Charitable contribution substantiation requirements for estates and complex trusts.

• Author: Watson, Mark T.

Estates and complex trusts are allowed an unlimited income tax charitable contribution deduction for amounts that, pursuant to the terms of the will or the instrument creating the trust, are paid out of gross income during the tax year for a purpose specified in Sec. 170(c). This unlimited charitable income tax deduction for estates and complex trusts is authorized by Sec. 642 (c) and is in lieu of the limited charitable contribution deduction authorized by Sec. 170(a) for individuals.

As originally drafted, Regs. Sec. 1.642(c)-1 (addressing the unlimited deduction for amounts paid for charitable purposes by estates and trusts) did not impose the substantiation requirements on estates and trusts that are applicable to individuals who claim income tax charitable contribution deductions. However, in 1988 the IRS issued proposed amendments that would change the first sentence of Regs. Sec. 1.642(c)-1 to read, in part, as follows:

Any part of the gross income of an estate or trust which. . .is paid. . .during the taxable year for a purpose specified in section 170(c) shall be allowed as a deduction to such estate or trust...(provided that the recordkeeping and return requirements for charitable contribution deductions contained in [Sections] 1.170A-13 resatisfied). (emphasis added.)

Observation: The proposed amendments would also impose the recordkeeping and return requirements contained in Regs. Sec. 1.170A-13 on the unlimited deduction allowed to estates (and certain trusts created on or before Oct. 9, 1969) for amounts permanently set aside for charitable purposes.

Because estates and trusts are only allowed an income tax charitable contribution deduction for amounts of gross income paid (and, for estates and certain trusts, permanently set aside) for charitable purposes, distributions from estates and complex trusts to charitable organizations are typically made in cash. Consequently, assuming the proposed amendments to Regs. Sec. 1.642(c)-1 are followed, estates and complex trusts distributing amounts of gross income to charitable organizations generally will only need to comply with the substantiation requirements under Regs. Sec. 1.170A-13 that deal with cash contributions.

Contributions of money are required to be substantiated by a canceled check or a receipt from the donee showing the donee's name, the date of the contribution and the amount of the contribution (Regs. Sec. 1.170A-13(a) (1) ). A receipt may consist of a letter or other...