Part II. Simplified Net Investment — 2025 Inst 5227 (PDF)

Calculation Election (SNIIC Election) (Section 664 Trust Only) The CRT may make an election to calculate receipts and distributions of NII using a simplified method that is independent of the section 664 category and class system. Once made, the SNIIC election is irrevocable. If a CRT

makes the SNIIC election, the CRT computes the NII in the same manner as an individual. When using the SNIIC, a CRT’s accumulated NII is a separate and independent tracking system within the CRT and isn't assigned, combined, or taken into account in any of the CRT's existing categories (ordinary income, capital gain, nontaxable income).

Amount of NII Allocable to Income Recipients If a CRT makes the SNIIC election, distributions from a CRT to a recipient for a tax year consist of NII equal to the lesser of:

The total amount of the distributions to that recipient for that year, or
The current and accumulated NII of the CRT.

With this election, the classification of a distribution as consisting of NII or Excluded Income is independent from the character of the income distributed to the recipient for regular tax purposes using the section 664 category and class system. However, see Effect of the SNIIC Election on Netting and Ordering Rules, later.

Calculation of NII In computing the CRT’s NII, if in a tax year a CRT’s properly allocable deductions described in section 1411(c)(1)(B) exceed the gross investment income and net gain described in section 1411(c)(1)(A), then such excess deductions shall reduce the NII for that tax year and, to the extent of any remaining excess deductions, reduce NII in subsequent tax years of the CRT.

Example. A CRT has dividend income of $1,000 and a long-term capital loss of $10,000 in 2024; and $11,000 long-term capital gains in 2025. The CRT would have ($9,000) of accumulated NII in 2024, so any 2024 distributions to income recipients would not include any NII. In 2025, the CRT would have $2,000 of NII available for distribution in 2025 and after.

Note: The SNIIC election is available for the 2025 tax year under Proposed Regulations section 1.1411-3(d)(3). When finalized, Proposed Regulations section 1.1411-3(d)(3) is proposed to apply to tax years of the CRT beginning after December 31, 2012. However, if, after consideration of all comments received in response to those proposed regulations, it appears that there is no significant interest among taxpayers in having the option of using the simplified method, the IRS may omit this election from the regulations when finalized. If the SNIIC election is omitted, the CRT won't have to amend the 2025 return. The Instructions for Form 5227 in a later year will describe the actions that the CRT must take to transition from the SNIIC to calculating NII using the section 664 category and class system.

When To Make the SNIIC Election

CRTs established after December 31, 2012. In the case of a CRT established after December 31, 2012, a CRT wanting to make the SNIIC election must do so on its Form 5227 return for the tax year in which the CRT is established. CRTs established before January 1, 2013. In the case of a CRT established before January 1, 2013, the CRT wanting to make the election must do so on its Form 5227 return for its first tax year beginning on or after January 1, 2013.

12 Instructions for Form 5227

Making a SNIIC election on an amended return. The CRT may make the election on an amended Form 5227 return for that year only if the tax year for which the SNIIC election is made, and all tax years that are affected by the election, for both the CRT and its recipients, aren't closed by the period of limitations on assessments under section 6501.

How To Make the SNIIC Election and Completing the Form 5227 With a SNIIC Election

A CRT makes the SNIIC election by:

Completing lines 1 through 3 of Part II by reporting all income received as Excluded Income,
Completing lines 1 through 3 of Part I of Schedule A by reporting all income distributed as Excluded Income,
Completing Part II of Schedule A, and
Reporting the allocable share of NII to recipients consistent with the election.

Instructions for Part I of Schedule A

Column (a). Enter the amount from the prior year Form 5227, Schedule A, Part II, line 4(d).

Column (b). Enter the CRT’s current year NII.

Tip: Using Form 8960 as a worksheet, include the amounts of income, gain, loss, and deductions reported on lines 1–12 of Form 8960 to compute NII (line 12 of Form 8960). Don't file the Form 8960 with the Form 5227.

Column (c). Enter the lesser of (i) the sum of columns (a) and (b), or (ii) the total distributions for the year (reported on line 2a of Part I of Schedule A). If the sum of columns (a) and (b) is zero or less, enter -0- in column (c).

Column (d). Subtract column (c) from the sum of columns (a) and (b). This amount will be reported in column (a) of the 2026 Form 5227.

Effect of the SNIIC Election on Netting and Ordering Rules The SNIIC election will change the netting and ordering rules for ordinary income and capital gains or losses. See Ordering Rules for Ordinary Income and Additional Rules for Capital Gains and Losses, later, for illustrative charts.

