Sec. 664. Charitable Remainder Trusts

I.R.C. § 664(a) General Rule —

Notwithstanding any other provision of this subchapter, the provisions of this section shall, in accordance with regulations prescribed by the Secretary, apply in the case of a charitable remainder annuity trust and a charitable remainder unitrust.

I.R.C. § 664(b) Character Of Distributions —

Amounts distributed by a charitable remainder annuity trust or by a charitable remainder unitrust shall be considered as having the following characteristics in the hands of a beneficiary to whom is paid the annuity described in subsection (d)(1)(A) or the payment described in subsection (d)(2)(A):

I.R.C. § 664(b)(1) —

First, as amounts of income (other than gains, and amounts treated as gains, from the sale or other disposition of capital assets) includible in gross income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years;

I.R.C. § 664(b)(2) —

Second, as a capital gain to the extent of the capital gain of the trust for the year and the undistributed capital gain of the trust for prior years;

I.R.C. § 664(b)(3) —

Third, as other income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years; and

I.R.C. § 664(b)(4) —

Fourth, as a distribution of trust corpus.

For purposes of this section, the trust shall determine the amount of its undistributed capital gain on a cumulative net basis.

I.R.C. § 664(c) Taxation Of Trusts

I.R.C. § 664(c)(1) Income Tax —

A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle.

I.R.C. § 664(c)(2) Excise Tax

I.R.C. § 664(c)(2)(A) In General —

In the case of a charitable remainder annuity trust or a charitable remainder unitrust which has unrelated business taxable income (within the meaning of section 512, determined as if part III of subchapter F applied to such trust) for a taxable year, there is hereby imposed on such trust or unitrust an excise tax equal to the amount of such unrelated business taxable income.

I.R.C. § 664(c)(2)(B) Certain Rules To Apply —

The tax imposed by subparagraph (A) shall be treated as imposed by chapter 42 for purposes of this title other than subchapter E of chapter 42.

I.R.C. § 664(c)(2)(C) Tax Court Proceedings —

For purposes of this paragraph, the references in section 6212(c)(1) to section 4940 shall be deemed to include references to this paragraph.

I.R.C. § 664(d) Definitions

I.R.C. § 664(d)(1) Charitable Remainder Annuity Trust —

For purposes of this section, a charitable remainder annuity trust is a trust—

I.R.C. § 664(d)(1)(A) —

from which a sum certain (which is not less than 5 percent nor more than 50 percent of the initial net fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals,

I.R.C. § 664(d)(1)(B) —

from which no amount other than the payments described in subparagraph (A) and other than qualified gratuitous transfers described in subparagraph (C) may be paid to or for the use of any person other than an organization described in section 170(c),

I.R.C. § 664(d)(1)(C) —

following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in section 170(c) or is to be retained by the trust for such a use or, to the extent the remainder interest is in qualified employer securities (as defined in subsection (g)(4)), all or part of such securities are to be transferred to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by subsection (g)), and

I.R.C. § 664(d)(1)(D) —

the value (determined under section 7520) of such remainder interest is at least 10 percent of the initial net fair market value of all property placed in the trust.

I.R.C. § 664(d)(2) Charitable Remainder Unitrust —

For purposes of this section, a charitable remainder unitrust is a trust—

I.R.C. § 664(d)(2)(A) —

from which a fixed percentage (which is not less than 5 percent nor more than 50 percent) of the net fair market value of its assets, valued annually, is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals,

I.R.C. § 664(d)(2)(B) —

I.R.C. § 664(d)(2)(C) —

I.R.C. § 664(d)(2)(D) —

with respect to each contribution of property to the trust, the value (determined under section 7520) of such remainder interest in such property is at least 10 percent of the net fair market value of such property as of the date such property is contributed to the trust.

I.R.C. § 664(d)(3) Exception —

Notwithstanding the provisions of paragraphs (2)(A) and (B), the trust instrument may provide that the trustee shall pay the income beneficiary for any year—

I.R.C. § 664(d)(3)(A) —

the amount of the trust income, if such amount is less than the amount required to be distributed under paragraph (2)(A), and

I.R.C. § 664(d)(3)(B) —

any amount of the trust income which is in excess of the amount required to be distributed under paragraph (2)(A), to the extent that (by reason of subparagraph (A)) the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts.

I.R.C. § 664(d)(4) Severance Of Certain Additional Contributions —

If—

I.R.C. § 664(d)(4)(A) —

any contribution is made to a trust which before the contribution is a charitable remainder unitrust, and

I.R.C. § 664(d)(4)(B) —

such contribution would (but for this paragraph) result in such trust ceasing to be a charitable unitrust by reason of paragraph (2)(D),

such contribution shall be treated as a transfer to a separate trust under regulations prescribed by the Secretary.

I.R.C. § 664(e) Valuation Of Interests —

For purposes of determining the amount of any charitable contribution, the remainder interest of a charitable remainder annuity trust or charitable remainder unitrust shall be computed on the basis that an amount equal to 5 percent of the net fair market value of its assets (or a greater amount, if required under the terms of the trust instrument) is to be distributed each year. In the case of the early termination of a trust which is a charitable remainder unitrust by reason of subsection (d)(3), the valuation of interests in such trust for purposes of this section shall be made under rules similar to the rules of the preceding sentence.

I.R.C. § 664(f) Certain Contingencies Permitted

I.R.C. § 664(f)(1) General Rule —

If a trust would, but for a qualified contingency, meet the requirements of paragraph (1)(A) or (2)(A) of subsection (d), such trust shall be treated as meeting such requirements.

I.R.C. § 664(f)(2) Value Determined Without Regard To Qualified Contingency —

For purposes of determining the amount of any charitable contribution (or the actuarial value of any interest), a qualified contingency shall not be taken into account.

I.R.C. § 664(f)(3) Qualified Contingency —

For purposes of this subsection, the term “qualified contingency” means any provision of a trust which provides that, upon the happening of a contingency, the payments described in paragraph (1)(A) or (2)(A) of subsection (d) (as the case may be) will terminate not later than such payments would otherwise terminate under the trust.

I.R.C. § 664(g) Qualified Gratuitous Transfer Of Qualified Employer Securities

I.R.C. § 664(g)(1) In General —

For purposes of this section, the term “qualified gratuitous transfer” means a transfer of qualified employer securities to an employee stock ownership plan (as defined in section 4975(e)(7)) but only to the extent that—

I.R.C. § 664(g)(1)(A) —

the securities transferred previously passed from a decedent dying before January 1, 1999, to a trust described in paragraph (1) or (2) of subsection (d),

I.R.C. § 664(g)(1)(B) —

no deduction under section 404 is allowable with respect to such transfer,

I.R.C. § 664(g)(1)(C) —

such plan contains the provisions required by paragraph (3),

I.R.C. § 664(g)(1)(D) —

such plan treats such securities as being attributable to employer contributions but without regard to the limitations otherwise applicable to such contributions under section 404, and

I.R.C. § 664(g)(1)(E) —

the employer whose employees are covered by the plan described in this paragraph files with the Secretary a verified written statement consenting to the application of sections 4978 and 4979A with respect to such employer.

I.R.C. § 664(g)(2) Exception —

The term “qualified gratuitous transfer” shall not include a transfer of qualified employer securities to an employee stock ownership plan unless—

I.R.C. § 664(g)(2)(A) —

such plan was in existence on August 1, 1996,

I.R.C. § 664(g)(2)(B) —

at the time of the transfer, the decedent and members of the decedent's family (within the meaning of section 2032A(e)(2)) own (directly or through the application of section 318(a)) no more than 10 percent of the value of the stock of the corporation referred to in paragraph (4), and

I.R.C. § 664(g)(2)(C) —

immediately after the transfer, such plan owns (after the application of section 318(a)(4)) at least 60 percent of the value of the outstanding stock of the corporation.

I.R.C. § 664(g)(3) Plan Requirements —

A plan contains the provisions required by this paragraph if such plan provides that—

I.R.C. § 664(g)(3)(A) —

the qualified employer securities so transferred are allocated to plan participants in a manner consistent with section 401(a)(4),

I.R.C. § 664(g)(3)(B) —

plan participants are entitled to direct the plan as to the manner in which such securities which are entitled to vote and are allocated to the account of such participant are to be voted,

I.R.C. § 664(g)(3)(C) —

an independent trustee votes the securities so transferred which are not allocated to plan participants,

I.R.C. § 664(g)(3)(D) —

each participant who is entitled to a distribution from the plan has the rights described in subparagraphs (A) and (B) of section 409(h)(1),

I.R.C. § 664(g)(3)(E) —

such securities are held in a suspense account under the plan to be allocated each year, up to the applicable limitation under paragraph (7) (determined on the basis of fair market value of securities when allocated to participants), after first allocating all other annual additions for the limitation year, up to the limitation under section 415(c) and

I.R.C. § 664(g)(3)(F) —

on termination of the plan, all securities so transferred which are not allocated to plan participants as of such termination are to be transferred to, or for the use of, an organization described in section 170(c).

