NEW YORK, NY, May 21, 2012 – The New York State Society of Certified Public Accountants (NYSSCPA) has proposed a series of “safe harbor” guidelines relating to the transfer of property from one irrevocable trust to another irrevocable trust (commonly referred to as “decanting”) in response to an open comment request from the IRS.

 

In a recent comment letter sent to the IRS, the NYSSCPA outlined 16 factors and issues identified by the agency and an additional factor raised by the NYSSCPA as potentially relevant to trust decantings.  In Notice 2011-101, the IRS announced it was studying the implications of decanting in circumstances where there is a change in the beneficial interests in a trust, and solicited comments regarding the income, gift, estate and generation-skipping transfer (GST) tax issues that may arise from a trust decanting.

 

The NYSSCPA recommends that the IRS issue safe harbor guidelines relating to trust decantings so that trustees, and the professionals who advise them, will have certainty as to the tax consequences of a decanting that is within the scope of the safe harbors. The NYSSCPA also proposes what these safe harbor guidelines should be for income, gift, estate and GST tax purposes.

 

“If the IRS were to issue safe harbor guidelines, it would significantly narrow the extent of taxpayer uncertainty and thereby substantially reduce the need for private letter rulings,” said the comment letter’s principal drafter, NYSSCPA Trust and Estate Administration Committee member, Kevin Matz. Matz noted that even if a trust transfer falls outside the safe harbor guidelines, it still wouldn’t necessarily be subject to income, gift, estate or GST tax consequences.

 

The NYSSCPA believes these safe harbor principles can be addressed in the form of a revenue ruling, and has offered to assist the IRS in drafting it.

 

One of the key elements of the comment letter was the NYSSCPA’s proposed safe harbors relating to GST tax issues, which calls into question the tax policies supporting very narrow safe harbor guidance that the IRS previously provided in the context of trusts that are “grandfathered” from the GST tax.

 

“We are taking a cutting edge approach in our proposed GST tax safe harbor guidelines,” Matz said. “We are trying to bring attention to the overbroad approach that the IRS has previously taken with respect to GST grandfathered trusts, as this issue dovetails specifically with our proposed safe harbor guidelines for trust decantings.”

 

The comment period for this notice closed on April 25. The IRS will not be issuing private letter rulings related to this issue while it is being studied.

 

Representing more than 28,000 CPAs, the NYSSCPA was the first state accounting organization in the nation. Incorporated in 1897, the Society is a not-for-profit organization that seeks to establish and maintain high standards of integrity, honor, and character among certified public accountants.

 

The New York State Society of CPAs is located at 3 Park Avenue in New York City. To learn more about the Society, call 800-633-6320 or visit the Society’s website at www.nysscpa.org.