Charitable remainder trust may be split after divorce

Plain-English summary

A couple in divorce proceedings planned to divide a charitable remainder unitrust into two trusts holding pro rata shares of every asset. Each spouse would receive payments only from that spouse's new trust, and the remainder of each trust would pass to charities chosen by that spouse. The IRS ruled that all three trusts would retain charitable remainder unitrust status and that the division would not trigger gain or loss. The divorce-related transfers would use carryover basis and holding periods and would avoid gift tax if the divorce occurred within the stated period. Each spouse's trust would be included in that spouse's gross estate if the retained payment and substitution rights remained at death, but the charitable remainder would qualify for an estate tax deduction. The division also would not trigger private-foundation termination tax, self-dealing, or taxable-expenditure treatment.

Ruling snapshot

• Question: Could a divorcing couple split a charitable remainder unitrust into separate pro rata trusts without the listed adverse tax consequences?
• Outcome: approved
• Key authorities: IRC §§ 664, 1001, 1041, 2036, 2055, 2516, 4941, 4945, and 4947

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201648007                                             Third Party Communication: None
Release Date: 11/25/2016                                      Date of Communication: Not Applicable
Index Number: 664.00-00, 664.03-00,
              664.03-02                                       Person To Contact:
                                                              --------------------------, ID No. --------------
-----------------------------                                 Telephone Number:
--------------------------                                    ----------------------
-------------------------------------                         Refer Reply To:
                                                              CC:PSI:03
                                                              PLR-110338-16
                                                              Date:
                                                              August 15, 2016




Trust         =         --------------------------------------------------------------------------------------------
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A             =         --------------------------------------------------------------------------------------------
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B             =         --------------------------------------------------------------------------------------------
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C             =         --------------------------------------------------------------------------------------------
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Date 1        =         ----------------------------

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

Year          =         -------

State         =         ----------

Court         =         ----------------------------------------------------------------------


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

This responds to your authorized representative’s letter dated March 24, 2016, in which
you requested rulings regarding a proposed division of a charitable remainder trust.
PLR-110338-16                                 2

The facts submitted and the representations made are as follows: A established Trust
on Date 1. B is A’s wife. C is the trustee of Trust. A, B, and C represent that Trust
qualifies as a charitable remainder unitrust (“CRUT”), described in § 664(d)(2) of the
Internal Revenue Code (the “Code”). While A and B took a deduction under § 170 of
the Code at the time Trust was established, Trust represents that no deduction was
allowed under §§ 170(f)(2)(B), 642(c), 2055(e)(2)(B), or 2522(c)(2)(B) with respect to
the income interest of any lifetime beneficiary.

A and B were married prior to Date 1 and thereafter. During their marriage, A and B
have been residents of State. A and B agreed to divorce and have filed, in Court, a
petition and cross-petition for dissolution of their marriage. On Date 2, A and B, incident
to the divorce proceedings, executed a written agreement in settlement of their
respective marital property rights (the “Agreement”). Under the Agreement, A and B
agreed to delay entry of the final judgment of divorce until receipt of a private letter
ruling from the IRS. A and B anticipate securing the final decree of divorce from Court
in Year.

As part of their marriage dissolution proceedings, A and B contemplate dividing Trust
into two new charitable remainder unitrusts, Trust A and Trust B. A and B will execute a
property settlement agreement which will specify the percentage division of Trust
between Trust A and Trust B. As a result of the division of Trust assets, Trust A and
Trust B will hold a pro rata share of each asset of Trust’s corpus. A anticipates paying
all expenses incident to the division of Trust.

The general terms of Trust A and Trust B will be the same as those of Trust, with the
following exceptions: (1) A and B will each possess no interest in the other’s charitable
remainder unitrust, (2) on A’s death all the remaining assets in Trust A will be distributed
to the charitable beneficiaries designated by him and upon B’s death all remaining
assets in Trust B will be distributed to the charitable beneficiaries designated by her, (3)
A and B will each be the sole non-charitable beneficiary of Trust A and Trust B,
respectively, and (4) A and B will receive their unitrust payments from their respective
trusts.

