Revenue Ruling 2023-02 confirms that the basis adjustment under section 1014 generally does not apply to the assets of an irrevocable grantor trust not included in the deceased grantor’s gross estate for Federal estate tax purposes. Section 1014 of the Internal Revenue Code does not apply to “step-up” the basis of assets gifted to an irrevocable grantor trust by completed gift in cases in which such assets are not included in the gross estate of the owner of the trust for Federal estate tax purposes. In such cases, even though the grantor trust’s owner is liable for Federal income tax on the trust’s income, the assets of the grantor trust are not considered as acquired or passed from a decedent by bequest, devise, inheritance, or otherwise within the meaning of § 1014(b), and therefore § 1014(a) does not apply.

Revenue Ruling 2023-02 will be in IRB: 2023-16, dated April 17, 2023.