174
HR 4700 IH
‘‘(iii) substantially all the use of which
is by employees of the employer, their
spouses, and their dependent children.
‘‘(d) CERTAIN
EDUCATIONAL
TRAINING
BENE-
FITS.—Amounts paid or expenses incurred by the em-
ployer for education or training provided to the employee
shall be excluded from gross income under section 4 if
(and only if) such amounts or expenses are ordinary and
necessary business expenses and are not for an advanced
degree or to qualify an employee for a new line of work.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
regulations under this section, including regulations that
continue certain rules contained in section 132 to the In-
ternal Revenue Code of 1986 related to the fringe benefits
described in this section.
‘‘Subchapter E—Rules Relating to Deductions
‘‘Sec. 101. Charitable, etc. organizations.
‘‘Sec. 102. Private foundations.
‘‘SEC. 101. CHARITABLE, ETC. ORGANIZATIONS.
‘‘(a) PURPOSE.—This section provides definitions for
purposes of determining the philanthropic transfer deduc-
tion and for other purposes of this chapter and chapter
2.
‘‘(b) REGULAR CHARITY.—
‘‘(1) IN GENERAL.—
175
HR 4700 IH
‘‘(A) REGULAR CHARITY.—‘Regular char-
ity’ means—
‘‘(i) a church or a convention or asso-
ciation of churches,
‘‘(ii) 
an 
educational 
organization
which normally maintains a regular faculty
and curriculum and normally has a regu-
larly enrolled body of pupils or students in
attendance at the place where its edu-
cational activities are regularly carried on,
‘‘(iii) an organization the principal
purpose or functions of which are the pro-
viding of medical or hospital care or medi-
cal education or medical research, if the
organization is a hospital, or if the organi-
zation is a medical research organization
directly engaged in the continuous active
conduct of medical research in conjunction
with a hospital,
‘‘(iv) an organization which normally
receives a substantial part of its support
(exclusive of income received in the exer-
cise or performance by such organization
of its charitable, educational, or other pur-
pose or function constituting the basis for
176
HR 4700 IH
its exemption under section 253(a)) from
the United States or any State or political
subdivision thereof or from direct or indi-
rect contributions from the general public,
and which is organized and operated exclu-
sively to receive, hold, invest, and admin-
ister property and to make expenditures to
or for the benefit of a college or university
which is an organization referred to in
clause (ii) of this subparagraph and which
is an agency or instrumentality of a State
or political subdivision thereof, or which is
owned or operated by a State or political
subdivision thereof or by an agency or in-
strumentality of one or more States or po-
litical subdivisions,
‘‘(v) a governmental unit referred to
in subsection (c)(1),
‘‘(vi) an organization referred to in
subsection (c)(2) which normally receives a
substantial part of its support (exclusive of
income received in the exercise or perform-
ance by such organization of its charitable,
educational, or other purpose or function
constituting the basis for its exemption
177
HR 4700 IH
under section 253(a)) from a governmental
unit referred to in subsection (c)(1) or
from direct or indirect contributions from
the general public,
‘‘(vii) a private foundation described
in subparagraph (C), or
‘‘(viii) an organization described in
section 102(a) (2) or (3).
‘‘(B) SPECIAL
RULE
FOR
MEDICAL
RE-
SEARCH ORGANIZATIONS.—For purposes of de-
termining whether a contribution is to a regular
charity, a medical research organization shall
not be treated as described in clause (iii) of
paragraph (2) unless during the calendar year
in which the contribution is made such organi-
zation is committed to spend such contributions
for such research before January 1 of the fifth
calendar year which begins after the date such
contribution is made,
‘‘(C) CERTAIN PRIVATE FOUNDATIONS.—
The private foundations referred to in subpara-
graph (A)(vii) and subsection (e)(1)(B) are—
‘‘(i) a private operating foundation (as
defined in section 4942(j)(3)),
178
HR 4700 IH
‘‘(ii) any other private foundation (as
defined in section 102(a)) which, not later
than the 15th day of the third month after
the close of the foundation’s taxable year
in which contributions are received, makes
qualifying distributions (as defined in sec-
tion 4942(g), without regard to paragraph
(3) thereof), which are treated, after the
application of section 4942(g)(3), as dis-
tributions out of corpus (in accordance
with section 4942(h)) in an amount equal
to 100 percent of such contributions, and
with respect to which the taxpayer obtains
adequate records or other sufficient evi-
dence from the foundation showing that
the foundation made such qualifying dis-
tributions, and
‘‘(iii) a private foundation all of the
contributions to which are pooled in a com-
mon fund and which would be described in
section 102(a)(3) but for the right of any
substantial contributor (hereafter in this
clause called ‘donor’) or his spouse to des-
ignate annually the recipients, from among
organizations described in paragraph (1) of
179
HR 4700 IH
section 102(a), of the income attributable
to the donor’s contribution to the fund and
to direct (by deed or by will) the payment,
to an organization described in such para-
graph (1), of the corpus in the common
fund attributable to the donor’s contribu-
tion; but this clause shall apply only if all
of the income of the common fund is re-
quired to be (and is) distributed to one or
more organizations described in such para-
graph (1) not later than the 15th day of
the third month after the close of the tax-
able year in which the income is realized
by the fund and only if all of the corpus
attributable to any donor’s contribution to
the fund is required to be (and is) distrib-
uted to one or more of such organizations
not later than one year after his death or
after the death of his surviving spouse if
she has the right to designate the recipi-
ents of such corpus.
‘‘(2) REFERENCES.—Any reference in other law
or in legal documents to an organization described
in a clause of section 170(b)(1)(A) of the Internal
Revenue Code of 1986 shall constitute a reference to
181
HR 4700 IH
‘‘(C) no part of the net earnings of which
inures to the benefit of any private shareholder
or individual, and
‘‘(D) which qualifies for exemption from
the business tax under section 253(c) and is not
disqualified for tax exemption by reason of at-
tempting to influence legislation, and which
does not participate in, or intervene in (includ-
ing the publishing or distributing of state-
ments), any political campaign on behalf of (or
in opposition to) any candidate for public office.
‘‘(3) [intentionally deleted]
‘‘(4) In the case of a contribution or gift by an
individual, a domestic fraternal society, order, or as-
sociation, operating under the lodge system, but only
if such contribution or gift is to be used exclusively
for religious, charitable, scientific, literary, or edu-
cational purposes, or for the prevention of cruelty to
children or animals.
‘‘(5) A cemetery company owned and operated
exclusively for the benefit of its members, or any
corporation chartered solely for burial purposes as a
cemetery corporation and not permitted by its char-
ter to engage in any business not necessarily inci-
dent to that purpose, if such company or corporation
182
HR 4700 IH
is not operated for profit and no part of the net
earnings of such company or corporation inures to
the benefit of any private shareholder or individual.
