(a) A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.

(b) A tax required to be paid by a trustee based on receipts allocated to principal must be paid from principal, even if the tax is called an income tax by the taxing authority.

(c) A tax required to be paid by a trustee on the trust's share of an entity's taxable income must be paid:

(1) From income to the extent that receipts from the entity are allocated only to income;

(2) From principal to the extent that receipts from the entity are allocated only to principal;

(3) Proportionately from principal and income to the extent that receipts from the entity are allocated to both income and principal; and

(4) From principal to the extent that the tax exceeds the total receipts from the entity.

(d) After applying subsections (a) to (c), inclusive, of this section, the trustee shall adjust income or principal receipts to the extent that the trust's taxes are reduced because the trust receives a deduction for payments made to a beneficiary.

(P.A. 99-164, S. 29, 36; P.A. 10-31, S. 2.)

History: P.A. 99-164 effective January 1, 2000; P.A. 10-31 amended Subsec. (c) to delete “proportionately” re payment under Subdivs. (1) and (2), to add “only” in Subdiv. (1) and to replace former Subdiv. (2) with new Subdiv. (2) re payment from principal to extent receipts are allocated only to principal, Subdiv. (3) principal to re payments proportionately from principal and income and Subdiv. (4) re payments from principal to extent tax exceeds total receipts, and amended Subsec. (d) to replace former provisions with requirement that trustee adjust income or principal receipts after applying Subsecs. (a) to (c).