Revenue Ruling 2004-64
Internal Revenue Service
2004-2 C.B. 7 (2004)
- Written by Jamie Milne, JD
Facts
A taxpayer created an irrevocable trust with the taxpayer’s descendants as the beneficiaries. As required by the trust documents, the taxpayer appointed an independent trustee unrelated to the taxpayer. Although the taxpayer retained no beneficial interest in the trust or power over the trust’s assets, the taxpayer retained sufficient power over the trust to be classified as the trust’s owner under the Internal Revenue Code. During the trust’s first year, it acquired taxable income of $10x. As the trust’s owner, the taxpayer included the $10x in the taxpayer’s own taxable income, increasing the taxpayer’s tax liability by $2.5x. When the taxpayer died in the trust’s third year, the value of the trust’s assets was $150x. Questions arose concerning whether (1) the taxpayer’s payment of income tax on trust income constituted a gift to the beneficiaries, triggering gift-tax liability, and (2) the payment of the income tax rendered the trust’s assets part of the taxpayer’s gross estate at the taxpayer’s death. The Internal Revenue Service issued a revenue ruling to address those questions.
Rule of Law
Issue
Holding and Reasoning (1)
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