QDOT trustee receives more time to report spouse's citizenship

Plain-English summary

A decedent left property in a qualified domestic trust for a surviving spouse who was not a U.S. citizen. The spouse later became a citizen after continuously residing in the United States but did not tell the trustee, so the trustee missed the deadline for the final Form 706-QDT notice and certification. That filing is required for the trust to stop being subject to the special QDOT estate tax after the spouse becomes a citizen. The IRS found that the regulatory relief standard was met and granted the trustee 120 days to file the final return and citizenship certification.

Ruling snapshot

• Question: Should the QDOT trustee receive more time to notify the IRS that the surviving spouse became a U.S. citizen?
• Outcome: Approved, with 120 days to file the final Form 706-QDT
• 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: 201628011
Release Date: 7/8/2016
Index Number: 2056A.00-00, 9100.00-00

---------------------------------------                        Person To Contact:
----------------------------------                             ----------------------------, ID No. ------------
---------------------                                          Telephone Number:
----------------------------------                             --------------------
 -------------------------                                     Refer Reply To:
                                                                CC:PSI:B04 – PLR-134143-15
                                                                Date:
                                                               March 28, 2016
Re: --------------------------------------------------------
-----------------------------------------------------------


Decedent                            = --------------------------------------------------
Spouse                              = ---------------------------------------------------------------
Executor                            = -----------------------------
Trustee                             = ----------------------
Trust                               = ------------------------
Trust 1                             = ------------------------------------------------------------------------------
                           ------------------------------------------------------------------------------------------
Date 1                              = ------------------
Date 2                              = ------------------------
Date 3                              = ------------------
Date 4                              = ----------------


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

        This letter responds to your authorized representative’s letter of
October 1, 2015, and subsequent correspondence, requesting an extension of time
under § 301.9100 of the Procedure and Administration Regulations to file the notice and
certification required under § 20.2056A-10(a)(2) of the Estate Tax Regulations that
Spouse has become a United States citizen.

         The facts and representations submitted are as follows:

       Decedent died testate on Date 1, survived by Spouse. Spouse was not a United
States citizen at the time of Decedent’s death.

       Under the terms of Section 5.7 of Trust, a portion of the residue of Decedent’s
estate passed to a marital deduction trust (Trust 1) for the benefit of Spouse.
Decedent’s estate filed a Form 706, United States Estate (and Generation-Skipping)
Transfer Tax Return on Date 2. Executor made an election (on Schedule M of the Form
PLR-134143-15                                2

706) under § 2056A(d) to treat Trust 1 as a qualified domestic trust (QDOT) and
claimed an estate tax deduction for the value of the property transferred to the QDOT.
Executor was the initial trustee of Trust 1. Trustee, a domestic corporation, is the
current trustee of Trust 1.

      On Date 3, Spouse became a United States citizen. It is represented that
Spouse has continuously resided in the United States from the date of Decedent’s
death until the time that Spouse became a United States citizen.

        Spouse failed to notify Trustee that she became a United States citizen. Spouse
was unaware of the necessity to file the final Form 706-QDT (U.S. Estate Tax Return for
Qualified Domestic Trusts) as required under § 20.2056A-10(a)(2), in order that Trust 1
would no longer be subject to the estate tax imposed under § 2056A(b). Consequently,
Trustee did not file a final Form 706-QDT. On Date 4, Trustee discovered that Spouse
had become a United States citizen on Date 3.

        Trustee requests a ruling that an extension of time be granted pursuant to
§ 301.9100-3 of the Procedure and Administration Regulations to file a final
Form 706-QDT notifying and certifying to the Internal Revenue Service that Spouse has
become a United States citizen, as required by § 20.2056A-10(a)(2), and that
distributions from Trust 1 will not be subject to tax under § 2056A(b)(1)(A) and (B).

LAW AND ANALYSIS

     Section 2001(a) 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 to be 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)(A) and (d)(2)(A)
provides that if the surviving spouse of the decedent is not a United States citizen, the
marital deduction is not allowed under § 2056(a), unless the property passes to the
surviving spouse in a qualified domestic trust.

       Under § 2056A(a), a qualified domestic trust is any trust in which: (1) the trust
instrument requires 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
income) may be made from the trust unless a United States trustee has the right to
withhold from such distribution the tax imposed under § 2056A(b) on the distribution;
(2) the trust meets the requirements as the Secretary may by regulations prescribe to
ensure collection of the tax imposed by § 2056A(b); and (3) an election is made by the
executor of the decedent with respect to the trust.
PLR-134143-15                                3


       Under § 2056A(b)(1)(A), an estate tax is imposed on any distribution of principal
from the qualified domestic trust (other than on account of hardship) before the date of
death of the surviving spouse. In addition, under § 2056A(b)(1)(B), an estate tax is
imposed on the value of the property remaining in a qualified domestic trust on the date
of the death of the surviving spouse.

         Under § 2056A(b)(12) and § 20.2056A-10(a)(1) and (2) of the Estate Tax
Regulations, a QDOT is no longer subject to the estate tax imposed under § 2056A(b) 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 U.S. trustee of the qualified domestic trust
notifies the Internal Revenue 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 that the
surviving spouse becomes a citizen, unless an extension of time of up to six months for
filing is granted under § 6081.

        Under § 301.9100-1(c) of the Procedure and Administration Regulations, 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 subtitles E, G, H, and I.

       Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

       Section 301.9100-3 provides the standards used 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). The time for filing the notice required under
§ 20.2056A-10(a)(2) is not expressly prescribed by statute. Accordingly, the trustee
may seek an extension of time to file with the Internal Revenue Service the required
notice and certification that Spouse has become a United States citizen.

       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 the grant of relief will not prejudice the
interests of the government. Section 301.9100-3(b)(1)(iii) provides that a taxpayer is
deemed to have acted reasonably and in good faith if the taxpayer failed to make the
election because, after exercising due diligence (taking into account the taxpayer’s
experience and the complexity of the return or issue) the taxpayer was unaware of the
necessity for the election.
PLR-134143-15                                 4


       Based on the facts submitted and the representations made, we conclude that
the requirements of § 301.9100-3 have been satisfied. Therefore, Trustee is granted an
extension of time of 120 days from the date of this letter to file with the Internal Revenue
Service the required notice and certification that Spouse has become a citizen of the
United States. The required notice and certification should be made on a
Form 706-QDT. The Form 706-QDT should be filed with the Internal Revenue Service
Center, Cincinnati, OH 45999. A copy of this letter should be attached to the Form
706-QDT. A copy 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.

      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 ruling contained in this letter is 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:    Leslie H. Finlow
                                           Leslie H. Finlow
                                           Senior Technician Reviewer
                                           Branch 4
                                           Office of Associate Chief Counsel
                                           (Passthroughs & Special Industries)

Enclosure
      Copy for section 6110 purposes

cc: