PLR 200535008: Estate gets time for QTIP election after spouse's court order

Plain-English summary

An estate filed its estate tax return without a qualified terminable interest property (QTIP) election. After that filing, a court approved the surviving spouse's election under state law to receive a life estate in the decedent's real property. The executors asked for more time to make a QTIP election for that interest. The IRS found that the intervening event supported good faith relief and that an extension would not prejudice the government. It gave the executors 60 days to file a supplemental Form 706 making the election, with a copy of the ruling attached.

Ruling snapshot

• Question: Could the executors make a late QTIP election for the spouse's court-approved life estate?
• Outcome: Approved: 60 days to file a supplemental estate tax return.
• Key authorities: IRC § 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7(b)(4)(i), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200535008
[Third Party Communication:
Release Date: 9/2/2005
Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 2056.07-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B04
PLR-136163-04
Date:
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May 12, 2005

Re: ------------------------------

Legend
Decedent = ------------------------------------
Spouse = ------------------
Trust = ---------------------------------
Date 1 = -------------------
Date 2 = ------------------
Date 3 = ---------------------------
State = ------------------
Court = ---------------------------------------------------------------------------------------------------------
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Dear --------------:

This is in response to a letter from your authorized representative dated September 9, 2004, and prior correspondence, requesting an extension of time under § 301.9100-1 and § 301.9100-3 of the Procedure and Administration Regulations to make a qualified terminable interest property (“QTIP”) election under § 2056(b)(7).

The facts and representations submitted are summarized as follows: Decedent died testate on Date 1 survived by Spouse. On Date 2, the Executors filed Decedent’s Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. On Schedule M, all of Decedent’s property passing to Spouse was reported. No QTIP election was made or deemed to be made with respect to any property listed on Schedule M because the property either passed outright to Spouse or was in a trust that did not qualify for QTIP treatment.

PLR-136163-04
2

After Decedent’s Form 706 was filed, Spouse petitioned Court to elect her statutory right under State law to a life estate in real property owned by Decedent. On Date 3, Court issued an order approving Spouse’s election. You now request an extension of time to make the QTIP election with respect to this property.

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 shall, except as limited by § 2056(b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to the surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.

Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest property, for purposes of § 2056(a), such property shall be treated as passing to the surviving spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse.

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

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

Section 20.2056(b)-7(b)(4)(i) of the Estate Tax Regulations provides that, in general, the election referred to in § 2056(b)(7)(B)(i)(III) and (v) is made on the return of tax imposed by § 2001 (or § 2101). For purposes of this paragraph, the term “return of tax imposed by § 2001” means the last estate tax return filed by the executor 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 by the executor after the due date.

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.

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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)(ii) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer failed to make the election because of intervening events beyond the taxpayer’s control.

Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied because Decedent’s Executors acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government. Therefore, Decedent’s Executors are granted an extension of time until sixty (60) days from the date of this letter to make a QTIP election with respect to Spouse’s statutory life estate in the real property owned by the Decedent. The election should be made on a Supplemental Form 706 filed with the Internal Revenue Service Center, Cincinnati, OH 45999. A copy of this letter should be attached to the form.

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 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.

Sincerely,

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

Enclosures
Copy for section 6110 purposes
Copy of this letter