                                 CODE OF VIRGINIA

CHARACTER OF RECEIPTS FROM ENTITY (§ 64.2-1048)

A. As used in this section:
			&#8220;Capital distribution&#8221; means an entity distribution of money that
is a (i) return of capital or (ii) distribution in total or partial liquidation
of the entity.
			&#8220;Entity&#8221; means a corporation, partnership, limited liability
company, regulated investment company, real estate investment trust, common
trust fund, or any other organization or arrangement in which a fiduciary owns
or holds an interest, whether or not the entity is a taxpayer for federal income
tax purposes. &#8220;Entity&#8221; does not include (i) a trust or estate to
which &#xA7; 64.2-1049 applies, (ii) a business or other activity to which
&#xA7; 64.2-1050 applies that is not conducted by an entity described above,
(iii) an asset-backed security, or (iv) an instrument or arrangement to which
&#xA7; 64.2-1063 applies.
			&#8220;Entity distribution&#8221; means a payment or transfer by an entity
made to a person in the person&#8217;s capacity as an owner or holder of an
interest in the entity.

B. In this section, an attribute or action of an entity includes an attribute or
action of any other entity in which the entity owns or holds an interest,
including an interest owned or held indirectly through another entity.

C. Except as otherwise provided in subdivisions D 2, 3, and 4, a fiduciary shall
allocate to income:

   1. Money received in an entity distribution; and

   2. Tangible personal property of nominal value received from the entity.

D. A fiduciary shall allocate to principal:

   1. Property received in an entity distribution that is not:
   				a. Money; or
   				b. Tangible personal property of nominal value;

   2. Money received in an entity distribution in an exchange for part or all of
   the fiduciary&#8217;s interest in the entity, to the extent the entity
   distribution reduces the fiduciary&#8217;s interest in the entity relative to
   the interests of other persons that own or hold interests in the entity;

   3. Money received in an entity distribution that the fiduciary determines or
   estimates is a capital distribution; and

   4. Money received in an entity distribution from an entity that is:
   				a. A regulated investment company or real estate investment trust if the
   money received is a capital gain dividend for federal income tax purposes; or
   				b. Treated for federal income tax purposes comparably to the treatment
   described in subdivision a.

E. A fiduciary may determine or estimate that money received in an entity
distribution is a capital distribution:

   1. By relying without inquiry or investigation on a characterization of the
   entity distribution provided by or on behalf of the entity, unless the
   fiduciary:
   				a. Determines, on the basis of information known to the fiduciary, that
   the characterization is or may be incorrect; or
   				b. Owns or holds more than 50 percent of the voting interest in the
   entity;

   2. By determining or estimating, on the basis of information known to the
   fiduciary or provided to the fiduciary by or on behalf of the entity, that the
   total amount of money and property received by the fiduciary in the entity
   distribution or a series of related entity distributions is or will be greater
   than 20 percent of the fair market value of the fiduciary&#8217;s interest in
   the entity; or

   3. If neither subdivision 1 nor 2 applies, by considering the factors in
   subsection F and the information known to the fiduciary or provided to the
   fiduciary by or on behalf of the entity.

F. In making a determination or estimate under subdivision E 3, a fiduciary may
consider:

   1. A characterization of an entity distribution provided by or on behalf of
   the entity;

   2. The amount of money or property received in:
   				a. The entity distribution; or
   				b. What the fiduciary determines is or will be a series of related entity
   distributions;

   3. The amount described in subdivision 2 compared to the amount the fiduciary
   determines or estimates is, during the current or preceding accounting
   periods:
   				a. The entity&#8217;s operating income;
   				b. The proceeds of the entity&#8217;s sale or other disposition of:

      1. All or part of the business or other activity conducted by the entity;

      2. One or more business assets that are not sold to customers in the
      ordinary course of the business or other activity conducted by the entity;
      or

      3. One or more assets other than business assets, unless the entity&#8217;s
      primary activity is to invest in assets to realize gain on the disposition
      of all or some of the assets;
      					c. If the entity&#8217;s primary activity is to invest in assets to
      realize gain on the disposition of all or some of the assets, the gain
      realized on the disposition;
      					d. The entity&#8217;s regular, periodic entity distributions;
      					e. The amount of money the entity has accumulated;
      					f. The amount of money the entity has borrowed;
      					g. The amount of money the entity has received from the sources
      described in &#xA7;&#xA7; 64.2-1054, 64.2-1057, 64.2-1058, and 64.2-1059;
      and
      					h. The amount of money the entity has received from a source not
      otherwise described in this subdivision; and

   4. Any other factor the fiduciary determines is relevant.

G. If, after applying subsections C through F, a fiduciary determines that a
part of an entity distribution is a capital distribution but is in doubt about
the amount of the entity distribution that is a capital distribution, the
fiduciary shall allocate to principal the amount of the entity distribution that
is in doubt.

H. If a fiduciary receives additional information about the application of this
section to an entity distribution before the fiduciary has paid part of the
entity distribution to a beneficiary, the fiduciary may consider the additional
information before making the payment to the beneficiary and may change a
decision to make the payment to the beneficiary.

I. If a fiduciary receives additional information about the application of this
section to an entity distribution after the fiduciary has paid part of the
entity distribution to a beneficiary, the fiduciary is not required to change or
recover the payment to the beneficiary but may consider that information in
determining whether to exercise the power to adjust under &#xA7; 64.2-1038.

HISTORY: 2022, c. 354.