Introduction to the CCA
In a recent Chief Counsel Advice (CCA) issued November 28, 2023 the IRS took the position that modification of a grantor trust, with the beneficiaries’ consenting to that modification in order to add a discretionary income tax reimbursement provision for the grantor, resulted in a taxable gift by the beneficiaries. The rationale was that the beneficiaries were relinquishing a portion of their interest in the trust. This changes how the IRS viewed such transactions in the past, and how most tax advisers thought the IRS would respond. Since grantor trusts and tax reimbursement clauses are so common in estate planning, this is worth a deeper look. There is also a possibility that this CCA ruling might suggest that the IRS is rethinking modifications and changes to irrevocable trusts more generally, but there is no way yet to know that.
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