Charitable trust contributions remained incomplete gifts and avoided split-interest trust rules

Plain-English summary

A settlor created an irrevocable trust for individuals and a foundation while retaining consent and limited appointment powers. The IRS ruled that the initial contribution was an incomplete gift and that distributions directed by the committee would be gifts by the settlor, not by committee members. Charitable appointments would become completed gifts eligible for the gift tax charitable deduction, and the committee members did not hold general powers of appointment that would include trust property in their estates. While the distribution committee served, the trust terms did not make the settlor or committee members owners under the grantor-trust rules examined, although treatment under § 675 would depend on how the trust was actually administered. The trust could deduct qualifying charitable payments from gross income and, because no charitable deduction was claimed for property held in the trust, it would not be treated as a split-interest trust during the settlor's life.

Ruling snapshot

• Question: What gift, estate, income, and private foundation tax rules applied to the settlor, committee members, and charitable trust?
• Outcome: Approved. The IRS granted the seven requested rulings, subject to its factual caveat under § 675.
• Key authorities: IRC §§ 2041, 2501, 2511, 2514, 2522, 642(c), 671 through 678, 681, and 4947(a)(2); Treas. Reg. §§ 25.2511-2 and 53.4947-1

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201908008 Third Party Communication: None
Release Date: 2/22/2019 Date of Communication: Not Applicable
Index Number: 2501.00-00, 2522.01-00,
2041.00-00, 671.00-00, Person To Contact:
642.00-00, 4947.00-00 --------------------------, ID No. ----- ----------
------------
------------------------- Telephone Number:
---------------------------------- --------------------
--------------------------------------------------- Refer Reply To:
CC:PSI:B04
PLR-113144-18
Re: ---------------------------------------------- Date: October 10, 2018

Legend

Settlor = ----------------------------------------------------
Trust = -----------------------------------------------------------------------------

Independent Trustee = ---------------------------
Administrative Trustee = ------------------------------------------
State = ------------
Individual A = ------------------
Individual B = ---------------------
Foundation = ---------------------------------------------------
Distribution Committee = -----------------------------------------------------------------------------
Date = ---------------------
Eligible Beneficiaries = ----------------------------------------------------------------------------

---

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

This letter responds to your authorized representative’s letter of March 22, 2018,
requesting rulings under §§ 2501, 2522, 2041, 671, 642, and 4947 of the Internal
Revenue Code.

The facts submitted and representations made are as follows.
PLR-113144-18 2

On Date, Settlor created Trust, an irrevocable trust, for the benefit of Individual A,
Individual B, and Foundation (Eligible Beneficiaries). Trust has an Independent Trustee
and an Administrative Trustee. The situs of Trust is State.

Article I(1) of Trust provides that during the life of Settlor, the trustees shall pay so
much, if any, of the net income from such trust to or for the benefit of any one or more of
the Eligible Beneficiaries, in such equal or unequal shares and to the exclusion of any
one or more of the other Eligible Beneficiaries, as the Distribution Committee shall, at
any time or from time to time by written instrument delivered to the trustees, direct;
provided, however, that the trustees shall not distribute any amount to any of the
Eligible Beneficiaries pursuant to any direction of the Distribution Committee unless and
until Settlor shall, acting individually and solely in a nonfiduciary capacity, first consent
in writing to such direction (Settlor’s Consent Power).

Article I(2) provides that the trustees shall be authorized to distribute all or any part of
the net income not so paid pursuant to Article I(1) to any one or more of the Eligible
Beneficiaries, in such equal or unequal shares and to the exclusion of any one or more
of the other Eligible Beneficiaries, as the Independent Trustee shall, at any time or from
time to time in the absolute discretion of the Independent Trustee, determine for any
purpose.

