Bank trustee gets more time to certify that a QDOT beneficiary became a U.S. citizen

Plain-English summary

When someone dies leaving property to a surviving spouse who is not a U.S. citizen, the usual estate-tax marital deduction is not allowed unless the property goes into a qualified domestic trust (QDOT). A QDOT defers estate tax until money leaves the trust or the surviving spouse dies, which protects the government's ability to collect estate tax from a noncitizen spouse. But if the surviving spouse later becomes a U.S. citizen (and lived in the U.S. the whole time in between), the special QDOT estate tax stops applying, provided the U.S. trustee files a final Form 706-QDT notifying and certifying the new citizenship. Here the surviving spouse became a U.S. citizen and told the bank serving as trustee, but the bank's internal tax department never filed the Form 706-QDT within the required time. The bank asked the IRS for relief under the section 301.9100 regulations, which allow extra time for a missed regulatory election or filing when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS granted the trustee a 120-day extension to file the Form 706-QDT with the required certification. This is a routine cure for a missed QDOT citizenship-certification filing that lets the trust escape further QDOT estate tax.

Ruling snapshot

• Question: Should the QDOT's U.S. trustee get an extension of time under § 301.9100-3 to file Form 706-QDT certifying that the surviving spouse became a U.S. citizen?
• Outcome: Approved (120-day extension to file Form 706-QDT)
• Key authorities: IRC §§ 2056(d), 2056A(b)(1), 2056A(b)(12); Treas. Reg. §§ 20.2056A-10, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202507010 Third Party Communication: None
Release Date: 2/14/2025 Date of Communication: Not Applicable
Index Number: 2056A.00-00, 9100.00-00
Person To Contact:
---------------------------------- ---------------------, ID No. -----------------
---------------------------- Telephone Number:
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----------------------------- Refer Reply To:
--------------------------- CC:PSI:B04
PLR-111612-24
Date:
--------------------------------------------------- November 19, 2024

Legend

Decedent = -------------------
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Spouse = ---------------------
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Trust = ----------------------------------------------------------------------------
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Bank A = --------------------------
Bank B = ------------------------------------------------------------------------------------------
Date 1 = -----------------------
Date 2 = ------------------
Date 3 = ----------------
Date 4 = ------------------

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

  This letter responds to your authorized representative's letter of May 30, 2024,

requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to file Form 706-QDT, U.S. Estate Tax Return for Qualified
Domestic Trusts, to notify and certify to the Internal Revenue Service (Service) that
Spouse, who is the beneficiary of Trust, has become a United States citizen.

    The facts and representations submitted are as follows.

  Decedent died on Date 1, survived by Spouse. At the time of Decedent's death,

Spouse was not a United States citizen. On Date 2, Spouse established a Qualified
Domestic Trust (QDOT) (Trust) pursuant to § 2056A of the Internal Revenue Code
(Code) and funded Trust with assets that would have passed outright to Spouse from
Decedent's estate. The initial trustee of Trust was Bank A, a United States corporation.
Prior to Date 3, Bank A merged with Bank B, also a United States corporation, and
Bank B became the trustee of Trust as successor in interest to Bank A.

  On Date 3, Spouse became a United States citizen. On Date 4, Spouse advised

Bank B that she had become a United States citizen. Bank B relied on the internal tax
department of Bank B to prepare and file any necessary federal tax forms. The tax
department did not file a Form 706-QDT to make notification and certification of
Spouse's United States citizenship during the required time period.

   It is represented that Spouse continuously resided in the United States from the

date of Decedent's death until the time Spouse became a United States citizen.

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 is determined by deducting from the value of the gross
estate an amount equal to the value of any interest in property that passes or has
passed from the decedent to the surviving spouse.

   Section 2056(d)(1) provides that, except as provided in § 2056(d)(2), if the

surviving spouse is not a citizen of the United States, no deduction shall be allowed
under § 2056(a). Section 2056(d)(2) provides that § 2056(d)(1) shall not apply to any
property passing to the surviving spouse in a QDOT.

    There are three main requirements under § 2056A that must be satisfied in order

for a trust to be a QDOT. The trust instrument must require that at least one trustee of
the trust be an individual citizen of the United States or a domestic corporation, and
provides that no distribution (other than a distribution of income) may be made from the
trust unless a trustee who is an individual citizen of the United States or a domestic
corporation has the right to withhold from the distribution the tax imposed by § 2056A on
the distribution. In addition, the trust must meet the requirements of regulations
prescribed to ensure the collection of any tax imposed by § 2056A(b)(1). Finally, the
executor must make an election on the federal estate tax return to qualify the trust
property for the federal estate tax marital deduction.

    Section 2056A(b)(1) provides that an estate tax is imposed on (A) any

distribution before the date of death of the surviving spouse from a qualified domestic
trust, and (B) the value of the property remaining in a qualified domestic trust on the
date of the death of the surviving spouse (§ 2056A estate tax).

 Section 2056A(b)(12) provides, in part, that if the surviving spouse of the

decedent becomes a citizen of the United States and if such spouse was a resident of
the United States at all times after the date of death of the decedent and before such
spouse becomes a citizen of the United States, then the tax imposed
by § 2056A(b)(1)(A) shall not apply to any distributions after such spouse becomes a
citizen, and the tax imposed by § 2056A(b)(1)(B) shall not apply.

     Section 20.2056A-10(a)(1) and (2) of the Estate Tax Regulations provides, in

part, that a QDOT is no longer subject to the § 2056A estate tax if the surviving spouse
becomes a citizen of the United States, the spouse was a resident of the United States
at all times after the death of the decedent and before becoming a United States citizen,
and the United States trustee of the QDOT notifies the Service and certifies in writing
that the surviving spouse has become a United States citizen. Notice is to be made by
filing a final Form 706-QDT on or before April 15th of the calendar year following the
year in which the surviving spouse becomes a United States citizen unless an extension
of time for filing is granted under § 6081.

   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 in subtitles E, G, H, and I.

   Section 301.9100-3 sets forth the standards that the Commissioner uses 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. These standards
indicate that the Commissioner should grant relief when the taxpayer provides evidence
proving 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 to 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 are satisfied. Therefore, Bank B is granted an
extension of time of 120 days from the date of this letter to file with the Service the
required notice and certification that Spouse became a United States citizen. The
required notice and certification should be made on a Form 706-QDT. The Form 706-
QDT should be filed with the Internal Revenue Service Center, Kansas City, MO 64999.
A copy of this letter should be attached to the Form 706-QDT.

  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) 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: Karlene M. Lesho
                                          Chief, Branch 4
                                          Office of the Associate Chief Counsel
                                          (Passthroughs & Special Industries)

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