2.3.9 Charitable Set Asides
2.3.9.1 Under the general rule of I.R.C. Sec. 642(c)(1), estates and trusts both are entitled to charitable deductions for “any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid” to a charity.
2.3.9.2 Under I.R.C. Sec. 642(c)(2), however, only an estate (and some grandfathered trusts) qualify for an income tax deduction from income derived from assets permanently set aside for charity. This means that the profits from such assets (including the gain from the sale of such assets) are not includible in estate income regardless of whether there is a corresponding distribution of such income in that taxable year.
2.3.9.2.1 The set aside must be definite – so that the charity will presumably receive the benefit of the income. The deduction has been upheld regardless of the pending litigation that challenged the charitable bequest. Rockland Oil Co. v. Comm’r., 22 T.C. 1307 (1954).
2.3.9.2.2 If the trust instrument permits such a distribution, of course, an actual distribution from a trust to charity is deductible.
2.3.9.3 A Section 645 election will give trusts the charitable set-aside treatment of estates.
