The trust would pay tax on the investment income unless distributions were made to the beneficiaries. The capital gain income will flow to line 4 of form 1041 and be included on line 9 "Total Income".
Distributions to beneficiaries would appear on line 18 and be subtracted from the investment income, leaving no taxable income to the trust if all income was distributed to the beneficiaries.
The income would then appear on the K-1 schedules to the beneficiaries.
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