In PLR 201921004 (Dec. 11, 2018), a taxpayer established multiple trusts, one for each of his grandchildren. Under each trust, distributions could be made to the grandchild beneficiary as the trustees determined. When the grandchild reached age 30, the trust was to terminate. If the grandchild died before age 30, the trust property was payable to his issue, otherwise divided among all of the taxpayer’s grandchildren then living.
The Treasury Department has issued REG-117062-18 (April 29, 2019) to amend regulations relating to electing small business trusts (ESBTs) that are grantor trusts deemed owned (in whole or in part) by nonresident aliens.
A recent Tax Court case disallowed a deduction claimed by a taxpayer on her income tax return for estate tax attributable to certain distributions from retirement plans and annuities. Under Code Section 691(c), the recipient of IRD (income in respect of a decedent) is allowed an income tax deduction equal to the amount of the federal estate tax attributable to the IRD. However, the taxpayer could not show that that the distributions she received had been taxable in her husband’s or father-in-law’s estates, and therefore the Court held the deduction was improper.
Proposed Regulations have been published regarding certain life insurance transfers and the so-called “transfer for value” rule.Code Section 6050Y imposes reporting requirements for certain sales of life insurance contracts. The IRS has now issued proposed regulations under that Section and Code Section 101 that detail how and when to make the necessary filings relating to “reportable policy sales” and payments of “reportable death benefits.”
Revenue Procedure 2019-12 clarifies the deductibility of contributions made by businesses to charities when the business expects a state or local tax credit in return for the contribution. The safe harbor applies to C corporations and to pass-through entities that are separate taxpayers operating a trade or business.
In US v Ringling et al (US District Court, South Dakota,2/21/2019), the government sought a judgment against each of the decedent’s three daughters and grandson for payment of unpaid federal estate tax, as well as penalties and interest, under Code Section 6324(a)(2). The Court upheld the government’s motion for summary judgment, holding that (1) the estate tax was not paid when due and (2) the beneficiaries received property that was included in the gross estate. As a result, the beneficiaries were liable for the unpaid portion of the estate’s liability under Code Section 6324(a).
The Supreme Court has agreed to hear an important case on state income tax issues, nexus and trust residency. In Kimberly Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue, a North Carolina state court held for the taxpayer that it was unconstitutional for the state to tax trust income solely because trust beneficiaries were residents of the state. North Carolina has appealed and the Supreme Court granted certiorari, noting that while four state courts have allowed a state to tax a trust solely because of the residency of its beneficiaries, five states have held such tax violates due process.
In PLR 201845014 the IRS approved a “sprinkling” charitable remainder trust where the unitrust payment was paid to the grantor (or his spouse following his death) and to charities, in a proportion determined by the independent trustee. This PLR is interesting in that it shows how retaining certain powers that render a gift incomplete can provide flexibility: there are no completed gifts (and related deductions) until distributions are actually made.
In PLR 201901005 (Feb. 4. 2019), disclaimers made by a trustee and family allowed a surviving spouse to receive an IRA that otherwise would have been payable to her husband’s revocable trust. The IRS confirmed that under the applicable rules of Section 408, the taxpayer would be treated as having acquired the IRA directly from her spouse and she was eligible to roll it over to her own IRA, within 60 days of the distribution without including the distribution in her own gross income.