Contents

§ 12.5 TAX TREATMENT OF DISTRIBUTIONSNotwithstanding the previous rule, any payments that are made or requiredto be distributed by a CRT because of the rules applicable to testamentary transfers,323 or an incorrect valuation 324 must be included in the gross income of theincome interest beneficiary in his or her tax year in which or with which endsthe tax year of the trust in which the amount is paid, credited, or required to bedistributed. A recipient is allowed a deduction from gross income for amountsrepaid to a CRT because of an overpayment during the reasonable period ofadministration or settlement or until the trust is fully funded; because of anamendment; or because of an incorrect valuation, to the extent these amountswere included in his or her gross income. 325If the tax year of the trust does not end with or within the last tax year of theincome beneficiary because of the recipient’s death, the extent to which theannuity amount or unitrust amount required to be distributed to him or her isincluded in the gross income of the recipient for his or her last tax year, or in thegross amount of his or her estate, is determined by making the computations forthe tax year of the trust in which his or her last tax year ends. The gross incomefor the last tax year of an income beneficiary on the cash basis includes amountsactually distributed to the recipient before his or her death. Amounts required tobe distributed which are distributed to his or her estate are included in the grossincome of the estate as income in respect of a decedent. 326The annuity amount or unitrust amount may be paid in money or in otherproperty. In the case of a distribution of property other than money, the amountpaid, credited, or required to be distributed must be considered as an amountrealized by the trust from the sale or other disposition of property. The basis ofthe property in the hands of the recipient is its fair market value at the time itwas paid, credited, or required to be distributed. 327(d) Tax Treatment of Other DistributionsAn amount distributed by a charitable remainder trust to a charitable organization,other than an annuity amount or unitrust amount, must be considered a distributionof corpus and of those categories of income specified above 328 in an orderinverse to that prescribed in those rules. The character of the amount must be determinedas of the end of the trust tax year in which the distribution is made after thecharacter of the annuity amount or unitrust amount has been determined. 329In this type of distribution, no gain or loss is realized by the trust by reasonof a distribution in kind unless the distribution is in satisfaction of a right toreceive a distribution of a specific dollar amount or in specific property otherthan that distributed. 330323 See Chapter 8.324 See § 12.2(a), text accompanied by notes 65 and 66; § 12.3(a), text accompanied by note 163.325 Reg. § 1.664-1(d)(4)(ii). IRC § 1341 contains rules relating to the computation of tax when an individual restoressubstantial amounts held under a claim of right.326 Reg. § 1.664-1(d)(4)(iii). The tax rules concerning income in respect of a decedent are contained in IRC § 691.327 Reg. § 1.664-1(d)(5).328 See § 1.5(a).329 Reg. § 1.664-1(e)(1).330 Reg. § 1.664-1(e)(2). 457