Trust, A, and B have requested rulings on the effect of Trust’s division into Trust A and
Trust B.

LAW AND ANALYSIS

Ruling 1

Section 664(c) provides, generally, that a charitable remainder unitrust shall be exempt
from federal income tax.
PLR-110338-16                                 3

Section 664(d)(2) provides that a charitable remainder unitrust is a trust (A) from which
a fixed percentage (which is not less than 5 percent nor more than 50 percent) of the
net fair market value of its assets, valued annually, is to be paid, not less often than
annually, to one or more persons (at least one of which is not an organization described
in § 170(c) and, in the case of individuals, only to an individual who is living at the time
of the creation of the trust) for a term of years (not in excess of 20 years) or for the life
or lives of such individual or individuals, (B) from which no amount other than the
payments described in § 664(d)(2)(A) and other than qualified gratuitous transfers
described in § 664(d)(2)(C) may be paid to or for the use of any person other than an
organization described in § 170(c), (C) following the termination of the payments
described in § 664(d)(2)(A), the remainder interest in the trust is to be transferred to, or
for the use of, an organization described in § 170(c) or is to be retained by the trust for
such a use or, to the extent the remainder interest is in qualified employer securities (as
defined in § 664(g)(4)), all or part of such securities are to be transferred to an
employee stock ownership plan (as defined in § 4975(e)(7)) in a qualified gratuitous
transfer (as defined by § 664(g)), and (D) with respect to each contribution of property to
the trust, the value (determined under § 7520), of such remainder interest in such
property is at least 10 percent of the net fair market value of such property as of the
date such property is contributed to the trust.

Based solely on the facts and the representations submitted that each of Trust, Trust A,
and Trust B meet the requirements of § 664(d)(2), the division of Trust into Trust A and
Trust B will not cause either Trust, Trust A or Trust B to fail to qualify as charitable
remainder trusts under § 664.

Ruling 2

Section 61(a)(3) and (15) of the Internal Revenue Code provides that gross income
includes gains derived from dealings in property and income from an interest in a trust.

Section 1001(a) provides that the gain from the sale or other disposition of property is
the excess of the amount realized from the disposition over the adjusted basis provided
in § 1011 for determining gain, and the loss is the excess of the adjusted basis provided
in § 1011 for determining loss over the amount realized.

Section 1001(b) states that the amount realized from the sale or other disposition of
property is the sum of any money received plus the fair market value of the property
(other than money) received. Under § 1001(c), except as otherwise provided in subtitle
A, the entire amount of gain or loss, determined under § 1001, on the sale or exchange
of property must be recognized.

Section 1.1001-1(a) of the Income Tax Regulations provides that the gain or loss
realized from the conversion of property into cash, or from the exchange of property for
PLR-110338-16                                  4

other property differing materially either in kind or in extent, is treated as income or loss
sustained.

A partition of jointly owned property is not a sale or other disposition of property where
the co-owners of the joint property sever their joint interests, but do not acquire a new or
additional interest as a result of the partition. Thus, neither gain nor loss is realized on a
partition. See Rev. Rul. 56-437, 1956-2 C.B. 507 (conversion of a joint tenancy in stock
to a tenancy in common in order to eliminate the survivorship feature and the partition of
a joint tenancy in stock are not sales or exchanges).

Similarly, divisions of trusts are also not sales or exchanges of trust interests where
each asset is divided pro rata among the new trusts. See Rev. Rul. 69-486, 1969-2
C.B. 159 (pro rata distribution of trust assets not a sale or exchange).

Here, the division of Trust into Trust A and Trust B will not result in any shift in beneficial
interest in the assets of Trust. Accordingly, the division of Trust as described will not
result in the realization of gain or loss under §§ 61 and 1001.

In addition, because the division of Trust is not a taxable event under § 1001, the
holding period of the assets that Trust A and Trust B receive from Trust will include the
period that Trust held those assets.

