(a)Section 668(a) provides that the total of the amounts treated under section 666 as having been distributed by the trust on the last day of a preceding taxable year
of the trust shall be included in the gross income of the beneficiary or beneficiaries
receiving them. The total of such amounts is includible in the gross income of each beneficiary
to the extent the amounts would have been included under section 662(a)(2) and (b) if the total had actually been paid by the trust on the last day of such preceding
taxable year. The total is included in the gross income of the beneficiary for the taxable year
of the beneficiary in which such amounts are in fact paid, credited, or required to
be distributed unless the taxable year of the beneficiary differs from the taxable
year of the trust (see section 662(c) and the regulations thereunder). The character of the amounts treated as received by a beneficiary in prior taxable
years, including taxes deemed distributed, in the hands of the beneficiary is determined
by the rules set forth in section 662(b) and the regulations thereunder. See paragraphs (h)(1)(ii) and (j)(1)(ii) of § 1.668(b)–2.
(b) The total of the amounts treated under section 666 as having been distributed by the trust on the last day of a preceding taxable year
of the trust are included as prescribed in paragraph (a) of this section in the gross
income of the beneficiary even though as of that day the beneficiary would not have
been entitled to receive them had they actually been distributed on that day.
(c) Any deduction allowed to the trust in computing distributable net income for a preceding
taxable year (such as depreciation, depletion, etc.) is not deemed allocable to a
beneficiary because of amounts included in a beneficiary's gross income under this
section since the deduction has already been utilized in reducing the amount included
in the beneficiary's income.
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