Husband received more time to allocate GST exemption to trust transfers

Plain-English summary

A husband transferred property to an irrevocable trust for the couple's children, and the spouses elected to treat the first-year gift as made one-half by each of them. Their tax preparer knew they intended to allocate generation-skipping transfer tax exemption but failed to allocate the husband's exemption to his share. The husband also later made additional transfers directly to the trust's sub-trusts without making the requested allocation. The IRS granted 120 days to allocate his GST exemption to both the first-year and later transfers using amended Forms 709. The relief followed the rule that reasonable reliance on a qualified tax professional can establish good faith.

Ruling snapshot

• Question: Could the husband make late GST-exemption allocations for his share of a split gift and for later transfers to the family trust?
• Outcome: approved
• Key authorities: IRC §§ 2513, 2631, 2632, 2642(g), and 2652; Treas. Reg. §§ 26.2652-1(a)(4) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202351004                                            Third Party Communication: None
Release Date: 12/22/2023                                     Date of Communication: Not Applicable
Index Number: 2632.03-00, 2642.00-00,
              2652.01-00, 9100.00-00                         Person To Contact:
                                                             ---------------------, ID No. -----------------
---------------------                                        Telephone Number:
------------------------------                               ---------------------
-------------------------------                              Refer Reply To:
--------------------------------                             CC:PSI:B4
                                                             PLR-107959-23
                                                             Date:
                                                             September 26, 2023




Legend

Husband          =        -------------------------
                         -------------------------
Wife             =        --------------------
                         -------------------------
Trust            =        --------------------------------------------------------------
Attorney         =        -----------------
CPA 1            =        ----------------------------------------------------------
Date             =        --------------------------
Year 1           =        -------
Year 2           =        -------
Year 3           =        -------


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

      This letter responds to your authorized representative's letter dated April 5, 2023,
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 Husband’s generation-skipping transfer (GST)
exemption to certain transfers to Trust.

       The facts and representations submitted are as follows:

      On Date, a date after December 31, 2000, Husband established Trust, an
irrevocable trust for the benefit of Husband and Wife’s two children and their issue. The
governing instrument of Trust created two equal sub-trusts, one for the primary benefit
of each of their two children. In Year 1, Husband transferred securities to Trust. In

PLR-107959-23                                2

Year 2, Wife died. In Year 3, Husband made additional transfers directly to the sub-
trusts created by Trust.

       During Year 1, Husband and Wife retained Attorney for estate planning advice
and preparation of the governing instrument of Trust. Attorney coordinated this estate
planning with CPA 1 who Husband and Wife retained to prepare any necessary Forms
709, United States Gift (and Generation-Skipping Transfer) Tax Returns. During the
planning and preparation of the governing instrument of Trust, CPA 1 was advised of
the intention of Husband and Wife to allocate GST exemption to transfers made or
deemed to be made by each of Husband and Wife to Trust in Year 1. CPA 1 prepared
Year 1 Forms 709 for Husband and Wife on which Husband and Wife each made a
split-gift election under § 2513. CPA 1 failed to allocate GST exemption to the amount
of the Year 1 transfer made or deemed to be made by Husband.

    Husband requests an extension of time to allocate a portion of Husband’s GST
exemption to the amount of the Year 1 transfer made or deemed to have been made by
Husband. Husband also requests an extension of time to allocate a portion of
Husband’s GST exemption to the Year 3 transfers made by Husband in Year 3.

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 is the taxable amount multiplied
by the “applicable rate.”

      Section 2641(a) defines applicable rate as the product of the maximum federal
estate tax rate and the inclusion ratio with respect to the transfer. Under § 2642(a)(1),
the inclusion ratio with respect to any property transferred in a GST is generally defined
as the excess (if any) of 1 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 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, is irrevocable.

PLR-107959-23                                 3

      Section 26.2632-1(b)(4)(i) 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.

