IRS rules a trust's IRA income paid on to a charity is offset by a charitable deduction

Plain-English summary

A decedent named a trust as the sole beneficiary of his IRA, and the trust document directs that the IRA proceeds go to a public charity (a donor advised fund). When the trust receives IRA distributions, that money is "income in respect of a decedent" (IRD) under section 691, meaning it is taxable income to whoever receives it because the decedent never paid tax on it. The trust asked the IRS to confirm two points. The IRS ruled that the IRA distributions received by the trust are IRD includible in the trust's gross income, and that the trust is entitled to a charitable deduction under section 642(c)(1) for the amount of that IRD it pays over to the charity during the year. In practical terms, when the trust promptly passes the IRA money through to the charity, the charitable deduction offsets the taxable IRA income, so the trust is not left paying tax on money it did not keep. The ruling is limited to the sections addressed. This is a favorable ruling confirming the tax result of a charitable IRA-to-trust arrangement.

Ruling snapshot

• Question: Are IRA distributions to a trust income in respect of a decedent, and may the trust deduct under section 642(c)(1) the amount of that income it pays to a charity?
• Outcome: Approved (both rulings favorable)
• Key authorities: IRC § 691(a)(1); IRC § 642(c)(1); IRC § 170(c); Rev. Rul. 92-47; Treas. Reg. § 1.642-1

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202332011                                              Third Party Communication: None
 Release Date: 8/11/2023                                        Date of Communication: Not Applicable

 Index Number: 642.03-00, 691.00-00                             Person To Contact:
                                                                --------------------------, ID No. ---------------
 ----------------------------------------                       Telephone Number:
 ------------------------------------------------------------   --------------------
 -------                                                        Refer Reply To:
 --------------------------------------                         CC:PSI:B01
 -----------------------------                                  PLR-122488-22
 -----------------------------------                            Date:
                                                                May 17, 2023




                                                   LEGEND

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

 Decedent = -----------------

 Date 1         = -----------------

 Date 2         = -----------------

 Date 3         = --------------------------

 Charity        = ----------------------------------------------------------------------------------------------
                  ------------------------


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

       This letter responds to a to a letter dated November 14, 2022, and subsequent
correspondence, submitted on behalf of Trust requesting rulings under §§ 642(c)(1) and
691 of the Internal Revenue Code (the Code).

                                                     FACTS

       The information submitted states that Decedent created Trust on Date 1 and died
on Date 2. Decedent owned an individual retirement account (IRA) at the time of his
death, which named Trust as the sole designated beneficiary. Article FOUR of Trust
provides that the residuary of Trust, consisting of the IRA, shall be distributed to Charity,
PLR-122488-22                                 2

which is a public charity that is a donor advised fund. During Trust’s taxable year
ending Date 3, Trust received a distribution of cash from the IRA and paid the cash to
Charity within the same taxable year. In subsequent years, Trust expects to receive
distributions of cash from the IRA and pay the cash to Charity within the taxable year of
receipt.

                                    LAW & ANALYSIS

       Section 691(a)(1) provides that the amount of all items of gross income in
respect of a decedent (IRD) which are not properly includable 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 taxable 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.

       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 includable
in the gross income of the beneficiary for the tax year the distribution is received.

       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), 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 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 1.642-1(a)(1) 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.

                                      CONCLUSION

       Based solely on the facts submitted and representations made, we conclude that
for Trust’s taxable year ending Date 3, and any subsequent year, the distribution from
the IRA to Trust is IRD to Trust. We further conclude that for Trust’s taxable year
ending Date 3, and any subsequent year, Trust is entitled to a deduction under
PLR-122488-22                                  3

§ 642(c)(1) equal to the amount of IRD included in Trust’s gross income for the year as
a result of the distribution from the IRA to the extent such distribution is paid to Charity.

       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.

      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
materials submitted in support of the ruling request, it is subject to verification on
examination.

      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.

       Pursuant to a power of attorney on file, a copy of this letter is being sent to
Trust’s authorized representative.

                                        Sincerely,



                                         _/s/_______________________
                                        Jennifer N. Keeney
                                        Senior Counsel, Branch 1
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)




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