PLR 200415002: Spouses receive time to allocate GST tax exemptions

Plain-English summary

A married couple transferred partnership and corporate interests to a trust for their children and filed gift tax returns. Their preparer inadvertently omitted the notices needed to allocate their generation-skipping transfer (GST) tax exemptions. The IRS found that the requirements for discretionary filing relief were met. It gave each spouse 60 days to file a supplemental Form 709 with a proper allocation notice. The allocations would take effect as of the original transfer date, using the gift tax value of the transferred property.

Ruling snapshot

• Question: May the spouses file late GST exemption allocation notices for their trust transfers?
• Outcome: Approved; each spouse received a 60-day extension.
• Key authorities: IRC § 2642(g); Treas. Reg. § 301.9100-3; Notice 2001-50.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200415002
Release Date: 4/9/04
Index Number: 2642.00-00, 9100.22-00

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Person To Contact:
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------------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B09 / PLR-151070-03
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Date:
December 18, 2003

Husband = -------------------------------------------------------------------------------------
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Wife = -------------------------------------------------------------------------------------
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Trust = -------------------------------------------------------------------------------------
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Date 1 = -------------------
Year 1 = -------
Child 1 = ----------------------------
Child 2 = ------------------------
Child 3 = --------------------------
Child 4 = -------------------------
Partnership = ------------------------------------
Corporation = -------------------------------
Tax Return = -------------------
Preparer

Dear Sir and Madam:

This is in response to your letter dated August 20, 2003, requesting an extension of time under § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to make an allocation of generation-skipping transfer (GST) tax exemption.

The facts and representations submitted are summarized as follows: Husband and Wife (collectively, “taxpayers”) created Trust on Date 1 in Year 1. Trust is an irrevocable trust for the primary benefit of their children. The initial beneficiaries of Trust are: Child 1, Child 2, Child 3, and Child 4. 2 PLR-151070-03

Potential beneficiaries include individuals who are two or more generations below the grantors’ generation, therefore, distributions from Trust may be subject to the GST tax.

Part Two, Paragraph A of the Trust agreement provides that until the termination of Trust, the trustee shall pay to and among or apply for the benefit of those living at the time of the payment of the group consisting of the taxpayers’ issue as much of the net income and principal of Trust as the trustee in the trustee’s sole and absolute discretion, deems appropriate for the best interests and welfare of the issue as a group.

On Date 1 in Year 1, the taxpayers transferred to Trust a --------% limited partnership interest in Partnership and ------- shares of the common stock of Corporation. Husband and Wife each reported the transfers on a timely filed Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Husband and Wife elected to split gifts for Year 1 under § 2513. Accordingly, the transfer to Trust is treated as if made one-half by each of them. Husband and Wife relied on Tax Return Preparer to prepare their gift tax returns and to allocate their GST exemption. Tax Return Preparer inadvertently failed to attach a Notice of Allocation to the gift tax returns filed by the taxpayers.

Husband and Wife have requested an extension of time to make allocations of their GST tax exemption with respect to the assets transferred to Trust in Year 1.

Section 2513(a)(1) provides that a gift made by one spouse to any person other than the other spouse shall, for the purposes of this chapter, 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 (under the regulations provided for in subsection (b)) their consent to the application of paragraph (1) in the case of all such gifts made during the calendar year by either while married to the other.

Section 25.2513-2(a)(1)(ii) of the Gift Tax Regulations provides that consent to the application of the provisions of § 2513 with respect to a “calendar period” shall, in order to be effective, be signified by both spouses. If both spouses file gift tax returns within the time for signifying consent, it is sufficient if the consent of each spouse is signified on his own return.

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. 3 PLR-151070-03

Section 2631(a) provides that, for purposes of determining the inclusion ratio, every individual shall be allowed a GST tax 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 2632(a)(1) provides that any allocation by an individual of his or her GST tax 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 tax 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, 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 tax 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.

Notice 2001-50, 2001-34 I.R.B. 189, provides that under § 2642(g)(1)(B), the time for allocating the GST tax 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. 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. 4 PLR-151070-03

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 six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except in subtitles E, G, H, and I.

Section 301.9100-3(a) provides that, in general, requests for extensions of time for regulatory elections that do not meet the requirements of § 301.9100-2 must be made under the rules of § 301.9100-3.

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 election 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 to 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, Husband and Wife are each granted an extension of time of 60 days from the date of this letter to file supplemental Forms 709 for Year 1 transfers to Trust. Each Form 709 should include a Notice of Allocation properly allocating the taxpayer’s GST exemption to the Year transfers. The allocation will be effective as of the date of the transfer, and the gift tax value of the transfer to Trust will be used in determining the amount of GST tax exemption to be allocated to Trust. The inclusion ratio for Trust will be determined under §§ 2642(a) and 2642(b). A copy of this letter should be attached to the supplemental Forms 709 and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999.

Except as expressly provided herein, no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. We are specifically not ruling on the gift tax value of the transfers to Trust. 5 PLR-151070-03

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.

Pursuant to the Power of Attorney on file with this office, this letter is being sent to the taxpayers’ 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

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

Enclosures
Copy of this Letter
Copy for § 6110 Purposes

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