‘‘(d) RULES FOR SUBSECTION (c).—
‘‘(1) LIMITATIONS.—A contribution or gift by a
corporation to a trust, chest, fund, or foundation
shall be deductible by reason of subsection (c)(2)(B)
only if it is to be used within the United States or
any of its possessions exclusively for purposes speci-
fied in subparagraph (B).
‘‘(2) REFERENCES.—Any reference in other law
or in legal documents to an organization described
in a paragraph of section 170(c) of the Internal Rev-
enue Code of 1986 shall constitute a reference to an
organization described in the same paragraph num-
ber of section 101(c) if an organization is described
in such paragraph.
‘‘(e) QUALIFIED CONSERVATION CONTRIBUTION.—
‘‘(1) IN GENERAL.—‘Qualified conservation con-
tribution’ means a contribution—
‘‘(A) of a qualified real property interest,
‘‘(B) to a qualified organization,
‘‘(C) exclusively for conservation purposes.
183
HR 4700 IH
‘‘(2) QUALIFIED REAL PROPERTY INTEREST.—
‘Qualified real property interest’ means any of the
following interests in real property:
‘‘(A) the entire interest of the donor other
than a qualified mineral interest,
‘‘(B) a remainder interest, and
‘‘(C) a restriction (granted in perpetuity)
on the use which may be made of the real prop-
erty.
‘‘(3) QUALIFIED ORGANIZATION.—For purposes
of paragraph (1), the term ’qualified organization’
means an organization which—
‘‘(A) is described in clause (v) or (vi) of
subsection (b)(1)(A), or
‘‘(B) is described in section 253(c)(3)
and—
‘‘(i) meets the requirements of section
102(a)(2), or
‘‘(ii) meets the requirements of sec-
tion 102(a)(3) and is controlled by an or-
ganization described in subparagraph (A)
or in clause (i) of this subparagraph.
‘‘(4) CONSERVATION PURPOSE DEFINED.—
184
HR 4700 IH
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ’conservation purpose’
means—
‘‘(i) the preservation of land areas for
outdoor recreation by, or the education of,
the general public,
‘‘(ii) the protection of a relatively nat-
ural habitat of fish, wildlife, or plants, or
similar ecosystem,
‘‘(iii) the preservation of open space
(including farmland and forest land) where
such preservation is—
‘‘(I) for the scenic enjoyment of
the general public, or
‘‘(II) pursuant to a clearly delin-
eated Federal, State, or local govern-
mental conservation policy, and will
yield a significant public benefit, or
‘‘(iv) the preservation of an histori-
cally important land area or a certified his-
toric structure.
‘‘(B) CERTIFIED HISTORIC STRUCTURE.—
For purposes of subparagraph (A)(iv), the term
‘certified historic structure’ means any building,
structure, or land area which—
185
HR 4700 IH
‘‘(i) is listed in the National Register,
or
‘‘(ii) is located in a registered historic
district and is certified by the Secretary of
the Interior to the Secretary as being of
historic significance to the district.
A building, structure, or land area satisfies the
preceding sentence if it satisfies such sentence
either at the time of the transfer or on the due
date (including extensions) for filing the trans-
feror’s return under this chapter for the taxable
year in which the transfer is made.
‘‘(5) EXCLUSIVELY
FOR
CONSERVATION
PUR-
POSES.—For purposes of this subsection—
‘‘(A) CONSERVATION
PURPOSE
MUST
BE
PROTECTED.—A contribution shall not be treat-
ed as exclusively for conservation purposes un-
less the conservation purpose is protected in
perpetuity.
‘‘(B) NO SURFACE MINING PERMITTED.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in the case of a con-
tribution of any interest where there is a
retention of a qualified mineral interest,
subparagraph (A) shall not be treated as
186
HR 4700 IH
met if at any time there may be extraction
or removal of minerals by any surface min-
ing method.
‘‘(ii) SPECIAL RULE.—With respect to
any contribution of property in which the
ownership of the surface estate and min-
eral interests were separated before June
13, 1976, and remain so separated, sub-
paragraph (A) shall be treated as met if
the probability of surface mining occurring
on such property is so remote as to be neg-
ligible.
‘‘(6) QUALIFIED
MINERAL
INTEREST.—For
purposes of this subsection, the term ‘qualified min-
eral interest’ means—
‘‘(A) subsurface oil, gas, or other minerals,
and
‘‘(B) the right to access to such minerals.
‘‘(f) DENIAL OF DEDUCTION FOR CERTAIN TRAVEL
EXPENSES.—No deduction shall be allowed under section
211 for traveling expenses (including amounts expended
for meals and lodging) while away from home, whether
paid directly or by reimbursement, unless there is no sig-
nificant element of personal pleasure, recreation, or vaca-
tion in such travel.
187
HR 4700 IH
‘‘(g) TREATMENT OF CERTAIN AMOUNTS PAID TO OR
FOR THE BENEFIT OF INSTITUTIONS OF HIGHER EDU-
CATION.—For purposes of section 11, if as the result of
a contribution to or for the benefit of an educational
organization—
‘‘(1) 
which 
is 
described 
in 
subsection
(b)(1)(A)(ii), and
‘‘(2) which is an institution of higher education
(as defined in section 3304(f))
the taxpayer receives (directly or indirectly) as a result
of paying such amount the right to purchase tickets for
seating at an athletic event in an athletic stadium of such
institution, 80 percent of such contribution shall be treat-
ed as a charitable contribution (but only if such amount
would be allowable as a deduction but for the fact that
the taxpayer received the right to purchase tickets). If any
portion of a payment is for the purchase of such tickets,
such portion and the remaining portion (if any) of such
payment shall be treated as separate amounts for purposes
of this subsection.
‘‘Subchapter F—Special Business Activities
‘‘Sec. 111. Rules of rental of real estate.
‘‘SEC. 111. RULES FOR RENTAL OF REAL ESTATE.
‘‘(a) IN GENERAL.—Except as provided in subsection
(b)—
188
HR 4700 IH
‘‘(1) the activity of rental of real estate is a
business activity to which the Simplified USA Tax
for businesses under chapter 2 applies,
‘‘(2) a taxpayer shall not be entitled to any de-
ductions under this chapter with respect to rental
property, and
‘‘(3) a taxpayer shall recognize gross income
only with respect to distributions from the rental ac-
tivity.
‘‘(b) INSUBSTANTIAL RENTAL ACTIVITY.—
‘‘(1) NOT RENTAL PROPERTY.—If an individual
or individuals own property, such individual or indi-
viduals and their families use the property on more
than 14 days during the taxable year for nonbusi-
ness purposes, the property is rented for no more
than 14 days during the taxable year, and the total
rental received by the individuals with respect to
such property does not exceed $10,000, the property
shall not be considered rental property or used in
the activity of rental of real estate during the tax-
able year for purposes of subsection (a) and the
Simplified USA Tax for businesses under chapter 2.
‘‘(2) RENTS
FROM
NONRENTAL
PROPERTY.—
Any rent from property described in paragraph (1)
189
HR 4700 IH
shall be included in gross income for purposes of the
Simplified USA Income Tax.
‘‘(c) USE FOR A NONBUSINESS PURPOSE.—For pur-
poses of this section, ‘use for a nonbusiness purpose’
means use other than—
‘‘(1) use for which fair rent is paid,
‘‘(2) use in connection with the preparation of
the property for rental, or
‘‘(3) use that serves a clear business purpose.
Use during any part of a day shall constitute use for that
day.
‘‘Subchapter G—Accounting Methods and
Periods
‘‘Sec. 121. Taxable year.
‘‘Sec. 122. Cash method of accounting; installment sales.
‘‘SEC. 121. TAXABLE YEAR.
‘‘(a) IN GENERAL.—The taxable year for all individ-
uals subject to tax under this chapter shall be the calendar
year except as provided in subsection (b).
‘‘(b) SHORT TAXABLE YEARS.—
‘‘(1) BIRTH.—An individual’s taxable year in
year of his birth shall begin on the date of his birth.
‘‘(2) DEATH.—An individual’s taxable year in
the year of his death shall end on the date of his
death.
190
HR 4700 IH
‘‘SEC. 122. CASH METHOD OF ACCOUNTING; INSTALLMENT
SALES.
‘‘(a) IN GENERAL.—All individuals shall determine
their income and deductions using the cash receipts and
disbursement method.
‘‘(b) OID RULES.—
‘‘(1) IN
GENERAL.—Original issue discount
shall not be included in gross income until received.
‘‘(2) PREVIOUSLY RECOGNIZED OID.—Original
issue discount included in income under the Internal
Revenue Code of 1986 shall increase the adjusted
basis of the instrument to which the original issue
discount related and shall not again be included in
income when received.
‘‘(c) INSTALLMENT SALES.—
‘‘(1) IN GENERAL.—Taxpayers shall take into
account income from installment sales when re-
ceived.
‘‘(2) REGULATIONS.—The Secretary shall pro-
mulgate regulations implementing paragraph (1).
Such regulations shall generally follow the principles
of sections 453, 453A and 453B of the Internal Rev-
enue Code of 1986, except to the extent such prin-
ciples are inconsistent with other provisions of this
chapter.
191
HR 4700 IH
‘‘(d) CONSTRUCTIVE
RECEIPT.—Income shall be
treated as received when constructively received.
‘‘(e) EFFECT OF CHANGE OF ACCOUNTING METH-
OD.—Rules similar to those under section 226 shall apply
to ensure that a taxpayer does not deduct the same ex-
pense twice or include the same item in income twice.
‘‘Subchapter H—Nonresident Aliens
‘‘Sec.
131.
Tax on nonresident alien individuals.
‘‘Sec.
132.
Tax treatment of certain community income of nonresident aliens.
‘‘SEC. 131. TAX ON NONRESIDENT ALIEN INDIVIDUALS.
‘‘(a) NONBUSINESS INCOME.—
‘‘(1) INCOME OTHER THAN CERTAIN GAINS.—
There is hereby imposed for each taxable year a tax
of 30 percent of the amount received from sources
within the United States by a nonresident alien indi-
vidual as—
‘‘(A) interest (other than portfolio interest
(as defined in subsection (b)(2)), deposit inter-
est (as defined in subsection (b)(3)) and origi-
nal issue discount, dividends, rents, salaries,
wages, premiums, annuities, compensations, re-
munerations, emoluments, and other fixed or
determinable annual periodical gains, profits
and income,
192
HR 4700 IH
‘‘(B) gains from the disposal of timber,
coal, or iron ore with a retained economic inter-
est,
‘‘(C) in the case of the sale of an original
discount obligation or payment on an original
issue discount obligation, the interest accrued
while the individual was a nonresident alien,
and
‘‘(D) includible social security benefits (as
defined in section 3(b)(2)).
‘‘(2) CAPITAL GAINS OF CERTAIN ALIENS.—In
the case of a nonresident alien individual present in
the United States for a period or periods aggregat-
ing 183 days or more during the taxable year, there
is hereby imposed a tax of 30 percent of the amount
by which the gains, derived from sources within the
United States, from the sale or exchange at any
time during such year exceeds his losses, allocable
to sources within the United States, from the sale
or exchange at any time during such year of capital
assets.
‘‘(3) TAX DOES NOT APPLY TO BUSINESS IN-
COME.—The taxes imposed by this section shall not
apply to the income of any business entity, except to
193
HR 4700 IH
the extent such income is distributed as compensa-
tion, dividends, or interest.
‘‘(b) SPECIAL RULES AND DEFINITIONS.—
‘‘(1) CERTAIN ANNUITIES.—The taxes imposed
by subsection (a) shall not apply to any amount re-
ceived as an annuity under a qualified annuity plan
described in section 403(a)(1), or from a qualified
trust described in section 401(a) and exempt under
section 253(a) if—
‘‘(A) all of the personal services by reason
of which the annuity is payable were either—
‘‘(i) personal services performed out-
side the United States by an individual
who, at the time of performance of such
personal services, was a nonresident alien,
or
‘‘(ii) personal services by a non-
resident alien temporarily present in the
United States for a period or periods not
exceeding 90 days during a taxable year,
whose compensation for such services did
not exceed $3,000, and who performed
such services for—
‘‘(I) a nonresident alien individ-
ual, foreign partnership, or foreign
194
HR 4700 IH
corporation, not engaged in a trade or
business within the United States, or
‘‘(II) for an office or place of
business maintained in a foreign coun-
try or in a possession of the United
States by an individual who is a citi-
zen or resident of the United States
or by a domestic partnership or a do-
mestic corporation, and
‘‘(B) at the time the first amount is paid
as annuity under the annuity plan or by the
trust, 90 percent or more of the employees for
whom contributions or benefits are provided
under such plan are citizens or residents of the
United States.
‘‘(2) PORTFOLIO INTEREST.—
‘‘(A) IN
GENERAL.—‘Portfolio interest’
means—
‘‘(i) interest on obligations in reg-
istered form if the United States person
who would otherwise be required to with-
hold tax on such interest under section
1441(a) receives a statement that the ben-
eficial owner of the obligation is not a
United States person, and
195
HR 4700 IH
‘‘(ii) interest on obligations in nonreg-
istered form if appropriate precautions are
taken to ensure that such obligations will
be sold only to persons who are not United
States persons and such interest is paid
outside the United States.
‘‘(B) EXCEPTIONS.—Under rules to be
prescribed by the Secretary, portfolio interest
does not include—
‘‘(i) interest received by a 10-percent
equity owner, or
‘‘(ii) contingent interest.
‘‘(3) DEPOSIT
INTEREST.—‘Deposit interest’
means interest on deposits which are—
‘‘(A) deposits with persons carrying on a
banking business (including savings and loans),
and
‘‘(B) amounts held by an insurance com-
pany under an agreement to pay interest there-
on.
‘‘(4) OTHER EXCEPTIONS.—The taxes imposed
by subsection (a) shall not apply to—
‘‘(A) a percentage of any dividend paid by
a business entity, 80 percent of whose gross re-
ceipts are not taken into account under chapter
196
HR 4700 IH
1 because they are from outside the United
States, equal to the percentage of gross receipts
not so taken into account,
‘‘(B) gambling winnings (except to the ex-
tent that the Secretary determines by regula-
tion that the collection of the tax is administra-
tively feasible),
‘‘(C) compensation paid by a foreign em-
ployer to a nonresident alien individual for the
period he is temporarily present in the United
States as a nonimmigrant under subparagraph
(F) or (J) of section 101(a)(15) of the Immi-
gration and Nationality Act, as amended,
‘‘(D) interest from a series E or series H
savings bond if the individual acquired the bond
while a resident of the Ryuku Islands or the
Trust Territory of the Pacific Islands, or
‘‘(E) amounts earned or payable to any
person who is a bona fide resident of Puerto
Rico, Guam, American Samoa, or the Northern
Mariana Islands (and, therefore, is subject to
the tax imposed by subchapter A).
‘‘(c) EXPATRIATION TO AVOID TAX.—
‘‘(1) IN GENERAL.—A nonresident alien individ-
ual who at any time within the 10-year period imme-
197
HR 4700 IH
diately preceding the close of the taxable year lost
United States citizenship shall be taxable in the
manner described in paragraph (2) unless none of
the principal purposes of losing citizenship was
avoidance of tax under subchapter A or subtitle B.
‘‘(2) ALTERNATIVE TAX.—A nonresident alien
individual described in paragraph (1) shall be sub-
ject to tax on the items taxable under subsection (a)
as determined without regard to exceptions listed or
based on definitions contained in subsection (b)
using the rate schedule for single individuals under
section 215. If the taxes determined under sub-
section (a) are greater than the tax determined
under this subsection, the greater tax shall apply.
‘‘SEC. 132. TAX TREATMENT OF CERTAIN COMMUNITY IN-
COME OF NONRESIDENT ALIENS.
‘‘(a) GENERAL RULE.—In the case of a married cou-
ple one or both of whom are nonresident alien individuals
and who have community income for the taxable year,
such community income shall be treated as follows:
‘‘(1) Compensation income shall be treated as
income of the spouse who rendered the services,
‘‘(2) Partnership distributions shall be treated
as the related distributive shares of partnership in-
come would be treated under section 1402(a)(5),
198
HR 4700 IH
‘‘(3) Community income which is derived from
the separate property of a spouse shall be treated as
income of that spouse, and
‘‘(4) All other such community income shall be
treated as provided in the applicable community
property law.
‘‘(b) EXCEPTION WHERE ELECTION UNDER SEC-
TION 6013(g) IS IN EFFECT.—Subsection (a) shall not
apply if an election under subsection (g) or (h) of section
6013 (relating to election to treat nonresident alien indi-
viduals as residents of the United States) is in effect.
‘‘SEC. 133. RELATIONSHIP WITH TREATIES.
‘‘(a) STATEMENT OF POLICY.—It is the intention of
the USA Tax Code to promote a worldwide tax system
in which each nation taxes—
‘‘(1) under an individual tax, only the income of
individuals who are residents or citizens of that na-
tion, and
‘‘(2) under a business tax only the business ac-
tivity in such nation.
‘‘(b) EFFECT OF TREATIES.—No tax shall be im-
posed under section 131(a) on income that is exempt from
tax by reason of a treaty between the nation of which the
nonresident alien is a citizen or resident and the United
States. If any such treaty requires that a lower rate of
199
HR 4700 IH
tax be imposed on some or all of the items of income sub-
ject to tax under section 331(a), such lower rate shall
apply to such items in the case of persons to whom such
treaty applies.
‘‘(c) EFFECT OF UNILATERAL ACTION BY FOREIGN
NATION.—No tax shall be imposed under section 331(a)
on nonresident aliens who are citizens or residents of an-
other nation if—
‘‘(1) such nation exempts from its income and
withholding taxes nonresident alien individuals who
are residents or citizens of the United States,
‘‘(2) such nation has entered into a tax infor-
mation sharing agreement with the United States,
and
‘‘(3) the Secretary certifies that the preceding
two requirements have been satisfied.
‘‘Subchapter I—Trusts and Estates
‘‘Sec. 140. Prepayment of tax by trusts and estates.
‘‘Sec. 141. Application of tax.
‘‘Sec. 142. Special rules for credits and deductions.
‘‘Sec. 143. Definitions and rules applicable to subchapter I.
‘‘Sec. 144. Deduction for trusts distributing current income only.
‘‘Sec. 145. Inclusion of amounts in gross income of beneficiaries of trusts dis-
tributing current income only.
‘‘Sec. 146. Deduction for estates and trusts accumulating income or distribut-
ing corpus.
‘‘Sec. 147. Inclusion of amounts in gross income of beneficiaries of estates and
trusts accumulating income or distributing corpus.
‘‘Sec. 148. Special rules applicable to sections 146 and 147.
‘‘Sec. 149. Charitable remainder trusts.
‘‘Sec. 150. Definitions applicable to excess distribution rules.
‘‘Sec. 151. Accumulation distribution allocated to preceding years.
‘‘Sec. 152. Treatment of amounts deemed distributed by trust in preceding
years.
200
HR 4700 IH
‘‘Sec. 153. Trust income, deductions, and credits attributable to grantors and
others as substantial owners.
‘‘Sec. 154. Definitions and rules.
‘‘Sec. 155. Reversionary interests.
‘‘Sec. 156. Power to control beneficial enjoyment.
‘‘Sec. 157. Administrative powers.
‘‘Sec. 158. Power to revoke.
‘‘Sec. 159. Income for benefit of grantor.
‘‘Sec. 160. Person other than grantor treated as substantial owner.
‘‘Sec. 161. Foreign trusts having one or more United States beneficiaries.
‘‘Sec. 162. Limitation on charitable deduction.
‘‘Sec. 163. Income of an estate or trust in case of divorce, etc.
‘‘Sec. 164. Recognition of gain on certain transfers to certain foreign persons
and estates.
‘‘Sec. 165. Treatment of funeral trusts.
‘‘Sec. 166. Income in respect of a decedent.
‘‘SEC. 140. PREPAYMENT OF TAX BY TRUSTS AND ESTATES.
‘‘(a) PREPAYMENT OF TAX.—A trust or estate shall
prepay the Simplified USA Tax for individuals in accord-
ance with the provisions of this subchapter.
‘‘(b) IMPOSITION OF TAX.—There is hereby imposed
a tax on the taxable income of trusts and estates (as deter-
mined in accordance with this subchapter) a tax deter-
mined as follows:
‘‘If taxable income is:
The tax is:
Not over $1,600 ............................
