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Proposed Regulations on Income Ordering Rules for Estates and Trusts
The Treasury Department and IRS recently released for publication in the Federal Register proposed regulations (REG-101258-08) that provide guidance—of particular interest to charitable lead trusts—under section 642(c) concerning the federal tax consequences of an ordering provision in a trust, will, or a provision of local law that attempts to determine the tax character of the amounts paid to a charitable beneficiary of the trust or estate.
For an electronic version of the proposed regulations (12 pages):
REG-101258-08
Summary
According to the preamble, a provision in a governing instrument (or in local law) that specifically provides as to the source out of which amounts are to be paid, permanently set aside, or used for a purpose specified in section 642(c) must have “economic effect independent of income tax consequences” for that provision to be respected for federal tax purposes.
If the provision does not have economic effect independent of the income tax consequences, income distributed for a purpose specified in section 642(c) will be deemed to consist of the same proportion of each class of the items of income as the total of each class bears to the total of all classes.
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Effective Date, Hearing Date
The regulations, as proposed, apply to trusts and estates for tax years beginning after the date on which final regulations are published in the
Federal Register.
A hearing on the proposed regulations has been scheduled for October 8, 2008, and outlines of topics to be discussed at the hearing must be received by September 18, 2008.
Comments on the proposed regulations must be received by 90 days after their publication in the
Federal Register (which was on Wednesday, June 18, 2008).
For more information, contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or
rspeizma@kpmg.com
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