Donor gets 120 days to allocate GST exemption

Plain-English summary

A donor transferred interests in real property to an irrevocable trust for a child, the child's spouse, and their descendants. The donor's enrolled agent timely filed Form 709 but reported the transfers in the wrong part of the return and failed to allocate generation-skipping transfer exemption. The donor requested relief so the allocation could be effective as of the original transfer date. The IRS found that the donor reasonably relied on a qualified tax professional and satisfied the requirements of Treasury Regulation § 301.9100-3. It granted 120 days to file a supplemental Form 709 allocating the donor's available GST exemption to the transfers.

Ruling snapshot

• Question: Could the donor make a late allocation of GST exemption to the trust transfers?
• Outcome: approved
• Key authorities: IRC §§ 2631, 2632, and 2642(g); Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224
Number: 201648010
                                                               Third Party Communication: None
Release Date: 11/25/2016
                                                               Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
                                                               Person To Contact:
-----------------------                                        ----------------, ID No. ------------------
------------------------                                       Telephone Number:
----------------------                                         ----------------------
---------------------------                                    Refer Reply To:
                                                               CC:PSI:04
                                                               PLR-110362-16
---------------------------------                              Date:
                                                               August 15, 2016



LEGEND

Donor                         =     --------------------------------------------------
Date 1                        =     ---------------------------
Trust 1                       =     ---------------------------------------------------------------------------------
Son                           =     -----------------------
Daughter-in-law               =     -----------------
Enrolled Agent                =     ----------------------

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

This letter responds to the letter dated March 26, 2016, submitted by your authorized
representative, requesting an extension of time pursuant to § 2642(g) of the Internal
Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to
allocate generation-skipping transfer (GST) exemption to transfers to a trust.

FACTS

The facts and representations submitted are as follows.

On Date 1 (a date after December 31, 2000), Donor created an irrevocable trust, Trust,
for the benefit of Son, Daughter-in-law and their living issue. Trust has GST potential.
Also on Date 1, Donor transferred two undivided interests in the same real property to
Trust. Enrolled Agent prepared and timely filed Donor’s Form 709, United States Gift
(and Generation-Skipping Transfer) Tax Return, reporting the transfers to Trust.
However, Enrolled Agent improperly reported the gifts on Part 1 (Gifts Subject Only to
Gift Tax) of Schedule A of the Form 709, rather than on Part 3 (Indirect Skips).
Accordingly, Enrolled Agent failed to allocate Donor’s GST exemption to the gifts.
PLR-110362-16                                2

Donor requests an extension of time to make an election under § 2642(g)(1) to allocate
GST exemption to the transfers to Trust, effective as of the date of the transfers to
Trust.

LAW AND ANALYSIS

Section 2601 imposes a tax on every GST. A GST is defined under § 2611(a) as
(1) a taxable distribution, (2) a taxable termination, and (3) a direct skip.

Section 2602 provides that the amount of the tax imposed by § 2601 is the taxable
amount multiplied by the applicable rate. Section 2641(a) defines the applicable rate as
the product of the maximum federal estate tax rate and the inclusion ratio with respect
to the transfer.

Under § 2642(a), the inclusion ratio with respect to any property transferred in a GST is
the excess (if any) of one over the applicable fraction. The applicable fraction, as
defined in § 2642(a)(2), is a fraction, the numerator of which is the amount of the GST
exemption under § 2631 allocated to the trust, and the denominator of which is the
value of the property transferred to the trust.

Section 2631(a), provides that, for purposes of determining the inclusion ratio, every
individual shall be allowed a GST exemption amount which may be allocated by such
individual (or his executor) to any property with respect to which such individual is the
transferor. Section 2631(b) provides that any allocation under § 2631(a), once made,
shall be irrevocable.

Section 2632(a)(1) provides that any allocation by an individual of his or her GST
exemption under § 2631(a) may be made at any time on or before the date prescribed
for filing the estate tax return for such individual’s estate (determined with regard to
extensions), regardless of whether such a return is required to be filed.

Section 2632(c)(3)(A) provides that for purposes of § 2632(c), the term “indirect skip”
means any transfer of property (other than a direct skip) subject to the tax imposed by
chapter 12 made to a GST trust, as defined in § 2632(c)(3)(B).

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).

Section 301.9100-3(a) provides, in part, that 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.
PLR-110362-16                                3



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. Donor is granted an extension of
time of 120 days from the date of this letter to allocate her available GST exemption to
the transfers to Trust. The allocations will be effective as of the date of the transfers,
and the values of the transfers, as determined for federal gift tax purposes, will be used
in determining the amount of Donor's GST exemption to be allocated to the transfers.

This allocation should be made on a supplemental Form 709 and 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
be attached to the supplemental Form 709.

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.

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.
PLR-110362-16                                  4



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,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


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

Enclosures (2)
Copy of the letter
Copy for § 6110 purposes


cc: