Rev. Rul. 76-309

Advice has been requested whether, under the circumstances described below, a trust qualifies as a charitable remainder annuity trust under section 644 of the Internal Revenue Code of 1954.

The grantors contributed property to a trust and claimed a charitable contribution deduction under section 170 of the Code for the value of the remainder interest. The governing instrument of the trust was intended to comply with the provisions of section 664 and the regulations thereunder. Under the terms of the instrument the trust shall be deemed null and void and all the trust assets returned to the grantors if the Internal Revenue Service disallows a deduction for the value of the remainder interest.

A charitable remainder annuity trust is defined in section 664(d)(1) of the Code. Section 664(d)(1)(A) provides that a charitable remainder annuity trust is a trust from which a sum certain (which is not less than 5 percent of all property placed in trust) is to be paid, not less often than annually to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals.

Section 664(d)(1)(B) of the Code provides that no amount of a charitable remainder annuity trust other than the annuity payments described in subparagraph (A) may be paid to or for the use of any person other than an organization described in section 170(c).

Section 664(d)(1)(C) of the Code provides that following the termination of the annuity payments described in subparagraph (A), the remainder interest in the charitable remainder annuity trust is to be transferred to, or for the use of, an organization described in section 170(c) or is to be retained by the trust for such a use.

Under section 1.664-2(a)(4) of the Income Tax Regulations, no amount other than the annuity amount described in section 1.664-2(a)(1) of the regulations may be paid to or for the use of any person other than an organization described in section 170(c) of the Code.

Under section 1.664-2(a)(6)(i) of the regulations, the entire corpus of the charitable remainder annuity trust is required to be transferred to or for the use of one or more organizations described in section 170(c) of the Code or retained for such use upon the termination of all noncharitable interests.

In the instant case the condition in the trust instrument providing for the trust assets to be returned to the grantors if the Service disallows a deduction for the remainder interest presents the possibility that amounts other than the annuity payments will be paid to a person other than an organization described in section 170(c) of the Code and that the remainder interest will not be transferred to or for the use of a charitable organization or retained by the trust for such a use. Accordingly, the trust does not qualify as a charitable remainder annuity trust under section 664 of the Code and the value of the remainder interest contributed to the trust is not deductible as a charitable contribution for Federal income tax purposes.

The instant case is distinguishable from the case in which the trust assets may be returned to the grantor only if the Internal Revenue Service refuses to rule that the trust is initially qualified under section 664 of the Code. See, for example, Rev. Rul. 60-276, 1960-2 C.B. 150. In the latter case, there is no condition that can occur upon which the trust assets may be returned to the grantor after the Service has ruled that the trust is initially qualified.

Rev. Rul. 60-276 distinguished.