26 C.F.R. § 1.665(g)-1A Capital gain distribution.
Title 26 - Internal Revenue
For any taxable year of a trust, the term capital gain distribution means, to the extent of the undistributed capital gain of the trust, that portion of an accumulation distribution that exceeds the amount of such accumulation distribution deemed under section 666(a) to be undistributed net income of the trust for all preceding taxable years. See §1.665(b)–1A for the definition of “accumulation distribution”. For any such taxable year the undistributed capital gain includes the total undistributed capital gain for all years of the trust beginning with the first taxable year beginning after December 31, 1968, in which income (as determined under section 643(b)) is accumulated, and ending before such taxable year. See §1.665(g)–2A for application of the separate share rule. The application of this section may be illustrated by the following example: Example. A trust on the calendar year basis made the following accumulations. For purposes of this example, the undistributed net income is the same as income under applicable local law. No income was accumulated prior to 1970.
No undistributed capital gain is deemed distributed from 1969 because 1969 is a year prior to the first year in which income is accumulated (1970). The accumulation distribution is not deemed to consist of any part of the capital gains recognized in 1972. [T.D. 7204, 37 FR 17142, Aug. 25, 1972]
Title 26: Internal Revenue
PART 1—INCOME TAXES
treatment of excess distributions of trusts applicable to taxable years beginning on or after january 1, 1969
§ 1.665(g)-1A Capital gain distribution.
------------------------------------------------------------------------ Undistributed Undistributed Year net income capital gain------------------------------------------------------------------------1969................................ None $10,0001970................................ $1,000 3,0001971................................ None 4,000------------------------------------------------------------------------
The trust has distributable net income in 1972 of $2,000 and recognizes capital gains of $4,500 that are allocable to corpus. On December 31, 1972, the trustee makes a distribution of $20,000 to the beneficiary. There is an accumulation distribution of $18,000 $20,000 distribution less $2,000 d.n.i.) that consists of undistributed net income of $1,000 (see §1.666(a)–1A) and a capital gain distribution of $7,000. The capital gain distribution is computed as follows:
Accumulation distribution.................................... $18,000Less: Undistributed net income............................... 1,000 ---------- Balance.................................................. 17,000 ==========Capital gain distribution (undistributed capital gain of the 7,000 trust for 1972 ($3,000 from 1970 and $4,000 from 1971))..... ---------- Balance (corpus)......................................... 10,000