Ruling 3

Section 1041(a) provides that no gain or loss will be recognized on a transfer of
property from an individual to or in trust for the benefit of a spouse or former spouse
if the transfer is incident to the divorce. Under § 1041(b), for the purposes of subtitle
A of the Internal Revenue Code, the transferee is treated as having acquired the
property by gift from the transferor with a carryover basis from the transferor. Under
§ 1041(c), the transfer of property is incident to the divorce if the transfer occurs
within one year after the date the marriage ceases or is related to the cessation of
the marriage. Section 1.1041-lT(b), Q&A-7, of the Income Tax Regulations provides
that a transfer of property is related to the cessation of the marriage if the transfer is
pursuant to a divorce or separation instrument as defined in § 71 (b)(2) and the
transfer occurs not more than six years after the date on which the marriage ceases.

Section 1223 provides that a taxpayer’s holding period for acquired property includes
the period the property was held by any other person if, under chapter one of the Code,
the property has, for the purpose of determining gain or loss from a sale or exchange,
the same basis in whole or in part in the taxpayer’s hands as it would have in the hands
of the other person.

In the present case, the partition of Trust into Trust A and Trust B is a transfer by A
of a portion of his interest in Trust to B incident to their divorce. Therefore, under
§ 1041(a), neither A nor B has gain or loss on the division of Trust into Trust A and
PLR-110338-16                                 5

Trust B. In addition, under § 1041(b), B’s basis in Trust B will be a pro rata portion
of A’s basis in Trust. As a result, B’s holding period in Trust B will include A’s
holding period in Trust. A’s basis in Trust A will be a pro rata portion of his basis in
Trust.

Ruling 4

Section 2501(a) imposes a gift tax for each calendar year on the transfer of property by
gift during the calendar year.

Section 2511 provides that the gift tax applies whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible.

Section 2512(b) provides that where property is transferred for less than an adequate
and full consideration in money or money's worth, then the amount by which the value
of the property exceeded the value of the consideration shall be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.

Section 25.2512-8 of the Gift Tax Regulations provides, in relevant part, that a
relinquishment or promised relinquishment of dower or curtesy, or of a statutory estate
created in lieu of dower or curtesy, or other marital rights in the spouse’s property or
estate, shall not be considered to any extent a consideration “in money or money’s
worth. However, § 25.2512-8 indicates that § 2516 and the regulations thereunder
provide specific rules with respect to certain transfers incident to a divorce.

Section 2516 provides, in relevant part, that where a husband and wife enter into a
written agreement relative to their marital and property rights and divorce occurs within
the three-year period beginning on the date one year before such agreement is entered
into (whether or not such agreement is approved by the divorce decree), any transfers
of property or interests in property made pursuant to such agreement to either spouse in
settlement of his or her marital or property rights shall be deemed to be transfers made
for a full and adequate consideration in money or money’s worth.

Section 25.2516-1(a) provides that transfers of property or interests in property made
under the terms of a written agreement between spouses in settlement of their marital
or property rights are deemed to be for an adequate and full consideration in money or
money's worth (whether or not the agreement is approved by a divorce decree), if the
spouses obtain a final decree of divorce from each other within two years after entering
the agreement.

In this case, A and B entered into the written property settlement agreement on Date 2.
A and B expect a final divorce decree to be entered the same year. Provided A’s and
B’s divorce occurs within two years of Date 2, we rule that the division of Trust and the
PLR-110338-16                                 6

pro rata distribution of Trust’s assets to Trust A and Trust B will be treated as transfers
made for full and adequate consideration in money or money’s worth and, therefore, will
not be subject to gift tax under § 2501.

Ruling 5

Section 2001 imposes a tax on the transfer of the taxable estate of every decedent who
is a citizen or resident of the United States.

Section 2033 provides that the value of the gross estate shall include the value of all
property to the extent of the interest therein of the decedent at the time of his death.

