It's an irrevocable trust doing a 1031 exchange looking to take out some boot. Normally capital gain is allocated and taxed to the trust as principal. However, I thought there were some exceptions that allow cap. gain to be distributed, and therefore taxed to the beneficiary per sec. 1.643(a)(3). 1) reasonable exercise of discretion by trustee and 2) three methods available to allocate cap. gain--one of which is to allocate to corpus but distribute to a beneficiary and appears to be a flexible option.
In this case the benef. has an NOL carryforward to absorb the income whereas the trust does not.
