Estate receives more time to allocate GST exemption

Plain-English summary

A decedent's revocable trust divided at death into a family trust and two marital trusts, all with generation-skipping transfer tax potential. The executor intended to allocate the decedent's available GST exemption to the family trust and the exempt marital trust. An accountant failed to file the requested extension for the estate tax return, although the executor filed the return before the date that would have applied if the extension had been obtained. The IRS found that the estate satisfied the late-allocation standards because it reasonably relied on a qualified tax professional. It granted 120 days to allocate the GST exemption on a supplemental Form 706.

Ruling snapshot

• Question: Should an estate receive extra time to allocate the decedent's GST exemption to two trusts after its tax professional failed to obtain a filing extension?
• Outcome: Approved: the estate received 120 days to make the allocation.
• Key authorities: IRC §§ 2631, 2632, and 2642(g); Treas. Reg. §§ 26.2632-1 and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202117001 Third Party Communication: None
Release Date: 4/30/2021 Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
Person To Contact:
--------------------------------------------- -------------------------, ID No. ----------
------------------------------ Telephone Number:
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Refer Reply To:
CC:PSI:B04
PLR-101371-20
Date:
July 14, 2020

Legend

Decedent = ------------------------------

Executor = ----------------------------

Trust = --------------------------------------

Attorney = ----------------------------

Accountant = ----------------------

Date 1 = ------------------------------------------------------------

Date 2 = ------------------

Date 3 = ---------------------

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

This letter responds to your authorized representative's letter dated November 26, 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
generation-skipping transfer (GST) exemption to two trusts.
PLR-101371-20 2

Facts

On Date 1, Decedent created and funded Trust, a revocable trust, for his lifetime
benefit. Upon Decedent’s death on Date 2, Trust became irrevocable. Pursuant to the
terms of Trust, Trust was divided into Family Trust and Marital Trust, and Marital Trust
was further divided into Exempt Marital Trust and Non-Exempt Marital Trust. Each of
Family Trust, Exempt Marital Trust and Non-Exempt Marital Trust have GST potential.

Executor, the spouse of Decedent, hired Attorney and Accountant to assist with the
administration of the estate and to prepare and provide advice with respect to all
necessary tax returns. Executor was advised of the ability to affirmatively allocate
Decedent’s available GST exemption and intended to affirmatively allocate to Family
Trust and Exempt Marital Trust. However, for various reasons, Accountant
inadvertently failed to timely file Form 4768, Application for Extension of Time To File a
Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes. Accountant
discovered the error in preparing Decedent’s Form 706. Executor filed Form 706 on
Date 3, prior to what would have been its extended due date, had an extension been
obtained.

You request an extension of time pursuant to § 2642(g) and § 301.9100-3 to allocate
Decedent’s GST exemption to Family Trust and Exempt Marital Trust.

Law and Analysis

Section 2601 imposes a tax on every GST. A GST 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 applicable rate as
the product of the maximum federal estate tax rate and the inclusion ratio with respect
to the transfer.

Under § 2642(a), the inclusion ratio with respect to any property transferred in a GST is
the excess (if any) of one over the applicable fraction. Under § 2642(a)(2), the
applicable fraction is a fraction, the numerator of which is the amount of the GST
exemption allocated to the trust, and the denominator of which is the value of the
property transferred to the trust.

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.
PLR-101371-20 3

Section 2632(a)(1) provides that an individual’s GST exemption may be allocated 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 2642(b)(2)(A) provides that if property is transferred as a result of the death of
the transferor, the value of such property for purposes of § 2642(a) shall be its value as
finally determined for purposes of chapter 11; except that, if the requirements
prescribed by the Secretary respecting allocation of post-death changes in value are not
met, the value of such property shall be determined as of the time of the distribution
concerned. Section 2642(b)(2)(B) provides that any allocation to property transferred
as a result of the death of the transferor shall be effective on and after the date of the
death of the transferor.

Section 26.2632-1(d)(1) of the Generation-Skipping Transfer Tax Regulations provides
that an allocation of a decedent’s unused GST exemption by the executor of the
decedent’s estate is made on the appropriate Form 706 or Form 706NA filed on or
before the date prescribed for filing the return by § 6075(a) (including any extensions
actually granted). An allocation of GST exemption with respect to property included in
the gross estate of a decedent is effective as of the date of death.

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.

Notice 2001-50, 2001-2 C.B. 189, provides that, under § 2642(g)(1)(B), the time for
allocating the GST exemption to lifetime transfers and transfers at death, the time for
electing out of the automatic allocation rules, and the time for electing to treat any trust
as a GST trust are to be treated as if not expressly prescribed by statute. The Notice
further provides that 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.

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
PLR-101371-20 4

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

This allocation should be made on a supplemental Form 706 and filed with the Internal
Revenue Service at the following address: Department of the Treasury, Internal
Revenue Service Center, Stop 842G, 7940 Kentucky Drive, Florence, KY 41042-2915.
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.
PLR-101371-20 5

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.

                                                  Associate Chief Counsel
                                                  (Passthroughs & Special Industries)



                                           By: ____Karlene M. Lesho
                                               Karlene M. Lesho
                                               Senior Technician Reviewer, Branch 4
                                               Office of the Associate Chief Counsel
                                               (Passthroughs & Special Industries)

Enclosures (2)

     Copy of this letter
     Copy for § 6110 purposes

cc: ----------------------
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