§642 — Special rules for credits and deductions
31 citing cases
Statute Text — 26 U.S.C. §642
An estate or trust shall be allowed the credit against tax for taxes imposed by foreign countries and possessions of the United States, to the extent allowed by section 901, only in respect of so much of the taxes described in such section as is not properly allocable under such section to the beneficiaries.
An estate shall be allowed a deduction of $600.
Except as otherwise provided in this paragraph, a trust shall be allowed a deduction of $100.
A trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of $300.
A qualified disability trust shall be allowed a deduction equal to the exemption amount under section 151(d), determined—
by treating such trust as an individual described in section 68(b)(1)(C),
1
1 See References in Text note below.
and
by applying section 67(e) (without the reference to section 642(b)) for purposes of determining the adjusted gross income of the trust.
For purposes of clause (i), the term “qualified disability trust” means any trust if—
such trust is a disability trust described in subsection (c)(2)(B)(iv) of section 1917 of the Social Security Act (
42 U.S.C. 1396p
), and
all of the beneficiaries of the trust as of the close of the taxable year are determined by the Commissioner of Social Security to have been disabled (within the meaning of section 1614(a)(3) of the Social Security Act,
42 U.S.C. 1382c(a)(3)
) for some portion of such year.
In the case of any taxable year in which the exemption amount under section 151(d) is zero, clause (i) shall be applied by substituting “$4,150” for “the exemption amount under section 151(d)”.
In the case of any taxable year beginning in a calendar year after 2018, the $4,150 amount in subparagraph (A) shall be increased in the same manner as provided in section 6334(d)(4)(C).
A trust shall not fail to meet the requirements of subclause (II) merely because the corpus of the trust may revert to a person who is not so disabled after the trust ceases to have any beneficiary who is so disabled.
The deductions allowed by this subsection shall be in lieu of the deductions allowed under section 151 (relating to deduction for personal exemption).
In the case of an estate or trust (other than a trust meeting the specifications of subpart B), there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by section 170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in section 170(c) (determined without regard to section 170(c)(2)(A)). If a charitable contribution is paid after the close of such taxable year and on or before the last day of the year following the close of such taxable year, then the trustee or administrator may elect to treat such contribution as paid during such taxable year. The election shall be made at such time and in such manner as the Secretary prescribes by regulations.
In the case of an estate, and in the case of a trust (other than a trust meeting the specifications of subpart B) required by the terms of its governing instrument to set aside amounts which was—
created on or before
October 9, 1969
, if—
an irrevocable remainder interest is transferred to or for the use of an organization described in section 170(c), or
the grantor is at all times after
October 9, 1969
, under a mental disability to change the terms of the trust; or
established by a will executed on or before
October 9, 1969
, if—
the testator dies before
October 9, 1972
, without having republished the will after
October 9, 1969
, by codicil or otherwise,
the testator at no time after
October 9, 1969
, had the right to change the portions of the will which pertain to the trust, or
the will is not republished by codicil or otherwise before
October 9, 1972
, and the testator is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise,
there shall also be allowed as a deduction in computing its taxable income any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit. In the case of a trust, the preceding sentence shall apply only to gross income earned with respect to amounts transferred to the trust before
October 9, 1969
, or transferred under a will to which subparagraph (B) applies.
In the case of a pooled income fund (as defined in paragraph (5)), there shall also be allowed as a deduction in computing its taxable income any amount of the gross income attributable to gain from the sale of a capital asset held for more than 1 year, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c).
To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain described in section 1202(a), proper adjustment shall be made for any exclusion allowable to the estate or trust under section 1202. In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income).
For purposes of paragraph (3), a pooled income fund is a trust—
to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A) (other than in clauses (vii) or (viii)), and retaining an income interest for the life of one or more beneficiaries (living at the time of such transfer),
in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers,
which cannot have investments in securities which are exempt from the taxes imposed by this subtitle,
which includes only amounts received from transfers which meet the requirements of this paragraph,
which is maintained by the organization to which the remainder interest is contributed and of which no donor or beneficiary of an income interest is a trustee, and
from which each beneficiary of an income interest receives income, for each year for which he is entitled to receive the income interest referred to in subparagraph (A), determined by the rate of return earned by the trust for such year.
For purposes of determining the amount of any charitable contribution allowable by reason of a transfer of property to a pooled fund, the value of the income interest shall be determined on the basis of the highest rate of return earned by the fund for any of the 3 taxable years immediately preceding the taxable year of the fund in which the transfer is made. In the case of funds in existence less than 3 taxable years preceding the taxable year of the fund in which a transfer is made the rate of return shall be deemed to be 6 percent per annum, except that the Secretary may prescribe a different rate of return.
