I haven't encountered the situation myself, but the instructions for line 9 of Schedule B (Form 1041) say regarding tier 1 distributions:
Line 9 is to be completed by all simple trusts as well as complex trusts and decedents’ estates that are required to distribute income currently, whether it is distributed or not. The determination of whether trust income is required to be distributed currently depends on the terms of the governing instrument and the applicable local law.
So if the income is required to be distributed currently, it becomes part of the DNI deduction whether distributed or not.