Article I(3) provides that the trustees shall pay so much, if any, of the principal of such
trust to or for the benefit of any one or more charitable organizations, and in such equal
or unequal shares, as Settlor shall, at any time or from time to time by written
instrument, direct and appoint; provided, however, that this power of appointment shall
be a limited power, which shall not be exercisable to any extent in favor of Settlor,
Settlor’s estate, the creditors of Settlor, or the creditors of Settlor’s estate (Settlor’s Inter
Vivos Limited Power of Appointment).

Any net income not so paid pursuant to Article I shall be accumulated and added to
principal.

Article II provides that following Settlor’s death, the trustees shall distribute the trust
estate to one or more charitable organizations, and in such equal or unequal shares, as
Settlor shall direct and appoint; provided, however, that this power of appointment shall
be a limited power, which shall not be exercisable to any extent in favor of Settlor,
Settlor’s estate, creditors of Settlor, or creditors of Settlor’s estate (Settlor’s
Testamentary Limited Power of Appointment). To the extent Trust property is not
effectively appointed, the trustees shall distribute such whole or part to such one or
more charitable organizations, and in such equal or unequal shares, as the Independent
Trustee shall determine in the absolute discretion of the Independent Trustee.

Article III(A) provides that during the life of Settlor, the Distribution Committee shall have
the power to direct the trustees as provided in Article I. Following Settlor’s death, the
PLR-113144-18 3

Distribution Committee shall cease to exist and the person or persons who shall,
immediately prior to the death of Settlor, be in office as members of the Distribution
Committee shall cease to have any authority, either individually or collectively, to direct
the trustees or to exercise any other right or power under Trust.

Under Article III(B), the initial members of the Distribution Committee are Independent
Trustee, Individual A and Individual B. Article III(C) provides that Settlor, or if Settlor at
any time is not able to act, the members of the Distribution Committee may appoint
successor members to the committee. The Independent Trust also has the power
under Article III(D) to appoint members to the committee.

Article III(F) provides that (i) there shall be at least one member of the Distribution
Committee in office at all times during Settlor’s life and (ii) a majority of the members of
the committee shall, at all times during Settlor’s life, consist of Eligible Beneficiaries.

Article III(G) provides that if and so long as there shall be more than one member on the
Distribution Committee, the committee shall act by majority vote of such members.

Article V(G) provides that there shall not be more than three individuals, or more than
two individuals and one corporation in office as trustees of Trust, and none of Settlor,
Settlor’s husband, and any individual or corporation who is related or subordinate to
Settlor or Settlor’s husband (within the meaning of § 672(c)) is eligible to serve as
trustee of Trust.

Article XII(B)(6) defines the term “charitable organization” to mean and include only an
organization (a) that is described in §§ 170(c), 2055(a), and 2522(a); and (b) that shall
not, by any action or course of conduct, have so disqualified itself that any charitable
deduction that would otherwise be available for federal income, estate or gift tax
purposes, in respect of property passing to such organization, would be disallowed.

Settlor has made the following representations. Settlor has not claimed nor will she
claim an income tax or gift tax charitable deduction under § 170(c) or 2522(a) for any
property transferred by Settlor to Trust at any time, unless and until Trust makes a
payment to one or more charitable organizations. No person (including any corporation
or trust) other than Settlor is presently expected to make any transfer of property to
Trust at any time, so no other charitable deduction will be claimed or available for
contributions of property to Trust. Trust will not set aside any amounts for charitable
purposes and claim a deduction under § 642(c)(2).

You have requested the following rulings:

1. The contribution of property by Settlor to Trust will not be a completed gift subject
   to federal gift tax.
   PLR-113144-18 4

2. Any distribution of income to any one of the Eligible Beneficiaries pursuant to
   Settlor’s Consent Power will not be a completed gift, subject to federal gift tax, by
   any member of the Distribution Committee.

3. If Settlor exercises Settlor’s Inter Vivos Limited Power of Appointment and
   appoints all or any part of the principal of Trust to one or more charitable
   organizations, as defined in Trust, any such distribution pursuant to the
   appointment will be a completed gift subject to federal gift tax by Settlor and, in
   such event, a gift tax charitable deduction would be allowed to Settlor under
   § 2522 for the amount of such gift.

4. The members of the Distribution Committee do not possess a general power of
   appointment within the meaning of § 2041 and, accordingly, no portion of Trust
   will be includible in the gross estate of any member of the Distribution Committee
   for federal estate tax purposes.

5. For as long as the Distribution Committee is serving, neither Settlor nor any
   member of the Distribution Committee shall be treated as the owner of any
   portion of Trust under §§ 671 through 678 and, accordingly, no portion of the
   items of income, gain, deductions and credits of Trust will be included under
   § 671 in computing the taxable income of Settlor or of any member of the
   Distribution Committee.

6. Except to the extent that Trust has “unrelated business income” within the
   meaning of § 681(a), Trust will be allowed a charitable deduction in any taxable
   year in accordance with § 642(c)(1) against any gross income, including capital
   gains and ordinary income, otherwise taxable to Trust for the full amount paid
   during such taxable year (or by the close of the following taxable year, if the
   trustees shall so elect) to charitable organizations pursuant to Settlor’s exercise
   of Settlor’s Inter Vivos Limited Power of Appointment.

7. Settlor will not be a disqualified person with respect to Trust, because Trust will
   not be treated as a split-interest trust within the meaning of § 4947(a)(2) and
   Treas. Reg. § 53.4947-1(c)(1)(i) and, accordingly, the provisions of §§ 507,
   508(e), 4941, 4943, 4944, and 4945 shall not apply to Trust during Settlor’s life.

RULING #1

Section 2501(a)(1) provides that a tax is imposed for each calendar year on the transfer
of property by gift during such calendar year by any individual, resident or nonresident.
Section 2511(a) provides that the gift tax applies whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible.
PLR-113144-18 5

Section 25.2511-2(b) of the Gift Tax Regulations provides that a gift is complete as to
any property, or part thereof or interest therein, of which the donor has so parted with
dominion and control as to leave in the donor no power to change its disposition,
whether for his own benefit or for the benefit of another. But if upon a transfer of
property (whether in trust or otherwise) the donor reserves any power over its
disposition, the gift may be wholly incomplete, or may be partially complete and partially
incomplete, depending upon all the facts in the particular case. Accordingly, in every
case of a transfer of property subject to a reserved power, the terms of the power must
be examined and its scope determined.

Section 25.2511-2(b) provides an example, where the donor transfers property to
another in trust to pay the income to the donor or accumulate it in the discretion of the
trustee, and the donor retains a testamentary power to appoint the remainder amount to
the donor’s descendants. The regulation concludes that no portion of the transfer is a
completed gift. However, if the donor had not retained a testamentary power of
appointment, but instead provided that the remainder should go to X or his heirs, the
entire transfer would be a completed gift.

Section 25.2511-2(c) provides that a gift is incomplete in every instance in which a
donor reserves the power to revest the beneficial title in himself or herself. A gift is also
incomplete if and to the extent that a reserved power gives the donor the power to name
new beneficiaries or to change the interests of the beneficiaries as between themselves
unless the power is a fiduciary power limited by a fixed or ascertainable standard.

Under § 25.2511-2(e), a donor is considered as himself having a power if it is
exercisable by the donor in conjunction with any person not having a substantial
adverse interest in the disposition of the transferred property or the income therefrom.
A trustee, as such, is not a person having an adverse interest in the disposition of the
trust property or its income.

Section 25.2511-2(f) provides that the relinquishment or termination of a power to
change the beneficiaries of transferred property, occurring otherwise than by death of
the donor, is regarded as the event which completes the gift and causes the gift tax to
apply.

