Part III. Administrative, Procedural, and Miscellaneous

Post-1997 Distributions of Capital Gains from Charitable Remainder Trusts

Notice 99–17

This notice modifies Notice 98–20, 1998–13 I.R.B. 25, to reflect changes made to § 1(h) of the Internal Revenue Code by §§ 4002(i)(3) and 4003(b) of the Tax and Trade Relief Extension Act of 1998 (Division J of H.R. 4328, Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999), Pub. L. No. 105–277, 112 Stat. 2681 (1998) (TTREA of 1998). The changes affect the treatment of post-1997 distributions of certain capital gains properly taken into account in 1997 by a charitable remainder trust (CRT) described in § 664.

BACKGROUND

Notice 98–20 provides guidance on the ordering and taxation of distributions under § 664(b)(2) from a CRT to reflect changes made to § 1(h) by the Taxpayer Relief Act of 1997 (TRA 1997), Pub. L. No. 105–34, § 311, 111 Stat. 788, 831. TRA 1997 amended § 1(h) to provide for new capital gain tax rates for noncorporate taxpayers. Under Notice 98–20, a CRT’s long-term capital gains (LTCGs) and losses fall into three separate tax rate groups: (1) the 28-percent group, (2) the 25-percent group, and (3) the 20-percent

tributions by the CRT. Notice 98–20 provides that LTCGs properly taken into account by a CRT from January 1, 1997, through May 6, 1997, are treated as LTCGs in the 28-percent group.

To reflect the changes made to § 1(h) by § 4002(i)(3) of the TTREA of 1998, this present notice modifies two sections of Notice 98–20: (1) 1997 PRE-EFFECTIVE DATE LONG-TERM CAPITAL GAINS and (2) EXAMPLE ILLUSTRATING ORDERING AND CHARACTER RULES. The 1997 PRE-EFFECTIVE DATE LONG-TERM CAPITAL GAINS section of Notice 98–20 should be disregarded for taxable years ending

Section 4002(i)(3) of the TTREA of 1998 added § 1(h)(13)(D). New § 1(h)(13)(D) provides that § 1(h)(13)(A) and § 1(h)(13)(B)(ii) (providing 28-percent rate treatment for certain LTCGs properly taken into account in 1997) do not apply to any capital gain distribution made by a CRT, effective for taxable years ending after December 31, 1997. Because § 1(h)(13)(A) and § 1(h)(13)(B)(ii) do not apply to a CRT distribution for taxable years ending after December 31, 1997, LTCGs (other than collectibles gain) properly taken into account by a CRT during 1997 and distributed in taxable years ending after December 31, 1997, that would have been in the 28-percent group now fall within either the 25-percent group or the 20-percent group.

Notice 98–20, the 28-percent group gain is changed to collectibles gain.

DISCUSSION

The character of a CRT’s income is determined at the time the income is realized by the trust. Under § 1(h)(13)(D), a CRT’s LTCG in the 28-percent group (other than collectibles gain) that was properly taken into account during 1997 and distributed in taxable years ending after December 31, 1997, falls within either the 25-percent group or the 20-percent group. Thus, a CRT’s LTCG described in the previous sentence now falls within the 25-percent group if the gain (1) was from property held more than 12 months but not more than 18 months, (2) was properly taken into account for the portion of the taxable year after July 28, 1997, and before January 1, 1998, and (3) otherwise satisfies the requirements for unrecaptured § 1250 gain under § 1(h)(7); any remaining LTCG falls within the 20percent group.

To reflect this change in law, some CRTs will need to remove from the 28percent group any LTCGs (other than collectibles gain) properly taken into account during 1997 that were not distributed in taxable year 1997 and place those LTCGs in either the 25-percent group or the 20percent group, as appropriate.

April 5, 1999 6 1999–14 I.R.B.

vidual was a bona fide resident of, or was present in, a foreign country if the individual left the country during a period for which the Secretary of the Treasury, after consultation with the Secretary of State, determines that individuals were required to leave because of war, civil unrest, or similar adverse conditions that precluded the normal conduct of business. An individual must establish that but for those conditions the individual could reasonably have been expected to meet the eligibility requirements.

4. For 1998, the Secretary of the Treasury in consultation with the Secretary of State, has determined that war, civil unrest, or similar adverse conditions that precluded the normal conduct of business existed in the following countries beginning on or after the specified dates:

Date of Departure

Country On or After

Albania August 14, 1998 Democratic

Republic of the Congo August 5, 1998 Eritrea June 5, 1998 Guinea-Bissau June 10, 1998 Indonesia May 15, 1998 Pakistan August 16, 1998 Sierra Leone December 23, 1998 Serbia-Montenegro October 11, 1998

5. Accordingly, for purposes of § 911 of the Code, an individual who left one of the foregoing countries on or after the specified departure date shall be treated as a qualified individual with respect to the period during which that individual was present in, or was a bona fide resident of,

EFFECTIVE DATE

The statutory changes described in this notice apply to CRT distributions made in taxable years ending after December 31, 1997.

EFFECT ON OTHER DOCUMENTS

Notice 98–20 is modified.

DRAFTING INFORMATION

The principal author of this notice is Mary Beth Collins of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Collins on (202) 622-3080 (not a toll-free call).

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also Part I, section 911, 1.911–1)

Rev. Proc. 99–20