Rev. Rul. 70-376

Advice has been requested whether the grantor of a trust may, under the circumstances described below, avail himself of the nonrecognition of gain provisions of section 1033 of the Internal Revenue Code of 1954. An individual created a trust to which he transferred a parcel of real estate. Under the terms of the trust instrument the entire proceeds from the sale by the trust of items comprising trust corpus (including the gains, if any) were to be added to trust corpus and held for distribution to the grantor upon termination of the trust. The trustee was to pay all the other net income from the real estate held by the trust to named beneficiaries until a specified date, when the trust would terminate and the corpus would revert to the grantor.

During the current taxable year, the real estate comprising the corpus of the trust was sold at a gain as a result of condemnation by an appropriate governmental authority.

Section 1033(a) of the Code provides, in part, that if property is compulsorily or involuntarily converted into money, the gain, if any, shall be recognized except that at the election of the taxpayer, if during a specified period other property similar or related in service or use to the property so converted is purchased by the taxpayer, the gain shall be recognized but only to the extent that the amount realized upon such conversion exceeds the cost of such other property.

Section 671 of the Code provides, in part, that where the grantor is treated as the owner of any portion of the trust there is included in computing his taxable income and credits those items of income which are attributable to that portion of the trust to the extent such items would be taken into account in computing the taxable income of an individual.

Section 677(a) of the Code provides, in part, that the grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under section 674 of the Code, whose income without the approval or consent of any adverse party is, or, in the discretion of the grantor or a nonadverse party, or both, may be held or accumulated for future distribution to the grantor.

Section 1033(a) of the Code uses the term "taxpayer" in setting forth the requirements for qualifying for nonrecognition of gain benefits under that section. Under section 671 and section 677(a) of the Code, in the instant case, the grantor, not the trust, is the "taxpayer" with respect to the gains realized on the sale of the real estate in question, since it is he that is required to include the gain in income and pay any tax that may be due thereon.

Accordingly, under the facts in the instant case, it is held that the grantor is the taxpayer who may make the election in accordance with the provisions of section 1033 of the Code with respect to the gain realized on the sale of the real estate.