For purposes of the preceding sentence, the term “independent trustee” means any trustee who is not a member of the family (within the meaning of section 2032A(e)(2)) of the decedent or a 5-percent shareholder. A plan shall not fail to be treated as meeting the requirements of section 401(a) by reason of meeting the requirements of this subsection.

I.R.C. § 664(g)(4) Qualified Employer Securities —

For purposes of this section, the term “qualified employer securities” means employer securities (as defined in section 409(l)) which are issued by a domestic corporation—

I.R.C. § 664(g)(4)(A) —

which has no outstanding stock which is readily tradable on an established securities market, and

I.R.C. § 664(g)(4)(B) —

which has only 1 class of stock.

I.R.C. § 664(g)(5) Treatment Of Securities Allocated By Employee Stock Ownership Plan To Persons Related To Decedent Or 5-Percent Shareholders

I.R.C. § 664(g)(5)(A) In General —

If any portion of the assets of the plan attributable to securities acquired by the plan in a qualified gratuitous transfer are allocated to the account of—

I.R.C. § 664(g)(5)(A)(i) —

any person who is related to the decedent (within the meaning of section 267(b)) or a member of the decedent's family (within the meaning of section 2032A(e)(2)), or

I.R.C. § 664(g)(5)(A)(ii) —

any person who, at the time of such allocation or at any time during the 1-year period ending on the date of the acquisition of qualified employer securities by the plan, is a 5-percent shareholder of the employer maintaining the plan,

the plan shall be treated as having distributed (at the time of such allocation) to such person or shareholder the amount so allocated.

I.R.C. § 664(g)(5)(B) 5-Percent Shareholder —

For purposes of subparagraph (A), the term “5-percent shareholder” means any person who owns (directly or through the application of section 318(a)) more than 5 percent of the outstanding stock of the corporation which issued such qualified employer securities or of any corporation which is a member of the same controlled group of corporations (within the meaning of section 409(l)(4)) as such corporation. For purposes of the preceding sentence, section 318(a) shall be applied without regard to the exception in paragraph (2)(B)(i) thereof.

I.R.C. § 664(g)(5)(C) Cross Reference —

For excise tax on allocations described in subparagraph (A), see section 4979A.

I.R.C. § 664(g)(6) Tax On Failure To Transfer Unallocated Securities To Charity On Termination Of Plan —

If the requirements of paragraph (3)(F) are not met with respect to any securities, there is hereby imposed a tax on the employer maintaining the plan in an amount equal to the sum of—

I.R.C. § 664(g)(6)(A) —

the amount of the increase in the tax which would be imposed by chapter 11 if such securities were not transferred as described in paragraph (1), and

I.R.C. § 664(g)(6)(B) —

interest on such amount at the underpayment rate under section 6621 (and compounded daily) from the due date for filing the return of the tax imposed by chapter 11.

I.R.C. § 664(g)(7) Applicable Limitation

I.R.C. § 664(g)(7)(A) In General —

For purposes of paragraph (3)(E), the applicable limitation under this paragraph with respect to a participant is an amount equal to the lesser of—

I.R.C. § 664(g)(7)(A)(i) —

$30,000, or

I.R.C. § 664(g)(7)(A)(ii) —

25 percent of the participant's compensation (as defined in section 415(c)(3)).

I.R.C. § 664(g)(7)(B) Cost-Of-Living Adjustment —

The Secretary shall adjust annually the $30,000 amount under subparagraph (A)(i) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning October 1, 1993, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.

(Added by Pub. L. 91-172, title II, 201(e)(1), Dec. 30, 1969, 83 Stat. 562, and amended Pub. L. 94-455, title XIX, 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title X, 1022(d), July 18, 1984, 98 Stat. 1029; Pub. L. 105-34, title X, XV, Sec. 1089, 1530, Aug. 5, 1997, 111 Stat 788; Pub. L. 105-206, title VI, Sec. 6010(r), July 22, 1998, 112 Stat 685; Pub. L. 106-554, Sec. 319, Dec. 21, 2000, 114 Stat. 2763; Pub. L. 107-16, Sec. 632, June 7, 2001, 115 Stat. 38; Pub. L. 109-280, title VIII, Sec. 868(a), Aug. 17, 2006, 120 Stat. 780; Pub. L. 109-432, div. A, title IV, Sec. 424(a), Dec. 20, 2006, 120 Stat. 2922; Pub. L. 114-113, Div. Q, title III, Sec. 344(a); Pub. L. 115-141, Div. U, title IV, Sec. 401(b)(27), Mar. 23, 2018.)

BACKGROUND NOTES

AMENDMENTS

2018 - Subsec. (g)(3)(E). Pub. L. 115-141, Div. U, Sec. 401(b)(27), amended subpar. (E) by substituting ‘‘limitation under section 415(c)’’ for ‘‘limitations under sections 415(c) and (e)’’.

2015 - Subsec. (e). Pub. L. 114-113, Div. Q, Sec. 344(a)(2), amended the heading of subsec. (e) by substituting “OF INTERESTS” for “FOR PURPOSES OF CHARITABLE CONTRIBUTION”.

Subsec. (e). Pub. L. 114-113, Div. Q, Sec. 344(a)(1), amended subsec. (e) by adding the sentence at the end.

2006—Subsec. (c). Pub. L. 109-432, Sec. 424(a), amended subsec. (c). Before amendment, it read as follows:

“(c) Exemption from income taxes

“A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle, unless such trust, for such year, has unrelated business taxable income (within the meaning of section 512, determined as if part III of subchapter F applied to such trust).”

Subsec. (g)(3)(E). Pub. L. 109-280, Sec. 868(a), amended subpar. (E) by inserting “(determined on the basis of fiar market value of securities when allocated to participants)” after “paragraph (7)”.

2001—Subsec. (g)(3)(E). Pub. L. 107-16, Sec. 632(a)(3)(H)(i), amended subpar. (E) by substituting “applicable limitation under paragraph (7)” for “limitations under section 415(c)”.

Subsec. (g)(7). Pub. L. 107-16, Sec. 632(a)(3)(H)(ii), added par. (7).

2000—Subsec. (d)(1)(C). Pub. L. 106-554, Sec. 319(7), amended subpar. (C) by striking the period after “subsection (g)”.

1998—Subsec. (d)(1)(C). Pub. L. 105-206, Sec. 6010(r), amended subpar. (C) by adding “, and” at the end.

Subsec. (d)(2)(C). Pub. L. 105-206, Sec. 6010(r), amended subpar. (C) by adding “, and” at the end.

1997—Subsec. (d)(1)(A). Pub. L. 105-34, Sec. 1089(a)(1), amended subpar. (A) by inserting “nor more than 50 percent” after “not less than 5 percent”.

Subsec. (d)(1)(B). Pub. L. 105-34, Sec. 1530(c)(5), amended subpar. (B) by inserting “and other than qualified gratuitous transfers described in subparagraph (C)” after “subparagraph (C)”.

Subsec. (d)(1)(B). Pub. L. 105-34, Sec. 1089(b)(1), struck “and” at the end of subpar. (B).

Subsec. (d)(1)(C). Pub. L. 105-34, Sec. 1089(b)(1), struck the period at the end of subpar. (C).

Subsec. (d)(1)(C). Pub. L. 105-34, Sec. 1530(a), added “or, to the extent the remainder interest” and all that follows at the end of subpar. (C).

Subsec. (d)(1)(D). Pub. L. 105-34, Sec. 1089(b)(1), added subpar. (D).

Subsec. (d)(2)(A). Pub. L. 105-34, Sec. 1089(a)(1), amended subpar. (A) by inserting “nor more than 50 percent” after “not less than 5 percent”.

Subsec. (d)(2)(B). Pub. L. 105-34, Sec. 1530(c)(5), amended subpar. (B) by inserting “and other than qualified gratuitous transfers described in subparagraph (C)” after “subparagraph (C)”.

Subsec. (d)(2)(B). Pub. L. 105-34, Sec. 1089(b)(2), struck “and” at the end of subpar. (B).

Subsec. (d)(2)(C). Pub. L. 105-34, Sec. 1089(b)(2), struck the period at the end of subpar. (C).

Subsec. (d)(2)(C). Pub. L. 105-34, Sec. 1530(a), added “or, to the extent the remainder interest” and all that follows at the end of subpar. (C).

Subsec. (d)(2)(D). Pub. L. 105-34, Sec. 1089(b)(2), added subpar. (D).

Subsec. (d)(4). Pub. L. 105-34, Sec. 1089(b)(4), added par. (4).

Subsec. (g). Pub. L. 105-34, Sec. 1530(b), added subsec. (g).

1984--Subsec. (f). Pub. L. 98-369 added subsec. (f).

1976--Subsec. (a). Pub. L. 94-455 struck out “or his delegate" after “Secretary”.

EFFECTIVE DATE OF 2018 AMENDMENT

Amendment by Pub. L. 115-141, Div. U, Sec. 401(b)(27), effective on the date of enactment of this Act [Mar. 23, 2018].

