204 
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 allo-
cable thereto. 
‘‘SEC. 142. SPECIAL RULES FOR CREDITS AND DEDUCTIONS. 
‘‘(a) USA DEDUCTION
AND FAMILY
AND WORK 
CREDITS.— 
‘‘(1) NO DEDUCTION OR ALLOWANCE.—A trust 
or estate shall not be allowed any USA Deductions 
or a family or work credit. 
‘‘(2) SPECIAL
DEDUCTION.—For purposes of 
determining taxable income, trusts and estates shall 
be entitled to the following deductions from gross in-
come— 
‘‘(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. 
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‘‘(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 
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 com-
puting its taxable income any amount of the gross 
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income attributable to gain from the sale of a capital 
asset held for more than 1 year, without limitation, 
which pursuant to the terms of the governing 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), 
‘‘(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, 
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‘‘(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 
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 
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208 
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 per-
petual 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 distrib-
uted by such fund for the care and maintenance of 
gravesites which have been purchased from the cem-
etery corporation before the beginning of the taxable 
year of the trust and with respect to which there is 
an obligation to furnish care and maintenance shall 
be considered to be a distribution solely for purposes 
of sections 144 and 146, but only to the extent that 
the aggregate amount so distributed during the tax-
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209 
able year does not exceed $5 multiplied by the ag-
gregate 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 in 
section 142(b). Losses from the sale or exchange of 
capital assets shall be excluded, except to the extent 
such losses are taken into account in determining 
the amount of gains from the sale or exchange of 
capital assets which are paid, credited, or required 
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210 
to be distributed to any beneficiary during the tax-
able 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). 
‘‘(B) Gross income from sources within the 
United States shall be determined without re-
gard to section 894 (relating to income exempt 
under treaty). 
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211 
‘‘(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 
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 
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212 
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, leg-
atee, 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— 
‘‘(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.— 
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213 
‘‘(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. 
‘‘(4) EXCEPTION
FOR
DISTRIBUTIONS
DE-
SCRIBED IN SECTION 148(a).—This subsection shall 
not apply to any distribution described in section 
148(a). 
‘‘(e) TREATMENT OF MULTIPLE TRUSTS.—For pur-
poses of this subchapter, under regulations prescribed by 
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214 
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. 
‘‘(f) 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. 
‘‘(g) FOREIGN TRUSTS AND FOREIGN INCOME.—The 
Secretary shall prescribe special rules for foreign trusts 
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. 
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215 
‘‘(h) 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 
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 
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216 
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 currently. This 
section shall not apply in any taxable year in which 
the trust distributes amounts other than amounts of 
income described in paragraph (1). 
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217 
‘‘(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 
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 
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218 
hands of the beneficiary as in the hands of the trust. For 
this purpose, the amounts shall be treated as consisting 
of the same proportion of each class of items entering into 
the computation of distributable net income of the trust 
as the total of each class bears to the total distributable 
net income of the trust, unless the terms of the trust spe-
cifically allocate different classes of income to different 
beneficiaries. In the application of the preceding sentence, 
the items of deduction entering into the computation of 
distributable net income shall be allocated among the 
items of distributable net income in accordance with regu-
lations prescribed by the Secretary. 
‘‘SEC. 146. DEDUCTION FOR ESTATES AND TRUSTS ACCU-
MULATING INCOME OR DISTRIBUTING COR-
PUS. 
‘‘(a) DEDUCTION.—In any taxable year there shall be 
allowed as a deduction in computing the taxable income 
of an estate or trust (other than a trust described in sec-
tion 144), the sum of— 
‘‘(1) any amount of income for such taxable 
year required to be distributed currently (including 
any amount required to be distributed which may be 
paid out of income or corpus to the extent such 
amount is paid out of income for such taxable year); 
and 
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219 
‘‘(2) any other amounts properly paid or cred-
ited or required to be distributed for such taxable 
year; 
but such deduction shall not exceed the distributable 
net income of the estate or trust. 
‘‘(b) CHARACTER OF AMOUNTS DISTRIBUTED.—The 
amount determined under subsection (a) shall be treated 
as consisting of the same proportion of each class of items 
entering into the computation of distributable net income 
of the estate or trust as the total of each class bears to 
the total distributable net income of the estate or trust 
in the absence of the allocation of different classes of in-
come under the specific terms of the governing instru-
ment. In the application of the preceding sentence, the 
items of deduction entering into the computation of dis-
tributable net income (including the deduction allowed 
under section 142(b)) shall be allocated among the items 
of distributable net income in accordance with regulations 
prescribed by the Secretary. 
‘‘(c) LIMITATION
ON DEDUCTION.—No deduction 
shall be allowed under subsection (a) in respect of any por-
tion of the amount allowed as a deduction under that sub-
section (without regard to this subsection) which is treated 
under subsection (b) as consisting of any item of distribut-
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220 
able net income which is not included in the gross income 
of the estate or trust. 
‘‘SEC. 147. INCLUSION OF AMOUNTS IN GROSS INCOME OF 
BENEFICIARIES OF ESTATES AND TRUSTS AC-
CUMULATING 
INCOME 
OR 
DISTRIBUTING 
CORPUS. 
‘‘(a) INCLUSION.—Subject to subsection (b), there 
shall be included in the gross income of a beneficiary to 
whom an amount specified in section 146(a) is paid, cred-
ited, or required to be distributed (by an estate or trust 
described in section 146), the sum of the following 
amounts: 
‘‘(1) AMOUNTS REQUIRED TO BE DISTRIBUTED 
CURRENTLY.—The amount of income for the taxable 
year required to be distributed currently to such 
beneficiary, whether distributed or not. If the 
amount of income required to be distributed cur-
rently to all beneficiaries exceeds the distributable 
net income (computed without the deduction allowed 
by section 142(b), relating to deduction for chari-
table, etc., purposes) of the estate or trust, then, in 
lieu of the amount provided in the preceding sen-
tence, there shall be included in the gross income of 
the beneficiary an amount which bears the same 
ratio to distributable net income (as so computed) as 
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221 
the amount of income required to be distributed cur-
rently to such beneficiary bears to the amount re-
quired to be distributed currently to all beneficiaries. 
For purposes of this section, the phrase ‘the amount 
of income for the taxable year required to be distrib-
uted currently’ includes any amount required to be 
paid out of income or corpus to the extent such 
amount is paid out of income for such taxable year. 
‘‘(2) 
OTHER
AMOUNTS
DISTRIBUTED.—All 
other amounts properly paid, credited, or required to 
be distributed to such beneficiary for the taxable 
year. If the sum of— 
‘‘(A) the amount of income for the taxable 
year required to be distributed currently to all 
beneficiaries, and 
‘‘(B) all other amounts properly paid, cred-
ited, or required to be distributed to all bene-
ficiaries 
exceeds the distributable net income of the estate or 
trust, then, in lieu of the amount provided in the 
preceding sentence, there shall be included in the 
gross income of the beneficiary an amount which 
bears the same ratio to distributable net income (re-
duced by the amounts specified in (A)) as the other 
amounts properly paid, credited or required to be 
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