Estate received 120 days to make a late QTIP election for marital trust

Plain-English summary

A decedent's trust divided into a marital trust for the surviving spouse and a family trust for the children. The spouse was entitled to all marital-trust income, could receive principal for specified needs, and held rights designed to satisfy the qualified terminable interest property rules. An accountant advised the estate not to file Form 706 because the estate was below the filing threshold and did not seek portability, so no QTIP election was made before the spouse later died. The IRS found that the estate reasonably relied on a tax professional and met the standards for late-election relief. It granted 120 days to file Form 706 and elect QTIP treatment for the marital trust.

Ruling snapshot

• Question: May the estate make a late QTIP election for the marital trust after relying on advice not to file Form 706?
• Outcome: approved, with 120 days to file the QTIP election on Form 706
• Key authorities: IRC §§ 2001 and 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201943010                                             Third Party Communication: None
Release Date: 10/25/2019                                      Date of Communication: Not Applicable
Index Number: 2056.00-00, 2056.07-00,
              9100.00-00                                      Person To Contact:
                                                              ----------------------------, ID No. -------
----------------------------------------------                Telephone Number:
------------------------                                      ----------------------
 --------------------------------------                       Refer Reply To:
                                                              CC:PSI:B04
                                                              PLR-106020-19
                                                              Date:
         Re: --------------------------------                 July 10, 2019




Legend

Decedent          = -------------------------------------------------
Spouse            = ------------------------------
Date 1            = ------------------------
Date 2            = ------------------------
Date 3            = --------------------------
Executrix         = --------------------------------
Trust             = ---------------------------------------------------------------------
Year 1            = -------
Year 2            = -------
Accountant        = ------------------------------------
x                 = ------------

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

This letter responds to your authorized representative’s letter dated December 13,
2018, 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)(B)(v) of
the Internal Revenue Code (Code) with respect to a marital trust.

The facts and representations submitted are as follows:

On Date 1, Decedent executed a revocable trust, Trust. On Date 2, in Year 1,
Decedent died, survived by Spouse and three children. His daughter was designated
Executrix. The last will of Decedent provided that the net estate would be paid to Trust.
Trust provided that upon the death of Decedent, and if Spouse survives Decedent, Trust
would be divided into two parts, Marital Trust (Fund A) and Family Trust (Fund B).
PLR-106020-19                                 2


Trust provides that the trustee shall pay to or apply for the benefit of Spouse, during her
lifetime, all the net income from Marital Trust, in convenient installments, but not less
frequently than quarter-annually. Until the assets are allocated to Marital Trust, the
trustee shall estimate the income and begin making payments.

Trust also provides that the trustee is authorized in his or her discretion to pay to or
apply for the benefit of Spouse at any time and from time-to-time so much of the
principal of Marital Trust (even to the point of completely exhausting Marital Trust) as he
or she believes advisable to provide adequately for Spouse’s support, health,
maintenance, and education, keeping in mind that Spouse’s needs are Decedent’s
primary concern.

Upon the death of Spouse, the trustee shall pay to Spouse’s estate all of the
accumulated but undistributed income of Trust and, from the corpus of Trust, the
increase in taxes attributable to the inclusion of the assets of Marital Trust in Spouse’s
taxable estate. Any corpus not used to satisfy this requirement shall be disposed of in
accordance with the provisions of Family Trust, to benefit Decedent’s children.

Trust also provides that the trustee of Marital Trust shall not have any rights which
would disqualify any part of Marital Trust for the marital deduction and Spouse shall
have the right to compel the trustee to invest the assets of Marital Trust in income-
producing investments.

Trust provides that it is Decedent’s intention that the assets of Marital Trust shall be
“qualified terminable interest property,” as defined in § 2056 of the Code, as amended,
and the trustee shall have the right in his or her absolute discretion to have all or a
portion of Marital Trust qualify for the marital deduction.

In Year 1, Spouse received $x from the estate accounts. Spouse died on Date 3, in
Year 2. Following Spouse’s death, Executrix settled the administration of Decedent’s
estate and distributed the balance of the funds pursuant to the terms of Trust.

Decedent’s estate engaged legal counsel for the administration of Decedent’s estate
and Accountant for tax filings. Accountant recommended that Decedent’s estate not file
a Form 706, Federal Estate (and Generation-Skipping Transfer Tax) Return, because
the estate did not exceed the filing threshold for Year 1 and did not wish to make a
portability election under § 2010.

Executrix requests an extension of time under § 301.9100-1 and § 301.9100-3 to make
the QTIP election under § 2056(b)(7) to treat Marital Trust as QTIP property.
PLR-106020-19                                    3


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 is, except as limited by § 2056(b), determined by deducting from the
value of the gross estate an amount equal to the value of any interest in property that
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)(1) provides, in relevant part, that where, on the lapse of time, on the
occurrence of an event or contingency, or on the failure of an event or contingency to
occur, an interest passing to the surviving spouse will terminate or fail, no deduction
shall be allowed under § 2056(a) with respect to such interest if an interest in such
property passes or has passed (for less than an adequate and full consideration in
money or money’s worth) from the decedent to any person other than the surviving
spouse (or the estate of the spouse); and if by reason of such passing such person (or
his heirs or assigns) may possess or enjoy any part of such property after such
termination or failure of the interest so passing to the surviving spouse.

Section 2056(b)(7) provides an exception to the rule of § 2056(b)(1) in the case of
QTIP.

Section 2056(b)(7)(A) provides that for purposes of § 2056(a), QTIP is treated as
passing to the surviving spouse and for purposes of § 2056(b)(1)(A) no part of the
property is treated as passing to any person other than the surviving spouse.

Section 2056(b)(7)(B)(i) defines QTIP as property that passes from the decedent, in
which the surviving spouse has a qualifying income interest for life, and to which an
election under § 2056(b)(7)(B)(v) applies. Under § 2056(b)(7)(B)(ii), a 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 20.2056(b)-7(d)(6) of the Estate Tax Regulations provides that, an income
interest in a trust will not fail to constitute a qualifying income interest for life solely
because the trustee has a power to distribute principal to or for the benefit of the
surviving spouse.
PLR-106020-19                                   4

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) 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 the 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 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 due date is prescribed by 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 representations made, we conclude that the
requirements of § 301.9100-3 are satisfied. Therefore, the 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)(B)(v) with respect to Marital Trust.

The above election should be made on a Form 706 for Year 1. The Form 706 should
be filed with the Kansas City Service Center at the following address: Department of
the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. A copy of this
letter should be attached to the Form 706. A copy is enclosed for this purpose.

In accordance with the Power of Attorney on filed with this office, we have sent a copy
of this letter to your authorized representatives.
PLR-106020-19                                5

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 & Special Industries)



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




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

cc: