[Federal Register Volume 68, Number 129 (Monday, July 7, 2003)]
[Rules and Regulations]
[Pages 40130-40132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17087]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 20 and 25

[TD 9068]
RIN 1545-A031


Definition of Guaranteed Annuity and Lead Unitrust Interests

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document amends the income, estate, and gift tax 
regulations to conform to the Tax Court's decision in Estate of 
Boeshore v. Commissioner. In Estate of Boeshore, the Tax Court held a 
certain provision of the Estate Tax Regulations invalid to the extent 
that it disallows a deduction for the value of a charitable unitrust 
interest if the charitable interest is preceded by a noncharitable 
interest that is in the form of a unitrust interest. This action is 
necessary to conform the income, estate, and gift tax regulations to 
the Tax Court's decision in Estate of Boeshore. The effect of these 
regulations is to allow an income, estate, or gift tax charitable 
deduction for charitable annuity or unitrust interests that are 
preceded by a noncharitable unitrust or annuity interest.

DATES: The regulations are effective July 7, 2003.

FOR FURTHER INFORMATION CONTACT: Susan Hurwitz (202) 622-3090 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: On July 23, 2002, the Treasury Department 
and the IRS published in the Federal Register (67 FR 48070) a notice of 
proposed rulemaking (REG-115781-01) conforming the income, gift, and 
estate tax regulations to the Tax Court's decision in Estate of 
Boeshore v. Commissioner, 78 T.C. 523 (1982), acq. in result (1987-2 
C.B. 1). Specifically, the existing regulations under section 170, 
2055, and 2522 governing charitable guaranteed annuity and unitrust 
interests were proposed to be amended to eliminate the requirement that 
the charitable interest commence no later than the commencement of a 
noncharitable interest that is in the form of a guaranteed annuity or 
unitrust interest. The regulations will continue to require that any 
amounts payable for a private purpose before the expiration of the 
charitable annuity or unitrust interest either must be in the form of a 
guaranteed annuity or unitrust interest or must be payable from a 
separate group of assets devoted exclusively to private purposes.
    No public hearing was requested or held, but one written comment 
was received. The commentator suggested that any charitable lead 
interest in a charitable remainder trust should be taken into account 
along with the remainder interest for purposes of satisfying the10 
percent test contained in sections 664(d)(1)(D) and (d)(2)(D) of the 
Internal Revenue Code. Among the requirements for a trust to qualify as 
a charitable remainder trust, sections 664(d)(1)(D) and (d)(2)(D) 
provide that the present value of the remainder interest must be equal 
to at least 10 percent of the initial fair market value of all property 
placed in the trust. Because the statutory requirement is based solely 
on the value of the remainder interest, it is not possible to take into 
account any lead interests that pass to charity for purposes of 
satisfying this requirement. Accordingly, this document adopts final 
regulations with respect to the notice of proposed rulemaking without 
any changes.

Effect on Other Documents

    The following publication is revoked as of July 7, 2003. Rev. Rul. 
76-225 (1976-1 C.B. 281).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedures Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because the 
regulation does not impose a collection of information requirement on 
small entities, the provisions of the Regulatory Flexibility Act (5 
U.S.C. chapter 6) do not apply.

Drafting Information

    The principal author of these proposed regulations is Susan Hurwitz 
of the Office of the Associate Chief Counsel (Passthroughs and Special

[[Page 40131]]

Industries). However, personnel from other offices of the IRS and the 
Treasury Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 20

    Estate taxes, Reporting and recordkeeping requirements.

26 CFR Part 25

    Gift taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR parts 1, 20, and 25 are amended as follows:

PART 1--INCOME TAXES

0
1. The authority citation for part 1 continues to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *


0
2. Section 1.170A-6 is amended as follows:
0
1. Paragraph (c)(2)(i)(E) is revised and the example following 
paragraph (c)(2)(i)(E) is removed.
0
2. Paragraph (c)(2)(ii)(D) is revised.
    The revisions read as follows:


Sec.  1.170A-6  Charitable contributions in trust.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * *
    (E) Where a charitable interest in the form of a guaranteed annuity 
interest is transferred after May 21, 1972, the charitable interest 
generally is not a guaranteed annuity interest if any amount may be 
paid by the trust for a private purpose before the expiration of all 
the charitable annuity interests. There are two exceptions to this 
general rule. First, the charitable interest is a guaranteed annuity 
interest if the amount payable for a private purpose is in the form of 
a guaranteed annuity interest and the trust's governing instrument does 
not provide for any preference or priority in the payment of the 
private annuity as opposed to the charitable annuity. Second, the 
charitable interest is a guaranteed annuity interest if under the 
trust's governing instrument the amount that may be paid for a private 
purpose is payable only from a group of assets that are devoted 
exclusively to private purposes and to which section 4947(a)(2) is 
inapplicable by reason of section 4947(a)(2)(B). For purposes of this 
paragraph (c)(2)(i)(E), an amount is not paid for a private purpose if 
it is paid for an adequate and full consideration in money or money's 
worth. See Sec.  53.4947-1(c) of this chapter for rules relating to the 
inapplicability of section 4947(a)(2) to segregated amounts in a split-
interest trust.
* * * * *
    (ii) * * *
    (D) Where a charitable interest is in the form of a unitrust 
interest, the charitable interest generally is not a unitrust interest 
if any amount may be paid by the trust for a private purpose before the 
expiration of all the charitable unitrust interests. There are two 
exceptions to this general rule. First, the charitable interest is a 
unitrust interest if the amount payable for a private purpose is in the 
form of a unitrust interest and the trust's governing instrument does 
not provide for any preference or priority in the payment of the 
private unitrust interest as opposed to the charitable unitrust 
interest. Second, the charitable interest is a unitrust interest if 
under the trust's governing instrument the amount that may be paid for 
a private purpose is payable only from a group of assets that are 
devoted exclusively to private purposes and to which section 4947(a)(2) 
is inapplicable by reason of section 4947(a)(2)(B). For purposes of 
this paragraph (c)(2)(ii)(D), an amount is not paid for a private 
purpose if it is paid for an adequate and full consideration in money 
or money's worth. See Sec.  53.4947-1(c) of this chapter for rules 
relating to the inapplicability of section 4947(a)(2) to segregated 
amounts in a split-interest trust.
* * * * *

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954

0
3. The authority citation for part 20 continues to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * * *


0
4. Section 20.2055-2 is amended as follows:
0
1. Paragraph (e)(2)(vi)(f) is revised.
0
2. Paragraph (e)(2)(vii)(e) is revised.
0
3. In paragraph (f)(2)(iv), Example (4) is removed.
    The revisions read as follows:


Sec.  20.2055-2  Transfers not exclusively for charitable purposes.

* * * * *
    (e) * * *
    (2) * * *
    (vi) * * *
    (f) Where a charitable interest in the form of a guaranteed annuity 
interest is in trust, the charitable interest generally is not a 
guaranteed annuity interest if any amount may be paid by the trust for 
a private purpose before the expiration of all the charitable annuity 
interests. There are two exceptions to this general rule. First, the 
charitable interest is a guaranteed annuity interest if the amount 
payable for a private purpose is in the form of a guaranteed annuity 
interest and the trust's governing instrument does not provide for any 
preference or priority in the payment of the private annuity as opposed 
to the charitable annuity. Second, the charitable interest is a 
guaranteed annuity interest if under the trust's governing instrument 
the amount that may be paid for a private purpose is payable only from 
a group of assets that are devoted exclusively to private purposes and 
to which section 4947(a)(2) is inapplicable by reason of section 
4947(a)(2)(B). For purposes of this paragraph (e)(2)(vi)(f), an amount 
is not paid for a private purpose if it is paid for an adequate and 
full consideration in money or money's worth. See Sec.  53.4947-1(c) of 
this chapter for rules relating to the inapplicability of section 
4947(a)(2) to segregated amounts in a split-interest trust.
* * * * *
    (vii) * * *
    (e) Where a charitable interest in the form of a unitrust interest 
is in trust, the charitable interest generally is not a unitrust 
interest if any amount may be paid by the trust for a private purpose 
before the expiration of all the charitable unitrust interests. There 
are two exceptions to this general rule. First, the charitable interest 
is a unitrust interest if the amount payable for a private purpose is 
in the form of a unitrust interest and the trust's governing instrument 
does not provide for any preference or priority in the payment of the 
private unitrust interest as opposed to the charitable unitrust 
interest. Second, the charitable interest is a unitrust interest if 
under the trust's governing instrument the amount that may be paid for 
a private purpose is payable only from a group of assets that are 
devoted exclusively to private purposes and to which section 4947(a)(2) 
is inapplicable by reason of section 4947(a)(2)(B). For purposes of 
this paragraph (e)(2)(vii)(e), an amount is not paid for a private 
purpose if it is paid for an adequate and full consideration in money 
or money's worth. See Sec.  53.4947-1(c) of this chapter for rules 
relating to the inapplicability of section 4947(a)(2) to segregated 
amounts in a split-interest trust.
* * * * *

[[Page 40132]]

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

0
5. The authority for part 25 continues to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
6. Section 25.2522(c)-3 is amended as follows:
0
1. Paragraph (c)(2)(vi)(f) is revised.
0
2. Paragraph (c)(2)(vii)(e) is revised.
0
3. In paragraph (d)(2)(iv), Example (4) is removed.
    The revisions read as follows:


Sec.  25.2522(c)-3  Transfers not exclusively for charitable, etc., 
purposes in the case of gifts made after July 31, 1969.

* * * * *
    (c) * * *
    (2) * * *
    (vi) * * *
    (f) Where a charitable interest in the form of a guaranteed annuity 
interest is in trust, and the gift of such interest is made after May 
21, 1972, the charitable interest generally is not a guaranteed annuity 
interest if any amount may be paid by the trust for a private purpose 
before the expiration of all the charitable annuity interests. There 
are two exceptions to this general rule. First, the charitable interest 
is a guaranteed annuity interest if the amount payable for a private 
purpose is in the form of a guaranteed annuity interest and the trust's 
governing instrument does not provide for any preference or priority in 
the payment of the private annuity as opposed to the charitable 
annuity. Second, the charitable interest is a guaranteed annuity 
interest if under the trust's governing instrument the amount that may 
be paid for a private purpose is payable only from a group of assets 
that are devoted exclusively to private purposes and to which section 
4947(a)(2) is inapplicable by reason of section 4947(a)(2)(B). For 
purposes of this paragraph (c)(2)(vi)(f), an amount is not paid for a 
private purpose if it is paid for an adequate and full consideration in 
money or money's worth. See Sec.  53.4947-1(c) of this chapter for 
rules relating to the inapplicability of section 4947(a)(2) to 
segregated amounts in a split-interest trust.
* * * * *
    (vii) * * *
    (e) Where a charitable interest in the form of a unitrust interest 
is in trust, the charitable interest generally is not a unitrust 
interest if any amount may be paid by the trust for a private purpose 
before the expiration of all the charitable unitrust interests. There 
are two exceptions to this general rule. First, the charitable interest 
is a unitrust interest if the amount payable for a private purpose is 
in the form of a unitrust interest and the trust's governing instrument 
does not provide for any preference or priority in the payment of the 
private unitrust interest as opposed to the charitable unitrust 
interest. Second, the charitable interest is a unitrust interest if 
under the trust's governing instrument the amount that may be paid for 
a private purpose is payable only from a group of assets that are 
devoted exclusively to private purposes and to which section 4947(a)(2) 
is inapplicable by reason of section 4947(a)(2)(B). For purposes of 
this paragraph (c)(2)(vii)(e), an amount is not paid for a private 
purpose if it is paid for an adequate and full consideration in money 
or money's worth. See Sec.  53.4947-1(c) of this chapter for rules 
relating to the inapplicability of section 4947(a)(2) to segregated 
amounts in a split-interest trust.
* * * * *

Robert E. Wenzel,
Deputy Commissioner for Services and Enforcement.
    Approved: June 30, 2003.
Gregory F. Jenner,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 03-17087 Filed 7-3-03; 8:45 am]
BILLING CODE 4830-01-P