---
kind: "range"
citation: "26 U.S.C. §§ 671–677"
title: "26"
from: "671"
to: "677"
count: 7
release: "119-102"
url: "https://uscodex.org/usc/26/671..677"
---

# §671. Trust income, deductions, and credits attributable to grantors and others as substantial owners


Where it is specified in this subpart that the grantor or another [person](/usc/26/7701.md?p=a-1) shall be treated as the owner of any portion of a trust, there shall then be included in computing the [taxable income](/usc/26/63.md?p=b) and credits of the grantor or the other [person](/usc/26/7701.md?p=a-1) those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under this chapter in computing [taxable income](/usc/26/63.md?p=b) or credits against the tax of an individual. Any remaining portion of the trust shall be subject to subparts A through D. No items of a trust shall be included in computing the [taxable income](/usc/26/63.md?p=b) and credits of the grantor or of any other [person](/usc/26/7701.md?p=a-1) solely on the grounds of his dominion and [control](/usc/26/368.md?p=a-2-H-i) over the trust under [section 61](/usc/26/61.md) (relating to definition of gross income) or any other provision of this title, except as specified in this subpart.


# §672. Definitions and rules

- (a) **Adverse party—** For purposes of this subpart, the term “adverse party” means any [person](/usc/26/7701.md?p=a-1) having a substantial beneficial [interest](/usc/26/856.md?p=f-1) in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust. A [person](/usc/26/7701.md?p=a-1) having a general power of appointment over the trust [property](/usc/26/614.md?p=a) shall be deemed to have a beneficial [interest](/usc/26/856.md?p=f-1) in the trust.
- (b) **Nonadverse party—** For purposes of this subpart, the term “nonadverse party” means any [person](/usc/26/7701.md?p=a-1) who is not an [adverse party](#a).
- (c) **Related or subordinate party—** For purposes of this subpart, the term “related or subordinate party” means any [nonadverse party](#b) who is—
  - (1) the grantor’s spouse if living with the grantor;
  - (2) any one of the following: The grantor’s father, mother, issue, brother or sister; an [employee](/usc/26/101.md?p=i-3) of the grantor; a [corporation](/usc/26/7701.md?p=a-3) or any [employee](/usc/26/101.md?p=i-3) of a [corporation](/usc/26/7701.md?p=a-3) in which the [stock](/usc/26/7701.md?p=a-7) holdings of the grantor and the trust are significant from the viewpoint of voting [control](/usc/26/368.md?p=a-2-H-i); a subordinate [employee](/usc/26/101.md?p=i-3) of a [corporation](/usc/26/7701.md?p=a-3) in which the grantor is an executive.

  For purposes of [subsection (f)](#f) and sections [674](/usc/26/674.md) and [675](/usc/26/675.md), a related or subordinate party shall be presumed to be subservient to the grantor in respect of the exercise or nonexercise of the powers conferred on him unless such party is shown not to be subservient by a preponderance of the evidence.

