§ 667. Treatment of amounts deemed distributed by trust in preceding years

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1954

   Aug. 16, 1954, ch. 736, 68A Stat. 225 · 68A Stat. 225

   Enacted · 26 U.S.C. § 667

   Aug. 16, 1954, ch. 736, 68A Stat. 225

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 225

2. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 title III § 331(a) · 83 Stat. 487

   1. Amended · 26 U.S.C. § 667(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

   2. Struck · 26 U.S.C. § 667(a)

      Pub. L. 91–172 incorporated existing provisions of first sentence in provisions struck out provisions for credit of taxes imposed on the trust against tax of beneficiary. See subsec. (b) of this section

   Source evidence

   Code amendment note
   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.

   Enacted provision · exact public law section
   (a) In General.— Subpart D of part I of subchapter J of chapter 68A Stat. 223; 76 Stat. 986. 1 is amended to read as follows: SUBPART D— TREATMENT OF EXCESS DISTRIBUTIONS BY TRUSTS “Sec. 665. Definitions applicable to subpart D. “Sec. 666. Accumulation distribution allocated to preceding years. “Sec. 667. Denial of refund to trusts; authorization of credit to beneficiaries. “Sec. 668. Treatment of amounts deemed distributed in preceding years. “Sec. 669. Treatment of capital gain deemed distributed in preceding years. SEC. 665. DEFINITIONS APPLICABLE TO SUBPART D. “(a) Undistributed Net Income.— For purposes of this subpart the term ‘undistributed net income’ for any taxable year means the amount by which the distributable net income of the trust for such taxable year exceeds the sum of— “(1) the amounts for such taxable year specified in paragraphs 68A Stat. 220. 26 USC 661. (1) and (2) of section 661 (a), and “(2) the amount of taxes imposed on the trust attributable to such distributable net income. “(b) Accumulation Distribution.— For purposes of this subpart, the term ‘accumulation distribution’ means, for any taxable year of the trust, the amount by which— “(1) the amounts specified in paragraph (2) of section 661(a) for such taxable year, exceed “(2) distributable net income for such year reduced (but not below zero) by the amounts specified in paragraph (1) of section 661(a). “(c) Special Rule Applicable to Distributions by Certain Foreign Trusts.— For purposes of this subpart, any amount paid to a United States person which is from a payor who is not a United States person and which is derived directly or indirectly from a foreign trust created by a United States person shall be deemed in the year of payment to have been directly paid by the foreign trust. “(d) Taxes Imposed on the Trust.— For purposes of this subpart, the term ‘taxes imposed on the trust’ means the amount of the taxes which are imposed for any taxable year of the trust under this chapter (without regard to this subpart) and which, under regulations prescribed by the Secretary or his delegate, are properly allocable to the undistributed portions of distributable net income and gains in excess of losses from sales or exchanges of capital assets. The amount determined in the preceding sentence shall be reduced by any amount of such taxes deemed distributed under section 666 (b) and (c) or 669 (d) and (e) to any beneficiary. “(e) Preceding Taxable Year.— For purposes of this subpart— “(1) in the case of a trust (other than a foreign trust created by a United States person), the term ‘preceding taxable year’ does not include any taxable year of the trust— “(A) which precedes by more than 5 years the taxable year of the trust in which an accumulation distribution is made, if it is made in a taxable year beginning before January 1, 1974, “(B) which begins before January 1, 1969, in the case of an accumulation distribution made during a taxable year beginning after December 31, 1973, or “(C) which begins before January 1, 1969, in the case of a capital gain distribution made during a taxable year beginning after December 31, 1968; and “(2) in the case of a foreign trust created by a United States person, such term does not include any taxable year of the trust to which this part does not apply. In the case of a preceding taxable year with respect to which a trust qualifies (without regard to this subpart) under the provisions of subpart B, for purposes of the application of this subpart to such trust for such taxable year, such trust shall, in accordance with regulations prescribed by the Secretary or his delegate, be treated as a trust to which subpart C applies. “(f) Undistributed Capital Gain.— For purposes of this subpart, the term ‘undistributed capital gain’ means, for any taxable year of the trust beginning after December 31, 1968, the amount by which— “(1) gains in excess of losses from the sale or exchange of capital assets, to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during such taxable year, or (B) paid, permanently set aside, or used for the purposes specified in section 642(c), Ante, p. 558. exceed “(2) the amount of taxes imposed on the trust attributable to such gains. For purposes of paragraph (1), the deduction under section 1202 68A Stat. 320. 26 USC 1202. (relating to deduction for excess of capital gains over capital losses) shall not be taken into account. “(g) Capital Gain Distribution.— For purposes of this subpart, the term ‘capital gain distribution’ for any taxable year of the trust means, to the extent of undistributed capital gain for such taxable year, that portion of— “(1) the excess of the amounts specified in paragraph (2) of section 661(a) for such taxable year over distributable net income for such year reduced (but not below zero) by the amounts specified in paragraph (1) of section 661(a), over “(2) the undistributed net income of the trust for all preceding taxable years. “SEC. 666. ACCUMULATION DISTRIBUTION ALLOCATED TO PRECEDING YEARS. “(a) Amount Allocated.— In the case of a trust which is subject to subpart C, the amount of the accumulation distribution of such trust for a taxable year shall be deemed to be an amount within the meaning of paragraph (2) of section 661(a) distributed on the last day of each of the preceding taxable years, commencing with the earliest of such years, to the extent that such amount exceeds the total of any undistributed net income for all earlier preceding taxable years. The amount deemed to be distributed in any such preceding taxable year under the preceding sentence shall not exceed the undistributed net income for such preceding taxable year. For purposes of this subsection, undistributed net income for each of such preceding taxable years shall be computed without regard to such accumulation distribution and without regard to any accumulation distribution determined for any succeeding taxable year. “(b) Total Taxes Deemed Distributed.— If any portion of an accumulation distribution for any taxable year is deemed under subsection (a) to be an amount within the meaning of paragraph (2) 68A Stat. 220. 26 USC 661. of section 661 (a) distributed on the last day of any preceding taxable year, and such portion of such distribution is not less than the undistributed net income for such preceding taxable year, the trust shall be deemed to have distributed on the last day of such preceding taxable year an additional amount within the meaning of paragraph (2) of section 661(a). Such additional amount shall be equal to the taxes imposed on the trust for such preceding taxable year attributable to the undistributed net income. For purposes of this subsection the undistributed net income and the taxes imposed on the trust for such preceding taxable year attributable to such undistributed net income shall be computed without regard to such accumulation distribution and without regard to any accumulation distribution determined for any succeeding taxable year. “(c) Pro Rata Portion of Taxes Deemed Distributed.— If any portion of an accumulation distribution for any taxable year is deemed under subsection (a) to be an amount within the meaning of paragraph (2) of section 661(a) distributed on the last day of any preceding taxable year and such portion of the accumulation distribution is less than the undistributed net income for such preceding taxable year, the trust shall be deemed to have distributed on the last day of such preceding taxable year an additional amount within the meaning of paragraph (2) of section 661(a). Such additional amount shall be equal to the taxes imposed on the trust for such taxable year attributable to the undistributed net income multiplied by the ratio of the portion of the accumulation distribution to the undistributed net income of the trust for such year. For purposes of this subsection, the undistributed net income and the taxes imposed on the trust for such preceding taxable year attributable to such undistributed net income shall be computed without regard to the accumulation distribution and without regard to any accumulation distribution determined for any succeeding taxable year. “(d) Rule When Information Is Not Available.— If adequate records are not available to determine the proper application of this subpart to an amount distributed by a trust, such amount shall be deemed to be an accumulation distribution consisting of undistributed net income earned during the earliest preceding taxable year of the trust in which it can be established that the trust was in existence. “SEC. 667. DENIAL OF REFUND TO TRUSTS; AUTHORIZATION OF CREDIT TO BENEFICIARIES. “(a) Denial of Refund to Trusts.— No refund or credit shall 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. “(b) Authorization of Credit to Beneficiary.— There shall be allowed as a credit (without interest) 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 sections 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 sections 668(b)(1) and 669(b) in determining the amount of the tax imposed by section 668. “SEC. 668. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED IN PRECEDING YEARS. “(a) General Rule.— The total of the amounts which are treated under sections 666 and 669 as having been distributed by the 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 (b) if such total had been 68A Stat. 220. 26 USC 662. 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 beneficiary of a trust which is not required to distribute all of its income currently, a partial tax determined as provided in section 669. For purposes of this subpart, a trust shall not be considered to be a trust which is not required to distribute all of its income currently for any taxable year prior to the first taxable year in which income is accumulated. “(b) Tax on Distribution.— “(1) Alternative methods.— Except as provided in paragraph (2), the partial tax imposed by subsection (a)(2) shall be the lesser of— “(A) the aggregate of the taxes attributable to the amounts deemed distributed under section 666 had they been included in the gross income of the beneficiary on the last day of each respective preceding taxable year, or “(B) the tax determined by multiplying, by 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, the average of the increase in tax attributable to recomputing the beneficiary’s gross income for each of the beneficiary’s 3 taxable years immediately preceding the year of the accumulation distribution by adding to the income of each of such years an amount determined by dividing the amount deemed distributed under section 666 and required to be included in income under subsection (a) by such number of preceding taxable years of the trust, less an amount equal to the amount of taxes deemed distributed to the beneficiary under sections 666 (b) and (c). “(2) Special rules.— “(A) If a beneficiary was not in existence on the last day of a preceding taxable year of the trust with respect to which a distribution is deemed made under section 666(a), the partial tax under either paragraph (1)(A) or (1)(B) shall be computed as if the beneficiary were in existence on the last day of such year on the basis that the beneficiary had no gross income (other than amounts deemed distributed to him under sections 666 and 669 by the same or other trusts) and no deductions for such year. “(B) The partial tax shall not be computed under the provisions of subparagraph (B) of paragraph (1) if, in the same prior taxable year of the beneficiary in which any part of the accumulation distribution is deemed under section 666(a) to have been distributed to such beneficiary, some part of prior accumulation distributions by each of two or more other trusts is deemed under section 666(a) to have been distributed to such beneficiary. “(C) If the partial tax is computed under paragraph (1)(B), and 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. “(3) Effect of other accumulation distributions and capital gain distributions.— In computing the partial tax under paragraph (1) for any beneficiary, the income of such beneficiary for each of his prior taxable years— “(A) shall include amounts previously deemed distributed to such beneficiary in such year under section 666 or 669 as a result of prior accumulation distributions or capital gain distributions (whether from the same or another trust), and “(B) shall not include amounts deemed distributed to such beneficiary in such year under section 669 as a result of a capital gain distribution from the same trust in the current year. “(4) Multiple distributions in the same taxable tear.— 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. “(5) Information requirements with respect to beneficiary.— “(A) Except as provided in subparagraph (B), the partial tax shall not be computed under the provisions of paragraph (1)(A) unless the beneficiary supplies such information with respect to his income, for each taxable year with which or in which ends a taxable year of the trust on the last day of which an amount is deemed distributed under section 666(a), as the Secretary or his delegate prescribes by regulations. “(B) If by reason of paragraph (2)(B) the provisions of paragraph (1)(B) do not apply, the determination of the amount of the beneficiary’s income for a taxable year for which the beneficiary has not supplied the information required under subparagraph (A) shall be made by the Secretary or his delegate on the basis of information available to him. “SEC. 669. TREATMENT OF CAPITAL GAIN DEEMED DISTRIBUTED IN PRECEDING YEARS. “(a) Amount Allocated.— In the case of a trust which is not required to distribute all of its income currently, the amount of a capital gain distribution of such trust for a taxable year shall be deemed to be an amount properly paid, credited, or required to be distributed on the last day of each of the preceding taxable years, commencing with the earliest of such years, to the extent that such amount exceeds the total of any undistributed capital gain for all earlier preceding taxable years. The amount deemed to be distributed in any such preceding taxable year under the preceding sentence shall not exceed the undistributed capital gain for such preceding taxable year. For purposes of this subsection, undistributed capital gain for each of such preceding taxable years shall be computed without regard to such capital gain distribution and without regard to any capital gain distribution determined for any succeeding taxable year. “(b) Tax on Distribution.— The partial tax imposed by section 668 (a)(3) shall be the lesser of— “(1) the aggregate of the taxes attributable to the amounts deemed distributed under this section, had such amounts been included in the gross income of the beneficiary on the last day of each respective preceding taxable year, or “(2) the tax determined by multiplying by the number of preceding taxable years of the trust, on the last day of which net gains from the sale or exchange of capital assets are deemed under subsection (a) to have been distributed, the average of the increase in tax attributable to recomputing the beneficiary’s gross income for each of the beneficiary’s 3 taxable years immediately preceding the year of the capital gain distribution by adding to the income of each of such years an amount determined by dividing the total of the amounts deemed distributed under this section and required to be included in income under section 668(a) by such number of preceding taxable years of the trust, less an amount equal to the amount of taxes deemed distributed to the beneficiary under subsections (d) and (e) which are attributable to the capital gain distribution. “(c) Effect of Other Distributions; Special Rules, Etc.— In computing the partial tax under subsection (b) for any beneficiary, the income of such beneficiary for each of his prior taxable years— “(1) shall include amounts previously deemed distributed to such beneficiary in such year under section 666 or 669 as a result of prior accumulation distributions or capital gain distributions (whether from the same or another trust), and “(2) shall include amounts deemed distributed to such beneficiary in such year under section 666 as a result of an accumulation distribution from the same trust in the current year. Under regulations prescribed by the Secretary or his delegate, rules similar to the rules provided by paragraphs (2), (4), and (5) of section 668(b) shall be applied for purposes of this section. “(d) Total Taxes Deemed Distributed.— If any portion of a capital gain distribution for any taxable year is deemed under subsection (a) to be an amount properly paid, credited or required to be distributed on the last day of any preceding taxable year, and such portion of such capital gain distribution is not less than the undistributed capital gain for such preceding taxable year, the trust shall be deemed to have properly distributed on the last day of such preceding taxable year an additional amount. Such additional amount shall be equal to the taxes imposed on the trust for such preceding taxable year attributable to such undistributed capital gain. For purposes of this subsection, the undistributed capital gain and the taxes imposed on the trust for such preceding taxable year attributable to such gain shall be computed without regard to such capital gain distribution and without regard to any capital gain distribution determined for any succeeding taxable year. “(e) Pro Rata Portion of Taxes Deemed Distributed.— If any portion of a capital gain distribution for any taxable year is deemed under subsection (a) to be an amount properly paid, credited, or required to be distributed on the last day of any preceding taxable year and such portion of the capital gain distribution is less than the undistributed capital gain for such preceding taxable year, the trust shall be deemed to have properly distributed on the last day of such preceding taxable year an additional amount. Such additional amount shall be equal to the taxes imposed on the trust for such taxable year attributable to such undistributed capital gain multiplied by the ratio of the portion of the capital gain distribution to the undistributed capital gain of the trust for such year. For purposes of this subsection the undistributed capital gain and the taxes imposed on the trust for such preceding taxable year attributable to such gain shall be computed without regard to the capital gain distribution and without regard to any capital gain distribution determined for any succeeding taxable year. “(f) Character of Capital Gain.— For purposes of this section, the character of the capital gain of a trust for any taxable year with respect to a beneficiary shall be the same as it was with respect to the trust.”

3. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 title III § 331(a) · 83 Stat. 487

   Changed · 26 U.S.C. § 667(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

   Source evidence

   Code amendment note
   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.

   Enacted provision · exact public law section
   (a) In General.— Subpart D of part I of subchapter J of chapter 68A Stat. 223; 76 Stat. 986. 1 is amended to read as follows: SUBPART D— TREATMENT OF EXCESS DISTRIBUTIONS BY TRUSTS “Sec. 665. Definitions applicable to subpart D. “Sec. 666. Accumulation distribution allocated to preceding years. “Sec. 667. Denial of refund to trusts; authorization of credit to beneficiaries. “Sec. 668. Treatment of amounts deemed distributed in preceding years. “Sec. 669. Treatment of capital gain deemed distributed in preceding years. SEC. 665. DEFINITIONS APPLICABLE TO SUBPART D. “(a) Undistributed Net Income.— For purposes of this subpart the term ‘undistributed net income’ for any taxable year means the amount by which the distributable net income of the trust for such taxable year exceeds the sum of— “(1) the amounts for such taxable year specified in paragraphs 68A Stat. 220. 26 USC 661. (1) and (2) of section 661 (a), and “(2) the amount of taxes imposed on the trust attributable to such distributable net income. “(b) Accumulation Distribution.— For purposes of this subpart, the term ‘accumulation distribution’ means, for any taxable year of the trust, the amount by which— “(1) the amounts specified in paragraph (2) of section 661(a) for such taxable year, exceed “(2) distributable net income for such year reduced (but not below zero) by the amounts specified in paragraph (1) of section 661(a). “(c) Special Rule Applicable to Distributions by Certain Foreign Trusts.— For purposes of this subpart, any amount paid to a United States person which is from a payor who is not a United States person and which is derived directly or indirectly from a foreign trust created by a United States person shall be deemed in the year of payment to have been directly paid by the foreign trust. “(d) Taxes Imposed on the Trust.— For purposes of this subpart, the term ‘taxes imposed on the trust’ means the amount of the taxes which are imposed for any taxable year of the trust under this chapter (without regard to this subpart) and which, under regulations prescribed by the Secretary or his delegate, are properly allocable to the undistributed portions of distributable net income and gains in excess of losses from sales or exchanges of capital assets. The amount determined in the preceding sentence shall be reduced by any amount of such taxes deemed distributed under section 666 (b) and (c) or 669 (d) and (e) to any beneficiary. “(e) Preceding Taxable Year.— For purposes of this subpart— “(1) in the case of a trust (other than a foreign trust created by a United States person), the term ‘preceding taxable year’ does not include any taxable year of the trust— “(A) which precedes by more than 5 years the taxable year of the trust in which an accumulation distribution is made, if it is made in a taxable year beginning before January 1, 1974, “(B) which begins before January 1, 1969, in the case of an accumulation distribution made during a taxable year beginning after December 31, 1973, or “(C) which begins before January 1, 1969, in the case of a capital gain distribution made during a taxable year beginning after December 31, 1968; and “(2) in the case of a foreign trust created by a United States person, such term does not include any taxable year of the trust to which this part does not apply. In the case of a preceding taxable year with respect to which a trust qualifies (without regard to this subpart) under the provisions of subpart B, for purposes of the application of this subpart to such trust for such taxable year, such trust shall, in accordance with regulations prescribed by the Secretary or his delegate, be treated as a trust to which subpart C applies. “(f) Undistributed Capital Gain.— For purposes of this subpart, the term ‘undistributed capital gain’ means, for any taxable year of the trust beginning after December 31, 1968, the amount by which— “(1) gains in excess of losses from the sale or exchange of capital assets, to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during such taxable year, or (B) paid, permanently set aside, or used for the purposes specified in section 642(c), Ante, p. 558. exceed “(2) the amount of taxes imposed on the trust attributable to such gains. For purposes of paragraph (1), the deduction under section 1202 68A Stat. 320. 26 USC 1202. (relating to deduction for excess of capital gains over capital losses) shall not be taken into account. “(g) Capital Gain Distribution.— For purposes of this subpart, the term ‘capital gain distribution’ for any taxable year of the trust means, to the extent of undistributed capital gain for such taxable year, that portion of— “(1) the excess of the amounts specified in paragraph (2) of section 661(a) for such taxable year over distributable net income for such year reduced (but not below zero) by the amounts specified in paragraph (1) of section 661(a), over “(2) the undistributed net income of the trust for all preceding taxable years. “SEC. 666. ACCUMULATION DISTRIBUTION ALLOCATED TO PRECEDING YEARS. “(a) Amount Allocated.— In the case of a trust which is subject to subpart C, the amount of the accumulation distribution of such trust for a taxable year shall be deemed to be an amount within the meaning of paragraph (2) of section 661(a) distributed on the last day of each of the preceding taxable years, commencing with the earliest of such years, to the extent that such amount exceeds the total of any undistributed net income for all earlier preceding taxable years. The amount deemed to be distributed in any such preceding taxable year under the preceding sentence shall not exceed the undistributed net income for such preceding taxable year. For purposes of this subsection, undistributed net income for each of such preceding taxable years shall be computed without regard to such accumulation distribution and without regard to any accumulation distribution determined for any succeeding taxable year. “(b) Total Taxes Deemed Distributed.— If any portion of an accumulation distribution for any taxable year is deemed under subsection (a) to be an amount within the meaning of paragraph (2) 68A Stat. 220. 26 USC 661. of section 661 (a) distributed on the last day of any preceding taxable year, and such portion of such distribution is not less than the undistributed net income for such preceding taxable year, the trust shall be deemed to have distributed on the last day of such preceding taxable year an additional amount within the meaning of paragraph (2) of section 661(a). Such additional amount shall be equal to the taxes imposed on the trust for such preceding taxable year attributable to the undistributed net income. For purposes of this subsection the undistributed net income and the taxes imposed on the trust for such preceding taxable year attributable to such undistributed net income shall be computed without regard to such accumulation distribution and without regard to any accumulation distribution determined for any succeeding taxable year. “(c) Pro Rata Portion of Taxes Deemed Distributed.— If any portion of an accumulation distribution for any taxable year is deemed under subsection (a) to be an amount within the meaning of paragraph (2) of section 661(a) distributed on the last day of any preceding taxable year and such portion of the accumulation distribution is less than the undistributed net income for such preceding taxable year, the trust shall be deemed to have distributed on the last day of such preceding taxable year an additional amount within the meaning of paragraph (2) of section 661(a). Such additional amount shall be equal to the taxes imposed on the trust for such taxable year attributable to the undistributed net income multiplied by the ratio of the portion of the accumulation distribution to the undistributed net income of the trust for such year. For purposes of this subsection, the undistributed net income and the taxes imposed on the trust for such preceding taxable year attributable to such undistributed net income shall be computed without regard to the accumulation distribution and without regard to any accumulation distribution determined for any succeeding taxable year. “(d) Rule When Information Is Not Available.— If adequate records are not available to determine the proper application of this subpart to an amount distributed by a trust, such amount shall be deemed to be an accumulation distribution consisting of undistributed net income earned during the earliest preceding taxable year of the trust in which it can be established that the trust was in existence. “SEC. 667. DENIAL OF REFUND TO TRUSTS; AUTHORIZATION OF CREDIT TO BENEFICIARIES. “(a) Denial of Refund to Trusts.— No refund or credit shall 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. “(b) Authorization of Credit to Beneficiary.— There shall be allowed as a credit (without interest) 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 sections 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 sections 668(b)(1) and 669(b) in determining the amount of the tax imposed by section 668. “SEC. 668. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED IN PRECEDING YEARS. “(a) General Rule.— The total of the amounts which are treated under sections 666 and 669 as having been distributed by the 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 (b) if such total had been 68A Stat. 220. 26 USC 662. 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 beneficiary of a trust which is not required to distribute all of its income currently, a partial tax determined as provided in section 669. For purposes of this subpart, a trust shall not be considered to be a trust which is not required to distribute all of its income currently for any taxable year prior to the first taxable year in which income is accumulated. “(b) Tax on Distribution.— “(1) Alternative methods.— Except as provided in paragraph (2), the partial tax imposed by subsection (a)(2) shall be the lesser of— “(A) the aggregate of the taxes attributable to the amounts deemed distributed under section 666 had they been included in the gross income of the beneficiary on the last day of each respective preceding taxable year, or “(B) the tax determined by multiplying, by 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, the average of the increase in tax attributable to recomputing the beneficiary’s gross income for each of the beneficiary’s 3 taxable years immediately preceding the year of the accumulation distribution by adding to the income of each of such years an amount determined by dividing the amount deemed distributed under section 666 and required to be included in income under subsection (a) by such number of preceding taxable years of the trust, less an amount equal to the amount of taxes deemed distributed to the beneficiary under sections 666 (b) and (c). “(2) Special rules.— “(A) If a beneficiary was not in existence on the last day of a preceding taxable year of the trust with respect to which a distribution is deemed made under section 666(a), the partial tax under either paragraph (1)(A) or (1)(B) shall be computed as if the beneficiary were in existence on the last day of such year on the basis that the beneficiary had no gross income (other than amounts deemed distributed to him under sections 666 and 669 by the same or other trusts) and no deductions for such year. “(B) The partial tax shall not be computed under the provisions of subparagraph (B) of paragraph (1) if, in the same prior taxable year of the beneficiary in which any part of the accumulation distribution is deemed under section 666(a) to have been distributed to such beneficiary, some part of prior accumulation distributions by each of two or more other trusts is deemed under section 666(a) to have been distributed to such beneficiary. “(C) If the partial tax is computed under paragraph (1)(B), and 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. “(3) Effect of other accumulation distributions and capital gain distributions.— In computing the partial tax under paragraph (1) for any beneficiary, the income of such beneficiary for each of his prior taxable years— “(A) shall include amounts previously deemed distributed to such beneficiary in such year under section 666 or 669 as a result of prior accumulation distributions or capital gain distributions (whether from the same or another trust), and “(B) shall not include amounts deemed distributed to such beneficiary in such year under section 669 as a result of a capital gain distribution from the same trust in the current year. “(4) Multiple distributions in the same taxable tear.— 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. “(5) Information requirements with respect to beneficiary.— “(A) Except as provided in subparagraph (B), the partial tax shall not be computed under the provisions of paragraph (1)(A) unless the beneficiary supplies such information with respect to his income, for each taxable year with which or in which ends a taxable year of the trust on the last day of which an amount is deemed distributed under section 666(a), as the Secretary or his delegate prescribes by regulations. “(B) If by reason of paragraph (2)(B) the provisions of paragraph (1)(B) do not apply, the determination of the amount of the beneficiary’s income for a taxable year for which the beneficiary has not supplied the information required under subparagraph (A) shall be made by the Secretary or his delegate on the basis of information available to him. “SEC. 669. TREATMENT OF CAPITAL GAIN DEEMED DISTRIBUTED IN PRECEDING YEARS. “(a) Amount Allocated.— In the case of a trust which is not required to distribute all of its income currently, the amount of a capital gain distribution of such trust for a taxable year shall be deemed to be an amount properly paid, credited, or required to be distributed on the last day of each of the preceding taxable years, commencing with the earliest of such years, to the extent that such amount exceeds the total of any undistributed capital gain for all earlier preceding taxable years. The amount deemed to be distributed in any such preceding taxable year under the preceding sentence shall not exceed the undistributed capital gain for such preceding taxable year. For purposes of this subsection, undistributed capital gain for each of such preceding taxable years shall be computed without regard to such capital gain distribution and without regard to any capital gain distribution determined for any succeeding taxable year. “(b) Tax on Distribution.— The partial tax imposed by section 668 (a)(3) shall be the lesser of— “(1) the aggregate of the taxes attributable to the amounts deemed distributed under this section, had such amounts been included in the gross income of the beneficiary on the last day of each respective preceding taxable year, or “(2) the tax determined by multiplying by the number of preceding taxable years of the trust, on the last day of which net gains from the sale or exchange of capital assets are deemed under subsection (a) to have been distributed, the average of the increase in tax attributable to recomputing the beneficiary’s gross income for each of the beneficiary’s 3 taxable years immediately preceding the year of the capital gain distribution by adding to the income of each of such years an amount determined by dividing the total of the amounts deemed distributed under this section and required to be included in income under section 668(a) by such number of preceding taxable years of the trust, less an amount equal to the amount of taxes deemed distributed to the beneficiary under subsections (d) and (e) which are attributable to the capital gain distribution. “(c) Effect of Other Distributions; Special Rules, Etc.— In computing the partial tax under subsection (b) for any beneficiary, the income of such beneficiary for each of his prior taxable years— “(1) shall include amounts previously deemed distributed to such beneficiary in such year under section 666 or 669 as a result of prior accumulation distributions or capital gain distributions (whether from the same or another trust), and “(2) shall include amounts deemed distributed to such beneficiary in such year under section 666 as a result of an accumulation distribution from the same trust in the current year. Under regulations prescribed by the Secretary or his delegate, rules similar to the rules provided by paragraphs (2), (4), and (5) of section 668(b) shall be applied for purposes of this section. “(d) Total Taxes Deemed Distributed.— If any portion of a capital gain distribution for any taxable year is deemed under subsection (a) to be an amount properly paid, credited or required to be distributed on the last day of any preceding taxable year, and such portion of such capital gain distribution is not less than the undistributed capital gain for such preceding taxable year, the trust shall be deemed to have properly distributed on the last day of such preceding taxable year an additional amount. Such additional amount shall be equal to the taxes imposed on the trust for such preceding taxable year attributable to such undistributed capital gain. For purposes of this subsection, the undistributed capital gain and the taxes imposed on the trust for such preceding taxable year attributable to such gain shall be computed without regard to such capital gain distribution and without regard to any capital gain distribution determined for any succeeding taxable year. “(e) Pro Rata Portion of Taxes Deemed Distributed.— If any portion of a capital gain distribution for any taxable year is deemed under subsection (a) to be an amount properly paid, credited, or required to be distributed on the last day of any preceding taxable year and such portion of the capital gain distribution is less than the undistributed capital gain for such preceding taxable year, the trust shall be deemed to have properly distributed on the last day of such preceding taxable year an additional amount. Such additional amount shall be equal to the taxes imposed on the trust for such taxable year attributable to such undistributed capital gain multiplied by the ratio of the portion of the capital gain distribution to the undistributed capital gain of the trust for such year. For purposes of this subsection the undistributed capital gain and the taxes imposed on the trust for such preceding taxable year attributable to such gain shall be computed without regard to the capital gain distribution and without regard to any capital gain distribution determined for any succeeding taxable year. “(f) Character of Capital Gain.— For purposes of this section, the character of the capital gain of a trust for any taxable year with respect to a beneficiary shall be the same as it was with respect to the trust.”

