Green v. U.S., No. 16-6371 (10th Cir., Jan. 12, 2018)
Practitioners and donors often forget a pesky donation limitation that applies only to irrevocable trusts: the deduction for a real property donation is limited to the trust’s adjusted basis in the real property and is only permitted if the real property was acquired using the trust’s gross income. Internal Revenue Code section 642(c)(1) permits an irrevocable trust to claim a charitable deduction for “any amount of the gross income” of the trust which is donated to a qualified donee. Traditionally, most conservative tax practitioners have interpreted Section 642(c)(1) to mean that an irrevocable trust may donate an interest in real property, so long as (1) the interest was acquired with gross income and (2) the trust’s claimed deduction excludes unrealized appreciation. Unlike Internal Revenue Code section 170, which applies to individuals and corporations and clearly permits claiming unrealized appreciation as part of a charitable deduction, trusts and estates must rely on section 642 to claim charitable deductions and that section does not contain a similar provision.