- (d) **Rule where power is subject to condition precedent—** A [person](/usc/26/7701.md?p=a-1) shall be considered to have a power described in this subpart even though the exercise of the power is subject to a precedent giving of notice or takes effect only on the expiration of a certain period after the exercise of the power.
- (e) **Grantor treated as holding any power or interest of grantor’s spouse—**
  - (1) **In general—** For purposes of this subpart, a grantor shall be treated as holding any power or [interest](/usc/26/856.md?p=f-1) held by—
    - (A) any individual who was the spouse of the grantor at the time of the creation of such power or [interest](/usc/26/856.md?p=f-1), or
    - (B) any individual who became the spouse of the grantor after the creation of such power or [interest](/usc/26/856.md?p=f-1), but only with respect to periods after such individual became the spouse of the grantor.
  - (2) **Marital status—** For purposes of [paragraph (1)(A)](#e-1-A), an individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.
- (f) **Subpart not to result in foreign ownership—**
  - (1) **In general—** Notwithstanding any other provision of this subpart, this subpart shall apply only to the extent such application results in an amount (if any) being currently taken into account (directly or through 1 or more entities) under this chapter in computing the income of a citizen or resident of the [United States](/usc/26/638.md?p=1) or a [domestic](/usc/26/7701.md?p=a-4) [corporation](/usc/26/7701.md?p=a-3).
  - (2) **Exceptions—**
    - (A) **Certain revocable and irrevocable trusts—** [Paragraph (1)](#f-1) shall not apply to any portion of a trust if—
      - (i) the power to revest absolutely in the grantor title to the trust [property](/usc/26/614.md?p=a) to which such portion is attributable is exercisable solely by the grantor without the approval or consent of any other [person](/usc/26/7701.md?p=a-1) or with the consent of a [related or subordinate party](#c) who is subservient to the grantor, or
      - (ii) the only amounts distributable from such portion (whether income or corpus) during the lifetime of the grantor are amounts distributable to the grantor or the spouse of the grantor.
    - (B) **Compensatory trusts—** Except as provided in regulations, [paragraph (1)](#f-1) shall not apply to any portion of a trust distributions from which are taxable as compensation for services rendered.
  - (3) **Special rules—** Except as otherwise provided in regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B)—
    - (A) a [controlled foreign corporation](/usc/26/988.md?p=a-3-C) (as defined in [section 957](/usc/26/957.md)) shall be treated as a [domestic](/usc/26/7701.md?p=a-4) [corporation](/usc/26/7701.md?p=a-3) for purposes of [paragraph (1)](#f-1), and
    - (B) [paragraph (1)](#f-1) shall not apply for purposes of applying [section 1297](/usc/26/1297.md).
  - (4) **Recharacterization of purported gifts—** In the case of any transfer directly or indirectly from a [partnership](/usc/26/7701.md?p=a-2) or [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3) which the transferee treats as a gift or bequest, the [Secretary](/usc/26/7701.md?p=a-11-B) may recharacterize such transfer in such circumstances as the [Secretary](/usc/26/7701.md?p=a-11-B) determines to be appropriate to prevent the avoidance of the purposes of this subsection.
  - (5) **Special rule where grantor is foreign person—** If—
    - (A) but for this subsection, a [foreign](/usc/26/7701.md?p=a-5) [person](/usc/26/7701.md?p=a-1) would be treated as the owner of any portion of a trust, and
    - (B) such trust has a [beneficiary](/usc/26/643.md?p=c) who is a [United States person](/usc/26/643.md?p=i-2-C),

    such [beneficiary](/usc/26/643.md?p=c) shall be treated as the grantor of such portion to the extent such [beneficiary](/usc/26/643.md?p=c) has made (directly or indirectly) transfers of [property](/usc/26/614.md?p=a) (other than in a sale for full and adequate consideration) to such [foreign](/usc/26/7701.md?p=a-5) [person](/usc/26/7701.md?p=a-1). For purposes of the preceding sentence, any gift shall not be taken into account to the extent such gift would be excluded from taxable gifts under [section 2503(b)](/usc/26/2503.md?p=b).

  - (6) **Regulations—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, [including](/usc/26/7701.md?p=c) regulations providing that [paragraph (1)](#f-1) shall not apply in appropriate cases.

# §673. Reversionary interests

- (a) **General rule—** The grantor shall be treated as the owner of any portion of a trust in which he has a reversionary [interest](/usc/26/856.md?p=f-1) in either the corpus or the income therefrom, if, as of the inception of that portion of the trust, the value of such [interest](/usc/26/856.md?p=f-1) exceeds 5 percent of the value of such portion.
- (b) **Reversionary interest taking effect at death of minor lineal descendant beneficiary—** In the case of any [beneficiary](/usc/26/643.md?p=c) who—
  - (1) is a lineal descendant of the grantor, and
  - (2) holds all of the present [interests](/usc/26/856.md?p=f-1) in any portion of a trust,

  the grantor shall not be treated under [subsection (a)](#a) as the owner of such portion solely by reason of a reversionary [interest](/usc/26/856.md?p=f-1) in such portion which takes effect upon the death of such [beneficiary](/usc/26/643.md?p=c) before such [beneficiary](/usc/26/643.md?p=c) attains age 21.

- (c) **Special rule for determining value of reversionary interest—** For purposes of [subsection (a)](#a), the value of the grantor’s reversionary [interest](/usc/26/856.md?p=f-1) shall be determined by assuming the maximum exercise of discretion in favor of the grantor.
- (d) **Postponement of date specified for reacquisition—** Any postponement of the date specified for the reacquisition of possession or enjoyment of the reversionary [interest](/usc/26/856.md?p=f-1) shall be treated as a new transfer in trust commencing with the date on which the postponement is effective and terminating with the date prescribed by the postponement. However, income for any period shall not be included in the income of the grantor by reason of the preceding sentence if such income would not be so includible in the absence of such postponement.

# §674. Power to control beneficial enjoyment

- (a) **General rule—** The grantor shall be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income therefrom is subject to a power of disposition, exercisable by the grantor or a [nonadverse party](/usc/26/672.md?p=b), or both, without the approval or consent of any [adverse party](/usc/26/672.md?p=a).
- (b) **Exceptions for certain powers—** [Subsection (a)](#a) shall not apply to the following powers regardless of by whom held:
  - (1) **Power to apply income to support of a dependent—** A power described in [section 677(b)](/usc/26/677.md?p=b) to the extent that the grantor would not be subject to tax under that section.
  - (2) **Power affecting beneficial enjoyment only after occurrence of event—** A power, the exercise of which can only affect the beneficial enjoyment of the income for a period commencing after the occurrence of an event such that a grantor would not be treated as the owner under [section 673](/usc/26/673.md) if the power were a reversionary [interest](/usc/26/856.md?p=f-1); but the grantor may be treated as the owner after the occurrence of the event unless the power is relinquished.
  - (3) **Power exercisable only by will—** A power exercisable only by will, other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a [nonadverse party](/usc/26/672.md?p=b), or both, without the approval or consent of any [adverse party](/usc/26/672.md?p=a).
  - (4) **Power to allocate among charitable beneficiaries—** A power to determine the beneficial enjoyment of the corpus or the income therefrom if the corpus or income is irrevocably payable for a purpose specified in [section 170(c)](/usc/26/170.md?p=c) (relating to definition of charitable contributions) or to an [employee](/usc/26/101.md?p=i-3) [stock](/usc/26/7701.md?p=a-7) ownership plan (as defined in [section 4975(e)(7)](/usc/26/4975.md?p=e-7)) in a qualified gratuitous transfer (as defined in [section 664(g)(1)](/usc/26/664.md?p=g-1)).
  - (5) **Power to distribute corpus—** A power to distribute corpus either—
    - (A) to or for a [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to or for a class of [beneficiaries](/usc/26/643.md?p=c) (whether or not income [beneficiaries](/usc/26/643.md?p=c)) provided that the power is limited by a reasonably definite standard which is set forth in the trust instrument; or
    - (B) to or for any current income [beneficiary](/usc/26/643.md?p=c), provided that the distribution of corpus must be chargeable against the proportionate share of corpus held in trust for the payment of income to the [beneficiary](/usc/26/643.md?p=c) as if the corpus constituted a separate trust.

    A power does not fall within the powers described in this paragraph if any [person](/usc/26/7701.md?p=a-1) has a power to add to the [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to a class of [beneficiaries](/usc/26/643.md?p=c) designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children.

  - (6) **Power to withhold income temporarily—** A power to distribute or apply income to or for any current income [beneficiary](/usc/26/643.md?p=c) or to accumulate the income for him, provided that any accumulated income must ultimately be payable—
    - (A) to the [beneficiary](/usc/26/643.md?p=c) from whom distribution or application is withheld, to his estate, or to his appointees (or [persons](/usc/26/7701.md?p=a-1) named as alternate takers in default of appointment) provided that such [beneficiary](/usc/26/643.md?p=c) possesses a power of appointment which does not exclude from the class of possible appointees any [person](/usc/26/7701.md?p=a-1) other than the [beneficiary](/usc/26/643.md?p=c), his estate, his creditors, or the creditors of his estate, or
    - (B) on termination of the trust, or in conjunction with a distribution of corpus which is augmented by such accumulated income, to the current income [beneficiaries](/usc/26/643.md?p=c) in shares which have been irrevocably specified in the trust instrument.

    Accumulated income shall be considered so payable although it is provided that if any [beneficiary](/usc/26/643.md?p=c) does not survive a date of distribution which could reasonably have been expected to occur within the [beneficiary](/usc/26/643.md?p=c)’s lifetime, the share of the deceased [beneficiary](/usc/26/643.md?p=c) is to be paid to his appointees or to one or more designated alternate takers (other than the grantor or the grantor’s estate) whose shares have been irrevocably specified. A power does not fall within the powers described in this paragraph if any [person](/usc/26/7701.md?p=a-1) has a power to add to the [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to a class of [beneficiaries](/usc/26/643.md?p=c) designated to receive the income or corpus except where such action is to provide for after-born or after-adopted children.

