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Title 26, Internal Revenue CodeRelease 119-110

§678 Person Other Than Grantor Treated as Substantial Owner

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 › § 678

Last updated Sep 22, 2026|Official source

Summary

Treats someone other than the trust maker as the owner of part of a trust when that person can, by themselves, make the trust principal or its income belong to them, or when they gave up part of that power but still keep enough control that the rules in sections 671–677 would treat a grantor as the owner. That rule does not apply if the grantor or a transferor (see section 679) is already treated as the owner under other parts of the tax rules. It also does not apply if the only power is to use income to support a person the holder must support, except for income actually used. If the holder gives up the power soon after learning about it, the rule won’t apply. For S corporation stock, see section 1361(d).

Full Legal Text

Title 26, §678

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule
A person other than the grantor shall be treated as the owner of any portion of a trust with respect to which:
(1)such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself, or
(2)such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would, within the principles of sections 671 to 677, inclusive, subject a grantor of a trust to treatment as the owner thereof.
(b)Exception where grantor is taxable
Subsection (a) shall not apply with respect to a power over income, as originally granted or thereafter modified, if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section.
(c)Obligations of support
Subsection (a) shall not apply to a power which enables such person, in the capacity of trustee or cotrustee, merely to apply the income of the trust to the support or maintenance of a person whom the holder of the power is obligated to support or maintain except to the extent that such income is so applied. In cases where the amounts so applied or distributed are paid out of corpus or out of other than income of the taxable year, such amounts shall be considered to be an amount paid or credited within the meaning of paragraph (2) of section 661(a) and shall be taxed to the holder of the power under section 662.
(d)Effect of renunciation or disclaimer
Subsection (a) shall not apply with respect to a power which has been renounced or disclaimed within a reasonable time after the holder of the power first became aware of its existence.
(e)Cross reference
For provision under which beneficiary of trust is treated as owner of the portion of the trust which consists of stock in an S corporation, see section 1361(d).

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2000—Subsec. (e). Pub. L. 106–554 substituted “an S corporation” for “an electing small business corporation”. 1983—Subsec. (e). Pub. L. 97–448 added subsec. (e). 1976—Subsec. (b). Pub. L. 94–455 substituted “if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section” for “if the grantor of the trust is otherwise treated as the owner under sections 671 to 677, inclusive”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1983 AmendmentAmendment by Pub. L. 97–448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title.

Effective Date

of 1976 AmendmentFor

Effective Date

of amendment by Pub. L. 94–455, see section 1013(f)(1) of Pub. L. 94–455, set out as an

Effective Date

note under section 679 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 678

Title 26, Internal Revenue Code

Last Updated

Sep 22, 2026

Release point: 119-110