Section 2036(a) provides that the value of the gross estate shall include the value of all
property to the extent of any interest therein of which the decedent has at any time
made a transfer (except in case of a bona fide sale for an adequate and full
consideration in money or money’s worth), by trust or otherwise, under which he has
retained for his life or for any period not ascertainable without reference to his death or
for any period which does not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from, the property, or (2) the right, either alone
or in conjunction with any person, to designate the persons who shall possess or enjoy
the property or the income therefrom.

Section 20.2036-1(c) of the Estate Tax Regulations provides that if the decedent
retained or reserved an interest or right with respect to all of the property transferred by
him, the amount to be included in his gross estate under § 2036 is the value of the
entire property, less only the value of any outstanding income interest which is not
subject to the decedent’s interest or right and which is actually being enjoyed by another
person at the time of the decedent’s death. If the decedent retained or reserved an
interest or right with respect to only a part of the property transferred by him, the amount
to be included in his gross estate under § 2036 is only a corresponding proportion of the
amount described in the preceding sentence.

Section 2055(a) provides, for purposes of the tax imposed by § 2001, the value of the
taxable estate shall be determined by deducting from the value of the gross estate the
amount of all transfers for charitable purposes.

Section 20.2055-1(a) provides that a deduction is allowed under § 2055(a) from the
gross estate of a decedent who was a citizen or resident of the United States at the time
of his death for the value of property included in the decedent’s gross estate and
transferred by the decedent during his lifetime or by will for charitable purposes.

Section 2055(e)(2) provides, in relevant part, that where an interest in property (other
than an interest described in § 170(f)(3)(B)) passes or has passed from the decedent to
a person, or for a use, described in § 2055(a), and an interest (other than an interest
PLR-110338-16                                 7

which is extinguished upon the decedent’s death) in the same property passes or has
passed (for less than an adequate and full consideration in money or money’s worth)
from the decedent to a person, or for a use, not described in § 2055(a), no deduction
shall be allowed under § 2055 for the interest which passes or has passed to the
person, or for the use, described in § 2055(a) unless, in the case of a remainder
interest, such interest is in a trust which is a charitable remainder annuity trust or a
charitable remainder unitrust (described in § 664) or a pooled income fund (described in
§ 642(c)(5)).

In this case, A and B entered into the Agreement incident to their anticipated divorce,
which we assume for purposes of this ruling will occur within the time period specified in
§ 2516. Pursuant to the Agreement, each party has given up certain property rights and
interests in exchange for the release by the other party of property rights and interests.
A and B have effectively agreed upon what percentage of the value of Trust resulted
from the contribution of each and, as a result, upon what percentage each party is
entitled to after divorce. Accordingly, we conclude that, for purposes of § 2036, A will
be treated as having transferred the property distributed from Trust to the new
charitable remainder unitrust of which A is the non-charitable beneficiary, and B will be
treated as transferring the property distributed from Trust to the new charitable
remainder unitrust of which B is the non-charitable beneficiary.

A and B each retained the right to receive unitrust payments for life from his or her
respective trust as well as the lifetime power over his or her respective trust to substitute
the charitable beneficiaries designated in the trust instrument with one or more other
charitable organizations described in §§ 170(b)(1)(A), 170(c), 642(c), 2055(a) and
2522(a).

With respect to A, we rule that upon A’s death, if A retains the right to receive unitrust
payments for life and the power to substitute the charitable beneficiaries of Trust A, the
value of the assets of Trust A will be included in A’s gross estate under § 2036. Further,
we rule that A’s estate will be entitled to an estate tax charitable deduction under § 2055
for the value of the assets of Trust A that will pass upon A’s death to the charitable
beneficiaries designated by A.

With respect to B, we rule that upon B’s death, if B retains the right to receive unitrust
payments for life and the power to substitute the charitable beneficiaries designated of
Trust B, the value of the assets of Trust B will be included in B’s gross estate under
§ 2036. Further, we rule that B’s estate will be entitled to an estate tax charitable
deduction under § 2055 for the value of the assets of Trust B that will pass upon B’s
death to the charitable beneficiaries of designated by B.

