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TITLE 26-INTERNAL REVENUE CODE amount of income of the estate or trust for the taxable year determined under the terms of the governing instrument and applicable local law. Items uf grosa income constituting extraordi- nary dividends or taxable stock dividends which the fiduciary, acting in good faith, determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income. (c) Beneficiary For purposes of this part, the term "benefi- ciary" includes heir, legatee, devisee. (Aug. 16, 1954, ch. 736, 68A Stat. 217; Oct. 16, 1962, Pub. L. 87-834, § 7(a), 76 Stat. 985; Oct. 4, 1976, Pub. L. 94-455, title X, § 1013(c), (e)(2), 90 Stat. 1615, 1616.) AmzNDMENTS 1976-Subsec. Ca)(6)CC). Pub. L. 94-455, § 1013(c)(1), struck out "created by a United States person" follow- ing "foreign trust". Subsec. Ca)(6)CD). Pub. L. 94-455, § 1013(c)C2), added subpar. (D). Subsec. d). Pub. L. 94-455, § 1013(e)(2), struck out subsec. (a) which defined a foreign trust created by a United States person. 1962-Subsec. (a)(6). Pub. L. 87-834, § 7Ca)C1), substi- tuted "Income of foreign trust" for "Foreign income" in the subsection catchline, designated existing provi- sions as subpar. CA), and added subpars. (B) cnd (C). Subsec. d). Pub. L. 87-834, § 7(a)(2), added subsec. (d). Ec'ivE DATE oF 1976 AEmNDmNT For effective date of amendment of subsec. Cd) by section 1013(e)(2) of Pub. L. 94-455, see section 1013(f)(1) of Pub. L. 94-455, set out as an Effective Date note under section 679 of this title. Section 1013(f)(2) of Pub. L. 94-455 provided that: "The amendments made by subsection Cc) (amending subsec. (a)(6)(C), CD) of this section] shall apply to t.xable years beginning after December 31, 1975". EFFEcTIVE DATE or 1962 AmwMomzT Section 7J) of Pub. L. 87-834 provided that: "The amendments made by this section [amending sections 643, 665, 666 and 668 of this title and adding section 669 of this title] (other than by subsections f), (g) and (h) [adding sections 6048, 6677 and 7701Ca)(30), (31) of this title]), shall apply with respect to distributions made after December 31, 1962." SECrON REFERJED TO IN OTmE SECTIONS This section is referred to in sections 2613, 6166, 6166A of this title. § 644. Special rule for gain on property transferred to trust at less than fair market value (a) Imposition of tax (1) In general If- (A) a trust (or another trust to which the property is distributed) sells or exchanges property at a gain not more than 2 years after the date of the initial transfer of the property in trust by the transferor, and (B) the fair market value of such property at the time of the initial transfer in trust by the transferor exceeds the adjusted basis of such property immediately after such trans- fer, there is hereby imposed a tax determined in accordance with paragraph (2) on the includi- ble gain realized on such sale or exchange. (2) Amount of tax The amount of the tax imposed by para- graph (1) on any includible gain realized on the sale or exchange of any property shall be equal to the sum of- (A) the excess of- (i) the tax which would have been im- posed under this chapter for the taxable year of the transferor in which the sale or exchange of such property occurs had the amount of the includible gain realized on such sale or exchange, reduced by any de- ductions properly allocable to such gain, been included in the gross income of the transferor for such taxable year, over (i) the tax actually imposed under this chapter for such taxable year on the transferor, plus (B) if such sale or exchange occurs in a taxable year of the transferor which begins after the beginning of the taxable year of the trust in which such sale or exchange occurs, an amount equal to the amount de- termined under subparagraph (A) multi- plied by the annual rate established under section 6621. (3) Taxable year for which tax imposed The tax imposed by paragraph (1) shall be imposed for the taxable year of the trust which begins with or within the taxable year of the transferor in which the sale or ex- change occurs. (4) Tax to be in addition to other taxes The tax imposed by this subsection for any taxable year of the trust shall be in addition to any other tax imposed by this chapter for such taxable year. (b) Definition of includible gain For purposes of this section, the term "inclu- dible gain" means the lesser of- (1) the gain realized by the trust on the sale or exchange of any property, or (2) the excess of the fair market value of such property at the time of the initial trans- fer in trust by the transferor over the adjust- ed basis of such property immediately after such transfer. () Character of includible gain For purposes of subsection (a)- (1) The character of the includible gain shall be determined as if the property had ac- tually been sold or exchanged by the trans- feror, and any activities of the trust with re- spect to the sale or exchange of the property shall be deemed to be activities of the trans- feror, and (2) the portion of the includible gain sub- ject to the provisions of section 1245 and sec- tion 1250 shall be determined in accordance with regulations prescribed by the Secretary. (d) Special rule for short sales If the trust sells the property referred to in subsection (a) in a short sale within the 2-year period referred to in such subsection, such 2- year period shall be extended to the date of the closing of such short sale. (e) Exceptions Subsection (a) shall not apply to property- § 644 Page 463