The IRS said it is reconsidering some of the private letter rulings its associate chief counsel’s office has issued regarding the gift tax consequences of trusts that employ distribution committees.The IRS’s chief counsel has discovered that some of the conclusions in the rulings may disagree with some prior revenue rules.
The private letter rulings had concluded that distribution committee members have substantial adverse interests to each other, and therefore did not possess general powers of appointment over the trust under Section 2514 of the Internal Revenue Code. Thus, their distributions from the trust would not be subject to the gift tax.
However, the earlier revenue rules indicate that because the committee members are replaced if they resign or die, they would be treated as possessing general powers of appointment. The associate chief counsel’s office is now seeking comments on the question before the chief counsel takes further action.