15% of taxable income.
Over $1,600, but not over $3,800
$240, plus 25% of the excess over
$1,600.
Over $3,800 ...................................
$790, plus 30% of the excess over
$3,800.
‘‘(c) INFLATION ADJUSTMENT.—The schedule in
subsection (b) shall be adjusted for inflation in accordance
with section 23.
‘‘(d) BUSINESS ACTIVITIES.—
‘‘(1) TAX ON BUSINESS ACTIVITY DETERMINED
AT BUSINESS LEVEL.—If a trust engages in business
activity (as defined in section 206(b)), it shall be
201
HR 4700 IH
considered a business entity with respect to such ac-
tivities for purposes of the business tax under chap-
ter 2. The business entity shall be considered an
asset of the trust.
‘‘(2) 
BUSINESS
ENTITY
AS
SOLE
BENE-
FICIARY.—If the only beneficiaries of a trust are
business entities, no tax shall be imposed on such
trust under this subchapter.
‘‘SEC. 141. APPLICATION OF TAX.
‘‘(a) IN GENERAL.—The tax imposed by section 140
shall apply to the taxable income of estates or of any kind
of property held in trust, including—
‘‘(1) income accumulated in trust for the bene-
fit 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;
‘‘(2) income which is to be distributed currently
by the fiduciary to the beneficiaries, and income col-
lected by a guardian of an infant which is to be held
or distributed as the court may direct;
‘‘(3) income received by estates of deceased per-
sons during the period of administration or settle-
ment of the estate; and
202
HR 4700 IH
‘‘(4) income which, in the discretion of the fidu-
ciary, may be either distributed to the beneficiaries
or accumulated.
‘‘(b) COMPUTATION AND PAYMENT.—The taxable in-
come 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 subchapter. 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.
‘‘(c) EXCLUSION OF INCLUDIBLE GAIN FROM TAX-
ABLE INCOME.—The taxable income of a trust does not
include the amount of any includible gain as defined in
section 144(b) reduced by any deductions properly alloca-
ble thereto.
‘‘SEC. 142. SPECIAL RULES FOR CREDITS AND DEDUCTIONS.
‘‘(a) USA DEDUCTION AND FAMILY LIVING ALLOW-
ANCE.—
‘‘(1) NO DEDUCTION OR ALLOWANCE.—A trust
or estate shall not be allowed any USA Deductions
or a Family Living Allowance.
‘‘(2) SPECIAL
DEDUCTION.—For purposes of
determining taxable income, trusts and estates shall
203
HR 4700 IH
be entitled to the following deductions from gross
income—
‘‘(A) ESTATE.—An estate shall be allowed
a deduction of $600.
‘‘(B) 
DISTRIBUTING
TRUST.—A 
trust
which, under its governing instrument, is re-
quired to distribute all of its income currently
shall be allowed a deduction of $300.
‘‘(C) OTHER
TRUSTS.—Trusts not de-
scribed in subparagraph (B) shall be allowed a
deduction of $100.
‘‘(b) DEDUCTION FOR AMOUNTS PAID OR PERMA-
NENTLY SET ASIDE FOR A CHARITABLE PURPOSE.—
‘‘(1) GENERAL RULE.—In the case of an estate
or trust, there shall be allowed as a deduction in
computing its taxable income (in lieu of the philan-
thropic transfer deduction) 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
101(c) (determined without regard to section
101(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
204
HR 4700 IH
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.
‘‘(2) POOLED INCOME FUNDS.—In the case of
a pooled income fund (as defined in paragraph (3)),
there shall also be allowed as a deduction in comput-
ing its taxable income any amount of the gross in-
come 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 instru-
ment is, during the taxable year, permanently set
aside for a purpose specified in section 101(c).
‘‘(3) DEFINITION OF POOLED INCOME FUND.—
For purposes of paragraph (2), a pooled income
fund is a trust—
‘‘(A) to which each donor transfers prop-
erty, contributing an irrevocable remainder in-
terest in such property to or for the use of an
organization described in section 101(b)(1)(A)
(other than in clauses (vii) or (viii)), and retain-
ing an income interest for the life of one or
more beneficiaries (living at the time of such
transfer),
205
HR 4700 IH
‘‘(B) in which the property transferred by
each donor is commingled with property trans-
ferred by other donors who have made or make
similar transfers,
‘‘(C) which cannot have investments in se-
curities which are exempt from taxes imposed
by this subtitle,
‘‘(D) which includes only amounts received
from transfers which meet the requirements of
this paragraph,
‘‘(E) which is maintained by the organiza-
tion to which the remainder interest is contrib-
uted and of which no donor or beneficiary of an
income interest is a trustee, and
‘‘(F) from which each beneficiary of an in-
come interest receives income, for each year for
which he is entitled to receive the income inter-
est 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
206
HR 4700 IH
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 re-
turn.
‘‘(c) UNUSED LOSS CARRYOVERS.—If on the termi-
nation of an estate or trust, the estate or trust has a loss
carryover then such carryover shall be allowed as a deduc-
tion, in accordance with regulations prescribed by the Sec-
retary, to the beneficiaries succeeding to the property of
the estate or trust.
‘‘(d) CERTAIN DISTRIBUTIONS BY CEMETERY PER-
PETUAL CARE FUNDS.—In the case of a cemetery perpet-
ual care fund which—
‘‘(1) was created pursuant to local law by a tax-
able cemetery corporation for the care and mainte-
nance of cemetery property, and
‘‘(2) 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
207
HR 4700 IH
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 sec-
tions 144 and 146, but only to the extent that the aggre-
gate amount so distributed during the taxable year does
not exceed $5 multiplied by the aggregate number of such
gravesites.
‘‘SEC. 143. DEFINITIONS AND RULES APPLICABLE TO SUB-
CHAPTER I.
For purposes of this subchapter—
‘‘(a) DISTRIBUTABLE NET INCOME.—‘Distributable
net income’ means, with respect to any taxable year, the
taxable income of the estate or trust computed with the
following modifications—
‘‘(1) No deduction shall be taken under sections
144 and 146 (relating to additional deductions).
‘‘(2) No deduction shall be taken under section
142(a)(2) (relating to deduction for personal exemp-
tions).
‘‘(3) Gains from the sale or exchange of capital
assets shall be excluded to the extent that such gains
are allocated to corpus and are not (A) paid, cred-
ited, or required to be distributed to any beneficiary
during the taxable year, or (B) paid, permanently
set aside, or to be used for the purposes specified
208
HR 4700 IH
in section 142(b). Losses from the sale or exchange
of capital assets shall be excluded, except to the ex-
tent such losses are taken into account in determin-
ing the amount of gains from the sale or exchange
of capital assets which are paid, credited, or re-
quired to be distributed to any beneficiary during
the taxable year.
