Common trust funds

For purposes of this subtitle, the term “common trust fund” means a fund maintained by a bank— exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity— as a custodian of accounts— A common trust fund shall not be subject to taxation under this chapter and for purposes of this chapter shall not be considered a corporation. Each participant in the common trust fund in computing its taxable income shall include, whether or not distributed and whether or not distributable— The taxable income of a common trust fund shall be computed in the same manner and on the same basis as in the case of an individual, except that— after excluding all items of gain and loss from sales or exchanges of capital assets, there shall be computed— No gain or loss shall be realized by the common trust fund by the admission or withdrawal of a participant. The admission of a participant shall be treated with respect to the participant as the purchase of, or an exchange for, the participating interest. The withdrawal of any participating interest by a participant shall be treated as a sale or exchange of such interest by the participant. If the taxable year of the common trust fund is different from that of a participant, the inclusions with respect to the taxable income of the common trust fund, in computing the taxable income of the participant for its taxable year, shall be based upon the taxable income of the common trust fund for any taxable year of the common trust fund ending within or with the taxable year of the participant. The benefit of the deduction for net operating losses provided by section 172 shall not be allowed to a common trust fund, but shall be allowed to the participants in the common trust fund under regulations prescribed by the Secretary. If— The basis of any asset received by a regulated investment company in a transfer referred to in paragraph (1)(A) shall be the same as it would be in the hands of the common trust fund. The basis of the stock which is received in an exchange referred to in paragraph (1)(B) shall be the same as that of the property exchanged. If stock in more than one regulated investment company is received in such exchange, the basis determined under the preceding sentence shall be allocated among the stock in each such company on the basis of respective fair market values. In determining whether the transfer referred to in paragraph (1)(A) is in exchange solely for stock in one or more regulated investment companies, the assumption by any such company of a liability of the common trust fund shall be disregarded. If, in any transfer referred to in paragraph (1)(A), the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company or companies— For purposes of clause (i), the term “assumed liabilities” means any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A). For purposes of this paragraph, in determining the amount of any liability assumed, the rules of section 357(d) shall apply. This subsection shall not apply to any common trust fund which would not meet the requirements of section 368(a)(2)(F)(ii) if it were a corporation. For purposes of the preceding sentence, Government securities shall not be treated as securities of an issuer in applying the 25-percent and 50-percent test and such securities shall not be excluded for purposes of determining total assets under clause (iv) of section 368(a)(2)(F). For purposes of this subtitle, the taxable year of any common trust fund shall be the calendar year.