Internal Revenue Service
Revenue Ruling
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smRev. Rul. 67-74
1967-1 C.B. 194
Sec. 1001
Sec. 1012
Full Text
Rev. Rul. 67-74
Under the terms of the instrument which created a trust, the trustee is required to distribute currently to the beneficiary all of the income of the trust for each year. For the taxable year under consideration, the trustee had sufficient cash on hand to enable him to distribute in cash all of the trust income for that year which he was required to distribute to the beneficiary. However, in accordance with an agreement with the beneficiary, the trustee distributed, in lieu of cash, stock which was a part of the trust corpus and which had a fair market value equal to the amount of trust income for that year required to be distributed to the beneficiary. The value of the stock so distributed exceeded the basis of the stock in the hands of the trust.
Held , for Federal income tax purposes, the transaction is treated as though the trustee had actually distributed to the beneficiary cash in an amount equal to the trust income required to be distributed currently, and the beneficiary had purchased the stock from the trustee with cash. The trust is allowed a deduction under section 651(a) of the Internal Revenue Code of 1954, limited by the distributable net income of the trust, for the amount of income required to be distributed currently, and the beneficiary must report a like amount in gross income under section 652(a) of the Code. The instant transfer, involving stock having a fair market value equal to the trust income for the year in question which the trustee was required to distribute to the beneficiary, resulted in a capital gain to the trust equal to the difference between the basis of the stock in the hands of the trustee and the amount of the obligation satisfied by the transfer. (I.T. 3316, C.B. 1939-2, 186.) Further, the basis of the stock in the hands of the beneficiary is his cost, that is, the price he is deemed to have paid for it. See section 1012 of the Code.