The IRS today released an advance version of Rev. Proc. 2015-37, stating that the IRS will not issue letter rulings or determination letters regarding whether the assets in a grantor trust receive a section 1014 basis adjustment at the death of the deemed owner of the trust for income tax purposes when those assets are not includible in the gross estate of that owner under chapter 11 of subtitle B of the Internal Revenue Code.
Rev. Proc. 2015-37 [PDF 9 KB] updates Rev. Proc. 2015-3 by adding the following to the “no ruling” provisions:
Section 1014. Basis of Property Acquired from a Decedent. Whether the assets in a grantor trust receive a section 1014 basis adjustment at the death of the deemed owner of the trust for income tax purposes when those assets are not includible in the gross estate of that owner under chapter 11 of subtitle B of the Internal Revenue Code.
Section 1014 provides a step-up in basis for assets passing from a decedent. This prevents such assets from being subjected to both income and estate taxes that would result in effective double taxation. However, some trust instruments are drafted such that the trusts are considered owned by the grantor for income tax purposes but not for estate tax purposes. The argument would be that section 1014 (being an income tax statute) would allow for a basis step-up for these trust assets. However, because the assets are not included in the estate of the grantor, the double taxation risk is not there. Rev. Proc. 2015-37 states that the IRS will no longer issue rulings or determination letters regarding the availability of the section 1014 step-up when assets are not included in the grantor’s estate at death.
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