) of this title. 1969—Subsec. (a). Pub. L. 91–172 incorporated existing provisions of first sentence in provisions designated as subsec. (a), included distributions made under section 669 of this title, and struck out provisions for credit of taxes imposed on the trust against tax of beneficiary. See subsec. (b) of this section. Subsec. (b). Pub. L. 91–172 incorporated provision of first sentence for credit of taxes imposed on the trust against tax of beneficiary, and provided for interest free credit and method of computation of its amount. The second sentence had provided that the amount of taxes which may not be refunded or credited to the trust shall be an amount equal to the excess of (1) the taxes imposed on the trust for any preceding taxable year (computed without regard to the accumulation distribution for the taxable year) over (2) the amount of taxes for such preceding taxable year imposed on the undistributed portion of distributable net income of the trust for such preceding taxable year after the application of this subpart on account of the accumulation distribution determined for such taxable year.
Statutory Notes and Related Subsidiaries
Effective Date
of 1986 AmendmentAmendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99–514, set out as a note under section 1 of this title.
Effective Date
of 1978 AmendmentAmendment by section 701(q)(1)(B), (C) of Pub. L. 95–600 applicable to distributions made in taxable years beginning after Dec. 31, 1975, see section 701(q)(3)(A) of Pub. L. 95–600, set out as a note under section 665 of this title. Pub. L. 95–600, title VII, § 702(o)(2), Nov. 6, 1978, 92 Stat. 2937, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendment made by paragraph (1) [amending this section] shall apply— “(A) in the case of the tax imposed by chapter 11 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954, section 2001 et seq. of this title], to the estates of decedents dying after
December 31, 1979, and “(B) in the case of the tax imposed by chapter 13 [section 2601 et seq. of this title], to any generation-skipping transfer (within the meaning of section 2611(a) of such Code) made after
June 11, 1976.” Pub. L. 95–600, title VII, § 701(r)(2), Nov. 6, 1978, 92 Stat. 2911, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to distributions made in taxable years beginning after
December 31, 1975.”
Effective Date
of 1977 AmendmentAmendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title.
Effective Date
of 1976 Amendment Pub. L. 94–455, title VII, § 701(h), Oct. 4, 1976, 90 Stat. 1580, provided that: “The
Amendments
made by subsections (a), (b), (c), (d), and (f) of this section [amending this section and section 665, 666, 1302, and 6401 of this title and repealing section 668 and 669 of this title] shall apply to distributions made in taxable years beginning after December 31, 1975. The
Amendments
made by subsection (e) of this section [enacting section 644 of this title and amending section 641 of this title] shall apply to transfers in trust made after May 21, 1976.”
Effective Date
of 1969 AmendmentAmendment by Pub. L. 91–172 applicable to taxable years beginning after Dec. 31, 1968, 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. § 667
Title 26 — Internal Revenue Code
Last Updated
Apr 5, 2026
Release point: 119-73not60