§ 3351. Character of receipts
(a) As used in this section, “entity” means a corporation, partnership, limited liability
company, regulated investment company, real estate investment trust, common trust
fund, or any other organization in which a trustee has an interest other than a trust
or estate to which section 3352 of this title applies, a business or activity to which section 3353 of this title applies, or an asset-backed security to which section 3365 of this title applies.
(b) Except as otherwise provided in this section, a trustee shall allocate to income money
received from an entity, including reinvested cash dividends.
(c) A trustee shall allocate the following receipts from an entity to principal:
(1) property other than money, excluding reinvested cash dividends, provided that if the
trustee may elect between money and other property as a distribution, property so
elected and distributed shall retain its character as income;
(2) money received in one distribution or a series of related distributions in exchange
for part or all of a trust’s interest in the entity;
(3) money received in total or partial liquidation of the entity;
(4) money received from an entity that is a regulated investment company or a real estate
investment trust if the money distributed is a capital gain dividend for federal income
tax purposes; and
(5) capital gains and capital gains distributions.
(d) Money is received in partial liquidation:
(1) to the extent that the entity, at or near the time of a distribution, indicates that
it is a distribution in partial liquidation; or
(2) if the total amount of money and property received in a distribution or series of
related distributions is greater than 20 percent of the entity’s gross assets, as
shown by the entity’s year-end financial statements immediately preceding the initial
receipt.
(e) Money is not received in partial liquidation, nor may it be taken into account under
subdivision (d)(2) of this section, to the extent that it does not exceed the amount
of income tax that a trustee or beneficiary must pay on taxable income of the entity
that distributes the money.
(f) A trustee may rely upon a statement made by an entity about the source or character
of a distribution if the statement is made at or near the time of distribution by
the entity’s board of directors or other person or group of persons authorized to
exercise powers to pay money or transfer property comparable to those of a corporation’s
board of directors. (Added 2011, No. 114 (Adj. Sess.), § 1.)