McCouch - Federal Income Taxation of Estates, Trusts, and Beneficiaries in a Nutshell

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JAMES J. WHITE

Robert A. Sullivan Professor of Law Emeritus,
University of Michigan

Federal Income Taxation of Estates, Trusts, and Beneficiaries

IN A NUTSHELL

GRAYSON M.P. M c COUCH

Gerald Sohn Professor of Law
University of Florida

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PREFACE

Fiduciary income taxation is a dynamic and rewarding field of study. The basic statutory framework, set forth in Subchapter J of the Internal Revenue Code, has remained remarkably stable since its enactment in 1954, although the detailed provisions of the statute and regulations have become increasingly complex. Much of the complexity in Subchapter J flows inexorably from the interplay of federal income tax principles with evolving rules of local law concerning fiduciary accounting and administration and with the separate system of federal estate and gift taxes. In addition, the statute and regulations are replete with technical requirements and restrictions designed to limit opportunities for tax avoidance. Nevertheless, the surface complexity of Subchapter J cannot completely obscure the logical coherence of its underlying structure.

This book provides a concise introduction to the federal income taxation of decedents, estates, trusts, and beneficiaries. It is intended to be read by students and by lawyers and other professionals involved in estate planning and administration. Its goal is to provide sufficient background and explanatory discussion to allow the reader to grasp the basic principles of fiduciary income taxation. To that end, the text includes numerous concrete examples illustrating the operation of specific rules as well as occasional discussion of relevant case law and administrative rulings. Reference is frequently made to provisions of the Internal Revenue Code and the accompanying Treasury regulations, underscoring the importance of having those sources accessible and reading them together with this book. Readers who wish to pursue matters in greater depth can find comprehensive discussions in the leading treatises on fiduciary income taxation.

The topical coverage of this book follows the sequence and organization found in many courses and teaching materials. Chapter 1 provides a general overview of the federal tax treatment of gifts and bequests and introduces some basic principles of fiduciary income taxation. The next two chapters focus on a decedents income tax liability for the taxable year ending at death (Chapter 2) and the treatment of income in respect of a decedent in the hands of an estate or other successor (Chapter 3). Chapter 4 discusses the classification and duration of an estate or a trust as a separate taxable entity, and the following three chapters examine the conduit rules which constitute the heart of Subchapter J. Under those rules, an estate or trust is taxed on income that is accumulated for future distribution (Chapter 5), but income that is distributed during the taxable year is taxed to the beneficiaries who receive it (Chapter 7). The concept of distributable net income serves as a measuring rod to determine the amount and character of the distributions received by the beneficiaries (Chapter 6). Chapter 8 deals with grantor trusts and explains the circumstances in which a grantor who retains beneficial enjoyment or control of an inter vivos trust may be treated as the trusts owner for income tax purposes. The remaining chapters discuss several types of trusts that qualify for special income tax treatment, including trusts for charitable purposes (Chapter 9), foreign trusts (Chapter 10), accumulation trusts (Chapter 11), and a few other trusts governed by specific statutory provisions (Chapter 12).

In preparing this book I have benefited greatly from the helpful advice and suggestions of current and former colleagues. I am especially grateful to Dennis Calfee and Lawrence Lokken for their friendship, encouragement, and guidance. Finally, I would like to thank Louis Higgins and the West Academic production staff for their invaluable assistance in bringing this book to publication.

Grayson M.P. McCouch

August, 2017
Gainesville, FL

OUTLINE

. Income in Respect of a
Decedent

5.8 Depreciation, Depletion, and
Amortization

6.4 Extraordinary Dividends and Taxable
Stock Dividends

8.6 Adverse, Related, and Subordinate
Parties

8.10 Powers to Control Beneficial
Enjoyment

:
672(f)

10.6 Deemed Sale on Transfer to Foreign
Trust

TABLE OF CASES

References are to Pages

Anastasio v. Commissioner, 97

Aragona Trust v. Commissioner, 127

Bedell Trust v. Commissioner, 101

Blair v. Commissioner, 33

Brigham v. United States, 185

Brownstone v. United States, 122

Chase Manhattan Bank v. Gavin, 43

Clifford, Helvering v., 33, 210

Corliss v. Bowers, 210

DeBonchamps, United States v., 98, 306

DeBrabant v. Commissioner, 172

Deutsch v. Commissioner, 185

Diedrich v. Commissioner, 7

Duberstein v. Commissioner, 38

DuPont Testamentary Trust v. Commissioner, 176

Elm Street Realty Trust v. Commissioner, 101

Fabens v. Commissioner, 167

Frane v. Commissioner, 80

Funk v. Commissioner, 306

Goodwyn, Estate of v. Commissioner, 294

Grace, Estate of, United States v., 223

Harrison v. Schaffner, 33

Higginson, United States v., 172

Hirschmann v. United States, 99

Horst, Helvering v., 32

Irwin v. Gavit, 9

Jones Trust v. Commissioner, 357

Kaestner Family Trust v. North Carolina Department of Revenue, 43

Keck v. Commissioner, 71

Kenan v. Commissioner, 189

Knight v. Commissioner, 118

Koffman v. United States, 306

Kohnstamm v. Pedrick, 211

Krause v. Commissioner, 224, 273