Tax News

CCH (cch.taxgroup.com) reports:

Final amendments to Reg. §§1.1001-1, 26.2600-1, 26.2642-6, and 26.2654-1, providing guidance on the qualified severance of a trust, have been adopted. The final regulations clarify that the severance rules of Reg. §26.2654-1(b) were not superseded by the enactment of Code Sec. 2642(a)(3). The funding of trusts resulting from a qualified severance on a non pro rata basis is permitted, provided that the funding is achieved by applying the appropriate fraction or percentage to the total value of the trust assets as of the "date of severance." See the notice of proposed rulemaking issued contemporaneously with the final regulations, NPRM REG-128843-05 (TAXDAY, 2007/08/02, I.2) for proposed amendments to Reg. §26.2642-6(d)(4). The regulations define "date of severance" as the date selected for determining the value of the trust assets so long as funding begins immediately and occurs within a reasonable time (no more than 90 days) before or after the selected date. In addition, the final regulations address the qualified severance of a trust that was irrevocable prior to September 25, 1985, but to which an addition was made after that date. The final regulations also clarify that, if the qualified severance results in a generation-skipping transfer (GST) taxable event, that event will be considered to occur immediately after the severance. While the reporting provisions of the regulations are not a requirement for qualified severance status, a severance should be reported to the IRS to ensure the appropriate application of the GST tax. Notification of a severance of a trust must be made by marking "Qualified Severance" at the top of Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations and attaching a "Notice of Qualified Severance" to the return. The final regulations also expand the category of severances to which Reg. §1.1001-1(h)(1) applies to severances that meet the requirements of Reg. §§26.2642-6 or 26.2654-1(b). The regulations are effective August 2, 2007. For severances occurring after December 31, 2000, and before August 2, 2007, taxpayers may rely on any reasonable interpretation of Code Sec. 2642(a)(3), provided that reasonable notice of the severance has been given to the IRS.
T.D. 9348, 2007FED ¶47,058
T.D. 9348, FINH ¶43,113
Other References:
Code Sec. 1001
CCH Reference - 2007FED ¶29,221
CCH Reference - FINH ¶17,375
Code Sec. 2601
CCH Reference - FINH ¶12,045
Code Sec. 2642
CCH Reference - FINH ¶12,860
Code Sec. 2654
CCH Reference - FINH ¶13,115
Tax Research Consultant
CCH Reference - TRC ESTGIFT: 57,054.15