4. 1976

   Pub. L. 94–455 title VII § 701(a)(1) · 90 Stat. 1520

   Substituted · 26 U.S.C. § 667

   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 sections 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 sections 668(b)(1) and 669(b) in determining the amount of the tax imposed by section 668. See section 666(e) of this title

   Source evidence

   Code amendment note
   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 sections 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 sections 668(b)(1) and 669(b) in determining the amount of the tax imposed by section 668. See section 666(e) of this title.

   Enacted provision · exact public law section
   (1) Section 667 (relating to denial of refund to trusts; authorization of credit to beneficiaries) is amended to read as follows: 26 USC 667. “SEC. 667. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED BY TRUST IN PRECEDING YEARS. “(a) General Rule.— 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, and “(2) a partial tax determined as provided in subsection (b) of this section. “(b) Tax on Distribution.— “(1) In general.— 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 or 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 tinder 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. The partial tax imposed by subsection (a)(2) shall be the excess (if any) of the average increase in tax determined under subparagraph (D), multiplied by the number of preceding taxable years determined under subparagraph (A), over the amount of taxes deemed distributed to the beneficiary under sections 666(b) and (c). “(2) Treatment of loss years.— For purposes of paragraph (1), the taxable income of the beneficiary for any taxable year snail be deemed not to be less than zero. “(3) Certain preceding taxable years not taken into account.— 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) Effect of other accumulation distributions.— 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) Multiple distributions in the same taxable year.— 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. “(c) Special Rule for Multiple Trusts.— “(1) In general.— 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) Accumulation distributions from trust nut taken into account unless they equal or exceed $1,000.— 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.”

5. 1977

   Tax Reduction and Simplification Act of 1977

   Pub. L. 95–30 title I § 102(b)(8) · 91 Stat. 126

   Substituted · 26 U.S.C. § 667(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”

   Source evidence

   Code amendment note
   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”.

   Enacted provision · exact public law section
   (8) Paragraph (2) of section 667(b) (relating to tax on amount deemed distributed by trust in preceding years) is amended to read as follows: “(2) Treatment of loss years.— 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.”

6. 1978

   Pub. L. 95–600 § 701(q)(1)(C) · 92 Stat. 2763

   Inserted · 26 U.S.C. § 667(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”

   Source evidence

   Code amendment note
   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”.

   Enacted provision · exact public law section
   (C) 26 USC 667. The last sentence of section 667(b)(1) is amended by inserting “(other than the amount of taxes described in Ante, p. 2909. 26 USC 904. section 665(d)(2))” after “taxes”.

7. 1978

   Pub. L. 95–600 § 702 · 92 Stat. 2763

   Added · 26 U.S.C. § 667(b)(6)

   Pub. L. 95–600, § 702(o)(1), added par. (6)

   Source evidence

   Code amendment note
   Subsec. (b)(6). Pub. L. 95–600, § 702(o)(1), added par. (6).

   Enacted provision · exact public law section
   SEC. 702. TECHNICAL, CLERICAL, AND CONFORMING AMENDMENTS TO ESTATE AND GIFT TAX PROVISIONS. (a) Amendments Relating to Treatment of Section 306 Stock.— (1) Application of “fresh start” to section 306 stock.— Subsection (a) of section 306 (relating to disposition of certain 26 USC 306. stock) is amended by adding at the end thereof the following new paragraph: “(3) Ordinary income from sale or redemption of section 306 stock which is carryover basis property adjusted for 1976 value.— “(A) In general.— If any section 306 stock was distributed before January 1, 1977, and if the adjusted basis of such stock in the hands of the person disposing of it is determined under section 1023 (relating to carryover basis), then the amount 26 USC 1023. treated as ordinary income under paragraph (1)(A) of this subsection (or the amount treated as a dividend under section 301(c)(1)) shall not exceed the excess of the amount 26 USC 301. realized over the sum of— “(i) the adjusted basis of such stock on December 31, 1976, and “(ii) any increase in basis under section 1023(h). 26 USC 1023. “(B) Redemption must be described in section 302(b).— Subparagraph (A) shall apply to a redemption only if such redemption is described in paragraph (1), (2), or (4) of section 302(b).” 26 USC 302. (2) Clarification that section 303 overrides section 306.— Subsection (b) of section 306 (relating to exceptions) is amended by adding at the end thereof the following new paragraph: “(5) Section 303 redemptions.— To the extent that section 303 applies to a distribution in redemption of section 306 stock.”. (3) Effective date.— The amendments made by this subsection 26 USC 306 note. shall apply to the estates of decedents dying after December 31, 1979. (b) Coordination of Deduction for Estate Taxes Attributable to Income in Respect of a Decedent With the Capital Gain Deduction, Etc.— (1) In general.— Subsection (c) of section 691 (relating to 26 USC 691. deduction for estate taxes in the case of income in respect of decedents) is amended by adding at the end thereof the following new paragraph: “(4) Coordination with capital gain deduction, etc.— For purposes of sections 1201, 1202, and 1211, and for purposes of 26 USC 1201, 1202, 1211. 26 USC 57. section 57(a)(9), the amount of any gain taken into account with respect to any item described in subsection (a)(1) shall be reduced (but not below zero) by the amount of the deduction allowable under paragraph (1) of this subsection with respect to such item.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 691 note. shall apply with respect to decedents dying after the date of the enactment of this Act. (c) Amendments Relating to Carryover Basis.— (1) Amendments relating to the postponement of the effective date of carryover basis provisions.— (A) Fair market value where farm valuation elected.— Subsection (a) of section 1014 (relating to basis of property acquired from a decedent) is amended to read as follows: “(a) In General.— Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be— “(1) the fair market value of the property at the date of the decedent’s death, or “(2) in the case of an election under either section 2032 or 26 USC 5712, 2032. section 811(j) of the Internal Revenue Code of 1939 where the decedent died after October 21, 1942, its value at the applicable valuation date prescribed by those sections, or “(3) 26 USC 2032. in the case of an election under section 2032.1, its value determined under such section.” (B) Generation-skipping transfers.— The second sentence of section 2614(a) (relating to basis adjustments in connection with generation-skipping transfers) is amended to read as follows: “If property is transferred in a generation-skipping transfer subject to tax under this chapter which occurs at the same time as, or after, the death of the deemed transferor, the basis of such property shall be adjusted— “(1) in the case of such a transfer occurring after June 11, 1976, and before January 1, 1980, in a manner similar to the manner 26 USC 1014. provided under section 1014(a), and “(2) in the case of such a transfer occurring after December 31, 26 USC 1023. 1979, in a manner similar to the manner provided by section 1023 without regard to subsection (d) thereof (relating to basis of property passing from a decedent dying after December 31, 1979.” (2) Minimum carryover basis for tangible personal property.— (A) 26 USC 1023. In general.— Subsection (h) of section 1023 (relating to adjustment to basis for December 31, 1976, fair market value) is amended by adding at the end thereof the following new paragraph: “(3) Minimum basis for tangible personal property.— “(A) In general.— If the holding period for any carryover basis property which is tangible personal property includes December 31, 1976, then, for purposes of determining gain and applying this section, the adjusted basis of such property immediately before the death of the decedent shall be treated as being not less than the amount determined under subparagraph (B). “(B) Amount.— The amount determined under this subparagraph for any property is— “(i) the value of such property (as determined with respect to the estate of the decedent without regard to 26 USC 2032. section 2032), divided by “(ii) 1.0066 to the nth power where n equals the number of full calendar months which have elapsed between December 31, 1976, and the date of the decedent’s death.” (B) Conforming amendment.— Paragraph (3) of section 1023(g) (relating to decedent’s basis unknown) is amended by 26 USC 1023. striking out “to the person acquiring such property from the decedent” and inserting in lieu thereof “and cannot be reasonably ascertained”. (3) Treatment of indebtedness.— (A) In general.— Paragraph (1) of section 1023(g) (defining fair market value) is amended by inserting “(without regard to whether there is a mortgage on, or indebtedness in respect of, the property)” after “chapter 11”. 26 USC 2001 et seq. (B) Technical amendment.— Subsection (g) of section 1023 (relating to other special rules and definitions) is amended by striking out paragraph (4). (4) Only one fresh start with respect to carryover basis property held on December 31, 1976.— Subsection (h) of section 1023 (relating to adjustment to basis for December 31, 1976, fair 26 USC 1023. market value) is amended by adding at the end thereof the following new paragraph: “(4) Only one fresh start.— There shall be no increase in basis under this subsection by reason of the death of any decedent if the adjusted basis of the property in the hands of such decedent reflects the adjusted basis of property which was carryover basis property with respect to a prior decedent.” (5) Automatic long-term status for gains and losses on carryover basis property.— Subparagraph (A) of section 1223(11) is amended by inserting “or 1023” after “section 1014”. 26 USC 1223, 1023, 1014. (6) Clarification that adjusted basis is increased for state estate taxes.— (A) Subsection (c) of section 1023 (relating to increase in 26 USC 1023. basis for Federal and State estate taxes attributable to appreciation) is amended to read as follows: “(c) Increase in Basis for Federal and State Estate Taxes Attributable to Appreciation.— “(1) Federal estate taxes.— The basis of appreciated carry-over basis property (determined after any adjustment under subsection (h)) which is subject to the tax imposed by section 2001 26 USC 2001. 26 USC 2101. or 2101 in the hands of the person acquiring it from the decedent 26 USC 2101. shall be increased by an amount which bears the same ratio to the Federal estate taxes as— “(A) the net appreciation in value of such property, bears to “(B) the fair market value of all property which is subject to the tax imposed by section 2001 or 2101. 26 USC 2001, 2101. “(2) State estate taxes.— The basis of appreciated carry-over basis property (determined after any adjustment under subsection (h)) which is subject to State estate taxes in the hands of the person acquiring it from the decedent shall be increased by an amount which bears the same ratio to the State estate taxes as— “(A) the net appreciation in value of such property, bears to “(B) the fair market value of all property which is subject to the State estate taxes.” (B) The second sentence of paragraph (2) of section 1023(f) 26 USC 1023. (defining net appreciation) is amended by striking out “For purposes of subsection (d),” and inserting in lieu thereof “For purposes of paragraph (2) of subsection (c), such adjusted basis shall be increased by the amount of any adjustment under paragraph (1) of subsection (c), for purposes of subsection (d),”. (C) 26 USC 1023. Paragraph (3) of section 1023(f) (defining Federal and State estate taxes) is amended to read as follows: “(3) Federal and state estate taxes.— For purposes of subsection (c)— “(A) Federal estate taxes.— The term ‘Federal estate 26 USC 2001, 2101. taxes’ means the tax imposed by section 2001 or 2101, reduced by the credits against such tax. “(B) State estate taxes.— The term ‘State estate taxes’ means any estate, inheritance, legacy, or succession taxes, for which the estate is liable, actually paid by the estate to any State or the District of Columbia.” (7) Clarification of increase in basis for certain state succession taxes.— Paragraph (2) of section 1023(e) (relating to further increase in basis for certain State succession tax paid by transferee of property) is amended by striking out “for which the estate is not liable”. (8) Clarification of application of fresh start.— Paragraphs (1) and (2)(A) of section 1023(h) (relating to adjustment to basis for December 31, 1976, fair market value) are each amended by striking out “for purposes of determining gain” and inserting in lieu thereof “for purposes of determining gain and applying this section”. (9) Technical amendment with respect to certain term interests.— Paragraph (1) of section 1001(e) (relating to certain term interests) is amended by striking out “section 1014 or 1015” and inserting in lieu thereof “section 1014, 1015, or 1023”. (10) Effective date.— The amendments made by this subsection shall take effect as if included in the amendments and additions made by, and the appropriate provisions of the Tax Reform Act of 1976. (d) Amendments Relating to Valuation of Certain Farm, Etc., Real Property.