Title 26, Internal Revenue CodeRelease 119-110
§674 Power to Control Beneficial Enjoyment
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter J — Estates, Trusts, Beneficiaries, and Decedents › PART I — ESTATES, TRUSTS, AND BENEFICIARIES › Subpart E — Grantors and Others Treated as Substantial Owners › § 674
Summary
Treats the person who made a trust as the owner of any part of the trust when that person, or someone friendly to them, can change who gets the trust’s money or property or how income is used without needing approval from anyone who might object. In other words, if the grantor or a nonadverse person can control who benefits, the grantor is taxed like they still own that part of the trust. There are important exceptions. The rule does not apply to eight specific kinds of powers (for example: powers to pay a dependent’s support under certain limits; powers that only take effect after a future event; powers usable only by will; powers that allocate to charities or certain employee plans; powers to distribute principal under a clear standard or to income beneficiaries with rules; powers to withhold or accumulate income temporarily or during a beneficiary’s disability or while a beneficiary is under 21; and powers to decide what counts as income versus principal). The rule also does not apply when only an independent trustee (not the grantor and mostly not people who must follow the grantor) has the power, or when the trustee’s power is limited by a clear outside standard written into the trust.
Full Legal Text
Title 26, §674
Internal Revenue Code, Source: USLM XML via OLRC
(a)General rule
The grantor shall be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income therefrom is subject to a power of disposition, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party.
(b)Exceptions for certain powers
Subsection (a) shall not apply to the following powers regardless of by whom held:
(1)Power to apply income to support of a dependent
A power described in section 677(b) to the extent that the grantor would not be subject to tax under that section.
(2)Power affecting beneficial enjoyment only after occurrence of event
A power, the exercise of which can only affect the beneficial enjoyment of the income for a period commencing after the occurrence of an event such that a grantor would not be treated as the owner under section 673 if the power were a reversionary interest; but the grantor may be treated as the owner after the occurrence of the event unless the power is relinquished.
(3)Power exercisable only by will
A power exercisable only by will, other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse party, or both, without the approval or consent of any adverse party.
(4)Power to allocate among charitable beneficiaries
A power to determine the beneficial enjoyment of the corpus or the income therefrom if the corpus or income is irrevocably payable for a purpose specified in section 170(c) (relating to definition of charitable contributions) or to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined in section 664(g)(1)).
(5)Power to distribute corpus
A power to distribute corpus either—
(A)to or for a beneficiary or beneficiaries or to or for a class of beneficiaries (whether or not income beneficiaries) provided that the power is limited by a reasonably definite standard which is set forth in the trust instrument; or
(B)to or for any current income beneficiary, provided that the distribution of corpus must be chargeable against the proportionate share of corpus held in trust for the payment of income to the beneficiary as if the corpus constituted a separate trust.
A power does not fall within the powers described in this paragraph if any person has a power to add to the beneficiary or beneficiaries or to a class of beneficiaries designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children.
(6)Power to withhold income temporarily
A power to distribute or apply income to or for any current income beneficiary or to accumulate the income for him, provided that any accumulated income must ultimately be payable—
(A)to the beneficiary from whom distribution or application is withheld, to his estate, or to his appointees (or persons named as alternate takers in default of appointment) provided that such beneficiary possesses a power of appointment which does not exclude from the class of possible appointees any person other than the beneficiary, his estate, his creditors, or the creditors of his estate, or
(B)on termination of the trust, or in conjunction with a distribution of corpus which is augmented by such accumulated income, to the current income beneficiaries in shares which have been irrevocably specified in the trust instrument.
Accumulated income shall be considered so payable although it is provided that if any beneficiary does not survive a date of distribution which could reasonably have been expected to occur within the beneficiary’s lifetime, the share of the deceased beneficiary is to be paid to his appointees or to one or more designated alternate takers (other than the grantor or the grantor’s estate) whose shares have been irrevocably specified. A power does not fall within the powers described in this paragraph if any person has a power to add to the beneficiary or beneficiaries or to a class of beneficiaries designated to receive the income or corpus except where such action is to provide for after-born or after-adopted children.
(7)Power to withhold income during disability of a beneficiary
A power exercisable only during—
(A)the existence of a legal disability of any current income beneficiary, or
(B)the period during which any income beneficiary shall be under the age of 21 years,
to distribute or apply income to or for such beneficiary or to accumulate and add the income to corpus. A power does not fall within the powers described in this paragraph if any person has a power to add to the beneficiary or beneficiaries or to a class of beneficiaries designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children.
(8)Power to allocate between corpus and income
A power to allocate receipts and disbursements as between corpus and income, even though expressed in broad language.
(c)Exception for certain powers of independent trustees
Subsection (a) shall not apply to a power solely exercisable (without the approval or consent of any other person) by a trustee or trustees, none of whom is the grantor, and no more than half of whom are related or subordinate parties who are subservient to the wishes of the grantor— (1)
(2)to pay out corpus to or for a beneficiary or beneficiaries or to or for a class of beneficiaries (whether or not income beneficiaries).
A power does not fall within the powers described in this subsection if any person has a power to add to the beneficiary or beneficiaries or to a class of beneficiaries designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children. For periods during which an individual is the spouse of the grantor (within the meaning of section 672(e)(2)), any reference in this subsection to the grantor shall be treated as including a reference to such individual.
(d)Power to allocate income if limited by a standard
Subsection (a) shall not apply to a power solely exercisable (without the approval or consent of any other person) by a trustee or trustees, none of whom is the grantor or spouse living with the grantor, to distribute, apportion, or accumulate income to or for a beneficiary or beneficiaries, or to, for, or within a class of beneficiaries, whether or not the conditions of paragraph (6) or (7) of subsection (b) are satisfied, if such power is limited by a reasonably definite external standard which is set forth in the trust instrument. A power does not fall within the powers described in this subsection if any person has a power to add to the beneficiary or beneficiaries or to a class of beneficiaries designated to receive the income or corpus except where such action is to provide for after-born or after-adopted children.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
1997—Subsec. (b)(4). Pub. L. 105–34 inserted before period “or to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined in section 664(g)(1))”. 1988—Subsec. (c). Pub. L. 100–647 inserted at end “For periods during which an individual is the spouse of the grantor (within the meaning of section 672(e)(2)), any reference in this subsection to the grantor shall be treated as including a reference to such individual.” 1986—Subsec. (b)(2). Pub. L. 99–514 substituted “occurrence of event” for “expiration of 10-year period” in heading and in text substituted “the occurrence of an event” for “the expiration of a period” and “the occurrence of the event” for “the expiration of the period”.
Statutory Notes and Related Subsidiaries
Effective Date
of 1997 AmendmentAmendment by Pub. L. 105–34 applicable to transfers made by trusts to, or for the use of, an employee stock ownership plan after Aug. 5, 1997, see section 1530(d) of Pub. L. 105–34, set out as a note under section 401 of this title.
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
of 1986 AmendmentAmendment by Pub. L. 99–514 applicable with respect to transfers in trust made after Mar. 1, 1986, except for transfers pursuant to a certain binding property settlement agreement, see section 1402(c) of Pub. L. 99–514, set out as a note under section 673 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 674
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110