Change in rules for CRTs with UBTI contains trap for the unwary.(charitable remainder trusts)

Tax Adviser, The, September, 2007 by Smith, Cara E.

The Tax Relief and Health Care Act of 2006 changed the provisions for charitable remainder trusts (CRTs) that have unrelated business taxable income (UBTI). Beginning January 1, 2007, an excise tax in the amount of the UBTI earned by the CRT during the year will be imposed under Sec. 664(c)(2). Prior to this change, a CRT with UBTI would have lost its tax-exempt status for the year and been taxed as a complex trust.

What Is UBTI?

Under Sec. 512(a)(1), UBTI is defined as the gross income derived by any organization from any unrelated trade or business regularly carried on by it, less the deductions directly connected with the carrying on of such trade or business, both computed with certain modifications. One of these is a specific deduction of $1,000....

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