Relief could be on the way for charitable remainder trusts that intentionally or unintentionally earn substantial amounts of unrelated business taxable income.

The Internal Revenue Service has issued a notice of proposed rulemaking indicating that it may shift to penalizing charitable remainder trusts for collecting the income by taking all of it away.

Today, the IRS handles charitable remainder trusts that earn unrelated business taxable income by treating all of their income as ordinary taxable income, IRS officials note today in a notice that appears in the Federal Register.

A charitable remainder trust could generate unrelated business taxable income by, for example, running a factory or barber shop that was unrelated to its mission; collecting its share of profits from a partnership investment; or, in some cases, receiving improperly structured donations or unusual types of payments related to investments that fall outside the UBTI rules.

The proposed rule would affect charitable remainder trusts with plan years starting after Dec. 31, 2006.