Internal Revenue Service
Revenue Ruling
Rev. Rul. 79-368
1979-2 C.B. 109
Section 170
Section 664
IRS Headnote
Charitable contributions; trust remainder; percentage limitation of
deduction. The allowable charitable deduction for property transferred to a
valid charitable remainder trust is subject to the 20 percent contributions
limitation when the organization designated to receive the remainder
interest may be redesignated from an organization qualifying for the 50
percent limitation to an organization subject to the 20 percent limitation.
Full Text
Rev. Rul. 79-368
ISSUE
What percentage limitation is applicable to a charitable contributions
deduction under section 170 of the Internal Revenue Code under the
circumstances described below?
FACTS
A made an inter vivos transfer of property to a valid charitable remainder
trust described in section 664(d) of the Code. A charitable organization
described in section 170(b)(1)(A) was designated as the recipient of the
remainder interest upon termination of the trust.
The terms of the trust instrument provide that the grantor and surviving
beneficiaries of the income interest have the power at any time to change
the identity of the charitable organization designated in the trust
instrument to another charitable organization described in section 170(c)
of the Code.
LAW AND ANALYSIS
Section 170 of the Code provides, subject to certain limitations, a
deduction for charitable contributions (as defined in subsection (c)) when
payment is made within the taxable year.
Section 170(f)(2) of the Code provides that in the case of property
transferred in trust, no deduction shall be allowed under section 170 for
the value of a contribution of a remainder interest unless the trust is one
of the specified forms described in sections 664(d) or 642(c)(5).
Under section 664(d)(1)(C) and 664(d)(2)(C) of the Code, a charitable
remainder trust must provide for payment of the remainder interest to an
organization described in section 170(c).
Section 170(c) of the Code describes various types of charitable
organizations to which transfers qualify as charitable contributions for
the purposes of section 170. However, an organization that is described in
section 170(c) may be an organization described in section 170(b)(1)(A) or
it may be an organization described in section 170(b)(1)(B).
Section 170(b)(1)(A) of the Code provides that in the case of an
individual, charitable contributions made to organizations described
therein shall be allowed as a deduction to the extent that the aggregate of
such contributions does not exceed 50 percent of the taxpayer's
contribution base for the taxable year.
Section 170(b)(1)(B) of the Code provides that where a charitable
contribution does not qualify for treatment under section 170(b)(1)(A) it
shall be allowed as a deduction to the extent that the total of such
charitable contributions does not exceed the lesser of 20 percent of the
taxpayer's contribution base for the taxable year or the excess of 50
percent of the taxpayer's contribution base for the taxable year over the
amount of charitable contributions allowable under section 170(b)(1)(A).
Because the grantor and the life beneficiaries have the power to change the
organization designated as the recipient of the remainder interest from one
that qualifies for the 50 percent limitation on contributions under section
170(b)(1)(A) of the Code to an organization that is subject to the 20
percent limitation under section 170(b)(1)(B), it is not certain that the
ultimate recipient of the remainder interest will be the designated
organization or any organization described in section 170(b)(1)(A). Compare
Rev. Rul. 68-417, 1968-2 C.B. 103 (issued prior to enactment of section
664), which deals with a power retained by a grantor to designate the
remainder beneficiary.
HOLDING
Even though A transferred property to a charitable remainder trust that
requires payment of the remainder to a charitable organization described in
section 170(c) of the Code, the charitable deduction allowable for the
contribution is subject to the 20 percent limitation described in section
170(b)(1)(B) of the Code rather than the 50 percent limitation described in
section 170(b)(1)(A).
The holding in this revenue ruling is equally applicable to the treatment
of charitable deductions in the case of inter vivos transfers to
testamentary charitable remainder unitrusts where the donor or life
beneficiaries have the power to designate organizations other than those
described in section 170(b)(1)(A) of the Code to receive the remainder
interest.