Section 25.2511-2(e) does not define “substantial adverse interest.” Section 25.2514-
3(b)(2) provides, in part, that a taker in default of appointment under a power has an
interest that is adverse to an exercise of the power. Section 25.2514-3(b)(2) also
provides that a co-holder of a power is considered as having an adverse interest where
he may possess the power after the possessor’s death and may exercise it at that time
in favor of himself, his estate, his creditors, or the creditors of his estate.
PLR-113144-18 6

In Estate of Sanford v. Commissioner, 308 U.S. 39 (1939), the taxpayer created a trust
for the benefit of named beneficiaries and reserved the power to revoke the trust in
whole or in part, and to designate new beneficiaries other than himself. Six years later,
in 1919, the taxpayer relinquished the power to revoke the trust, but retained the right to
change the beneficiaries. In 1924, the taxpayer relinquished the right to change the
beneficiaries. The Court stated that the taxpayer’s gift is not complete, for purposes of
the gift tax, when the donor has reserved the power to determine those others who
would ultimately receive the property. Accordingly, the Court held that the taxpayer’s
gift was complete in 1924, when he relinquished his right to change the beneficiaries of
the trust. A taxpayer’s retention of a power to change the beneficial interests in a trust
causes the transfer to the trust to be incomplete for gift tax purposes, even though the
taxpayer may be defeated by the actions of third parties. Goldstein v. Commissioner,
37 T.C. 897 (1962); see also Estate of Goelet v. Commissioner, 51 T.C. 352 (1968).

In this case, Settlor retained Settlor’s Consent Power over the income of Trust. Under
§ 25.2511-2(e), a donor is considered as himself having a power if it is exercisable by
him in conjunction with any person not having a substantial adverse interest in the
disposition of the transferred property or the income therefrom. Pursuant to Trust, upon
Settlor’s death, the Distribution Committee ceases to exist. Further, the trustees will
distribute the property in Trust to charitable organizations, either pursuant to Settlor’s
Testamentary Limited Power of Appointment or, in default, pursuant to Article II of Trust.
Accordingly, Trust will terminate on Settlor’s death and, as a result, the Distribution
Committee members will no longer possess any powers over the property transferred to
Trust by Settlor. Under § 25.2514-3(b)(2), a co-holder of a power is only considered as
having an adverse interest where he may possess the power after the possessor’s
death and may exercise it at that time in favor of himself, his estate, his creditors, or the
creditors of his estate. Accordingly, upon Settlor’s death, the Distribution Committee
members would not be takers in default and do not have adverse interests to Settlor
under § 25.2514-3(b)(2) and for purposes of § 25.2511-2(e). They are merely co-
holders of the power at the time of Settlor’s death. Therefore, Settlor is considered as
herself possessing the power to distribute income to any beneficiary because she
retained the Settlor’s Consent Power. In addition, one member of the Distribution
Committee is the Independent Trustee. Under § 25.2511-2(e), a trustee is not a person
having an adverse interest in the disposition of the trust property or its income.
Therefore, the retention of Settlor’s Consent Power causes the income interest to be an
incomplete gift for gift tax purposes.

If Settlor does not exercise Settlor’s Consent Power, the Independent Trustee has the
discretion to distribute income to any one or more of the eligible beneficiaries.
However, the Independent Trustee’s power is not a condition precedent to Settlor’s
Consent Power. Settlor’s Consent Power over income is presently exercisable and not
subject to a condition precedent. Thus, the Independent Trustee’s power to distribute
net income does not cause the transfer of property to Trust to be complete with respect
to the income interest for federal gift tax purposes. Therefore, Settlor is considered as
PLR-113144-18 7

possessing the power to distribute income to one or more Eligible Beneficiaries because
Settlor retained Settlor’s Consent Power. However, if Settlor does not exercise Settlor’s
Consent Power and the Independent Trustee exercises his power to distribute income
to one or more Eligible Beneficiaries, Settlor will be treated as making a gift at the time
of the distribution by the Independent Trustee to the Eligible Beneficiary.
Settlor retained an Inter Vivos Limited Power of Appointment and a Testamentary
Limited Power of Appointment to appoint Trust property to one or more charitable
organizations as defined in Trust. Under § 25.2511-2(b), the retention of a testamentary
power to appoint the remainder of a trust is considered a retention of dominion and
control over the remainder. Likewise, an inter vivos power of appointment to appoint
the remainder of a trust is a retention of dominion and control over the remainder.
Accordingly, the retention of these powers causes the transfer of property to Trust to be
incomplete with respect to the remainder for federal tax purposes.

Based upon the facts submitted and representations made, we conclude that the
contribution of property to Trust by Settlor is not a completed gift subject to federal gift
tax.

RULING #2

Section 2514(b) provides that the exercise or release of a general power of appointment
created after October 21, 1942, shall be deemed a transfer of property by the
individuals possessing such power.

Section 2514(c) provides that the term “general power of appointment” means a power
which is exercisable in favor of the individual possessing the power (possessor), the
possessor’s estate, the possessor’s creditors, or the creditors of the possessor’s estate.

Section 25.2514-1(c)(1) provides that a power of appointment is not a general power of
appointment if by its terms it is exercisable only in favor of one or more designated
persons or classes other than the possessor or his creditors, or the possessor’s estate
or the creditors of the possessor’s estate or expressly not exercisable in favor of the
possessor or his creditors, or the possessor’s estate or the creditors of his estate.

Section 2514(c)(3)(A) provides that, in the case of a power of appointment created after
October 21, 1942, if the power is exercisable by the possessor only in conjunction with
the creator of the power, such power is not deemed a general power of appointment.

Section 20.2041-1(b)(2) of the Estate Tax Regulations provides that for purposes of
§§ 20.2041-1 to 20.2041-3, the term “power of appointment” does not include powers
reserved by the decedent to himself within the concept of §§ 2036 to 2038. (See
§§ 20.2036-1 to 20.2038-1.) No provision of § 2041 or of §§ 20.2041-1 to 20.2041-3 is
to be construed as in any way limiting the application of any other section of the Code or
of these regulations. The power of the owner of a property interest already possessed
PLR-113144-18 8

by him to dispose of his interest, and nothing more, is not a power of appointment, and
the interest is includible in his gross estate to the extent it would be includible under
§ 2033 or some other provision of part III of subchapter A of chapter 11.

In this case, the powers held by the Distribution Committee members under Settlor’s
Consent Power are powers that are exercisable only in conjunction with the creator,
Settlor. Accordingly, under § 2514(b) and (c), the Distribution Committee members do
not possess general powers of appointment by virtue of possessing this power.

Based upon the facts submitted and representations made, we conclude that any
distribution of income by the Distribution Committee from Trust to any beneficiary of
Trust will not be a completed gift subject to federal gift tax, by any member of the
Distribution Committee. Instead, any distribution of income by the Distribution
Committee from Trust will be a completed gift by Settlor. Further, in the event the
Settlor does not exercise Settlor’s Consent Power and the Independent Trustee
exercises his power to distribute income to one or more Eligible Beneficiaries, the
distribution of income by the Independent Trustee from Trust to one or more Eligible
Beneficiaries will be a completed gift by Settlor. Further, upon Settlor’s death, the fair
market value of Trust property remaining in Trust that has not been distributed or
otherwise appointed pursuant to Settlor’s Inter Vivos Limited Power of Appointment is
includible in Settlor’s gross estate for federal estate tax purposes. See § 20.2041-
1(b)(2) and 20.2036-1.

RULING #3

Section 2522(a)(2) provides that, in computing taxable gifts for the calendar year, there
shall be allowed as a deduction the amount of all gifts made during such year to or for
the use of a corporation, or trust, or community chest, fund, or foundation, organized
and operated exclusively for religious, charitable, scientific, literary, or education
purposes, no part of the net earnings of which inures to the benefit of any private
shareholder or individual.

Section 25.2514-1(b)(2) provides that for purposes of §§ 25.2514-1 through 25.2514-3,
the term “power of appointment” does not include powers reserved by a donor to
himself. No provision of § 2514 or of §§ 25.2514-1 through 25.2514-3 is to be
construed as in any way limiting the application of any other section of the Code or of
these regulations. The power of the owner of a property interest already possessed by
him to dispose of his interest, and nothing more, is not a power of appointment, and the
interest is includible in the amounts of his gifts to the extent it would be includible under
§ 2511 or other provisions of the Code.

In this case, pursuant to Trust, Settlor may exercise her Inter Vivos Limited Power of
Appointment to appoint principal of Trust to one or more charitable organizations.
Charitable organizations are defined to include only an organization (a) that is described
PLR-113144-18 9

in §§ 170(c), 2055(a), and 2522(a); and (b) that shall not, by any action or course of
conduct, have so disqualified itself that any charitable deduction that would otherwise
be available for federal income, estate or gift tax purposes, in respect of property
passing to such organization, would be disallowed. If Settlor exercises this power, any
distribution to a charitable organization will be a completed gift by Settlor. See
§§ 25.2514-1(b)(2) and 25.2511-2(f). Assuming such appointment is made to a
charitable organization as defined in Trust, a gift tax charitable deduction is allowable
under § 2522 for the amount of the gift.

RULING #4

Section 2041(a)(2) provides that the value of the gross estate shall include the value of
all property to the extent of any property with respect to which the decedent has at the
time of death a general power of appointment created after October 21, 1942, or with
respect to which the decedent has at any time exercised or released such a power by a
disposition which is of such nature that if it were a transfer of property owned by the
decedent, such property would be includible in the decedent’s gross estate under §§
2035 to 2038, inclusive.

Under § 2041(b)(1), the term “general power of appointment” is defined, in relevant part,
to mean a power which is exercisable in favor of the decedent, his estate, his creditors
or the creditors of his estate.

Section 2041(b)(1)(C)(i) provides, however, that in the case of a power of appointment
created after October 21, 1942, if the power is not exercisable by the decedent except
in conjunction with the creator of the power, such power is not deemed a general power
of appointment.

In this case, the powers held by the Distribution Committee members under the Settlor’s
Consent Power are powers that are exercisable only in conjunction with the creator,
Settlor. Accordingly, under § 2041(a)(2) and (b)(1)(C)(i), the Distribution Committee
members do not possess general powers of appointment by virtue of possessing these
powers.

Based upon the facts submitted and representations made, the Distribution Committee
members do not possess general powers of appointment for purposes of the federal
estate tax and, therefore, possession of these powers will not cause Trust property to
be includible in any Distribution Committee member’s gross estate under § 2041(a)(2).

RULING #5

Section 671 provides that where it is specified in subpart E of part I of subchapter J that
the grantor or another person shall be treated as the owner of any portion of a trust,
there shall then be included in computing the taxable income and credits of the grantor
PLR-113144-18 10

or the other person those items of income, deductions, and credits against tax of the
trust which are attributable to that portion of the trust to the extent that such items would
be taken into account under chapter 1 in computing taxable income or credits against
the tax of an individual.

Section 672(a) provides, for purposes of subpart E, the term “adverse party” means any
person having a substantial beneficial interest in the trust which would be adversely
affected by the exercise or nonexercise of the power which he possesses respecting the
trust.

Sections 673 through 677 specify the circumstances under which the grantor is treated
as the owner of a portion of a trust.

Section 673(a) provides that the grantor shall be treated as the owner of any portion of
a trust in which the grantor has a reversionary interest in either the corpus or the income
therefrom, if, as of the inception of that portion of the trust, the value of such interest
exceeds five (5) percent of the value of such portion.

Section 674(a) provides, in general, that the grantor shall be treated as the owner of any
portion of a trust in respect of which the beneficial enjoyment of the corpus or the
income therefrom is subject to a power of disposition, exercisable by the grantor or a
nonadverse party, or both, without the approval or consent of any adverse party.

Section 674(b) provides that § 674(a) shall not apply to the powers described in
§ 674(b) regardless of by whom held.

Section 674(b)(3) provides that § 674(a) shall not apply to a power exercisable only by
will, other than a power in the grantor to appoint by will the income of the trust where the
income is accumulated for such disposition by the grantor or may be so accumulated in
the discretion of the grantor or a nonadverse party, or both, without the approval or
consent of any adverse party.

Section 674(b)(4) provides that § 674(a) shall not apply to a power to determine the
beneficial enjoyment of the corpus or the income therefrom if the corpus or income is
irrevocably payable for a purposes specified in § 170(c) (relating to the definition of
charitable contributions).

Section 674(c) provides that § 674(a) shall not apply to a power exercisable (without the
approval or consent of any other person) by a trustee or trustees, none of whom is the
grantor, and no more than half of whom are related or subordinate parties who are
subservient to the wishes of the grantor (1) to distribute, apportion, or accumulate
income to or for a beneficiary or beneficiaries, or to, for, or within a class of
beneficiaries, or (2) to pay out corpus to or for a beneficiary or beneficiaries or to a class
of beneficiaries (whether or not income beneficiaries).
PLR-113144-18 11

Under § 675 and applicable regulations, the grantor is treated as the owner of any
portion of a trust if, under the terms of the trust agreement or circumstances attendant
on its operation, administrative control is exercisable primarily for the benefit of the
grantor rather than the beneficiary of the trust.

Section 676(a) provides that the grantor shall be treated as the owner of any portion of
a trust, whether or not he is treated as such owner under any other provision of part I,
subchapter J, chapter 1, where at any time the power to revest in the grantor title to
such portion is exercisable by the grantor or a nonadverse party, or both.

Section 677(a) provides, in general, that the grantor shall be treated as the owner of any
portion of a trust, whether or not he is treated as such owner under § 674, whose
income without the approval or consent of any adverse party is, or, in the discretion of
the grantor or a nonadverse party, or both, may be (1) distributed to the grantor or the
grantor’s spouse; (2) held or accumulated for future distributions to the grantor or the
grantor’s spouse; or (3) applied to the payment of premiums on policies of insurance on
the life of the grantor or the grantor’s spouse.

Section 678(a) provides that a person other than the grantor shall be treated as the
owner of any portion of a trust with respect to which: (1) such person has a power
exercisable solely by himself to vest the corpus or the income therefrom in himself, or
(2) such person has previously partially released or otherwise modified such a power
and after the release or modification retains such control as would, within the principles
of §§ 671 through 677, inclusive, subject a grantor of a trust to treatment as the owner
thereof.

Based on the facts submitted and representations made, we conclude an examination
of Trust reveals none of the circumstances that would cause Settlor to be treated as the
owner of any portion of Trust under § 673, 674, 676, or 677 as long as the Distribution
Committee remains in existence and serving. Because none of the members of the
Distribution Committee have a power exercisable by himself to vest trust income or
corpus in himself, none shall be treated as the owner of Trust under § 678(a).

We further conclude that an examination of Trust reveals none of the circumstances
that would cause administrative controls to be considered exercisable primarily for the
benefit of Settlor under § 675. Thus, the circumstances attendant on the operation of
Trust will determine whether Settlor will be treated as the owner of any portion of Trust
under § 675. This is a question of fact, the determination of which must be deferred
until the federal income tax returns of the parties involved have been examined by the
office with responsibility for such examination.
PLR-113144-18 12

RULING #6

Section 642(c)(1) provides that in the case of an estate or trust, there shall be allowed
as a deduction in computing its taxable deduction any 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).

Section 1.642(c)-1(a)(1) of the Income Tax Regulations provides that any part of the
gross income of a trust, which pursuant to the terms of the governing instrument, is paid
during a taxable year for a charitable purpose shall be allowed as a deduction to the
trust.

Based on the facts submitted and representations made, except to the extent that Trust
has unrelated business income within the meaning of § 681(a),Trust will be allowed a
deduction in accordance with § 642(c)(1) for amounts of gross income paid during the
taxable year (or by the close of the following taxable year if the trustee so elects) to a
charitable organization by trustee pursuant to Article I(1) or Article I(2) of Trust; Settlor’s
Inter Vivos Limited Power of Appointment in Article I(3) of Trust, and Settlor’s
Testamentary Limited Power of Appointment in Article II of Trust.

RULING #7

Section 4947(a)(2), relating to split-interest trusts, provides that in the case of a trust
which is not exempt from tax under § 501(a), not all of the unexpired interests in which
are devoted to one or more of the purposes described in § 170(c)(2)(B), and which has
amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 642(c),
2055, 2106(a), or 2522, certain private foundation provisions shall apply as if such trust
were a private foundation.

Section 53.4947-1(a) of the Foundation and Similar Excise Taxes Regulations provides
that § 4947 subjects trusts which are not exempt from taxation under § 501(a), all or
part of the unexpired interests in which are devoted to one or more of the purposes
described in § 170(c)(2)(B), and which have amounts in trust for which a deduction was
allowed under § 170 (or other charitable deduction provisions) to the same
requirements and restrictions as are imposed on private foundations. The basic
purpose of § 4947 is to prevent these trusts from being used to avoid the requirements
and restrictions applicable to private foundations. For purposes of this section, a trust
shall be presumed (in the absence of proof to the contrary) to have amounts in trust for
which a charitable deduction was allowed if a deduction would have been allowable
under one of these sections.
PLR-113144-18 13

Section 53.4947-1(c)(1)(i) provides that a trust is one which has amounts in trust for
which a deduction was allowed under § 642(c) within the meaning of § 4947(a)(2) once
a deduction is allowed under § 642(c) to the trust for any amount permanently set aside.

In Virginian Hotel Corp. v. Helvering, 319 U.S. 523 (1943), the Supreme Court held that
“allowed” meant that the taxpayer had taken the deduction and the Commissioner had
not challenged it. Id. at 527. Noting that there was “no machinery for formal allowances
of deductions from gross income,” a deduction being claimed and going unchallenged is
the only way in which a deduction could be “allowed.”

Trust has both charitable and non-charitable beneficiaries and is not exempt from tax
under § 501(a). One of the requirements to qualify as a split-interest trust described in
§ 4947(a)(2) is that the trust has amounts in trust for which a charitable deduction was
allowed to some person (including the trust itself for a charitable set-aside). Settlor has
represented that, for the duration of Trust, Trust will not hold any amounts for which a
person claimed a charitable deduction for a transfer to Trust, or for which Trust claimed
a charitable deduction under § 642(c)(2) for a set-aside. Thus, for Settlor’s life, Trust
will not qualify as a split-interest trust under § 4947(a)(2). The fact that Settlor may
claim a gift tax deduction under § 2522 (or that Trust may claim an income tax
deduction under § 642(c)(1) when a charitable distribution from Trust is made is not
material, because such amount is not held in Trust when the charitable deduction
arises.

Based upon the facts submitted and representations made, we conclude that Settlor will
not be a disqualified person with respect to Trust because Trust will not be treated as a
split-interest trust within the meaning of §§ 4947(a)(2) and 53.4947-1(c)(1)(i) and,
accordingly, the provisions of §§ 507, 508(e), 4941, 4943, 4944, and 4945 shall not
apply to Trust during Settlor’s life.

Except as specifically ruled herein, we express no opinion on the federal tax
consequences of the transaction under the cited provisions or under any other
provisions 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.

                                  Sincerely,

                                  Leslie H. Finlow
                                  Leslie H. Finlow
                                  Senior Technician Reviewer, Branch 4
                                  Office of Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosures (2)