(1) In this section:
(a) Capital distribution means an entity distribution of money which is a:
(I) Return of capital; or
(II) Distribution in total or partial liquidation of the entity.
(b) Entity:
(I) 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; and
(II) Does not include:
(A) A trust or estate to which section 15-1.2-402 applies;
(B) A business or other activity to which section 15-1.2-403 applies which is
not conducted by an entity described in subsection (1)(b)(I) of this section;
(C) An asset-backed security; or
(D) An instrument or arrangement to which section 15-1.2-416 applies.
(c) Entity distribution means a payment or transfer by an entity made to a
person in the person's capacity as an owner or holder of an interest in the entity.
(2) 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.
(3) Except as otherwise provided in subsections (4)(b) through (4)(d) of this
section, a fiduciary shall allocate to income:
(a) Money received in an entity distribution; and
(b) Tangible personal property of nominal value received from the entity.
(4) A fiduciary shall allocate to principal:
(a) Property received in an entity distribution which is not:
(I) Money; or
(II) Tangible personal property of nominal value;
(b) Money received in an entity distribution in an exchange for part or all of
the fiduciary's interest in the entity, to the extent the entity distribution reduces the
fiduciary's interest in the entity relative to the interests of other persons that own
or hold interests in the entity;
(c) Money received in an entity distribution that the fiduciary determines or
estimates is a capital distribution; and
(d) Money received in an entity distribution from an entity that is:
(I) A regulated investment company or real estate investment trust if the
money received is a capital gain dividend for federal income tax purposes; or
(II) Treated for federal income tax purposes comparably to the treatment
described in subsection (4)(d)(I) of this section.
(5) A fiduciary may determine or estimate that money received in an entity
distribution is a capital distribution:
(a) By relying without inquiry or investigation on a characterization of the
entity distribution provided by or on behalf of the entity, unless the fiduciary:
(I) Determines, on the basis of information known to the fiduciary, that the
characterization is or may be incorrect; or
(II) Owns or holds more than fifty percent of the voting interest in the entity;
(b) 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 twenty percent of
the fair market value of the fiduciary's interest in the entity; or
(c) If neither subsection (5)(a) nor (5)(b) of this section applies, by
considering the factors in subsection (6) of this section and the information known
to the fiduciary or provided to the fiduciary by or on behalf of the entity.
(6) In making a determination or estimate under subsection (5)(c) of this
section, a fiduciary may consider:
(a) A characterization of an entity distribution provided by or on behalf of the
entity;
(b) The amount of money or property received in:
(I) The entity distribution; or
(II) What the fiduciary determines is or will be a series of related entity
distributions;
(c) The amount described in subsection (6)(b) of this section compared to the
amount the fiduciary determines or estimates is, during the current or preceding
accounting periods:
(I) The entity's operating income;
(II) The proceeds of the entity's sale or other disposition of:
(A) All or part of the business or other activity conducted by the entity;
(B) 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
(C) One or more assets other than business assets, unless the entity's
primary activity is to invest in assets to realize gain on the disposition of all or some
of the assets;
(III) If the entity'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;
(IV) The entity's regular, periodic entity distributions;
(V) The amount of money the entity has accumulated;
(VI) The amount of money the entity has borrowed;
(VII) The amount of money the entity has received from the sources
described in sections 15-1.2-407, 15-1.2-410, 15-1.2-411, and 15-1.2-412; and
(VIII) The amount of money the entity has received from a source not
otherwise described in this subsection (6)(c); and
(d) Any other factor the fiduciary determines is relevant.
(7) If, after applying subsections (3) through (6) of this section, 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 which is a capital distribution, the
fiduciary shall allocate to principal the amount of the entity distribution which is in
doubt.
(8) 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.
(9) 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 section 15-1.2-203.