PLR 200328021: Estate receives time to allocate GST exemption to earlier gifts

Plain-English summary

A donor made annual transfers to a family trust, but her law firm failed to allocate her generation-skipping transfer tax exemption to them. After her death, the estate asked for more time to make the allocations. The IRS found that the extension requirements were met and gave the estate 60 days from the letter date to file supplemental gift tax returns. The allocations would take effect on the dates of the original transfers, using their gift tax values. The IRS did not determine the value of the transferred property.

Ruling snapshot

• Question: Could the estate make late GST exemption allocations for several years of trust transfers?
• Outcome: Approved with a 60-day filing period.
• Key authorities: IRC §§ 2632, 2642(g); Treas. Reg. § 301.9100-3; Notice 2001-50.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200328021
Washington, DC 20224
Release Date: 7/11/2003
Index Numbers: 2632.01-00
Person to Contact:
2642.00-00
9100.00-00
Telephone Number:

Refer Reply To:
CC:PSI:4-PLR-149104-02
Date:
MARCH 31, 2003

Re:

LEGEND:

Donor -
Trust -

Law Firm -
Date 1 -
Year 1 -
Year 4 -
Year 7 -

Dear
:

This is in response to the your letter dated August 12, 2002, submitted by your authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make allocations of generation-skipping transfer (GST) tax exemption.

The facts and representations submitted are summarized as follows: On Date 1, Donor established an irrevocable trust, Trust, for the benefit of her husband, son, daughter, and grandson. From Year 1 through Year 7, the Donor made annual cash transfers to Trust. Under the terms of Trust, during the life of Donor, the trustee has discretion to pay income and corpus to Donor’s husband for his reasonable comfort, education, and maintenance in health. Upon the death of Donor, the trustee is to pay a 5% unitrust amount to husband, if alive, and if not, then to the remaining beneficiaries for life. Upon the death of the last survivor, the trust corpus is to be distributed to a named charity and foundation.

Donor hired Law Firm to evaluate and report all relevant federal estate and gift tax filings. The Taxpayer filed gift tax returns covering all the transfers listed above, except for the Year 4 transfer. No GST exemption was allocated to the Year 1 through Year 7 transfers to Trust. Donor relied upon Law Firm to make and advise Donor to

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allocate GST exemption to Trust. Law Firm represented that they failed to allocate Donor’s GST exemption, due to a misunderstanding. Upon the death of Donor, Law Firm determined that they should have allocated Donor’s GST exemption to the Year 1 through Year 7 transfers to Trust.

Donor’s estate has requested an extension of time under § 2642(g) of the Internal Revenue Code and §§ 301.9100-1 and 301.9100-3 to allocate the Donor’s GST exemption to the Year 1 through Year 7 transfers to Trust and that such allocations are to be made based on the value of the transferred assets on the dates transferred to Trust.

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)) that may be allocated by such individual (or his executor) to any property with respect to which such individual is the transferor.

Section 2632(a)(1) 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 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 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 § 2642(g)(1), which was enacted into law on June 7, 2001.

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

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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.

Notice 2001-50, 2001-34 I.R.B. 189, provides that under § 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 generation-skipping trust are to be treated as if not expressly prescribed by statute. The Notice further provides that 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.

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 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) and Notice 2001-50, 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.

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. Therefore, Donor’s estate is granted an extension of time of 60 days from the date of this letter to make an allocation of Donor’s available GST tax exemption, with respect to transfers to Trust in Year 1 through Year 7. The allocations will be effective as of the dates of the respective transfers to the Trust, and the gift tax values of the transfers to the Trust will be used in determining the amount of GST exemption to be allocated to the Trust.

These allocations should be made on supplemental Forms 709 United States Gift (and Generation-Skipping Transfer) Tax Return and filed with the Internal Revenue Service Center, Cincinnati, OH 45999. A copy of this letter should be attached to the supplemental Form 709. A copy is enclosed for this purpose.

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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. In addition, we express or imply no opinion regarding the value of the property transferred to the Trust.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

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.

Sincerely,

Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy for section 6110 purposes
Copy of this letter