PLR 1027031: Assignment of inherited IRAs to a foundation was not a transfer of income in respect of a decedent

Plain-English summary

An estate and trust asked about assigning two individual retirement accounts to a foundation as payment of the foundation's residuary share. One IRA had belonged to an earlier decedent and had been inherited by the second decedent, while the other IRA belonged to the second decedent. The IRS ruled that the assignment would not be a transfer of income in respect of a decedent under section 691(a)(2). The foundation, rather than the estate or trust, would include the IRA income in its gross income when distributions were received. The ruling relied on the specific estate and trust arrangements and did not address other tax consequences.

Ruling snapshot

• Question: Would assigning the IRAs to the foundation in satisfaction of its residuary share trigger section 691(a)(2)?
• Outcome: approved
• Key authorities: IRC § 691; Treas. Reg. § 1.691(a)-4; Rev. Rul. 92-47

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027031 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 691.01-00
Person To Contact:
------------------------------------ -------------------, ID No. -------------
---------------------------------------------------- Telephone Number:
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--------------------------------- Refer Reply To:
CC:PSI:B02
PLR-148265-09
Date:
March 25, 2010

Estate = ----------------------------------------------------------------------------------------------
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Decedent = ----------------------------------------------------------------------------------------------
1 ----------------------------------------------------------------------------------------------
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Decedent ----------------------------------------------------------------------------------------------
2 ----------------------------------------------------------------------------------------------
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Trust ----------------------------------------------------------------------------------------------
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Date 1 = ----------------------------------------------------------------------------------------------
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Date 2 = ----------------------------------------------------------------------------------------------
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X = ----------------------------------------------------------------------------------------------
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Foundation

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

   This responds to a letter dated October 27, 2009, submitted on behalf of Estate

and Trust by their authorized representative, requesting a ruling under § 691 of the
Internal Revenue Code.
PLR-148265-09 2

  The information submitted states that Decedent 1 died on Date 1. Decedent 1

was the owner of an individual retirement account (IRA). The named beneficiary of the
IRA was Decedent 2. Decedent 2 converted Decedent 1’s IRA to an inherited IRA for
Decedent 2’s benefit. Decedent 2 did not designate a beneficiary for the inherited IRA.

   Decedent 2 died on Date 2. Decedent 2’s will provides that Decedent 1’s and

Decedent 2’s residuary probate property should be added to Trust. Trust provides that
upon Decedent 2’s death, a specific gift in the amount of X be paid to a specific legatee.
Trust provides that after the specific distribution is made, the residuary of the trust is to
be distributed to Foundation. Trust provides that Trustee is authorized to distribute
income and principal in cash or in kind, or partly in each, and to allocate or distribute
undivided interests or different assets or disproportionate interests in assets.

   Decedent 2 was also the owner of an IRA. The named beneficiary of the IRA did

not exist at the time of Decedent 2’s death and, therefore, Estate was designated, by
default, as the beneficiary of the IRA. The trustee of Trust and Personal Representative
of Estate propose to fund the residuary bequest by assigning Decedent 1’s and
Decedent 2’s IRAs to Foundation in satisfaction of its residuary share of Trust. Estate
and Trust represent that Trust has sufficient assets to satisfy the specific legatee
without utilizing the IRA proceeds.

   Section 691(a)(1) 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 table year when received, of: (A) the estate of the decedent, if the right to receive the
amount is acquired by the decedent’s estate; (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, the amount by which any consideration for the transfer exceeds such
fair market value. For purposes of § 691(a)(2), 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.
PLR-148265-09 3

   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.

   Section 1.691(a)-4(b)(3) provides that if a trust to which is bequeathed a right of

a decedent to certain payments of income terminates and transfers the right to a
beneficiary, only the beneficiary must include such income in gross income when
received. If the transferee described in § 1.691(a)-4(b)(2) or (3) transfers his right to
receive the amounts in the manner described in § 1.691(a)-4(a), the principles
contained in § 1.691(a)-4(a) are applied to such transfer. On the other hand, if the
transferee transmits his right in the manner described in § 1.691(a)-4(b), the principles
of § 1.691(a)-4(b) are again applied to such transfer.

   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 includible 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 IRAs to Foundation in satisfaction of its share of the residue of Estate
and Trust will not be a transfer within the meaning of § 691(a)(2). Only Foundation will
include the amount of IRD of the IRAs in its gross income when the distribution or
distributions from the IRAs is received by Foundation.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

   Pursuant to a power of attorney on file with this office, a copy of this letter is

being forwarded to Trust and Estate’s authorized representative.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.
PLR-148265-09 4

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

                                  Sincerely,



                                  Melissa C. Liquerman
                                  Branch Chief, Branch 2
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes