PLR 200618018: Estate receives more time to elect QTIP treatment for a trust

Plain-English summary

An estate placed its residue in a trust that paid income to the surviving spouse, with the remainder going to charities. The executor reported the trust on the estate tax return but did not make a qualified terminable interest property (QTIP) election. After the IRS disallowed a charitable deduction claimed for the trust, the executor sought more time to elect QTIP treatment. The IRS found that the executor had acted reasonably and in good faith and that relief would not prejudice the government. It gave the executor 60 days from the ruling letter to make the election on a supplemental estate tax return. The letter granted filing relief but did not otherwise decide the trust's tax consequences.

Ruling snapshot

• Question: May the executor make a late QTIP election for the spouse's trust?
• Outcome: Approved: 60 days to file the election on a supplemental Form 706.
• Key authorities: IRC § 2056(b)(7); Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200618018
Third Party Communication: None
Release Date: 5/5/2006
Date of Communication: Not Applicable
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-157520-05
Date: JANUARY 12, 2006

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

Legend
Decedent = -------------------------------------------
Spouse = ----------------------
Trust = --------------------------------------------------------------------------------------------
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Date 1 = ------------------
Date 2 = -----------------------
Executor = ------------------------------
Charities = ---------------------------------------------------------------------------------------
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Dear ----------------:

This is in response to a letter from your authorized representative dated October 31, 2005, 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. ITEM FIVE of Decedent’s Will provides that the residue of Decedent’s estate is to be held in a trust, Trust, for the benefit of Spouse. Spouse is entitled to receive all net income from Trust payable quarterly. Spouse also has a non-cumulative right to withdraw, in any calendar year, a sum not exceeding the greater of ----------or 5% of the market value of Trust’s principal. In addition, the trustee has the discretion to invade principal of Trust to provide for Spouse’s support. On the death of Spouse, Trust terminates and the remainder of the principal and accrued income is to be distributed to Charities.

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On Date 2, the Executor 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. On Schedule O of Form 706, the Executor claimed a charitable deduction for Trust. On audit of Decedent’s return, the charitable deduction was disallowed.

You now request an extension of time to make the QTIP election with respect to 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 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.

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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.

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 Executor acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government. Therefore, Decedent’s Executor is granted an extension of time until sixty (60) days from the date of this letter to make a QTIP election with respect to Trust. 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.

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Sincerely,

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

Enclosures
Copy for section 6110 purposes
Copy of this letter

cc: