The income earned in a trust is taxed, and deductions are allowed for certain distributions. For example, a testamentary trust was created under a will that required monthly annuity payments to be made to various beneficiaries. During the distribution years, the trustees set aside funds for charitable purposes, taking deductions for the funds on subsequent income tax returns. In 2009, however, the IRS disallowed the charitable deductions, claiming that none of the contributions were made pursuant to the terms of the governing trust instrument under IRC § 642(c)(1). Ultimately, the tax court refused to read any intent into the document allowing these charitable funds to be set aside for deduction purposes.
See Andrew M. Nerney & Stefania Bartlett, Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent, Wealth Management, November 7, 2016.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
