Estate gets more time to make QTIP election

Plain-English summary

An estate timely filed its federal estate tax return but did not elect qualified terminable interest property treatment for a marital trust. The executor, a CPA whose accounting firm prepared the return, had misinterpreted the trust terms. The trust required annual income payments to the surviving spouse, allowed principal distributions for the spouse's needs, and directed the remainder to another trust after the spouse's death. The IRS found that the requirements for discretionary election relief were satisfied. It granted 120 days to make the QTIP election by filing a supplemental Form 706.

Ruling snapshot

• Question: May the estate receive additional time to make a QTIP election for the marital trust?
• Outcome: approved, with 120 days to file a supplemental Form 706
• Key authorities: IRC § 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201751005                                              Third Party Communication: None
Release Date: 12/22/2017                                       Date of Communication: Not Applicable
Index Number: 2056.01-00, 9100.00-00
                                                               Person To Contact:
                                                               --------------------------, ID No. --------------
                                                               Telephone Number:
----------------------------------                             ----------------------
----------------------------                                   Refer Reply To:
-----------------------------------------                      CC:PSI:4
---------------------------------------                        PLR-109871-17
                                                               Date:
                                                               September 18, 2017




         Re: ---------------------------------------



Legend

Decedent                                     = -------------------------------------------------------
Spouse                                       = ------------------------------------------------------
Date 1                                       = ----------------------
Date 2                                       = --------------------------
Executor                                     = ---------------------
Trust                                        = ---------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Marital Trust                                = ---------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Accounting Firm                              = ----------------------------


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

This letter responds to your authorized representative’s letter of March 16, 2017, and
subsequent correspondence, 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 (Code).

The facts and representations submitted are as follows.
PLR-109871-17                                  2

Decedent died on Date 1 survived by Spouse. Decedent and Spouse established a
revocable trust, Trust, which was amended and restated on Date 2. Article Fourth,
Paragraph 4.1 of Decedent’s will provides that the residue of Decedent’s estate passes
to Trust. Article Six, Paragraph A. of Trust provides that at the death of the first to die of
Decedent and Spouse, Trust is to be divided into three separate trusts, the Survivor’s
Trust, the Marital Trust, and the Bypass Trust. Marital Trust is for the benefit of Spouse
and is the subject of this letter ruling. Article Six, Paragraph E. provides that the Marital
Trust will qualify for the QTIP election under § 2056(b)(7).

Article Seven, Paragraph D. of Trust provides that, during Spouse’s lifetime, the income
of Marital Trust is to be paid to Spouse at least annually. Spouse has the power to
require the trustee to make unproductive property productive or convert it to productive
property. Principal may be paid to or applied for the benefit of Spouse for her health,
education, support and maintenance in accordance with Spouse’s standard of living on
the death of Decedent. Under Article Eight, Paragraph B, on Spouse’s death, the
remaining principal of Marital Trust is to be distributed to the Bypass Trust.

Executor of Decedent’s estate, is a CPA with Accounting Firm. Executor paid
Accounting Firm to prepare Decedent’s Form 706 United States Estate (and
Generation-Skipping Transfer) Tax Return. Executor misinterpreted the terms of Trust
and failed to make a QTIP election with respect to Marital Trust. Form 706 was timely
filed but no QTIP election was made with respect to Marital Trust.

You have requested an extension of time under §§ 301.9100-1 and 301.9100-3 to make
a QTIP election under § 2056(b)(7) to treat Marital Trust as QTIP property.

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 QTIP, 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 treated as passing to any person
other than the surviving spouse.
PLR-109871-17                                  3

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. 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, Trustee is granted an
extension of time of 120 days from the date of this letter to make a QTIP election with
respect to Marital Trust.

The QTIP election should be made on a supplemental Form 706 filed with the Cincinnati
Service Center at the following address: Internal Revenue Service Center, Cincinnati,
PLR-109871-17                                  4

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

Except as expressly provided herein, we express no opinion on the federal tax
consequences of the transactions under the cited provisions or under any other
provisions of the Code.

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.

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 yours,

                                            Associate Chief Counsel
                                            Passthroughs & Special Industries

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



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

cc: