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Accounting for Receipts from Entities: Corporations, Partnerships, LLCs, etc.
(a) For the purposes of 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 decedent's estate to which Section 16351 applies, a business or activity to which Section 16352 applies, or an asset-backed security to which Section 16367 applies. (b) Except as otherwise provided in this section, a trustee shall allocate to income money received from an entity. (c) A trustee shall allocate to principal the following receipts from an entity: (1) Property other than money. (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. (d) For purposes of paragraph (3) of subdivision (c): (1) Money is received in partial liquidation (A) to the extent that the entity, at or near the time of a distribution, indicates that it is a distribution in partial liquidation, or (B) if the total amount of money and property received by all owners, collectively, 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 yearend financial statements immediately preceding the initial receipt. If that receipt is allocated between December 2, 2004, and the operative date of the act adding this sentence, a trustee shall not be liable for allocating the receipt to income if the amount received by the trustee, when considered together with the amount received by all owners, collectively, exceeds 20 percent of the entity's gross assets, but the amount received by the trustee does not exceed 20 percent of the entity's gross assets. (2) Money is not received in partial liquidation, nor may it be taken into account under clause (B) of paragraph (1), to the extent that it does not exceed the amount of income tax that a trustee or beneficiary is required to pay on taxable income of the entity that distributes the money. (e) A trustee may rely on 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.
Accounting for Receipts From Other Fiduciaries
A trustee shall allocate to income an amount received as a distribution of income from a trust or a decedent's estate (other than an interest in an investment entity) in which the trust has an interest other than a purchased interest, and shall allocate to principal an amount received as a distribution of principal from the trust or estate.
Accounting for Operation of a Business, Rentals, Farm, etc.
(a) If a trustee who conducts a business or other activity determines that it is in the best interest of all the beneficiaries to account separately for the business or other activity instead of accounting for it as part of the trust's general accounting records, the trustee may maintain separate accounting records for its transactions, whether or not its assets are segregated from other trust assets. (b) A trustee who accounts separately for a business or other activity may determine the extent to which its net cash receipts must be retained for working capital, the acquisition or replacement of fixed assets, and its other reasonably foreseeable needs, and the extent to which the remaining net cash receipts are accounted for as principal or income in the trust's general accounting records. If a trustee sells assets of the business or other activity, other than in the ordinary course of the business or other activity, the trustee shall account for the net amount received as principal in the trust's general accounting records to the extent the trustee determines that the amount received is no longer required in the conduct of the business or other activity. (c) Businesses and other activities for which a trustee may maintain separate accounting records include the following: (1) Retail, manufacturing, service, and other traditional business activities. (2) Farming. (3) Raising and selling livestock and other animals. (4) Managing rental properties. (5) Extracting minerals and other natural resources. (6) Timber operations. (7) Activities to which Section 16366 applies.
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