QDOT trustee received more time to report spouse's citizenship

Plain-English summary

A surviving spouse who was not a U.S. citizen received property through a qualified domestic trust and later became a citizen. The U.S. co-trustee did not learn of the citizenship change in time to file the required final Form 706-QDT. The spouse had continuously lived in the United States after the decedent's death, and the trust made no taxable distributions before she became a citizen. The IRS concluded that the regulatory-extension standards were satisfied. It granted the trustee 120 days to notify and certify the citizenship change on Form 706-QDT, allowing the trust to end its exposure to the special QDOT estate tax under IRC § 2056A.

Ruling snapshot

• Question: Could the QDOT trustee receive extra time to report and certify that the surviving spouse became a U.S. citizen?
• Outcome: Approved, 120-day extension
• Key authorities: IRC § 2056A(b)(12); Treas. Reg. §§ 20.2056A-10(a) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201622025                                              Third Party Communication: None
Release Date: 5/27/2016                                        Date of Communication: Not Applicable
Index Number: 2056A.00-00, 9100.00-00
                                                               Person To Contact:
-------------------------------------                          ---------------, ID No. ----------------
--------------------------------------                         Telephone Number:
----------------------------------                             --------------------
                                                               Refer Reply To:
                                                               CC:PSI:04
         RE:                                                   PLR-138887-15
         -------------------------------------------------     Date:
                                                               February 26, 2016




Legend

Decedent          =        ---------------------------------
Spouse            =        ------------------------------------------- ------------------
Trust             =        -------------------------------------------------------------------------
A                 =        -------------------------
Date 1            =        -------------------
Date 2            =        ---------------------
Date 3            =        ----------------------
Date 4            =        ----------------------
Date 5            =        -------------
Date 6            =        --------------------

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

This letter responds to your authorized representative’s letter of November 25, 2015,
requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to file Form 706-QDT, U.S. Estate Tax Return for Qualified
Domestic Trusts, to notify and certify to the Internal Revenue Service (Service) that
Spouse, who is the beneficiary of Trust, has become a United States citizen.

The facts and representations submitted are as follows.

Decedent died on Date 1, survived by Spouse. At the time of Decedent’s death,
Spouse was not a United States citizen. On Date 2, Spouse established a Qualified
Domestic Trust (QDOT) (Trust) pursuant to § 2056A and funded Trust with assets that
would have passed outright to Spouse from Decedent’s estate. On Date 3, Spouse, as
executrix of Decedent’s estate, timely filed Decedent’s Form 706, United States Estate
(and Generation-Skipping Transfer) Tax Return, and elected, on Schedule M, to treat
PLR-138887-15                                2

Trust as a QDOT. Decedent’s estate received a closing letter from the Service. The
initial co-trustees of Trust were Spouse and A. A is an attorney and a citizen of the
United States.

On Date 4, Spouse became a United States citizen. Spouse did not advise A that she
had become a United States citizen until Date 5. Accordingly, A, as co-trustee, did not
file a Form 706-QDT and make notification and certification of Spouse’s United States
citizenship during the required time period. Spouse died on Date 6.

It is represented that Spouse continuously resided in the United States from the date of
Decedent’s death until the time Spouse became a United States citizen. It is
represented further that no taxable distributions were made from Trust to Spouse or any
other person after the death of Decedent and before Spouse became a United States
citizen.

Law and Analysis

Section 2001(a) of the Internal Revenue Code imposes a tax on the transfer of the
taxable estate of every decedent who is a citizen or resident of the United States.

Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of
the taxable estate is determined by deducting from the value of the gross estate an
amount equal to the value of any interest in property that passes or has passed from the
decedent to the surviving spouse.

Section 2056(d)(1) provides that, except as provided in paragraph (2), if the surviving
spouse is not a citizen of the United States, no deduction shall be allowed under
§ 2056(a). Section 2056(d)(2) provides that paragraph (1) shall not apply to any
property passing to the surviving spouse in a QDOT.

There are three main requirements under § 2056A that must be satisfied in order for a
trust to be a QDOT. The trust instrument must require that at least one trustee of the
trust be an individual citizen of the United States or a domestic corporation, and
provides that no distribution (other than a distribution of income) may be made from the
trust unless a trustee who is an individual citizen of the United States or a domestic
corporation has the right to withhold from the distribution the tax imposed by § 2056A on
the distribution. In addition, the trust must meet the requirements of the regulations
under § 2056A(b)(1). Finally, the executor must make an election under this section on
the federal estate tax return to qualify the property for the federal estate tax marital
deduction.

Section 2056A(b)(1) provides that an estate tax is imposed on — (A) any distribution
before the date of death of the surviving spouse from a qualified domestic trust, and
PLR-138887-15                                 3

(B) the value of the property remaining in a qualified domestic trust on the date of the
death of the surviving spouse.

Section 2056A(b)(12) provides, in part, that if the surviving spouse of the decedent
becomes a citizen of the United States and if such spouse was a resident of the United
States at all times after the date of death of the decedent and before such spouse
becomes a citizen of the United States, then the tax imposed by § 2056A(b)(1)(A) shall
not apply to any distributions before such spouse becomes a citizen, and the tax
imposed by § 2056A(b)(1)(B) shall not apply.

Sections 20.2056A-10(a)(1) and (2) of the Estate Tax Regulations provide, in part, that
a QDOT is no longer subject to the § 2056A estate tax if the surviving spouse becomes
a citizen of the United States and the spouse was a resident of the United States at all
times after the death of the decedent and before becoming a United States citizen; and
the United States trustee of the QDOT notifies the Service and certifies in writing that
the surviving spouse has become a United States citizen. Notice is to be made by filing
a final Form 706-QDT on or before April 15th of the calendar year following the year in
which the surviving spouse becomes a United States citizen, unless an extension of
time for filing is granted under § 6081.

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 sets forth the standards that the Commissioner uses to determine
whether to grant an extension of time to make an election whose due date is prescribed
by a regulation and not expressly provided by statute. These standards indicate that
the Commissioner should grant relief when the taxpayer provides evidence proving 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 are satisfied. Therefore, A is granted an extension of
time of 120 days from the date of this letter to file with the Service the required notice
and certification that Spouse became a United States citizen. The required notice and
certification should be made on a Form 706-QDT. The Form 706-QDT should be filed
PLR-138887-15                                  4

with the Internal Revenue Service Center, Cincinnati, OH 45999. A copy of this letter
should be attached to the Form 706-QDT.

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
                                       Lorraine E. Gardner
                                       Senior Counsel, Branch 4
                                       (Passthroughs & Special Industries)




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




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