Definition of Income

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, PC in Woodbury, New York
• Pages: 101-103

Selected portions of the Internal Revenue Service (IRS) nal regulations

are provided next.

(1)

Regulation Section 1.643(b)-1 of the IRS nal regulations contains

the denition of income.

(2)

For purposes of the Internal Revenue Code, “income” when not

preceded by the words “taxable,” “distributable net,” or “gross”

means the amount of income of an estate or trust for the taxable

year determined under the terms of the governing instrument and

applicable local law.

(3)

Trust provisions that depart fundamentally from traditional prin-

ciples of income and principal will generally not be recognized.

(4)

An allocation of amounts between income and principal pursuant

to applicable local law will be respected if local law provides for a

reasonable apportionment between income and remainder bene-

ciaries of the total return of the trust for the year, including ordinary

and tax-exempt income, capital gains and appreciation.

(5)

A state statute providing that income is a unitrust amount of no

less than 3 percent and no more than 5 percent of the fair market

value of the trust assets, whether determined annually or averaged

on a multiple year basis is a reasonable apportionment of the total

return of the trust.

(6)

A state statute that permits the trustee to make adjustments between

income and principal to fulll the trustee’s duty of impartiality

between the income and remainder beneciaries is generally a rea-

sonable apportionment of the total return of the trust.

(7)

Generally adjustments are permitted by state statutes when the

trustee invests and manages the trust assets under the state’s pru-

dent investor standard, the trust describes the amount that may or

101

DEFINITION OF INCOME

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