Estate gets 120 days to make a QTIP election for a newly discovered asset

Plain-English summary

A decedent's will gave the surviving spouse a lifetime usufruct over the remaining estate property. The executor timely filed Form 706 but did not make a qualified terminable interest property election because the estate, including adjusted taxable gifts, was below the basic exclusion amount. After filing, the estate discovered another asset that increased the taxable estate above the exclusion amount. The executor then requested relief to make a QTIP election for that asset. The IRS found that the requirements for discretionary election relief were satisfied and granted 120 days to file a supplemental Form 706 making the election. The ruling does not address any other tax consequences of the asset or election.

Ruling snapshot

• Question: May the executor make a late QTIP election for an asset discovered after the estate tax return was filed?
• Outcome: Approved, with a supplemental Form 706 due within 120 days
• Key authorities: IRC §§ 2044, 2056(a), 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201903014                                             Third Party Communication: None
Release Date: 1/18/2019                                       Date of Communication: Not Applicable
Index Number: 2056.07-00, 9100.00-00
                                                              Person To Contact:
------------------------------------------                    ----------------------------ID No. ----------------
-------------------------------------------                   -----------------
--------------------------------------                        Telephone Number:
                                                              ----------------------
                                                              Refer Reply To:
                                                              CC:PSI:B04
---------------------------------------------                 PLR-119655-18
                                                              Date:
                                                              October 09, 2018




Legend

Decedent                         -----------------------------------------------------
Spouse                           ----------------------------
Attorney                         ----------------------
Date 1                           ----------------------
Date 2                           --------------------

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

       This letter responds to your personal representative’s letter of June 5, 2018,
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:

      Decedent died on Date 1. Decedent’s will provides that the usufruct of the
balance of Decedent’s property at death will be held for Spouse for her life.

       Spouse, in her capacity as executor of the estate, retained Attorney to prepare
the Form 706, United States Estate (and Generation-Skipping Transfer) Tax return for
the estate. Form 706 was timely filed (with extension) on Date 2. A QTIP election was
not made because the taxable estate (including adjusted taxable gifts) was less than the
basic exclusion amount. After Form 706 was filed, an additional asset was discovered.
The additional asset will cause the taxable estate to be higher than the basic exclusion
amount.

       You have requested an extension of time under § 301.9100-3 to make a QTIP
election with respect to the newly discovered asset.


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 2044 provides, in part, that the value of the gross estate shall include the
value of any property for which a deduction was allowed with respect to the transfer of
such property to the decedent under § 2056(b)(7) in which the decedent had a
qualifying income interest for life.

       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
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)(ii) provides that the surviving spouse has a qualifying
income interest for life if: (I) the surviving spouse is entitled to all the income from the
property, payable annually or at more frequent intervals, or has a usufruct interest for
life in the property; and (II) no person has a power to appoint any part of the property to
any person other than the surviving spouse.

      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 executor of
Decedent’s estate is granted an extension of time of 120 days from the date of this letter
to make a QTIP election under § 2056(b)(7). This election should be made on a
supplemental Form 706 filed with the Cincinnati Service Center at the following address:
Internal Revenue Service Center, 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


                                         Lorraine E. Gardner

                                         _________________________
                                  By:    Lorraine E. Gardner
                                         Senior Counsel, 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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