217 
hands of the beneficiary as in the hands of the trust. For 
this purpose, the amounts shall be treated as consisting 
of the same proportion of each class of items entering into 
the computation of distributable net income of the trust 
as the total of each class bears to the total distributable 
net income of the trust, unless the terms of the trust spe-
cifically allocate different classes of income to different 
beneficiaries. In the application of the preceding sentence, 
the items of deduction entering into the computation of 
distributable net income shall be allocated among the 
items of distributable net income in accordance with regu-
lations prescribed by the Secretary. 
‘‘SEC. 146. DEDUCTION FOR ESTATES AND TRUSTS ACCU-
MULATING INCOME OR DISTRIBUTING COR-
PUS. 
‘‘(a) DEDUCTION.—In any taxable year there shall be 
allowed as a deduction in computing the taxable income 
of an estate or trust (other than a trust described in sec-
tion 144), the sum of— 
‘‘(1) any amount of income for such taxable 
year required to be distributed currently (including 
any amount required to be distributed which may be 
paid out of income or corpus to the extent such 
amount is paid out of income for such taxable year); 
and
218 
‘‘(2) any other amounts properly paid or cred-
ited or required to be distributed for such taxable 
year; 
but such deduction shall not exceed the distributable 
net income of the estate or trust. 
‘‘(b) CHARACTER OF AMOUNTS DISTRIBUTED.—The 
amount determined under subsection (a) shall be treated 
as consisting of the same proportion of each class of items 
entering into the computation of distributable net income 
of the estate or trust as the total of each class bears to 
the total distributable net income of the estate or trust 
in the absence of the allocation of different classes of in-
come under the specific terms of the governing instru-
ment. In the application of the preceding sentence, the 
items of deduction entering into the computation of dis-
tributable net income (including the deduction allowed 
under section 142(b)) shall be allocated among the items 
of distributable net income in accordance with regulations 
prescribed by the Secretary. 
‘‘(c) LIMITATION
ON DEDUCTION.—No deduction 
shall be allowed under subsection (a) in respect of any por-
tion of the amount allowed as a deduction under that sub-
section (without regard to this subsection) which is treated 
under subsection (b) as consisting of any item of distribut-
219 
able net income which is not included in the gross income 
of the estate or trust. 
‘‘SEC. 147. INCLUSION OF AMOUNTS IN GROSS INCOME OF 
BENEFICIARIES OF ESTATES AND TRUSTS AC-
CUMULATING 
INCOME 
OR 
DISTRIBUTING 
CORPUS. 
‘‘(a) INCLUSION.—Subject to subsection (b), there 
shall be included in the gross income of a beneficiary to 
whom an amount specified in section 146(a) is paid, cred-
ited, or required to be distributed (by an estate or trust 
described in section 146), the sum of the following 
amounts: 
‘‘(1) AMOUNTS REQUIRED TO BE DISTRIBUTED 
CURRENTLY.—The amount of income for the taxable 
year required to be distributed currently to such 
beneficiary, whether distributed or not. If the 
amount of income required to be distributed cur-
rently to all beneficiaries exceeds the distributable 
net income (computed without the deduction allowed 
by section 142(b), relating to deduction for chari-
table, etc., purposes) of the estate or trust, then, in 
lieu of the amount provided in the preceding sen-
tence, there shall be included in the gross income of 
the beneficiary an amount which bears the same 
ratio to distributable net income (as so computed) as
220 
the amount of income required to be distributed cur-
rently to such beneficiary bears to the amount re-
quired to be distributed currently to all beneficiaries. 
For purposes of this section, the phrase ‘the amount 
of income for the taxable year required to be distrib-
uted currently’ includes any amount required to be 
paid out of income or corpus to the extent such 
amount is paid out of income for such taxable year. 
‘‘(2) 
OTHER
AMOUNTS
DISTRIBUTED.—All 
other amounts properly paid, credited, or required to 
be distributed to such beneficiary for the taxable 
year. If the sum of— 
‘‘(A) the amount of income for the taxable 
year required to be distributed currently to all 
beneficiaries, and 
‘‘(B) all other amounts properly paid, cred-
ited, or required to be distributed to all bene-
ficiaries 
exceeds the distributable net income of the estate or 
trust, then, in lieu of the amount provided in the 
preceding sentence, there shall be included in the 
gross income of the beneficiary an amount which 
bears the same ratio to distributable net income (re-
duced by the amounts specified in (A)) as the other 
amounts properly paid, credited or required to be
221 
distributed to the beneficiary bear to the other 
amounts properly paid, credited, or required to be 
distributed to all beneficiaries. 
‘‘(b) CHARACTER OF AMOUNTS.—The amounts de-
termined under subsection (a) shall have the same char-
acter in the hands of the beneficiary as in the hands of 
the estate or trust. For this purpose, the amounts shall 
be treated as consisting of the same proportion of each 
class of items entering into the computation of distribut-
able net income as the total of each class bears to the 
total distributable net income of the estate or trust unless 
the terms of the governing instrument specifically allocate 
different classes of income to different beneficiaries. In the 
application of the preceding sentence, the items of deduc-
tion entering into the computation of distributable net in-
come (including the deduction allowed under section 
142(b)) shall be allocated among the items of distributable 
net income in accordance with regulations prescribed by 
the Secretary. In the application of this subsection to the 
amount determined under paragraph (1) of subsection (a), 
distributable net income shall be computed without regard 
to any portion of the deduction under section 142(b) which 
is not attributable to income of the taxable year.
222 
‘‘SEC. 148. SPECIAL RULES APPLICABLE TO SECTIONS 146 
AND 147. 
‘‘(a) EXCLUSIONS.—There shall not be included as 
amounts falling within section 146(a) or 147(a)— 
‘‘(1) GIFTS, BEQUESTS, ETC.—Any amount 
which, under the terms of the governing instrument, 
is properly paid or credited as a gift or bequest of 
a specific sum of money or of specific property and 
which is paid or credited all at once or in not more 
than 3 installments. For this purpose an amount 
which can be paid or credited only from the income 
of the estate or trust shall not be considered as a 
gift or bequest of a specific sum of money. 
‘‘(2) CHARITABLE, ETC., DISTRIBUTIONS.—Any 
amount paid or permanently set aside or otherwise 
qualifying for the deduction provided in section 
142(b) (computed without regard to sections 508(d), 
162, and 4948(c)(4)). 
‘‘(3) DENIAL
OF
DOUBLE
DEDUCTION.—Any 
amount paid, credited, or distributed in the taxable 
year, if section 144 or section 146 applied to such 
amount for a preceding taxable year of an estate or 
trust because credited or required to be distributed 
in such preceding taxable year. 
‘‘(b) DISTRIBUTIONS IN FIRST SIXTY-FIVE DAYS OF 
TAXABLE YEAR.—
223 
‘‘(1) GENERAL RULE.—If within the first 65 
days of any taxable year of an estate or a trust, an 
amount is properly paid or credited, such amount 
shall be considered paid or credited on the last day 
of the preceding taxable year. 
‘‘(2) LIMITATION.—Paragraph (1) shall apply 
with respect to any taxable year of an estate or a 
trust only if the executor of such estate or the fidu-
ciary of such trust (as the case may be) elects, in 
such manner and at such time as the Secretary pre-
scribes by regulations, to have paragraph (1) apply 
for such taxable year. 
‘‘(c) SEPARATE SHARES TREATED AS SEPARATE ES-
TATES OR TRUSTS.—For the sole purpose of determining 
the amount of distributable net income in the application 
of sections 146 and 147, in the case of a single trust hav-
ing more than one beneficiary, substantially separate and 
independent shares of different beneficiaries in the trust 
shall be treated as separate trusts. Rules similar to the 
rules of the preceding provisions of this subsection shall 
apply to treat substantially separate and independent 
shares of different beneficiaries in an estate having more 
than 1 beneficiary as separate estates. The existence of 
such substantially separate and independent shares and 
the manner of treatment as separate trusts or estates, in-
224 
cluding the application of sections 150 through 152, shall 
be determined in accordance with regulations prescribed 
by the Secretary. 
‘‘SEC. 149. CHARITABLE REMAINDER TRUSTS. 
‘‘(a) GENERAL RULE.—Notwithstanding any other 
provision of this subchapter, the provisions of this section 
shall, in accordance with regulations prescribed by the 
Secretary, apply in the case of a charitable remainder an-
nuity trust and a charitable remainder unitrust. 
‘‘(b) CHARACTER OF DISTRIBUTIONS.—Amounts dis-
tributed by a charitable remainder annuity trust or by a 
charitable remainder unitrust shall be considered as hav-
ing the following characteristics in the hands of a bene-
ficiary to whom is paid the annuity described in subsection 
(d)(1)(A) or the payment described in subsection 
(d)(2)(A): 
‘‘(1) First, as amounts of income (other than 
gains, and amounts treated as gains, from the sale 
or other disposition of capital assets) includible in 
gross income to the extent of such income of the 
trust for the year and such undistributed income of 
the trust for prior years; 
‘‘(2) Second, as a capital gain to the extent of 
the capital gain of the trust for the year and the un-
distributed capital gain of the trust for prior years;
225 
‘‘(3) Third, as other income to the extent of 
such income of the trust for the year and such un-
distributed income of the trust for prior years; and 
‘‘(4) Fourth, as a distribution of trust corpus. 
For purposes of this section, the trust shall determine the 
amount of its undistributed capital gain on a cumulative 
net basis. 
‘‘(c) EXEMPTION FROM INCOME TAXES.—A chari-
table remainder annuity trust and a charitable remainder 
unitrust shall, for any taxable year, not be subject to any 
tax imposed by this chapter. Any such trust shall be liable 
for tax on its unrelated business taxable income (within 
the meaning of section 255). 
‘‘(d) DEFINITIONS.— 
‘‘(1) 
CHARITABLE
REMAINDER
ANNUITY 
TRUST.—For purposes of this section, a charitable 
remainder annuity trust is a trust— 
‘‘(A) from which a sum certain (which is 
not less than 5 percent nor more than 50 per-
cent of the initial net fair market value of all 
property placed in trust) is to be paid, not less 
often than annually, to one or more persons (at 
least one of which is not an organization de-
scribed in section 101(c) and, in the case of in-
dividuals, only to an individual who is living at
226 
the time of the creation of the trust) for a term 
of years (not in excess of 20 years) or for the 
life or lives of such individual or individuals, 
‘‘(B) from which no amount other than the 
payments described in subparagraph (A) and 
other than qualified gratuitous transfers de-
scribed in subparagraph (C) may be paid to or 
for the use of any person other than an organi-
zation described in section 101(c), 
‘‘(C) following the termination of the pay-
ments described in subparagraph (A), the re-
mainder interest in the trust is to be trans-
ferred to, or for the use of, an organization de-
scribed in section 101(c) or is to be retained by 
the trust for such a use or, to the extent the 
remainder interest is in qualified employer secu-
rities (as defined in subsection (g)(4)), all or 
part of such securities are to be transferred to 
an employee stock ownership plan (as defined in 
section 4975(e)(7) in a qualified gratuitous 
transfer (as defined by subsection (g)). 
‘‘(D) the value (determined under section 
7520) of such remainder interest is at least 10 
percent of the initial net fair market value of all 
property placed in the trust.
227 
‘‘(2) CHARITABLE REMAINDER UNITRUST.—For 
purposes of this section, a charitable remainder 
unitrust is a trust— 
‘‘(A) from which a fixed percentage (which 
is not less than 5 percent nor more than 50 
percent) of the net fair market value of its as-
sets, valued annually, is to be paid, not less 
often than annually, to one or more persons (at 
least one of which is not an organization de-
scribed in section 101(c) and, in the case of in-
dividuals, only to an individual who is living at 
the time of the creation of the trust) for a term 
of years (not in excess of 20 years) or for the 
life or lives of such individual or individuals, 
‘‘(B) from which no amount other than the 
payments described in subparagraph (A) and 
other than qualified gratuitous transfers de-
scribed in subparagraph (C) may be paid to or 
for the use of any person other than an organi-
zation described in section 101(c), 
‘‘(C) following the termination of the pay-
ments described in subparagraph (A), the re-
mainder interest in the trust is to be trans-
ferred to, or for the use of, an organization de-
scribed in section 101(c) or is to be retained by
228 
the trust for such a use or, to the extent the 
remainder interest is in qualified employer secu-
rities (as defined in subsection (g)(4)), all or 
part of such securities are to be transferred to 
an employee stock ownership plan (as defined in 
section 4975(e)(7) in a qualified gratuitous 
transfer (as defined by subsection (g)). 
‘‘(D) with respect to each contribution of 
property to the trust, the value (determined 
under section 7520 of such remainder interest 
in such property is at least 10 percent of the 
net fair market value of such property as of the 
date such property is contributed to the trust. 
‘‘(3) EXCEPTION.—Notwithstanding the provi-
sions of paragraphs (2)(A) and (B), the trust instru-
ment may provide that the trustee shall pay the in-
come beneficiary for any year— 
‘‘(A) the amount of the trust income, if 
such amount is less than the amount required 
to be distributed under paragraph (2)(A), and 
‘‘(B) any amount of the trust income 
which is in excess of the amount required to be 
distributed under paragraph (2)(A), to the ex-
tent that (by reason of subparagraph (A)) the 
aggregate of the amounts paid in prior years
229 
was less than the aggregate of such required 
amounts. 
‘‘(4) SEVERANCE
OF
CERTAIN
ADDITIONAL 
CONTRIBUTIONS.—If— 
‘‘(A) any contribution is made to a trust 
which before the contribution is a charitable re-
mainder unitrust, and 
‘‘(B) such contribution would (but for this 
paragraph) result in such trust ceasing to be a 
charitable unitrust by reason of paragraph 
(2)(D), such contribution shall be treated as a 
transfer to a separate trust under regulations 
prescribed by the Secretary. 
‘‘(e) VALUATION FOR PURPOSES OF CHARITABLE 
CONTRIBUTION.—For 
purposes 
of 
determining 
the 
amount of any charitable contribution, the remainder in-
terest of a charitable remainder annuity trust or charitable 
remainder unitrust shall be computed on the basis that 
an amount equal to 5 percent of the net fair market value 
of its assets (or a greater amount, if required under the 
terms of the trust instrument) is to be distributed each 
year. 
‘‘(f) CERTAIN CONTINGENCIES PERMITTED.— 
‘‘(1) GENERAL RULE.—If a trust would, but for 
a qualified contingency, meet the requirements of
230 
paragraph (1)(A) or (2)(A) of subsection (d), such 
trust shall be treated as meeting such requirements. 
‘‘(2) VALUE
DETERMINED
WITHOUT
REGARD 
TO QUALIFIED CONTINGENCY.—For purposes of de-
termining the amount of any charitable contribution 
(or the actuarial value of any interest), a qualified 
contingency shall not be taken into account. 
‘‘(3) QUALIFIED CONTINGENCY.—For purposes 
of this subsection, the term ‘qualified contingency’ 
means any provision of a trust which provides that, 
upon the happening of a contingency, the payments 
described in paragraph (1)(A) or (2)(A) of sub-
section (d) (as the case may be) will terminate not 
later than such payments would otherwise terminate 
under the trust. 
‘‘(g) QUALIFIED GRATUITOUS TRANSFER OF QUALI-
FIED EMPLOYER SECURITIES.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified gratuitous transfer’ means 
a transfer of qualified employer securities to an em-
ployee stock ownership plan (as defined in section 
4975(e)(7) but only to the extent that— 
‘‘(A) the securities transferred previously 
passed from a decedent dying before January 1,
231 
2005, to a trust described in paragraph (1) or 
(2) of subsection (d), 
‘‘(B) no deduction under section 404 is al-
lowable with respect to such transfer, 
‘‘(C) such plan contains the provisions re-
quired by paragraph (3), 
‘‘(D) such plan treats such securities as 
being attributable to employer contributions but 
without regard to the limitations otherwise ap-
plicable to such contributions under section 
404, and 
‘‘(E) the employer whose employees are 
covered by the plan described in this paragraph 
files with the Secretary a verified written state-
ment consenting to the application of sections 
4978 and 4979A with respect to such employer. 
