Estate receives extension for farmland special-use valuation election

Plain-English summary

An estate intended to elect special-use valuation for farmland under section 2032A. Acting on counsel's advice, the executor requested automatic relief with the estate tax return but failed to meet the corrective-action requirements, and the IRS later began an examination. The IRS found that the executor had shown the intent to elect before the examination, reasonably relied on counsel, and promptly sought further relief after learning the election was invalid. It granted 120 days to make the election on a supplemental Form 706, without deciding whether the estate otherwise qualified for special-use valuation.

Ruling snapshot

• Question: May the estate receive additional time to elect special-use valuation for qualified real property under section 2032A?
• Outcome: approved
• Key authorities: IRC §§ 2001, 2032A; Treas. Reg. §§ 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201652017 Third Party Communication: None
Release Date: 12/23/2016 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2032A.00-00
Person To Contact:
----------------------------------- ----------------, ID No. ------------------
---------------------------- Telephone Number:
-------------------------- ----------------------
Refer Reply To:
CC:PSI:04
RE: PLR-123932-16
--------------------------------- Date:
September 19, 2016

Legend

Decedent = --------------------- --------------------------
Date 1 = ----------------------
Executor = ---------------------
Attorney = ---------------------
Date 2 = ---------------------------
Date 3 = ---------------------------
Date 4 = ----------------------
Date 5 = ------------------

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

This letter responds to your authorized representative’s letter of July 26, 2016 and
subsequent correspondence, requesting an extension of time pursuant to § 301.9100-3
of the Procedure and Administration Regulations to elect to specially value qualified real
property under § 2032A of the Internal Revenue Code.

The facts and representations submitted are as follows. Decedent died on Date 1.
Decedent’s estate included farmland. Executor retained Attorney to prepare and timely
file Decedent’s Form 706, United States Estate (and Generation-Skipping Transfer) Tax
Return. Decedent’s Form 706 was due on Date 2. Appraisals for the estate’s assets
were obtained after Date 2.

Attorney advised Executor to make an election under § 2032A pursuant to the relief
provisions under § 301.9100-2. On Date 3, Attorney filed Decedent’s Form 706
PLR-123932-16 2

requesting a 12-month extension of time to make an election, but failed to comply with
the requirements under § 301.9100-2. On Date 4, the IRS began an examination of
Decedent’s Form 706. On Date 5, the IRS mailed Executor an Examination Report
stating that the § 2032A election was not timely, and therefore, invalid. Executor
requests an extension of time to make the § 2032A election.

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

Section 2032A(a)(1) provides, generally, that if the decedent was (at the time of his
death) a citizen or resident of the United States, and the executor elects the application
of § 2032A and files the agreement referred to in § 2032A(d)(2), then, for purposes of
chapter 11, the value of qualified real property shall be its value for the use under which
it qualifies, under § 2032A(b), as qualified real property.

Section 2032A(d)(1) provides that the election under § 2032A shall be made on the
return of tax imposed by § 2001. Such election shall be made in such manner as the
Secretary shall by regulations prescribe. Such an election, once made, shall be
irrevocable.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time 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 Code except subtitles E,
G, H, and I.

Section 301.9100-2(a)(2)(vii) provides an automatic 12-month extension of time to make
the estate tax election to specially value qualified real property (where the IRS has not
yet begun an examination of the filed return) under § 2032A(d)(1) provided the taxpayer
takes corrective action as defined in § 301.9100-2(c).

Under § 301.9100-2(c), corrective action means taking the steps required to file the
election in accordance with the statute or the regulation published in the Federal
Register, or the revenue ruling, revenue procedure, notice or announcement published
in the Internal Revenue Bulletin. For those elections required to be filed with a return,
corrective action includes filing an original or an amended return for the year the
regulatory or statutory election should have been made and attaching the appropriate
form or statement for making the election.

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). 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.
PLR-123932-16 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.

In this case, Executor failed to make the § 2032A election on a timely filed Form 706.
Pursuant to Attorney’s advice, Executor filed Decedent’s Form 706 pursuant to an
automatic extension of time to make an election, but failed to comply with the
requirements under § 301.9100-2(c). The IRS then began its examination of
Decedent’s Form 706. Executor requested relief under §§ 301.9100-1 and 301.9100-3
after the IRS began its examination of Decedent’s Form 706. However, we do not
believe Executor acted in bad faith for purposes of § 301.9100-3(b)(1)(i). Executor had
expressed previously his intent to make the election when, on Date 3, Executor
requested relief under § 301.9100-2 for an extension of time to make an election, and
Executor made such request before the IRS began its examination of Decedent’s
Form 706. In addition, Executor relied on Attorney’s advice and believed the election
filed on the Form 706 was valid. Furthermore, when the IRS determined that the
election was untimely and invalid, Executor immediately sought relief under
§§ 301.9100-1 and 301.9100-3.

Based on the facts submitted and the representations made, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly,
Decedent’s estate is granted an extension of time until 120 days from the date of this
letter to make an election under § 2032A to specially value qualified real property. The
election should be made on a supplemental Form 706 filed with the Internal Revenue
Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to the
supplemental return. 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. Specifically, we express or imply no opinion on whether the estate qualifies
for special use valuation under § 2032A.

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-123932-16 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 E. Gardner
                                   Lorraine E. Gardner
                                   Senior Counsel, Branch 4
                                   (Passthroughs & Special Industries)

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

cc: