Trust receives extra time to elect prior-year treatment for charitable payments

Plain-English summary

A trust made charitable contributions in one taxable year but intended to elect under IRC § 642(c) to treat them as paid in the preceding year. The trustee inadvertently failed to file the election by its regulatory deadline. The IRS concluded that the trust satisfied the discretionary-relief requirements and granted 120 days to make the election. The trust must file amended returns for both years as necessary to report the deduction and its consequences consistently, with a copy of the ruling attached.

Ruling snapshot

• Question: May the trust make a late election to deduct charitable contributions in the year before they were actually paid?
• Outcome: Approved. The trust received 120 days to file the election and necessary amended returns.
• Key authorities: IRC §§ 170(c), 642(c); Treas. Reg. §§ 1.642(c)-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201721003 Third Party Communication: None
Release Date: 5/26/2017 Date of Communication: Not Applicable
Index Number: 642.03-00, 9100.26-00
Person To Contact:
-------------------------------- -----------------------, ID No. --------------
-------------------------------------------- Telephone Number:
------------------------------------------ ----------------------
---------------------------- Refer Reply To:
CC:PSI:B01
PLR-126727-16
Date:
February 07, 2017

Trust = ----------------------------------------------------------------------------------------------------------------
---------------------------------------------

X = ------------------

Year 1 = -------

Year 2 = -------

Dear ---------------

This letter responds to a letter dated August 22, 2016, and subsequent correspondence,
submitted on behalf of Trust by its authorized representative, requesting that the
Service grant Trust an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to make an election under § 642(c) of the Internal Revenue
Code.

FACTS

Trustee of Trust made charitable contributions in the total amount of $X (the
Contributions) during Year 2 and intended to have the Contributions considered to be
paid in Year 1 as permitted under § 642(c). However, due to inadvertence, the § 642(c)
election was not timely filed.

LAW AND ANALYSIS

Section 642(c) provides that, in the case of an estate or trust, there shall be allowed as
a deduction in computing its taxable income (in lieu of the deduction allowed by
§ 170(a), relating to the deduction for charitable, etc., contributions and gifts) any
PLR-126727-16 2

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)). If a charitable contribution is paid after
the close of such taxable year and on or before the last day of the year following the
close of such taxable year, then the trustee may elect to treat such contribution as paid
during such taxable year. The election shall be made at such time and in such manner
as the Secretary prescribes by regulation.

Section 1.642(c)-1(b)(1) provides that for purposes of determining the deduction
allowed under § 1.642(c)-1(a), the fiduciary (as defined in § 7701(a)(6)) of an estate or
trust may elect under § 642(c)(1) to treat as paid during the taxable year (whether or not
such year begins before January 1, 1970) any amount of gross income received during
such taxable year or any preceding taxable year which is otherwise deductible under
such taxable year or any preceding taxable year and which is paid after the close of
such taxable year but on or before the last day of the next succeeding taxable year of
the estate or trust. The preceding sentence applies only in the case of payments
actually made in a taxable year which is a taxable year beginning after December 31,
1969. No election shall be made, however, in respect of any amount which was
deducted for any previous taxable year or which is deducted for the taxable year in
which such amount is paid.

Section 1.642(c)-1(b)(2) provides that the election under § 1.642(c)-1(b)(1) shall be
made not later than the time, including extensions thereof, prescribed by law for filing
the income tax return for the succeeding taxable year. Such election shall, except as
provided in § 1.642(c)-1(b)(4), become irrevocable after the last day prescribed for
making it. Having made the election for any taxable year, the fiduciary may, within the
time prescribed for making it, revoke the election without the consent of the
Commissioner.

Section 1.642(c)-1(b)(3) provides that the election shall be made by filing with the
income tax return (or amended return) for the taxable year in which the contribution is
treated as paid a statement which (1) states the name and address of the fiduciary, (ii)
identifies the estate or trust for which the fiduciary is acting, (iii) indicates that the
fiduciary is making an election under § 642(c)(1) in respect of contributions treated as
paid during such taxable year, (iv) gives the name and address of each organization to
which any contribution is paid, and (v) states the amount of each contribution and date
of actual payment, or if applicable, the total amount of contributions paid to each
organization during the succeeding taxable year, to be treated as paid in the preceding
taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but not more than 6 months except in the
case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G,
PLR-126727-16 3

H, and I. Section 301.9100-1(b) defines the term “regulatory election” as including an
election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-2 provides automatic extensions of time for making certain elections.
Section 301.9100-3 provides extensions of time for making elections that do not meet
the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be
granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
Trust has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly,
Trust is granted an extension of time of 120 days from the date of this letter to file an
election under § 642(c) to claim a deduction in Trust’s Year 1 taxable year for charitable
contributions made in Year 2. The election should be made by filing, with the
appropriate service center, amended income tax returns for Year 1 and Year 2, as
necessary, to include the election and properly report the tax consequences of the
charitable contribution deduction in a manner consistent with the election having been
made. A copy of this letter should be attached to the returns.

Except for the specific ruling above, no opinion is expressed or implied concerning the
federal tax consequences of the facts 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.
PLR-126727-16 4

In accordance with a power of attorney on file with this office, we are sending a copy of
this letter to Trust's authorized representative.

                                  Sincerely,


                                  Faith Colson

                                  Faith Colson
                                  Senior Counsel, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: