IRS issues major secular trust rulings on employer grantor trust arrangements

Article Abstract:

Secular trusts are irrevocable trusts structured to pay for executive retirement benefits, and two 1992 IRS private letter rulings regarded the taxation of employer-grantor secular trusts. In one plan the participants were employees and in the other nonemployee directors. The IRS decided that it would not permit employer-type secular trusts to be taxed like grantor trusts. It appears instead that the employer will be taxed on income earned under the trust with no offsetting deductions at or before that income is taxable to the employee.

Compensation and benefits, Executives, Executive compensation

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IRS issues more secular trust rulings

Article Abstract:

Two new IRS secular trust rulings will probably have an adverse impact on employer utilization of such trusts since they expand the scope of the IRC 72(q) penalty tax and the reasons for considering secular trusts to be annuity contracts for purposes of that tax. The IRS has also advocated the view that secular trusts be subject to taxation both at the trust level and at the employee level, thus going against the employer preference that they be taxed as employer-grantor trusts in order to avoid double taxation.

Laws, regulations and rules, Tax penalties, Double taxation

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Master trust comprised of individual secular trusts is partnership for tax purposes

Article Abstract:

The IRS decided in PLR 9620005 that trusts established to hold employee bonuses already taxed were grantor trusts and that the master trust that invested the individual trusts' funds was a partnership for tax purposes. The IRS did require the taxpayer to limit the trustees' powers to carry on business by amending the trust agreements. The IRS found that the master trust was not a trust for tax purposes and that it was a partnership under the corporate characteristics test.

United States, Pension funds, Partnership, Partnerships

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