Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?
Distributable net income for any taxable year means the taxable income before the distribution deduction of the estate or trust adjusted for the following.
+ the personal exemption
– corpus capital gains
+ corpus capital losses
+ net tax-exempt interest
Reg. § 1.643(a)-0 states that the term distributable net income has no application except in the taxation of estates and trusts and their beneficiaries. DNI limits the deductions allowable to estates and trusts for amounts paid, credited, or required to be distributed to beneficiaries, and it is used to determine how much of an amount paid, credited, or required to be distributed to a beneficiary is includible in his or her gross income. DNI also is used to determine the character of distributions to the beneficiaries.
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