Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-43

1973-1 C.B. 37

Sec. 57
Sec. 642
Sec. 1202

IRS Headnote

The 50 percent capital gains deduction allowed under section 1202 of the Code is not a tax preference item for determining the minimum tax liability under section 56 for a trust that pays its capital gains to a charitable organization.

Full Text

Rev. Rul. 73-43 /1/

In 1972 a trust was created under the will of a decedent whereby the income and net capital gains of the trust are to be paid to a charitable organization described in section 170(c) of the Internal Revenue Code of 1954. During the year, the trust realized a net long-term capital gain of $100,000 from the sale of stock, and such amount was paid to the charitable organization.

Section 642(c)(1) of the Code provides, in part, for a deduction by a trust of amounts paid for charitable purposes. However, under section 642(c)(4) of the Code, if any amount paid for a charitable purpose is attributable to gain from the sale or exchange of a capital asset held more than six months, the amount of the deductions allowable under section 642(c)(1) of the Code must be adjusted for any deduction provided in section 1202 of the Code.

Section 1202 of the Code provides that in the case of a taxpayer other than a corporation, if for any taxable year the net long-term capital gain exceeds the net short-term capital loss, 50 percent of the amount of such excess shall be a deduction from gross income.

Therefore, with respect to the amount paid to the charitable organization in the instant case, the trust is entitled to a deduction of $50,000 under section 642(c)(1) of the Code and a deduction of $50,000 under section 1202 of the Code.

Section 57(a)(9)(A) of the Code provides that in the case of a taxpayer other than a corporation, an amount equal to one-half of the amount by which the net long-term capital gain exceeds the net short-term capital loss for the taxable year is an item of tax preference.

Held, the trust in the instant case is not considered as having enjoyed a tax preference with respect to its entitled deduction under section 1202 of the Code, and such deduction is not a tax preference for purposes of the imposition of the minimum tax provisions of section 56 of the Code.

/1/ Also released as Technical Information Release 1221, dated December 27, 1972.