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Simple English definitions for legal terms
administrative-control rule
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A quick definition of administrative-control rule:
Administrative-Control Rule: This is a tax rule that says if someone creates a trust but still has control over it and can use it for their own benefit, then they are responsible for paying taxes on it.
A more thorough explanation:
The administrative-control rule is a tax law that holds the creator of a trust responsible for paying taxes if they retain control over the trust that can be used primarily for their own benefit. This rule is outlined in the Internal Revenue Code (IRC) section 675.
For example, if John creates a trust and retains the power to change the beneficiaries or revoke the trust, he may be held liable for any taxes owed on the trust's income or assets. Similarly, if Jane creates a trust and retains the power to use the trust's assets for her own benefit, she may also be responsible for paying taxes on the trust.
Another example could be if a parent creates a trust for their child's education but retains the power to use the trust's assets for their own benefit, such as paying for their own expenses. In this case, the parent may be held liable for any taxes owed on the trust.
These examples illustrate how the administrative-control rule works by holding the creator of the trust responsible for taxes if they retain control over the trust that can be used primarily for their own benefit.
Administrative Conference of the United States | administrative-convenience exception