IRS Addresses Income Tax Basis Increases for Assets Held in Grantor Trusts

In a recent private letter ruling, the IRS found assets in aforeign grantor trust received an income tax basis increase upon the death ofthe grantor. 

The non-citizen grantor created a foreign grantor trustfunded with shares of non-U.S. corporations. The trust provided that, upon the grantor’s death, its assets would bedistributed to the grantor’s children who were U.S. taxpayers.  This trust property was not subject to theU.S. estate tax, but did “receive a fair market value income tax basis underIRC Section 1014(b)(1).”

The IRS would probably not agree that a wholly domesticgrantor trust would receive such a basis increase upon the death of thegrantor.

See Loeb &Loeb LLP, Private Letter Ruling SuggestsThat Assets Held in a Grantor Trust and Not Included in Grantor’s Estate MayNevertheless Receive a Basis Increase, Lexology, May 20, 2013.