Teaching an old dog new tricks: CRTs and UBTI.(charitable remainder trusts, unrelated business taxable income)

Tax Adviser, The, July, 2007 by Batson, Ted R., Jr.

Dec. 20, 2006 marked a unique day in the taxation of charitable remainder trusts (CRTs)--President Bush signed into law the Tax Relief and Health Care Act of 2006 (TRAHCA '06). Buried in that legislation is revised Sec. 664(c), which significantly alters the tax treatment of unrelated business taxable income (UBTI) received by a CRT in tax years ending after 2006.

Old Law

Since 1969, CRTs have been tax-exempt under Sec. 664. This exemption was permitted as long as the CRT did not receive UBTI, as defined in Sec. 512. (1) For CRTs, UBTI typically arises from ownership of an interest in a passthrough operating entity (e.g., a partnership or limited liability company (LLC)) or from unrelated debt-financed income generated from property subject to...

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