IRS Issues Proposed Regulations and Request for Comments on UBIT Consequences to Charitable Remainder Trusts

The IRS yesterday issued proposed regulations concerning the effect of unrelated business activities on Charitable Remainder Trusts.  Here is the summary of the proposed regulations:

SUMMARY: This document contains proposed regulations that provide guidance under Internal Revenue Code (Code) section 664 on the tax effect of unrelated business taxable income (UBTI) on charitable remainder trusts. The proposed regulations reflect the changes made to
section 664(c) by section 424(a) and (b) of the Tax Relief and Health Care Act of 2006. The proposed regulations affect charitable remainder trusts that have UBTI in taxable years beginning after December 31, 2006. This document also provides notice of a public hearing on these proposed regulations . . . 

The proposed regulations amend the regulations under section 664(c) to provide that charitable remainder trusts with UBTI in taxable years beginning after December 31, 2006, are exempt from Federal income tax, but are subject to a 100-percent excise tax on the UBTI of the charitable remainder trust. The proposed regulations provide that the excise tax is reported and payable in accordance with the appropriate forms and instructions. Currently, the appropriate form to report and pay the excise tax on charitable remainder trusts with UBTI is Form 4720, “Return of Certain Excise Taxes Under Chapters 41 and 42 of the
Internal Revenue Code.” The rules that apply with respect to charitable remainder trusts that have UBTI in taxable years beginning before January 1, 2007, are contained in Sec.  1.664-1(c) as in effect for taxable years beginning before January 1, 2007. (See 26 CFR part 1 Sec.  1.664-1(c) revised as of April 2, 2007).

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