Posted: 19 Aug 2013 Last revised: 27 Jun 2014
Date Written: August 18, 2013
This Article challenges Treasury’s recent regulations narrowly interpreting the fiduciary income tax charitable deduction under IRC § 642(c). Treasury’s new interpretation highlights a fundamental tension in the federal tax system, which involves identifying transactions that are abusive versus transactions that take advantage of congressionally sanctioned tax incentives that were designed to further important public policies like charitable giving. For almost forty years, IRC § 642(c) had been liberally construed by Treasury, which was consistent with the legislative history and principles of statutory construction traditionally applicable to charitable deductions. Treasury’s new restriction on income ordering rules in charitable trusts overrides the legal norms historically applicable to charitable deductions and is contrary to the legislative history, case law interpreting charitable deductions and Subchapter J of the Internal Revenue Code. If left unchallenged, this new interpretation has the potential to erode congressionally sanctioned tax incentives, charitable and otherwise, which is cause for great concern. This Article examines the history of charitable deductions in the United States and the case law that has liberally construed the deductions for almost a century. The Article also examines the statutory framework of Subchapter J of the Internal Revenue Code and concludes that Treasury’s justification for its new interpretation of the deduction is without merit and that the regulations should be invalidated if challenged.
Keywords: charity, income, trusts, administrative law, tax
Suggested Citation: Suggested Citation
Kearns, Deborah S., For Treasury Charity Starts at Home: Treasury's New Interpretation of the Fiduciary Income Tax Charitable Deduction (August 18, 2013). Albany Law School Research Paper No. 2 for 2013-2014. Available at SSRN: https://ssrn.com/abstract=2312003 or http://dx.doi.org/10.2139/ssrn.2312003