— (1) Clarification that special valuation applies only to interests passing to qualified heirs.— Paragraph (1) of section 2032A(b) (defining qualified real property) is amended by striking out “real property located in the United States” and inserting in lieu thereof “real property located in the United States which was acquired from or passed from the decedent to a qualified heir of the decedent and”. (2) Property received in satisfaction of pecuniary bequest.— Subsection (e) of section 2032A (relating to definitions and special rules for farm valuation property) is amended by adding at the end thereof the following new paragraph: “(9) Property acquired from decedent.— Property shall be considered to have been acquired from or to have passed from the decedent if— “(A) 26 USC 1014. such property is so considered under section 1014(b) (relating to basis of property acquired from a decedent), “(B) such property is acquired by any person from the estate in satisfaction of the right of such person to a pecuniary bequest, or “(C) such property is acquired by any person from a trust in satisfaction of a right (which such person has by reason of the death of the decedent) to receive from the trust a specific dollar amount which is the equivalent of a pecuniary bequest.” (3) Use of farm valuation property to satisfy pecuniary bequest.— Subsection (a) of section 1040 (relating to use of 26 USC 1040. certain appreciated carryover basis property to satisfy pecuniary bequest) is amended by inserting “(determined without regard to section 2032A)” after “chapter 11”. 26 USC 2032A, 2001 et seq. (4) Treatment of certain community property.— Subsection (e) of section 2032A is amended by adding at the end thereof the 26 USC 2032A. following new paragraph: . “(10) Community property.— If the decedent and his surviving spouse at any time held qualified real property as community property, the interest of the surviving spouse in such property shall be taken into account under this section to the extent necessary to provide a result under this section with respect to such property which is consistent with the result which would have obtained under this section if such property had not been community property.” (5) Substitution of bond for personal liability of qualified heir for the recapture tax with respect to farm valuation property.— (A) In general.— Paragraph (6) of section 2032A(c) is amended to read as follows: “(6) Liability for tax; furnishing of bond.— The qualified heir shall be personally liable for the additional tax imposed by this subsection with respect to his interest unless the heir has furnished bond which meets the requirements of subsection (e)(11).” (B) Bond requirements.— Subsection (e) of section 2032A is amended by adding at the end thereof the following new paragraph: “(11) Bond in lieu of personal liability.— If the qualified heir makes written application to the Secretary for determination of the maximum amount of the additional tax which may be imposed by subsection (c) with respect to the qualified heir’s interest, the Secretary (as soon as possible, and in any event within 1 year after the making of such application) shall notify the heir of such maximum amount. The qualified heir, on furnishing a bond in such amount and for such period as may be required, shall be discharged from personal liability for any additional tax imposed by subsection (c) and shall be entitled to a receipt or writing showing such discharge.” (6) Effective date.— The amendments made by this subsection 26 USC 2032A note. shall apply to the estates of decedents dying after December 31, 1976. (e) Amount of Security Required for Extended Payment Provisions for Closely Held Businesses.— (1) In general.— (A) Paragraph (2) of section 6324A(e) (defining aggregate interest amount) is amended to read as follows: “(2) Required interest amount.— The term ‘required interest 26 USC 6324A. amount’ means the aggregate amount of interest which will be payable over the first 4 years of the deferral period with respect to the deferred amount (determined as of the date prescribed by 26 USC 6151. 26 USC 2001 et seq. section 6151(a) for the payment of the tax imposed by chapter 11).” (B) 26 USC 6324A. Subparagraph (B) of section 6324A(b)(2) (relating to maximum value of required property) is amended by striking out “aggregate interest amount” and inserting in lieu thereof “required interest amount”. (C) Paragraph (5) of section 6324A(d) (relating to special rules) is amended by striking out “aggregate interest amount” and inserting in lieu thereof “required interest amount”. (D) Paragraph (4) of section 6324A(e) (relating to application of definitions in case of deficiencies) is amended by striking out “aggregate interest amount” and inserting in lieu thereof “required interest amount”. (2) 26 USC 6324A note. Effective date.— The amendments made by this section shall apply to the estates of decedents dying after December 31, 1976. (f) Clarification of the $3,000 Annual Exclusion From the Rule Including in Gross Estate Transfers Within 3 Years of Death.— (1) Amendment of section 2035(b).— Subsection (b) of section 26 USC 2035. 2035 (relating to adjustments for gifts made within 3 years of decedent’s death) is amended to read as follows: “(b) Exceptions.— Subsection (a) shall not apply— “(1) to any bona fide sale for an adequate and full consideration in money or money’s worth, and “(2) to any gift to a donee made during a calendar year if the decedent was not required by section 6019 to file any gift tax return for such year with respect to gifts to such donee. Paragraph (2) shall not apply to any transfer with respect to a life insurance policy.” (2) 26 USC 2035 note. Effective date.— The amendment made by paragraph (1) shall apply to the estates of decedents dying after December 31, 1976, except that it shall not apply to transfers made before January 1, 1977. (g) Amendments Relating to Estate Tax Marital Deduction.— (1) Deduction not reduced for gift to spouse which is included in donor’s estate by reason of section 2035.— 26 USC 2056. Subparagraph (B) of section 2056(c)(1) (relating to adjustment to estate tax marital deduction for certain gifts to spouse) is amended by adding at the end thereof the following new sentence: “For purposes of this subparagraph, a gift which is includible 26 USC 2035. in the gross estate of the donor by reason of section 2035 shall not be taken into account.” (2) Reduction for gift tax marital deduction in excess of 50 percent of the value of gifts to a spouse.— Clause (ii) of 26 USC 2056. section 2056(c)(1)(B) (relating to adjustment to estate tax marital deduction for certain gifts to spouse) is amended by inserting “required to be included in a gift tax return” after “with respect to any gift”. (3) 26 USC 2056 note. Effective date.— The amendment made by this subsection shall apply to the estates of decedents dying after December 31, 1976. (h) 26 USC 2513, 2035.26 USC 2001. Coordination of Sections 2513 and 2035.— (1) In general.— Section 2001 (relating to imposition and rate of estate tax) is amended by adding at the end thereof the following new subsection: “(e) Coordination of Sections 2513 and 2035.— If— 26 USC 2513, 2035. 26 USC 2513. “(1) the decedent’s spouse was the donor of any gift one-half of which was considered under section 2513 as made by the decedent, and “(2) the amount of such gift is includible in the gross estate of the decedent’s spouse by reason of section 2035, 26 USC 2035. such gift shall not be included in the adjusted taxable gifts of the decedent for purposes of subsection (b)(1)(B), and the aggregate amount determined under subsection (b)(2) shall be reduced by the amount (if any) determined under subsection (d) which was treated as a tax payable by the decedent’s spouse with respect to such gift.” (2) Conforming amendment.— Subparagraph (C) of section 2602(a)(1) (relating to amount of tax on generation-skipping 26 USC 2602. transfers) is amended by striking out “section 2001(b))” and inserting in lieu thereof “section 2001(b), as modified by section 26 USC 2001. 2001(e))”. (3) Effective date.— The amendments made by this subsection 26 USC 2001 note. shall apply with respect to the estates of decedents dying after December 31, 1976, except that such amendments shall not apply to transfers made before January 1, 1977. (i) Inclusion in Gross Estate of Stock Transferred by the Decedent Where the Decedent Retains or Acquires Voting Rights.— (1) In general.— Section 2036 (relating to transfers with 26 USC 2036. retained life estate) is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection: “(b) Voting Rights.— “(1) In general.— For purposes of subsection (a)(1), the retention of the right to vote (directly or indirectly) shares of stock of a controlled corporation shall be considered to be a retention of the enjoyment of transferred property. “(2) Controlled corporation.— For purposes of paragraph (1), a corporation shall be treated as a controlled corporation if, at any time after the transfer of the property and during the 3-year period ending on the date of the decedent’s death, the decedent owned (with the application of section 318), or had the right 26 USC 318. (either alone or in conjunction with any person) to vote, stock possessing at least 20 percent of the total combined voting power of all classes of stock. “(3) Coordination with section 2035.— For purposes of applying section 2035 with respect to paragraph (1), the relinquishment 26 USC 2035. or cessation of voting rights shall be treated as a transfer of property made by the decedent.” (2) Conforming amendment.— Subsection (a) of section 2036 is 26 USC 2036. amended by striking out the last sentence thereof. (3) Effective date.— The amendments made by this subsection 26 USC 2036 note. shall apply to transfers made after June 22, 1976. (j) Amendments Relating to Individual Retirement Accounts, Etc., for Spouse.— (1) Application of estate tax exclusion to individual retirement accounts, etc., for spouse.— Subsection (e) of section 2039 (relating to exclusion of individual retirement accounts, 26 USC 2039. 26 USC 219. 