  - (7) **Power to withhold income during disability of a beneficiary—** A power exercisable only during—
    - (A) the existence of a legal disability of any current income [beneficiary](/usc/26/643.md?p=c), or
    - (B) the period during which any income [beneficiary](/usc/26/643.md?p=c) shall be under the age of 21 years,

    to distribute or apply income to or for such [beneficiary](/usc/26/643.md?p=c) or to accumulate and add the income to corpus. A power does not fall within the powers described in this paragraph if any [person](/usc/26/7701.md?p=a-1) has a power to add to the [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to a class of [beneficiaries](/usc/26/643.md?p=c) designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children.

  - (8) **Power to allocate between corpus and income—** A power to allocate receipts and disbursements as between corpus and income, even though expressed in broad language.
- (c) **Exception for certain powers of independent trustees—** [Subsection (a)](#a) shall not apply to a power solely exercisable (without the approval or consent of any other [person](/usc/26/7701.md?p=a-1)) by a trustee or trustees, none of whom is the grantor, and no more than half of whom are [related or subordinate parties](/usc/26/672.md?p=c) who are subservient to the wishes of the grantor—
  - (1) to distribute, apportion, or accumulate income to or for a [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c), or to, for, or within a class of [beneficiaries](/usc/26/643.md?p=c); or
  - (2) to pay out corpus to or for a [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to or for a class of [beneficiaries](/usc/26/643.md?p=c) (whether or not income [beneficiaries](/usc/26/643.md?p=c)).

  A power does not fall within the powers described in this subsection if any [person](/usc/26/7701.md?p=a-1) has a power to add to the [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to a class of [beneficiaries](/usc/26/643.md?p=c) designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children. For periods during which an individual is the spouse of the grantor (within the meaning of [section 672(e)(2)](/usc/26/672.md?p=e-2)), any reference in this subsection to the grantor shall be treated as [including](/usc/26/7701.md?p=c) a reference to such individual.

- (d) **Power to allocate income if limited by a standard—** [Subsection (a)](#a) shall not apply to a power solely exercisable (without the approval or consent of any other [person](/usc/26/7701.md?p=a-1)) by a trustee or trustees, none of whom is the grantor or spouse living with the grantor, to distribute, apportion, or accumulate income to or for a [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c), or to, for, or within a class of [beneficiaries](/usc/26/643.md?p=c), whether or not the conditions of paragraph [(6)](#b-6) or [(7)](#b-7) of subsection (b) are satisfied, if such power is limited by a reasonably definite external standard which is set forth in the trust instrument. A power does not fall within the powers described in this subsection if any [person](/usc/26/7701.md?p=a-1) has a power to add to the [beneficiary](/usc/26/643.md?p=c) or [beneficiaries](/usc/26/643.md?p=c) or to a class of [beneficiaries](/usc/26/643.md?p=c) designated to receive the income or corpus except where such action is to provide for after-born or after-adopted children.

# §675. Administrative powers


The grantor shall be treated as the owner of any portion of a trust in respect of which—

