Internal Revenue Code:Sec. 685. Treatment of funeral trusts

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Location in Internal Revenue Code

     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
         PART I - ESTATES, TRUSTS, AND BENEFICIARIES
          Subpart F - Miscellaneous
        

Statute

    Sec. 685. Treatment of funeral trusts
 
    (a) In general
      In the case of a qualified funeral trust -
        (1) subparts B, C, D, and E shall not apply, and
        (2) no deduction shall be allowed by section 642(b).
    (b) Qualified funeral trust
      For purposes of this subsection, the term ''qualified funeral
    trust'' means any trust (other than a foreign trust) if -
        (1) the trust arises as a result of a contract with a person
      engaged in the trade or business of providing funeral or burial
      services or property necessary to provide such services,
        (2) the sole purpose of the trust is to hold, invest, and
      reinvest funds in the trust and to use such funds solely to make
      payments for such services or property for the benefit of the
      beneficiaries of the trust,
        (3) the only beneficiaries of such trust are individuals with
      respect to whom such services or property are to be provided at
      their death under contracts described in paragraph (1),
        (4) the only contributions to the trust are contributions by or
      for the benefit of such beneficiaries,
        (5) the trustee elects the application of this subsection, and
        (6) the trust would (but for the election described in
      paragraph (5)) be treated as owned under subpart E by the
      purchasers of the contracts described in paragraph (1).
    A trust shall not fail to be treated as meeting the requirement of
    paragraph (6) by reason of the death of an individual but only
    during the 60-day period beginning on the date of such death.
    (c) Dollar limitation on contributions
      (1) In general
        The term ''qualified funeral trust'' shall not include any
      trust which accepts aggregate contributions by or for the benefit
      of an individual in excess of $7,000.
      (2) Related trusts
        For purposes of paragraph (1), all trusts having trustees which
      are related persons shall be treated as 1 trust.  For purposes of
      the preceding sentence, persons are related if -
          (A) the relationship between such persons is described in
        section 267 or 707(b),
          (B) such persons are treated as a single employer under
        subsection (a) or (b) of section 52, or
          (C) the Secretary determines that treating such persons as
        related is necessary to prevent avoidance of the purposes of
        this section.
      (3) Inflation adjustment
        In the case of any contract referred to in subsection (b)(1)
      which is entered into during any calendar year after 1998, the
      dollar amount referred to paragraph (1) shall be increased by an
      amount equal to -
          (A) such dollar amount, multiplied by
          (B) the cost-of-living adjustment determined under section
        1(f)(3) for such calendar year, by substituting ''calendar year
        1997'' for ''calendar year 1992'' in subparagraph (B) thereof.
      If any dollar amount after being increased under the preceding
      sentence is not a multiple of $100, such dollar amount shall be
      rounded to the nearest multiple of $100.
    (d) Application of rate schedule
      Section 1(e) shall be applied to each qualified funeral trust by
    treating each beneficiary's interest in each such trust as a
    separate trust.
    (e) Treatment of amounts refunded to purchaser on cancellation
      No gain or loss shall be recognized to a purchaser of a contract
    described in subsection (b)(1) by reason of any payment from such
    trust to such purchaser by reason of cancellation of such
    contract.  If any payment referred to in the preceding sentence
    consists of property other than money, the basis of such property
    in the hands of such purchaser shall be the same as the trust's
    basis in such property immediately before the payment.
    (f) Simplified reporting
      The Secretary may prescribe rules for simplified reporting of all
    trusts having a single trustee and of trusts terminated during the
    year.
 

Sources

    (Added Pub. L. 105-34, title XIII, Sec. 1309(a), Aug. 5, 1997, 111
    Stat. 1042; amended Pub. L. 105-206, title VI, Sec. 6013(b), July
    22, 1998, 112 Stat. 820.)
 

Amendment of Section

     LIMITATION ON CONTRIBUTIONS RECEIVED BY TRUST DURING CALENDAR YEAR
                                    2002
        For limitation on aggregate contributions received by qualified
      funeral trust by or for the benefit of an individual for
      contracts entered into during calendar year 2002, see section
      3.16 of Revenue Procedure 2001-59, set out as a note under
      section 1 of this title.
 

Miscellaneous

                                 AMENDMENTS
      1998 - Subsec. (b). Pub. L. 105-206, Sec. 6013(b)(1), inserted
    concluding provisions.
      Subsec. (f). Pub. L. 105-206, Sec. 6013(b)(2), inserted ''and of
    trusts terminated during the year'' before period at end.
                      EFFECTIVE DATE OF 1998 AMENDMENT
      Amendment by Pub. L. 105-206 effective, except as otherwise
    provided, as if included in the provisions of the Taxpayer Relief
    Act of 1997, Pub. L. 105-34, to which such amendment relates, see
    section 6024 of Pub. L. 105-206, set out as a note under section 1
    of this title.
                               EFFECTIVE DATE
      Section 1309(c) of Pub. L. 105-34 provided that: ''The amendments
    made by this section (enacting this section) shall apply to taxable
    years ending after the date of the enactment of this Act (Aug. 5,
    1997).''