PLR 200714001: Late GST exemption allocation allowed for family trust

Plain-English summary

A taxpayer and her husband funded an irrevocable trust for their daughter's descendants with community property. Her attorney did not advise her to file a gift tax return allocating her generation-skipping transfer exemption, and no allocation was made. The IRS granted her 60 days from the letter date to file Form 709 and allocate her available exemption. The allocation would take effect as of the original transfer date, using the property's value on that date.

Ruling snapshot

• Question: Could the taxpayer make a late allocation of GST exemption to the trust transfer?
• Outcome: Approved; 60 days to file Form 709 with an allocation effective on the transfer date.
• Key authorities: IRC §§ 2632, 2642(g)(1); Treas. Reg. § 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200714001
Release Date: 4/6/2007
Index Number: 2632.01-00; 9100.00-00

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Person To Contact:
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-------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B04
PLR-111415-05
Date: OCTOBER 30, 2006

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

LEGEND:
Taxpayer - -------------------------------------------------
Trust - ------------------------------------------------------------
----------------------------------------------------
Date 1 - -----------------------
$X - ---------
Attorney - --------------------------
State - --------

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

This is in response to a letter dated August 24, 2005, and prior correspondence, submitted by your authorized representative requesting an extension of time under § 301.9100 of the Procedure and Administration Regulations to make an allocation of generation-skipping transfer (GST) exemption.

Taxpayer, resides in State, a community property state. On Date 1, Taxpayer and husband established and funded an irrevocable trust, Trust, for the primary benefit of daughter’s descendants. Husband contributed community property of $X to Trust on Date 1. Husband filed a gift tax return, but no gift tax return was filed by the Taxpayer. Attorney assisted in the planning and preparation of the trust instrument and did not advise Taxpayer with regard to the necessity to file gift tax returns allocating her GST exemption to the transfer to Trust. Upon the death of Attorney, subsequent counsel advise Taxpayer that no GST exemption allocation was made.

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Section 2601 imposes a tax on every generation-skipping transfer. A “generation-skipping transfer” is defined under § 2611(a) as: (1) a taxable distribution; (2) a taxable termination; and (3) a direct skip.

Section 2631(a), as in effect at the time of the transfer, 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 2631(b) provides that any allocation under § 2631(a), once made, shall be irrevocable.

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 is made on Form 709.

Section 2642(b)(1) provides, in part, 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 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)), and such allocation shall be effective on and after the date of such transfer.

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). 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 § 2642(g)(1), 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, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute. See Notice 2001-50, 2001-2 C.B. 189.

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

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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.

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). 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.

Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Therefore, Taxpayer is granted an extension of time of 60 days from the date of this letter to make an allocation of her available GST exemption with respect to the transfer to Trust. The allocations will be effective as of the date of transfer and should be made based on the value of the property transferred to Trust as of the date of transfer. Taxpayer should file a Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return with the Internal Revenue Service, Cincinnati, Ohio 45999.

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.

Pursuant to a Power of Attorney on file, a copy of this letter is being sent to your authorized representative.

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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,

----------------------------------------------------------William P. O’Shea Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy for section 6110 purposes
Copy of this letter