Estate received more time to elect QTIP treatment for two marital trusts

Plain-English summary

An estate timely filed Form 706 after both the decedent and surviving spouse had died, but the return omitted two marital trusts from Schedule M and did not make qualified terminable interest property elections for them. Each trust required all income to be paid to the surviving spouse for life and allowed discretionary principal distributions for the spouse's support and well-being. The estate discovered the omission when the return was audited. The IRS found that the requirements for regulatory relief were satisfied and granted the estate 120 days to make the QTIP elections on a supplemental Form 706.

Ruling snapshot

• Question: Could the estate receive an extension to make QTIP elections for two trusts benefiting the surviving spouse?
• Outcome: approved
• Key authorities: IRC §§ 2001 and 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 202352016                                             Third Party Communication: None
Release Date: 12/29/2023                                      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:B04
----------------------------                                  PLR-110265-23
                                                              Date:
                                                              October 05, 2023

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


Legend

Decedent         =        --------------------------
                         -------------------------
Spouse           =        -------------------------
                         -------------------------
Trust            =        ----------------------------------------------------------
Company          =        ----------------------------------------
Foundation       =        -------------------------------------
Date 1           =        ------------------
Date 2           =        --------------------
Date 3           =        -------------------------
Date 4           =        -------------------
Date 5           =        -----------------------
Accountant       =        --------------------
Attorney         =        ------------------

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

This letter responds to a letter dated April 26, 2023, and subsequent correspondence,
submitted on behalf of Decedent’s estate, 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) of the
Internal Revenue Code (Code).

The facts and representations submitted are as follows. On Date 1, Decedent
established a revocable trust, Trust. Trust was amended on Date 2. Trust became
irrevocable upon Decedent’s death on Date 3.

Article V of Trust provides for the distribution of Trust property and residue upon the
death of Decedent.

PLR-110265-23                                  2


Article V, Sections 5.1 and 5.2 provide for the outright distribution of certain items of
tangible personal property and household furnishings of Decedent upon Decedent’s
death.

Article V, Section 5.3 provides that, upon the death of Decedent, the Decedent’s
membership interest in Company shall be held in further trust for the benefit of Spouse
(Marital Trust 1). Section 5.3 further provides that the co-trustees shall hold, invest, and
reinvest said property and pay the income therefrom to Spouse, payable quarterly or at
more frequent intervals, for Spouse’s life. Any income earned or accrued prior to
Spouse’s death and not distributed to Spouse shall be paid to Spouse’s estate. Section
5.3 also authorizes the co-trustees to pay to Spouse so much of the principal of Marital
Trust 1 property as they, in their discretion, deem necessary for support, comfort and
well-being. Upon Spouse’s death, Section 5.3 directs the co-trustees to distribute the
remaining property of Marital Trust 1 outright to named individual beneficiaries. Section
5.3 further authorizes the co-trustees, as well as the personal representative of
Decedent’s estate, to elect to qualify all or any fractional or percentile share of the
property in Marital Trust 1 for the marital deduction.

Article V, Section 5.4 provides that upon the death of Decedent, and after the above-
mentioned outright distributions, the trustee shall distribute the balance of Trust property
to the named co-trustees to be held in further trust for the benefit of Spouse (Marital
Trust 2). Section 5.4 further provides that the co-trustees shall hold, invest, and
reinvest said property and pay the income therefrom to Spouse, payable quarterly or at
more frequent intervals, for Spouse’s life. Any income earned or accrued prior to
Spouse’s death and not distributed to Spouse shall be paid to Spouse’s estate. Section
5.4 also authorizes the co-trustees to pay to Spouse so much of the principal of Marital
Trust 2 property as they, in their discretion, deem necessary for support, comfort and
well-being. Upon Spouse’s death, Section 5.4 directs the co-trustees to distribute the
remaining property of Marital Trust 2 outright to named individual and charitable
beneficiaries. Section 5.4 further authorizes the co-trustees, as well as the personal
representative of Decedent’s estate, to elect to qualify all or any fractional or percentile
share of the property in Marital Trust 2 for the marital deduction.

After Spouse’s death, the personal representative of Decedent’s estate retained
Accountant and Attorney to prepare Decedent’s Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return for Decedent’s estate. On Date 5, the Form
706 was timely filed (with extension) on behalf of Decedent’s estate. The Form 706 did
not report any assets on Schedule M, “Bequests, etc., to Surviving Spouse.” Thus, no
QTIP election was made with respect to Marital Trust 1 or Marital Trust 2. Thereafter,
Decedent’s Form 706 was selected for audit, and it was at this time that the personal
representative of Decedent’s estate discovered the failure to properly report Marital
Trust 1 and Marital Trust 2 on Schedule M and to make the QTIP election.

PLR-110265-23                                  3

You have requested an extension of time under §§ 301.9100-1 and 301.9100-3 to make
the QTIP election under § 2056(b)(7) to treat Marital Trust 1 and Marital Trust 2 as QTIP
property.

LAW AND ANALYSIS

Section 2001(a) of the Code 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.

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.

PLR-110265-23                                  4


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 personal
representative 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 1 and Marital
Trust 2.

The election should be made on a supplemental Form 706 filed with the Internal
Revenue Service Center at the following address: Department of the Treasury, Internal
Revenue Service Center, 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.

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.

PLR-110265-23                                 5


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.

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                 By:
                                       Melissa C. Liquerman
                                       Senior Counsel, Branch 4
                                       (Passthroughs & Special Industries)

Enclosure
     Copy for § 6110 purposes


cc: