Taxpayer receives 120 days to opt out of automatic GST exemption allocation

Plain-English summary

A taxpayer made cash gifts over two years to a trust for a sibling's children and descendants. The taxpayer intended not to allocate generation-skipping transfer tax exemption to those gifts and instructed the first accounting firm accordingly. Two accounting firms nevertheless prepared timely Forms 709 that omitted the trust transfers and failed to elect out of the automatic allocation rules. The IRS found that the taxpayer met the reasonable-care, good-faith, and no-prejudice standards under Treas. Reg. § 26.2642-7. It granted 120 days to make the election under IRC § 2632(c)(5)(A)(i) by filing amended Forms 709 for both years and attaching the ruling letter.

Ruling snapshot

• Question: May the taxpayer make late elections to prevent automatic GST exemption allocation to trust gifts reported incorrectly on two gift tax returns?
• Outcome: Approved, with 120 days to file amended Forms 709 and attach the ruling
• Key authorities: IRC §§ 2631, 2632(c), 2642(g); Treas. Reg. §§ 26.2632-1(b)(2), 26.2642-7

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 202536022                                                Third Party Communication: None
 Release Date: 9/5/2025                                           Date of Communication: Not Applicable
 Index Number: 2642.07-00
                                                                  Person To Contact:
 ----------------------------------                               -------------------------- ID No. -----------------
 ------------------------------                                   -----------------------------------------------------
 ----------------------------                                     Telephone Number:
                                                                  --------------------
 ----------------------------                                     Refer Reply To:
                                                                  CC:PT&E:B04
 --------------------------------------------------               PLR-122052-24
                                                                  Date:
                                                                  May 22, 2025




Legend
-
Taxpayer                   =          ----------------------------------------------------------------
Spouse                     =          -------------------------------------------
Accounting Firm 1          =          ---------------------
Accounting Firm 2          =          ------------------------------
Date 1                     =          ---------------
Date 2                     =          ----------------
Date 3                     =          ---------------
Date 4                     =          ----------
Year 1                     =          -------
Year 2                     =          -------
Trust                      =          -------------------------------------------------------------------------------
                                      -------------------------------------------------------------------------------
                                      -----------------------



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

      This letter responds to your authorized representative’s letter dated
November 11, 2024, and subsequent correspondence, requesting an extension of time
under § 2642(g) of the Internal Revenue Code (Code) and § 26.2642-7 of the
Generation-Skipping Transfer (GST) Tax Regulations to make an election under
§ 2632(c)(5) to have the automatic allocation generation-skipping transfer (GST)
exemption rules under § 2632(c)(1) not apply with respect to certain transfers to trusts.

        The facts and representations submitted are summarized as follows:
PLR-122052-24                                2

        On Date 1, Year 1, Taxpayer and Taxpayer’s spouse, Spouse, created and
funded Trust, a trust for the benefit of the children and descendants of Taxpayer’s
sister. Under the terms of Trust, the trustee has discretion to distribute the income and
principal for the benefit of the children and descendants of Taxpayer’s sister. At the
trustee’s discretion, when Trust no longer holds any property of the family business,
Trust will be divided into separate trusts for the benefit of each child of Taxpayer’s
sister. The trustee of each separate trust has discretion to distribute the income and
principal for the benefit of that child and that child’s descendants.

       Taxpayer transferred cash to Trust on Date 2, Year 1. Taxpayer made additional
transfers of cash to Trust on Date 3, Year 2 and on Date 4, Year 2.

        Taxpayer retained Accounting Firm 1 to prepare Taxpayer's Year 1 Form 709,
United States Gift (and Generation-Skipping Transfer) Tax Return. Prior to the Year 1
filing date, Taxpayer, upon the advice of Taxpayer’s estate planning attorney, instructed
Accounting Firm 1 not to allocate GST tax exemption to Taxpayer’s Year 1 gifts to Trust.
However, Accounting Firm 1 prepared a gift tax return that failed to report the transfer to
Trust and also failed to elect out of the automatic allocation of GST exemption pursuant
to § 2632(c)(5)(A)(i). Taxpayer timely filed Form 709 for Year 1.

        Taxpayer retained Accounting Firm 2 to prepare Taxpayer's Year 2 Form 709,
United States Gift (and Generation-Skipping Transfer) Tax Return. Accounting Firm 2
prepared a gift tax return that failed to report the transfers to Trust and also failed to
elect out of the automatic allocation of GST exemption pursuant to § 2632(c)(5)(A)(i).
Taxpayer timely filed Form 709 for Year 2. Thereafter, while preparing Taxpayer’s Form
709 for the following year, Accounting Firm 2 discovered that Taxpayer had not elected
out of the automatic allocation of GST exemption pursuant to § 2632(c)(5)(A)(i) on the
gift tax returns for both Year 1 and Year 2.

        Taxpayer requests an extension of time under § 2642(g) and § 26.2642-7 to elect
out of the automatic allocation of GST exemption under § 2632(c)(5)(A)(i) with respect
to Taxpayer’s Year 1 and Year 2 transfers to Trust.

                                  LAW AND ANALYSIS

       Section 2601 provides that a tax is imposed on every generation-skipping
transfer (GST). 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 GST tax is the taxable amount
multiplied by the applicable rate. Section 2641(a) defines the applicable rate as the
product of the maximum federal estate tax rate and the inclusion ratio with respect to
the transfer.
PLR-122052-24                                 3

       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, 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. Section 2632(a)(2) provides that the manner in which
allocations are to be made shall be prescribed by forms or regulations issued by the
Secretary.

        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 the term "indirect skip" means any transfer of
property (other than a direct skip) subject to the tax imposed by chapter 12 made to a
GST trust. Section 2632(c)(3)(B) provides, in relevant part, that the term "GST trust"
means a trust that could have a GST with respect to the transferor unless an exception
listed in § 2632(c)(3)(B)(i)-(vi) applies.

