Spouse gets 120 days to complete QDOT annuity transfers

Plain-English summary

A noncitizen surviving spouse received payments from a nonassignable pension annuity and later established a qualified domestic trust. She transferred the corpus portion of the payments to the QDOT, agreed to continue doing so, and the estate reported the annuity on Schedule M and elected QDOT treatment. The IRS concluded that the executor made a valid QDOT election and that the requirements for discretionary relief under Treasury Regulation § 301.9100-3 were satisfied for the earlier transfer. It granted 120 days to complete the transfers of corpus attributable to payments received before the specified transfer date and to file a supplemental Form 706-QDT. This relief allowed the annuity arrangement to satisfy the rollover requirements used to obtain the marital deduction for property passing to a noncitizen spouse.

Ruling snapshot

• Question: Could the spouse receive extra time to transfer the corpus portion of earlier nonassignable annuity payments to the QDOT?
• Outcome: approved
• Key authorities: IRC §§ 2056 and 2056A; Treas. Reg. §§ 20.2056A-4(c) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201647002                                             Third Party Communication: None
Release Date: 11/18/2016                                      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-104548-16
                                                              Date:
                                                              August 02, 2016


LEGEND
Decedent                            =       ------------------------
                                            --------------------------------------
Spouse                              =       ------------------------------
                                            -------------------------
Country A                          =        ----------
Country B                          =        ------------------------------
Date 1                             =        -----------------------
Month 1                            =        ----------------------
Month 2                            =        ---------------------
Date 2                             =        ---------------------------
Date 3                             =        ----------------------
Date 4                             =        ---------------------------
Date 5                             =        -------------------------------------
Company                            =        ------------
Defined Benefit Plan               =        -------------------------------------------------
Annuity                            =        -----------------------------------------------------------------------
-----------------------
x                                   =       --------------
Law Firm                            =       --------------------------------
Accounting Firm                     =       -----------------------------------
Attorney                            =       --------------------------

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

This letter responds to your representative’s letter of January 4, 2016, requesting an
extension of time under § 301.9100-1 of the Procedure and Administration
Regulations to satisfy the requirements of § 2056A of the Internal Revenue Code
PLR-104548-16                                2

(Code).

According to the facts submitted, Decedent was a citizen of Country A and a resident of
Country B. He died on Date 1, survived by Spouse. Spouse is also a citizen of Country
A and a resident of Country B.

Decedent was employed by Company. He participated in a Defined Benefit Plan (Plan)
under which Spouse is to receive payments of $x per month for life (Annuity). Under
the Plan’s provisions, the Annuity payments were to begin the first day of the month
following Decedent’s death. Spouse cannot assign her benefits under the Plan.

Spouse received the first Annuity payment in Month 1, and the payments have
continued for each month thereafter. She did not advise her legal or tax advisors that
the payments had begun as she did not know that there were legal consequences to
her receiving them. Subsequently, in Month 2, the Plan’s administrator informed
Attorney that the payments to Spouse had begun.

Thereafter, on Date 2, Spouse timely established a trust (QDOT) intended to qualify as
a qualified domestic trust within the meaning of § 2056A of the Code. On Date 3,
pursuant to Attorney’s letter of instructions, Spouse transferred to the QDOT the corpus
portion of every Annuity payment she had received.

In an agreement (Agreement) dated Date 4, Spouse agreed to transfer to the QDOT
within 60 days of receipt the corpus portion of each payment received from the Plan.
On Date 5, the federal estate tax return, Form 706 (United States Estate and
Generation-skipping Transfer Tax Return), for Decedent’s estate was timely filed along
with the Agreement. The corpus portion of the Annuity was listed on Schedule M of the
return as a part of the QDOT, and the executors made a QDOT election for it. It is
represented that Spouse has timely transferred to the QDOT the corpus portion of each
monthly Annuity payment she received after establishing the QDOT.

An extension of time pursuant to § 301.9100-3 is requested for Spouse to timely
transfer to the QDOT the corpus portion of Annuity payments received before Date 3 so
that those corpus amounts will be deemed as transferred within 60 days of receipt.

LAW AND ANALYSIS

Section 2056(a) provides, in part, that, for purposes of the tax imposed by § 2001, the
value of the taxable estate shall 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 his surviving spouse.

Section 2056(d)(1) provides, in part, that, except as provided in paragraph (2), if the
surviving spouse of the decedent is not a citizen of the United States, no deduction shall
PLR-104548-16                                 3

be allowed under subsection (a). Section 2056(d)(2)(A) provides that paragraph (1)
shall not apply to any property passing to the surviving spouse in a qualified domestic
trust.

Under § 2056A, in order for a trust to qualify as a QDOT: (1) the trust instrument must
require that at least one trustee of the trust be an individual citizen of the United States
or domestic corporation and 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 additional
estate tax imposed by § 2056A(b)(1) on the distribution; (2) the trust must meet the
requirements that are prescribed under Treasury regulations to ensure the collection of
the tax imposed by § 2056A(b); and (3) the executor must make the election prescribed
by § 2056A(d) to treat the trust as QDOT.

Section 20.2056A-4(c)(1) of the Estate Tax Regulations provides, in part, that a
nonassignable annuity means a plan, annuity, or other arrangement (whether qualified
or not qualified under part I of subchapter D of chapter 1 of subtitle A of the Internal
Revenue Code) that qualifies for the marital deduction but for § 2056(d)(1)(A) and
whose payments are not assignable or transferable to the QDOT under either federal
law, state law, foreign law, or the terms of the plan or arrangement itself. In the case of
a plan, annuity, or other arrangement which is not assignable or transferable, the
property passing under the plan from the decedent is treated as meeting the
requirements of § 20.2056A-2, and the requirements of § 20.2056A–2T(d) (pertaining,
respectively, to general requirements, qualified marital interest requirements, statutory
requirements, and requirements to ensure collection of the tax) if the requirements of
either paragraph (c)(2) or (3) of this section are satisfied. Thus, the property will be
treated as passing in the form of a QDOT, notwithstanding that the spouse does not
irrevocably transfer or assign the annuity or other payment to the QDOT.

The requirements of § 20.2056A-4(c)(3) will be satisfied if:

(i) The noncitizen surviving spouse agrees to roll over and transfer, within the time
prescribed in § 20.2056A-4(c)(7)(i), the corpus portion of each annuity payment to a
QDOT, whether the QDOT is created by the decedent’s will, the executor of the
decedent’s estate, or the surviving spouse;

(ii) A QDOT for the benefit of the surviving spouse is established prior to the date that
the estate tax return is filed and on or prior to the last date prescribed by law that the
QDOT election may be made;

(iii) The executor of the decedent’s estate files with the estate tax return the Information
Statement described in § 20.2056A-4(c)(5);

(iv) The executor files with the estate tax return the Agreement To Roll Over Annuity
PLR-104548-16                                4

Payments described in § 20.2056A-4(c)(7); and

(v) The executor makes the election under § 2056A(a)(3) and § 20.2056A-3 with
respect to the nonassignable annuity or other payment.

Section 20.2056A-4(c)(7)(i) provides, in part, that beginning in the calendar year of the
receipt by the surviving spouse of the spouse’s first annuity payment, the corpus portion
of each annuity payment, as determined under paragraph (c)(4) of this section, must,
within 60 days of receipt, be transferred to a QDOT. In addition, all annuity payments
received during the calendar year must be reported on Form 706-QDT no later than
April 15th of the year following the year in which the annuity payments are received.

Section 20.2056A-4(c)(7)(ii) provides, in part, that in order for a nonassignable annuity
or other payment described in this paragraph (c) to qualify under paragraph (c)(3) of this
section, the executor of the decedent’s estate must file with the estate tax return an
Agreement To Roll Over Annuity Payments, which must be signed by the surviving
spouse of the decedent.

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
executor made a valid QDOT election with respect to the corpus portion of the Annuity
that was listed on Schedule M of the estate tax return. We also conclude that the
requirements of § 301.9100-3 are satisfied with respect to the Date 3 rollover to the QDOT.

It is represented that the required transfers of corpus occurred on Date 3.
Nevertheless, an extension of time until 120 days after the date of this letter is granted
to complete the transfers of corpus to the QDOT and file a Supplemental Form
706-QDT (including a schedule of transfers) with the Internal Revenue Service Center,
PLR-104548-16                               5

Cincinnati OH 45999. A copy of this letter should be attached to the return.

The ruling 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 ruling, it is subject to verification on examination.
Except as specifically ruled herein, we express no opinion on the federal tax
consequences of the transaction under the cited provisions or under any other
provisions of the Code.

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

                                         Sincerely,

                                         Associate Chief Counsel
                                         (Passthroughs and Special Industries)


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

Enclosure
Copy of letter for § 6110 purposes