REVENUE RULE 90-55

1990-2 C.B. 161, 1990-27 I.R.B. 7.

Internal Revenue Service
Revenue Ruling

TAXABLE YEAR OF TRUSTS

Published: July 2, 1990

Section 645. - Taxable Year of Trust

(See Also Sections 641, 671, 676; 1.641(a)-0, 1.671-3; 1.676(a)-1)

Taxable year of trusts. Trusts that are treated as wholly-owned by the grantor under the grantor trust rules of subpart E of subchapter J (sections 671-679 of the Code) are not required to adopt the calendar year as their tax year under section 645(a).

ISSUE

If a trust is treated as wholly-owned by a grantor under the rules of subpart E, part I, of subchapter J, chapter 1, subtitle A of the Internal Revenue Code (sections 671-679), is the taxable year of the trust required to be the calendar year under section 645(a) of the Code?

FACTS

Pursuant to a trust agreement, corporation X established a trust and transferred money to bank Y, as trustee. The trust agreement provides that X may revoke the trust at any time. Corporation X is an accrual basis taxpayer and has a fiscal year accounting period, ending January 31.

LAW AND ANALYSIS

Section 645(a) of the Code provides that for purposes of subtitle A, the taxable year of any trust shall be the calendar year. Section 645(b) provides that subsection (a) shall not apply to a trust exempt from taxation under section 501(a) or a trust described in section 4947(a)(1).

Section 676(a) of the Code provides, in part, that the grantor shall be treated as the owner of any portion of a trust, where at any time the power to revest in the grantor title to such portion is exercisable by the grantor of a nonadverse party, or both.

Section 671 of the Code provides that subparts A through D, part I, subchapter J, chapter 1, subtitle A of the Code apply only to the portion of a trust that is not treated as owned by the grantor under the rules of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code. Similarly, section 1.641-0(b) of the Income Tax Regulations provides that subpart A does not apply to the portion of corpus or income that is treated as owned by the grantor under the rules of subpart E. Section 645 of the Code is in subpart A, part I, subchapter J, chapter 1, subtitle A of the Code. Thus, although section 645 does not explicitly exclude grantor trusts from the reach of its provisions, the Code and regulations contemplate that the provisions generally applicable to trusts do not apply to grantor trusts.

The legislative history of section 645 of the Code indicates that the purpose of the provision was to limit the ability to defer income tax through selection of a taxable year for a trust that is different from the taxable year of the trust beneficiaries. This concern is not present in the case of a trust that is treated as wholly-owned by the grantor under subpart E, part I, subchapter J, chapter 1, subtitle A of the Code because the taxable year of the trust is disregarded and the grantor must report the gross income from the trust property as if the trust does not exist. See S. Rep. No. 313, 99th Cong., 2d Sess. 872 (1986), 1986-3 (Vol. 3) C.B. 872; section 1.671-3(a)(1) of the regulations; Rev. Rul. 57-390, 1957-2 C.B. 326.

Corporation X, as the grantor of the trust, is treated as the owner of the entire corpus and income of the trust under section 676(a) of the Code. Accordingly, section 645 does not apply to the trust because the entire trust is subject to the rules of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code.

HOLDING

The taxable year of a trust that is treated as wholly-owned by a grantor under the rules of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code is not required to be the calendar year under section 645(a).

DRAFTING INFORMATION

The principal author of this revenue ruling is Barron Rossen of the Office of the Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Rossen on (202) 566-3635 (not a toll-free call).

Rev. Rul. 90-55, 1990-2 C.B. 161, 1990-27 I.R.B. 7.