Ca. Tax Lawyer 2016, VOLUME 25, NUMBER 2

Proposal to Clarify Portion Rules That Determine When a Power Holder Other Than the Grantor Is Treated as the Owner of Trust Income1

By Robert Denham2


It is said that no battle plan survives contact with the enemy. This paper had been intended to explain that certain tax-driven formula withdrawal powers should not be permitted to determine ownership of trust income, but that other economic withdrawal powers should be respected. The draft paper analogized the formula withdrawal powers to income ordering rules for charitable lead trusts that are prohibited by regulation. In light of comments received in response to the draft, it now appears that such tax-driven formula withdrawal powers might actually work because they are sufficiently similar to the alternative economic powers and different from those income-ordering rules. Who says you never get a second chance to make a first impression?


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