PLR 200716002: Spouses may allocate remaining GST exemptions to later trust gifts

Plain-English summary

A husband and wife each created a trust with potential generation-skipping transfer (GST) tax consequences. They allocated GST exemptions to initial gifts but did not allocate exemptions to later gifts, though those gifts were reported on their gift tax returns. The IRS concluded that they qualified for late allocation relief under Treasury Regulation § 301.9100-3. Each spouse received 60 days from the ruling date to allocate remaining exemption to the later gift to that spouse's trust on a supplemental Form 709. The allocations would be effective on the dates of the later gifts.

Ruling snapshot

• Question: May each spouse allocate remaining GST exemption to a later gift to that spouse's trust?
• Outcome: Approved; 60 days to file supplemental gift tax returns.
• Key authorities: IRC §§ 2631, 2642(g); Treas. Reg. § 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200716002
Third Party Communication: None
Release Date: 4/20/2007
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:
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CC:PSI:B09
PLR-101621-06
Date:
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January 03, 2007

LEGEND

Date 1 = --------------------------
Husband = -----------------------------
--------------------------
Trust 1 = ------------------------------------------------------
Wife = ------------------------------
--------------------------
Trust 2 = -------------------------------------------------------
Year 1 = -------
Accounting Firm = ----------------------------------
$a = -------------
Date 2 = -------------------
$b = -------------
Year 2 = -------

Dear ----------------. ----------------:

This is in response to your authorized representative’s letter dated December 13, 2005, and subsequent correspondence, in which you requested an extension of time pursuant to § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to make allocations of your generation-skipping transfer (GST) tax exemptions.

The facts and representations submitted are as follows: On Date 1, Husband established Trust 1, an irrevocable trust with GST potential. On the same day, Wife established Trust 2, an irrevocable trust with GST potential.

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In Year 1, Husband funded Trust 1 and Wife funded Trust 2. Husband and Wife reported the transfers to Trust 1 and Trust 2 on their Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns for Year 1. On the returns, which were prepared by Accounting Firm, Husband allocated $a of his GST exemption to Trust 1 and Wife allocated $a of her GST exemption to Trust 2.

On Date 2, Husband made a gift of $b to Trust 1 and Wife made a gift of $b to Trust 2. Accounting Firm prepared Forms 709 for Husband and Wife for Year 2, the year of the Date 2 gifts. Although the Date 2 transactions were reported on the Year 2 gift tax returns, no GST allocations were made on the returns.

Husband and Wife now request that the Service grant an extension of time under § 301.9100-3 to make allocations of their respective GST exemptions to the Date 2 transfers to Trust 1 and Trust 2.

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

Section 2602 provides that the amount of the tax is the taxable amount multiplied by the applicable rate.

Section 2641(a) defines "applicable rate" as the product of the maximum federal estate tax rate and the inclusion ratio with respect to the transfer. Section 2642(a) provides the method for determining the inclusion ratio.

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)(i) 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(b)(1)(A) 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

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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)).

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 § 2642(g)(1)(A), which was enacted into law on June 7, 2001.

Section 2642(g)(1)(B) provides that in determining whether to grant relief, 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. Section 2642(g)(1)(B) further provides that for purposes of determining whether to grant relief, the time for making the allocation shall be treated as if not expressly prescribed by statute.

Notice 2001-50, 2001-2 C.B. 189, provides that under § 2624(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 6 months except in the case of a taxpayer who is abroad), under all subtitles of the 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) 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 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. As previously noted, Husband and Wife previously allocated $a of their respective GST exemptions to the Year 1 transfers to Trust 1 and Trust 2. Therefore, Husband is granted an extension of time of sixty (60) days from the date of this letter to allocate his remaining GST exemption to the Date 2 gift to Trust 1 and Wife is granted an extension of time of sixty (60) days from the date of this letter to allocate her remaining GST exemption to the Date 2 gift to Trust 2. The allocations will be effective as of Date 2. The allocations should be made on supplemental Forms 709 for Year 2 and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to each return.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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.

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.

Sincerely,

William P. O'Shea
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures
Copy of Letter
Copy for 6110 purposes