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§ 12.5 TAX TREATMENT OF DISTRIBUTIONSSCRUT. 293 In another instance, a trust document contained the wrong valuationdate. 294 The IRS issues rulings from time to time concerning other instances ofthese types of mistakes. 295The IRS generously considers mistakes of this nature to be scrivener’s errors.A judicial reformation of the trust instrument usually is required to remedythese errors. In one situation, however, the IRS ignored a second contribution ofstock to a SCRUT, inasmuch as the trust document prohibited additional contributions.296 The IRS almost always will rule that a required reformation of thetrust document will not disqualify the trust. 297If, however, a donor, after discovery of an error of this nature, successfullypursues a court-ordered rescission of the trust, the order takes effect for tax purposesas of the date of creation of the trust, and the amount of the charitablededuction claimed by the donor for the transfer of the remainder interest createdby the trust is includible in the donor’s gross income for the year in which thetrust assets were returned to the donor. 298§ 12.5 TAX TREATMENT OF DISTRIBUTIONSIncome interest beneficiaries of CRTs usually are subject to income taxation onthe amounts distributed to them. At the federal level, the tax treatment accordedthese annual amounts is determined by a tier of characterization rules.(a) Characterization and Ordering Rules—In GeneralDistributions from CRATs and CRUTs are treated as having the following tax characteristicsin the hands of the recipients (whether or not the trust is tax-exempt):• First, the amounts are treated as ordinary income, to the extent of the sumof the trust’s ordinary income for the tax year of the trust and its undistributedordinary income for prior years. An ordinary loss for the currentyear must be used to reduce undistributed ordinary income for prioryears and any excess must be carried forward indefinitely to reduce ordinaryincome for future years. 299293 Priv. Ltr. Rul. 200219012.294 Priv. Ltr. Rul. 200233005.295 See, e.g., Priv. Ltr. Rul. 200251010.296 Priv. Ltr. Rul. 200052026.297 See, however, § 12.3(a), note 157.298 See, e.g., Priv. Ltr. Rul. 200219012. Inclusion of the claimed charitable contribution deduction in the donor’sgross income in these instances is occasioned by the tax benefit rule. See, e.g., Hillsboro Nat’l Bank v. Commissioner,460 U.S. 370 (1983); Unvert v. Commissioner, 656 F.2d 483 (9th Cir. 1981); Rosen v. Commissioner,611 F.2d 942 (1st Cir. 1980).299 IRC § 664(b)(1); Reg. § 1.664-1(d)(1)(i)(a). For these purposes, the amount of current and prior years’ incomemust be computed without regard to the deduction for net operating losses provided by IRC §§ 172 or 642(d).IRC § 664(b)(1); Reg. § 1.664-1(d)(1)(i)(a).A consent dividend (IRC § 565) paid to a CRUT by a corporation was ruled by the IRS not to be incomeunder IRC § 643(b) (see § 12.3(a)(iv)), because under state law the trust does not have income until it is inactual receipt of the money. Thus, the consent dividend amounts are included in the trust’s income for purposesof IRC § 664(b)(1), but do not constitute income of the trust for purposes of the income exception rules(see § 12.3(a)(ii), (iii)). Priv. Ltr. Rul. 199952035. 453