PLR 200519043: Spouses get 60 days to allocate GST exemptions to trust gifts

Plain-English summary

Two spouses gave property to trusts for their children and consented to split the gifts on their gift tax returns. Their attorney failed to allocate, or advise them to allocate, their generation skipping transfer tax exemptions to gifts made to two of the trusts. The IRS found they met the rules for discretionary filing relief because of the missed professional advice. It gave them 60 days from the ruling to allocate their available exemptions on supplemental Forms 709. The allocations would take effect on the original transfer date and use the property's value on that date.

Ruling snapshot

• Question: Could the spouses make late GST exemption allocations to their trust gifts?
• Outcome: Yes, by filing supplemental Forms 709 within 60 days.
• Key authorities: IRC §§ 2513, 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: 200519043
[Third Party Communication:
Release Date: 5/13/2005
Date of Communication: Month DD, YYYY]
Index Number: 2642.00-00, 2513.00-00,
9100.00-00
Person To Contact:
--------------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
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CC:PSI:B09
PLR-165351-04
In Re:
Date:
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February 04, 2005

Legend:

Taxpayer 1 = -------------------------------------------------------
Taxpayer 2 = ------------------------------------------------------
Trust = -----------------------------------
Date 1 = ------------------
Date 2 = ---------------------------
Year 1 = -------
Z = ---------------

Dear -----------------------------:

This is in response to your letter dated December 8, 2004, and subsequent correspondence, in which you requested an extension of time pursuant to § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to allocate generation-skipping transfer (GST) tax exemption to transfers made to a trust.

The facts submitted and the representations made are as follows. On Date 1 Taxpayers 1 and 2 created Trust for the benefit of their issue.

Section 3.01 of Trust provides that the trustees are to form four trusts, Trusts A, B, C, and D, one for the benefit of each child of Taxpayers 1 and 2. Section 3.02 provides that the child for whom a trust has been established is to receive the net income from his or her trust at least quarterly, and trust corpus to provide for his or her support and education.

Section 3.03 provides each child with a testamentary limited power to appoint the assets of his or her trust among his or her spouse, descendants, and the descendants of Taxpayers 1 and 2. Assets not effectively appointed are to be distributed, per stirpes, among the surviving descendants of each beneficiary and the beneficiary’s surviving
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spouse. If a beneficiary is not survived by a spouse or descendants, then the trust estate is to be paid to the other children of Taxpayers 1 and 2 for whom Trusts A, B, C, and D were created and their surviving descendants, per stirpes.

On Date 2, in Year 1, Taxpayers 1 and 2 each transferred $ Z to Trusts C and D. Taxpayers 1 and 2 retained an attorney to prepare their Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns, reporting the Date 2 transfers to the trusts. On their respective Forms 709, Taxpayers 1 and 2 each consented under
§ 2513 to treat gifts made by either in Year 1 as made by both of them. In preparing the returns, the attorney inadvertently failed to allocate or advise Taxpayers 1 and 2 to allocate their GST exemptions to the Date 2 gifts. It has been represented that Taxpayers 1 and 2 each have sufficient GST exemption available to allocate to the transfers they made on Date 2.

Taxpayers 1 and 2 are requesting an extension of time under §§ 2642(g) and 301.9100-3 to allocate their GST exemptions to the transfers Taxpayers 1 and 2 made to Trusts C and D on Date 2, and that such allocations will be based on the value of the property transferred to Trusts C and D on Date 2.

Law and Analysis:

Section 2501(a)(1) provides that a tax, computed as provided in § 2502, is imposed for each calendar year on the transfer of property by gift during such calendar year by any individual, resident, or nonresident.

Section 2511(a) provides that the tax imposed by § 2501 shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.

Section 2513(a)(1) provides, in part, that a gift made by one spouse to any person other than his 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 § 2513(a)(1) shall apply only if both spouses have signified (under the regulations provided for in § 2513(b)) their consent to the application of § 2513(a)(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) of the Gift Tax Regulations provides, in part, that consent to the application of the provisions of § 2513 with respect to a "calendar period" (as defined in
§ 25.2502-1(c)(1)) 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--(i) the consent of the husband is signified on the wife's return, and the consent of the wife is signified on the husband's return; (ii) the consent of each spouse is signified on his own
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return; or (iii) the consent of both spouses is signified on one of the returns. If only one spouse files a gift tax return within the time provided for signifying consent, the consent of both spouses shall be signified on that return.

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 2602 provides that the amount of the tax is the taxable amount multiplied by the applicable rate. Section 2641(a) defines “applicable rate” as the product of the maximum federal estate tax rate and the inclusion ratio with respect to the transfer. Section 2642(a) provides the method for determining the inclusion ratio.

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) 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.

As applicable during the years at issue, § 2642(b)(1) provided 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) B (A) 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 (B) 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 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). Such regulations shall include procedures for requesting comparable relief with respect to transfers made
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before the date of the enactment of § 2642(g)(1)(A), which was enacted into law on June 7, 2001.

Section 2642(g)(1)(B) provides that in determining whether to grant relief, 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. Section 2642(g)(1)(B) further provides that for purposes of determining whether to grant relief, the time for making the allocation shall be treated as if not expressly prescribed by statute.

Section 2652(a)(2) provides that if, under § 2513, one-half of a gift is treated as made by an individual and one-half of the gift is treated as made by the spouse of such individual, such gift shall be so treated for purposes of the GST tax.

Notice 2001-50, 2001-2 C.B. 189, provides that under § 2624(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. 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 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) 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.
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Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Therefore, Taxpayers 1 and 2 are granted an extension of time of sixty (60) days from the date of this letter to allocate their available GST exemptions to the transfers to Trusts C and D on Date 2. The allocations will be effective as of Date 2, and should be made based on the value of the property transferred to Trusts C and D on Date 2.

The allocations should be made on supplemental Forms 709 for Year 1 and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to each supplemental Form 709. Copies are enclosed for this purpose.

The rulings contained in this letter are based upon information and representations submitted by the taxpayers 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.

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.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

Sincerely,

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

Enclosures: Copy for ' 6110 purposes
Copies of this letter