Thursday April 25, 2024

Notice 99-31 FLIP Deadline Extended to June 30, 2000
GiftLaw Note: Proposed regulations issued on December 9, 1998 permitted FLIP's of existing unitrusts. However, these FLIP's were to be commenced by June 8, 1999. In response to the needs of charities and attorneys who were faced with difficulty in obtaining the required affidavits of consent by the deadline, the Service in Notice 99-31 issued May 20, 1999 has extended the deadline until June 30, 2000. This extension will permit many more trust grantors to benefit from conversion of net income unitrusts to straight unitrusts. The Notice also permits nonjudicial reformations completed by June 30, 2000.

PART III -- ADMINISTRATIVE, PROCEDURAL, AND MISCELLANEOUS


This notice informs taxpayers that the deadline for special reformations of charitable remainder unitrusts (CRUTs) provided in section 1.664-3(a)(1)(i)(f)(3) of the Income Tax Regulations will be extended from June 8, 1999, until June 30, 2000. This notice also explains that the term "legal proceedings" in section 1.664-3(a)(1)(i)(f)(3) includes certain non-judicial reformations provided they are completed by June 30, 2000.

BACKGROUND


Section 1.664-3(a)(1)(i)(c) contains the rules for CRUTs that use a combination of methods to compute the unitrust amount. If certain requirements are satisfied, the governing instrument of a CRUT may provide that the unitrust amount is computed using one of the income exception methods during an initial period and thereafter using the fixed percentage method (flip provision). The same fixed percentage must be used throughout the term of the CRUT.
Under section 1.664-3(a)(1)(i)(f)(1), the flip provision is available for CRUTs created on or after December 10, 1998. However, section 1.664-3(a)(1)(i)(f)(3) permits reformations of a CRUT whose governing instrument either contains an impermissible flip provision or uses only one of the income exception methods. Such a CRUT may be reformed to include a permitted flip provision if the trustee begins legal proceedings to reform by June 8, 1999.

DISCUSSION


Since the issuance of section 1.664-3(a)(1)(i)(f)(3), a number of practitioners have requested additional time to begin legal proceedings to reform a CRUT. The Treasury Department and the Service also understand that there may be state law impediments to meeting the June 8, 1999, deadline. In response, the Treasury Department and the Service intend to amend section 1.664-3(a)(1)(i)(f)(3) to extend the June 8, 1999, deadline to June 30, 2000.
[5] Many practitioners have also inquired whether the term "legal proceedings" in section 1.664-3(a)(1)(i)(f)(3) requires a judicial reformation if non-judicial reformations are permitted under state law. The Treasury Department and the Service will clarify that the term "legal proceedings" includes a non-judicial reformation that is valid under state law, but that a non-judicial reformation must be completed by June 30, 2000.
Taxpayers seeking a non-judicial reformation should ascertain what their state law requires for such a reformation to be valid. For example, in some states, a non-judicial reformation requires the consent of all beneficiaries, including potential beneficiaries. In addition, in some states, the state's Attorney General has jurisdiction over charitable remainder trusts and must be notified of or consent to a reformation on behalf of the named or unnamed charitable beneficiaries. In some cases, the state's Attorney General may more closely oversee charitable remainder trusts in which the specific charitable organization is not named in the governing instrument or is subject to change by the grantor or another person.

EFFECTIVE DATE


The amendments to section 1.664-3(a)(1)(i)(f)(3) described in this notice will be effective December 10, 1998.

DRAFTING INFORMATION


The principal author of this notice is Mary Beth Collins of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Collins on (202) 622-3080 (not a toll-free call).

S. 997; Charity Empowerment Act of 1999 (May 11, 1999)

GiftLaw Description:: Senator Santorum has introduced S. 997, the Charity Empowerment Act of 1999. Section V of this bill is comparable to H.R. 1311, the Charitable Rollover Act of 1999.

GiftLaw Note: Senator Santorum has introduced S. 997, the Charity Empowerment Act of 1999. Section V of this bill is comparable to H.R. 1311, the Charitable Rollover Act of 1999. Under both bills, it will be possible for persons 59 and ½ or older to make transfers outright to charity from IRA's. In addition, there could be transfers directly to a one or two life charitable remainder unitrust or annuity trust, a pooled income fund or a gift annuity. There will be no income tax deduction for the transfer, since the distribution directly from the IRA to the trustee will not be reportable as ordinary income by the IRA owner.

