The IRS issued proposed regulations for calculating a taxable beneficiary’s basis in a charitable remainder trust (CRT) under I.R.C. Section 1014. The proposed regulations apply to the situation where a beneficiary sells all its interests in the CRT after the CRT has sold some assets and reinvested the proceeds without payment of income tax. In such a case, the proposed regulations provide that the taxable beneficiary does not inherit a basis step-up for the trust’s investment in new assets, since that basis is attributable to tax-exempt gains. This result is accomplished by reducing the taxable beneficiary’s “uniform basis” – the allocated portion of the trust’s stepped-up basis in assets – by the amount of the trust’s undistributed ordinary net income and undistributed net capital gain.
Comments and hearing requests are due by April 17.
The proposed regulations can be accessed here.