Ltr. Rul. 9015049

Ltr. Rul. 9015049

Story posted in Letter Rulings on 18 August 1999
audience: PGDC Network | last updated: 15 June 2011
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CHARITABLE TRUST FUNDED WITH PROPERTY ON WHICH IT ASSUMES MORTGAGE PAYMENTS IS DISQUALIFIED

Reference:

Section 664 -- Charitable Remainder Trusts
UIL Number(s) 0664.03-02

Full Text:

Date: January 16, 1990

Refer Reply to: CC:P&SI:3 TR-31-1070-89

Dear * * *

This letter is in reply to your letter of February 2, 1989 and subsequent correspondence, on behalf of your client, requesting rulings concerning the qualification of the Trust as a charitable remainder unitrust under section 664 of the Internal Revenue Code and the applicable regulations and other related issues.

The Trust, as proposed, is to be funded by A's contribution to it of income-producing real estate. Such real estate is encumbered by a mortgage liability for which A is to remain personally liable following the transfer of the property to the Trust. The Trust proposes to pay the regularly scheduled installments on the mortgage liability as they become due.

Section 664(a) of the Code provides that the provisions of this section of the Code shall, in accordance with regulations prescribed by the Secretary of the Treasury, apply in the case of a charitable remainder trust.

Section 1.664-1(a)(4) of the Income Tax Regulations provides that in order for a trust to be a charitable remainder trust, it must meet the definition of, and function exclusively as, a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4) also provides that solely for the purposes of section 664 and the regulations thereunder, the trust will be deemed to be created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (relating to grantors and others treated as substantial owners).

Section 671 of the Code provides the general rule that if the grantor or another person is treated as the owner of any portion of a trust, his taxable income and credits shall include those items of income, deduction, and credits against tax of the trust that are attributable to that portion of the trust to the extent that such items would be taken into account in computing the taxable income or credits against tax of an individual.

Section 673 through 677 of the Code specify the circumstances under which the grantor is regarded as the owner of a portion of a trust.

Section 677(a) of the Code provides that the grantor is treated as the owner of any portion of a trust whose income is or, in the discretion of the grantor or a nonadverse party or both, may be distributed to the grantor.

Section 1.677(a)-1(d) of the regulations provides that under section 677 a grantor is, in general, treated as the owner of a portion of a trust whose income is, or, in the discretion of the grantor or a nonadverse party or both, may be applied in discharge of a legal obligation of the grantor.

In the instant case, the Trust as proposed will make the payments on the mortgage liability for which the grantor remains personally liable. Therefore, pursuant to section 1.677(a)-1(d) of the regulations, the grantor of the proposed Trust will be treated as the owner of the entire Trust. As long as the grantor is treated as the owner of the entire trust under section 677, the trust is not deemed to be created for purposes of section 664. Thus, the Trust as proposed is not a charitable remainder unitrust under section 664 of the Code.

The other issues on which rulings were requested presupposed that the trust would be a qualified charitable remainder unitrust under section 664 of the Code. Because the trust as proposed is not a qualified charitable remainder trust, those issues are not addressed in this letter ruling.

No opinion is expressed as to the federal tax consequences of the formation or operation of the Trust under the provisions of any other section of the Code. No opinion is expressed as to any amendments to the provisions of the Trust.

A copy of this letter should be attached to the federal tax return for the first taxable year of the Trust if it is established. A copy is enclosed for that purpose.

This ruling letter is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Code provides that it may not used cr cited as precedent.

Sincerely yours,

Frances D. Schafer
Senior Technician Reviewer, Branch 3
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy of this letter
Copy for section 6110 purposes

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