PLR 200532028: Wife may allocate GST exemption to earlier trust transfers

Plain-English summary

A couple transferred community property to an irrevocable trust over ten years. Their accountant filed gift tax returns but failed to allocate each spouse's generation-skipping transfer tax exemption properly. The IRS ruled that the wife met the requirements for relief and gave her 60 days to allocate her available exemption to the earlier transfers. Each allocation would take effect on its transfer date, using that transfer's gift tax value. The ruling directs the allocations to be made on Forms 709 and addresses the wife's exemption specifically.

Ruling snapshot

• Question: May the wife allocate her GST exemption late to her share of prior trust transfers?
• Outcome: Approved; a 60-day extension was granted for the wife's allocations.
• Key authorities: IRC §§ 2631, 2632, 2642(g); Treas. Reg. § 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200532028
Release Date: 8/12/2005
Index Number: 2601.00-00, 9100.00-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B04 – PLR-156763-04
Date: APRIL 15, 2005
In Re:
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Legend:

Date 1 = ---------------------
Husband = ------------------------------ Wife = --------------------------------
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Trust = ----------------------------------------------------------- Attorney = -------------------
Law Firm = --------------------------------------------------------------- Accountant = -------------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
Year 5 = -------
Year 6 = -------
Year 7 = -------
Year 8 = -------
Year 9 = -------
Year 10 = -------

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

This is in response to your letter dated October 19, 2004, and subsequent submissions, requesting an extension of time under § 301.9100-3 of the Procedure and
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Administration Regulations to allocate Wife’s generation-skipping transfer (GST) exemption to transfers to Trust.

The facts and representations submitted are summarized as follows: Husband and Wife live in a community property state.

In Year 1, Husband and Wife engaged Attorney from Law Firm to prepare their estate planning documents. On Date 1 on the advice of Attorney, Husband established an irrevocable trust (Trust) for the benefit of Wife and his lineal descendants. Attorney advised Husband and Wife to allocate their GST exemptions to Trust. Husband and Wife transferred community property to Trust in Years 1 through 10.

Husband and Wife’s long time Accountant, a certified public accountant, prepared and filed Forms 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) for transfers made to Trust in Years 1 through 10. Accountant failed to properly allocate Husband’s and Wife’s GST exemptions to the portions of the transfers attributable to each spouse, respectively.

Husband and Wife have requested an extension of time under § 2642(g) and §§ 301.9100-1 and 301.9100-3 to allocate their GST exemptions to the transfers made to Trust in Years 1 through 10.

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)) 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) of the Generation-Skipping Transfer Tax Regulations 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.

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) or (2), and an election
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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 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.
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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. Accordingly, Wife is granted an extension of time of 60 days from the date of this letter to allocate Wife’s available GST exemption to the Year 1 through 10 transfers to the Trust. The allocations will be effective as of the date of each transfer to Trust, and the gift tax value of each transfer to Trust will be used in determining the amount of GST exemption to be allocated.

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.

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. The allocations of GST exemption should be made on Forms 709 and filed with the Cincinnati Service Center -- Stop 82, Internal Revenue Service, Cincinnati, OH 45999. A copy of this letter should be attached to the Forms 709. A copy is enclosed for this purpose.

Sincerely,

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

Enclosures
Copy for section 6110 purposes
Copy of this letter

cc: