Why The IRS Will Continue To Challenge Section 643(b) Trusts

The last few years have seen the proliferation of so-called section 643(b) trusts. Although there are various iterations of these trust arrangements, a common purpose seems to permeate each of them: the elimination or deferral of income tax, usually related to passive income earned within the trust. According to the promoters, these trust arrangements receive special tax benefits—and hence, their name—from section 643(b) of the Internal Revenue Code.

Given the age of section 643(b), the rise in their popularity now is somewhat surprising. Indeed, the predecessor of section 643(b)—which had substantially similar statutory language to the provision as it stands today—was enacted as part of the 1954 Code, making it roughly 70 years old. And according to its legislative history, section 643(b) was enacted by Congress solely as a means to clarify the different references to income used throughout the trust tax code—in section 643(b)'s case, the clarification of