Ltr. Rul. 8015036

Ltr. Rul. 8015036

Story posted in Letter Rulings on 5 October 1999
audience: PGDC Network | last updated: 15 June 2011

Charitable Remainder Unitrust Qualify


Section 664 -- Charitable Remainder Trusts
Index Nos.: 0664.03-02

Full Text:

January 21, 1980

Refer Reply to: T:I:I:2:3

This is in reply to a letter dated December 18, 1979, and previous correspondence, submitted on your behalf by your authorized representative requesting rulings concerning the qualification of a trust as a charitable remainder unitrust under section 664 of the Internal Revenue Code and the applicable regulations.

Article II A of the trust agreement provides that the trustee shall pay to you in each taxable year during your lifetime an amount equal to the lesser of (i) the trust income for such taxable year (as defined in section 643(b) of the Code and the regulations thereunder) and (ii) five percent of the net fair market value of the trust assets valued as of the first day of such taxable year. If the trust income for any taxable year exceeds the amount determined under (ii), the payment to you shall also include such excess income to the extent that the aggregate of the amounts paid to you in prior years is less than five percent of the aggregate net fair market value of the trust assets for such years. The unitrust amount shall be paid in quarterly installments. Any income of the trust in excess of the unitrust amount shall be added to principal.

Upon your death the trustee shall distribute all of the then remaining principal and income of the trust, after making all distributions required under Article II A, as follows: fifty (50) percent to M; twenty five (25) percent to N; twenty (20) percent to O; and five (5) percent to P. The trustee shall have the right exercisable during your lifetime by a writing delivered to you, to designate one or more organizations described in sections 2522(a) and 170(b)(1)(A) of the Code to receive all or a portion of the trust assets. The trust agreement further provides that any organization that is a beneficiary as described above must be an organization described in sections 170(c), 2055(a) and 2522(a) at the time the trust estate is to be distributed to it, otherwise the trust estate as then constituted shall be distributed to such organization or organizations that are so described as the trustee shall select and in such proportions as the trustee shall deem appropriate.

After careful consideration of the remaining provisions of the trust we conclude the following:

1. The trust complies with the requirements of section 664 of the Code and the applicable regulations, provided that the trust so executed results in the creation of a valid trust within the meaning of applicable local law.

2. The trust will be treated as a charitable remainder unitrust, for federal income tax purposes, for any year in which it continues to meet the definition of and functions exclusively as a charitable remainder trust. For such year, the trust will be exempt from taxes imposed by subtitle A of the Code unless it has any unrelated business taxable income as defined in section 512 of the Code and the regulations applicable thereto.

3. Because a trust valid under local law and created under an instrument, such as described above, will be a charitable remainder trust described in section 664 of the Code, section 170(f)(2)(A) will apply. Section 170(f)(2)(A) provides, in part, that a donor transferring property under an instrument, such as described above, will be allowed a charitable contribution deduction based upon the present value of the remainder interest thereby created. The amount of any charitable contribution deduction in respect of such remainder interest for any taxable year of a donor will be determined in accordance with the general provisions of section 170 and the regulations applicable thereto.

4. Section 2522(c)(2)(A) of the code provides that where a donor transfers property to a charitable organization described in section 2522(a) and an interest in the same property is retained by the donor, no deduction shall be allowed unless in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust as described in section 664.

Because the above mentioned trust qualifies as a charitable remainder unitrust under section 664 and the applicable regulations and because the trust instrument provides that any organization designated to receive the remainder interest must be an organization described in sections 170(c) and 2522(a), a gift tax deduction under section 2522 will be allowable for the value of the remainder interest.

5. Under Rev. Proc. 79-45, 1979 -- 38 I.R.B. 5, section 5.02, a ruling may not be issued on matters relating to the application of the estate tax to property or to the estate of a living person. Accordingly, request number 5 may not be answered.

6. Although the trust is to be funded with common stock, of a closely held corporation, subject to a binding-buy-sell agreement, the requirements of section 1.664 -- 1(a)(3) of the Income Tax Regulations will not be violated.

7. Under Rev. Proc. 79-14, 1979 -- 1 C.B. 496, section 4.02, a ruling may not be issued on the tax effect of any transaction to be consummated at some indefinite future time. Accordingly, request number 7 may not be answered.

8. As long as the trust continues to qualify as a charitable remainder unitrust under section 664 of the Code and the applicable regulations, sections 4943 and 4944 of the Code will not apply.

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.

This ruling that the trust will qualify as a charitable remainder trust is subject to the condition that there will be no amendments to the provisions of the trust, that the trust becomes effective in the form submitted, and that there are no changes in the law that would cause the trust to be disqualified.

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

In accordance with the power of attorney on file, we are providing your authorized representative with a copy of this letter.

Sincerely yours,

Anthony Manzanares, Jr.
Chief, Individual Income Tax Branch


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