Sunday, April 28, 2024
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GiftLaw Note: Trust is an irrevocable trust with A as the primary beneficiary. The provisions of Trust provide A with a lifetime limited power of appointment to order the distribution of all or any portion of the trust assets to one or more charitable organizations. A has every intention of exercising this power upon receipt of a favorable letter ruling from the Service. Specifically, Trust requested a ruling that the distribution from Trust would qualify Trust for a charitable income tax deduction under Sec. 642(c).

Sec. 642(c)(1) provides that a trust is allowed an income tax deduction for gifts made, without limitation, pursuant to the terms of the trust provisions for a purpose specified in Sec. 170(c). Treasury Reg. 1.642(c)-1(a)(1) provides that any part of the gross income of a trust which, according to the trust terms, is paid to a charitable organization for a purpose designated under Sec. 170(c) shall give rise to a deduction in lieu of the limited charitable contribution deduction authorized by Sec. 170(a). Because Trust is making a gift authorized by the terms of the governing instrument for a purpose described in Sec. 170(c), the Service allowed the deduction, provided that the other requirements of Sec. 642 are met.
Dear * * *

This responds to a letter dated April 15, 2008 submitted on behalf of Trust by Trust's authorized representative, requesting a ruling under §642(c) of the Internal Revenue Code.

The information submitted states that Trust is an irrevocable trust created on Date 1. A, an individual, is the primary beneficiary of the Trust.

Subparagraph 3.3 (a) of the Trust Agreement provides that A has a lifetime limited power of appointment over Trust as follows: "[T]he Trustee shall distribute all or any portion of the trust estate as A may appoint, at any time and from time to time during the lifetime and upon the death of such beneficiary to any one or more 'charitable organizations'."

Subparagraph 12.1(f) of the Trust Agreement provides that a 'charitable organization' is an organization which at the time contemplated for an actual distribution to it is exempt from federal income taxation under §501(a) as an organization described in §501(c)(3) and also is described in all of §§170(c), 2055(a) and 2522(a).

A intends to exercise the limited power of appointment to cause the trustee of Trust to distribute part or all of the income of the Trust to one or more charitable organizations as defined in the Trust Agreement.

Section 642(c)(1) provides that in the case of an estate or trust (other than a trust meeting the specifications of subpart B of part I of subchapter J of chapter 1), there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by §170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in §170(c) (determined without regard to §170(c)(2)(A)).

Section 1.642(c)-1(a)(1) provides that any part of the gross income of an estate or trust which, pursuant to the terms of the governing instrument is paid (or treated under paragraph (b) of §1.642-1 as paid) during the taxable year for a purpose specified in §170(c) shall be allowed as a deduction to such estate or trust in lieu of the limited charitable contributions deduction authorized by §170(a).

Based solely on the information submitted and the representations made, we conclude that a distribution of gross income from Trust to one or more charitable organizations made pursuant to A's limited power of appointment will be made "pursuant to the terms of the governing instrument" as provided in §642(c)(1). Therefore, provided that the other requirements of §642(c) are satisfied, such distribution from Trust will qualify for the charitable contribution deduction under §642(c).

Except as specifically ruled above, we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the Code. The ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent. Pursuant to a power of attorney on file, a copy of this letter is being sent to Trust's authorized representative.

Sincerely,

Bradford R. Poston
Senior Counsel
Branch 2
(Passthroughs & Special Industries)

Related Topics On Trust Qualifies for Charitable Deduction

3.10.9  Income, Gift, Estate and Generation-Skipping Transfer Taxes:    The donor to a charitable remainder unitrust will receive an income tax deduction equal to the present value of the remainder interest. It is calculated using the applicable federal rate for the current month or one of the prior two months, as permitted under Sec. 7520.



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