
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC584]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                   Subchapter H--Banking Institutions
 
Sec. 584. Common trust funds


(a) Definitions

    For 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

    A common trust fund shall not be subject to taxation under this 
chapter and for purposes of this chapter shall not be considered a 
corporation.

(c) Income of participants in fund

    Each 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).

(d) Computation of common trust fund income

    The 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

    No gain or loss shall be realized by the common trust fund by the 
admission or withdrawal of a participant. The admission of a participant 
shall be treated with respect to the participant as the purchase of, or 
an exchange for, the participating interest. The withdrawal of any 
participating interest by a participant shall be treated as a sale or 
exchange of such interest by the participant.

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

    If the taxable year of the common trust fund is different from that 
of a participant, the inclusions with respect to the taxable income of 
the common trust fund, in computing the taxable income of the 
participant for its taxable year, shall be based upon the taxable income 
of the common trust fund for any taxable year of the common trust fund 
ending within or with the taxable year of the participant.

(g) Net operating loss deduction

    The benefit of the deduction for net operating losses provided by 
section 172 shall not be allowed to a common trust fund, but shall be 
allowed to the participants in the common trust fund under regulations 
prescribed by the Secretary.

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

                           (1) In general

        If--
            (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

            The basis of any asset received by a regulated investment 
        company in a transfer referred to in paragraph (1)(A) shall be 
        the same as it would be in the hands of the common trust fund.

        (B) Participants

            The basis of the stock which is received in an exchange 
        referred to in paragraph (1)(B) shall be the same as that of the 
        property exchanged. If stock in more than one regulated 
        investment company is received in such exchange, the basis 
        determined under the preceding sentence shall be allocated among 
        the stock in each such company on the basis of respective fair 
        market values.

              (3) Treatment of assumptions of liability

        (A) In general

            In determining whether the transfer referred to in paragraph 
        (1)(A) is in exchange solely for stock in one or more regulated 
        investment companies, the assumption by any such company of a 
        liability of the common trust fund shall be disregarded.

        (B) Special rule where assumed liabilities exceed basis

            (i) In general

                If, 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

                For purposes of clause (i), the term ``assumed 
            liabilities'' means any liability of the common trust fund 
            assumed by any regulated investment company in connection 
            with the transfer referred to in paragraph (1)(A).

        (C) Assumption

            For purposes of this paragraph, in determining the amount of 
        any liability assumed, the rules of section 357(d) shall apply.

        (4) Common trust fund must meet diversification rules

        This subsection shall not apply to any common trust fund which 
    would not meet the requirements of section 368(a)(2)(F)(ii) if it 
    were a corporation. For purposes of the preceding sentence, 
    Government securities shall not be treated as securities of an 
    issuer in applying the 25-percent and 50-percent test and such 
    securities shall not be excluded for purposes of determining total 
    assets under clause (iv) of section 368(a)(2)(F).

(i) Taxable year of common trust fund

    For purposes of this subtitle, the taxable year of any common trust 
fund shall be the calendar year.

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


                               Amendments

    1999--Subsec. (h)(3)(A). Pub. L. 106-36, Sec. 3001(c)(1)(A), struck 
out ``, and the fact that any property transferred by the common trust 
fund is subject to a liability,'' before ``shall be disregarded''.
    Subsec. (h)(3)(B)(ii). Pub. L. 106-36, Sec. 3001(c)(1)(B), added cl. 
(ii) and struck out heading and text of former cl. (ii). Text read as 
follows: ``For purposes of clause (i), the term `assumed liabilities' 
means the aggregate of--
        ``(I) any liability of the common trust fund assumed by any 
    regulated investment company in connection with the transfer 
    referred to in paragraph (1)(A), and
        ``(II) any liability to which property so transferred is 
    subject.''
    Subsec. (h)(3)(C). Pub. L. 106-36, Sec. 3001(c)(1)(B), added subpar. 
(C).
    1996--Subsecs. (h), (i). Pub. L. 104-188 added subsec. (h) and 
redesignated former subsec. (h) as (i).
    1988--Subsec. (h). Pub. L. 100-647 added subsec. (h).
    1986--Subsec. (c). Pub. L. 99-514, Sec. 612(b)(2)(B), substituted 
``1 year'' for ``6 months'' wherever appearing in pars. (1) and (2).
    Pub. L. 99-514, Sec. 612(b)(2)(A), amended subsec. (c) generally, 
restating subpars. (A) to (C) of former par. (1) as pars. (1) to (3) and 
striking out former par. (2) which read as follows: ``The proportionate 
share of each participant in the amount of dividends or interest 
received by the common trust fund and to which section 116 or 128 
applies shall be considered for purposes of such section as having been 
received by such participant.''
    1984--Subsec. (c)(1)(A), (B). Pub. L. 98-369 substituted ``6 
months'' for ``1 year'', wherever appearing, applicable to property 
acquired after June 22, 1984, and before Jan. 1, 1988. See Effective 
Date of 1984 Amendment note below.
    1983--Subsec. (c)(2). Pub. L. 97-448 reenacted par. (2) without 
change.
    1981--Subsec. (c)(2). Pub. L. 97-34, Sec. 301(b)(6)(A), inserted 
reference to ``interest'' in heading and text, which continued the 
amendment made by Pub. L. 96-223.
    Pub. L. 97-34, Sec. 301(b)(3), inserted ``or 128'' after ``section 
116''.
    1980--Subsec. (c)(2). Pub. L. 96-223 inserted ``or interest'' after 
``dividends'' in heading and text.
    1977--Subsec. (d)(4). Pub. L. 95-30 struck out par. (4) relating to 
standard deduction.
    1976--Subsec. (a). Pub. L. 94-414 inserted provision relating to 
treatment of two or more bank members of same affiliated group.
    Subsec. (a)(1). Pub. L. 94-455, Sec. 2138, designated existing 
provisions relating to trustee, executor, administrator and guardian as 
subpar. (A) and added subpar. (B).
    Subsec. (c)(1)(A), (B). Pub. L. 94-455, Sec. 1402(b)(2), provided 
that ``9 months'' would be changed to ``1 year'' wherever appearing.
    Pub. L. 94-455, Sec. 1402(b)(1)(H), provided that ``6 months'' would 
be changed to ``9 months'' for taxable years beginning in 1977.
    Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(b)(1)(G), struck out 
provisions relating to partially tax exempt interest and election of a 
common trust fund to amortize premiums on bonds and other obligations.
    Subsec. (e). Pub. L. 94-455, Sec. 2131(d), inserted ``The admission 
of a participant shall be treated with respect to the participant as the 
purchase of, or exchange for, the participating interest''.
    Subsec. (g). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ``or 
his delegate'' after ``Secretary''.
    1964--Subsec. (c)(2). Pub. L. 88-272 struck out ``section 34 or'' 
before ``section 116 applies''.
    1962--Subsec. (a)(2). Pub. L. 87-722 inserted ``or the Comptroller 
of the Currency'' after ``the Board of Governors of the Federal Reserve 
System''.


                    Effective Date of 1999 Amendment

    Amendment by Pub. L. 106-36 applicable to transfers after Oct. 18, 
1998, see section 3001(e) of Pub. L. 106-36, set out as a note under 
section 351 of this title.


                    Effective Date of 1996 Amendment

    Section 1805(b) of Pub. L. 104-188 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to transfers 
after December 31, 1995.''


                    Effective Date of 1988 Amendment

    Section 1008(e)(5)(B) of Pub. L. 100-647 provided that: ``The 
amendment made by subparagraph (A) [amending this section] shall take 
effect as if included in the amendments made by section 806 of the 
Reform Act [Pub. L. 99-514], except that section 806(e)(1) [set out as a 
note under section 1378 of this title] shall be applied by substituting 
`December 31, 1987' for `December 31, 1986'. For purposes of section 
806(e)(2) of the Reform Act [set out as a note under section 1378 of 
this title]--
        ``(i) a participant in a common trust fund shall be treated in 
    the same manner as a partner, and
        ``(ii) subparagraph (C) thereof shall be applied by substituting 
    `December 31, 1987' for `December 31, 1986' and as if it did not 
    contain the election to include all income in the short taxable 
    year.''


                    Effective Date of 1986 Amendment

    Section 612(b)(2)(B) of Pub. L. 99-514 provided that: ``If the 
amendments made by section 1001 of the Tax Reform Act of 1984 [Pub. L. 
98-369, amending this section and sections 166, 341, 402, 403, 423, 582, 
631, 642, 702, 818, 852, 856, 857, 1222, 1223, 1231, 1232, 1233, 1234, 
1235, 1246, 1247, and 1248 of this title] cease to apply [see Effective 
Date of 1984 Amendment note below], effective with respect to property 
to which such amendments do not apply, subsection (c) of section 584 is 
amended by striking out `6 months' each place it appears and inserting 
in lieu thereof `1 year'.''
    Amendment by section 612(b)(2) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 612(c) of Pub. 
L. 99-514, set out as a note under section 301 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to property acquired after 
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 
98-369, set out as a note under section 166 of this title.


                    Effective Date of 1983 Amendment

    Amendment by Pub. L. 97-448 effective, except as otherwise provided, 
as if it had been included in the provision of the Economic Recovery Tax 
Act of 1981, Pub. L. 97-34, to which such amendment relates, see section 
109 of Pub. L. 97-448, set out as a note under section 1 of this title.


                    Effective Date of 1981 Amendment

    Amendment by section 301(b)(3) of Pub. L. 97-34 applicable to 
taxable years ending after Sept. 30, 1981, and amendment by section 
301(b)(6)(A) of Pub. L. 97-34 applicable to taxable years beginning 
after Dec. 31, 1981, see section 301(d) of Pub. L. 97-34, set out as a 
note under section 265 of this title.


            Effective and Termination Dates of 1980 Amendment

    Amendment by Pub. L. 96-223 applicable with respect to taxable years 
beginning after Dec. 31, 1980, and before Jan. 1, 1982, see section 
404(c) of Pub. L. 96-223, set out as a note under section 265 of this 
title.


                    Effective Date of 1977 Amendment

    Amendment by Pub. L. 95-30 applicable to taxable years beginning 
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out as a 
note under section 1 of this title.


                    Effective Date of 1976 Amendments

    Section 2131(f)(6) of Pub. L. 94-455 provided that: ``The amendments 
made by subsections (d) and (e) [amending this section and section 683 
of this title] shall take effect on April 8, 1976, in taxable years 
ending on or after such date.''
    Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning in 1977.
    Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning after Dec. 31, 1977.
    Amendment by section 1901(b)(1)(G) of Pub. L. 94-455 applicable with 
respect to taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 
Amendment note under section 2 of this title.
    Section 2 of Pub. L. 94-414 provided that: ``The amendment made by 
the first section of this Act [amending this section] shall apply to 
taxable years beginning after December 31, 1975.''


                    Effective Date of 1964 Amendment

    Amendment by Pub. L. 88-272 applicable with respect to dividends 
received after Dec. 31, 1964, in taxable years ending after such date, 
see section 201(e) of Pub. L. 88-272, set out as a note under section 22 
of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 59, 170, 171, 581, 706, 851, 
894, 6049 of this title.