       Section 2632(c)(1) provides that if any individual makes an indirect skip during
such individual's lifetime, any unused portion of such individual's GST exemption shall
be allocated to the property transferred to the extent necessary to make the inclusion
ratio for such property zero. If the amount of the indirect skip exceeds such unused
portion, the entire unused portion shall be allocated to the property transferred.

       Section 2632(c)(3)(A) provides that for purposes of § 2632(c), the term ““indirect
skip” means any transfer of property (other than a direct skip) subject to the tax imposed
by chapter 12 to a GST Trust. Section 2632(c)(3)(B)(i)(I) provides that the term “GST
trust” means a trust that could have a GST with respect to the transferor unless the trust
instrument provides that more than 25 percent of the trust corpus must be distributed to
or may be withdrawn by one or more individuals who are non-skip persons before the
date that the individual attains the age of 46.

       Section 2642(b) provides that, except as provided in § 2642(f), if the allocation of
the GST exemption to any transfers of property is made on a timely filed gift tax return
or is deemed to be made under § 2632(b)(1) or (c)(1), the value of such property for
purposes of § 2632(a) shall be its value as finally determined for purposes of chapter
12, and such allocation shall be effective on and after the date of such transfer. If
property is transferred as a result of the death of the transferor, the value of such
property for purposes of § 2632(a) shall be its value as finally determined for purposes
of chapter 11, and such allocation shall be effective on and after the due date of the
death of the transferor.

      Section 2513(a)(1) provides that a gift made by one spouse to any other person
other than his spouse shall be considered as made one-half by him and one-half by his
spouse, but only if at the time of the gift each spouse is a citizen or resident of the
United States. Section 2513(a)(1) only applies if both spouses have signified their
consent to the application of this section in the case of all such gifts made during the
calendar year by either while married to the other.

      Section 2652(a)(1) provides, in part, that except as provided in § 2652(a) or
§ 2653(a), the term “transferor” means, in the case of any property subject to the tax
imposed by chapter 12, the donor. Section 2652(a)(2) provides that if, under § 2513,
one-half of a gift is treated as made by an individual and one-half of such gift is treated
as made by the spouse of such individual, such gift shall be so treated for purposes of
chapter 13. Under § 26.2652-1(a)(4), in the case of a transfer with respect to which the
donor's spouse makes an election under § 2513 to treat the gift as made one-half by the
spouse, the electing spouse is treated as the transferor of one-half of the entire value of
the property transferred by the donor, regardless of the interest the electing spouse is

PLR-107959-23                                 4

actually deemed to have transferred under § 2513. The donor is treated as the
transferor of one-half of the value of the entire property.

      Section 2642(g)(1)(A) provides, generally, 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). Such
regulations shall include procedures for requesting comparable relief with respect to
transfers made before the date of the enactment of § 2642(g)(1)(A).

      Section 2642(g)(1)(B) provides that in determining whether to grant relief, 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, the time
for making the allocation 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 is 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) 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 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 due date is prescribed by a regulation
(and not expressly provided by statute). Under § 301.9100-1(b), a regulatory election
includes an election whose due date is prescribed by a notice published in the Internal
Revenue Bulletin. 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) 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.

PLR-107959-23                                  5

      Based on the facts submitted and the representations made, we conclude that
the requirements of § 301.9100-3 have been satisfied. Accordingly, Husband is granted
an extension of time of 120 days from the date of this letter to allocate Husband’s GST
exemption to the Year 1 transfer. Husband is also granted an extension of time of 120
days from the date of this letter to allocate Husband’s GST exemption to the Year 3
transfers.

      With respect to the Year 1 transfer, Husband should allocate his GST exemption
on an amended Form 709 for Year 1. With respect to the Year 3 transfer, Husband
should allocate his GST exemption on an amended Form 709 for Year 3. The amended
Forms 709 should be filed with the 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 each amended Form 709.

      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.

     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,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



                                 By: _____________________________
                                     Daniel J. Gespass
                                     Senior Technician Reviewer, Branch 4
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

Enclosure (1)

      Copy for § 6110 purposes.

PLR-107959-23                                             6


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