In the case of a private foundation which is not exempt from taxation under section 501(a) for the taxable year, the provisions of this subsection shall not apply and the provisions of section 170 shall apply.
The benefit of the deduction for net operating losses provided by section 172 shall be allowed to estates and trusts under regulations prescribed by the Secretary.
An estate or trust shall be allowed the deduction for depreciation and depletion only to the extent not allowable to beneficiaries under sections 167(d) and 611(b).
The benefit of the deductions for amortization provided by sections 169 and 197 shall be allowed to estates and trusts in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary.
Amounts allowable under section 2053 or 2054 as a deduction in computing the taxable estate of a decedent shall not be allowed as a deduction (or as an offset against the sales price of property in determining gain or loss) in computing the taxable income of the estate or of any other person, unless there is filed, within the time and in the manner and form prescribed by the Secretary, a statement that the amounts have not been allowed as deductions under section 2053 or 2054 and a waiver of the right to have such amounts allowed at any time as deductions under section 2053 or 2054. Rules similar to the rules of the preceding sentence shall apply to amounts which may be taken into account under section 2621(a)(2) or 2622(b). This subsection shall not apply with respect to deductions allowed under part II (relating to income in respect of decedents).
If on the termination of an estate or trust, the estate or trust has—
a net operating loss carryover under section 172 or a capital loss carryover under section 1212, or
for the last taxable year of the estate or trust deductions (other than the deductions allowed under subsections (b) or (c)) in excess of gross income for such year,
then such carryover or such excess shall be allowed as a deduction, in accordance with regulations prescribed by the Secretary, to the beneficiaries succeeding to the property of the estate or trust.
In the case of a cemetery perpetual care fund which—
was created pursuant to local law by a taxable cemetery corporation for the care and maintenance of cemetery property, and
is treated for the taxable year as a trust for purposes of this subchapter,
any amount distributed by such fund for the care and maintenance of gravesites which have been purchased from the cemetery corporation before the beginning of the taxable year of the trust and with respect to which there is an obligation to furnish care and maintenance shall be considered to be a distribution solely for purposes of sections 651 and 661, but only to the extent that the aggregate amount so distributed during the taxable year does not exceed $5 multiplied by the aggregate number of such gravesites.
Treasury Regulations
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Treas. Reg. §1.642(a)(1)-1Partially tax-exempt interest
An estate or trust is allowed the credit against tax for partially tax-exempt interest provided by section 35 only to the extent that the credit does not relate to interest properly allocable to a beneficiary under section 652 or 662 and the regulations thereunder. A beneficiary of an estate or trust is allowed the credit against tax for partially tax-exempt interest provided by section 35 only to the extent that the credit relates to interest properly allocable to him under section 652 or 662 and the regulations thereunder. If an estate or trust holds partially tax-exempt bonds and elects under section 171 to treat the premium on the bonds as amortizable, the credit allowable under section 35, with respect to the bond interest (whether allowable to the estate or trust or to the beneficiary), is reduced under section 171(a)(3) by reducing the shares of the interest allocable, respectively, to the estate or trust and its beneficiary by the portion of the amortization deduction attributable to the shares.
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Treas. Reg. §1.642(a)(2)-1Foreign taxes
An estate or trust is allowed the credit against tax for taxes imposed by foreign countries and possessions of the United States to the extent allowed by section 901 only for so much of those taxes as are not properly allocable under that section to the beneficiaries. See section 901(b)(4). For purposes of section 901(b)(4), the term beneficiaries includes charitable beneficiaries.
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Treas. Reg. §1.642(a)(3)-1Dividends received by an estate or trust
An estate or trust is allowed a credit against the tax for dividends received on or before December 31, 1964 (see section 34), only for so much of the dividends as are not properly allocable to any beneficiary under section 652 or 662. Section 642(a)(3), and this section do not apply to amounts received as dividends after December 31, 1964. For treatment of the credit in the hands of the beneficiary see § 1.652(b)-1.
