PLR 200526017: Estate gets 60 days to make late QTIP election

Plain-English summary

A surviving spouse's attorney omitted a qualified terminable interest property election from an estate tax return because the attorney believed the estate had too few assets to fund the spousal trust. Two assets were discovered after filing, making the trust funding possible. The estate asked to make the election on a supplemental return. The IRS found the standards for relief under the extension regulations satisfied and granted 60 days from the ruling date to file the supplemental Form 706 with the QTIP election. It expressed no opinion on the estate's value or other tax consequences.

Ruling snapshot

• Question: May the estate make a QTIP election after discovering assets omitted from its filed estate tax return?
• Outcome: Approved; 60 days from the ruling date to make the election.
• Key authorities: IRC § 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7(b)(4), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200526017
[Third Party Communication:
Release Date: 7/1/2005
Date of Communication: Month DD, YYYY]
Index Number: 2513.00-00, 2642.00-00,
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-166079-04
In Re:
Date:
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March 30, 2005

Legend:

Decedent = --------------------
Spouse = --------------------
Trust = ----------------------------------------------------------------------------
-------
Date 1 = --------------------------
Date 2 = -------------------

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

This letter responds to your request, dated December 21, 2004, for an extension of time under § 301.9100-1 of the Procedure and Administrative Regulations to make a qualified terminable interest property (QTIP) election under § 2056(b)(7) of the Internal Revenue Code.

The facts submitted and the representations made are as follows. On Date 1, Decedent created a revocable trust (Trust) which provided, upon Decedent’s death, for a spousal trust that meets the requirements for a QTIP election.

Decedent died on Date 2 survived by Spouse. Spouse retained an attorney to prepare the Form 706, United States Estate (and Generation-Skipping Transfer) Tax return for the estate. Spouse’s attorney consulted with Decedent’s financial and investment advisor while preparing the Form 706. A QTIP election was not made for the spousal trust because Spouse’s attorney believed the estate was not large enough to fund the spousal trust. After the estate tax return was filed, two additional assets were discovered. Pursuant to the terms of Decedent’s Trust, there are now sufficient assets to fund the spousal trust.

The estate intends to file a supplemental estate tax return reporting the two omitted assets. The return will reflect assets that exceed $ 1,000,000 being allocated to the spousal trust and will make the QTIP election for the spousal trust.

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The estate is requesting an extension of time under §§ 301.9100-1 and 301.9100-3 to make the QTIP election for the spousal trust.

Law and Analysis:

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.

Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of the taxable estate is to be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property that passes or has passed from the decedent to the surviving spouse. Section 2056(b)(1) provides the general rule that no deduction shall be allowed for an interest passing to the surviving spouse if, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, the interest will terminate or fail.

Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest property, such property shall be treated as passing to the surviving spouse, and for purposes of
§ 2056(a), no part of the property shall be treated as passing to any person other than the surviving spouse.

Section 2056(b)(7)(B)(i) defines "qualified terminable interest property" as property: (1) which passes from the decedent; (2) in which the surviving spouse has a qualifying income interest for life; and (3) to which an election under § 2056(b)(7) applies.

Section 2056(b)(7)(B)(ii) provides that the surviving spouse has a qualifying income interest for life if: (1) the surviving spouse is entitled to all the income from the property; payable annually or at more frequent intervals, or has a usufruct interest for life in the property; and (2) no person has a power to appoint any part of the property to any person other than the surviving spouse.

Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with respect to any property is to be made by the executor on the return of tax imposed by § 2001. The election, once made, is irrevocable.

Section 20.2056(b)-7(b)(4) of the Estate Tax Regulations provides, generally, that the QTIP election is made on the last filed estate tax return on or before the due date of the return, including extensions or, if a timely return is not filed, the first estate tax return filed after the due date.

Under 301.9100-1(c) of the Procedure and Administration Regulations, the Commissioner may grant a reasonable extension of the time 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

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except subtitles E, G, H, and I, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer has acted reasonably and in good faith, and granting the relief will not prejudice the interests of the Government.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2.

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 granting relief will not prejudice the interests of the Government. Section 301.9100-3(a).

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.

In this case, the standards of §§ 301.9100-1 and 301.9100-3 have been satisfied. Consequently, we grant an extension of time of sixty (60) days from the date of this letter to make the QTIP election under § 2056(b)(7). The election should be made on a supplemental Form 706 filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to the return. A copy is enclosed for this purpose.

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. Specifically, no opinion is expressed or implied regarding the value of Decedent’s gross estate for federal transfer tax purposes.

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.

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

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.

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Sincerely,

Heather C. Maloy

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

Enclosures: Copy for § 6110 purposes
Copy of this letter

cc: