---
kind: "range"
citation: "26 C.F.R. §§ 1.58-3–1.58-6"
title: "26"
from: "1.58-3"
to: "1.58-6"
count: 5
url: "https://uscodex.org/cfr/26/1.58-3..1.58-6"
---

# §1.58-3. Estates and trusts.

- (a) **In general.**
  - (1) [Section 58(c)(1)](/cfr/26/58.md?p=c-1) provides that the sum of the items of tax preference of an estate or trust shall be apportioned between the estate or trust and the beneficiary on the basis of the income of the estate or trust allocable to each. Income for this purpose is the income received or accrued by the trust or estate which is not subject to current taxation either in the hands of the trust or estate or the beneficiary by reason of an item of tax preference. The character of the amounts distributed is determined under section [652(b)](/cfr/26/652.md?p=b) or [662(b)](/cfr/26/662.md?p=b) and the regulations thereunder.
  - (2) Additional computations required by reason of excess distributions are to be made in accordance with the principles of [sections 665 through 669](/cfr/26/665..669.md) and the regulations thereunder.
  - (3) In the case of a charitable remainder annuity trust (as defined in [section 664(d)(1)](/cfr/26/664.md?p=d-1) and [§ 1.664-2](/cfr/26/1.664-2.md)) or a charitable remainder unitrust (as defined in [section 664(d)(2)](/cfr/26/664.md?p=d-2) and [§ 1.664-3](/cfr/26/1.664-3.md)), the determination of the income not subject to current taxation by reason of an item of tax preference is to be made as if such trust were generally subject to taxation. Where income of such a trust is not subject to current taxation in accordance with this section and is distributed to a beneficiary in a taxable year subsequent to the taxable year in which the trust received or accrued such income, the items of tax preference relating to such income are apportioned to the beneficiary in such subsequent year (without credit for minimum tax paid by the trust with respect to items of tax preference which are subject to the minimum tax by reason of [section 664(c)](/cfr/26/664.md?p=c)).
  - (4) Items of tax preference apportioned to a beneficiary pursuant to this section are to be taken into account by the beneficiary in his taxable year within or with which ends the taxable year of the estate or trust during which it has such items of tax preference.
  - (5) Where a trust or estate has items of income or deduction which enter into the computation of the excess investment interest item of tax preference, but such items do not result in an item of tax preference at the trust or estate level, each beneficiary must take into account, in computing his excess investment interest, the portion of such items distributed to him. The determination of the portion of such items distributed to each beneficiary is made in accordance with the character rules of section [652(b)](/cfr/26/652.md?p=b) or [662(b)](/cfr/26/662.md?p=b) and the regulations thereunder.
  - (6) Where, pursuant to [subpart E of part 1](/cfr/26/part1-subpartE.md) of subchapter J ([sections 671 through 678](/cfr/26/671..678.md)), the grantor of a trust or another person is treated as the owner of any portion of the trust, there shall be included in computing the items of tax preference of such person those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust to the extent such items are taken into account under [section 671](/cfr/26/671.md) and the regulations thereunder. Any remaining portion of the trust is subject to the provisions of this section.
- (b) **Examples.** The principles of this section may be illustrated by the following examples in each of which it is assumed that none of the distributions are accumulation distributions (see [sections 665 through 669](/cfr/26/665..669.md) and the regulations thereunder):

# §1.58-3T. Treatment of non-alternative tax itemized deductions by trusts and estates and their beneficiaries in taxable years beginning after December 31, 1982 (temporary).


For purposes of [section 58(c)](/cfr/26/58.md?p=c), in taxable years beginning after December 31, 1982, itemized deductions of a trust or estate which are not alternative tax itemized deductions (as defined in [section 55(e)(1)](/cfr/26/55.md?p=e-1)), shall be treated as items of tax preference and apportioned between trusts and their beneficiaries, and estates and their beneficiaries.