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Treas. Reg. §1.642(a)(3)-2Time of receipt of dividends by beneficiary
In general, dividends are deemed received by a beneficiary in the taxable year in which they are includible in his gross income under section 652 or 662. For example, a simple trust, reporting on the basis of a fiscal year ending October 30, receives quarterly dividends on November 3, 1954, and February 3, May 3, and August 3, 1955. These dividends are all allocable to beneficiary A, reporting on a calendar year basis, under section 652 and are deemed received by A in 1955. See section 652(c). Accordingly, A may take all these dividends into account in determining his credit for dividends received under section 34 and his dividends exclusion under section 116. However, solely for purposes of determining whether dividends deemed received by individuals from trusts or estates qualify under the time limitations of section 34(a) or section 116(a), section 642(a)(3) provides that the time of receipt of the dividends by the trust or estate is also considered the time of receipt by the beneficiary. For example, a simple trust reporting on the basis of a fiscal year ending October 30 receives quarterly dividends on December 3, 1953, and March 3, June 3, and September 3, 1954. These dividends are all allocable to beneficiary A, reporting on the calendar year basis, under section 652 and are includible in his income for 1954. However, for purposes of section 34(a) or section 116(a), these dividends are deemed received by A on the same dates that the trust received them. Accordingly, A may take into account in determining the credit under section 34 only those dividends received by the trust on September 3, 1954, since the dividend received credit is not allowed under section 34 for dividends received before August 1, 1954 (or after December 31, 1964). Section 642(a)(3) and this section do not apply to amounts received by an estate or trust as dividends after December 31, 1964. However, the rules in this section relating to time of receipt of dividends by a beneficiary are applicable to dividends received by an estate or trust prior to January 1, 1965, and accordingly, such dividends are deemed to be received by the beneficiary (even though received after December 31, 1964) on the same dates that the estate or trust received them for purposes of determining the credit under section 34 or the exclusion under section 116.
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Treas. Reg. §1.642(a)(3)-3Cross reference
See § 1.683-2(c) for examples relating to the treatment of dividends received by an estate or trust during a fiscal year beginning in 1953 and ending in 1954.
31 Citing Cases
Charitable contribution deductions from income are allowed under sections 170 and 642(c). Section 170 provides for income tax deductions for charitable contributions by individual taxpayers and corporations; however, section 170 does not apply to charitable contributions made by estates or certain trusts.
e relies on Commissioner v. Upjohn’s Estate, 124 F.2d 73 (6th Cir. 1941), to support the proposition that “remote possibilities that may deplete funds should not be considered when determining whether funds are permanently set aside for purposes of I.R.C. § 642.” In Commissioner v. Upjohn’s Estate, 124 F.2d at 76, the Court of Appeals for the Sixth Circuit stated: the bare possibility, considered abstractly and merely in terms of power, of an invasion of a fund devoted to charitable purposes, th
123. We do not understand petitioners to contend that these after-tax contributions were used to purchase the annuities in question. In any event, these after-tax contributions obviously fall far short of the $250,000 that petitioners assert as the investment in the contract. - -7 - payments in prior years, however, does not pr
642 (b) (2) (]B). 4 - payments of Federal income tax for the tax years at issue other than the.amounts withheld. Respondent rejected the Forms 1041, claiming that they did not constitute valid returns.' Respondent prepared substitutes for returns for the tax years at issue pursuant to section 6020(b) and determined deficiencies and additions
642 (b) (2) (]B). 4 - payments of Federal income tax for the tax years at issue other than the.amounts withheld. Respondent rejected the Forms 1041, claiming that they did not constitute valid returns.' Respondent prepared substitutes for returns for the tax years at issue pursuant to section 6020(b) and determined deficiencies and additions
In the section 642 setting, the estate or trust and the beneficiary are wholly separate taxpayers, and a carryback to years before the commencement of the estate or trust would not be a logical extension of the succession concept in that setting. Conversely, a bankruptcy estate subsists as a parallel portion of the same taxpayer, the debtor. The bankruptc
In the section 642 setting, the estate or trust and the beneficiary are wholly separate taxpayers, and a carryback to years before the commencement of the estate or trust would not be a logical extension of the succession concept in that setting. Conversely, a bankruptcy estate subsists as a parallel portion of the same taxpayer, the debtor. The bankruptc
6427(a),2 17 _3 Subsections (a) and (1) of section 6427 specifically pertain to nontaxable uses of diesel fuel previously taxed under sections 4041t and 4091.5 Limitations on filing a claim for payment under section 6427 are addressed'in section 6427(i). The general rule of limitation for payment of claims filed under ^section 6427 is that not more than one claim may be filed by any person with respect to fuel used during the taxable year.. Section 6427(i) provides: SEC. 6427(i). Time for Filing