INCOME TAXES A. A tax required to be paid by a trustee based on receipts allocated to income must be paid from income. B. A tax required to be paid by a trustee based on receipts allocated to principal must be paid from principal, even if the tax is called an income tax by the taxing authority. C. A tax required to be paid by a trustee on the trust's share of an entity's taxable income must be paid:
1. From income to the extent that receipts from the entity are allocated only to income;
2. From principal to the extent that receipts from the entity are allocated only to principal;
3. Proportionately from principal and income to the extent that receipts from the entity are allocated to both income and principal; and 4. From principal to the extent that the tax exceeds the total receipts from the entity. D. After applying subsections A through C of this section, the trustee shall adjust income or principal receipts to the extent that the trust’s taxes are reduced because the trust receives a deduction for payments made to a beneficiary.