Arkansas Administrative Code
Agency 006 - Department of Finance and Administration
Division 05 - Division of Revenues
Regulation 1997-4 - Comprehensive Individual Income Tax Regulations
Rule 26-51-102 - DEFINITIONS
Rule 9.26-51-102 - Trust Taxability

Fiduciary Return -- AR1002

Extension of Time -- AR1055

Trust income is normally taxed to the trust itself if retained by the trust, or to the beneficiary, if distributed. Thus, if the fiduciary (that is, trustee) passes on income to the beneficiary, the trust deducts the distributed income which then becomes taxable to the beneficiary. What would be gross income in the hands of an individual is gross income when received by a trust -- dividends, interest, rents, royalties, capital gains, ordinary gains, etc. IRC Reg. 1.641(a)-2. Gross income includes income accumulated or held for future distribution under the terms of a trust, income that is currently distributable, and income that, in the fiduciary's discretion, may be either accumulated or distributed. IRC Sec. 641(a). A "trust" is taxed as a corporation if it has been created or used during the tax period to carry on a business and it has corporate characteristics such as centralized management, continuity of existence, limited liability, etc. IRC Reg. 301.7701-4(b). Deductions and credits allowed to trusts are basically those allowed to individuals. When a trust terminates, it ends as a separate tax entity and no longer reports gross income or claims deductions, credits, etc. IRC Reg. 1.641(b)-3(d). Though the duration of a trust may depend on the occurrence of a particular event under the trust instrument, e.g., the life beneficiary reaching a specified age, for tax purposes the trust will nevertheless continue for a reasonable period beyond this time to allow for the orderly completion of administration. IRC Reg. 1.641(b)-3(b).