Throwback Rule

In taxation of trusts, the throwback rule requires that the amount distributed in any tax year which is in excess of that year's distributable net income must be "thrown back" to the preceding year and treated as if it had then been distributed. The beneficiary is taxed in the current year although the computation is made as if the excess had been distributed in the previous year. If the trust did not have undistributed accumulated income in the preceding year, the amount of the throwback is tested against each of the preceding years; in other words, the throwback rule may require consideration of the trust income and its distributions for all of the years preceding the tax year. I.R.C. No.No. 665-668.

As term is also used in taxation, if there is no income tax in the state to which a sale would otherwise be assigned for apportionment purposes, the sale essentially is exempt from state income tax, even though the seller is domiciled in a state that levies an income tax. Nonetheless, if the seller's state has adopted a throwback rule, the sale is attributed to the seller's state, and the transaction is subjected to a state-level tax.

See also apportionment