IRS Tax Code Section 674

IRS Tax Code Section 674 addresses how a person's involvement in a trust creates a "contributing interest," which affects tax liability. Specifically, if a grantor retains certain powers or benefits over a trust (like control or income), they are considered to have an ownership interest for tax purposes. This means the grantor must report income from the trust on their personal tax return, even if they don't receive that income directly. Essentially, Section 674 prevents individuals from retaining control while avoiding taxation, ensuring that income attributable to their retained powers is properly taxed to them.