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a. Application of Subchapter J Distribution Rules to
Estates
Estates, which are not required to distribute currently all
income received, are taxed only on income not actually
distributed or required to be distributed to beneficiaries, secs.
641(a), 661, with a deduction for distributions included in
beneficiaries' gross income under section 662, sec. 661(a).
Beneficiaries must include section 662 distributions in
their gross income in 2 tiers: First, “income * * * required to
be distributed currently”, sec. 662(a)(1); and, second, all
“other amounts properly paid, credited, or required to be
distributed”, sec. 662(a)(2)(B). DNI is ratably allocated among
all first tier distributions, sec. 662(a)(1), and the balance is
then ratably allocated among all second tier distributions, sec.
662(a)(2)(B). Amounts distributed in excess of DNI are deemed to
be distributions of corpus, passing to the beneficiary tax-free.
Id. In most cases, distributions by estates during
administration are in the second tier.10
Section 663(a)(1) excludes payments of specific sums of
money or specific property from the subchapter J estate, thus
giving effect to the distinction made by State law between
10 Payments in satisfaction of the Florida elective share
are not first tier distributions inasmuch as the Florida Probate
Code does not require that such transfers be made as
distributions of current income. Fla. Stat. Ann. sec. 732.207
(West 1995); see also Fla. Stat. Ann. sec. 731.34 (West 1964)
(repealed 1974) (dower is one-third share in property).
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