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170(c);3 (3) once the payments described in (1) cease, the
remainder interest is transferred to or for the use of an
organization described in section 170(c) or is retained by the
trust for such a use; and (4) the value of that remainder
interest is at least 10 percent of the initial fair market value
of the trust assets. See sec. 664(d)(1). Furthermore, the terms
of the trust must meet the statutory requirements, and the trust
must operate within those terms from its creation. See sec.
1.664-1(a)(4), Income Tax Regs.
Five-Percent Distribution Requirement
Section 664 provides for a narrow exception to the general
disallowance of deductions for charitable remainder interests
under section 2055(e)(2)(A). In order to qualify, all section
664 requirements for CRAT’s must be met upon creation and must
continue to be met throughout the existence of the CRAT. See
sec. 1.664-1(a)(4), Income Tax Regs. One of those requirements
is that a minimum payment of 5 percent of the initial fair market
value of the trust’s assets be distributed each year to the
noncharitable beneficiary. Petitioner argues that this
distribution requirement should be set aside or ignored because
it only serves to decrease the charitable contribution and
because decedent had no need for the distribution. One of the
3 Sec. 170(c) describes organizations organized and operated
exclusively for religious, charitable, scientific, literary, or
educational purposes, or to foster amateur sports competition, or
for the prevention of cruelty to children or animals.
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