- (1) **Power to deal for less than adequate and full consideration—** A power exercisable by the grantor or a [nonadverse party](/usc/26/672.md?p=b), or both, without the approval or consent of any [adverse party](/usc/26/672.md?p=a) enables the grantor or any [person](/usc/26/7701.md?p=a-1) to purchase, exchange, or otherwise deal with or dispose of the corpus or the income therefrom for less than an adequate consideration in money or money’s worth.
- (2) **Power to borrow without adequate interest or security—** A power exercisable by the grantor or a [nonadverse party](/usc/26/672.md?p=b), or both, enables the grantor to borrow the corpus or income, directly or indirectly, without adequate [interest](/usc/26/856.md?p=f-1) or without adequate security except where a trustee (other than the grantor) is authorized under a general lending power to make loans to any [person](/usc/26/7701.md?p=a-1) without regard to [interest](/usc/26/856.md?p=f-1) or security.
- (3) **Borrowing of the trust funds—** The grantor has directly or indirectly borrowed the corpus or income and has not completely repaid the loan, [including](/usc/26/7701.md?p=c) any [interest](/usc/26/856.md?p=f-1), before the beginning of the [taxable year](/usc/26/441.md?p=b). The preceding sentence shall not apply to a loan which provides for adequate [interest](/usc/26/856.md?p=f-1) and adequate security, if such loan is made by a trustee other than the grantor and other than a related or subordinate trustee subservient to the grantor. For periods during which an individual is the spouse of the grantor (within the meaning of [section 672(e)(2)](/usc/26/672.md?p=e-2)), any reference in this paragraph to the grantor shall be treated as [including](/usc/26/7701.md?p=c) a reference to such individual.
- (4) **General powers of administration—** A power of administration is exercisable in a nonfiduciary capacity by any [person](/usc/26/7701.md?p=a-1) without the approval or consent of any [person](/usc/26/7701.md?p=a-1) in a [fiduciary](/usc/26/7701.md?p=a-6) capacity. For purposes of this paragraph, the term “power of administration” means any one or more of the following powers: (A) a power to vote or direct the voting of [stock](/usc/26/7701.md?p=a-7) or other [securities](/usc/26/368.md?p=a-2-F-vii) of a [corporation](/usc/26/7701.md?p=a-3) in which the holdings of the grantor and the trust are significant from the viewpoint of voting [control](/usc/26/368.md?p=a-2-H-i); (B) a power to [control](/usc/26/368.md?p=a-2-H-i) the investment of the trust [funds](/usc/26/851.md?p=g-2) either by directing investments or reinvestments, or by vetoing proposed investments or reinvestments, to the extent that the trust [funds](/usc/26/851.md?p=g-2) consist of [stocks](/usc/26/7701.md?p=a-7) or [securities](/usc/26/368.md?p=a-2-F-vii) of [corporations](/usc/26/7701.md?p=a-3) in which the holdings of the grantor and the trust are significant from the viewpoint of voting [control](/usc/26/368.md?p=a-2-H-i); or (C) a power to reacquire the trust corpus by substituting other [property](/usc/26/614.md?p=a) of an equivalent value.

# §676. Power to revoke

- (a) **General rule—** The grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under any other provision of this part, where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a non-[adverse party](/usc/26/672.md?p=a), or both.
- (b) **Power affecting beneficial enjoyment only after occurrence of event—** [Subsection (a)](#a) shall not apply to a power the exercise of which can only affect the beneficial enjoyment of the income for a period commencing after the occurrence of an event such that a grantor would not be treated as the owner under [section 673](/usc/26/673.md) if the power were a reversionary [interest](/usc/26/856.md?p=f-1). But the grantor may be treated as the owner after the occurrence of such event unless the power is relinquished.

# §677. Income for benefit of grantor

- (a) **General rule—** The grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under [section 674](/usc/26/674.md), whose income without the approval or consent of any [adverse party](/usc/26/672.md?p=a) is, or, in the discretion of the grantor or a [nonadverse party](/usc/26/672.md?p=b), or both, may be—
  - (1) distributed to the grantor or the grantor’s spouse;
  - (2) held or accumulated for future distribution to the grantor or the grantor’s spouse; or
  - (3) applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse (except policies of insurance irrevocably payable for a purpose specified in [section 170(c)](/usc/26/170.md?p=c) (relating to definition of charitable contributions)).

  This subsection shall not apply to a power the exercise of which can only affect the beneficial enjoyment of the income for a period commencing after the occurrence of an event such that the grantor would not be treated as the owner under [section 673](/usc/26/673.md) if the power were a reversionary [interest](/usc/26/856.md?p=f-1); but the grantor may be treated as the owner after the occurrence of the event unless the power is relinquished.

- (b) **Obligations of support—** Income of a trust shall not be considered taxable to the grantor under [subsection (a)](#a) or any other provision of this chapter merely because such income in the discretion of another [person](/usc/26/7701.md?p=a-1), the trustee, or the grantor acting as trustee or co-trustee, may be applied or distributed for the support or maintenance of a [beneficiary](/usc/26/643.md?p=c) (other than the grantor’s spouse) whom the grantor is legally obligated to support or maintain, except to the extent that such income is so applied or distributed. In cases where the amounts so applied or distributed are paid out of corpus or out of other than income for the [taxable year](/usc/26/441.md?p=b), such amounts shall be considered to be an amount paid or credited within the meaning of [paragraph (2)](/usc/26/661.md?p=a-2) of section 661(a) and shall be taxed to the grantor under [section 662](/usc/26/662.md).