Rulings 6, 7, and 8
PLR-110338-16                                  8

IRC § 507(a) provides that, except as provided in § 507(b), a private foundation may
terminate its private foundation status only if the private foundation notifies the
Secretary of its intent to terminate its status as a private foundation or it is involuntarily
terminated by the Secretary due repeated acts, or a willful and flagrant act giving rise to
chapter 42 liability.

IRC § 507(b)(2) provides that in the case of the transfer of assets of any private
foundation to another private foundation pursuant to any liquidation, merger,
redemption, recapitalization, or other adjustment, organization or reorganization, the
transferee foundation shall not be treated as a newly created organization.

IRC § 507(c) imposes an excise tax on any private foundation which voluntarily
terminates its private foundation status under § 507(a)(1).

IRC § 507(d)(2) provides that the term substantial contributor means any person who
contributed or bequeathed an aggregate amount of more than $5,000 to the private
foundation, if such amount is more than 2 percent of the total contributions and
bequests received by the foundation before the close of the taxable year of the
foundation in which the contribution or bequest is received by the foundation from such
person. In the case of a trust, the term “substantial contributor” also means the creator
of the trust.

IRC § 4941(d)(1)(A) provides that the term “self-dealing” includes any direct or indirect
sale or exchange, or leasing, between a private foundation and a disqualified person.

IRC § 4941(d)(1)(E) provides that the term “self-dealing” includes any direct or indirect
transfer to, or use by or for the benefit of, a disqualified person of the income or assets
of a private foundation.

IRC § 4945 imposes an excise tax on each taxable expenditure described in § 4945(d)
made by a private foundation.

IRC § 4945(d) defines the term “taxable expenditure” to include amounts paid or
incurred by a private foundation for certain activities, for a purpose other than one
specified in § 170(c)(2)(B), or as a grant to certain organizations unless the private
foundation exercises expenditure responsibility with respect to such a grant.

IRC § 4945(d)(4) provides that a taxable expenditure includes any amount paid or
incurred by a private foundation as a grant to an organization unless the private
foundation exercises expenditure responsibility with respect to such grant in accordance
with § 4945(h).

IRC § 4946(a)(1)(A), (B), and (D) defines the term “disqualified person” with respect to a
private foundation as including (among others) a substantial contributor to the private
PLR-110338-16                                 9

foundation (including the creator of a trust), a foundation manager (including a trustee),
and a member of the family of a substantial contributor or foundation manager.

IRC § 4946(a)(2) provides that “substantial contributor” is defined as the term is
described in § 507(d)(2).

IRC § 4947(a)(2) provides that for a split interest charitable trust, §§ 507, 508(e), 4941,
4943, 4944, and 4945 apply as if such trust were a private foundation.

IRC § 4947(a)(2)(A) provides that the provisions of § 4947(a)(2) do not apply to any
amounts payable under the terms of a split interest charitable trust to income
beneficiaries unless a deduction was allowed under § 170(f)(2)(B), 642(c),
2055(e)(2)(B), or 2522(c)(2)(B).

Treas. Reg. § 1.507-1(b)(6) provides, in part, that if a private foundation transfers all or
part of its assets to one or more other private foundations pursuant to a transfer
described in § 507(b)(2) and § 1.507-3(c), such transferor foundation will not have
terminated its private foundation status under § 507(a)(1).

Treas. Reg. § 1.507-3(a)(3) provides, in general, that in the event of a transfer of assets
described in § 507(b)(2), any person who is a substantial contributor (within the
meaning of § 507(d)(2)) with respect to the transferor foundation shall be treated as a
substantial contributor with respect to the transferee foundation.

Treas. Reg. § 1.507-3(a)(7) provides, in part, that, except as provided in § 1.507-
3(a)(9), if the transferor has disposed of all of its assets, then during any period in which
the transferor has no assets, §§ 4945(d)(4) and (h) shall not apply to the transferee or
the transferor with respect to any “expenditure responsibility” grants by the transferor.

Treas. Reg. § 1.507-3(a)(9)(i) provides that if a private foundation transfers all of its
assets to one or more private foundations which are effectively controlled, directly or
indirectly, by the same person or persons which effectively controlled the transferor
private foundation, for purposes of Chapter 42 (§ 4940 et seq.) and part II of subchapter
F of Chapter 1 of the Code (§§ 507 through 509) such a transferee private foundation
shall be treated as if it were the transferor private foundation.

Treas. Reg. § 1.507-3(c)(1), in pertinent part, that as used in § 507(b)(2), the terms
“other adjustment, organization, or reorganization” include any partial liquidation or any
other significant disposition of assets to one or more private foundations, other than
transfers for full and adequate consideration or distributions out of current income.

Treas. Reg. § 1.507-3(c)(2)(ii) provides that the term “significant disposition of assets”
means the transfer of twenty-five percent (25%) or more of the fair market value of the
PLR-110338-16                                 10

net assets of the foundation at the beginning of the taxable year, which disposition may
be made in a single year or in a series of related dispositions over more than one year.

Treas. Reg. § 1.507-3(d) provides that unless a private foundation voluntarily gives
notice pursuant to § 507(a)(1), a transfer of assets described in § 507(b)(2) will not
constitute a termination of the transferor’s private foundation status under § 507(a)(1).

Treas. Reg. § 53.4945-5(b)(7) of the foundation regulations confirms that §§ 1.507-
3(a)(7), 1.507-3(a)(8)(ii)(f), and 1.507-3(a)(9) govern the extent to which the expenditure
responsibility rules contained in §s 4945(d)(4) and (h) apply to transfers of assets
described in § 507(b)(2).

Treas. Reg. § 53.4945-6(b)(2) provides that expenditures for unreasonable
administrative expenses, including compensation, consultant fees, and other fees for
services will ordinarily be taxable expenditures under § 4945(d)(5).

Treas. Reg. § 53.4945-6(c)(3) states that a transfer of assets described in § 1.507-
3(c)(1) of the regulations applies only to organizations described in § 501(c)(3) or
“treated as so described under § 4947(a)(1).”

Treas. Reg. § 53.4947-1(c)(1)(ii) provides that a split-interest trust is subject to the
provisions of §s 507 (except as provided in § 53.4947-1(e)), 508(e) (to the extent
applicable to a split-interest trust), 4941, 4943 (except as provided in § 4947(b)(3)),
4944 (except as provided in § 4947(b)(3)), and 4945 of the Code in the same manner
as if such trust were a private foundation.

Treas. Reg. § 53.4947-1(c)(2)(i) of the foundation regulations provides, that under
§ 4947(a)(2)(A), § 4941 does not apply to any amounts payable under the terms of a
split interest trust to income beneficiaries unless a deduction was allowed under
§§ 70(f)(2)(B), 642(c), 2055(e)(2)(B), or 2522(c)(2)(B) with respect to the income
interest of any such beneficiary.

Rev. Rul. 2002-28, 2002-20 I.R.B. 941, provides, in part, that, once a private foundation
distributes all of its assets to one or more other effectively controlled private foundations
under a plan of dissolution, the obligation to exercise expenditure responsibility under
§ 4945(h) with respect to the transfers made by the transferor foundation passes from
that foundation to the transferee foundation(s).

Rev. Rul. 2008-41, 2008-30 I.R.B. 170, provides guidance regarding IRC §§ 507, 4941,
4945, and 4947 when a charitable remainder trust is divided into two or more separate
and equal charitable remainder trusts.

Ruling 6
PLR-110338-16                                  11

As a split-interest trust, Trust is generally treated as if it were a private foundation under
IRC § 4947(a)(2). Thus, except as provided in § 4947(a)(2)(A) and Treas. Reg.
§ 53.4947-1(c)(2)(i) of the foundation regulations, it is subject to the termination
provisions of § 507, as well as the provisions of §§ 4941 and 4945.

