§685 Treatment of Funeral Trusts

Summary

Exempts certain funeral trusts from parts of the income tax rules and prevents a deduction under section 642(b). A "qualified funeral trust" is a non-foreign trust that meets six rules: it starts from a contract with a funeral provider; its only job is to hold and use money to pay for those funeral goods or services; only the people whose funerals are covered can be beneficiaries; only those people (or someone for them) put money in; the trustee chooses to follow these rules; and without that choice the contract buyers would be treated as owning the trust. Each beneficiary’s share is treated as a separate trust for applying section 1(e). If a contract is canceled and the trust pays the buyer, the buyer does not report gain or loss; if payment is property, the buyer’s basis in that property equals the trust’s basis just before the payment. The Treasury can create simpler reporting rules for trusts with a single trustee and for trusts that end during the year.