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Abstract: 

Estate of Belmont (see FFA Vol 14, No 3) makes clear that where an estate is aware of a pending legal controversy (even one that is not a will contest) and realistically can foresee that it might need to invade set-aside funds in order to pay expenses related to or arising because of the controversy, it cannot claim an income tax deduction for amounts ostensibly set aside for distribution to a charitable beneficiary. Estate of DiMarco applies—and arguably extends—Estate of Belmont and serves as another example of how drafting can affect a tax result. In Estate of DiMarco, the Tax Court was again tasked with determining whether funds were “permanently set aside” for purposes of IRC §642(c)(2). Despite the estate’s characterization of proceedings and the fact that the designated beneficiaries received every dollar claimed on the return, the Tax Court concluded that the estate had failed to meet the standards contained in IRC § 642(c)(2) and Treas. Reg. §1.642(c)-2(d).

Keywords: Estate of Belmont v. Comm’r; RC § 642(c)(2); Treas. Reg. §1.642(c)-2(d)

Affiliations:  1: Strasburger & Price, LLP; 2: Strasburger & Price, LLP.