‘‘(4) For purposes only of rules under section
ll, there shall be excluded those items of gross in-
come constituting extraordinary dividends or taxable
stock dividends which the fiduciary, acting in good
faith, does not pay or credit to any beneficiary by
reason of his determination that such dividends are
allocable to corpus under the terms of the governing
instrument and applicable local law.
‘‘(5) There shall be included any tax-exempt in-
terest.
‘‘(6) In the case of a foreign trust—
‘‘(A) There shall be included the amounts
of gross income from sources without the
United States, reduced by any amounts which
would be deductible in respect of disbursements
allocable to such income but for the provisions
of section 265(a)(1) (relating to disallowance of
certain deductions).
209
HR 4700 IH
‘‘(B) Gross income from sources within the
United States shall be determined without re-
gard to section 894 (relating to income exempt
under treaty).
‘‘(C) Paragraph (3) shall not apply to a
foreign trust. In the case of such a trust, there
shall be included gains from the sale or ex-
change of capital assets, reduced by losses from
such sales or exchanges to the extent such
losses do not exceed gains from such sales or
exchanges.
If the estate or trust is allowed a deduction under section
142(b), the amount of the modifications specified in para-
graphs (5) and (6) shall be reduced to the extent that the
amount of income which is paid, permanently set aside,
or to be used for the purposes specified in section 142(b)
is deemed to consist of items specified in those para-
graphs. For this purpose, such amount shall (in the ab-
sence of specific provisions in the governing instrument)
be deemed to consist of the same proportion of each class
of items of income of the estate or trust as the total of
each class bears to the total of all classes.
‘‘(b) INCOME.—‘Income’, when not preceded by the
words ‘taxable’, ‘distributable net’, ‘undistributed net’, or
‘gross’, means the amount of income of the estate or trust
210
HR 4700 IH
for the taxable year determined under the terms of the
governing instrument and applicable local law. Items of
gross income constituting extraordinary dividends or tax-
able stock dividends which the fiduciary, acting in good
faith, determines to be allocable to corpus under the terms
of the governing instrument and applicable local law shall
not be considered income.
‘‘(c) BENEFICIARY.—‘Beneficiary’ includes heir, lega-
tee, devisee.
‘‘(d) TREATMENT OF PROPERTY DISTRIBUTED IN
KIND.—
‘‘(1) BASIS OF BENEFICIARY.—The basis of any
property received by a beneficiary in a distribution
from an estate or trust shall be—
‘‘(A) the adjusted basis of such property in
the hands of the estate or trust immediately be-
fore the distribution, adjusted for
‘‘(B) any gain or loss recognized to the es-
tate or trust on the distribution.
‘‘(2) AMOUNT OF DISTRIBUTION.—In the case
of any distribution of property (other than cash), the
amount taken into account under sections 146(a)(2)
and 147(a)(2) shall be the lesser of—
211
HR 4700 IH
‘‘(A) the basis of such property in the
hands of the beneficiary (as determined under
paragraph (1)), or
‘‘(B) the fair market value of such prop-
erty.
‘‘(3) ELECTION TO RECOGNIZE GAIN.—
‘‘(A) IN GENERAL.—In the case of any dis-
tribution of property (other than cash) to which
an election under this paragraph applies—
‘‘(i) paragraph (2) shall not apply,
‘‘(ii) gain or loss shall be recognized
by the estate or trust in the same manner
as if such property had been sold to the
distributee at its fair market value, and
‘‘(iii) the amount taken into account
under sections 146(a)(2) and 147(a)(2)
shall be the fair market value of such
property.
‘‘(B) ELECTION.—Any election under this
paragraph shall apply to all distributions made
by the estate or trust during a taxable year and
shall be made on the return of such estate or
trust for such taxable year.
Any such election, once made, may be revoked only
with the consent of the Secretary.
213
HR 4700 IH
and foreign income of trusts. Those rules should generally
be consistent with the rules under subchapter J of chapter
1 of the Internal Revenue Code of 1986, except that they
shall take into account the principles of the Simplified
USA Tax.
‘‘(i) CERTAIN REVOCABLE TRUSTS TREATED
AS
PART OF ESTATE.
‘‘(1) IN
GENERAL.—If both the executor (if
any) of an estate and the trustee of a qualified rev-
ocable trust elect the treatment provided in this sec-
tion, such trust shall be treated and taxed as part
of such estate (and not as a separate trust) for all
taxable years of the estate ending after the date of
the decedent’s death and before the applicable date.
‘‘(2) QUALIFIED REVOCABLE TRUST.—For pur-
poses of this subsection, ‘qualified revocable trust’
means any trust (or portion thereof) which was
treated under section 158 as owned by the decedent
of the estate referred to in paragraph (1) by reason
of a power in the grantor (determined without re-
gard to section 154(e).
‘‘(3) APPLICABLE DATE.—For purposes of this
subsection, ‘applicable date’ means—
‘‘(A) if no return of tax imposed by chap-
ter 11 is required to be filed, the date which is
214
HR 4700 IH
2 years after the date of the decedent’s death,
and
‘‘(B) if such a return is required to be
filed, the date which is 6 months after the date
of the final determination of the liability for tax
imposed by chapter 11.
‘‘(4) ELECTION.—The election under this sub-
section shall be made not later than the time pre-
scribed for filing the return of tax imposed by this
chapter for the first taxable year of the estate (de-
termined with regard to extensions) and, once made,
shall be irrevocable.
‘‘SEC. 144. DEDUCTION FOR TRUSTS DISTRIBUTING CUR-
RENT INCOME ONLY.
‘‘(a) DEDUCTION.—In the case of any trust the terms
of which—
‘‘(1) provide that all of its income is required
to be distributed currently, and
‘‘(2) do not provide that any amounts are to be
paid, permanently set aside, or used for the purposes
specified in section 142(b) (relating to deduction for
charitable, etc., purposes),
there shall be allowed as a deduction in computing the
taxable income of the trust the amount of the income for
the taxable year which is required to be distributed cur-
215
HR 4700 IH
rently. This section shall not apply in any taxable year
in which the trust distributes amounts other than amounts
of income described in paragraph (1).
‘‘(b) LIMITATION ON DEDUCTION.—If the amount of
income required to be distributed currently exceeds the
distributable net income of the trust for the taxable year,
the deduction shall be limited to the amount of the distrib-
utable net income. For this purpose, the computation of
distributable net income shall not include items of income
which are not included in the gross income of the trust
and the deductions allocable thereto.
‘‘SEC. 145. INCLUSION OF AMOUNTS IN GROSS INCOME OF
BENEFICIARIES OF TRUSTS DISTRIBUTING
CURRENT INCOME ONLY.
‘‘(a) INCLUSION.—Subject to subsection (b), the
amount of income for the taxable year required to be dis-
tributed currently by a trust described in section 144 shall
be included in the gross income of the beneficiaries to
whom the income is required to be distributed, whether
distributed or not. If such amount exceeds the distribut-
able net income, there shall be included in the gross in-
come of each beneficiary an amount which bears the same
ratio to distributable net income as the amount of income
required to be distributed to such beneficiary bears to the
216
HR 4700 IH
amount of income required to be distributed to all bene-
ficiaries.
‘‘(b) CHARACTER OF AMOUNTS.—The amounts speci-
fied in subsection (a) shall have the same character in the
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
CORPUS.
‘‘(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
217
HR 4700 IH
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
‘‘(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-
218
HR 4700 IH
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-
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-
219
HR 4700 IH
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
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
220
HR 4700 IH
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
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
221
HR 4700 IH
to any portion of the deduction under section 142(b) which
is not attributable to income of the taxable year.
‘‘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
222
HR 4700 IH
trust because credited or required to be distributed
in such preceding taxable year.
‘‘(b) DISTRIBUTIONS IN FIRST SIXTY-FIVE DAYS OF
TAXABLE YEAR.—
‘‘(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
223
HR 4700 IH
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-
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
224
HR 4700 IH
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;
‘‘(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
225
HR 4700 IH
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
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
226
HR 4700 IH
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.
‘‘(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
227
HR 4700 IH
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) 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—
228
HR 4700 IH
‘‘(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
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
229
HR 4700 IH
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
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.—
230
HR 4700 IH
‘‘(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,
1999, 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-
231
HR 4700 IH
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))
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-
232
HR 4700 IH
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-
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 ‘independ-
ent 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
233
HR 4700 IH
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
section 409(l)) which are issued by a domestic
corporation—
‘‘(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
234
HR 4700 IH
‘‘(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
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-
235
HR 4700 IH
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
securities were not transferred as described in
paragraph (1), and
‘‘(B) interest on such amount at the un-
derpayment rate under section 6621 (and com-
pounded daily) from the due date for filing the
return of the tax imposed by chapter 11.
‘‘SEC. 150. DEFINITIONS APPLICABLE TO EXCESS DISTRIBU-
TION RULES.
‘‘(a) UNDISTRIBUTED NET INCOME.—For purposes
of sections 150 through 152, 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 speci-
fied in paragraphs (1) and (2) of section 146(a),
and
‘‘(2) the amount of taxes imposed on the trust
attributable to such distributable net income.
236
HR 4700 IH
‘‘(b) ACCUMULATION DISTRIBUTION.—For purposes
of sections 150 through 152, except as provided in sub-
section (c), 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 146(a) for such taxable year, exceed
‘‘(2) distributable net income for such year re-
duced (but not below zero) by the amounts specified
in paragraph (1) of section 146(a).
For purposes of section 152 (other than subsection (c)
thereof, relating to multiple trusts), the amounts specified
in paragraph (2) of section 146(a) shall not include
amounts properly paid, credited, or required to be distrib-
uted to a beneficiary from a trust (other than a foreign
trust) as income accumulated before the birth of such ben-
eficiary or before such beneficiary attains the age of 21.
If the amounts properly paid, credited, or required to be
distributed by the trust for the taxable year do not exceed
the income of the trust for such year, there shall be no
accumulation distribution for such year.
‘‘(c) EXCEPTION
FOR ACCUMULATION DISTRIBU-
TIONS FROM CERTAIN DOMESTIC TRUSTS.—For purposes
of sections 150 through 152—
‘‘(1) IN GENERAL.—In the case of a qualified
trust, any distribution in any taxable year beginning
237
HR 4700 IH
after the date of the enactment of this subsection
shall be computed without regard to any undistrib-
uted net income.
‘‘(2) QUALIFIED TRUST.—For purposes of this
subsection, the term ‘qualified trust’ means any
trust other than—
‘‘(A) a foreign trust (or, except as provided
in regulations, a domestic trust which at any
time was a foreign trust), or
‘‘(B) a trust created before March 1, 1984,
unless it is established that the trust would not
be aggregated with other trusts under section
143(f) if such section applied to such trust.
‘‘(d) TAXES IMPOSED ON THE TRUST.—For purposes
of sections 150 through 152—
‘‘(1) IN GENERAL.—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 sections 150 through
152) and which, under regulations prescribed by the
Secretary, are properly allocable to the undistributed
portions of distributable net income and gains in ex-
cess of losses from sales or exchanges of capital as-
sets. The amount determined in the preceding sen-
tence shall be reduced by any amount of such taxes
239
HR 4700 IH
of paragraph (2) of section 146(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 re-
gard 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 with-
in the meaning of paragraph (2) of section 146(a) distrib-
uted on the last day of any preceding taxable year, and
such portion of such distribution is not less than the un-
distributed 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 with-
in the meaning of paragraph (2) of section 146(a). Such
additional amount shall be equal to the taxes imposed on
the trust for such preceding taxable year attributable to
240
HR 4700 IH
the undistributed net income. For purposes of this sub-
section, the undistributed net income and the taxes im-
posed on the trust for such preceding taxable year attrib-
utable to such undistributed net income shall be computed
without regard to such accumulation distribution and
without regard to any accumulation distribution deter-
mined for any succeeding taxable year.
‘‘(c) PRO RATA PORTION OF TAXES DEEMED DIS-
TRIBUTED.—If any portion of an accumulation distribu-
tion for any taxable year is deemed under subsection (a)
to be an amount within the meaning of paragraph (2) of
section 146(a) distributed on the last day of any preceding
taxable year and such portion of the accumulation dis-
tribution 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 146(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 in-
come and the taxes imposed on the trust for such preced-
ing taxable year attributable to such undistributed net in-
241
HR 4700 IH
come shall be computed without regard to the accumula-
tion distribution and without regard to any accumulation
distribution determined for any succeeding taxable year.
‘‘(d) RULE WHEN INFORMATION IS NOT AVAIL-
ABLE.—If adequate records are not available to determine
the proper application of this subchapter to an amount
distributed by a trust, such amount shall be deemed to
be an accumulation distribution consisting of undistrib-
uted net income earned during the earliest preceding tax-
able year of the trust in which it can be established that
the trust was in existence.
‘‘(e) DENIAL OF REFUND TO TRUSTS AND BENE-
FICIARIES.—No refund or credit shall be allowed to a trust
or a beneficiary of such trust for any preceding taxable
year by reason of a distribution deemed to have been made
by such trust in such year under this section.
‘‘SEC. 152. TREATMENT OF AMOUNTS DEEMED DISTRIB-
UTED BY TRUST IN PRECEDING YEARS.
‘‘(a) GENERAL RULE.—The total of the amounts
which are treated under section 151 as having been dis-
tributed 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 147(a)(2) (and, with re-
242
HR 4700 IH
spect to any tax-exempt interest to which section 103 ap-
plies, under section 147(b)) if such total had been paid
to such beneficiary on the last day of such preceding tax-
able 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 in-
come 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 foreign trust, the interest
charge determined as provided in section 152.
