PLR 200004023: Estate receives an extension for a late reverse QTIP election

Plain-English summary

An estate made a QTIP election for its marital trusts on a timely estate tax return but omitted Schedule R, which was needed for a reverse QTIP election on the exempt marital trust. It later filed Schedule R on August 11, 1997. The IRS granted an extension through that filing date to make the reverse QTIP election. The extension did not extend the separate deadline for allocating the decedent's unused generation-skipping transfer tax exemption. The letter says that exemption is allocated under the automatic allocation rules of § 2632(c), and it gives no opinion on other tax consequences.

Ruling snapshot

• Question: Can the estate make the reverse QTIP election on its late Schedule R?
• Outcome: Approved: time extended through August 11, 1997; the GST exemption allocation deadline was not extended.
• Key authorities: IRC §§ 2652(a)(3), 2632(c); Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
Index No.: 9100.00-00
           2652.01-02                             P.O. Box 7604
                                                  Ben Franklin Station
Number: 200004023                                 Washington, DC 20044
Release Date: 1/28/2000
                                                  Person to Contact:

                                                  Telephone Number:

                                                  Refer Reply To:
                                                  CC:DOM:P&SI:4/PLR-114992-99
                                                  Date:   October 28, 1999

Re:
       TIN:

Legend:

        Decedent      =
        Trust         =
        Marital Trust =
        Spouse        =
        Date 1        =

Dear            :

      This is in response to your submission dated August 9, 1999, in which you
requested a ruling under § 2652 of the Internal Revenue Code and § 301.9100-1 of the
Procedure and Administration Regulations.

       Decedent and Spouse created Trust, an inter vivos revocable trust. Decedent
died testate on Date 1 survived by Spouse. At Decedent’s death, the trustee of Trust
was to divide the trust estate into separate trusts; the Survivor’s Trust, the Exemption
Trust, and the Marital Trust, and if applicable the Disclaimer Trust. The balance of the
Trust estate not otherwise passing to the Survivor’s Trust and the Exemption Trust, plus
any property passing to Trust as a result of Decedent’s death, passed to the Marital
Trust.

       Article 6.04 of Trust provides that if the trustee elects to treat a portion of the
Marital Trust as qualified terminable interest property (QTIP), the Marital Trust is to be
divided into two separate trusts, the Elected Marital Trust and the Nonelected Marital
Trust. The trustee elected to treat the entire Marital Trust as QTIP.

      Article 11.10 of Trust provides that if a reverse QTIP election is made with
respect to the property in the Marital Trust, the trust is to be divided into two trusts; the
Exempt Marital Trust and the Nonexempt Marital Trust. The Exempt Marital Trust is to
be funded with the minimum dollar amount necessary to utilize Decedent’s unused
generation-skipping transfer tax (GSTT) exemption.

       During her life, Spouse is to receive all of the net income from both Marital
Trusts, payable at least quarterly. Article 9.03 of Trust provides that upon Spouse’s
death, any undistributed income in the Marital Trusts is to be distributed to Spouse’s
estate. The corpus of each Trust is to be distributed either outright or in trust, for the
benefit of Decedent’s issue.

       On Schedule M of Form 706, (that was timely filed by the estate), the executor
made an election under § 2056(b)(7) with respect to the entire value of the Exempt
Marital Trust and the Nonexempt Marital Trust. A deduction under § 2056(a) was
claimed with respect to these trusts.

       The executor, however, failed to file a Schedule R with the Form 706 and ,
consequently, failed to make an election under § 2652(a)(3) with respect to the Exempt
Marital Trust. On August 11, 1997, the estate filed a Schedule R, signifying that a
reverse QTIP election under § 2652(a)(3) was being made with respect to the Exempt
Marital Trust.

     The Decedent's executor requests an extension of time under § 301.9100-1 to
make an election under § 2652(a)(3) with respect to the Exempt Marital Trust.

     Section 2001(a) 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 to be 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(b)(1) provides the general rule that no deduction shall be allowed
for an interest passing to the surviving spouse if, on the lapse of time, on the
occurrence of an event or contingency, or on the failure of an event or contingency to
occur, the interest will terminate or fail.

      Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest
property, the entire property shall be treated as passing to the surviving spouse for
purposes of § 2056(a) and no part of the property shall be treated as passing to any
person other than the surviving spouse.
        Section 2056(b)(7)(B)(i) defines "qualified terminable interest property" (QTIP) as
property: (1) which passes from the decedent, (2) in which the surviving spouse has a
qualifying income interest for life, and (3) to which an election under § 2056(b)(7)(B)(v)
applies.

       Under § 2044, property subject to a QTIP election is includible in the gross
estate of the surviving spouse.

       Section 2601 imposes a tax on every generation-skipping transfer made by a
“transferor” to a skip person. In general, under § 26.2652-1(a)(1) of the Generation-
Skipping Transfer Tax Regulations, the transferor for GSTT purposes is the individual
with respect to whom the property was most recently subject to Federal estate and gift
tax. With regard to the generation-skipping transfer tax (GSTT), each individual is
allowed an exemption of $1,000,000 which may be allocated by such individual (or by
his or her executor) to any property with respect to which such individual is the
transferor.

       Under § 2632(a), the allocation may be made at any time on or before the date
prescribed for filing the individual's estate tax return (including extensions). Under
 § 2632(c), any portion of an individual’s GSTT exemption not allocated within the time
prescribed in § 2632(a), is allocated in accordance with that section.

        Section 2652(a)(3) provides that in the case of any trust with respect to which a
deduction is allowed to the decedent's estate under § 2056(b)(7), the estate of the
decedent may elect to treat all of the property in the trust, for purposes of the GSTT, as
if the election to be treated as qualified terminable interest property had not been made.
This election is referred to as the "reverse" QTIP election. The consequence of a
reverse QTIP election is that the decedent remains, for GSTT purposes, the transferor
of the QTIP trust for which the election is made. As a result, the decedent's GSTT
exemption may be allocated to the QTIP trust.

        Under § 301.9100-1(c)the Commissioner may grant a reasonable extension of
time 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, if the taxpayer demonstrates to the
satisfaction of the Commissioner that the taxpayer has acted reasonably and in good
faith, and granting relief will not prejudice the interests of the government.

       Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make an
election. § 301.9100-1(a).

       Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.
       Requests for relief under § 301.9100-3 will be granted when the taxpayer
provides the evidence to establish that the taxpayer acted reasonably and in good faith,
and granting relief will not prejudice the interests of the government. § 301.9100-3(a).

        In this case, the standards of §§ 301.9100-1 and 301.9100-3 have been
satisfied. Consequently, an extension of time is granted until August 11, 1997, for
making an election under §2652(a)(3) with respect to the Exempt Marital Trust.

       Except as specifically ruled herein, we express no opinion on the federal tax
consequences of the transaction under the cited provisions or under any other
provisions of the Code. We note that an extension of time to make the "reverse" QTIP
election under § 2652(a)(3) does not extend the time to make an allocation of any
remaining GSTT exemption. Consequently, in this case, decedent’s unused GSTT
exemption is allocated in accordance with the automatic allocation rules contained in
§ 2632(c).

       This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

                                                Sincerely yours,

                                                Paul F. Kugler
                                                Assistant Chief Counsel
                                                (Passthroughs and Special
                                                Industries)

Enclosure
  Copy for section 6110 purposes