Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-31

1957-1 C.B. 201

Sec. 642

IRS Headnote

Where a residuary testamentary trust, which has the status of a beneficiary succeeding to the property of the estate within the meaning of section 642(h) of the Internal Revenue Code of 1954, has deductions in excess of its gross income after the allowance of excess deductions from an estate, as authorized by section 642(h)(2), the amount in excess of the gross income of the trust would not be deductible by the income beneficiaries of the trust; but, if the trust terminated in the year in which it was allowed the section 642(h)(2) deductions, they would be available to the remaindermen.

Full Text

Rev. Rul. 57-31

Advice has been requested whether excess deductions allowable to a residuary testamentary trust on the termination of an estate, which trust distributes all of its current income, will be available to the income beneficiary of the trust should such deductions exceed the gross income of the trust for its taxable year.

Section 642(h)(2) of the Internal Revenue Code of 1954 provides that any deductions (other than deductions for personal exemption and charitable contributions) in excess of the gross income of an estate or trust for its year of termination may be allowed as a deduction to the beneficiaries succeeding to the property of the estate or trust. A testamentary trust may be a legatee or beneficiary of an estate for purposes of section 642(h). See G.C.M. 24749, C.B. 1945, 237.

In the instant case, the decedent provided in his will that the rest and residue of his estate be placed in trust and that the income therefrom be distributed currently to his surviving spouse. Deductions of the estate for the year in which it was terminated exceeded gross income and resulted in the allowance of the excess thereof to the residuary trust. The excess deductions exceeded the gross income of the trust for its taxable year.

Since the amount of trust income taxable to a beneficiary of a trust is limited to that beneficiary's proportionate share of the distributable net income of the trust, excess deductions from an estate which become available through operation of section 642(h)(2) to a testamentary trust having the status of a beneficiary under section 642(h) would in turn reduce the amount of income taxable to the beneficiary of the trust.

If a testamentary trust has deductions in excess of its gross income after the allowance of deductions from an estate made available to it through section 642(h)(2), the amount in excess of the gross income would not be deductible by the income beneficiary of the trust. However, if the trust also terminates during the taxable year in which it is allowed the section 642(h)(2) deductions, the deductions in excess of its gross income will be available under section 642(h)(2) to the remaindermen succeeding to the property.

In view of the foregoing, it is held that where a residuary testamentary trust, which has the status of a beneficiary succeeding to the property of the estate within the meaning of section 642(h) of the Internal Revenue Code of 1954, has deductions in excess of its gross income after the allowance of excess deductions from an estate as authorized by section 642(h)(2), the amount in excess of the gross income of the trust would not be deductible by the income beneficiaries of the trust; but, if the trust terminated in the year in which it was allowed the section 642(h)(2) deductions, they would be available to the remaindermen.