223 
‘‘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.— 
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‘‘(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-
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225 
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; 
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226 
‘‘(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 
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227 
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. 
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228 
‘‘(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 
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230 
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 
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231 
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, 
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232 
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)) 
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233 
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-
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234 
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 
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235 
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 
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236 
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 
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237 
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. 
‘‘(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 
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238 
‘‘(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 
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— 
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239 
‘‘(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 
deemed distributed under section 151(b) and (c) to 
any beneficiary. 
‘‘(2) FOREIGN TRUSTS.—In the case of any for-
eign trust, the term ‘taxes imposed on the trust’ in-
cludes the amount, reduced as provided in the last 
sentence of paragraph (1), of any income, war prof-
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240 
its, and excess profits taxes imposed by any foreign 
country or possession of the United States on such 
foreign trust which, as determined under paragraph 
(1), are so properly allocable. Under rules or regula-
tions prescribed by the Secretary, in the case of any 
foreign trust of which the settlor or another person 
would be treated as owner of any portion of the 
trust but for section 154(f), the term ‘taxes imposed 
on the trust’ includes the allocable amount of any 
income, war profits, and excess profits taxes imposed 
by any foreign country or possession of the United 
States on the settlor or such other person in respect 
of trust income. 
‘‘SEC. 151. ACCUMULATION DISTRIBUTION ALLOCATED TO 
PRECEDING YEARS. 
‘‘(a) AMOUNT ALLOCATED.—In the case of a trust 
which is subject to sections 146 through 149, the amount 
of the accumulation distribution of such trust for a taxable 
year shall be deemed to be an amount within the meaning 
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 
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241 
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 
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 
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