Philanthropy Tax E-Letter

The IRS "Won’t Rule" List—Updated

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Every year, the Internal Revenue Service updates the list of topics on which it will: (1) not issue rulings, (2) ordinarily not issue rulings, and (3) not issue rulings because the issue is under extensive study. Rev. Proc. 2014-3, 2014-1 IRB 111 (Jan. 2, 2014).

 

The items on this year’s list of particular interest to charities and their donors are—

 

Topics on which the IRS won’t rule:

 

• Internal Revenue Code Section 102—Gifts and Inheritances. Whether a transfer is a gift within the meaning of IRC Section 102(a).

 

IRC Section 170—Charitable, etc., Contributions and Gifts. Whether a charitable contribution deduction under IRC Section 170 is allowed for a transfer of an interest in a limited partnership or limited liability company taxed as a partnership to an organization described in Section 170(c).

 

IRC Section 170—Charitable, etc., Contributions and Gifts. Whether a taxpayer who advances funds to a charitable organization and receives a promissory note may deduct as contributions, in one taxable year or in each of several years, amounts forgiven by the taxpayer in each of several years by endorsement on the note.

 

• IRC Section 641—Imposition of Tax. Whether the period of administration or settlement of an estate or a trust (other than a trust described in IRC Section 664) is reasonable or unduly prolonged.

 

IRC Section 642(c)—Deduction for Amounts Paid or Permanently Set Aside for a Charitable Purpose. Allowance of an unlimited deduction for amounts set aside by a trust or estate for charitable purposes when there's a possibility that the corpus of the trust or estate may be invaded.

 

IRC Section 664—Charitable Remainder Trusts. Whether the settlement of a charitable remainder trust upon the termination of the non-charitable interest is made within a reasonable period of time.

 

• IRC Section 2031—Definition of Gross Estate. Actuarial factors for valuing interests in the prospective gross estate of a living person. 

 

IRC Section 2055—Transfers for Public, Charitable and Religious Uses. Whether a charitable contribution deduction under IRC Section 2055 is allowed for the transfer of an interest in a limited partnership or limited liability company taxed as a partnership to an organization described in IRC Section 2055(a).

 

• IRC Section 2512—Valuation of Gifts. Actuarial factors for valuing prospective or hypothetical gifts of a donor.

 

IRC Section 2522—Charitable and Similar Gifts. Whether a charitable contribution deduction under IRC Section 2522 is allowable for a transfer of an interest in a limited partnership or limited liability company taxed as a partnership to an organization described in IRC Section 2522(a).

 

Topics on which the IRS ordinarily won’t rule:

 

• IRC Section 170—Charitable, etc., Contributions and Gifts. Whether a transfer to a pooled income fund described in IRC Section 642(c)(5) qualifies for a charitable contribution deduction under IRC Section 170(f)(2)(A).

 

IRC Section 170—Charitable, etc., Contributions and Gifts. Whether a transfer to a charitable remainder trust described in IRC Section 664 that provides for annuity or unitrust payments for one or two measuring lives, qualifies for a charitable deduction under IRC Section 170(f)(2)(A).

 

IRC Section 170—Charitable, etc., Contributions and Gifts. Whether a taxpayer who transfers property to a charitable organization and, thereafter, leases back all or a portion of the transferred property, may deduct the fair market value of the property transferred and leased back as a charitable contribution.

 

IRC Section 642—Special Rules for Credits and Deductions; Pooled Income Fund. Whether a pooled income fund satisfies the requirements described in IRC  Section 642(c)(5).

 

IRC Section 664—Charitable Remainder Trusts. Whether a charitable remainder trust that provides for annuity or unitrust payments for one or two measuring lives or for annuity or unitrust payments for a term of years, satisfies the requirements described in IRC Section 664.

