Part II. Schedule of Distributable Income (Section 664 Trust Only)

Report the income (both current and cumulative undistributed income) of the trust for purposes of determining the character of distributions in three categories.

1. Ordinary income.
2. Capital gains and losses.
3. Nontaxable income.

A loss in any one of the three categories may not be used to reduce a gain in any other category. For example, a capital loss may not be used to reduce ordinary income. However, a loss in any one category may be used to reduce undistributed gain for earlier years within that same category, and any excess may be carried forward to reduce gain in future years within that same category.

For information on recordkeeping for long-term capital gains or ordinary income, see the Capital Gains Distribution Worksheet or the Ordinary Income Distribution Worksheet, later.

Net investment income (NII). Beginning in 2013, CRTs must begin tracking Excluded Income and NII received and distributed. For 2013 and later years, columns (a), (b), and (c) of Part II, line 1, have been divided into NII and Excluded Income.

The term “Excluded Income” is income received (or losses incurred) by the CRT not taken into account in computing NII. For CRTs in existence before 2013, all undistributed income as of the end of 2012 is Excluded Income. For 2013 and later years, the CRT must determine whether the items of income, gain, loss, and deduction reported on Sections A through D of Part I constitute NII or Excluded Income.

Line 1. Enter the amounts of undistributed Excluded Income and undistributed accumulated NII from post-2012 tax years.

6 Instructions for Form 5227

Line 2. Allocate the items of income or loss from the current year between Excluded Income and NII.

Caution: The allocation of items of income or loss from the current year between Excluded Income and NII should be reported on line 2 after the application of the gain and loss netting rules outlined in Part III under Schedule A, later. In certain situations, NII losses may reduce Excluded Income due to the netting rules. Therefore, those rules should be applied before entering amounts on line 2.

Note: If the CRT elects to use the Simplified Net Investment Income Calculation (SNIIC), then report all income or loss from Part I in the Excluded Income column and leave the NII column empty. See instructions for SNIIC Election in Part II under Schedule A, later.