Spouses get 120 days to allocate GST exemption to transfers made before 2001

Plain-English summary

Two spouses created separate irrevocable trusts for their children and descendants before 2001, then made additional cash transfers to both trusts that had generation-skipping transfer tax potential. Their attorney advised them to file gift tax returns and allocate GST exemption, but their longtime return preparer did not file the returns. The spouses discovered the omission years later while reviewing records for new gift planning. The IRS found that they reasonably relied on a qualified tax professional and met the requirements for relief under IRC § 2642(g) and Treas. Reg. § 301.9100-3. It gave them 120 days to file Form 709 and allocate their available GST exemptions effective as of the original transfer dates.

Ruling snapshot

• Question: May the spouses make late allocations of GST exemption to their earlier transfers to two irrevocable trusts?
• Outcome: Approved, with 120 days to file Form 709 and make the allocations
• Key authorities: IRC §§ 2601, 2611, 2631, 2632, 2642(g); Treas. Reg. §§ 26.2632-1(b)(4)(i), 301.9100-1, 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202420016 Third Party Communication: None
Release Date: 5/17/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2632.00-00
Person To Contact:
----------------------- ---------------, ID No. -----------------
-------------------- Telephone Number:
-------------------------- --------------------
-------------------------------- Refer Reply To:
CC:PSI:04
PLR-116601-23
RE: ----------------------- Date:
February 21, 2024

LEGEND
Donor A = --------------------------------------------------
Donor B = -------------------------------- -----------------
Child 1 = -------------------------
Child 2 = ----------------------
Year 1 = -------
Year 2 = -------
Date = ----------------------
Month = ------
Trust 1 = ----------------------------------------
Trust 2 = --------------------------------------
a = ---
b = -----
Attorney = ---------------------
Accountant = ---------------------------------

Dear ---------------

This letter responds to your authorized representative’s letter dated August 8, 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 generation-skipping transfer (GST) exemption to trusts.

The facts and representations submitted are summarized as follows:

Donor A and Donor B are spouses (collectively, Taxpayers). On Date, a date prior to
January 1, 2001, Taxpayers established two irrevocable trusts, Trust 1 and Trust 2.
The provisions of Trust 1 and Trust 2 are identical except for the identity of the primary
beneficiaries: Trust 1 is for the benefit of Child 1 and Child 1’s descendants, and Trust 2
is for the benefit of Child 2 and Child 2’s descendants. Trust 1 and Trust 2 have GST
tax potential.
PLR-116601-23 2

During Year 1, after the creation of Trust 1 and Trust 2, Taxpayers made several gifts to
Trust 1 and Trust 2. Each transfer in Year 1 occurred on a date before January 1, 2001.
On Date, Taxpayers transferred $a cash of community property to each trust. On a
date in Month of Year 1, Taxpayers transferred $b cash of community property to each
trust (collectively, the Year 1 Transfers).

Taxpayers retained Attorney for tax and legal counsel with respect to estate, trust, and
gift planning. Attorney assisted the Taxpayers with the creation of Trust 1 and Trust 2
and further advised them to file Forms 709, United States Gift (and Generation-Skipping
Transfer) Tax Returns, to report the Year 1 Transfers made to Trust 1 and Trust 2 and
to allocate their individual GST exemption to taxable transfers to Trust 1 and Trust 2.
Correspondence between Attorney and Taxpayers describing the transfers to Trust 1
and Trust 2, as well as the allocation of Taxpayers’ GST exemption to those transfers,
was sent to Taxpayers and their long-standing tax return preparer, Accountant, who
would prepare the Forms 709.

Recently, in Year 2, Taxpayers discussed with Attorney certain gift planning, which
required prior-year reporting information. It was at this time that Taxpayers discovered
that the Year 1 Forms 709 were not filed. Accordingly, Taxpayers’ respective GST
exemption was not allocated to the Year 1 Transfers of $a and $b.

Taxpayers request an extension of time under § 2642(g) and § 301.9100-3 to allocate
Taxpayers’ respective GST exemption to the Year 1 Transfers of $a and $b to Trust 1
and Trust 2.

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.
PLR-116601-23 3

Section 26.2632-1(b)(4)(i) of the Generation-Skipping Transfer Tax Regulations
provides 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 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.
PLR-116601-23 4

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, Taxpayers are granted
an extension of time of 120 days from the date of this letter to allocate Taxpayers’
respective available GST exemption to the Year 1 Transfers to Trust 1 and Trust 2. The
allocation will be effective as of the date of the Year 1 Transfers to Trust 1 and Trust 2,
and the value of the transfers as determined for federal gift tax purposes will be used in
determining the amount of GST exemption to be allocated to Trust 1 and Trust 2.

The allocation should be made on a Form 709. The Form 709 should be filed with the
Internal Revenue Service at the following address: Department of Treasury, Internal
Revenue Service Center, Kansas City, MO 64999.

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.

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

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)

                                        Leslie H. Finlow
                               By:
                                     Leslie H. Finlow
                                     Senior Technician Reviewer, Branch 4
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

Enclosure:
Copy for § 6110 purposes
PLR-116601-23 5

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