TaxNewsFlash-Exempt Organizations

July 9, 2008
No. 2008-62

PRINTABLE VERSION

IRS Considers Consequences of Dividing a Charitable Remainder Trust into Two or More Separate Trusts

The IRS released an advance copy of Rev. Rul. 2008-41 that considers a number of questions relating to a pro rata division of a trust that qualifies as a charitable remainder trusts (CRT) into two or more separate trusts:

Whether such a pro rata division causes the trust (or separate trusts) to fail to qualify as a CRT?
What is the basis of each separate trust’s share of each asset? Is it the same share of the basis of the asset in the hands of the trust immediately before the division?
What is each separate trust’s holding period of an asset transferred to it? Does it include the holding period of the asset as held by the original trust immediately before the division?
Does the division terminate the trust’s status as a trust subject to the private foundation rules of section 4947(a)(2) and result in the imposition of the excise tax under section 507(c)?
Does the division constitute an act of self-dealing under section 4941?
Does the division constitute a taxable expenditure under section 4945?

For an electronic version of the revenue ruling: Rev. Rul. 2008-41

Summary

In Rev. Rul. 2008-41, the IRS considered two detailed factual situations in which a charitable remainder trust is divided into two or more separate trusts.

Under the two factual situations considered in Rev. Rul. 2008-41, the IRS ruled that:

The pro rata division of the CRT does not cause the trust or any of the separate trusts to fail to qualify as a CRT.
The division is not a sale, exchange, or other disposition producing gain or loss; accordingly, the basis of each separate trust’s share of each asset is the same as in the hands of the trust immediately before the division.
Each separate trust’s holding period for an asset transferred to it by the original trust includes the holding period of the asset as held by the original trust immediately before the division.
The division does not terminate the trust’s status as a trust under the private foundation rules and does not result in the imposition of an excise tax under section 507(c).
The division is not an act of self-dealing under section 4941.
The division does not constitute a taxable expenditure under section 4945.

Revenue Ruling 2008-41 will appear in Internal Revenue Bulletin 2008-30, dated July 28, 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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