Tax on Accumulation Distribution of Trusts

Form 4970 (2008)

General Instructions
Section references are to the Internal Revenue
Code unless otherwise noted.

Purpose of Form
A beneficiary of certain domestic trusts (see Who
Must File below) uses Form 4970 to figure the
partial tax on accumulation distributions under
section 667. The fiduciary notifies the beneficiary
of an “accumulation distribution” by completing
Part IV of Schedule J (Form 1041).
Thus, if you received a distribution for this tax
year from a trust that accumulated its income
instead of distributing it each year (and the trust
paid taxes on that income), you must complete
Form 4970 to compute any additional tax
liability. The trustee must give you a completed
Part IV of Schedule J (Form 1041) so you can
complete this form.
If you received accumulation distributions from
more than one trust during the current tax year,
prepare a separate Form 4970 for each trust
from which you received an accumulation
distribution. You can arrange the distributions in
any order you want them considered to have
been made.

Who Must File
Beneficiaries who received an accumulation
distribution from certain domestic trusts that
were created before March 1, 1984, must file
Form 4970. For details, see section 665(c).
Foreign trust beneficiaries. If you received an
accumulation distribution from a foreign trust,
you must report the distribution and the partial
tax on a 2008 Form 3520, Annual Return To
Report Transactions With Foreign Trusts and
Receipt of Certain Foreign Gifts.
Do not file Form 4970 for distributions from
any foreign trusts, except to attach it as a
worksheet to Form 3520 if those instructions
direct you to.
Note: If the accumulation distributions are from a
domestic trust that used to be a foreign trust,
see Rev. Rul. 91-6, 1991-1 C.B. 89.

Definitions
Undistributed net income (UNI). Undistributed
net income is the distributable net income (DNI)
of the trust for any tax year less (1) the amount
of income required to be distributed currently
and any other amounts properly paid or credited
or required to be distributed to beneficiaries in
the tax year and (2) the taxes imposed on the
trust attributable to such DNI.
Accumulation distribution. An accumulation
distribution is the excess of amounts properly
paid, credited, or required to be distributed
(other than income required to be distributed
currently) over the DNI of the trust reduced by
income required to be distributed currently.
Generally, except for tax-exempt interest, the
distribution loses its character upon distribution
to the beneficiary. See section 667(d) for special
rules for foreign trusts.

Specific Instructions
Item E—Type of trust. If you received an
accumulation distribution from a foreign trust,
see Foreign trust beneficiaries above. Do not file
this form other than as an attachment to Form
3520.
Line 1. For a nonresident alien or foreign
corporation, include only the part of the
accumulation distribution that is attributable to
U.S. sources or is effectively connected with a
trade or business carried on in the United States.

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Line 2. Enter any amount from line 1 that
represents UNI of a domestic trust accumulated
before you were born or reached age 21.
However, if the multiple trust rule applies, see
the instructions for line 4.
Line 4. Multiple trust rule. If you received
accumulation distributions from two or more
other trusts that were considered to have been
made in any of the earlier tax years in which the
current accumulation distribution is considered
to have been made, do not include on line 4 the
taxes attributable to the current accumulation
distribution considered to have been distributed
in the same earlier tax year(s).
For this special rule, only count as trusts those
trusts for which the sum of this accumulation
distribution and any earlier accumulation
distributions from the trust, which are considered
under section 666(a) to have been distributed in
the same earlier tax year, is $1,000 or more.
Foreign trust. If the trust is a foreign trust, see
section 665(d)(2).

To refigure these credits, you must consider
changes to the tax before credits for each of the
3 computation years due to previous
accumulation distributions.
If the accumulation distribution is from a
domestic trust that paid foreign income taxes,
the limitation on the foreign tax credit under
section 904 is applied separately to the
accumulation distribution. If the distribution is
from a foreign trust, see sections 667(d) and
904(f)(4) for special rules.
Attach the proper form for any credit you
refigure. The amount determined for items on
this line is limited to tax law provisions in effect
for those years involved.
Line 22. For each year entered in Part II,
columns a-c, use and attach that year’s Form
4626, Form 6251, or the AMT schedule for Form
1041 to recompute the AMT for that year. Show
any change in the AMT below the bottom margin
of the appropriate form or schedule and enter
the change on line 22.

Line 8. You can determine the number of years
in which the UNI is deemed to have been
distributed by counting the “throwback years”
for which there are entries on lines 32 through
36 of Part IV of Schedule J (Form 1041). These
throwback rules apply even if you would not
have been entitled to receive a distribution in the
earlier tax year if the distribution had actually
been made then. There can be more than 5
“throwback years.”

Line 28. If estate taxes or generation-skipping
transfer taxes apply to the accumulation
distribution, reduce the partial tax proportionately
for those taxes. See section 667(b)(6) for the
computation.
Individuals. Include the amount from this line on
line 61, Form 1040. Write “ADT” to the left of the
line 61 entry space.
Trusts and decedents’ estates. Include the
amount on line 7, Schedule G, Form 1041. Write
“From Form 4970” and the amount of the tax to
the left of the line 7 entry space.
Other filers. Add the result to the total tax
liability before the refundable credits on your
income tax return for the year of the
accumulation distribution. Attach this form to
that return.

Line 11. From the number of years entered on
line 8, subtract any year in which the distribution
from column (a), Part IV of Schedule J (Form
1041) is less than the amount on line 10 of Form
4970. If the distribution for each throwback year
is more than line 10, then enter the same
number on line 11 as you entered on line 8.
Line 13. Enter your taxable incomes for years
2003–2007, even if less than 5 years of the trust
had accumulated income after you became 21.
Use the taxable income as reported by you or as
changed by the IRS. Include in the taxable
income amounts considered distributed in that
year as a result of prior accumulation
distributions, whether from the same or another
trust, and whether made in an earlier year or the
current year.
If your taxable income as adjusted is less than
zero, enter zero.
Line 17. Figure the income tax (excluding any
alternative minimum tax (AMT)) on the income on
line 16 using the tax rates in effect for your
particular earlier tax year shown in each of the
three columns. Use the Tax Rate Schedules,
etc., as applicable. You can get the Tax Rate
Schedules and prior year forms from many IRS
offices by calling 1-800-TAX-FORM
(1-800-829-3676), or by downloading them from
the IRS website at www.irs.gov.
Line 18. Enter your income tax (excluding any
AMT) as originally reported, corrected, or
amended, before reduction for any credits for
your particular earlier year shown in each of the
three columns.
Line 20. Nonrefundable credits that are limited
to tax liability, such as the general business
credit, may be changed because of an
accumulation distribution. If the total allowable
credits for any of the 3 computation years
increases, enter the increase on line 20.
However, do not treat as an increase the part of
the credit that was allowable as a carryback or
carryforward credit in the current or any
preceding year other than the computation year.

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The time needed to complete and file this
form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is approved
under OMB control number 1545-0074 and is
included in the estimates shown in the
instructions for their individual income tax return.
The estimated burden for all other taxpayers who
file this form is shown below.
Recordkeeping
1 hr., 12 min.
Learning about the
law or the form
15 min.
Preparing the form
1 hr., 25 min.
Copying, assembling, and
sending the form to the IRS
20 min.
If you have comments concerning the
accuracy of these time estimates or suggestions
for making this form simpler, we would be happy
to hear from you. See the instructions for the tax
return with which this form is filed.