Ms. Catherine Veihmeyer Hughes

April 30, 2010

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April 30, 2010

Ms. Catherine Veihmeyer Hughes

Estate and Gift Tax Attorney Advisor

Treasury Department

Office of Tax Policy

1500 Pennsylvania Avenue, NW, Room 4212B

Washington, DC 20220

Re: Application of Section 2511(c) to Intervivos Charitable Remainder Trusts Created in 2010

Dear Ms. Hughes:

The American Institute of Certified Public Accountants (AICPA) requests that the Treasury Department and the Internal Revenue Service issue a notice stating that the provisions of section 2511(c) of the Internal Revenue Code of 1986 are not applicable to intervivos transfers made in 2010 to trusts that qualify as charitable remainder trusts under section 664.

The AICPA is the national professional organization of certified public accountants comprised of approximately 360,000 members. Our members advise clients on federal, state and international tax matters and prepare income and other tax returns for millions of Americans. Our members provide services to individuals, not-for-profit organizations, small and medium-sized business, as well as America’s largest businesses.

Section 2511(c) provides that a transfer in trust is treated as a transfer of property by gift unless the trust is treated as wholly owned by the grantor or the grantor’s spouse under the grantor trust rules. In interpreting section 2511(c), Notice 2010-19, 2010-7 I.R.B. 404, provides that each transfer made in 2010 to a trust that is not a grantor trust is considered to be a transfer by gift of the entire interest in the property.

Charitable remainder trusts are not grantor trusts. In the absence of a regulatory exception, the language of the statutory provision, as re-enforced in Notice 2010-19, requires that any intervivos transfer to a charitable remainder trust in 2010 will be treated as a transfer by gift of the entire interest in the property. Such an interpretation would impact all intervivos transfers to charitable remainder trusts during 2010 and could yield bizarre gift tax consequences. Some examples of the possible unintended consequences of treating the entire transfer to a charitable remainder trust as a gift are:

·  The gift tax charitable deduction may not be available in all situations to offset a portion of the gift. If the grantor retains the right to designate or change the charitable organization which will receive the remainder interest, the transfer of the remainder interest would be an incomplete gift in years prior to, and subsequent to, 2010. If the transfer of the remainder interest is now considered a completed gift in 2010, the question arises whether the donor is entitled to a gift tax charitable deduction even though no specific charitable organization is required to receive the interest.

·  The entire value of the donor’s retained annuity or unitrust interest would be treated as a taxable gift and subject to gift tax. It is difficult to believe that Congress intended section 2511(c) to treat as a gift the donor’s own retained interest in a statutorily created and sanctioned charitable remainder trust.

·  A revocable secondary annuity or unitrust interest would be treated as a taxable gift. If the donor names a secondary noncharitable beneficiary to receive the annuity or unitrust interest and retains the power to revoke that person’s interest upon the donor’s death, that secondary life interest would not be subject to gift tax in years prior to, and subsequent to, 2010.

Charitable remainder trusts have been in existence for 40 years. Because of the stringent statutory requirements designed to protect the charity’s interest, the amounts payable to noncharitable beneficiaries are strictly proscribed. Transfers to charitable remainder trusts have not been subject to abuses in the gift tax area. These trusts are exempt from the income tax under section 664(c) so the intended purpose of section 2511(c) to backstop the income tax is not applicable to this type of trust. We know of no reason why every intervivos transfer to a charitable remainder trust in 2010 should be treated as a gift of the entire interest in property.

We acknowledge that because section 2511(c) is applicable for transfers made only in 2010, it may not seem important to provide any further guidance on this provision until the promised regulations are published or a statutory change is enacted retroactively in 2010. We are concerned, however, that without further guidance, taxpayers are justifiably apprehensive in funding intervivos charitable remainder trusts in 2010. Donors who wish to make these charitable gifts and the charitable organizations that rely on these gifts need certainty in this area. We urge that a notice similar to Notice 2010-19 be issued to provide that the regulations will exempt transfers to charitable remainder trusts from the application of section 2511(c) and that the provisions of Chapter 12, as in effect on December 31, 2009, continue to apply to intervivos transfers made in 2010 to charitable remainder trusts.

We welcome the opportunity to discuss the need for a notice or to answer any questions you may have. I can be reached at (202) 879-4966, or ; or you may contact F. Gordon Spoor, Chair, AICPA Trust, Estate, and Gift Tax Technical Resource Panel, at (727) 343-7166, or ; or Eileen Sherr, AICPA Senior Technical Manager, at 202-434-9256, or .

Sincerely,

Alan Einhorn

Chair, Tax Executive Committee

cc: Mr. Curtis G. Wilson

Associate Chief Counsel

(Passthroughs and Special Industries)

Mr. James F. Hogan

Chief, Branch 4

Office of Associate Chief Counsel

(Passthroughs and Special Industries)

Ms. Laura Urich Daly

Attorney

Office of Associate Chief Counsel

(Passthroughs and Special Industries)

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