Sec. 401(e) of Pub. L. 115-141, Div. U, provided the following savings provision:

“(e) General Savings Provision With Respect To Deadwood Provisions.—If—

“(1) any provision amended or repealed by the amendments made by subsection (b) or (d) applied to—

“(A) any transaction occurring before the date of the enactment of this Act,

“(B) any property acquired before such date of enactment, or

“(C) any item of income, loss, deduction, or credit taken into account before such date of enactment, and

“(2) the treatment of such transaction, property, or item under such provision would (without regard to the amendments or repeals made by such subsection) affect the liability for tax for periods ending after such date of enactment,

“nothing in the amendments or repeals made by this section shall be construed to affect the treatment of such transaction, property, or item for purposes of determining liability for tax for periods ending after such date of enactment.”

EFFECTIVE DATE OF 2015 AMENDMENTS

Amendments by Pub. L. 114-113, Div. Q, Sec. 344(a), effective for terminations of trusts occurring after the date of the enactment of this Act.

EFFECTIVE DATE OF 2006 AMENDMENTS

Amendment by Sec. 424(a) of Pub. L. 109-432 applicable to taxable years beginning after December 31, 2006.

Amendment by Sec. 868(a) of Pub. L. 109-280 applicable on the date of the enactment of this Act [Enacted: Aug. 17, 2006].

EFFECTIVE DATE OF 2001 AMENDMENTS

Amendments by Sec. 632(a) of Pub. L. 107-16 applicable to years beginning after December 31, 2001.

Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358, provided that:

“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--

“(1) to taxable, plan, or limitation years beginning after December 31, 2010, or

“(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010.

“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.

“(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).”

PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 MADE PERMANENT

Section 811 of Pub. L. 109-280 provided that:

“Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to the provisions of, and amendments made by, subtitles A through F of title VI of such Act (relating to pension and individual retirement arrangement provisions).”

EFFECTIVE DATE OF 2000 AMENDMENTS

Amendment by Sec. 319(7) of Pub. L. 106-554 effective on December 21, 2000.

EFFECTIVE DATE OF 1998 AMENDMENTS

Amendments by Sec. 6010(r) of Pub. L. 105-206 applicable as if included in the provisions of the Taxpayer Relief Act of 1997 to which they relate [Effective Date of Pub.L. 105-34, Sec. 1089(b): transfers in trust after July 28, 1997, but see special rule set forth below].

EFFECTIVE DATE OF 1997 AMENDMENTS

Amendments by Sec. 1089(a)(1) of Pub. L. 105-34 applicable to transfers in trust after June 18, 1997.

Amendments by Sec. 1089(b) of Pub. L. 105-34 applicable to transfers in trust after July 28, 1997. Sec. 1089(b)(6)(B) provided the following special rule:

“(B) Special rule for certain decedents.--The amendments made by this subsection shall not apply to transfers in trust under the terms of a will (or other testamentary instrument) executed on or before July 28, 1997, if the decedent--

(i) dies before January 1, 1999, without having republished the will (or amended such instrument) by codicil or otherwise, or

(ii) was on July 28, 1997, under a mental disability to change the disposition of his property and did not regain his competence to dispose of such property before the date of his death.”

Amendments by Sec. 1530 by Pub. L. 105-34 applicable to transfers made by trusts to, or for the use of, an employee stock ownership plan after the date of the enactment of this Act [Aug. 5, 1997].

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-369, applicable to transfers after Dec. 31, 1978, see section 1022(e)(2) of Pub. L. 98-369, set out as a note under section 2055 of this title.

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by Pub. L. 94-455 effective February 1, 1977.

PROVISIONS RELATED TO SECTION 311 OF THE TAXPAYER RELIEF ACT OF 1997

Section 4003(b) of Pub. L. 105-277, as amended by Section 312(b) of Pub. L. 106-554, provided that: “In the case of any capital gain distribution made after 1997 by a trust to which section 664 of the 1986 Code applies with respect to amounts properly taken into account by such trust during 1997, paragraphs (5)(A)(i)(I), (5)(A)(ii)(I), (7)(A)(i)(II), and (13)(A) of section 1(h) of the 1986 Code (as in effect for taxable years ending on December 31, 1997) shall not apply.”

EFFECTIVE DATE

Section applicable to transfers in trust made after July 31, 1969, see section 201(g)(5), set out as an Effective Date of 1969 Amendment note under section 170 of this title.

Sec. 664. Charitable Remainder Trusts

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