203
‘‘(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
204
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
205
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),
206
‘‘(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
207
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
208
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
209
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
, 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).
210
‘‘(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
211
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—
212
‘‘(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
‘‘(4) EXCEPTION
FOR
DISTRIBUTIONS
DE-
SCRIBED IN SECTION 148(a).—This subsection shall
not apply to any distribution described in section
148(a).
‘‘(f) TREATMENT OF MULTIPLE TRUSTS.—For pur-
poses of this subchapter, under regulations prescribed by
the Secretary, 2 or more trusts shall be treated as 1 trust
if—
‘‘(1) such trusts have substantially the same
grantor or grantors and substantially the same pri-
mary beneficiary or beneficiaries, and
‘‘(2) a principal purpose of such trusts is the
avoidance of the tax imposed by this chapter.
For purposes of the preceding sentence, a husband and
wife shall be treated as 1 person.
‘‘(g) CERTAIN
PAYMENTS
OF
ESTIMATED
TAX
TREATED AS PAID BY BENEFICIARY.—Under rules pre-
scribed by the Secretary, a trustee may elect to treat any
portion of a payment of estimated tax made by such trust
for any taxable year of the trust as a payment made by
a beneficiary of such trust. This rule shall also apply in
the case of a taxable year reasonably expected to be the
last taxable year of an estate.
‘‘(h) FOREIGN TRUSTS AND FOREIGN INCOME.—The
Secretary shall prescribe special rules for foreign trusts
214
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
215
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-
216
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
217
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
218
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-
219
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-
220
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
221
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
222
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
223
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
224
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
225
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
226
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
227
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
228
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—
229
‘‘(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
230
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.—
231
‘‘(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,
2000, 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-
232
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-
233
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
234
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
246
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