26 USC 219, 220. etc.) is amended by striking out “section 219” each place it appears and inserting in lieu thereof “section 219 or 220”. (2) Transfers to individual retirement accounts, etc., for spouse treated as transfers of present interests.— Section 26 USC 2503. 2503 (relating to taxable gifts) is amended by adding at the end thereof the following new subsection: “(d) Individual Retirement Accounts, Etc., for Spouse.— For purposes of subsection (b), any payment made by an individual for the benefit of his spouse— “(1) to an individual retirement account described in section 26 USC 408. 408(a), “(2) for an individual retirement annuity described in section 408(b), or “(3) 26 USC 409. for a retirement bond described in section 409, shall not be considered a gift of a future interest in property to the extent that such payment is allowable as a deduction under section 220”. (3) Effective dates.— (A) 26 USC 2039 note. The amendment made by paragraph (1) shall apply to the estates of decedents dying after December 31, 1976. (B) 26 USC 2503 note. The amendment made by paragraph (2) shall apply to transfers made after December 31, 1976. (k) Provisions Relating to Treatment of Joint Interests.— (1) Removal of requirement of actuarial computations for joint interests in personal property.— (A) 26 USC 2511 et seq. In general.— Subchapter (B) of chapter 12 (relating to transfers for purposes of the gift tax) is amended by inserting 26 USC 2515. after section 2515 the following new section: “SEC. 2515A. TENANCIES BY THE ENTIRETY IN PERSONAL PROPERTY. “(a) Certain Actuarial Computations Not Required.— In the case of— “(1) the creation (either by one spouse alone or by both spouses) of a joint interest of a husband and wife in personal property with right of survivorship, or “(2) additions to the value thereof in the form of improvements, reductions in the indebtedness thereof, or otherwise, the retained interest of each spouse shall be treated as one-half of the value of their joint interest. “(b) Exception.— Subsection (a) shall not apply with respect to any joint interest in property if the fair market value of the interest or of the property (determined as if each spouse had a right to sever) cannot reasonably be ascertained except by reference to the life expectancy of one or both spouses.” (B) Change in section 2515 heading.— The heading for 26 USC 2515. section 2515 is amended to read as follows: “SEC. 2515. TENANCIES BY THE ENTIRETY IN REAL PROPERTY.” (C) Clerical amendments.— The table of sections for subchapter 26 USC 2511 et seq. 26 USC 2515. B of chapter 12 is amended by striking out the item relating to section 2515 and inserting in lieu thereof the following: “Sec. 2515. Tenancies by the entirety in real property. “Sec. 2515A. Tenancies by the entirety in personal property.” (D) 26 USC 2515A note. Effective date.— The amendments made by this paragraph shall apply to joint interests created after December 31, 1976. (2) Extension of fractional interest rule to certain joint interests in real or personal property created before 1977.— 26 USC 2040. Section 2040 (relating to joint interests) as amended by this Act, is further amended by adding at the end thereof the following new subsections: “(d) Joint Interests of Husband and Wife Created Before 1977.— Under regulations prescribed by the Secretary— “(1) In general.— In the case of any joint interest created before January 1, 1977, which (if created after December 31, 1976) would have constituted a qualified joint interest under subsection (b)(2) (determined without regard to clause (ii) of subsection (b)(2)(B)), the donor may make an election under this subsection to have paragraph (1) of subsection (b) apply with respect to such joint interest. “(2) Time for making election.— An election under this subsection with respect to any property shall be made for the calendar quarter in 1977, 1978, or 1979 selected by the donor in a gift tax return filed within the time prescribed by law for filing a gift tax return for such quarter. Such an election may be made irrespective of whether or not the amount involved exceeds the exclusion provided by section 2503(b); but no election may be 26 USC 2503. made under this subsection after the death of the donor. “(3) Tax effects of election.— In the case of any property with respect to which an election has been made under this subsection, for purposes of this title— “(A) the donor shall be treated as having made a gift at the close of the calendar quarter selected under paragraph (2), and “(B) the amount of the gift shall be determined under paragraph (4). “(4) Amount of gift.— For purposes of paragraph (3)(B), the amount of any gift is one-half of the amount— “(A) which bears the same ratio to the excess of (i) the value of the property on the date of the deemed making of the gift under paragraph (3)(A), over (ii) the value of such property on the date of the creation of the joint interest, as “(B) the excess of (i) the consideration furnished by the donor at the time of the creation of the joint interest, over (ii) the consideration furnished at such time by the donor’s spouse, bears to the total consideration furnished by both spouses at such time. “(5) Special rule for paragraph (4)(a).— For purposes of paragraph (4)(A)— “(A) in the case of real property, if the creation was not treated as a gift at the time of the creation, or “(B) in the case of personal property, if .the gift was required to be included on a gift tax return but was not so included, and the period of limitations on assessment under section 6501 has expired with respect to the tax (if any) on 26 USC 6501. such gift, then the value of the property on the date of the creation of the joint interest shall be treated as zero. “(6) Substantial improvements.— For purposes of this subsection, a substantial improvement of any property shall be treated as the creation of a separate joint interest. “(e) Treatment of Certain Post-1976 Terminations.— “(1) In general.— If— “(A) before January 1, 1977, a husband and wife had a joint interest in property with right of survivorship, “(B) after December 31, 1976, such joint interest was terminated, and “(C) after December 31, 1976, a joint interest of such husband and wife in such property (or in property the basis of which in whole or in part reflects the basis of such property) was created. then paragraph (1) of subsection (b) shall apply to the joint interest described in subparagraph (C) only if an election is made under subsection (d). “(2) Special rules.— For purposes of applying subsection (d) to property described in paragraph (1) of this subsection— “(A) if the creation described in paragraph (1)(C) occurs after December 31, 1979, the election may be made only with respect to the calendar quarter in which such creation occurs, and “(B) the creation of the joint interest described in paragraphs (4) and (5) of subsection (d) is the creation of the joint interest described in paragraph (1)(A) of this subsection.” (l) Amendments Relating to Orphans’ Exclusion.— (1) Orphans’ exclusion where there is a trust for minor children.— Section 2057 (relating to bequests, etc., to certain minor children) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Qualified Minors’ Trust.— “(1) In general.— For purposes of subsection (a), the interest of a minor child in a qualified minors’ trust shall be treated as an interest in property which passes or has passed from the decedent to such child. “(2) Qualified minors’ trust.— For purposes of paragraph (1), the term ‘qualified minors’ trust’ means a trust— “(A) except as provided in subparagraph (D), all of the beneficiaries of which are minor children of the decedent, “(B) the corpus of which is property which passes or has passed from the decedent to such trust, “(C) except as provided in paragraph (3), all distributions from which to the beneficiaries of the trust before the termination of their interests will be pro rata, “(D) on the death of any beneficiary of which before the termination of the trust, the beneficiary’s pro rata share of the corpus and accumulated income remains in the trust for the benefit of the minor children of the decedent who survive the beneficiary or vests in any person, and “(E) on the termination of which, each beneficiary will receive a pro rata share of the corpus and accumulated income. “(3) Certain disproportionate distributions permitted.— A trust shall not be treated as failing to meet the requirements of paragraph (2)(C) solely by reason of the fact that the governing instrument of the trust permits the making of disproportionate distributions which are limited by an ascertainable standard relating to the health, education, support, or maintenance of the beneficiaries. “(4) Trustee may accumulate income.— A trust which otherwise qualifies as a qualified minors’ trust shall not be disqualified solely by reason of the fact that the trustee has power to accumulate income. “(5) Coordination with subsection (c).— In applying subsection (c) to a qualified minors’ trust, those provisions of section 2056(b) which are inconsistent with paragraph (3) or (4) of this 26 USC 2056. subsection shall not apply. “(6) Death of beneficiary before youngest child reaches age 23.— Nothing in this subsection shall be treated as disqualifying an interest of a minor child in a trust solely because such interest will pass to another person if the child dies before the youngest child of the decedent attains age 23.”. (2) Age 23 for terminable interest rule in the case of orphans’ exclusion.— The second sentence of subsection (c) of section 2057 (relating to limitation in the case of life estate or 26 USC 2057. other terminable interest) is amended by striking out “21” and inserting in lieu thereof “23”. (3) Effective date.— The amendments made by this subsection 26 USC 2057 note. shall apply to the estates of decedents dying after December 31, 1976. (m) Disclaimer by Surviving Spouse Where Interest Passes to Such Spouse.— (1) In general.— Paragraph (4) of section 2518(b) (defining 26 USC 2518. qualified disclaimer) is amended to read as follows: “(4) as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either— “(A) to the spouse of the decedent, or “(B) to a person other than the person making the disclaimer.” (2) Effective date.— The amendment made by paragraph (1) 26 USC 2518 note. shall apply to transfers creating an interest in the person disclaiming made after December 31, 1976. (n) Amendments Relating to Tax on Generation-Skipping Transfers.— (1) Effective date of generation-skipping transfer provisions.— Section 2006(c) of the Tax Reform Act of 1976 (relating to effective date of generation-skipping transfer provisions) is amended by striking out “April 30, 1976” each place it appears and inserting in lieu thereof “June 11, 1976”. (2) Certain powers of independent trustees not treated as powers.— Subsection (e) of section 2613 (relating to definitions for purposes of the tax on generation-skipping transfers) is amended to read as follows: “(e) Certain Powers Not Taken Into Account.— “(1) Limited power to appoint among lineal descendants of the grantor.— For purposes of this chapter, an individual shall be treated as not having any power in a trust if such individual does not have any present or future power in the trust other than a power to dispose of the corpus of the trust or the income therefrom to a beneficiary or a class of beneficiaries who are lineal descendants of the grantor assigned to a generation younger than the generation assignment of such individual. “(2) Powers of independent trustees.— “(A) In general.— For purposes of this chapter, an individual shall be treated as not having any power in a trust if such individual— “(i) is a trustee who has no interest in the trust, “(ii) is not a related or subordinate trustee, and “(iii) does not have any present or future power in the trust other than a power to dispose of the corpus of the trust or the income therefrom to a beneficiary or a class of beneficiaries designated in the trust instrument. “(B) Related or subordinate trustee defined.— For purposes of subparagraph (A), the term ‘related or subordinate trustee’ means any trustee who is assigned to a younger generation than the grantor’s generation and who is— “(i) the spouse of the grantor or of any beneficiary, “(ii) the father, mother, lineal descendant, brother, or sister of the grantor or of any beneficiary, “(iii) an employee of a corporation in which the stockholdings of the grantor, the trust, and the beneficiaries of the trust are significant from the viewpoint of voting control, “(iv) an employee of a corporation in which the grantor or any beneficiary of the trust is an executive, “(v) a partner of a partnership in which the interest of the grantor, the trust, and the beneficiaries of the trust are significant from the viewpoint of operating control or distributive share of partnership income, “(vi) an employee of a corporation in which the grantor or any beneficiary of the trust is an executive, or “(vii) an employee of a partnership in which the grantor or any beneficiary of the trust is a partner.”. (3) Clarification of section 2613(b)(2)(B).— Subparagraph (B) 26 USC 2613. of section 2613(b)(2) (defining taxable termination for purposes of the tax on generation-skipping transfer) is amended— (A) by striking out “an interest and a power” and inserting in lieu thereof “a present interest and a present power”, and (B) by striking out “interest or power” and inserting in lieu thereof “present interest or present power”. (4) Alternate valuation in certain cases where there is a taxable termination at death of older generation beneficiary.— (A) 26 USC 2602. In general.— Subparagraph (A) of section 2602(d)(1) (relating to alternate valuation) is amended by inserting “(or at the same time as the death of a beneficiary of the trust assigned to a higher generation than such deemed transferor)” after “such deemed transferor”. (B) Special rules.— Subparagraph (A) of section 2602(d)(2) (relating to special rules for alternate valuation) is amended by inserting “(or beneficiary)” after “the deemed transferor”. (5) 26 USC 2613 note. Effective date.— (A) Except as provided in subparagraph (B), the amendments made by this subsection shall take effect as if included 26 USC 2601 et seq. in chapter 13 of the Internal Revenue Code of 1954 as added by section 2006 of the Tax Reform Act of 1976. (B) The amendment made by paragraph (1) shall take effect on October 4, 1976. (o) Adjustment in Income Tax on Accumulation Distributions for Portion of Estate and Generation-Skipping Transfer Taxes.— (1) 26 USC 667. In general.— Subsection (b) of section 667 (relating to tax on accumulation distribution) is amended by adding at the end thereof the following new paragraph: “(6) Adjustment in partial tax for estate and generation-skipping transfer taxes attributable to partial tax.— “(A) In general.— The partial tax shall be reduced by an amount which is equal to the predeath 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 26 USC 2001 et seq., 2601 et seq. 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) Partial tax determined without regard to this paragraph.— 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) Predeath portion.— For purposes of this paragraph, the predeath 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. (2) Effective date.— The amendment made by paragraph (1) 26 USC 667 note. shall apply— (A) in the case of the tax imposed by chapter 11 of the 26 USC 2001 et seq. Internal Revenue Code of 1954, to the estates of decedents dying after December 31, 1979, and (B) in the case of the tax imposed by chapter 13, to any 26 USC 2601 et seq. generation-skipping transfer (within the meaning of section 2611(a) of such Code) made after June 11, 1976. (p) Relief of Executor From Personal Liability in the Case of Reliance on Gift Tax Returns.— (1) In general.— Section 2204 (relating to discharge of fiduciary 26 USC 2204. from personal liability) is amended by adding at the end thereof the following new subsection: “(d) Good Faith Reliance on Gift Tax Returns.— If the executor in good faith relies on gift tax returns furnished under section 6103(e)(3) for determining the decedent’s adjusted taxable gifts, the 26 USC 6103. executor shall be discharged from personal liability with respect to any deficiency of the tax imposed by this chapter which is attributable to adjusted taxable gifts which— “(1) are made more than 3 years before the date of the decedent’s death, and “(2) are not shown on such returns.”. (2) Effective date.— The amendment made by paragraph (1) 26 USC 2204 note. shall apply with respect to the estates of decedents dying after December 31, 1976. (q) Indexing of Federal Tax Liens.— (1) In general.— Paragraph (4) of section 6323(f) (relating to 26 USC 6323. indexing of tax liens) is amended to read as follows: “(4) Indexing required with respect to certain real property.— In the case of real property, if— “(A) under the laws of the State in which the real property is located, a deed is not valid as against a purchaser of the property who (at the time of purchase) does not have actual notice or knowledge of the existence of such deed unless the fact of filing of such deed has been entered and recorded in a public index at the place of filing in such a manner that a reasonable inspection of the index will reveal the existence of the deed, and “(B) there is maintained (at the applicable office under paragraph (1)) an adequate system for the public indexing of Federal tax liens, then the notice of lien referred to in subsection (a) shall not be treated as meeting the filing requirements under paragraph (1) unless the fact of filing is entered and recorded in the index referred to in subparagraph (B) in such a manner that a reasonable inspection of the index will reveal the existence of the lien.” (2) 26 USC 6323. Refiling of notice of lien.— Section 6323(g)(2)(A) (relating to refiling of notice of lien) is amended to read as follows: “(A) if— “(i) such notice of lien is refiled in the office in which the prior notice of lien was filed, and “(ii) in the case of real property, the fact of refiling is entered and recorded in an index to the extent required by subsection (f)(4); and”. (3) 26 USC 6323 note. Effective date.— (A) The amendments made by this subsection shall apply with respect to liens, other security interests, and other interests in real property acquired after the date of the enactment of this Act. (B) If, after the date of the enactment of this Act, there is a change in the application (or nonapplication) of section 26 USC 6323. 6323(f)(4) of the Internal Revenue Code of 1954 (as amended by paragraph (1)) with respect to any filing jurisdiction, such change shall apply only with respect to liens, other security interests, and other interests in real property acquired after the date of such change. (r) Clerical Amendments.— (1) Clerical amendments with respect to section 6694.— (A) 26 USC 6694. In general.— Section 6694 (relating to failure to file information with respect to carryover basis property) which was added by section 2005(d)(2) of the Tax Reform Act of 1976 26 USC 6698. is redesignated as section 6698. (B) Deficiency procedures not to apply.— Section 6698 (as redesignated by subparagraph (A)) is amended by adding at the end thereof the following new subsection: “(c) Deficiency Procedures Not To Apply.— Subchapter B of 26 USC 6211 et seq. chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).” (C) Table of sections.— The table of sections for subchapter B of 26 USC 6671 et seq. chapter 68 is amended by striking out “Sec. 6694. Failure to file information with respect to carryover basis property.” and inserting in lieu thereof the following: “Sec. 6698. Failure to file information with respect to carryover basis property.” (2) 26 USC 2051. Clerical amendment to section 2051.— Section 2051 (defining taxable estate) is amended by striking out “exemption and”. (3) Clerical amendment to section 1016(a).— Subsection (a) of 26 USC 1016. section 1016 (relating to adjustments to basis) is amended by redesignating paragraph (23) as paragraph (21). (4) Clerical amendment to section 6324B(b).— Subsection (b) 26 USC 6324. of section 6324B (relating to period of lien for additional estate tax attributable to farm, etc., valuation) is amended by striking out “qualified farm real property” and inserting in lieu thereof “qualified real property”. (5) Effective date.— The amendments made by this subsection 26 USC 6698 note. shall apply to estates of decedents dying after December 31, 1976.

