PLR 200548003: Couple's estate and surviving spouse may allocate GST exemption late

Plain-English summary

A married couple gave assets to three trusts for their children and descendants. Their accountant omitted some transfers from the original gift tax returns and then failed to allocate either spouse's generation-skipping transfer tax exemption when filing amended returns. The IRS granted the deceased spouse's estate and the surviving spouse 60 days to file amended or supplemental gift tax returns allocating their respective exemptions to the trusts. The allocations would take effect on the original transfer dates, with each trust's inclusion ratio determined from the gift tax value and exemption allocated. The ruling addresses the missed allocation deadline and rests on the facts submitted by the taxpayers.

Ruling snapshot

• Question: Could the estate and surviving spouse make late GST exemption allocations to three trusts?
• Outcome: Approved: each had 60 days to file the allocation notices on amended or supplemental Forms 709.
• Key authorities: IRC §§ 2631, 2632, 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: 200548003
Third Party Communication: None
Release Date: 12/2/2005
Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:04
PLR-114177-05
Date: AUGUST 24, 2005

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Legend

Taxpayer = ---------------------------------------------------------------------------------
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Spouse = ------------------------------------------------

Trust 1 = ------------------------------------------------
Trust 2 = -------------------------------------------------
Trust 3 = --------------------------------------------------

Year = -------
Date 1 = --------------------

Date 2 = --------------------------
Date 3 = -----------------------

X = ------------

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

This letter is in response to a letter dated March 8, 2005 from your authorized representative requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations and § 2642(g) of the Internal Revenue Code to make an
PLR-114177-05
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allocation of Taxpayer’s and Spouse’s generation-skipping transfer (GST) tax exemption.

The facts and representations submitted are summarized as follows:

On Date 1, Taxpayer and Spouse, as settlers, established irrevocable trusts, Trusts 1-3, for the benefit of their children and descendants of their children. During Year, Taxpayer and Spouse transferred cash and stock to each of the three trusts. Taxpayer and Spouse timely filed United States Gift (and Generation-Skipping Transfer) Tax Returns, Forms 709, to report the transfers for Year and consented to split the gifts pursuant to § 2513. The certified public accountant, who prepared the returns and on whose expertise Taxpayer and Spouse relied, mistakenly omitted the transfers of $X to each of Trusts 1-3 on the returns. On Date 2, Taxpayer died. On Date 3, Taxpayer’s estate and Spouse each filed amended Forms 709 to reflect the omitted gifts for Year, however, the accountant mistakenly failed to allocate any GST exemption to these gifts. Following Taxpayer’s death, Spouse, as personal representative of Taxpayer’s estate, engaged a law firm and a new accounting firm to assist with the administration of Taxpayer’s estate. The accounting firm discovered that the gift tax returns filed by the former accountant failed to allocate any of Taxpayer’s or Spouse’s available GST tax exemptions to the transfers on the returns.

Section 2601 imposes a tax on every generation-skipping transfer. A generation- skipping transfer is defined under section 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 GST tax, 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 2632(a)(1) 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 2642(b)(1) provides 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) 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 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
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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 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, 2001-2 C.B. 189, provides that under section 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 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 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.
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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, Taxpayer’s estate and Spouse are each granted an extension of time of 60 days from the date of this letter to make allocations of their respective GST exemptions to Trusts 1-3 for Year. An amended or supplemental Form 709 should be filed for each taxpayer for Year. Each Form 709 should include a Notice of Allocation properly allocating the taxpayer's GST exemption to the transfers to each trust. The allocations will be effective as of the respective dates of the transfers to Trust, and the inclusion ratio of Trust will be determined based on the value of the transfers to Trust as determined for federal gift tax purposes and the amount of exemption allocated to Trust. A copy of this letter should be attached to each amended or supplemental Form 709 and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. Copies are included for this purpose.

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.

The ruling contained in this letter is 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 ruling, 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 taxpayer's representative.

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.

Sincerely,

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

Enclosures
Copy for section 6110 purposes
Copy of this letter

cc: