Estate and spouse receive more time to allocate GST exemptions

Plain-English summary

A married couple transferred property to a trust for their children and more remote descendants, but their attorney failed to prepare gift tax returns for a later transfer or advise them to allocate their remaining generation-skipping transfer tax exemptions. After one spouse died, the estate and surviving spouse discovered the omission and requested more time. The IRS found that they acted reasonably and in good faith because they relied on a qualified tax professional. It granted 120 days to file original Forms 709 allocating the available exemptions, effective as of the transfer date.

Ruling snapshot

• Question: Could the estate and surviving spouse receive more time to allocate their GST exemptions to a prior trust transfer?
• Outcome: Approved, with 120 days to file the required Forms 709.
• Key authorities: IRC §§ 2513, 2631, 2632, 2642, and 2652; Treas. Reg. §§ 26.2632-1, 26.2652-1, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201611009 Third Party Communication: None
Release Date: 3/11/2016 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2642.00-00
Person To Contact:
----------------------------------------------------------- ---------------, ID No. -----------------
------------ Telephone Number:
-------------------------------------------------------- ---------------------
------------------------------------------------ Refer Reply To:
------------------------------------ CC:PSI:04
PLR-124449-15

     Re: ----------------------------------               Date:
     --------                                             November 24, 2015

Legend

Date 1 = -------------------------
Decedent = -----------------------------------------------
Spouse =-----------------------------------------------------
Trust = --------------------------------------------
Year 1 = -------
Year 2 = -------
Date 2 = ----------------------
Attorney = ---------------
Date 3 = -----------------------

Dear ------------:

   This letter responds to your authorized representative’s letter dated

July 15, 2015, and subsequent correspondence, requesting an extension of time under
§ 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and
Administration Regulations to allocate Decedent’s and Spouse’s GST exemption to a
transfer to a trust.

FACTS

     The facts and representations submitted are summarized as follows:

   On Date 1, in Year 1, Decedent and Spouse created Trust for the benefit of their

children and more remote descendants.
PLR-124449-15 2

  On Date 1, Decedent and Spouse transferred property to Trust. Attorney

prepared and filed Forms 709 (United States Gift (and Generation-Skipping Transfer)
Tax Return), in which Decedent and Spouse elected to split the gift under § 2513.
On each of the Forms 709, Decedent and Spouse allocated their respective available
GST exemption to the transfer.

    On Date 2, in Year 2, Decedent and Spouse transferred property to Trust

(Year 2 Transfer). However, Attorney failed to prepare the Year 2 Forms 709 and failed
to advise Decedent and Spouse that they must file a Form 709 to report the transfer for
gift tax purposes and to affirmatively allocate their remaining GST exemption to the
Year 2 Transfer. Accordingly, Decedent and Spouse failed to allocate their respective
GST exemption to the Year 2 Transfer.

 Decedent died on Date 3. During the administration of Decedent’s estate,

Spouse learned of the failure to allocate Decedent’s and Spouse’s respective
GST exemption to the Year 2 Transfer to Trust.

  Decedent’s estate and Spouse request an extension of time pursuant to

§ 2642(g) and §§ 301.9100-1 and 301.9100-3 to allocate their GST exemption to the
Year 2 Transfer to Trust.

LAW AND ANALYSIS

    Section 2513(a)(1) provides that a gift made by one spouse to any person other

than his spouse shall be considered as made one-half by him and one-half by his
spouse, but only if at the time of the gift each spouse is a citizen or resident of the
United States. Under § 2513(a)(2), paragraph (a)(1) only applies if both spouses have
signified their consent to the application of paragraph (a)(1) in the case of all such gifts
made during the calendar year by either while married to the other.

    Section 2601 imposes a tax on every generation-skipping transfer (GST).

A generation-skipping transfer is defined under § 2611(a) as (1) a taxable distribution,
(2) a taxable termination, and (3) a direct skip.

   Section 2602 provides that the amount of the tax imposed by § 2601 is the

taxable amount multiplied by the applicable rate.

   Section 2641(a) defines the term “applicable rate” with respect to any GST

transfer as the product of the maximum federal estate tax rate and the inclusion ratio
with respect to the transfer.

   Section 2642(a)(1) provides that the inclusion ratio with respect to any property

transferred in a GST is the excess (if any) of 1 over the “applicable fraction.” With
respect to a GST that is not a direct skip, § 2642(a)(2) provides that the applicable
PLR-124449-15 3

fraction is a fraction, the numerator of which is the amount of the GST exemption
allocated to the trust, and the denominator of which is the value of the property
transferred to the trust, reduced by the sum of any federal estate tax or state death tax
actually recovered from the trust attributable to such property and any charitable
deduction allowed under § 2055 or 2522 with respect to such property.

   Section 2631(a), as in effect for Year 2, provides that, for purposes of

determining the inclusion ratio, every individual shall be allowed a GST exemption of
$1,000,000 which may be allocated by such individual (or his executor) to any property
with respect to which such individual is the transferor. Section 2631(b) provides that
any allocation under § 2631(a), once made, shall be irrevocable.

   Section 2632(a) provides that any allocation by an individual of his or her

GST exemption under § 2631(a) may be made at any time on or before the date
prescribed for filing the estate tax return for such individual’s estate (determined with
regard to extensions), regardless of whether such a return is required to be filed.

   Section 26.2632-1(b)(4)(i) of the Generation-Skipping Transfer Tax Regulations

provides that an allocation of GST exemption to property transferred during the
transferor’s lifetime, other than in a direct skip, is made on Form 709.

    Section 2652(a)(2) and § 26.2652-1(a)(4) provide that, if, under § 2513, one-half

of a gift is treated as made by an individual and one-half of such gift is treated as made
by the spouse of the individual, then for purposes of the GST tax, each spouse is
treated as the transferor of one-half of the entire value of the property transferred by the
donor spouse, regardless of the interest the electing spouse is actually deemed to have
transferred under § 2513.

    Section 2642(b)(1) provides, in part, that, except as provided in § 2642(f), if the

allocation of the GST exemption to any transfers of property is made on a gift tax return
filed on or before the date prescribed by § 6075(b) for such transfer, the value of such
property for purposes of § 2642(a) shall be its value as finally determined for purposes
of chapter 12 (within the meaning of § 2001(f)(2)) and such allocation shall be effective
on and after the date of such transfer.

   Section 2642(g)(1)(A) provides that the Secretary shall by regulation prescribe

such circumstances and procedures under which extensions of time will be granted to
make an allocation of GST exemption described in § 2642(b)(1) or (2), and an election
under § 2632(b)(3) or (c)(5). Such regulations shall include procedures for requesting
comparable relief with respect to transfers made before the date of the enactment of
this paragraph.

   Section 2642(g)(1)(B) provides that in determining whether to grant relief under

this paragraph, the Secretary shall take into account all relevant circumstances,
PLR-124449-15 4

including evidence of intent contained in the trust instrument or instrument of transfer
and such other factors as the Secretary deems relevant. For purposes of determining
whether to grant relief under this paragraph, the time for making the allocation (or
election) shall be treated as if not expressly prescribed by statute.

    Notice 2001-50, 2001-2 C.B. 189, provides that under § 2642(g)(1)(B), the time

for allocating the GST exemption to lifetime transfers and transfers at death, the time for
electing out of the automatic allocation rules, and the time for electing to treat any trust
as a GST trust are to be treated as if not expressly prescribed by statute. The Notice
further provides that taxpayers may seek an extension of time to make an allocation
described in § 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5)
under the provisions of § 301.9100-3.

  Section 301.9100-1(c) provides that the Commissioner has discretion to grant a

reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal
Revenue Code except in subtitles E, G, H, and I.

   Section 301.9100-3(a) provides that, in general, requests for extensions of time

for regulatory elections that do not meet the requirements of § 301.9100-2 must be
made under the rules of § 301.9100-3.

   Under § 301.9100-1(b), a regulatory election includes an election whose due

date is prescribed by a notice published in the Internal Revenue Bulletin. In accordance
with § 2642(g)(1)(B) and Notice 2001-50, taxpayers may seek an extension of time to
make an election described in § 2642(b)(1) or (b)(2) or an election described in
§ 2632(b)(3) or (c)(5) under the provisions of § 301.9100-3.

   Requests for relief under § 301.9100-3 will be granted when the taxpayer

provides the evidence to establish to the satisfaction of the Commissioner that the
taxpayer acted reasonably and in good faith, and that granting relief will not prejudice
the interests of the government.

  Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted

reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or to advise the taxpayer to make, the election.

    Based on the facts submitted and the representations made, we conclude that

the requirements of § 301.9100-3 have been satisfied. Therefore, Decedent’s estate
and Spouse are granted an extension of time of 120 days from the date of this letter to
allocate their available GST exemption to the Year 2 Transfer to Trust. The allocations
will be effective as of the date of the transfer and the value of the transfer to Trust, as
PLR-124449-15 5

determined for federal gift tax purposes, will be used in determining the amount of
Decedent’s and Spouse’s GST exemption to be allocated to Trust.

   The allocations should be made on original Forms 709 for Year 2, and filed with

the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter
should be attached to each original Form 709. A copy of this letter is enclosed for this
purpose.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Moreover, no opinion is expressed or implied concerning the
tax consequences of any modification of Trust after Year 2.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of

the Code provides that it may not be used or cited as precedent.

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

                                   Sincerely,
                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                                By:______________________________
                                   Lorraine E. Gardner
                                   Senior Counsel, Branch 4
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosures (2)
Copy for section 6110 purposes
Copy of this letter
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