Estate receives time to allocate GST exemption to family trust

Plain-English summary

A revocable trust divided at the first spouse's death, with part of the deceased spouse's property passing to a family trust that could later produce generation-skipping transfers. The executor hired an accountant to prepare the estate tax return, but the accountant failed to allocate the decedent's GST exemption to that family trust. Because the executor reasonably relied on a qualified tax professional, the IRS found that the relief standards were satisfied. It granted 120 days to make the allocation on a supplemental Form 706. The allocation would be effective as of the decedent's death and would use the estate-tax value of the transferred property.

Ruling snapshot

• Question: Could the estate receive an extension to allocate the decedent's GST exemption to the family trust?
• Outcome: Approved, with 120 days to file a supplemental Form 706.
• Key authorities: IRC §§ 2631, 2632, and 2642(g); Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202120001 Third Party Communication: None
Release Date: 5/21/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2632.00-00,
2642.00-00 Person To Contact:
-------------------------- ID No. ----------------
--------------------------------------- Telephone Number:
------------------------------------------ --------------------
---------------------------------------- Refer Reply To:
CC:PSI:B04
In Re: --------------------------------- PLR-107294-20
Date:
August 27, 2020

Legend

Decedent ----------------------------------------------
Spouse --------------------------
Date --------------------------
Accountant ----------------------------------------
Trust ------------------------------------------
Family Trust ----------------------------------
Revocable Trust ------------------------------------------

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

   This letter responds to your authorized representative’s letter dated

January 22, 2020, and subsequent correspondence, requesting an extension of time
under § 2642(g) of the Internal Revenue Code (Code) and § 301.9100-3 of the
Procedure and Administration Regulations to allocate Decedent’s generation-skipping
transfer (GST) exemption to Family Trust.

    The facts and representations submitted are summarized as follows:

   Decedent and her spouse, Spouse, jointly executed Trust, a revocable trust.

Trust provides that upon the death of the first of the spouses to die, Trust is to be
divided into two separate trusts. The property owned by the surviving spouse is to
become Revocable Trust. The property owned by the decedent will be divided into two
parts. One part is to be administered as Family Trust and one part added to Revocable
Trust so that it is under the sole control of the surviving spouse. Family Trust has GST
potential.

   Decedent died on Date. Spouse, in his role as executor of Decedent’s estate

hired Accountant to prepare the estate’s Form 706, United States Estate (and
PLR-107294-20 2

Generation-Skipping Transfer) Tax Return. Accountant failed to allocate Decedent’s
GST exemption to Family Trust.

   You have requested an extension of time under § 2642(g) and § 301.9100-3 to

allocate Decedent’s GST exemption to Family Trust.

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 2631(a) provides that, for purposes of determining the GST tax, 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)(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
return is required to be filed.

   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. The applicable fraction,
as defined in § 2642(a)(2), is a fraction, the numerator of which is the amount of the
GST exemption under § 2631 allocated to the trust, and the denominator of which is the
value of the property transferred to the trust.

   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.
PLR-107294-20 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
§ 2642(g).

   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. See Notice 2001-50,
2001-2 C.B. 189.

    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, is to be
treated as if not expressly prescribed by statute and taxpayers may seek an extension
of time to make an allocation described in § 2642(b)(1) or (b)(2) 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
to make a regulatory election, or a statutory election (but no more than six 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 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 allocate Decedent’s available GST exemption to Family Trust. The allocation will be
effective as of Decedent’s date of death and the value of the transfer as determined for
PLR-107294-20 4

federal estate tax purposes will be used in determining the amount of GST exemption to
be allocated to Family Trust.

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

should be filed with the Internal Revenue Service at the following address: Internal
Revenue Service Center, Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY
41042-2915. 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

                                     Melissa C. Liquerman
                                     _________________________
                              By:    Melissa C. Liquerman
                                     Chief, Branch 4
                                     Office of the Associate Chief Counsel
                                     (Passthroughs and Special Industries)


  Enclosures
        Copy for § 6110 purposes
        Copy of this letter

cc: