Bankers Association
Says Definition of Trust Income Conflicts With State Law
William Bosies of the
Date: Mar. 28, 2005
From: Bill Bosies [bbosies@nyba.com]
Sent: Monday, March 28, 2005 11:33 AM
To: Hughes, Catherine
Subject: Definition of Income for Trust Purposes
Dear Cathy:
Thank you for taking my call. Attached is the letter I described detailing
the conflict with some state laws of one of the newly adopted provisions of
Section 1.664-3(a)(1). Please feel free to give me a
call if you have any questions.
Sincerely,
William J. Bosies
Senior Vice President, Legislation
and Regulation
Tel. 212-297-1664
Fax. 212-297-1622
E-mail. bbosies@nyba.com
* * * * *
July 7, 2004
Mr. Bradford R. Poston
Ms. Mary Berman
Office of the Associate Chief Counsel (Passthroughs
and Special
Industries)
Internal Revenue Service
RE:
Definition of Income for Trust Purposes 12 CFR Parts 1, 20, 25 and 26
Dear Mr. Poston and Ms. Berman:
On January 2, 2004, the Service published revised regulations governing the
definition of income for trust purposes. Our Association greatly appreciates
the work of the Service in revising these regulations and, particularly, in
taking into account the concerns of trustees in States such as
The final regulations include a number of changes from those originally
proposed. Most of these changes are unobjectionable. However, one alteration
made in section 1.664-3(a)(1)(i)(b)(3)
of the final regulations that differs from that proposed establishes a
potential conflict with State law. Section 1.664-3(a)(1)(i)(b)(3) formerly provided that the proceeds from the sale
of property contributed to a charitable remainder trust were considered as
principal to the extent of their value on the date of contribution. There was
no comparable provision dealing with the sale of property purchased by the
charitable remainder trust. Some tax professionals took the view that the
proceeds from the sale of property purchased by the trust had to become part of
principal but did not have to remain as principal in a state with a
non-productive or under-productive property law.
However, in the final regulations published on January 2, a new sentence was
added to section 1.664-3(a)(1)(i)(b)(3) stating that,
"Proceeds form the sale or exchange of any property purchased by the trust
must be allocated to principal and not to trust income at least to the extent
of the trust's purchase price of those assets." In states with strong
non-productive or under-productive property statutes, this new sentence appears
to directly conflict with such state laws. For example, section 11-2.1(k) of
We therefore respectfully request that the Service consider a clarification
to section 1664-3(a)(1)(i)(b)(3)
of its regulations. We request that the Service clarify that, where a State
non-productive or under-productive property law so provides, or, where there is
no relevant state law, where state judicial decisions so provide, nothing in
section 6643(a)(1)(1)(b)(3) will limit the ability of
a trustee to treat as income the proceeds from the sale of property purchased
by a charitable remainder trust to the extent that the state law requires it to
be so considered.
We would also note that such a clarification would simply reestablish the
consistent and equal tax treatment of charitable remainder unitrusts
and income only charitable remainder unitrusts which
existed in the regulations prior to these current revisions.
Once more, we greatly appreciate the efforts of the Service to revise the
regulations governing the definition of income for trust purposes. We welcome
any questions you may have on this request.
Sincerely,
William J. Bosies
Senior Vice President, Legislation
and Regulations
Tax Analysts Information
Code Section: Section 664 -- Charitable Remainder Trusts
Geographic Identifier:
Subject Area: Trusts and estates taxation
Author: Bosies, William J.
Institutional Author:
Tax Analysts Document Number: Doc 2005-10198 [PDF]
Tax Analysts Electronic Citation: 2005 TNT 91-23
Cross Reference: For T.D. 9102, see Doc 2004-149 [PDF]
or 2004 TNT 7-19 
.