26 USC 584 - Common trust funds

§ 584. Common trust funds

(a) DefinitionsFor purposes of this subtitle, the term “common trust fund” means a fund maintained by a bank—

(1) exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity—

(A) as a trustee, executor, administrator, or guardian, or

(B) as a custodian of accounts—

(i) which the Secretary determines are established pursuant to a State law which is substantially similar to the Uniform Gifts to Minors Act as published by the American Law Institute, and

(ii) with respect to which the bank establishes, to the satisfaction of the Secretary, that it has duties and responsibilities similar to duties and responsibilities of a trustee or guardian; and

(2) in conformity with the rules and regulations, prevailing from time to time, of the Board of Governors of the Federal Reserve System or the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks.

For purposes of this subsection, two or more banks which are members of the same affiliated group (within the meaning of section 1504) shall be treated as one bank for the period of affiliation with respect to any fund of which any of the member banks is trustee or two or more of the member banks are cotrustees.

(b) Taxation of common trust funds

(c) Income of participants in fundEach participant in the common trust fund in computing its taxable income shall include, whether or not distributed and whether or not distributable—

(1) as part of its gains and losses from sales or exchanges of capital assets held for not more than 1 year, its proportionate share of the gains and losses of the common trust fund from sales or exchanges of capital assets held for not more than 1 year,

(2) as part of its gains and losses from sales or exchanges of capital assets held for more than 1 year, its proportionate share of the gains and losses of the common trust fund from sales or exchanges of capital assets held for more than 1 year, and

(3) its proportionate share of the ordinary taxable income or the ordinary net loss of the common trust fund, computed as provided in subsection (d).

The proportionate share of each participant in the amount of dividends received by the common trust fund and to which section 1(h)(11) applies shall be considered for purposes of such paragraph as having been received by such participant.

(d) Computation of common trust fund incomeThe taxable income of a common trust fund shall be computed in the same manner and on the same basis as in the case of an individual, except that—

(1) there shall be segregated the gains and losses from sales or exchanges of capital assets;

(2) after excluding all items of gain and loss from sales or exchanges of capital assets, there shall be computed—

(A) an ordinary taxable income which shall consist of the excess of the gross income over deductions; or

(B) an ordinary net loss which shall consist of the excess of the deductions over the gross income; and

(3) the deduction provided by section 170 (relating to charitable, etc., contributions and gifts) shall not be allowed.

(e) Admission and withdrawal

(f) Different taxable years of common trust fund and participant

(g) Net operating loss deduction

(h) Nonrecognition treatment for certain transfers to regulated investment companies

(1) In generalIf—

(A) a common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which such assets are so transferred, and

(B) such stock is distributed by such common trust fund to participants in such common trust fund in exchange solely for their interests in such common trust fund,

no gain or loss shall be recognized by such common trust fund by reason of such transfer or distribution, and no gain or loss shall be recognized by any participant in such common trust fund by reason of such exchange.

(2) Basis rules

(A) Regulated investment company

(B) Participants

(3) Treatment of assumptions of liability

(A) In general

(B) Special rule where assumed liabilities exceed basis

(i) In generalIf, in any transfer referred to in paragraph (1)(A), the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company or companies—(I) notwithstanding paragraph (1), gain shall be recognized to the common trust fund on such transfer in an amount equal to such excess,(II) the basis of the assets received by the regulated investment company or companies in such transfer shall be increased by the amount so recognized, and(III) any adjustment to the basis of a participant’s interest in the common trust fund as a result of the gain so recognized shall be treated as occurring immediately before the exchange referred to in paragraph (1)(B).

If the transfer referred to in paragraph (1)(A) is to two or more regulated investment companies, the basis increase under subclause (II) shall be allocated among such companies on the basis of the respective fair market values of the assets received by each of such companies.

(ii) Assumed liabilities

(4) Common trust fund must meet diversification rules

(i) Taxable year of common trust fund

(Aug. 16, 1954, ch. 736, 68A Stat. 203; Pub. L. 87–722, § 4, Sept. 28, 1962, 76 Stat. 670; Pub. L. 88–272, title II, § 201(d)(5), Feb. 26, 1964, 78 Stat. 32; Pub. L. 94–414, § 1, Sept. 17, 1976, 90 Stat. 1273; Pub. L. 94–455, title XIV, § 1402(b)(1)(H), (2), title XIX, §§ 1901(b)(1)(G), 1906(b)(13)(A), title XXI, §§ 2131(d), 2138, Oct. 4, 1976, 90 Stat. 1732, 1790, 1834, 1924, 1932; Pub. L. 95–30, title I, § 101(d)(7), May 23, 1977, 91 Stat. 133; Pub. L. 96–223, title IV, § 404(b)(3), Apr. 2, 1980, 94 Stat. 306; Pub. L. 97–34, title III, § 301(b)(3), (6)(A), Aug. 13, 1981, 95 Stat. 270; Pub. L. 97–448, title I, § 103(a)(2), Jan. 12, 1983, 96 Stat. 2375; Pub. L. 98–369, div. A, title X, § 1001(b)(7), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99–514, title VI, § 612(b)(2), Oct. 22, 1986, 100 Stat. 2250; Pub. L. 100–647, title I, § 1008(e)(5)(A), Nov. 10, 1988, 102 Stat. 3440; Pub. L. 104–188, title I, § 1805(a), Aug. 20, 1996, 110 Stat. 1894; Pub. L. 106–36, title III, § 3001(c)(1), June 25, 1999, 113 Stat. 183; Pub. L. 108–27, title III, § 302(e)(7), May 28, 2003, 117 Stat. 764.)