PLR 200850004: Assigning an inherited IRA to charities does not immediately trigger income

Plain-English summary

A decedent named one person as beneficiary of an IRA but left charitable bequests in a will without identifying how to fund them. After the named beneficiary disclaimed the IRA, the estate became its beneficiary under state law, and a court reformed the will to use the IRA for specified shares passing to three charities. The IRS ruled that assigning those portions of the IRA to the charities would not be a taxable transfer of income in respect of a decedent under IRC § 691(a)(2). Instead, each charity would include its assigned IRA income in gross income when it actually received distributions. The IRS did not decide whether the recipients qualified as charitable organizations under IRC § 501(c)(3).

Ruling snapshot

• Question: Does an estate immediately recognize income in respect of a decedent when it assigns portions of an inherited IRA to specific charitable legatees?
• Outcome: Approved. The assignments are not transfers under IRC § 691(a)(2), and the charities recognize the income when they receive IRA distributions.
• Key authorities: IRC § 691(a); Treas. Reg. § 1.691(a)-4(b); Rev. Rul. 92-47.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200850004
Third Party Communication: None
Release Date: 12/12/2008
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:B1
PLR-112973-08
Date: September 8, 2008

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

Charity 1 = ----------------------------------------------------------------

Charity 2 = ----------------------------------------------------

Charity 3 = ----------------------------------------

Date 1 = --------------------------

Date 2 = ------------------

Court = --------------------------------------------

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

This responds to a letter dated March 10, 2008, 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 Date 1, owning an individual retirement account (IRA), which designated A as the sole beneficiary of the
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IRA. However, Decedent’s will provided for certain charitable bequests to Charity 1, Charity 2 and Charity 3. The will of Decedent did not specify the intended funding source of the charitable bequest. A timely filed a qualified disclaimer of the IRA. Lacking a named beneficiary, the executor of Decedent’s estate represents that under relevant state law, Estate is therefore the beneficiary of the IRA. On Date 2, Court approved a Motion to Reform Decedent’s will, to designate the IRA as the source of the respective charity’s specific shares of Estate.

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 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.
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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 partial assignment of the IRA to Charity 1, Charity 2, and Charity 3 in satisfaction of their specific share of Estate will not be a transfer within the meaning of § 691(a)(2). Only Charity 1, Charity 2, and Charity 3 will include the amounts of IRD of the IRA assigned to them in their gross income when the distribution or distributions from the IRA are actually received by Charity 1, Charity 2, and Charity 3.

Except as specifically ruled above, we express no opinion concerning the federal tax consequences of the transaction described above under any other provisions of the Code, including whether the Charities are § 501(c)(3) organizations.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(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,

David R. Haglund

David R. Haglund
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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