IRA and QRP Proceeds Passing to Foundation Deductible

IRA and QRP Proceeds Passing to Foundation Deductible

News story posted in Letter Rulings on 4 May 1998| comments
audience: National Publication | last updated: 18 May 2011
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Summary

The IRS has ruled privately that an estate tax charitable deduction will be available to the estate of a taxpayer that names a private foundation as beneficiary of IRA and qualified retirement plan proceeds. The foundation will have income in a respect of a decedent; however, the taxpayer's estate will not.

Ltr. Rul. 9818009

Full Text:

Date: January 8, 1998

Re: * * *
LEGEND:

Dear * * *

[1] This is in response to your letter dated * * *, in which you requested rulings concerning the income and estate tax consequences of the proposed transaction. Specifically, you request the following rulings:

1. Where the Foundation is the designated beneficiary of the proceeds, property passing from the Individual Retirement Accounts (IRA's) and the plans to the Foundation will be eligible for a federal estate tax charitable deduction under section 2055 of the Code.

2. The estate of the taxpayer will not recognize taxable income upon the distribution of the Proceeds to the Foundation.

3. The beneficiaries of the estate of the taxpayer will not recognize taxable income upon the receipt of the distribution of the proceeds to the Foundation.

4. The Foundation will not recognize taxable income upon the receipt of the Proceeds following the death of the taxpayer.

5. The Foundation will not be subject to the federal excise tax on investment income under section 4940(a) of the Code at the time the proceeds pass to the Foundation.

FACTS:

[2] Taxpayer created a private charitable foundation (Foundation) within the meaning of section 509(a) of the Code. The foundation received a determination that it qualifies for tax-exempt status pursuant to section 501(a) of the Code as an organization described in section 501(c)(3) of the Code.

[3] The taxpayer is the owner of one or more IRAs and participates in one or more qualified retirement plans. The taxpayer intends to name the foundation as the beneficiary of the proceeds of the IRAs and qualified retirement plans upon his death. The taxpayer's spouse has or will execute any consent required by the Code or applicable Treasury regulations with respect to the Foundation as beneficiary of the plans.

ISSUE 1: (Estate Tax Charitable Deduction)

[4] Section 2039(a) of the Code provides that a decedent's gross estate includes the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent under any form of contract or agreement, if under such contract or agreement an annuity or other payment was payable to the decedent, or the decedent possessed the right to receive such annuity or payment, either alone or in conjunction with another for the decedent's life, or for any period not ascertainable without reference to the decedent's death, or for any period which does not in fact end before the decedent's death.

[5] Section 2055(a) of the Code provides that the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, or transfers to or for a corporation or certain other organizations organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes.

[6] The value of the IRAs and the qualified plans in the present case will be includible in the Taxpayer's gross estate under section 2039(a) of the Code.

[7] Assuming that the Foundation is a foundation defined in section 509(a) of the Code and, thus, is an organization described in section 501(c)(3) at the time of the Taxpayer's death, we conclude that the Taxpayer's estate will be eligible for a federal estate tax deduction under section 2055(a) of the Code for the proceeds of the IRA account and qualified plan(s) passing to the Foundation.

ISSUES 2 & 3: (Income in Respect of a Decedent)

[8] Section 691(a)(1) of the Code provides that the amount of all items of gross income in respect of a decedent 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 taxable year when received, of (A) the estate of the decedent, if the right to receive the amount is acquired by the decedent's estate from the decedent; (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.

[9] Section 691(a)(3) of the Code provides that the right to receive an amount of income in respect of a decedent shall be treated, in the hands of the estate of the decedent or any person who acquired such right by reason of the death of the decedent, as if it had been acquired by the estate or such person in the transaction in which the right to receive the income was originally derived and the amount includible in gross income shall be considered, in the hands of the estate or such person to have the character which it would have had in the hands of the decedent if the decedent had lived and received such amount.

[10] Section 1.691(a)-1(b) of the Income Tax Regulations provides that the term "income in respect of a decedent" refers to those amounts to which a decedent was entitled as gross income, but which were not properly includible in computing the decedent's taxable income for the previous taxable year under the method of accounting employed by the decedent.

[11] We conclude that if the private foundation is named the sole designated beneficiary of the IRAs and the Plans, the proceeds from the IRAs and the Plans that would have been items of gross income to the Taxpayer if the proceeds had been distributed to the taxpayer will be income in respect of a decedent to the private foundation under section 691(a)(1)(B) of the Code when distributed to the foundation. The proceeds from the IRAs and the Plans will not be income in respect of a decedent to the Taxpayer's estate and the beneficiaries of the Taxpayer's estate.

ISSUES 4 & 5:

[12] These issues are not answered herein, but are being considered separately.

[13] Except as specifically ruled above, we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the Code or any other of its provisions.

[14] This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) provides that it may not be used or cited as precedent.

Sincerely yours,

Joseph H. Makurath
Senior Technician Reviewer, Branch 7
Office of Assistant Chief Counsel
Passthroughs and Special Industries

Date Published: 05-01-98

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