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Saturday, April 27, 2024
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GiftLaw Note:
A and B are the primary beneficiaries of an irrevocable trust. A holds a lifetime limited power of appointment allowing A to make distributions from income and/or principal to any qualified charitable organization. Following A's death, B will hold the limited power. A intends to exercise the power and make distributions to one or more charities. A representative of the trust requested a Letter Ruling that the distributions would qualify under Sec. 642(c).
Section 642(c)(1) and the accompanying Treasury Regulations permit a trust or an estate to take a deduction when computing taxable income for amounts paid to or permanently set aside for a charitable purpose, pursuant to the governing instrument. The Service determined that the trust will be permitted the 642(c) deduction as the distributions are clearly permitted and anticipated by the governing instrument.
Editor's Note: Section 642(c) allows a trust or estate (but not an individual) to take a deduction for amounts paid or permanently set aside for charity but it does not have the same percentage limitations associated with charitable deductions under Sec. 170(a). In addition, Sec. 642(c) allows the contributions or set aside deduction to be taken in a year previous to the year in which the contribution or set aside actually occurred.
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PLR 201225004 Trust Distributions Qualify for Charitable Deduction
06/22/2012 (February 7, 2012)
Dear * * *
This responds to a letter dated August 18, 2011 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 and B, both individuals, are the primary beneficiaries of the Trust.
Subparagraph 2.1 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, including both income and principal, as A may appoint, at any time and from time to time during A's lifetime or upon A's death, to any one or more organizations each of which is, at the time contemplated for an actual distribution to such organization, exempt from federal income taxation under § 501(a) as an organization described in § 501(c)(3) and also is described in al of §§ 170(c), 2055(a) and 2522(a)." Following A's death, if B is then living, then B has a lifetime limited power of appointment over the Trust subject to the same terms as A's lifetime limited power of appointment.
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,
Melissa C. Liquerman,
Chief,
Branch 2 (Passthroughs & Special Industries)
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