Section 643(b) And Trusts

Recently, there seems to be some confusion regarding section 643(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and its application to trusts. Indeed, that provision—particularly to those not well-versed in federal trust taxation—can confound many. This article seeks to dispel some of the complexity surrounding section 643(b).

The Taxation of Trusts Generally

The federal income taxation of trusts and beneficiaries puzzles even tax professionals. Does the trust pay tax? What about the beneficiaries? What is the difference between a grantor trust and a complex trust? The questions can become endless.

I don't seek to answer all those here. But I will try to provide some background on certain trust concepts so that you are more familiar with them. First, let's start off with general concepts associated with the taxation of trusts. In Subchapter J of the Code (which addresses the taxation of trusts), it states in the very first provision: "[t]he