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TITLE 26-INTERNAL REVENUE CODE which had provided for application of subsec. (b) only to a trust "(A) which was in existence prior to January 1, 1954" and "(B) which, under the terms of its govern- ing instrument, aay not distribute in any taxable year amounts in excess of the income of the preceding tax- able year"; part of former second sentence which re- quired the election to be made for first taxable year to which this part is applicable; and the third sentence that "If such election is made with respect to a tax- able year, this subsection shall apply to all amounts properly paid or credited within the first 65 days of all subsequent taxable years of such trust." Erxcrivz DATE OF 1969 ANDMENT Amendment of subsec. (a)(2) by section 101(j)(17) of Pub. L. 91-172 to take effect on Jan. 1, 1970, see sec- tion 101(k)(1) of Pub. L. 91-172, set out as an Effective Date note under section 4940 of this title. Amendment of subsec. (b)(2) of this section by sec- tion 331(b) of Pub. L. 91-172 applicable to taxable years beginning before Jan. 1, 1970, see section 331(d) of Pub. L. 91-172, set out as an Effective Date of 1969 Amendment note under section 665 of this title. § 664. Charitable remainder trusts (a) General rule Notwithstanding any other provision of this subchapter, the provisions of this section shall, in accordance with regulations prescribed by the Secretary, apply in the case of a charitable remainder annuity trust and a charitable re- mainder unitrust. (b) Character of distributions Amounts distributed by a charitable remain- der annuity trust or by a charitable remainder unitrust shall be considered as having the fol- lowing characteristics in the hands of a benefi- ciary to whom is paid the annuity described in subsection (d)(1)(A) or the payment described in subsection (d)(2)(A): (1) First, as amounts of income (other than gains, and amounts treated as gains, from the sale or other disposition of capital assets) in- cludible in gross income to the extent of such income of the trust for the year and such un- distributed income of the trust for prior years; (2) Second, as a capital gain to the extent of the capital gain of the trust for the year and the undistributed capital gain of the trust for prior years; (3) Third, as other income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years; and (4) Fourth, as a distribution of trust corpus. For purposes of this section, the trust shall de- termine the amount of its undistributed capital gain on a cumulative net basis. (c) Exemption from income taxes A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle, unless such trust, for such year, has unrelated business taxable income (within the meaning of section 512, determined as if part III of subehapter F applied to such trust). (d) Definitions (1) Charitable remainder annuity trust For purposes of this section, a charitable re- mainder annuity trust is a trust- (A) from which a sum certain (which is not less than 5 percent of the initial net fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individ- uals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or in- dividuals, (B) from which no amount other than the payments described in subparagraph (A) may be paid to or for the use of any person other than an organization described in sec- tion 170(c), and (C) following the termination of the pay- ments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organi- zation described in section 170(c) or is to be retained by the trust for such a use. (2) Charitable remainder unitrust For purposes of this section, a charitable re- mainder unitrust is a trust- (A) from which a fixed percentage (which is not less than 5 percent) of the net fair market value of its assets, valued annually, is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individ- uals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or in- dividuals, (B) from which no amount other than the payments described in subparagraph (A) may be paid to or for the use of any person other than an organization described in sec- tion 170(c), and (C) following the termination of the pay- ments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organi- zation described in section 170(c) or is to be retained by the trust for such a use. (3) Exception Notwithstanding the provisions of para- graphs (2)(A) and (B), the trust instrument may provide that the trustee shall pay the income beneficiary for any year- (A) the amount of the trust income, if such amount is less than the amount re- quired to be distributed under paragraph (2)(A), and (B) any amount of the trust income which is in excess of the amount required to be distributed under paragraph (2)(A), to the extent that (by reason of subparagraph (A) the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts. (e) Valuation for purposes of charitable contribution For purposes of determining the amount of any charitable contribution, the remainder in- terest of a charitable remainder annuity trust or charitable remainder unitrust shall be com- puted on the basis that an amount equal to 5 Page 467 § 664