PLR 200616009: Trust may deduct gross income paid to qualified charities

Plain-English summary

A trust's governing terms allowed its trustees to distribute net income to qualifying charitable organizations after specified conditions were met. The trust asked whether charitable distributions would be deductible. The IRS ruled that gross income paid under the trust's terms to qualified charities for purposes described in section 170(c) would be deductible under section 642(c) when computing the trust's taxable income. The ruling did not address other federal income tax consequences.

Ruling snapshot

• Question: Could the trust deduct income distributed to qualified charities under its governing terms?
• Outcome: Approved for qualifying distributions of trust gross income.
• Key authorities: IRC §§ 642(c), 170(c), 501(c)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200616009
Third Party Communication: None
Release Date: 4/21/2006
Date of Communication: Not Applicable
Index Number: 642.03-00
Person To Contact:
------------------------------------------------ --------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
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CC:PSI:B02
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PLR-137553-05
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Date:
December 23, 2005

Trust = ------------------------------------------------------------------------------------------------
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EIN: ----------------

D1 = ---------------------------

Dear ------------:

This letter responds to a letter dated July 11, 2005, and subsequent correspondence, submitted on behalf of Trust by Trust’s authorized representative requesting a ruling under § 642(c) of the Internal Revenue Code.

The information submitted states that Trust was created on D1. Trust provides that after certain conditions are met concerning the value of the assets in Trust and the Trustees determine that certain other distributions cannot be made, the Trustees are authorized to make distributions of net income to be paid to such organization or organizations as the Trustees may select which at the time of the distribution qualify for tax exemption under § 501(a) by reason of qualifying under § 501(c)(3).

Section 642(c) provides that in the case of a trust, there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by § 170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in § 170(c) (determined without regard to § 170(c)(2)(A)).

PLR-137553-05
2

Therefore, Trust income paid for a purpose specified in § 170(c) will be paid pursuant to the terms of Trust and Trust will be entitled to a deduction under § 642(c) in computing its taxable income for distributions of Trust gross income paid to qualified charitable organizations.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transaction described above under any other provision of the Code.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to Trust’s authorized representatives.

Sincerely,

J. Thomas Hines
Chief, Branch 2
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)