PLR 200617020: Estate may assign inherited IRA to residuary charity without recognizing IRD

Plain-English summary

A decedent named the estate as beneficiary of an IRA and a charity as a residuary beneficiary under the will. The executor proposed assigning the IRA to the charity as part of its share of the estate. The IRS ruled that the assignment would not count as a taxable transfer of a right to income in respect of a decedent under section 691(a)(2). Instead, the charity alone would include the IRA's income in respect of a decedent in its gross income when it received distributions. The IRS did not rule on whether the IRA was qualified or the charity met section 501(c)(3).

Ruling snapshot

• Question: Would assigning the inherited IRA to the residuary charity trigger income recognition by the estate?
• Outcome: Approved: the estate would not recognize income on the assignment; the charity would include the income when distributed.
• Key authorities: IRC § 691(a); Treas. Reg. § 1.691(a)-4(b)(2).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200617020
Third Party Communication: None
Release Date: 4/28/2006
Date of Communication: Not Applicable
Index Number: 691.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-147881-05
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Date:
December 08, 2005

Estate = -------------------------------------------------------------------------------------------------
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Decedent = --------------------

Charity = -------------------------------------------------------------------------------------------------
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D1 = --------------------------

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

This letter responds to a letter dated September 14, 2005, and subsequent correspondence submitted on behalf of Estate by its authorized representative, requesting a ruling under § 691 of the Internal Revenue Code.

The information submitted states that Decedent died on D1, owning an individual retirement account (the IRA). Decedent’s estate (Estate) is the named beneficiary of the IRA. Decedent’s will (the Will) names Charity as a residuary beneficiary. The executor of the Estate proposes to assign the IRA to Charity in partial satisfaction of Charity’s share of the residue. The Will provides that the executors of Estate shall have the power “[t]o make payment, division or distribution required by this Will, either in cash or in kind, or partly in each, in such manner and such proportions as they shall deem appropriate, either with or without regard to the income tax consequences of any such sale to my estate or the income tax consequences of any such distribution to the beneficiary or beneficiaries receiving such property.”

Section 691(a)(1) of the Code provides that the amount of all items of gross income in respect of a decedent (IRD) which are not properly includible in respect of the taxable period in which falls the date of the decedent=s death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by

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bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year when received, of: (A) the estate of the decedent, if the right to receive the amount is acquired by the decedent=s estate from the decedent; (B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent=s estate from the decedent; or (C) the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent=s estate of such right.

Section 691(a)(2) provides that if a right, described in § 691(a)(1), to receive an amount is transferred by the estate of the decedent or a person who received such right by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent, there shall be included in the gross income of the estate or such person, as the case may be, for the taxable period in which the transfer occurs, the fair market value of such right at the time of such transfer plus the amount by which any consideration for the transfer exceeds such fair market value. For purposes of this paragraph, the term “transfer” includes sale, exchange, or other disposition, or the satisfaction of an installment obligation at other than face value, but does not include transmission at death to the estate of the decedent or a transfer to a person pursuant to the right of such person to receive such amount by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent.

Section 1.691(a)-4(b) of the Income Tax Regulations provides that if the estate of a decedent or any person transmits the right to IRD to another who would be required by § 691(a)(1) to include such income when received in his gross income, only the transferee will include such income when received in his gross income. In this situation, a transfer within the meaning of § 691(a)(2) has not occurred.

Section 1.691(a)-4(b)(2) provides that if a right to IRD is transferred by an estate to a specific or residuary legatee, only the specific or residuary legatee must include such income in gross income when received.

Rev. Rul. 92-47, 1992-1 C.B. 198, holds that a distribution to the beneficiary of a decedent=s IRA that equals the amount of the balance in the IRA at the decedent=s death, less any nondeductible contributions, is IRD under ' 691(a)(1) that is includable in the gross income of the beneficiary for the tax year the distribution is received.

Based solely on the facts and representations submitted, we conclude that the assignment of the IRA to Charity in satisfaction of its share of the residue of Estate will not be a transfer within the meaning of § 691(a)(2). Only Charity will include the amounts of IRD in the IRA in its gross income when the distribution or distributions from the IRA are received by Charity.

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Except as specifically ruled above, we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the Code, including whether the IRA is qualified under § 408 or Charity is a § 501(c)(3) organization.

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

Pursuant to a power of attorney on file, a copy of this letter is being sent to Estate’s authorized representative.

Sincerely,

J. THOMAS HINES
Chief, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes