Estate receives late QTIP election relief

Plain-English summary

A decedent's revocable trust directed property to a QTIP trust for the surviving spouse, with all net income payable at least quarterly and principal available for specified needs. The spouse, acting as personal representative, hired an attorney to prepare the estate tax return. The attorney mistakenly omitted the QTIP trust assets from the QTIP election on Schedule M. The IRS found that the estate met the standards for regulatory-election relief. It granted 120 days to make the QTIP election by filing a supplemental Form 706.

Ruling snapshot

• Question: Could the estate make a late QTIP election for property passing to the QTIP trust?
• Outcome: Approved, with 120 days to file a supplemental Form 706.
• Key authorities: IRC §§ 2001 and 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201636019                                              Third Party Communication: None
Release Date: 9/2/2016                                         Date of Communication: Not Applicable
Index Number: 2056.07-00, 9100.00-00
                                                               Person To Contact:
------------------------------------------------------------   --------------------------------------------------
--------------------                                           Telephone Number:
----------------------                                         --------------------
-----------------------------------                            Refer Reply To:
                                                               CC:PSI:B04
                                                               PLR-138492-15
                                                               Date:
                                                               May 26, 2016
--------------------------------------------



Legend

Decedent                        --------------------------------------------------
Spouse                          -----------------------------
Son                             --------------------------
Trust                           -----------------------------------------------------
Attorney                        ----------------------------
Date 1                          -----------------------
Date 2                          ----------------
Date 3                          -----------------------
Date 4                          ----------------
QTIP Trust                      ----------------------------------------------
Spouse Trust                    ----------------------------------------------------------



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

      This letter responds to a letter from your authorized representative dated
November 24, 2015 requesting an extension of time under § 301.9100-1 and
§ 301.9100-3 of the Procedure and Administration Regulations to make a qualified
terminable interest property (QTIP) election under § 2056(b)(7) of the Internal Revenue
Code.

         The facts and representations submitted are summarized as follows:

      On Date 1, Decedent executed his will and a revocable trust, Trust. Decedent
died on Date 2, survived by Spouse.
PLR-138492-15                                2

       Section 2.01 of Decedent’s will provides that Decedent gives, devises, and
bequeaths his residuary estate to the then serving trustee of Trust, in his or her capacity
as trustee of Trust.

      Section 3.01 of Decedent’s will provides that Decedent appoints Spouse to serve
as personal representative of the estate. If at any time and for any reason Spouse fails
to become or ceases to be the personal representative of the estate, Decedent appoints
Son to serve as substitute or successor personal representative.

        Section 5.01 of Trust provides that after Decedent’s death, after making specific
bequests, the QTIP Trust is to be funded with the smallest amount of the remaining
Trust Fund which qualifies for the marital deduction. The trustees of QTIP Trust are to
distribute all the net income to Spouse quarter-annually. The trustees may also pay or
apply principal of QTIP Trust to Spouse for her health, support, maintenance, and
education. Two years after Decedent’s death, the QTIP Trust is to terminate and all
undistributed income and the then-remaining balance of QTIP Trust is to be distributed
outright and free of trust to Spouse Trust, or if such trust was not then in existence, to
Spouse.

      Spouse, as personal representative of Decedent’s estate, hired Attorney to
prepare Decedent's Form 706, United States Estate (and Generation-Skipping Transfer)
Tax Return. On Date 3, the Form 706 was timely filed on behalf of the estate. On
Schedule M, Attorney mistakenly failed to include the assets of QTIP Trust as property
subject to the QTIP election. Thus, no QTIP election was made with respect to the
property passing to QTIP Trust. Spouse died on Date 4.

      You have requested an extension of time to make the QTIP election under
§ 2056(b)(7).

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 shall, except as limited by § 2056(b), be determined by
deducting from the value of the gross estate an amount equal to the value of any
interest in property which passes or has passed from the decedent to the surviving
spouse, but only to the extent that such interest is included in determining the value of
the gross estate.

       Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest
property, for purposes of § 2056(a), such property shall be treated as passing to the
surviving spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be
PLR-138492-15                                  3

treated as passing to any person other than the surviving spouse.

       Section 2056(b)(7)(B)(i) defines the term “qualified terminable interest property”
as property: (I) which passes from the decedent; (II) in which the surviving spouse has
a qualifying income interest for life as defined in § 2056(b)(7)(B)(ii); and (III) to which an
election under § 2056(b)(7) applies.

      Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with
respect to any property shall be made by the executor on the return of tax imposed by
§ 2001. Such an election, once made, shall be irrevocable.

        Section 20.2056(b)-7(b)(4)(i) of the Estate Tax Regulations provides that, in
general, the election referred to in § 2056(b)(7)(B)(i)(III) and (v) is made on the return of
tax imposed by § 2001 (or § 2101). For purposes of this paragraph, the term “return of
tax imposed by § 2001” means the last estate tax return filed by the executor on or
before the due date of the return, including extensions or, if a timely return is not filed,
the first estate tax return filed by the executor after the due date.

        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 6 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 301.9100-3 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.

      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 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, the personal
representative of Decedent’s estate is granted an extension of time of 120 days from
the date of this letter to make a QTIP election with respect to the property passing to
QTIP Trust. The election should be made on a supplemental Form 706 filed with the
Cincinnati Service Center at the following address: Internal Revenue Service Center,
PLR-138492-15                                4

Cincinnati, OH 45999. A copy of this letter should be attached to the supplemental
Form 706. A copy is enclosed for this purpose.

      In accordance with the Power of Attorney on file with this office, we have sent a
copy of this letter to your authorized representatives.

       Except as expressly provided herein, we neither express nor imply any opinion
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

      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.

      This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.


                                         Sincerely,

                                         Associate Chief Counsel
                                         Passthroughs and Special Industries



                                         Melissa C. Liquerman
                                  By:    Melissa C. Liquerman
                                         Chief, Branch 4
                                         Office of the Associate Chief Counsel
                                         (Passthroughs and Special Industries)



      Enclosures
            Copy for § 6110 purposes
            Copy of this letter


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