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did not have DNI for its taxable year ended February 28, 1985.
We conclude that the trust did have DNI for that year and that a
portion of the distribution is includable in petitioner's gross
income based on the ratio between the taxable and nontaxable
items making up the trust's DNI. For tax purposes, trusts are in
certain circumstances treated as conduits, whose distributable
income is taxable to the beneficiaries. See Hammond v. United
States, 764 F.2d 88, 96 (2d Cir. 1985); Estate of Petschek v.
Commissioner, 738 F.2d 67, 70 (2d Cir. 1984), affg. 81 T.C. 260
(1983); see also United Cal. Bank v. United States, 439 U.S. 180,
199 (1978); Freuler v. Helvering, 291 U.S. 35 (1934); De Brabant
v. Commissioner, 34 B.T.A. 951, 955-956 (1936), affd. 90 F.2d 433
(2d Cir. 1937).
Income distributed by a trust to a beneficiary is
includable in the latter's gross income as provided in subchapter
J of the Internal Revenue Code. Secs. 61(a)(15), 652(a), 662(a);
see also Rogers v. Commissioner, T.C. Memo. 1980-495. In the
case of a so-called complex trust such as Trust C, the amount
includable in the beneficiary's income is limited by the trust's
DNI. Sec. 662(a). This income is includable in the taxable year
of the beneficiary within which the taxable year of the trust
ends. Sec. 662(c).
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