        Section 2632(c)(5)(A)(i) provides, in relevant part, that an individual may elect to
have the automatic allocation rules of § 2632(c)(1) not apply to -- (I) an indirect skip, or
(II) any or all transfers made by such individual to a particular trust. Section
2632(c)(5)(B)(ii) provides, in relevant part, that the election under § 2632(c)(5)(A)(i)(II)
may be made on a timely-filed gift tax return for the calendar year for which the election
is to become effective.

        Section 26.2632-1(b)(2)(i) provides that in the case of an indirect skip made after
December 31, 2000, to which § 2642(f) (relating to transfers subject to the ETIP) does
not apply, the transferor's unused GST exemption is automatically allocated to the
property transferred (but not in excess of the fair market value of the property on the
date of the transfer). This automatic allocation is effective whether or not a Form 709 is
filed reporting the transfer, and is effective as of the date of the transfer to which it
relates. An automatic allocation is irrevocable after the due date of the Form 709 for the
calendar year in which the transfer is made.

       Section 26.2632-1(b)(2)(ii) provides that, except as otherwise provided, the
transferor may prevent the automatic allocation of GST exemption with regard to an
indirect skip by making an election as provided in § 26.2632-1(b)(2)(iii).
PLR-122052-24                                 4

        Section 26.2632-1(b)(2)(iii)(A) provides, in relevant part, that a transferor may
prevent the automatic allocation of GST exemption (elect out) with respect to any
transfer or transfers constituting an indirect skip made to a trust or to one or more
separate shares that are treated as separate trusts under § 26.2654-1(a)(1). A
transferor may elect out with respect to: (1) one or more prior-year transfers subject to
§ 2642(f) (regarding ETIPs) made by the transferor to a specified trust or trusts; (2) one
or more (or all) current-year transfers made by the transferor to a specified trust or
trusts; (3) one or more (or all) future transfers made by the transferor to a specified trust
or trusts; and (4) all future transfers made by the transferor to all trusts (whether or not
in existence at the time of the election out); or (5) any combination of (1) through (4).

        Section 26.2632-1(b)(2)(iii)(B) provides that to elect out, the transferor must
attach an election out statement to a Form 709 filed within the time period provided in
§ 26.2632-1(b)(2)(iii)(C). In general, the election out statement must identify the trust,
and specifically must provide that the transferor is electing out of the automatic
allocation of GST exemption with respect to the described transfer or transfers. Under
§ 26.2632-1(b)(2)(iii)(C), to elect out, the Form 709 with the attached election out
statement must be filed on or before the due date for timely filing the Form 709 for the
calendar year in which: (1) for a transfer subject to § 2642(f), the ETIP closes; or (2) for
all other elections out, the first transfer to be covered by the election out was made.

        Section 2642(b)(1)(A) provides that, except as provided in § 2642(f), if the
allocation of the GST exemption to any transfers of property is made on a gift tax return
filed on or before the date prescribed by § 6075(b) for such transfer or is deemed to be
made under § 2632(b)(1) or (c)(1), the value of such property for purposes of § 2642(a)
shall be its value as finally determined for purposes of chapter 12 (within the meaning of
§ 2001(f)(2)), or, in the case of an allocation deemed to have been made at the close of
an estate tax inclusion period, its value at the time of the close of the estate tax
inclusion period.

       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) or (2), and
an election under § 2632(b)(3) or (c)(5).

       Section 2642(g)(1)(B) provides that in determining whether to grant relief under
§ 2642(g)(1), 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 (or election) shall be treated as if not
expressly prescribed by statute.

        Section 26.2642-7 of the Generation-Skipping Transfer Tax Regulations sets
forth the procedures for requesting an extension of time to make an allocation of GST
PLR-122052-24                                  5

exemption described in § 2642(b)(1) or (2), and an election under § 2632(b)(3) or (c)(5),
and the standards used to determine whether relief may be granted.

       Section 26.2642-7(d)(1) provides that requests for relief will be granted when and
to the extent that the transferor or the executor of the transferor’s estate provides
evidence establishing to the satisfaction of the IRS that the transferor or the executor of
the transferor’s estate acted reasonably and in good faith, and that the grant of relief will
not prejudice the interests of the government.

       Section 26.2642-7(d)(2) provides a nonexclusive list of factors that will be
considered in determining whether the transferor or the executor of the transferor’s
estate acted reasonably and in good faith for purposes of § 26.2642-7, including
reasonable reliance by the transferor or the executor of the transferor’s estate on the
advice of a qualified tax professional.

        Based upon the facts submitted and the representations made, we conclude that
the requirements of § 26.2642-7 have been satisfied. Accordingly, Taxpayer is granted
an extension of time of 120 days from the date of this letter to elect out of the automatic
allocation rules under § 2632(c)(5)(A)(i) for Taxpayer’s Year 1 and Year 2 transfers to
Trust. The election should be made on amended Forms 709 for Year 1 and Year 2.
The amended Forms 709 should be filed with the Internal Revenue Service Center at
the following address: Internal Revenue Service Center, Attn: E&G, Stop 824G,
7940 Kentucky Drive, Florence, KY 41042-2915. You should attach a copy of this letter
to the amended Forms 709.

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

       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 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.
PLR-122052-24                                              6

      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.

                                             Sincerely,


                                             Leslie H. Finlow
                                             ______________________________
                                    By:      [Leslie H. Finlow]
                                             Senior Technician Reviewer, Branch 4
                                             Office of the Associate Chief Counsel
                                             (Passthroughs, Trusts, and Estates)



         Enclosure:
               Copy for § 6110 purposes

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