2.3.6 Separate Share/65-Day Rules

2.3.6.1 Under I.R.C. Sec. 663(b), distributions made within a period of 65 days after the close of the tax year may (at the election of the fiduciary) be considered as made before the close of the tax year. Before the Taxpayer Relief Act of 1997, this was only available to trusts. (Effective for tax years beginning after August 5, 1997, this rule applies equally to estates.)

2.3.6.1.1 This rule is useful to “fine tune” distributions after the financial reports are reviewed. The election is on “any amount or portion thereof” so the fiduciary may choose which distributions to treat as deemed to be made in the earlier year. There are restrictions on the total amount of distributions, however, that may be treated as falling within the prior year. The total distributions elected for inclusion may not be greater when combined with all other distributions than the accounting income or the DNI for the 65-day period. Treas. Reg. Sec. 1.663(b)-1(a).

2.3.6.1.2 The fiduciary must elect the 65-day rule on the tax return. Treas. Reg. Sec. 1.663(b)(2).

2.3.6.2 Under I.R.C. Sec. 663(c), for the sole purpose of determining DNI, a trust having more than one beneficiary, the “substantially separate and independent shares” of each beneficiary shall be treated as separate shares. See Treas. Reg. Sec. 1.663(c)-3(e) and 4 for examples of the application of this rule.

2.3.6.2.1 Estates are now subject to the rule by virtue of the 1997 Act.

< Previous Section | Next Section >