Under § 1.507-3(c), the proposed division of all of Trust’s assets to Trust A and Trust B
will constitute a significant disposition of Trust’s assets because the transfer is greater
than twenty-five percent (25%) of Trust’s assets. Trust A and Trust B will both be
treated as private foundations with respect to § 507 pursuant to § 4947(a)(2).
Therefore, the proposed transfers are described in § 507(b)(2). A division of assets
described in § 507(b)(2) does not constitute a termination of the transferor’s private
foundation status under § 507(a)(1) unless the transferor voluntarily gives notice
pursuant to § 507(a)(1). Since Trust has not given notice of its intent to terminate, it
retains its private foundation status and the termination tax imposed by § 507(c) will not
apply. Accordingly, the division and distribution of Trust assets into Trust A and Trust B
does not terminate Trust ‘s status under § 507(a)(1) as a trust described in and subject
to the private foundation provisions of § 4947(a)(2), and does not result in the imposition
of an excise tax under § 507(c).

Ruling 7

As a CRUT under § 664(d)(2), Trust is a split-interest trust described in § 4947(a)(2)
and treated as a private foundation for purposes of § 4941. Section 4941 imposes an
excise tax on acts of self-dealing. A and B are disqualified persons with respect to Trust
under § 4946 as substantial contributors to Trust. However, the only interest A and B
have in Trust is the right to the payment of the unitrust amount. After division of Trust,
the total unitrust amount payment remains the same during the lives of A and B. Since
the transferee CRUTs do not have survivorship provisions, when A or B dies, the
remainder of each of their CRUTs is immediately distributed to qualified charities.
Section 4947(a)(2)(A) and § 53.4947-1(c)(2) provide that § 4941 does not apply to any
amounts payable under the terms of a split interest trust to income beneficiaries unless
a deduction was allowed under §§ 170(f)(2)(B), 642(c), 2055(e)(2)(B), or 2522(c)(2)(B)
with respect to the income interest of any such beneficiary. Based on the
representation that no such deduction was allowed, payments to A from Trust A and to
B from Trust B as income beneficiaries will not be acts of self-dealing under § 4941.

Ruling 8

As a CRUT under § 664(d)(2), Trust is a split-interest trust described in § 4947(a)(2)
and treated as a private foundation for purposes of § 4945. Thus, an excise tax is
imposed on taxable expenditures, including any amount paid or incurred by a private
foundation for a non-charitable purpose. Trust A and Trust B, as charitable remainder
unitrusts under § 664(d)(2), are also treated as private foundations for purposes of §
4945 under the provisions of § 4947(a)(2). However, pursuant to § 4947(a)(2)(A),
PLR-110338-16                                  12

amounts payable to income beneficiaries under the terms of such a charitable
remainder trust, are not subject to the provisions of § 4945 unless a deduction was
allowed for those amounts under §§ 170(f)(2)(B), 2055(e)(2)(B), or 2522(e)(2)(B).
Based on the representation that no such deduction was allowed, payments to A from
Trust A and to B from Trust B as income beneficiaries will not be taxable expenditures
under § 4945.

Trust will transfer all of its assets to Trust A and Trust B. Thus, under Rev. Rul. 2008-
41, the transfer of Trust’s assets are not expenditures that require expenditure
responsibility pursuant to §§ 1.507-3(a)(7) or 1.507-3(a)(9). Because Trust has made
no prior distributions for which expenditure responsibility is required, Trust A and Trust
B assume no preexisting expenditure responsibility from Trust under §§ 1.507-3(a)(7) or
1.507-3(a)(9). Therefore, the division of Trust and the distribution of its assets to Trust
A and Trust B do not constitute taxable expenditures under § 4945.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Furthermore, the estate tax rulings in this letter apply only to the extent that
the relevant sections of the Internal Revenue Code are in effect during the period at
issue.

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

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to Trust’s authorized representative.


                                        Sincerely,



                                        Bradford Poston
                                        Senior Counsel, Branch 3
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)


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