Estate receives more time for QTIP and reverse QTIP elections

Plain-English summary

A decedent’s revocable trust divided at death into a bypass trust and a marital trust for the surviving spouse. The marital trust was to be divided into generation-skipping transfer tax exempt and nonexempt portions. The attorney preparing the estate tax return failed to make both the qualified terminable interest property election for the marital trust and the reverse QTIP election for its GST-exempt portion. The IRS found that the requirements for regulatory-election relief were satisfied. It granted the executor 120 days to make both elections on an amended Form 706.

Ruling snapshot

• Question: Could the executor receive more time to make a QTIP election and a reverse QTIP election for the marital trust?
• Outcome: approved
• Key authorities: IRC §§ 2056(b)(7) and 2652(a)(3); Treas. Reg. §§ 20.2056(b)-7, 26.2652-2, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

Number: 202247005                                              Third Party Communication: None
Release Date: 11/25/2022                                       Date of Communication: Not Applicable
Index Number: 2056.07-00, 2652.01-02,
              9100.00-00                                       Person To Contact:
                                                                ------------------------, ID No. -----------------
-------------------------------------                          Telephone Number:
-----------------------------------                            --------------------
----------------------------------------                       Refer Reply To:
----------------------------                                   CC:PSI:B04
---------------------------                                    PLR-105088-22
                                                                Date:
                                                                August 23, 2022

In Re: --------------------------------------

Legend

Date                         =        --------------------------
Decedent                     =         -------------------------
---------------------------------------------------------------
Spouse                       =         -----------------------------
--------------------------------------------------------------
-----------------------------------------------------------
Trust                        =        --------------------------------
Attorney                     =        --------------------------

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

      This letter responds to your personal representative’s letter of January 24, 2022
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) and a “reverse” QTIP election under § 2652(a)(3) of the
Internal Revenue Code (Code).

       The facts and representations submitted are as follows:

       Decedent died on Date survived by Spouse. Decedent established a revocable
trust, Trust. Decedent’s Will provides that the residue of Decedent’s estate passes to
Trust. Trust provides that upon Decedent’s death, the Trust will be divided into two

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separate trusts, a Bypass Trust and a QTIP Trust. The QTIP Trust is for the benefit of
Spouse and is the subject of this letter ruling.

      Trust provides that the trustee shall divide the QTIP Trust into two trusts, a GST
Exempt Trust and a GST Nonexempt Trust. The GST Exempt Trust is to hold a portion
of the QTIP Trust based on the amount of the exemption from Generation-Skipping
Transfer (GST) tax available to Decedent’s estate after allocation to the Bypass Trust.
The GST Nonexempt Trust is to hold the balance.

      Executor engaged Attorney to prepare Decedent’s Form 706 United States
Estate (and Generation-Skipping Transfer) Tax Return for Decedent’s estate.

     Attorney failed to make the QTIP election for the QTIP Trust. As a result, no
QTIP election and “reverse” QTIP election were made for the marital property.

      You have requested an extension of time under § 301.9100-1 and § 301.9100-3
to make a QTIP election under § 2056(b)(7) to treat the QTIP Trust as QTIP property
and to make a “reverse” QTIP election under § 2652(a)(3) with respect to the GST
Exempt portion of the QTIP Trust.

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 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 qualified terminable interest
property, 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.

PLR-114890-20                                  3

      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 2601 imposes a tax on every generation-skipping transfer. Section
2611(a) provides that the term “generation-skipping transfer” means: (1) a taxable
distribution; (2) a taxable termination; and (3) a direct skip.

      Section 2602 provides that the amount of the GST tax is determined by
multiplying the taxable amount by the applicable rate. Section 2641(a) provides that the
term “applicable rate” means, with respect to any GST transfer, the product of the
maximum federal estate tax rate and the inclusion ratio with respect to the transfer.

      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
the individual (or his executor) to any property with respect to which the individual is the
transferor. Section 2631(b) provides that any allocation under § 2631(a), once made,
shall be irrevocable.

        Section 2632 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 2642(a)(1) provides that, generally, the inclusion ratio with respect to any
property transferred in a GST is the excess of 1 over the applicable fraction determined
for the trust. Section 2642(a)(2) provides that, in general, 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,
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 2652(a)(1) provides that for purposes of chapter 13, the term “transferor”
means: (A) in the case of any property subject to the tax imposed by chapter 11, the
decedent; and (B) in the case of any property subject to the tax imposed by chapter 12,
the donor. An individual shall be treated as transferring any property with respect to
which such individual is the transferor.

     Section 2652(a)(3) provides, in part, that in the case of any trust with respect to
which a deduction is allowed to the decedent under § 2056(b)(7), the estate of the

PLR-114890-20                                  4

decedent may elect to treat all of the property in such trust for GST tax purposes as if
the election to be treated as qualified terminable interest property had not been made
(“reverse” QTIP election).

      Section 26.2652-2(a) of the Generation-Skipping Transfer Tax Regulations
provides, in part, that a “reverse” QTIP election is not effective unless it is made with
respect to all of the property in the trust to which the QTIP election applies. Section
26.2652-2(b) provides that an election under § 2652(a)(3) is made on the return on
which the QTIP election is made.

       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 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
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 make a QTIP election with respect to the QTIP Trust and a “reverse” QTIP election
with respect to the GST Exempt portion of the QTIP Trust.

       The election should be made on an amended Form 706 and filed with the
Kentucky 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 Form 706.

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

PLR-114890-20                                  5

      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.

     The rulings contained in this letter are based upon information and
representations submitted by the taxpayers 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) 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 representatives.

                                          Sincerely,

                                          Associate Chief Counsel
                                          Passthroughs and Special Industries

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

Enclosures:
     Copy for § 6110 purposes

cc: