§641 — Imposition of tax
39 cases·5 followed·4 distinguished·1 questioned·2 overruled·27 cited—13% support
Statute Text — 26 U.S.C. §641
The tax imposed by section 1(e) shall apply to the taxable income of estates or of any kind of property held in trust, including—
income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust;
income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct;
income received by estates of deceased persons during the period of administration or settlement of the estate; and
income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.
The taxable income of an estate or trust shall be computed in the same manner as in the case of an individual, except as otherwise provided in this part. The tax shall be computed on such taxable income and shall be paid by the fiduciary. For purposes of this subsection, a foreign trust or foreign estate shall be treated as a nonresident alien individual who is not present in the United States at any time.
For purposes of this chapter—
the portion of any electing small business trust which consists of stock in 1 or more S corporations shall be treated as a separate trust, and
the amount of the tax imposed by this chapter on such separate trust shall be determined with the modifications of paragraph (2).
For purposes of paragraph (1), the modifications of this paragraph are the following:
Except as provided in section 1(h), the amount of the tax imposed by section 1(e) shall be determined by using the highest rate of tax set forth in section 1(e).
The exemption amount under section 55(d) shall be zero.
The only items of income, loss, deduction, or credit to be taken into account are the following:
The items required to be taken into account under section 1366.
Any gain or loss from the disposition of stock in an S corporation.
To the extent provided in regulations, State or local income taxes or administrative expenses to the extent allocable to items described in clauses (i) and (ii).
Any interest expense paid or accrued on indebtedness incurred to acquire stock in an S corporation.
No deduction or credit shall be allowed for any amount not described in this paragraph, and no item described in this paragraph shall be apportioned to any beneficiary.
No amount shall be allowed under paragraph (1) or (2) of section 1211(b).
Section 642(c) shall not apply.
For purposes of section 170(b)(1)(G), adjusted gross income shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income.
For purposes of determining—
the amount of the tax imposed by this chapter on the portion of any electing small business trust not treated as a separate trust under paragraph (1), and
the distributable net income of the entire trust,
the items referred to in paragraph (2)(C) shall be excluded. Except as provided in the preceding sentence, this subsection shall not affect the taxation of any distribution from the trust.
If a portion of an electing small business trust ceases to be treated as a separate trust under paragraph (1), any carryover or excess deduction of the separate trust which is referred to in section 642(h) shall be taken into account by the entire trust.
For purposes of this subsection, the term “electing small business trust” has the meaning given such term by section 1361(e)(1).
39 Citing Cases
As to the Commissioner’s alternative argument, the Trusts maintain that the Tenth Circuit’s decision is distinguishable because the deductions here are governed by section 641(c), which provides special rules for the taxation of ESBTs, rather than section 642(c).
In general, a trust is taxed as a separate entity from its beneficiaries with trust income taxed under section 641 and with deductions 13 [*13] Cross-Motion for Partial Summary Judgment respondent concedes the deductibility of the $838,044 paying out commission but disagrees that any other components of the agreed-upon settlement payment are deductible.
To that end, the Code provides that income tax may be imposed on the income of a trust, see § 641 (setting forth rules on the imposition of income tax with respect to a trust), and requires that a trust such as SFT, through its fiduciary, file an annual return reporting its income and its corresponding self-assessed income tax, see §
Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in a trustee responsibility for the protection and conservation of property for one or more beneficiaries who cannot share in the discharge of this responsibility and, therefore, a
Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in a trustee responsibility for the protection and conservation of property for one or more beneficiaries who cannot share in the discharge of this responsibility and, therefore, a