CCA 200937028: Property transferred to a trust before death generally does not receive a section 1014 basis

Plain-English summary

Chief Counsel disagreed with a taxpayer's position concerning the basis of assets transferred into a trust before death. The advice explains that IRC § 1014(b)(1) through (10) identifies when property is treated as acquired from a decedent for the step-up basis rule. It concludes that the provisions for certain trust transfers did not apply on the stated facts because the decedent did not reserve the right to revoke or amend the trust. The advice states that property transferred before death, including property transferred to a grantor trust, generally is not subject to § 1014 unless it is included in the gross estate as described in § 1014(b)(9).

Ruling snapshot

• Question: When does property transferred to a trust before death qualify for the section 1014 basis rule?
• Outcome: Advice given.
• Key authorities: IRC § 1014(b)(1)-(10), including § 1014(b)(9); Treas. Reg. § 1.1014-1(a).

Full text (IRS public release)

ID: CCA-111831-08 Number: 200937028
Release Date: 9/11/2009
Office: ----------------
UILC: 1014.04-00

From: ---------------------
Sent: Tuesday, November 18, 2008 3:19 PM
To: ---------------
Cc: ------------------------------------------------------------------ Subject: RE: -----------------Request for Advice

We strongly disagree with taxpayer's contention. In this case, the taxpayer transferred assets into a trust and reserved the power to substitute assets.

Section 1014(b)(1)-(10) describes the circumstances under which property is treated as having been acquired from the decedent for purposes of the section 1014 step-up basis rule. Since the decedent transferred the property into trust, section 1014(b)(1) does not apply. Sections 1014(b)(2) and (b)(3) apply to transfers in trust, but do not apply here, because the decedent did not reserve the right to revoke or amend the trust. None of the other provisions appear to apply at all in this case.

Quoting from section 1.1014-1(a) of the Regulations: "The purpose of section 1014 is, in general, to provide a basis for property acquired from a decedent which is equal to the value placed upon such property for purposes of the Federal estate tax. Accordingly, the general rule is that the basis of property acquired from a decedent is the fair market value of such property at the date of the decedent's death. . . . Property acquired from the decedent includes, principally, . . . property required to be included in determining the value of the decedent's gross estate under any provision of the [Internal Revenue Code.]"

Based on my reading of the statute and the regulations, it would seem that the general rule is that property transferred prior to death, even to a grantor trust, would not be subject to section 1014, unless the property is included in the gross estate for federal estate tax purposes as per section 1014(b)(9).