# §1.58-4. Electing small business corporations.

- (a) **In general.** [Section 58(d)(1)](/cfr/26/58.md?p=d-1) provides rules for the apportionment of the items of tax preference of an electing small business corporation among the shareholders of such corporation. [Section 58(d)(2)](/cfr/26/58.md?p=d-2) provides rules for the imposition of the minimum tax on an electing small business corporation with respect to certain capital gains. For purposes of [section 58(d)](/cfr/26/58.md?p=d) and this section, the items of tax preference are computed at the corporate level as if [section 57](/cfr/26/57.md) generally applied to the corporation. However, the items of tax preference so computed are treated as items of tax preference of the shareholders of such corporation and not as items of tax preference of such corporation (except as provided in [paragraph (c)](#c) of this section). The items of tax preference specified in [section 57(a)(1)](/cfr/26/57.md?p=a-1) and [§ 1.57-1(a)](/cfr/26/1.57-1.md?p=a) (excess investment interest) and [section 57(a)(3)](/cfr/26/57.md?p=a-3) and [§ 1.57-1(c)](/cfr/26/1.57-1.md?p=c) (accelerated depreciation on [section 1245](/cfr/26/1245.md) property subject to a net lease), while generally inapplicable to corporations, are included as items of tax preference in the case of an electing small business corporation.
- (b) **Apportionment to shareholders.**
  - (1) The items of tax preference of an electing small business corporation, other than the capital gains item of tax preference described in [paragraph (c)](#c) of this section, are apportioned pro rata among the shareholders of such corporation in a manner consistent with [section 1374(c)(1)](/cfr/26/1374.md?p=c-1). Thus, with respect to the items of tax preference of the electing small business corporation, there is to be treated as items of tax preference of each shareholder a pro rata share of such items computed as follows:
    - (i) Divide the total amount of such items of tax preference of the corporation by the number of days in the taxable year of the corporation, thus determining the daily amount of such items of tax preference.
    - (ii) Determine for each day the shareholder's portion of the daily amount of each such item of tax preference by applying to such amount the ratio which the stock owned by the shareholder on that day bears to the total stock outstanding on that day.
    - (iii) Total the shareholder's daily portions of each such item of tax preference of the corporation for it taxable year.
  - (2) Items of tax preference apportioned to a shareholder pursuant to [subparagraph (1)](#b-1) of this paragraph are taken into account by the shareholder for the shareholder's taxable year in which or with which the taxable year of the corporation ends, except that, in the case of the death of a shareholder during any taxable year of the corporation (during which the corporation is an electing small business corporation), the items of tax preference of the corporation for such taxable year are taken into account for the final taxable year of the shareholder.
- (c) **Capital gains.**
  - (1) Capital gains of an electing small business corporation, other than those capital gains subject to tax under [section 1378](/cfr/26/1378.md), do not result in an item of tax preference at the corporate level since, in applying the formula specified in [sections 57(a)(9)(B)](/cfr/26/57.md?p=a-9-B) and [§ 1.57-1(i)(2)](/cfr/26/1.57-1.md?p=i-2), the rate of tax on capital gains (and the resulting tax) at the corporate level is zero. Under [section 1375 (a)](/cfr/26/1375.md?p=a) shareholders of an electing small business corporation take into account the capital gains of the corporation (including capital gains subject to tax under [section 1378](/cfr/26/1378.md)). Therefore, the computation of the capital gains item of tax preference at the shareholder level, with respect to such capital gains, is taken into account automatically by operation of [section 57(a)(9)](/cfr/26/57.md?p=a-9) and [§ 1.57-1(i)](/cfr/26/1.57-1.md?p=i). To avoid double inclusion of the capital gains item of tax preference by a shareholder with respect to capital gains subject to tax under [section 1378](/cfr/26/1378.md), the capital gains item of tax preference which results at the corporate level by reason of [section 58 (d)(2)](/cfr/26/58.md?p=d-2) is not treated under [section 58 (d)(1)](/cfr/26/58.md?p=d-1) as an item of tax preference of the shareholders of the corporation.
  - (2) The capital gains item of tax preference of an electing small business corporation subject to the tax imposed by [section 1378](/cfr/26/1378.md) is the excess of the amount of tax computed under [section 1378(b)(2)](/cfr/26/1378.md?p=b-2) over the sum of—
    - (i) The amount of tax that would be computed under [section 1378(b)(2)](/cfr/26/1378.md?p=b-2) if the following amount were excluded:

      (a) That portion of the net [section 1201](/cfr/26/1201.md) gain of the corporation described in [section 1378(b)(1)](/cfr/26/1378.md?p=b-1), or

      (b) If [section 1378(c)(3)](/cfr/26/1378.md?p=c-3) applies, that portion of the net [section 1201](/cfr/26/1201.md) gain attributable to the property described in [section 1378(c)(3)](/cfr/26/1378.md?p=c-3), and

    - (ii) The amount of tax imposed under [section 1378](/cfr/26/1378.md) divided by the sum of the normal tax rate and the surtax rate under [section 11](/cfr/26/11.md) for the taxable year.
  - (3) The principles of this paragraph may be illustrated by the following example.

# §1.58-5. Common trust funds.


[Section 58(e)](/cfr/26/58.md?p=e) provides that each participant in a common trust fund (as defined in [section 584](/cfr/26/584.md) and the regulations thereunder) is to treat as items of tax preference his proportionate share of the items of tax preference of the fund computed as if the fund were an individual subject to the minimum tax. The participant's proportionate share of the items of tax preference of the fund is determined as if the participant had realized, or incurred, his pro rata share of items of income, gain, loss, or deduction of the fund directly from the source from which realized or incurred by the fund. The participant's pro rata share of such items is determined in a manner consistent with [section 1.584-2(c)](/cfr/26/1.584-2.md?p=c). Items of tax preference apportioned to a participant pursuant to this paragraph are taken into account by the participant for the participant's taxable year in which or with which the taxable year of the trust ends.


