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TITLE 26-INTERNAL REVENUE CODE nutty contract, in computing the tax imposed by paragraph (1)(A), the total taxable amounts of all such distributions during such 6-taxable-year period shall be aggregated, but the amount of tax so computed shall be re- duced (but not below zero) by the sum of- (A) the amount of the tax imposed by paragraph (1)(A) paid with respect to such other distributions, plus (B) that portion of the tax on the aggre- gated total taxable amounts which is attrib- utable to annuity contracts. For purposes of this paragraph, a beneficiary of a trust to which a lump sum distribution is made shall be treated as the recipient of such distribution if the beneficiary is an employee (including an employee within the meaning of section 401(c)(1)) with respect to the plan under which the distribution is made or if the beneficiary is treated as the owner of such trust for purposes of subpart E of part I of subchapter J. In the case of the distribution of an annuity contract, the taxable amount of such distribution shall be deemed to be the current actuarial value of the contract, deter- mined on the date of such distribution. In the case of a lump sum distribution with respect to any individual which is made only to two or more trusts, the tax imposed by paragraph (1)(A) shall be computed as if such distribu- tion was made to a single trust, but the liabil- ity for such tax shall be apportioned among such trusts according to the relative amounts received by each. The Secretary shall pre- scribe such regulations as may be necessary to carry out the purposes of this paragraph. (3) Allowance of deduction The ordinary income portion of a lump sum distribution for the taxable year shall be al- lowed as a deduction from gross income for such taxable year, but only to the extent in- cluded in the taxpayer's gross income for such taxable year. (4) Definitions and special rules (A) Lump sum distribution For purposes of this section and section 403, the term "lump sum distribution" means the distribution or payment within one taxable year of the recipient of the bal- ance to the credit of an employee which be- comes payable to the recipient- (i) on account of the employee's death, (ii) after the employee attains age 59 , (iii) on account of the employee's sepa- ration from the service, or (iv) after the employee has become dis- abled (within the meaning of section 72(m)(7)) from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Clause (iii) of this subparagraph shall be applied only with respect to an individual who is an employee without regard to section 401(c)(1), and clause (iv) shall be applied only with respect to an employee within the meaning of section 401(c)(1). Except for purposes of subsection (a)(2) and section 403(a)(2), a distribution of an annuity con- tract from a trust or annuity plan referred to in the first sentence of this subparagraph shall be treated as a lump sum distribution. For purposes of this subparagraph, a distri- bution to two or more trusts shall be treat- ed as a distribution to one recipient. (B) Election of lump sum treatment For purposes of this section and section 403, no amount which is not an annuity contract may be treated as a lump sum dis- tribution under subparagraph (A) unless the taxpayer elects for the taxable year to have all such amounts received during such year so treated at the time and in the manner provided under regulations pre- scribed by the Secretary. Not more than one election may be made under this sub- paragraph with respect to any individual after such individual has attained age 591/2. No election may be made under this subpar- agraph by any taxpayer other than an indi- vidual, an estate, or a trust. In the case of a lump sum distribution made with respect to an employee to two or more trusts, the elec- tion under this subparagraph shall be made by the personal representative of the em- ployee. (C) Aggregation of certain trusts and plans For purposes of determining the balance to the credit of an employee under subpara- graph (A)- (i) all trusts which are part of a plan shall be treated as a single trust, all pen- sion plans maintained by the employer shall be treated as a single plan, all profit- sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the em- ployer shall be treated as a single plan, and (ii) trusts which are not qualified trusts under section 401(a) and annuity con- tracts which do not satisfy the require- ments of section 404(a)(2) shall not be taken into account. (D) Total taxable amount For purposes of this section and section 403, the term "total taxable amount" means, with respect to a lump sum distribu- tion, the amount of such distribution which exceeds the sum of- (I) the amounts considered contributed by the employee (determined by applying section 72(f)), which employee contribu- tions shall be reduced by any amounts theretofore distributed to him which were not includible in gross income, and (ii) the net unrealized appreciation at- tributable to that part of the distribution which consists of the securities of the em- ployer corporation so distributed. (E) Ordinary income portion For purposes of this section, the term "or- dinary income portion" means, with respect to a lump sum distribution, so much of the total taxable amount of such distribution as is equal to the product of such total taxable amount multiplied by a fraction- Page 299 § 402