1. As used in this section, "entity" means a corporation, partnership, limited-liability company, regulated investment company, real estate investment trust, common trust fund or any other organization in which a trustee has an interest other than a trust or estate to which NRS 164.830 applies, a business or activity to which NRS 164.835 applies or an asset-backed security to which NRS 164.895 applies.
2. Except as otherwise provided in this section, a trustee shall allocate to income money received from an entity.
3. A trustee shall allocate the following receipts from an entity to principal:
(a) Property other than money;
(b) Money received in one distribution or a series of related distributions in exchange for part or all of a trust’s interest in the entity;
(c) Money received in a distribution if and to the extent that the trustee determines that the distribution is a return of capital; and
(d) Money received from an entity that is a regulated investment company or a real estate investment trust if the money distributed is a capital gain dividend for federal income tax purposes.
4. A trustee may determine that money is received as a return of capital if and to the extent that the money received exceeds the total amount of income tax that the beneficiaries must pay on their respective shares of the taxable income of the entity and the trust must pay from income under NRS 164.810 to 164.925, inclusive, on its share of the taxable income of the entity. A trustee may determine that money which represents gain upon the sale or other disposition of property described in subsection 5 is a return of capital.
5. In determining if and to what extent a distribution is a return of capital, a trustee may rely upon and determine the weight to be given to any information concerning the source of the money from which the distribution is made which is reasonably available to the trustee, including, without limitation, information concerning:
(a) The amount of the distribution in question compared to the amount of the entity’s regular, periodic distributions, if any, during the year in which the distribution is made and in prior years;
(b) If the primary activity of the entity is not an investment activity described in paragraph (c), the amount of money the entity has received from the conduct of its normal business activities compared to the amount of money the entity has received from all other sources, including, without limitation:
(1) The sale of all or part of a business conducted by the entity or by another entity in which it owns an interest, directly or indirectly, including, without limitation, money representing any gain realized on such a sale;
(2) The sale of one or more business assets that are not sold to customers in the normal course of the entity’s business, including, without limitation, money representing any gain realized on such a sale; and
(3) The sale of one or more investment assets, including, without limitation, money representing any gain realized on such a sale;
(c) If the primary activity of the entity is to invest funds in another entity or in investment property that the entity owns directly for the purpose of realizing gain on the disposition of all or a part of such an investment, the amount of money that the entity has received from the sale of all or part of one or more of those investments, including, without limitation, money representing any gain realized on such a disposition;
(d) The amount of money the entity has accumulated, to the extent that the governing body of the entity has decided the money is no longer needed for the business or investment needs of the entity;
(e) The amount of income tax, if any, that each beneficiary has paid on the undistributed income of the entity before the year of the distribution and the amount of income tax on the undistributed income of the entity that the trust has paid from the income or principal of the trust;
(f) The amount of money the entity has borrowed, whether or not repayment of the loan is secured to any extent by one or more of the entity’s assets;
(g) The amount of money the entity has received from the sources described in NRS 164.855, 164.870, 164.875 and 164.880; and
(h) The amount of money the entity has received from a source not described in this subsection.
6. If a trustee is in doubt about the portion of a distribution that is a return of capital, the trustee shall resolve the doubt by allocating to income the amount, if any, the trustee believes is clearly not a return of capital and by allocating the balance of the distribution to principal.
7. A trustee may rely upon, without independent investigation, the financial statements of an entity and any other information provided by an entity about the character of a distribution or the source of funds from which the distribution is made if the information is provided at or near the time of distribution by the entity’s board of directors or other person or group of persons authorized to exercise powers to pay money or transfer property comparable to those of a corporation’s board of directors. The trustee is not bound by any statement made or implied by the entity about the extent to which a distribution is or is not a return of capital. If the trustee receives additional information about the distribution after the trustee has decided the amount that is a return of capital, the trustee is not required to change that decision.
(Added to NRS by 2003, 1974; A 2007, 409)