Keeping CPAs Up to Date on Tax Matters
A site devoted to articles on current developments in federal taxes geared toward CPAs in tax practice.
In Memorandum AM 2020-006[1] the IRS looked at a marketed charitable remainder annuity trust structure which claimed to allow a taxpayer to completely avoid paying tax on large capital gains. The IRS was not impressed with the marketing materials they reviewed, finding the program failed to accomplish the goal implied by the materials.
Read MoreIn Revenue Procedure 2016-42 the IRS gave sample language that can be included in the governing instrument of a Charitable Annuity Trust (CRAT) providing for annuity payments payable for one or more measuring lives followed by the distribution of trust assets to one or more charitable remaindermen that can allow the trust to escape the “probability of exhaustion” testing found in Revenue Ruling 70-452.
Charitable remainder trusts, as defined in IRC §664, provide one of the few methods that allow for a charitable deduction of a partial interest to a charity for either income tax or estate tax purposes. The trusts provide for a payout to an income beneficiary for a period of time (can be a fixed number of years or for life) and then, following the end of that term, the balance remaining in the trust being paid to a charitable organization. A deduction is allowed for the discounted value of the expected balance to be paid to the charity at the time the trust is formed.
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Read MoreSometimes it takes a while for the Tax Court to issue a decision on an issue that you might have thought would have been addressed previously. Such is true with regard to the issue of valuing net income makeup charitable remainder unitrusts (NIMCRUTs) created under IRC §664. In the case of Estate of Schaefer v. Commissioner, 145 TC No. 4, the Tax Court addressed this issue.
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