Rev. Rul. 83-45

1983-1 C.B. 233, 1983-11 I.R.B. 7.

                       Internal Revenue Service
                                 Revenue Ruling

    DEDUCTIONS;  STOCK BEQUEATHED TO CHARITY;  DIVIDENDS PAID TO INDIVIDUAL
                          DURING ADMINISTRATION PERIOD

                           Published: March 14, 1983

26 CFR 20.2055-1L Transfers not exclusively for charitable purposes

  Deductions;  stock bequeathed to charity;  dividends paid to individual during administration period.  An estate tax charitable deduction is not allowable for shares of stock bequeathed to charity where the will provides that, during administration of the estate, dividends from the stock are payable to a noncharitable beneficiary.

ISSUE

  For purposes of section 2055 of the Internal Revenue Code, is a deduction allowable for a bequest of stock to charity if, during the period of estate administration, an individual is to receive the dividends from the stock?

FACTS

  The decedent, D, died in 1978.  Under the terms of D's will, certain corporate stock is bequeathed to a charitable organization described in sections 2055(a) and 170(b).  During the period of administration, the executor is directed to retain the stock and pay the dividends from the stock to A, an individual.  Upon completion of administration, the stock is to be distributed to charity.

  Under applicable local law, a legatee of stock is entitled to the dividends paid on the stock until the date of distribution, unless the testator directs otherwise.  Applicable local law also provides that the testator's direction that the executor retain the stock during administration is enforceable.  Thus, the charity may not demand distribution of the stock prior to the termination of administration.

  On the estate tax return filed for D's estate, the executor deducted the full value of the stock as a transfer for charitable purposes.

LAW AND ANALYSIS

  Section 2055(a) of the Code provides that a deduction is allowable from the gross estate for the amount of bequests to or for the use of certain specified organizations operated exclusively for religious, charitable, scientific, literary, or educational purposes.

  Section 2055(e)(2) of the Code provides that no deduction shall be allowed under section 2055 where an interest in property (other than an interest described in section 170(f)(3)(B) of the Code) has passed from the decedent for a charitable purpose and an interest in the same property has passed for less than adequate and full consideration in money or money's worth from the decedent for a noncharitable purpose unless, in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5), and in the case of any other interest, such interest is in the form of a guaranteed annuity.

  For purposes of section 2055(e) of the Code, a term "interest in property" includes a vested right to receive income from property during a designated period of time.  See, for example, section 20.2055-2(e), Example (1) pertaining to a right to receive for life income from trust corpus.  The characterization of a right as an interest in property is not affected by the fact that the duration of the designated period of time is not fully certain.  Cf. 2 Powell, The Law of Real Property, § 169 (1977 rev.), pertaining to interests in real property.  Thus, a vested right to receive income from property during the period of administration of a decedent's estate is an interest in property, within the meaning of section 2055(e), even though the period of administration is not of a fixed duration.

  In the present situation, because D directed that the stock be distributed to charity only after the period of administration, A was ensured of receiving the dividends during that period.  Therefore, an interest in the stock passed from D to A and an interest in the same stock passed from D to charity.  In view of A's income interest, an interest in the stock has passed for both charitable and noncharitable purposes and therefore, the bequest must satisfy the criteria of section 2055(e)(2) to qualify for a deduction under section 2055(a).  Since the bequest is not in the form of a charitable remainder unitrust, annuity trust, a pooled income fund, or guaranteed annuity it does not satisfy the requirements of section 2055(e)(2).

HOLDING

  Since the terms of the bequest require the executor to retain the stock and pay the dividends to an individual during the period of administration, and to distribute the stock to the charity after administration is completed, the bequest is for both charitable and noncharitable purposes for which no deduction is allowable under section 2055 of the Code because the bequest is not in the form of a charitable remainder annuity trust, charitable remainder unitrust, pooled income fund, or guaranteed annuity.

Rev. Rul. 83-45, 1983-1 C.B. 233, 1983-11 I.R.B. 7.