Rev. Rul. 80-83

1980-1 C.B. 210, 1980-12 I.R.B. 14.

                       Internal Revenue Service
                                 Revenue Ruling

        UNITRUST REMAINDER INTEREST; DONEE'S POWER; BENEFICIAL INTEREST;
                            PRESENTLY ASCERTAINABLE

                           Published: March 24, 1980

Section 2522.--Charitable and Similar Gifts, 26 CFR 25.2522(c)-3: Transfer not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969.

  Unitrust remainder interest; donee's power; beneficial interest; presently ascertainable. A donor transferred shares of stock in a publicly held corporation to a qualified, pre-existing charitable remainder unitrust. The donor was both a director of the corporation and one of two cotrustees of the trust. The trust corpus consisted solely of that corporation's stock, which was subject to a right of "first refusal." The trustee, consistently adopted the same price as the fair market value of the trust's stock. Because the donor is bound by fiduciary duty as both a director and cotrustee, the donor's power to determine the stock's value is limited. Therefore, the value of the charitable beneficial interest is presently ascertainable, and the charitable deduction is allowable with respect to the remainder interest.

ISSUE

  Is a charitable deduction allowable under section 2522 of the Internal Revenue Code, under the circumstances described below?

FACTS

  During 1977, a donor transferred additional shares of M Corporation stock to a pre-existing charitable remainder unitrust that meets the requirements of section 664 of the Code, as amended by the Tax Reform Act of 1969, Pub. L. 91- 172, 1969-3 C.B. 10.  The donor, who was one of fourteen directors of M Corporation, a publicly held corporation, was named as one of two cotrustees. Trust corpus consists solely of M Corporation stock. The trust provides that an amount equal to six percent of the net fair market value of the corpus, as determined annually by the trustees, is to be paid annually to the donor's child for life.  At the child's death, the remaining trust property is to be paid to organizations described in sections 170(c), 2055(a), and 2522(a) of the Code.

  Under the certificate of incorporation, the sale of M Corporation stock is subject to a right of 'first refusal' that requires any stockholder desiring to sell M Corporation stock to first offer the shares to the corporation at the same price and terms as offered to any other buyer. Additionally, the Board of Directors of the corporation periodically establishes a price at which it will buy a limited number of its shares.  The trustees of the trust, using independent judgment, have consistently adopted the price established by M Corporation as the fair market value of its stock.

LAW AND ANALYSIS

  Section 2522 of the Code provides that, in computing taxable gifts for the calendar quarter, there shall be allowed as a deduction the amount of all gifts made during such quarter to or for the use of charitable organizations or trusts.

  Under section 25.2522(c)-3 of the Gift Tax Regulations, certain conditions are applicable with respect to transfers that are not exclusively for charitable purposes.  Section 25.2522(c)-3 reads, in part:

    (a)  Remainders and similar interests.  If a trust is created or property is transferred for both a charitable and a private purpose, deduction may be taken of the value of the charitable beneficial interest only insofar as that interest is presently ascertainable, and hence severable from the noncharitable interest.

  While the donor in this case acts both as a cotrustee and a director in determining the value of the stock, the donor is bound by a fiduciary duty in each capacity to exercise independent judgment on behalf of the trust beneficiaries and corporation, respectively.  The donor does not have the freedom to control circumstances affecting the value of the corpus during the term of the unitrust.  Therefore, the donor's power, as a cotrustee and a director, to determine the value of the charitable beneficial interest is ascertainable within the meaning of section 25.2522(c)-3 of the regulations.

  The value determined by the donor, acting as a cotrustee and a director, does not bind the Internal Revenue Service for the purpose of determining the amount of the charitable deduction either initially or at the time of a subsequent transfer of stock. Similarly, the Service is not bound by the trustee's determination for purposes of the annual valuation required to determine the payment to the noncharitable beneficiary.  See section 1.664-2(a)(1)(iii), Income Tax Regulations.

HOLDING

  The value of the charitable beneficial interest is presently ascertainable as that term is used in section 25.2522(c)-3 of the regulations. Accordingly, the charitable deduction is allowable under section 2522 of the Code, with respect to the remainder interest.

Rev. Rul. 80-83, 1980-1 C.B. 210, 1980-12 I.R.B. 14.