 

IRC Section 664—Charitable Remainder Trusts. Whether a trust that will calculate the unitrust amount under IRC Section 664(d)(3)—a net-income-with-makeup trust (NIM-CRUT)—qualifies as an IRC Section 664 charitable remainder trust when a grantor, trustee, beneficiary or person related or subordinate to a grantor, trustee or beneficiary can control the timing of the trust’s receipt of trust income from a partnership or a deferred annuity contract to take advantage of the difference between trust income under IRC Section 643(b) and income for Federal income tax purposes for the benefit of the unitrust recipient.

 

IRC Section 664—Charitable Remainder Trusts. Whether the termination of a charitable remainder trust before the end of the trust term, as defined in the trust's governing instrument, in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets, causes the trust to cease to qualify as a charitable remainder trust within the meaning of IRC Section 664.

 

IRC Section 1001—Determination of Amount of and Recognition of Gain or Loss. Whether the termination of a charitable remainder trust before the end of the trust term, as defined in the trust's governing instrument, in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets, is treated as a sale or other disposition by the beneficiaries of their interests in the trust.

 

• IRC Section 1221—Capital Asset Defined. Whether the termination of a charitable remainder trust before the end of the trust term, as defined in the trust’s governing instrument, in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets, is treated as a sale or exchange of a capital asset by the beneficiaries.

 

• IRC Sections 2035, 2036, 2037, 2038 and 2042—Adjustments for Certain Gifts Made Within Three Years of Decedent’s Death; Transfers with Retained Life Estate; Transfers Taking Effect at Death; Revocable Transfers; Proceeds of Life Insurance. Whether trust assets are includible in a trust beneficiary’s gross estate under IRC Sections 2035, 2036, 2037, 2038 or 2042 if the beneficiary sells property (including insurance policies) to the trust or dies within 3 years of selling such property to the trust, and: (1) the beneficiary has a power to withdraw the trust property (or had such power prior to a release or modification but retains other powers which would cause that person to be the owner if the person were the grantor), other than a power which would constitute a general power of appointment within the meaning of IRC Section 2041, (2) the trust purchases the property with a note, and (3) the value of the assets with which the trust was funded by the grantor is nominal compared to the value of the property purchased.

 

IRC Section 2055—Transfers for Public, Charitable and Religious Uses. Whether a transfer to a pooled income fund described in IRC Section 642(c)(5) qualifies for a charitable deduction under IRC Section 2055(e)(2)(A).

 

IRC Section 2055—Transfers for Public, Charitable and Religious Uses. Whether a transfer to a charitable remainder trust described in IRC Section 664 that provides for annuity or unitrust payments for one or two measuring lives or a term of years, qualifies for a charitable deduction under IRC Section 2055(e)(2)(A).

 

IRC Section 2522—Charitable and Similar Gifts. Whether a transfer to a pooled income fund described in IRC Section 642(c)(5) qualifies for a charitable deduction under IRC Section 2522(c)(2)(A).

 

IRC Section 2522—Charitable and Similar Gifts. Whether a transfer to a charitable remainder trust described in IRC Section 664 that provides for annuity or unitrust payments for one or two measuring lives or a term of years, qualifies for a charitable deduction under IRC Section 2522(c)(2)(A).

 

Lexicon time. What’s the difference between "won't ordinarily” rule and won’t rule because the issue is “under extensive study”?

 

The IRS says “won't ordinarily” means that unique and compelling reasons must be demonstrated to justify the issuance of a ruling or determination letter.

 

“Under extensive study” seems to offer more hope than “won't ordinarily rule.” Still, being on the "won’t ordinarily rule" list is better than being on yet another list—“will not rule."

 

© Conrad Teitell 2014. This is not intended as legal, tax, financial or other advice. So, check with your adviser on how the rules apply to you.

 

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Conrad Teitell

Conrad Teitell, A.B., LL.B., LL.M., 98.6. Chairman, National Charitable Planning Group, Cummings & Lockwood, Stamford Conn. cl-law.com. For information about Conrad Teitell's publications...
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