Estate receives 120 days to allocate unused GST exemption

Plain-English summary

A married couple created a revocable trust that later divided into separate trusts, and the trust became irrevocable at the surviving spouse's death. The estate timely filed Form 706 but failed to allocate the decedent's remaining generation-skipping transfer tax exemption to the trust. The decedent had relied on tax professionals to prepare the required returns, and those professionals later discovered the omission. The IRS found reasonable, good-faith reliance and granted 120 days to allocate the available GST exemption on a supplemental Form 706.

Ruling snapshot

• Question: May an estate make a late allocation of the decedent's remaining GST exemption after professional-adviser error?
• Outcome: approved, with a 120-day extension to file a supplemental Form 706
• Key authorities: IRC §§ 2631, 2632, and 2642(g); Treas. Reg. §§ 26.2632-1 and 301.9100-1 through 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202005003 Third Party Communication: None
Release Date: 1/31/2020 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:B04
PLR-105439-19
Date:
September 10, 2019

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

Legend

Decedent = -----------------------
Spouse = -----------------------
Trust = -----------------------------------------------------------------------------------------------
Date 1 = -------------------
Date 2 = --------------------
Date 3 = -------------------

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

This letter responds to your authorized representative’s letter dated February 25, 2019,
requesting an extension of time under § 2642(g) of the Internal Revenue Code and
§ 301.9100-3 of the Procedure and Administration Regulations to allocate Decedent’s
GST exemption to a trust.

Facts

On Date 1, Decedent and Spouse created and funded Trust, a revocable trust, for the
lifetime benefit of both Decedent and Spouse. Spouse predeceased Decedent at which
time Trust was divided into two trusts, for the lifetime benefit of Decedent. On Date 2,
Decedent amended and restated Trust. Trust became irrevocable on the death of
Decedent on Date 3. Pursuant to Trust, one trust is to be divided into an exempt trust
and a non-exempt trust.

Decedent’s estate timely filed Form 706, United States Estate (and Generation-Skipping
Transfer) Tax Return. The Form 706 did not allocate Decedent’s remaining GST
exemption. Decedent relied on tax professionals to advise and prepare all necessary

PLR-105439-19 2

tax returns. The failure to allocate Decedent’s GST exemption was subsequently
discovered by the tax professionals when reviewing Decedent’s estate and trusts.

You request an extension of time pursuant to § 2642(g) and § 301.9100-3 to allocate
Decedent remaining GST exemption.

Law and Analysis

Section 2601 imposes a tax on every generation-skipping transfer. A generation-
skipping transfer 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 term “applicable
rate,” with respect to any GST transfer, as the product of the maximum federal estate
tax rate and the inclusion ratio with respect to the transfer.

Section 2642(a)(1) provides that the inclusion ratio with respect to any property
transferred in a generation-skipping transfer is the excess (if any) of 1 over the
“applicable fraction.” Under § 2642(a)(2), the applicable fraction is defined as a fraction
the numerator of which is the amount of the GST exemption allocated to the trust (or to
property transferred in a direct skip), and the denominator of which is the value of the
property transferred to the trust (or involved in the direct skip), reduced by the sum of
any federal estate tax or state death tax actually recovered from the trust attributable to
such property and any charitable deduction allowed under § 2055 or 2522 with respect
to such property.

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) 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 26.2632-1(b)(4) of the Generation-Skipping Transfer Tax Regulations provides,
in part, that an allocation of GST exemption to property transferred during the
transferor’s lifetime, other than in a direct skip, is made on Form 709.

PLR-105439-19 3

Section 2642(g)(1)(A) provides that the Secretary shall by regulation prescribe such
circumstances and procedures under which extensions of time will be granted to make
an allocation of GST exemption described in § 2642(b)(1) or (2), and an election
under § 2632(b)(3) or (c)(5). Such regulations shall include procedures for requesting
comparable relief with respect to transfers made before the date of the enactment of
this paragraph.

Section 2642(g)(1)(B) provides that in determining whether to grant relief under this
paragraph, the Secretary shall take into account all relevant circumstances, including
evidence of intent contained in the trust instrument or instrument of transfer and such
other factors as the Secretary deems relevant. For purposes of determining whether to
grant relief under this paragraph, the time for making the allocation (or election) shall be
treated as if not expressly prescribed by statute.

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 Code except subtitles
E, G, H, and I.

Section 301.9100-3(a) provides that, in general, requests for extension of time for
regulatory elections that do not meet the requirements of § 301.9100-2 must be made
under the rules of § 301.9100-3.

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). In accordance with § 2642(g)(1)(B) and Notice
2001-50, taxpayers may seek an extension of time to make an allocation described in
§ 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5) under the
provisions of § 301.9100-3.

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, Decedent’s estate is

PLR-105439-19 4

granted an extension of time of 120 days from the date of this letter to allocate
Decedent’s available GST exemption.

This allocation should be made on a supplemental Form 706 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 706.

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.

Except as specifically ruled herein, we express or imply no opinion on the federal tax
consequences of the transaction under the cited provisions or under any other
provisions of the Code.

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.

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,


                                   Melissa C. Liquerman
                                   Melissa C. Liquerman
                                   Branch Chief, Branch 4
                                   (Passthroughs & Special Industries)

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

cc: