Administrative trust to fund pecuniary amount to GST trust with stocks that have declined since Form 706 alternate valuation date. Funding loss cannot be deducted on admin trust ITR. What happens to it? Is it lost or does the 706 basis of the stocks carryover to the GST trust?
This is a question we've debated in the T&E department of my law firm. You have to use date of distribution values to fund the pecuniary bequest since Chapter 13 requires funding of such bequests using the principles of Rev. Proc. 64-19. So both gain or loss would be realized except for the prohibition against recognizing loss on a related party transaction. Since no loss ican be recognized, we've taken the position that a basis step-down to date of distribution value is not required and that the 706 value carries over. Thus far none of our clients have been audited with respect to basis adjustments, and I haven't seen any PLRs or TAMs one way or the other. Jon Gallo Los Angeles
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