106th CONGRESS 1st Session S. 997

To assist States in providing individuals a credit against State income taxes or a comparable benefit for contributions to charitable organizations working to prevent or reduce poverty and protect and encourage donations to charitable organizations, to prohibit discrimination against nongovernmental organizations and certain individuals on the basis of religion in the distribution of government funds to provide government assistance and the distribution of such assistance, to allow such organizations to accept such funds to provide such assistance without impairing the religious character of such organizations, to provide for tax-free distributions from individual retirement accounts for charitable purposes, and for other purposes.

IN THE SENATE OF THE UNITED STATES
May 11, 1999

Mr. Santorum (for himself, Mr. Abraham, Mr. Ashcroft, Mr. Brownback, Mr. Coverdell, Mr. DeWine, Mrs. Hutchison, and Mr. McCain) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To assist States in providing individuals a credit against State income taxes or a comparable benefit for contributions to charitable organizations working to prevent or reduce poverty and protect and encourage donations to charitable organizations, to prohibit discrimination against nongovernmental organizations and certain individuals on the basis of religion in the distribution of government funds to provide government assistance and the distribution of such assistance, to allow such organizations to accept such funds to provide such assistance without impairing the religious character of such organizations, to provide for tax-free distributions from individual retirement accounts for charitable purposes, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.


(a) Short Title. -- This Act may be cited as the "Charity Empowerment Act of 1999".

(b) Table of Contents. -- The table of contents for this Act is as follows:

TITLE V -- TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR CHARITABLE PURPOSES

SEC. 501. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR CHARITABLE PURPOSES.

(a) In General. -- Subsection (d) of section 408 of the Internal Revenue Code of 1986 (relating to individual retirement accounts) is amended by adding at the end the following new paragraph:

(8) Distributions for charitable purposes. --
(A) In general. -- No amount shall be includible in gross income by reason of a qualified charitable distribution from an individual retirement plan -- "(i) to an organization described in section 170(c), or "(ii) to a trust or fund, or for the issuance of an annuity, described in subparagraph (B).

(B) Special rules relating to charitable remainder trusts, pooled income funds, and charitable gift annuities. --
(i) In general. -- A trust, fund, or annuity is described in this subparagraph if such trust, fund, or annuity is --
(I) a charitable remainder annuity trust or a charitable remainder unitrust (as such terms are defined in section 664(d)),
(II) a pooled income fund (as defined in section 642(c)(5)), or
(III) a charitable gift annuity (as defined in section 501(m)(5)).
The preceding sentence shall apply only if no person holds an income interest in the amounts in the trust, fund, or annuity attributable to a qualified charitable distribution other than one or more of the following: the individual for whose benefit such account or annuity is maintained, the spouse of such individual, or any organization described in section 170(c).

(ii) Determination of inclusion of amounts distributed. -- In determining the amount includible in the gross income of any person by reason of a payment or distribution from a trust referred to in clause (i)(I) or a charitable gift annuity (as so defined), the portion of any qualified charitable distribution to such trust or for such annuity which would (but for this subparagraph) have been includible in gross income --
(I) shall be treated as income described in section 664(b)(1), and
(II) shall not be treated as an investment in the contract.

(iii) No inclusion for distribution to pooled income fund. -- No amount shall be includible in the gross income of a pooled income fund (as so defined) by reason of a qualified charitable distribution to such fund.

(C) Qualified charitable distribution. -- For purposes of this paragraph, the term 'qualified charitable distribution' means any distribution from an individual retirement plan --
(i) which is made on or after the date that the individual for whose benefit the account or annuity is maintained has attained age 591/2, and
(ii) which is made directly from the account or annuity to --
(I) an organization described in section 170(c); or
(II) a trust, fund, or annuity described in subparagraph (B).

(D) Denial of deduction. -- The amount allowable as a deduction under section 170 to the taxpayer for the taxable year shall be reduced (but not below zero) by the sum of the amounts of the qualified charitable distributions during such year which would be includible in the gross income of the taxpayer for such year but for this paragraph."

(b) Effective Date. -- The amendment made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act



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