Trust's payments to S corporation for personal services not act of self-dealing.

• Author: Kautter, David J.

In Letter Ruling 200241048, the IRS ruled that a trust's payments to a related S corporation for personal services to be performed by the latter's employees on the trust's behalf is not an act of self-dealing under Sec. 4941.

Facts

A charitable lead trust was established via a will to provide annual annuity payments to a private foundation; at the end of the annuity term, the trust will terminate and distribute the remaining assets to the decedent's children. The split-interest trust would generally be subject to Sec. 4947(a)(2) private foundation self-dealing rules (among others).

The trust proposed to enter into a property management agreement with an S corporation that will manage a rental property. The S corporation, which is a disqualified person as to the trust for Sec. 4946(a) purposes, will solicit and negotiate leases, locate tenants, collect rent and arrange for employing and engaging independent contractors, obtaining insurance coverage and paying utility bills, taxes and service fees.

Under the agreement, the S corporation cannot enter into contracts for services to be provided by related persons, or for services to operate other real properties owned by such persons. However, an exception applies to insurance policies, which the S corporation can obtain to cover both a partnership's properties (in which the trust has an interest) and the related persons' properties, with all parties paying their allocable share of...