Tip: You may want to read the Part III instructions and complete all worksheets (as necessary) before you make an entry on Part III of Schedule A.

Capital Gains Distribution Worksheet ( KEEP FOR YOUR RECORDS )¶

Use this worksheet to determine the ordering of any capital gains distributions.

1. Prior years undistributed gain or (loss) . . . . 2. Current year net gain or (loss) . . . . 3. Total combined gain or (loss) by class . . 4. Adjustments for netting any long-term capital (losses) on line 3 . . . . 5. Total . . . . . 6. Adjustments for netting any short-term capital gain or (loss) on line 3 (see Netting Rules, earlier) . . . 7. Total undistributed gains . . . . 8. 2025 distributions... 9. Carryforward to 2026 (line 7 less line 8)...	Short-term		Long-term
1. Prior years undistributed gain or (loss) . . . . 2. Current year net gain or (loss) . . . . 3. Total combined gain or (loss) by class . . 4. Adjustments for netting any long-term capital (losses) on line 3 . . . . 5. Total . . . . . 6. Adjustments for netting any short-term capital gain or (loss) on line 3 (see Netting Rules, earlier) . . . 7. Total undistributed gains . . . . 8. 2025 distributions... 9. Carryforward to 2026 (line 7 less line 8)...	Excluded	Accumulated Net Investment Income (ANII) post- 2012	28% long-term capital gain class	28% long-term capital gain class	Section 1250 long-term capital gain class	Section 1250 long-term capital gain class	All other long-term capital gain classes	All other long-term capital gain classes
1. Prior years undistributed gain or (loss) . . . . 2. Current year net gain or (loss) . . . . 3. Total combined gain or (loss) by class . . 4. Adjustments for netting any long-term capital (losses) on line 3 . . . . 5. Total . . . . . 6. Adjustments for netting any short-term capital gain or (loss) on line 3 (see Netting Rules, earlier) . . . 7. Total undistributed gains . . . . 8. 2025 distributions... 9. Carryforward to 2026 (line 7 less line 8)...	Excluded	Accumulated Net Investment Income (ANII) post- 2012	Excluded	ANII post-2012	Excluded	ANII post-2012	Excluded	ANII post-2012

18 Instructions for Form 5227

Exceptions & meaning →

Ordinary Income Distribution Worksheet ( KEEP FOR YOUR RECORDS )¶

Use this worksheet to determine the ordering of any ordinary income distributions.

1. Prior years undistributed ordinary income or (loss) . . . . . . . . 2. Current year ordinary income or (loss) . . . . . . . . 3. Total combined ordinary income or (loss) by class . . . . . . . . 4. Adjustments for netting any ordinary (losses) on line 3 . . . . . 5. Total undistributed ordinary income . . . . . . 6. 2025 distributions... 7. Carryforward to 2026 (line 5 less line 6) . . . . . . .	All other ordinary income		Qualified dividends
1. Prior years undistributed ordinary income or (loss) . . . . . . . . 2. Current year ordinary income or (loss) . . . . . . . . 3. Total combined ordinary income or (loss) by class . . . . . . . . 4. Adjustments for netting any ordinary (losses) on line 3 . . . . . 5. Total undistributed ordinary income . . . . . . 6. 2025 distributions... 7. Carryforward to 2026 (line 5 less line 6) . . . . . . .	Excluded	Accumulated NII post-2012	Excluded	Accumulated NII post-2012
1. Prior years undistributed ordinary income or (loss) . . . . . . . . 2. Current year ordinary income or (loss) . . . . . . . . 3. Total combined ordinary income or (loss) by class . . . . . . . . 4. Adjustments for netting any ordinary (losses) on line 3 . . . . . 5. Total undistributed ordinary income . . . . . . 6. 2025 distributions... 7. Carryforward to 2026 (line 5 less line 6) . . . . . . .

Instructions for Form 5227 19

Index

C Capital Gains Distribution

N Net Investment Income Tax (NIIT) 6

Reg. Sec. 1.1411–10(g) Election 11 Simplified Net Investment Income

Worksheet 18 Carryover rules 16 Current Distributions :

S Schedule of Distributable Income 6

T Type of Entity 4

Netting Rules 14 Ordering Rules for Capital Gains

O Ordinary Income Distribution

Worksheet 19

Calculation (SNIIC) Election 12

and Losses 15 Ordering Rules for Ordinary

Income 14

20 Instructions for Form 5227

Exceptions & meaning →