IRS Issues Proposed Regs on Charitable Reporting Requirements
On Aug. 17, 2026, the Internal Revenue Service issued proposed regulations (proposed regs) (REG-109082-25) that would: (1) eliminate the Form 1041-A reporting requirement for a trust whose only charitable deduction is attributable to a charitable contribution made by a pass-through entity in which the trust owns an interest; and (2) confirm that a split-interest trust filing a Form 5227 needn’t also file Form 1041-A.
Income Tax Deduction
Internal Revenue Code Section 642(c) generally permits a trust structured as a separate taxpayer for income tax purposes to claim an unlimited income tax deduction for distributions for a charitable purpose from property traceable to the trust’s gross income, provided the trust’s governing instrument authorizes the distribution. (Under IRC Section 642(c), a charitable purpose refers to the purposes specified in IRC Section 170(c), without IRC Section 170(c)(2)(A)’s limitation as to foreign charitable entities.) A trust also may elect to treat a qualifying distribution made in one tax year as having been made during the immediately preceding tax year. Separately, certain trusts created under a will or trust agreement executed on or before Oct. 9, 1969, may take an income tax deduction for amounts permanently set aside for charitable purposes, although this provision is of diminishing practical relevance.
Congress enacted IRC Section 6034 to provide additional oversight of trusts claiming a deduction under IRC Section 642(c). A central concern was that a trust might exploit Section 642(c)’s timing flexibility to accumulate income indefinitely while claiming deductions for future charitable distributions. Section IRC 6034 and its related Treasury regulations thus require a trust to file a Form 1041-A if it: (1) permits the trustee to exercise discretion in accumulating trust income; and (2) claims a charitable deduction under Section 642(c). Form 1041-A reports the trust’s income, charitable deductions and distributions for which a deduction is or was claimed and thereby ensures that deductions are claimed only once and only for income actually distributed for a charitable purpose.
Section 6034’s Scope Narrowed
The IRS’ proposed regs narrow Section 6034’s scope under circumstances that don’t implicate the potential abuse that the section was designed to address. These regs first limit the Form 1041-A reporting requirement for charitable deductions indirectly generated by a trust’s interest in a pass-through entity. For example, if a trust owns an interest in an entity taxed for income tax purposes as a partnership and the entity makes a charitable contribution, the trust will be entitled to take its distributive share of the resulting income tax deduction under IRC Section 702(a)(4). (Section 702(a)(4) provides that each partner in a partnership is to take into account its distributive share of the partnership’s items of income, gain, loss, deduction, or credit in determining the partner’s income tax liability.)In explaining this change, the IRS noted that the charitable deduction under these circumstances arises from the entity’s actions, not from the trust’s ability to accumulate or distribute gross income. Nor may the trust use Section 642(c)’s retroactive election to report such deduction on a prior year’s return. This category of deduction, therefore, isn’t susceptible to the abuse targeted by Section 6034. Additionally, the change is intended to address commentators’ concerns that trustees may lack sufficient awareness of and access to information related to an underlying entity’s charitable contribution to complete a related Form 1041-A.
Split-Interest Trusts
The proposed regs would also resolve an inconsistency in the required reporting for split-interest trusts, that is, trusts that benefit both charitable and noncharitable beneficiaries and for which a charitable deduction was allowed at funding. Currently, Treasury Regulations Section 1.6034-1 imposes the filing of a Form 1041-A as a blanket reporting requirement for trusts granting some level of discretion over income distributions that are also seeking a Section 642(c) charitable deduction. This section then appears to layer on additional reporting requirements for split-interest trusts. However, the IRS separately requires split-interest trusts to report the relevant information on Form 5227 each year, and the return’s instructions state that Form 5227 is intended to replace Form 1041-A for split-interest trusts. To address this contradiction, the proposed regs seek to amend Treas. Regs Section 1.6034-1 to make clear that the Form 1041-A filing requirement expressly excludes split-interest trusts.
If finalized, the proposed regs would apply to tax years ending on or after the date of final publication, although taxpayers may rely on these regulations prior to that date. All written or electronic comments to the regulations, as well as requests for a public hearing, must be received by Oct. 16, 2026.
