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This article examines the treatment of certain deductions1" in the separate share regulations and discusses how the separate share regulations arguably provide two methods for calculating distributable net income (DNI) to be used in coordinating the income taxation of a trust or estate with separate shares and of the beneficiaries of such trust or estate. Specifically, this article analyzes how the two methods address the income taxation of a trust or estate with two separate shares in which one separate share has a net loss as to at least one type of income. Such loss, pursuant to the separate share regulations, is "not available" to any other separate share of the trust or estate, and this article discusses how the methods each address such loss.

Part I of this article provides an overview of the calculation of DNI. Part II addresses how DNI operates in the application of §§ 661 and 662. Part III analyzes the separate share regulations' two methods for calculating DNI as to a trust or estate with separate shares and discusses the weaknesses of both methods. Finally, Part IV presents and discusses a proposed calculation and allocation, to the separate shares of a trust or estate, of income and deduction items entering into the computation of the DNI of the trust or estate.