US Treasury Issues New Income Definition Regulations

by Mike Godfrey, Tax-News.com, Washington

01 January 2004

The US Treasury Department and the IRS on Tuesday issued final regulations amending the definition of income under section 643 of the Internal Revenue Code. The regulations also clarify the circumstances under which capital gains are included in the distributable net income (DNI) of an estate or trust.

“This new definition of income clarifies the application of federal tax law in light of recent state law changes,” stated Pam Olson, the Treasury’s Assistant Secretary for Tax Policy. “The regulations are an example of the appropriate evolution of federal tax law to reflect and facilitate non-tax changes in the law that apply to taxpayers.”

Section 643(b) of the Code defines income for purposes of numerous federal tax provisions, including determining qualification for the estate and gift tax marital deduction, and computing required distributions from pooled income funds and certain charitable remainder trusts. With certain exceptions, this definition generally relies on the definition of trust accounting income under state law and the trust agreement or will.

Many states have now changed their definitions of income to permit trusts and estates to adopt a more profitable method of investing their funds, and to promote more equitable and impartial treatment of those with interests in the income or principal of those entities.

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