IRS written determination 201438014

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201438014
Release Date: 9/19/2014
Index Number: 691.01-00, 642.03-02
------------------------------
----------------------------------------
--------------------------
-------------------------
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
-------------------------, ID No. -----------------
----------------------------------------------------
Telephone Number:
------------------
Refer Reply To:
CC:PSI:03
PLR-147375-13
Date:
May 5, 2014
LEGEND
Trust=------------------------------
----------------------
Decedent =-------------------------------
Date 1=----------------
Date 2
Date 3
=
=
---------------------------
--------------------------
a=----------
b=-------------
c=-------------
d=-------------
Charity1=--------------------------------------------------------
Charity2=------------------------------------------
State=------------
Dear ------------:

PLR-147375-13
2
This letter responds to a letter dated October 1, 2013, and subsequent correspondence,
submitted on behalf of Trustby its authorized representative, requesting a ruling under
§ 691 and § 642 of the Internal Revenue Code.
FACTS
The information submitted states that Decedentcreated Truston Date1and died on
Date2. Decedentowned an individual retirement account (IRA) at the time of his death,
of which the designated beneficiary was Trust. Trustprovides for the distribution of
Decedent’s estate, including the payment of pecuniary bequests of $a and $b to
Charity1and Charity2, respectively. At the time of Decedent’s death, Trust’s assets
totaled $c, $d of which was in the IRA. The pecuniary bequests to Charity1and
Charity2exceeded the amount of Trust’s non-IRA assets.
On Date3, a court order in Statereformed Trust. The purpose of the reformation was to
ensure that Trust’s distribution of IRA assets to Charity1and Charity2would be treated
as direct bequests to the charities rather than as income in respect to Trustof a
decedent under §691. Alternatively, the purpose of the reformation was to qualify the
Trust for a charitable deduction under § 642(c).
Trustrequests the following rulings:
1. that the payment of pecuniary bequests to Charity1and Charity2from IRA
assets will not cause Trustto recognize income in respect of a decedent
(IRD) under §691(a);
2. that if Trustdoes recognize IRD on the payments, it can claim adeduction
under §642(c); and
3. that the Internal Revenue Service will respect Trust’s reformation.
LAW
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 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)).

PLR-147375-13
3
Section 1.642(c)-1(a)(1) provides that any part of the gross income of atrust 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.
Section 691(a)(1) provides that the amount of all items of gross income in respect of a
decedent which are not properly includible in respect of the taxable period in which falls
the date of his 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 from the decedent; (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.
Section 691(a)(2) provides that if a right, described in §691(a)(1), to receive an amount
is transferred by the estate of the decedent or a person who received such right by
reason of the death of the decedent or by bequest, devise, or inheritance from the
decedent, there shall be included in the gross income of the estate or such person, as
the case may be, for the taxable period in which the transfer occurs, the fair market
value of such right at the time of such transfer plus the amount by which any
consideration for the transfer exceeds such fair market value. For purposes of this
paragraph, the term “transfer” includes sale, exchange, or other disposition, or the
satisfaction of an installment obligation at other than face value, but does not include
transmission at death to the estate of the decedentor a transfer to a person pursuant to
the right of such person to receive such amount by reason of the death of the decedent
or by bequest, devise, or inheritance from the decedent.
Section 1.691(a)-1(b) provides that the term “income in respect of a decedent” (IRD)
refers to those amounts to which a decedent was entitled as gross income, but which
were not properly includible in computing the decedent's taxable income for the taxable
year ending with the date of the decedent’s death or for a previous taxable year under
the method of accounting employed by the decedent.
Section 1.691(a)-4(a) provides that in general, the transferor must include in his gross
income for the taxable period in which the transfer occurs the amount of the
consideration, if any, received for the right or the fair market value of the right at the
time of the transfer, whichever is greater.
Section 1.691(a)-4(b) provides that if the estate of a decedent or any person transmits
the right to IRD to another who would be required by § 691(a)(1) to include such income

PLR-147375-13
4
when received in his gross income, only the transferee will include such income when
received in his gross income.
Section 1.691(a)-4(b)(2) provides that if a right to IRD is transferred by an estate to a
specific or residuary legatee, only the specific or residuary legatee must include such
income in gross income when received.
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 theIRA 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 taxable year the distribution is received.
Kenan v. Commissioner, 114 F.2d 217 (2d Cir. 1940), holds that if a trust or estate
satisfies a pecuniary legacy with property, the payment is treated as a sale or exchange
of the property.
In Commissioner v. Estate of Bosch, 387 U.S. 456 (1967), the Supreme Court
considered whether a state trial court’s characterization of property rights conclusively
binds a federal court or agency in a federal estate tax controversy. The Court concluded
that the decision of a state trial court as to an underlying issue of state law should not
be controlling when applied to a federal statute. Rather, the highest court of the state is
the best authority on the underlying substantive rule of state law to be applied in the
federal matter. If there is no decision by that court, then the federal authority must apply
what it finds to be state law after giving “proper regard” to the state trial court’s
determination and to relevant rulings of other courts of the state. In this respect, the
federal agency may be said, in effect, to be sitting as a state court.
In Crown Income Charitable Fund v. Commissioner, 8 F.3d 571, 573 (7
th
Cir. 1993),
aff'g98 T.C. 327 (1992), the Seventh Circuit addressed the issue of commutation. The
trust at issue in Crown Income Charitable Fundcontained a provision permitting the
trustees to commute the charitable interest only if, as a matter of law, it was clear that
doing so would not adversely affect the maximum charitable deduction otherwise
available. The trustees of the Crown Income Charitable Fund distributed trust assets in
excess of the annuity amount to the charitable beneficiary over a number of years and
deducted, under § 642(c), the full amount distributed to the charitable beneficiaries.
Both the Seventh Circuit and the Tax Court held that the excess distributions were not
deductible under § 642(c) because those instruments were not made pursuant to the
terms of the governing instrument.
In Brownstone v. United States, 465 F.3d 525 (2
nd
Cir. 2006), a deceased husband’s will
created a marital deduction trust, which granted the husband’s surviving wife a general
testamentary power of appointment. When the wife died, she exercised her power in
favor of her estate, the residue of which passed to charitable organizations. The trustee
of the marital deduction trust distributed $1 million to the wife’s estate and claimed a

PLR-147375-13
5
charitable contribution deduction under § 642(c), because the $1 million distribution
passed entirely to the charitable beneficiaries under the wife’s will.
The Second Circuit in Brownstoneheld that the distribution to the charities was made
pursuant to the wife’s power of appointment and not pursuant to the governing
instrument, the deceased husband’s will. The Second Circuit interpreted the definition of
governing instrument narrowly, stating that an instrument subject to the creating
instrument (the wife’s will) could not combine with the creating instrument (the
husband’s will) and qualify as the governing instrument. The sole governing instrument
in Brownstoneis the husband’s original will; therefore, the marital deduction trust is not
entitled to a deduction under § 642(c) since the distribution was made pursuant to the
wife’s will.
Rev. Rul. 59-15, 1959-1 C.B. 164, citing Emanuelson v. United States, 159 F. Supp 34
(Conn. 1958), heldthat a settlement agreement arising from a will contest qualifies as a
governing instrument for purposes of § 642(c).
ANALYSIS AND CONCLUSION
In reforming the trust instrument in this case, the state court did not resolve aconflict
with respect to Trust. The original Trustinstrument entitled Charity1and Charity2to $a
and $b, respectively, of Trustproperty. The purpose of the court order was to obtain the
tax benefits that would ensue if Trust’s transfers to Charity1and Charity2were treated
as direct bequests of the IRD amounts to the charities under § 691(a)(1) or considered
to be made out of the trust’s gross income pursuant to the terms of the governing
instrument under §642(c). Neither Rev. Rul. 59-15 nor Emanuelsonhold that a
modification to a governing instrument will be construed to be the governing instrument
in situations where the modification does not stem from a conflict. Additionally, both
Crown Income Charitable Fundand Brownstonehave a narrow interpretation of what
qualifies as pursuant to a governing instrument.
Accordingly, based solely on the facts and representations submitted, we conclude the
following:
1. because Trustwill use IRA assets to satisfy its pecuniary legacies, Trustmust
treat the payments as sales or exchanges. Therefore, under § 691(a)(2), the
payments are transfers of the rights to receive the IRD and Trustmust include
in its gross income the value of the portion of the IRA which is IRD to the
extent the IRA was used to satisfy the pecuniary legacies.

PLR-147375-13
6
2. the terms of Trustdo not direct or require that the trustee pay the pecuniary
legacies from Trust’s gross income. Accordingly, the transfer of a portion of
the IRA in satisfaction of the pecuniary legacies does not entitle Trustto a
deduction under § 642(c)(1); and
3. because the purpose of the court order reforming Trustwas to obtain tax
benefits rather than resolve a conflict, the Internal Revenue Service will not
respect Trust’s reformation.
Except as specifically ruled above, we express or imply no opinion concerning the
federal tax consequences of the transactions described above under any of the
provisions of the Code or regulations.
This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
Sincerely,
_________________________
James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for §6110 purposes
cc: