Trust gets extra time to elect to deduct a charitable gift in the earlier year it was meant to count

Plain-English summary

A trust (or estate) that pays money to charity out of its income can deduct that payment under section 642(c)(1). There is a special timing rule: if the charitable payment is actually made in the year after the tax year, the trustee can elect to treat it as if paid in the earlier year, which pulls the deduction back into that earlier year. That election has to be made by the due date (with extensions) of the return for the later year. Here the trust could have made the election to treat a charitable contribution made in "Year 2" as paid in "Year 1," but it failed to make the election on time. The trust asked the IRS for a late-election extension under Treasury Regulation section 301.9100-3. Because the election deadline is set by regulation, the IRS had discretion, and it found the trust acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days to make the election, but conditioned relief on the trust filing amended returns for both years to actually make the election and claim the deduction. The IRS took no position on whether the trust is ultimately entitled to the deduction.

Ruling snapshot

• Question: Should a trust get an extension of time to make the section 642(c)(1) election to treat a charitable contribution made in the following year as paid in the earlier tax year?
• Outcome: approved (120-day extension under Treas. Reg. § 301.9100-3, conditioned on filing amended returns for both years)
• Key authorities: IRC § 642(c)(1); Treas. Reg. §§ 1.642(c)-1(b), 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202242004                                              Third Party Communication: None
 Release Date: 10/21/2022                                       Date of Communication: Not Applicable
 Index Number: 9100.00-00, 9100.26-00
                                                                Person To Contact:
 -------------------------------------------                    --------------------, ID No. -----------------
 --------------------------                                     Telephone Number:
 ----------------------                                         --------------------
 --------------------------                                     Refer Reply To:
 -----------------------------                                  CC:PSI:03
 ---------------------------------                              PLR-104075-22
                                                                Date:
                                                                July 29, 2022




Legend


Trust:             ----------------------------------------------
-----------------------------------------

Year 1:           -------

Year 2:           -------



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


      This letter responds to your letter received January 21, 2022, and subsequent
correspondence, submitted on behalf of Trust by Trust's representative, requesting an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
to make an election under § 642(c)(1) of the Internal Revenue Code (Code) to claim a
deduction in Year 1 for contributions made in Year 2.

                                                       Facts

      The information submitted states that Trust could have made an election under
§ 642(c)(1) to treat a charitable contribution made in Year 2 as having been paid in
Year 1. However, Trust failed to make the election.
PLR-104075-22                                 2

                                    Law and Analysis

       Section 642(c)(1) provides that in the case of an estate or trust (other than a trust
meeting the specifications of subpart B of part I of subchapter J of Chapter 1 of the
Code), there shall be allowed as a deduction in computing its taxable income (in lieu of
the deduction allowed by § 170(a), relating to deduction for charitable, etc.,
contributions and gifts) 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)). 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 or
administrator 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
regulations.

       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
§ 642(c)(1) 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.

        Section 1.642(c)-1(b)(3) provides that the election shall be made by filing with the
income tax return (or an amended return) for the taxable year in which the contribution
is treated as paid a statement which (i) 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 such 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 to make a regulatory election, or a statutory election (but no more than
6 months except in the case of a taxpayer who is abroad), under all subtitles of the
PLR-104075-22                                3

Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines
the term “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

       Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make the
election.

        Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections. Section 301.9100-3 provides the standards the Commissioner
will use to determine whether to grant an extension of time for regulatory elections that
do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief
will be granted when the taxpayer provides evidence to establish to the satisfaction of
the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2)
granting relief will not prejudice the interests of the government.

                                       Conclusion

       Based on the information submitted and representations made, we conclude that
the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly,
Trust is granted an extension of time of 120 days from the date of this letter to file an
election under § 642(c)(1) to claim a deduction in the Year 1 taxable year for charitable
contributions made in Year 2. This ruling is conditioned on Trust filing amended returns
for Year 1 and Year 2 on which Trust must: (1) make the election under § 642(c)(1) to
claim a deduction on the Year 1 amended return for the distributions made by the close
of Year 2, and (2) claim a deduction for the Year 1 distributions under § 642(c)(1). The
amended returns must be filed within the 120-day period following the date of this letter
with the service center where Trust files its returns. A copy of this letter should be
attached to the amended return.

        Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Code. Specifically, we express or imply no opinion concerning whether the Trust is
entitled to a deduction under § 642(c).

      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-104075-22                                   4


         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.


                                          Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



                                    By:
                                          Richard T. Probst
                                          Senior Technician Reviewer, Branch 3
                                          Office of the Associate Chief Counsel
                                          (Passthroughs & Special Industries)




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



cc: