EFTA01454377.pdf

The IRS has issued unpublished rulings that support this outcome.25 For example, the IRS issued a private letter ruling regarding an annuity on which payment had not yet been made that was transferred to a charity upon death of the owner of the annuity. The IRS ruled that only the charity would include income from the annuity.26 A trust was the beneficiary of the deferred annuity and under the terms of the trust distributed the annuity to a tax-exempt charity upon death of the owner of the annuity. The IRS ruled that the assignment to the charity was not a transfer triggering IRD to the estate and that only the charity would include distributions on the annuity in gross income as IRD when the distributions are made." A similar conclusion was reached by the IRS in a private letter ruling when the annuitant had not assigned a beneficiary to the deferred payment annuity and upon the death of the annuitant the estate was considered the beneficiary under state law. The estate assigned the annuity to tax-exempt charities in partial satisfaction of the charities' share of the residue of the estate. The IRS issued a private letter ruling stating that the assignment did not trigger IRD to the estate and that only the charities would include payments on the annuity in gross income as MD.28 Some additional support is also provided by private letter rulings issued by the IRS with respect to the transfer ofIRAs to tax-exempt charities or foundations. Under these rulings, the transfer of a decedent's IRA by the estate to a tax-exempt charity or foundation resulting in no IRD to the estate or other beneficiaries." A similar conclusion has also been reached with respect to the transfer to a charity or foundation of certain pension or retirement rights held by the estate of a decedent.30 a. IRD May Be Triggered if Transfer Is Made as Pan of Pecuniary Bequest IRD may thus be avoided if a tax-exempt charity or foundation is made a beneficiary upon death under the terms of the PPVA. Alternatively, the estate of the owner may be the beneficiary and the owner's will may bequeath the PPVA to the tax-exempt charity or foundation. If the latter strategy is chosen, however, the form in which the bequest is made may be important. A transfer in lieu of a pecuniary bequest should be avoided. 3. Inclusion of Annuity in Estate for Federal Estate Tax Purposes 2' Private letter rulings are not binding precedent on the IRS or a court. However, they indicate the views of the IRS and can be cited as substantial authority for penalty purposes. 36 Although the ruling did not explicitly state this, if the charity meets the requirements of a lax-exempt entity such income should not be taxable to the charity. 27 P.L.R. 200803002 (Jan. 18. 2008). P.L.R. 200618023 (May 5, 2006). 29 See, e.g.. P.L.R. 200826028 (June 27. 2008); P.L.R. 200633009 (Aug. 18.2006); P.L.R. 20052004 (May 20, 2005) (401(k) account as well as IRA); P.L.R. 199939039 (Oct. 4, 1999); P.L.R. 9818009 (May 1, 1998) (qualified retirement plan as well as IRA); P.L.R. 9723038 (June 6, 1997); P.L.R. 9341008 (July 14, 1993). 1D See, e.g. P.L.R. 2008450209 (Nov. 7. 2008) (estate that was beneficiary• of defined benefit pension plan assigned interest to charity in partial satisfaction of charity's share of residue of estate; estate has no IRD from plan); P.L.R. 200002011 (Jan. 18, 2000) (charity designated as beneficiary of deferred compensation after death and nonstatutory options bequeathed to charity; no IRD to estate); P.L.R. 9633006 (Aug. 16, 1996) (tax-exempt foundation designated as beneficiary upon death of owner of Keogh qualified employer plan for self-employed; no IRD to estate). CI P.L.R. 9845026 (Nov. 6, 1998) (distribution of bonds to tax-exempt charity by estate did not result in IRD to estate and accrued income will be included charity's income, which is exempt from tax). -7- CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0112444 CONFIDENTIAL SDNY GM_0025131528 EFTA01454377