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Title 26 — Internal Revenue CodeRelease 119-73not60

§668 Interest Charge on Accumulation Distributions From Foreign Trusts

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 › § 668

Last updated Apr 5, 2026|Official source

Summary

You must pay interest when a beneficiary receives an accumulation distribution from a foreign trust. The interest is figured on the special tax for that distribution for a period that starts a calculated number of years before the distribution and ends on the distribution date. The interest uses the same rates and method that apply to tax underpayments. To find the number of years, take each prior trust year that had undistributed net income, multiply that year’s undistributed income by how many taxable years passed between that year and the distribution (count the earlier year but not the distribution year), add those products together, and divide by the total undistributed net income. An “undistributed income year” is 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. Accumulation distributions reduce undistributed income across years in proportion. For any part of the period before January 1, 1996, interest is 6% and is not compounded until that date. The interest plus the special tax cannot be more than the accumulation distribution (excluding amounts already treated as distributed). The interest is not deductible for tax purposes.

Full Legal Text

Title 26, §668

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of the tax determined under section 667(a)—
(1)The interest charge determined under this section with respect to any distribution is the amount of interest which would be determined on the partial tax computed under section 667(b) for the period described in paragraph (2) using the rates and the method under section 6621 applicable to underpayments of tax.
(2)For purposes of paragraph (1), the period described in this paragraph is the period which begins on the date which is the applicable number of years before the date of the distribution and which ends on the date of the distribution.
(3)For purposes of paragraph (2)—
(A)The applicable number of years with respect to a distribution is the number determined by dividing—
(i)the sum of the products described in subparagraph (B) with respect to each undistributed income year, by
(ii)the aggregate undistributed net income.
(B)For purposes of subparagraph (A), the product described in this subparagraph with respect to any undistributed income year is the product of—
(i)the undistributed net income for such year, and
(ii)the sum of the number of taxable years between such year and the taxable year of the distribution (counting in each case the undistributed income year but not counting the taxable year of the distribution).
(4)For purposes of this subsection, the term “undistributed income year” means any prior taxable year of the trust for which there is undistributed net income, other than a taxable year during all of which the beneficiary receiving the distribution was not a citizen or resident of the United States.
(5)Notwithstanding section 666, for purposes of this subsection, an accumulation distribution from the trust shall be treated as reducing proportionately the undistributed net income for undistributed income years.
(6)Interest for the portion of the period described in paragraph (2) which occurs before January 1, 1996, shall be determined—
(A)by using an interest rate of 6 percent, and
(B)without compounding until January 1, 1996.
(b)The total amount of the interest charge shall not, when added to the total partial tax computed under section 667(b), exceed the amount of the accumulation distribution (other than the amount of tax deemed distributed by section 666(b) or (c)) in respect of which such partial tax was determined.
(c)The interest charge determined under this section shall not be allowed as a deduction for purposes of any tax imposed by this title.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 668, acts Aug. 16, 1954, ch. 736, 68A Stat. 225; Oct. 16, 1962, Pub. L. 87–834, § 7(d), 76 Stat. 986; Dec. 30, 1969, Pub. L. 91–172, title III, § 331(a), 83 Stat. 594, related to treatment of amounts deemed distributed in preceding years, prior to repeal by Pub. L. 94–455, title VII, § 701(a)(3), Oct. 4, 1976, 90 Stat. 1577. See section 667 of this title.

Amendments

1996—Subsec. (a). Pub. L. 104–188 reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “For purposes of the tax determined under section 667(a), the interest charge is an amount equal to 6 percent of the partial tax computed under section 667(b) multiplied by a fraction— “(1) the numerator of which is the sum of the number of taxable years between each taxable year to which the distribution is allocated under section 666(a) and the taxable year of the distribution (counting in each case the taxable year to which the distribution is allocated but not counting the taxable year of the distribution), and “(2) the denominator of which is the number of taxable years to which the distribution is allocated under section 666(a).” 1990—Subsec. (c). Pub. L. 101–508 substituted heading for one which read “Special rules” and amended text generally, restating provisions of former par. (1) as entire subsection and striking out former par. (2) which provided that for purposes of this section, undistributed net income existing in a trust as of
January 1, 1977, would be treated as allocated under section 666(a) to the first taxable year beginning after
December 31, 1976.

Statutory Notes and Related Subsidiaries

Effective Date

of 1996 Amendment Pub. L. 104–188, title I, § 1906(d)(1), Aug. 20, 1996, 110 Stat. 1916, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after the date of the enactment of this Act [Aug. 20, 1996].”

Effective Date

Pub. L. 94–455, title X, § 1014(d), Oct. 4, 1976, 90 Stat. 1617, provided that: “The

Amendments

made by this section [enacting this section and amending section 667 of this title] shall apply to taxable years beginning after December 31, 1976.”

Savings Provision

For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 668

Title 26 — Internal Revenue Code

Last Updated

Apr 5, 2026

Release point: 119-73not60