PLR 200234026: Spouses receive time to allocate GST exemption to family trust

Plain-English summary

A married couple established a trust for children and later generations and treated their contribution as a split gift. They intended to allocate generation-skipping transfer (GST) tax exemption to the trust, but their accounting firm omitted the allocations from the gift tax return. The IRS granted each spouse 60 days from the letter date to allocate available GST exemption on a supplemental Form 709. It treated each spouse as the transferor of half the gift; the allocations would take effect on the original transfer date and use the gift tax value of the transferred property. The ruling rests on the represented facts and gives no opinion on other tax consequences.

Ruling snapshot

• Question: May the spouses make late GST exemption allocations to the trust based on the original transfer value?
• Outcome: Approved: 60 days to file allocations effective on the transfer date
• Key authorities: IRC §§ 2513, 2642(b)(1), 2642(g), 2652(a)(2); Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200234026
P.O. Box 7604
Ben Franklin Station
Release Date: 8/23/2002
Washington, DC 20044
Index No.: 2642.01-00; 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:4 - PLR-162870-01
Date: MAY 15, 2002

Re:

Legend:

Date 1 =
Husband =

Wife =

Trust =
X =
State =
CPA Firm =
Year 1 =
Attorney =

Dear
:

This is in response to your letter dated November 14, 2001, and subsequent submissions, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make an allocation of the Generation-Skipping Transfer (GST) exemption.

The facts and representations submitted are summarized as follows: On Date 1, Husband and Wife (the Taxpayers) established an irrevocable trust (Trust) for the benefit of their four children, their grandchildren, and their great grandchildren. The assets transferred to Trust constituted the community property of the Taxpayers under State law. Wife consented to split the total gift of $X and so signified on husband’s 1991 Form 709 (United States Gift (and Generation-Skipping Transfer Tax Return).

In Year 1, the Taxpayers discussed their estate plan with CPA Firm and with Attorney, who had advised them for twenty years. Taxpayers were advised to create a trust for the benefit of their children and successive generations. Taxpayers were
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further advised that their GST exemptions would be allocated to the trust, causing it to be exempt from generation-skipping transfer tax.

The Taxpayers relied upon CPA Firm to prepare their 1991 Form 709. The CPA firm failed to make the GST allocations on the return for the transfer to Trust. There have been no additions to, and no taxable distributions or taxable terminations with respect to, the trust assets since the creation of Trust.

Taxpayers have requested the following rulings: (1) an extension of time under § 2642(g) of the Internal Revenue Code and §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to make allocations of Taxpayers’ GST exemptions to Trust; and (2) that such allocations are to be made based on the value of the transferred assets to Trusts as of Date 1, the date of the transfer to Trust.

Section 2513(a) provides that a gift made by one spouse to any person other than his spouse shall, for purposes of chapter 12, be considered as made one-half by him and one-half by his spouse, but only if at the time of the gift each spouse is a citizen or resident of the United States. Section 2513(a)(2) provides that paragraph (1) shall apply only if both spouses have signified their consent to the application of section 2513(a)(1) in the case of all such gifts during the calendar year by either while married to the other.

Section 2601 imposes a tax on every generation-skipping transfer (GST). A GST is defined under § 2611(a) as (1) a taxable distribution, (2) a taxable termination, and (3) a direct skip.

Section 2631(a) provides that, for purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption of $1,000,000 (adjusted for inflation under § 2631(c)) 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) provides that any allocation by an individual of his or her GST exemption under § 2631(a) may be made 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 a return is required to be filed.

Section 26.2632-1(b)(2) of the Estate 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 2652(a)(2) provides that if, under section 2513, one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual, such gift shall be so treated for purposes of chapter 13.

Section 2642(b)(1) 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
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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, and such allocation shall be effective on and after the date of such transfer, or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, on and after the close of such 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). Such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph.

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.

Section 301.9100-1(c) of the Procedure and Administration Regulations 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 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.

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). Under § 301.9100-1(b), a regulatory election includes an election whose due date is prescribed by a notice published in the Internal Revenue Bulletin. In accordance with § 2642(g)(1)(B), the time for allocating the GST exemption to lifetime transfers and transfers at death, the time for electing out of the automatic allocation rules, and the time for electing to treat any trust as a GST trust are to be treated as if not expressly prescribed by statute. Accordingly, taxpayers may seek an extension of time to make an allocation described in § 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5) under the provisions of § 301.9100-3.

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.
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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. Taxpayers reported the transfer to Trust as a split gift under § 2513. Accordingly, each taxpayer is treated as the transferor with respect to one-half of the transfer to the trust for purposes of chapter 13. Therefore, Taxpayers are granted an extension of time of 60 days from the date of this letter to make allocations of Taxpayers’ available GST exemptions, with respect to Taxpayers’ transfer to Trust. The allocations will be effective as of Date 1, the date of the transfer to Trusts, and the gift tax value of the transfer to Trust will be used in determining the amount of GST exemption to be allocated to Trust.

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.

Except as specifically ruled herein, we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the Code.

This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. This election should be made on a supplemental Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return and filed with the Cincinnati Service Center -- Stop 82, Internal Revenue Service, Cincinnati, OH 45999. A copy of this letter should be attached to the supplemental Form 709. A copy is enclosed for this purpose.

Sincerely,
Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy for section 6110 purposes
Copy of this letter

cc: