Trust may deduct IRA proceeds paid to a charity

Plain-English summary

A decedent named a trust as beneficiary of several individual retirement accounts, and the trust instrument directed those accounts to a charitable foundation. The trust proposed to receive each IRA balance in cash and pay the cash to the foundation during the same tax year. The distributions would be income in respect of a decedent included in the trust's gross income. The IRS ruled that, if the trust paid the entire lump-sum distributions to the foundation in the year received, it could deduct the included income under section 642(c)(1).

Ruling snapshot

• Question: Could the trust deduct IRA distributions that it received and paid to the designated charitable foundation in the same year?
• Outcome: Approved, provided the entire distributions were paid to the foundation in the year received.
• Key authorities: IRC §§ 642(c)(1) and 691(a)(1); Treas. Reg. § 1.642-1; Rev. Rul. 92-47

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201611002 Third Party Communication: None
Release Date: 3/11/2016 Date of Communication: Not Applicable
Index Number: 642.03-00, 691.01-00
Person To Contact:
---------------------------------------- ----------------------, ID No. -------------
------------------------------------------ Telephone Number:
----------------------------- ---------------------
------------------------------ Refer Reply To:
CC:PSI:01
PLR-119576-15
Date:
December 07, 2015

Legend

Trust = -----------------------------------------------------------------------------------------------
-----------------------------

Decedent = -----------------------------

Date 1 = --------------------------

Date 2 = ---------------------

Foundation = -----------------------------------------------------------------------------------------------
-----------------------------

Dear ----------------:

This responds to a letter dated August 18, 2014, and subsequent correspondence,
requesting rulings under the Internal Revenue Code.

                                                  Facts

The information states that Decedent created Trust on Date 1 and died on Date 2.
Decedent owned multiple individual retirement accounts (IRAs) at the time of his death,
each of which named Trust as the sole designated beneficiary. Article VI of Trust states
that Decedent’s IRAs shall be distributed to Foundation, represented as being an
organization described in § 170(c). Trust proposes to receive a lump sum distribution of
cash from each of the IRAs and then pay that cash to Foundation within the same
taxable year.
PLR-119576-15 2

                                       Law

Section 691(a)(1) provides that the amount of all items of gross income in respect of a
decedent (IRD) which are not properly includible in respect of the taxable period in
which falls the date of the decedent's death or a prior period (including the amount of all
items of gross income in respect of a prior decedent, if the right to receive such amount
was acquired by reason of the death of the prior decedent or by bequest, devise, or
inheritance from the prior decedent) shall be included in the gross income, for the table
year when received, of: (A) the estate of the decedent, if the right to receive the amount
is acquired by the decedent's estate; (B) the person who, by reason of the death of the
decedent, acquires the right to receive the amount, if the right to receive the amount is
not acquired by the decedent's estate from the decedent; or (C) the person who
acquires from the decedent the right to receive the amount by bequest, devise, or
inheritance, if the amount is received after a distribution by the decedent's estate of
such right.

Rev. Rul. 92-47, 1992-1 C.B. 198, holds that a distribution to the beneficiary of a
decedent's IRA that equals the amount of the balance in the IRA at the decedent's
death, less any nondeductible contributions, is IRD under § 691(a)(1) that is includible in
the gross income of the beneficiary for the tax year the distribution is received.

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§ 170(c)(2)(A)).

Section 1.642-1(a)(1) provides that any part of the gross income of a trust which,
pursuant to the terms of the governing instrument, is paid during a taxable year for a
charitable purpose shall be allowed as a deduction to the trust.

                             Analysis and Conclusion

Based solely on the facts and representations submitted we conclude that provided that
Trust pays the entire lump sum distribution to Foundation in the year received, Trust is
entitled to a deduction under § 642(c)(1) equal to the amount of IRD included in Trust’s
gross income as a result of the distribution of the IRAs.

Except as specifically ruled herein, we express no opinion on the federal tax
consequences of the transaction under the cited provisions or under any other
provisions of the Code.
PLR-119576-15 3

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, copies of this letter are
being sent to the taxpayer's authorized representative.

                                   Sincerely,


                                   Faith P. Colson
                                   Faith P. Colson
                                   Senior Counsel, Branch 1
                                   (Passthroughs & Special Industries)

Enclosures (2)
Copy of this Letter.
Copy for § 6110 purposes
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