IRS Issues Revenue Ruling on Irrevocable Grantor Trusts
The IRS recently issued Revenue Ruling 2023-02, intended to reduce the abuse of stepped-up basis adjustments in irrevocable grantor trusts.
The new revenue ruling confirms the basis adjustment under Section 1014 of the Tax Code, which generally applies the fair market value at the time of an individual’s death to property a taxpayer receives from the decedent, generally does not apply to the assets of an irrevocable grantor trust not included in the deceased grantor's gross estate for federal estate tax purposes.
The ruling stated that for property to receive a basis adjustment under Section 1014(a), the property must be acquired or passed from a decedent. For property to be acquired or passed from a decedent for purposes of Section 1014(a), it must fall within one of the seven types of property listed in Section 1014(b). The types of property in Section 1014(b) include (among others) property acquired by bequest, devise or inheritance, or by the decedent's estate from the decedent; property held in a revocable trust; property passing by a general power of appointment under a will; and property that is a spouse's one-half share in community property. As funding an irrevocable trust does not fall within any of the seven types of property listed in Section 1014(b), Section 1014(a) does not apply.