8. 1978

   Pub. L. 95–600 § 701(q)(1)(B) · 92 Stat. 2763

   Added · 26 U.S.C. § 667(d)

   Pub. L. 95–600, § 701(q)(1)(B), added subsec. (d)

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 95–600, § 701(q)(1)(B), added subsec. (d).

   Enacted provision · exact public law section
   (B) Section 667 is amended by adding at the end thereof the following new subsection: “(d) Special Rules for Foreign Trust.— “(1) Foreign tax deemed paid by beneficiary.— “(A) In general.— 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) Deduction in lieu of credit.— 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) Limitation on credit; retention of character.— “(i) Limitation on credit.— 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) Retention of character.— The items of income, deduction, and credit of the Trust shall retain their 26 USC 904. character (subject to the application of section 904(f)(5)) to the extent necessary to apply this paragraph. “(D) Computation year.— For purposes of this paragraph, the term ‘computation year’ means any of the three taxable years remaining after application of subsection (b)(1)(B).”.

9. 1978

   Pub. L. 95–600 § 701(r)(1) · 92 Stat. 2763

   Added · 26 U.S.C. § 667(e)

   Pub. L. 95–600, § 701(r)(1), added subsec. (e)

   Source evidence

   Code amendment note
   Subsec. (e). Pub. L. 95–600, § 701(r)(1), added subsec. (e).

   Enacted provision · exact public law section
   (1) 26 USC 667. In general.— Section 667 (relating to treatment of amounts deemed distributed by trust in preceding years) is amended by adding at the end thereof the following new subsection: “(e) Retention of Character of Amounts Distributed From Accumulation Trust to Nonresident Auens and Foreign Corporations.— 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 26 USC 662. of character under section 662(b) applied to all amounts instead of just to tax-exempt interest.”

10. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 title I § 104(b)(10) · 100 Stat. 2085

    Amended · 26 U.S.C. § 667(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—

    Source evidence

    Code amendment note
    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.”

    Enacted provision · exact public law section
    (10) Section 667.— Paragraph (2) of section 667(b) (relating to tax on amount deemed distributed by trust in preceding years) is amended to read as follows: “(2) Treatment of loss years.—For purposes of paragraph (1), the taxable income of the beneficiary for any taxable year shall be deemed to be not less than zero.”

    Effective date note
    Amendment 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.

10 of 11 references resolved to an enrolled provision · 1 partial