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CHARITABLE LEAD TRUSTSaccelerate the payment of a charitable lead annuity is consistent with the federalgift tax requirement 22 that the charitable (income) interest be in the form of aguaranteed annuity.)The court also denied a deduction under the rules by which a trust isallowed a deduction for the payment of income or principal, 23 on the groundthat the regulations under that section expressly require that any amounts paidby trusts for charitable purposes can be deductible only under the general rulesproviding a deduction for payments for a charitable purpose. 24 The court hadpreviously so held, 25 and it refused to reverse its prior position.The court, however, rejected the government’s contention that the trust wasliable for additions to tax for substantial understatements. 26 It held that the trustdisclosed sufficient information on its tax returns to allow the IRS to identify theissues involved.§ 16.5 TESTAMENTARY USE OF CHARITABLE LEAD TRUSTSLike the other forms of planned giving, a charitable lead trust can be used to benefita charitable organization out of the assets of a decedent’s estate. That is, theincome interest thereby created for a charitable organization can be transferred asa charitable bequest by means of such a trust. 27 The remainder interest would bereserved for one or more noncharitable beneficiaries, such as the decedent’s heirs.In this situation, a charitable deduction is available to the estate. Again, thededuction is for the present value of the income interest being transferred to acharitable organization.When a federal estate tax charitable deduction becomes available, there is noneed for anyone to recognize the income of the charitable lead trust. That is,there is no application of the equivalent of the grantor trust rules (whereby anindividual is considered the owner of the trust) in this context.§ 16.6 PERCENTAGE LIMITATION RULESUnder the federal tax law, percentage limitations applicable to charitable contributionsby individuals can limit the extent of deductibility for charitable gifts inany one year. 28 One set of these limitations applies when the contribution is forthe use of a charitable organization, rather than to a charitable organization. 29A contribution made by means of a charitable lead trust is considered a contributionfor the use of the charitable organization that is entitled to the incomeinterest. 30 Thus, in general, a 30 percent limitation applies to such gifts for income22 IRC § 2522(c)(2)(B). See § 16.3, text accompanied by note 12.23 IRC § 661(a)(2).24 IRC § 642(c).25 O’Conner Estate v. Commissioner, 69 T.C. 165 (1977).26 IRC § 6662. See § 10.10.27 The failure to designate specific charitable beneficiaries of a charitable lead unitrust interest does not precludea gift tax charitable deduction (see § 8.2(k)(ii)) for the interest if the trustee has the power to select charitablebeneficiaries. Rev. Rul. 78-101, 1978-1 C.B. 301.28 See Chapter 7.29 See § 10.3.30 Reg. § 1.170A-8(a)(2). 520