# §1.58-6. Regulated investment companies; real estate investment trusts.

- (a) **In general.** [Section 58(f)](/cfr/26/58.md?p=f) provides rules with respect to the determination of the items of tax preference of regulated investment companies (as defined in [section 851](/cfr/26/851.md)) and their shareholders and real estate investment trusts (as defined in [section 856](/cfr/26/856.md)) and their shareholders, or holders of beneficial interest. In general, the items of tax preference of such companies and such trusts are determined at the company or trust level and the items of tax preference so determined (other than the capital gains item of tax preference ([sections 57(a)(9)](/cfr/26/57.md?p=a-9) and [§ 1.57-1(i)](/cfr/26/1.57-1.md?p=i)) and, in the case of a real estate investment trust, accelerated depreciation on [section 1250](/cfr/26/1250.md) property ([sections 57(a)(2)](/cfr/26/57.md?p=a-2) and [§ 1.57-1(b)](/cfr/26/1.57-1.md?p=b)) are treated as items of tax preference of the shareholders, or holders of beneficial interest, in the same proportion that the dividends (other than capital gains dividends) paid to each such shareholder, or holder of beneficial interest, bear to the taxable income of such company or such trust determined without regard to the deduction for dividends paid. In no case, however, is such proportion to be considered in excess of 100 percent. For example, if a regulated investment company has items of tax preference of $500,000 for the taxable year, none of which resulted from capital gains, and distributes dividends in an amount equal to 90 percent of its taxable income, each shareholder treats his share of 90 percent of the company's items of tax preference, or (a proportionate share of) $450,000, as items of tax preference of the shareholder. The remaining $50,000 constitutes items of tax preference of the company. Amounts treated under this paragraph as items of tax preference of the shareholders, or holders of beneficial interest, are deemed to be derived proportionately from each item of tax preference of the company or trust, other than the capital gains item of tax preference and, in the case of a real estate investment trust, accelerated depreciation on [section 1250](/cfr/26/1250.md) property. Such amounts are taken into account by the shareholders, or holders of beneficial interest, in the same taxable year in which the dividends on which the apportionment is based are includible in income. The minimum tax exemption of the trust or company shall not be reduced because a portion of the trust's or company's items of tax preference are allocated to the shareholders or holders of beneficial interests.
- (b) **Capital gains.** [Section 58(g)(1)](/cfr/26/58.md?p=g-1) provides that a regulated investment company or real estate investment trust does not treat as an item of tax preference the capital gains item of tax preference under [section 57(a)(9)](/cfr/26/57.md?p=a-9) (and [§ 1.57-1(i)](/cfr/26/1.57-1.md?p=i)) to the extent that such item is attributable to amounts taken into income by the shareholders of such company under [section 852(b)(3)](/cfr/26/852.md?p=b-3) or by the shareholders or holders of beneficial interest of such trust under [section 857(b)(3)](/cfr/26/857.md?p=b-3). Thus, such a company or trust computes its capital gains item of tax preference on the basis of its net [section 1201](/cfr/26/1201.md) gain less the sum of (1) the capital gains dividend (as defined in section [852(b)(3)(C)](/cfr/26/852.md?p=b-3-C) or [857(b)(3)(C)](/cfr/26/857.md?p=b-3-C)) for the taxable year of the company or trust plus (2), in the case of a regulated investment company, that portion of the undistributed capital gains designated, pursuant to [section 852(b)(3)(D)](/cfr/26/852.md?p=b-3-D) and the regulations thereunder, by the company to be includible in the shareholder's return as long-term capital gains for the shareholders's taxable year in which the last day of the company's taxable years falls. Amounts treated under section [852(b)(3)](/cfr/26/852.md?p=b-3) or [857(b)(3)](/cfr/26/857.md?p=b-3) as long-term capital gains of shareholders, or holders of beneficial interest, are automatically included, pursuant to sections [57(a)(9)](/cfr/26/57.md?p=a-9) and [1.57-1(i)](/cfr/26/1.57-1.md?p=i), in the computation of the capital gains item of tax preference of the shareholders, or holders of beneficial interest.
- (c) **Accelerated depreciation on section 1250 property.** In the case of a real estate investment trust, all of the items of tax preference resulting from accelerated depreciation on [section 1250](/cfr/26/1250.md) property held by the trust ([section 57(a)(2)](/cfr/26/57.md?p=a-2) and [§ 1.57-1(b)](/cfr/26/1.57-1.md?p=b)) are treated as items of tax preference of the trust, and, thus, none are treated as items of tax preference of the shareholder, or holder of beneficial interest.