Tax Notes Quotes Alison Egan on IRS Regulations Against Use of Multiple Trusts

The IRS's regulations against the use of multiple trusts to effectively multiply the 20 percent passthrough deduction may end up implicating broader trust tax planning strategies.

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"The regulations issued today apply to any use of multiple trusts with a primary purpose of avoiding tax, not just the use of them for section 199A purposes," Alison Egan of Caplin & Drysdale said.

Egan observed that there has been real interest in tax avoidance strategies like sidestepping the $ 10,000 cap on the state and local tax deduction, and said the fact that the section 643(f) regulations were only just now issued 34 years after the provision became law "suggests that the government is concerned about multi-trust strategies that will reduce income tax."

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Tough Luck

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Those preexisting trusts that would now fail the regulations will likely be subject to challenge by the IRS, Egan agreed, though she added that the outcome will depend on the facts and circumstances of each case.

Big Picture

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Egan noted that the proposed regs don't address a common planning scenario involving multiple trusts that isn't tax motivated, like when a settlor creates multiple trusts, one for each of her descendants. More examples in the regs would have helped, Egan added.

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Excerpt taken from the article “IRS Drops Hammer on 199A, SALT Cap Workarounds” by Jonathan Curry for Tax Notes.