Rev. Rul. 76-544

Advice has been requested whether, under the circumstances described below, a charitable deduction is allowable under section 2055 of the Internal Revenue Code of 1954 for the value of an interest in property bequeathed to charity.

The decedent died on June 24, 1976, leaving a will executed on March 1, 1976. Article One of the will directs the payments of all taxes, debts, funeral expenses, and expenses of administering the decedent's estate. Article Two devises the decedent's personal residence, Whiteacre, to A for life; and Article Three directs that the death of A, Whiteacre is to vest in B, a charitable institution within the meaning of sections 170(c), 2522, and 2055(a) of the Code, and in C, an individual, as equal tenants in common.

In determining the value of the taxable estate for Federal estate tax purposes, section 2055(a) of the Code provides for a deduction of amounts passing to or for the use of the organizations, persons and purposes described in section 2055(a), such as certain charitable organizations. However, with respect to decedents dying after December 31, 1969, section 2055(e)(2) provides that where a decedent transfers a remainder interest in property (other than a remainder interest in a personal residence or farm or an undivided portion of the decedent's entire interest in property) to a person or for a use described in section 2055(a) for the benefit of charity, and an interest in the same property is transferred to a person or for a use not described in section 2055(a), no deduction is allowed with respect to the charitable interest unless, in the case of a remainder interest, such interest is in either a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)).

Since the decedent did not bequeath to charity an undivided portion of the decedent's entire interest in the residence, and since the remainder interest therein bequeathed to charity is not in a charitable remainder annuity trust or unitrust, or in a pooled income fund, the specific question is whether charity's interest is a remainder interest in a personal residence in view of the fact that, at the death of the life tenant, the residence is to vest in charity and in a private individual as equal tenants in common.

Under section 20.2055-2(e) of the Estate Tax Regulations, a deductible remainder interest in a personal residence is defined as follows:

(ii) Remainder interest in personal residence. The charitable interest is a remainder interest, not in trust, in a personal residence. Thus, for example, if the decedent devises to charity a remainder interest in a personal residence and bequeaths to his surviving spouse a life estate in such property, the value of the remainder interest is deductible under section 2055. For purposes of this subdivision, the term "personal residence" means any property which was used by the decedent as his personal residence even though it was not used as his principal residence. For example, a decedent's vacation home may be a personal residence for purposes of this subdivision. The term "personal residence" also includes stock owned by the decedent as a tenant-stockholder in a cooperative housing corporation * * * if the dwelling which the decedent was entitled to occupy as such stockholder was used by him as his personal residence.

The Senate Finance Committee Report pertaining to section 2055(e) of the Code, and the various limitations therein, states as follows:

[A] situation in which the committee amendments allow a charitable contribution deduction for the gift of a remainder interest to charity is in the case of a nontrust gift of a remainder interest in real property to charity. Thus, for example, a charitable contribution deduction is to be allowed where an individual makes a gift of his residence to charity and retains the right to live in the residence for his life. * * * (Emphasis added.)

S. Rep. No. 91-552, 91st Cong., 1st Sess. 88 (1969), 1969-3 C.B. 480.

Section 2055(e)(2) of the Code is applicable in the instant case because an interest in property has passed from the decedent for private purposes (the life interest devised to A) and an interest in the same property has also passed for charitable purposes (the bequest of a partial interest in the residence at A's death). The section 2055(e)(2) exception for remainder interests in personal residences, however, is not applicable. The personal residence exception in section 2055(e) is to apply only where a decedent devises the decedent's personal residence to charity with a preceding life estate in another. Upon the lapse of the intervening life estate the charity must own the entire residence.

Accordingly, since charity was not given the entire remainder interest in the decedent's personal residence, no deduction is allowable under section 2055 of the Code.