PLR 200332006: Late GST exemption allocations to two family trusts allowed

Plain-English summary

A taxpayer made gifts to separate trusts for her daughter and son and timely filed a gift tax return. Her accountant inadvertently omitted allocations of the taxpayer's generation-skipping transfer (GST) tax exemption to those gifts. The IRS found that the requirements for late allocation relief were met and granted 60 days to allocate her available exemption on a supplemental Form 709. The allocations would take effect on the original transfer date and use the gifts' value on that date. The ruling depended on the facts and representations submitted and did not decide other tax consequences of the trusts.

Ruling snapshot

• Question: May the taxpayer allocate GST exemption to two trust gifts after omitting the allocations from a timely gift tax return?
• Outcome: Approved: 60 days to make allocations effective on the original transfer date.
• Key authorities: IRC § 2642(g)(1); Treas. Reg. § 301.9100-3; Notice 2001-50.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200332006
Washington, DC 20224
Release Date: 8/8/2003
Index Numbers: 2642.00-00
Person to Contact:
9100.00-00
Telephone Number:

Refer Reply To:
CC:PSI:B09-PLR-115982-03
Date:
April 30, 2003
Re:

LEGEND:
Taxpayer
=

Trust 1
=
Trust 2
=
Daughter
=
Son
=
Accountant
=
Accounting Firm =
Trustee
=
$a
=
Year 1
=
Date 1
=
Date 2
=

Dear :

This is in response to your authorized representative’s letter, on your behalf, dated March 5, 2003, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations and § 2642(g) of the Internal Revenue Code to make allocations of Taxpayer’s generation-skipping transfer (GST) tax exemption.

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The facts and representations submitted are summarized as follows: On Date 1, Taxpayer created Trust 1, for the primary benefit of Daughter and Daughter’s descendants, and Trust 2, for the primary benefit of Son and Son’s descendants. The terms of Trust 1 and Trust 2 are substantially identical.

Article Third, Paragraph A.1 of Trust 1 and Trust 2 provides that, during the lifetime of the child for whom the trust was created, the Trustee is directed to pay the net income from the trust to such child, subject to Article Third, Paragraph A.2.

Article Third, Paragraph A.2 provides, in part, that if the Trustee determines that the income payable to the child for whom the trust was created is in excess of the amount the Trustee determines to be in such child’s best interests, the Trustee may pay the excess income to such child’s descendants or accumulate it.

Article Third, Paragraph A.3 provides that the Trustee is authorized to pay to any member of the group consisting of the child for whom the trust was created and his or her descendants, such amounts of the principal of the trust as the Trustee deems advisable to provide for such person’s maintenance, support, health and education.

On Date 2, Taxpayer made a cash gift of $a to Trust 1, and a cash gift of $a to Trust 2. Taxpayer timely filed a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, reporting the Year 1 gifts. The Year Form 709 was prepared by Accountant, a member of Accounting Firm. Accountant inadvertently failed to make an allocation of Taxpayer’s available GST exemption on the Year 1 Form 709.

Taxpayer represents that no distribution has ever been made from Trust 1 or Trust 2 to or for the benefit of a grandchild or more remote descendant of Taxpayer. Taxpayer further represents that she has not previously allocated any of her GST exemption to any other transfers of property.

Taxpayer has 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 to make allocations of Taxpayer’s GST exemption with respect to Taxpayer’s transfers to Trust 1 and Trust 2 on Date 2; and (2) Taxpayer is allowed to make the GST exemption allocations based on the value of the transfers to Trust 1 and Trust 2 as of the date of the original transfers.

Section 2601 imposes a tax on every generation-skipping transfer. A generation-skipping transfer 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

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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 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

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(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, Taxpayer is granted an extension of time of sixty (60) days from the date of this letter to make allocations of Taxpayer’s available GST exemption with respect to Taxpayer’s Date 2 transfers to Trust 1 and Trust 2. The allocations will be effective as of the date of the transfers to Trust 1 and Trust 2, and the gift tax value of the transfer will be used in determining the amount of GST exemption to be allocated to the trusts. Therefore, the GST exemption allocations will be based on the value of the transfers to Trust 1 and Trust 2 as of Date 2.

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

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.

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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 taxpayer 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