Estate receives 120 days to document a decedent's mental incompetency

Plain-English summary

A decedent created a revocable trust before October 22, 1986, that later continued for descendants across multiple generations. The estate timely filed Form 706 but did not attach a physician's certification or other evidence that the decedent had been continuously mentally incompetent from October 22, 1986, until death. That evidence is required to claim a transitional exception from generation-skipping transfer tax when there was no timely court adjudication of incompetence. The IRS granted 120 days to submit the certification or other evidence with a supplemental Form 706. The ruling did not decide whether the decedent actually met the mental-disability standard, which remained a factual examination issue.

Ruling snapshot

• Question: May the estate file late evidence of continuous mental incompetency for the GST transitional rule?
• Outcome: Approved, with 120 days to file a supplemental Form 706 and the required evidence.
• Key authorities: IRC §§ 2601, 2611, and 2652(b); Treas. Reg. §§ 26.2601-1(b)(3) and 301.9100-3; Tax Reform Act of 1986 § 1433(b)(2)(C)

Full text (IRS public release)

Internal Revenue Service                                    Department of the Treasury
                                                            Washington, DC 20224

Number: 201614015                                           Third Party Communication: None
Release Date: 4/1/2016                                      Date of Communication: Not Applicable
Index Number: 2601.04-00, 2601.04-05,
              9100.00-00                                    Person To Contact:
                                                            ----------------------, ID No. ------------
-------------------------------------------                 Telephone Number:
-------------------------------------------                 --------------------
-------------------------------------                       Refer Reply To:
-----------                                                 CC:PSI:04
-----------------------------------                         PLR-124128-15
                                                            Date:
                                                            December 01, 2015
Re: ----------------------------------
---------------------------------------------------------


Legend:

Decedent                = -----------------------
Child                   = --------------------------
Date 1                  = ----------------------
Date 2                  = --------------------------
Date 3                  = --------------------
Date 4                  = ---------------------------




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

This letter responds to the letter dated May 21, 2015, and subsequent correspondence,
submitted by your authorized representative, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file, pursuant to
§ 26.2601-1(b)(3)(iii)(A) of the Generation-Skipping Transfer Tax Regulations, a
qualified physician’s certification and other evidence that Decedent was mentally
incompetent at all times on and after October 22, 1986, until her death.

The facts submitted and representations made are summarized as follows. Decedent
created a revocable trust (Trust) on Date 1, a date prior to October 22, 1986. Trust
became irrevocable when Decedent died on Date 2. Pursuant to the terms of Trust, the
Trust property was held for the benefit of Decedent’s child (Child) until Child’s death on
Date 3, when it was divided into shares and held in further trust for Child’s children
(Decedent’s Grandchildren). A Grandchild’s share will be distributed outright to his or
PLR-124128-15                                2

her children (Decedent’s Great-Grandchildren) when that Grandchild dies.

The executors of Decedent’s estate timely filed a Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return on Date 4. The executors did not file a
physician’s certificate or other evidence of Decedent’s mental incompetency.

Section 2601 of the Internal Revenue Code (Code) imposes a tax on every
generation-skipping transfer. A generation-skipping transfer is defined under § 2611(a)
as (1) a taxable distribution, (2) a taxable termination, and (3) a direct skip. Under
§ 1433(b)(2)(C) of the Tax Reform Act of 1986 and § 26.2601-1(b)(3)(i), if an individual
was under a mental disability to change the disposition of the individual’s property
continuously from October 22, 1986, until the date of death, the provisions of chapter 13
do not apply to any generation-skipping transfer under a trust (as defined in
§ 2652(b)) to the extent such trust consists of property, or the proceeds of property, the
value of which was included in the gross estate of the individual.

Section 26.2601-1(b)(3)(ii) defines the term “mental disability” as mental incompetence
to execute an instrument governing the disposition of the individual’s property, whether
or not there was an adjudication of incompetence and regardless of whether there has
been an appointment of a guardian, fiduciary, or other person charged with either the
care of the individual or care of the individual’s property.

Section 26.2601-1(b)(3)(iii)(A) provides that if there has not been a court adjudication
that the decedent was mentally incompetent on or before October 22, 1986, the
executor must file, with Form 706, either (1) a certification from a qualified physician
stating that the decedent was mentally incompetent at all times on and after October 22,
1986, and did not regain competence to modify or revoke the terms of the trust or will
prior to his or her death, or (2) sufficient other evidence demonstrating that the decedent
was mentally incompetent at all times on and after October 22, 1986, as well as a
statement explaining why no certification is available from a physician, and any
judgment or decree relating to the decedent’s incompetency that was made after
October 22, 1986.

Section 301.9100-3 provides the standards used to determine whether to grant an
extension of time to make an election whose date is prescribed by a regulation (and not
expressly provided by statute). 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.

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been met. Therefore, we grant an extension of time
of 120 days from the date of this letter to file the required physician’s certification or
other evidence. The physician’s certification or other evidence should be attached to a
PLR-124128-15                                  3

supplemental Form 706 for Decedent’s estate. The Form 706 should be filed with the
Cincinnati Service Center at the following address: Internal Revenue Service,
Cincinnati Service Center - Stop 82, Cincinnati, OH 45999. A copy of this letter should
also be attached to the supplemental Form 706. 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. Specifically, we express no opinion as to whether Decedent was under a
mental disability within the meaning of § 26.2601-1(b)(3)(ii) on and after October 22,
1986. Resolution of this factual matter would be under the audit jurisdiction of the Area
Director.

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. 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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                                   Sincerely,


                                                   Leslie H. Finlow
                                                   Leslie H. Finlow
                                                   Senior Technician Reviewer, Branch 4
                                                   Office of Associate Chief Counsel
                                                   (Passthroughs and Special Industries)

Enclosure:
Copy of letter for § 6110 purposes