Income of estates, trusts and their beneficiaries.

(a) Income of estates and trusts. The income of a resident estate or trust shall consist of the following:

(1) The classes of income enumerated in Chapter 103, Subchapter B (relating to determination of tax) received by the estate or trust directly.

(2) The class of income enumerated in § 103.18 (relating to net gains or income derived through estates or trusts) that is, the classes of income enumerated in Chapter 103, Subchapter B received or derived from any other estate or trust.

(3) Other income not enumerated in Chapter 103, Subchapter B.

(c) Income of beneficiaries of estates and trusts. The income of beneficiaries of estates and trusts shall consist of the following:

(1) The income of a resident beneficiary of a resident or nonresident estate or trust shall consist of that portion of the classes of income of the estate or trust received by the estate or trust for its taxable year ending within or with the beneficiary’s taxable year and which, under the governing instrument and applicable State law, is required to be distributed currently to the beneficiary or is in fact paid or credited to the beneficiary.

(2) The income of a nonresident beneficiary of a resident estate or trust shall consist of that portion of the classes of income of an estate or trust received by the estate or trust from sources within this Commonwealth for its taxable year ending within or with the beneficiary’s taxable year and which, under the governing instrument and applicable state law, is required to be distributed currently to the beneficiary or is in fact paid or credited to him.

(3) An amount properly paid or credited to the beneficiary within the first 65 days of any taxable year of an estate or trust shall be considered paid or credited to the beneficiary on the last day of the preceding taxable year if the fiduciary of the trust or estate elects under this article to so treat such payments. The election under this article shall be made in a statement attached to the return for the first taxable year of the trust and any election so made shall be irrevocable for the taxable year and for all future taxable years.

(4) The income of a beneficiary derived from a resident estate or trust shall retain the same character in the hands of the beneficiary as in the hands of the estate or trust.

(5) If income or gains specified in this section are paid, credited, or required to be distributed by an estate or trust for a taxable year which does not end with or within the last taxable year of a beneficiary, because of the beneficiary’s death, the amount taxable to the beneficiary shall consist of that part of the income or gains received by the estate or trust for its taxable year in which the beneficiary’s last taxable year ends which were in fact paid or credited to such beneficiary. Income required to be distributed, but in fact distributed to his estate shall be included as income of the estate.

(d) Allocation of income between estates and trusts and their beneficiaries. Except as otherwise provided in subsection (c), for purposes of this subsection, all income distributed, paid, or credited to a beneficiary after June 1, 1971 or after the beginning of any subsequent taxable year shall be deemed to be a distribution of income received by the estate or trust for its taxable year beginning June 1, 1971, or thereafter to the extent thereof and shall represent a pro rata portion of all classes of income received by the estate or trust for such taxable year. An estate or trust shall be deemed to have retained its pro rata portion of all classes of income if the amount paid, credited, or required to be distributed to its beneficiaries is less than all of its income for its taxable year unless the estate, trust or its beneficiary establishes that a particular class of income was not distributable to the beneficiaries, and in fact was not distributed, paid or credited to them. In such a case, all of the income shall be deemed to have been retained by the estate or trust. The estate or trust shall be deemed to have retained its pro rata portion of all other classes of income if the total amount paid, credited, or required to be distributed to its beneficiaries is less than the total of all the income for its taxable year. Source The provisions of this § 105.4 amended February 25, 1977, 7 Pa.B. 529. Cross References This section cited in 61 Pa. Code § 103.18 (relating to net gains or income derived through estates or trusts).