‘‘(b) TAX ON DISTRIBUTION.—
‘‘(1) IN GENERAL.—The partial tax imposed by
subsection (a)(2) shall be determined.
‘‘(A) by determining the number of preced-
ing taxable years of the trust on the last day
of which an amount is deemed under section
151(a) to have been distributed,
‘‘(B) by taking from the 5 taxable years
immediately preceding the year of the accumu-
lation distribution the 1 taxable year for which
243
HR 4700 IH
the beneficiary’s taxable income was the highest
and the 1 taxable year for which his taxable in-
come was the lowest,
‘‘(C) by adding to the beneficiary’s taxable
income for each of the 3 taxable years remain-
ing after the application of subparagraph (B)
an amount determined by dividing the amount
deemed distributed under section 151 and re-
quired to be included in income under sub-
section (a) by the number of preceding taxable
years determined under subparagraph (A), and
‘‘(D) by determining the average increase
in tax for the 3 taxable years referred to in sub-
paragraph (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 de-
termined under subparagraph (D), multiplied by the
number of preceding taxable years determined under
subparagraph (A), over the amount of taxes (other
than the amount of taxes described in section
150(d)(2)) deemed distributed to the beneficiary
under sections 151 (b) and (c).
‘‘(2) TREATMENT OF LOSS YEARS.—For pur-
poses of paragraph (1), the taxable income of the
244
HR 4700 IH
beneficiary for any taxable year shall be deemed to
be not 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 151(a), the
number of preceding taxable years of the trust with
respect to which an amount is deemed distributed to
a beneficiary under section 151(a) shall be deter-
mined without regard to such year.
‘‘(4) EFFECT OF OTHER ACCUMULATION DIS-
TRIBUTIONS.—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 151
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 dis-
tributions made from more than one trust which are
245
HR 4700 IH
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. Generation-skipping
transfer bears to the total accumulation distribution.
‘‘(c) SPECIAL RULE FOR MULTIPLE TRUSTS.—
‘‘(1) IN GENERAL.—If, in the same prior tax-
able 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 151(a) to have been distrib-
uted to such beneficiary, some part of prior distribu-
tions by each of 2 or more other trusts is deemed
under section 151(a) to have been distributed to
such beneficiary, then subsections (b) and (c) of sec-
tion 151 shall not apply with respect to such part
of the accumulation distribution from such third
trust.
‘‘(2) ACCUMULATION
DISTRIBUTIONS
FROM
TRUST NOT TAKEN INTO ACCOUNT UNLESS THEY
EQUAL OR EXCEED $1,000.—For purposes of para-
graph (1), an accumulation distribution from a trust
to a beneficiary shall be taken into account only if
such distribution, when added to any prior accumu-
lation distributions from such trust which are
246
HR 4700 IH
deemed under section 151(a) to have been distrib-
uted to such beneficiary for the same prior taxable
year of the beneficiary, equals or exceeds $1,000.
‘‘SEC. 153. TRUST INCOME, DEDUCTIONS, AND CREDITS AT-
TRIBUTABLE TO GRANTORS AND OTHERS AS
SUBSTANTIAL OWNERS.
‘‘Where it is specified in sections 153 through 161
that the grantor or another person shall be treated as the
owner of any portion of a trust, there shall then be in-
cluded in computing the taxable income and credits of the
grantor or the other person those items of income, deduc-
tions, and credits against tax of the trust which are attrib-
utable to that portion of the trust to the extent that such
items would be taken into account under this chapter in
computing taxable income or credits against the tax of an
individual. Any remaining portion of the trust shall be
subject to sections 140 through 152. No items of a trust
shall be included in computing the taxable income and
credits of the grantor or of any other person solely on the
grounds of his dominion and control over the trust under
section 61 (relating to definition of gross income) or any
other provision of this title, except as specified in this sub-
part.
247
HR 4700 IH
‘‘SEC. 154. DEFINITIONS AND RULES.
‘‘(a) ADVERSE PARTY.—For purposes of sections 153
through 160, ‘adverse party’ means any person having a
substantial beneficial interest in the trust which would be
adversely affected by the exercise or nonexercise of the
power which he possesses respecting the trust. A person
having a general power of appointment over the trust
property shall be deemed to have a beneficial interest in
the trust.
‘‘(b) NONADVERSE PARTY.—For purposes of sections
153 through 160, ‘nonadverse party’ means any person
who is not an adverse party.
‘‘(c) RELATED OR SUBORDINATE PARTY.—For pur-
poses of sections 153 through 161, ‘related or subordinate
party’ means any nonadverse party who is—
‘‘(1) the grantor’s spouse if living with the
grantor;
‘‘(2) any one of the following: The grantor’s fa-
ther, mother, issue, brother or sister; an employee of
the grantor; a corporation or any employee of a cor-
poration in which the stock holdings of the grantor
and the trust are significant from the viewpoint of
voting control; a subordinate employee of a corpora-
tion in which the grantor is an executive.
For purposes of subsection (f) and sections 156 and 157,
a related or subordinate party shall be presumed to be
248
HR 4700 IH
subservient to the grantor in respect of the exercise or
nonexercise of the powers conferred on him unless such
party is shown not to be subservient by a preponderance
of the evidence.
‘‘(d) RULE WHERE POWER IS SUBJECT TO CONDI-
TION PRECEDENT.—A person shall be considered to have
a power described in sections 153 through 161 even
though the exercise of the power is subject to a precedent
giving of notice or takes effect only on the expiration of
a certain period after the exercise of the power.
‘‘(e) GRANTOR TREATED AS HOLDING ANY POWER
OR INTEREST OF GRANTOR’S SPOUSE.—
‘‘(1) IN GENERAL.—For purposes of sections
153 through 160, a grantor shall be treated as hold-
ing any power or interest held by—
‘‘(A) any individual who was the spouse of
the grantor at the time of the creation of such
power or interest, or
‘‘(B) any individual who became the spouse
of the grantor after the creation of such power
or interest, but only with respect to periods
after such individual became the spouse of the
grantor.
‘‘(2) MARITAL STATUS.—For purposes of para-
graph (1)(A), an individual legally separated from
249
HR 4700 IH
his spouse under a decree of divorce or of separate
maintenance shall not be considered as married.
‘‘(f) RULES NOT TO RESULT IN FOREIGN OWNER-
SHIP.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision in sections 153 through 160, sections 153
through 160 shall apply only to the extent such ap-
plication results in an amount (if any) being cur-
rently taken into account (directly or through 1 or
more entities) under this chapter in computing the
income of a citizen or resident of the United States
or a domestic corporation.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN
REVOCABLE
AND
IRREV-
OCABLE
TRUSTS.—Paragraph (1) shall not
apply to any portion of a trust if—
‘‘(i) the power to revest absolutely in
the grantor title to the trust property to
which such portion is attributable is exer-
cisable solely by the grantor without the
approval or consent of any other person or
with the consent of a related or subordi-
nate party who is subservient to the grant-
or, or