‘‘(2) EXCEPTION.—The term ‘qualified gratu-
itous transfer’ shall not include a transfer of quali-
fied employer securities to an employee stock owner-
ship plan unless— 
‘‘(A) such plan was in existence on August 
1, 1996, 
‘‘(B) at the time of the transfer, the dece-
dent and members of the decedent’s family 
(within the meaning of section 171(a)(6)(D))
232 
own (directly or through constructive ownership 
rules) no more than 10 percent of the value of 
the stock of the corporation referred to in para-
graph (4), and 
‘‘(C) immediately after the transfer, such 
plan owns (after the application of section 
318(a)(4) at least 60 percent of the value of the 
outstanding stock of the corporation. 
‘‘(3) PLAN REQUIREMENTS.—A plan contains 
the provisions required by this paragraph if such 
plan provides that— 
‘‘(A) the qualified employer securities so 
transferred are allocated to plan participants in 
a manner consistent with section 401(a)(4), 
‘‘(B) plan participants are entitled to di-
rect the plan as to the manner in which such 
securities which are entitled to vote and are al-
located to the account of such participant are to 
be voted, 
‘‘(C) an independent trustee votes the se-
curities so transferred which are not allocated 
to plan participants, 
‘‘(D) each participant who is entitled to a 
distribution from the plan has the rights de-
233 
scribed in subparagraphs (A) and (B) of section 
409(h)(1), 
‘‘(E) such securities are held in a suspense 
account under the plan to be allocated each 
year, up to the limitations under section 415(c), 
after first allocating all other annual additions 
for the limitation year, up to the limitations 
under sections 415 (c) and (e), and 
‘‘(F) on termination of the plan, all securi-
ties so transferred which are not allocated to 
plan participants as of such termination are to 
be transferred to, or for the use of, an organi-
zation described in section 101(c). For purposes 
of the preceding sentence, the term ‘inde-
pendent trustee’ means any trustee who is not 
a member of the family (within the meaning of 
section 171(a)(6)(D)) of the decedent or a 5- 
percent shareholder. A plan shall not fail to be 
treated as meeting the requirements of section 
401(a) by reason of meeting the requirements 
of this subsection. 
‘‘(4) QUALIFIED EMPLOYER SECURITIES.—For 
purposes of this section, the term ‘qualified employer 
securities’ means employer securities (as defined in
234 
section 409(l)) which are issued by a domestic cor-
poration— 
‘‘(A) which has no outstanding stock which 
is readily tradable on an established securities 
market, and 
‘‘(B) which has only 1 class of stock. 
‘‘(5) TREATMENT OF SECURITIES ALLOCATED 
BY
EMPLOYEE
STOCK
OWNERSHIP
PLAN
TO
PER-
SONS
RELATED
TO
DECEDENT
OR
5-PERCENT 
SHAREHOLDERS.— 
‘‘(A) IN GENERAL.—If any portion of the 
assets of the plan attributable to securities ac-
quired by the plan in a qualified gratuitous 
transfer are allocated to the account of— 
‘‘(i) any person who is related to the 
decedent (within the meaning of section 
171(a)(5) or a member of the decedent’s 
family (within the meaning of section 
171(a)(6)(D), or 
‘‘(ii) any person who, at the time of 
such allocation or at any time during the 
1-year period ending on the date of the ac-
quisition of qualified employer securities by 
the plan, is a 5-percent shareholder of the 
employer maintaining the plan, the plan
235 
shall be treated as having distributed (at 
the time of such allocation) to such person 
or shareholder the amount so allocated. 
‘‘(B) 
5-PERCENT
SHAREHOLDER.—For 
purposes of subparagraph (A), the term ‘5-per-
cent shareholder’ means any person who owns 
(directly or through the application of construc-
tive ownership rules) more than 5 percent of 
the outstanding stock of the corporation which 
issued such qualified employer securities or of 
any corporation which is a member of the same 
controlled group of corporations (within the 
meaning of section 409(l)(4)) as such corpora-
tion. 
‘‘(C) CROSS REFERENCE.—For excise tax 
on allocations described in subparagraph (A), 
see section 4979A. 
‘‘(6) 
TAX
ON
FAILURE
TO
TRANSFER 
UNALLOCATED SECURITIES TO CHARITY ON TERMI-
NATION OF PLAN.—If the requirements of paragraph 
(3)(F) are not met with respect to any securities, 
there is hereby imposed a tax on the employer main-
taining the plan in an amount equal to the sum of— 
‘‘(A) the amount of the increase in the tax 
which would be imposed by chapter 11 if such