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

Plain-English summary

A joint living trust divided at the decedent's death into a survivor's trust, an exemption trust, and a marital trust. The marital trust required all net income to be paid to the surviving spouse and was intended to qualify for the estate tax marital deduction through a QTIP election. The spouse and later the child hired an accountant to prepare the estate tax returns, but the returns were filed late and did not make the election. An attorney later discovered the omission. The IRS found that the estate satisfied the late-election standards and granted the child, as executor, 120 days to make the QTIP election on a supplemental Form 706.

Ruling snapshot

• Question: Could the executor make a late QTIP election for the marital trust after the estate's return preparer failed to make it?
• Outcome: Approved, with 120 days from the ruling date.
• Key authorities: IRC §§ 2001, 2056(a), 2056(b)(7), 2203; Treas. Reg. §§ 20.2056(b)-7, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202133010 Third Party Communication: None
Release Date: 8/20/2021 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:4
PLR-126627-20
Re: ---------------------------------- Date:
April 08, 2021

Legend

Decedent = --------------------------------------------------------------------------------------
------------------------
Date --------------------------
Spouse = --------------------------------------------------------------------------------------
--------------------------
Trust = --------------------------------------------------------------------------------------
------------------------
Survivor’s = ------------------------------------------
Trust
Exemption = -------------------------------------------
Trust
Marital Trust = --------------------------------------------------------------------------------------
------------------------
Child = -------------------------------
Accountant = --------------------------
Attorney = -----------------------

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

This letter responds to a letter dated October 27, 2020, and subsequent
correspondence, submitted on behalf of Decedent's estate, requesting an extension of
time under § 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 as follows:

PLR-126627-20 2

Decedent died on Date survived by Spouse. Under the terms of Decedent’s will, as
amended by a codicil, the residue of Decedent’s probate estate passes to Trust. Trust,
a revocable living trust, was established by Decedent and Spouse, as trustors and
trustees, during their joint lifetimes. Under the terms of Trust, on Decedent’s death, the
Trust is divided into three subtrusts – Survivor’s Trust, to be funded with Spouse’s
separate property and one-half interest in the community property, Exemption Trust, to
be funded with Decedent’s separate property and one-half interest in the community
property up to a pecuniary amount, and Marital Trust, to be funded with the balance of
Decedent’s separate property and one-half interest in the community property.
Survivor’s Trust is revocable by Spouse, and Exemption Trust and Marital Trust are
irrevocable.

Under the terms of Trust, during Spouse’s lifetime, the trustee must distribute the net
income of Marital Trust in quarterly or more frequent installments to Spouse and may
distribute the principal of Marital Trust to Spouse for Spouse’s support, health,
maintenance, and education. Upon Spouse’s death, any accrued or undistributed
income passes to Spouse’s estate, and the remaining principal passes to a subtrust for
the benefit of Decedent’s descendants.

Decedent intended, as stated in the terms of his Will and Trust, that the trustee or
Decedent’s executor, as appropriate, make a QTIP election with respect to the property
passing to Marital Trust.

Upon Decedent’s death, Spouse served as sole trustee of Trust and was the executor
of Decedent’s estate under § 2203. Nine months later, Child became the sole trustee of
Trust and the executor under § 2203.

Spouse, followed by Child, retained Accountant to prepare Form 706 for Decedent's
estate. Accountant prepared Form 706 and a supplemental Form 706 for Decedent's
estate (collectively, Forms 706). Although the due date was extended by six months,
Forms 706 were not timely filed, and no QTIP election was made with respect to the
property passing to Marital Trust. Attorney, engaged by Spouse for estate planning
advice, subsequently discovered the failure to make the QTIP election when Attorney
reviewed Forms 706.

You have requested an extension of time under § 301.9100-3 to make a QTIP election
under § 2056(b)(7) to treat Marital Trust as QTIP.

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.

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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 QTIP, 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)(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. 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 six 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

PLR-126627-20 4

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, Child, as 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 with respect to Marital Trust.

The election should be made on a supplemental Form 706 filed with the Internal
Revenue Service Center at the following address: Internal Revenue Service Center,
Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy of this
letter should be attached to the supplemental Form 706.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter, including any issues pertaining to the Form 706 as filed.

The ruling contained in this letter is based upon information and representations
submitted on behalf of Decedent’s estate 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 ruling, 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.

In accordance with the Power of Attorney on file with this office, we have sent a copy of
this letter to your authorized representatives.

                                  Sincerely,

                                  Associate Chief Counsel
                                  (Passthroughs and Special Industries)



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

PLR-126627-20 5

Enclosure
Copy for § 6110 purposes

cc: