Private Letter Rulings - Trust’s Charitable Deduction Allowed
GiftLaw Note:
Decedent created Trust on Date 1. When he passed away on Date 2, Decedent was the owner of several IRAs. Trust was the sole beneficiary of each IRA. The trust document requires that Decedent’s IRA be distributed to Foundation, which is organized under Sec. 170(c). Trust planned to receive a lump sum from each of the IRAs and then contribute the cash to Foundation during the same tax year. Trust requested a ruling that the charitable deduction be allowed for its contribution to Foundation.
Under Section 691(a)(1) of the Internal Revenue Code, all income in respect of a decedent (IRD) that is not includible in the period in which the decedent died or a prior period, shall be included in the gross income of the estate of the decedent, the beneficiary of the IRD asset or the person who receives the amount by bequest, devise or inheritance. According to Rev. Rul. 92-47, a distribution of a decedent’s IRA to a beneficiary of the amount of the IRA balance (minus nondeductible contributions) will be IRD which is includible in the beneficiary’s gross income for the year that it is received. A trust may, pursuant to Sec. 642(c)(1), deduct from its taxable income any amount of gross income paid for a purpose under Sec. 170(c). Reg. 1.642-1(a)(1) allows a trust to deduct any gross income that is paid during the taxable year for a charitable purpose. Thus, the Service determined that the trust is entitled to a deduction for its contribution of the entire amount of the IRA balance to the Foundation.
Under Section 691(a)(1) of the Internal Revenue Code, all income in respect of a decedent (IRD) that is not includible in the period in which the decedent died or a prior period, shall be included in the gross income of the estate of the decedent, the beneficiary of the IRD asset or the person who receives the amount by bequest, devise or inheritance. According to Rev. Rul. 92-47, a distribution of a decedent’s IRA to a beneficiary of the amount of the IRA balance (minus nondeductible contributions) will be IRD which is includible in the beneficiary’s gross income for the year that it is received. A trust may, pursuant to Sec. 642(c)(1), deduct from its taxable income any amount of gross income paid for a purpose under Sec. 170(c). Reg. 1.642-1(a)(1) allows a trust to deduct any gross income that is paid during the taxable year for a charitable purpose. Thus, the Service determined that the trust is entitled to a deduction for its contribution of the entire amount of the IRA balance to the Foundation.
3/11/2016 (12/7/2015)
Dear * * *:
This responds to a letter dated August 18, 2014, and subsequent correspondence, requesting rulings under the Internal Revenue Code.
FACTS
The information states that Decedent created Trust on Date 1 and died on Date 2. Decedent owned multiple individual retirement accounts (IRAs) at the time of his death, each of which named Trust as the sole designated beneficiary. Article VI of Trust states that Decedent's IRAs shall be distributed to Foundation, represented as being an organization described in § 170(c). Trust proposes to receive a lump sum distribution of cash from each of the IRAs and then pay that cash to Foundation within the same taxable year.
LAW
Section 691(a)(1) provides that the amount of all items of gross income in respect of a decedent (IRD) which are not properly includible in respect of the taxable period in which falls the date of the decedent's death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the table year when received, of: (A) the estate of the decedent, if the right to receive the amount is acquired by the decedent's estate; (B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent's estate from the decedent; or (C) the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent's estate of such right.
Rev. Rul. 92-47, 1992-1 C.B. 198, holds that a distribution to the beneficiary of a decedent's IRA that equals the amount of the balance in the IRA at the decedent's death, less any nondeductible contributions, is IRD under § 691(a)(1) that is includible in the gross income of the beneficiary for the tax year the distribution is received.
Section 642(c)(1) provides that in the case of an estate or trust (other than a trust meeting the specifications of subpart B of part I of subchapter J of chapter 1), there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by § 170(a), relating to deduction for charitable, etc. contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in § 170(c) (determined without regard § 170(c)(2)(A)).
Section 1.642-1(a)(1) provides that any part of the gross income of a trust which, pursuant to the terms of the governing instrument, is paid during a taxable year for a charitable purpose shall be allowed as a deduction to the trust.
ANALYSIS AND CONCLUSION
Based solely on the facts and representations submitted we conclude that provided that Trust pays the entire lump sum distribution to Foundation in the year received, Trust is entitled to a deduction under § 642(c)(1) equal to the amount of IRD included in Trust's gross income as a result of the distribution of the IRAs.
Except as specifically ruled herein, we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the Code.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, copies of this letter are being sent to the taxpayer's authorized representative.
Sincerely,
Faith P. Colson
Senior Counsel, Branch 1
(Passthroughs & Special Industries)