8103 / Is a charitable remainder annuity trust or unitrust subject to income tax?

Ordinarily, the trust is not taxed on its income.¹ Under prior law, the trust lost its tax-exempt status for any year in which it had unrelated business taxable income (UBTI). The old rule caused the loss of the CRT’s exemption for even one dollar of UBTI. TRHCA 2006 modified the excise tax on unrelated business taxable income of charitable remainder trusts and changed the loss-of-exemption rule. The current law imposes a 100 percent excise tax, but leaves the CRT’s exempt status intact.² The excise tax is allocated to corpus and does not reduce the taxable income of the trust.³ See Q 8100 regarding how distributions from a charitable remainder trust are taxed to a beneficiary.

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1. IRC § 664(c)(1).

2. IRC § 664(c), as amended by TRHCA 2006.

3. Treas. Reg. § 1.664-1.