PLR 200736011: Estate gets more time to allocate GST exemption to trust gift

Plain-English summary

A donor gave securities to an irrevocable trust for his nephews and their descendants. His tax professional prepared a gift tax return allocating generation-skipping transfer (GST) exemption to the gift, but the donor underwent quadruple bypass surgery and did not sign or file the return before he died. His executor found the prepared return and asked for more time to make the allocation. The IRS concluded that the requirements for discretionary relief were met and gave the estate 60 days from the letter date to allocate the available GST exemption. It directed the estate to make the allocation on Form 709 for the year of the gift and attach the ruling.

Ruling snapshot

• Question: May the estate make a late GST exemption allocation to the lifetime trust gift?
• Outcome: Approved; 60 days from the letter date to make the allocation.
• Key authorities: IRC § 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: 200736011
Third Party Communication: None
Release Date: 9/7/2007
Date of Communication: Not Applicable

Person To Contact:
Index Number: 2632.00-00, 9100.00-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B04
PLR-115983-07
In Re: Date:
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May 15, 2007

Legend:

Decedent = ----------------------
Trust = ---------------------------------------------
Date 1 = ------------------
Date 2 = -------------------
Date 3 = --------------------------
X = ---------------

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

This is in response to a letter dated March 30, 2007, submitted by your personal representative, requesting rulings under ' 2642(g) of the Internal Revenue Code and '' 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations.

The facts submitted and the representations made are as follows. On Date 1, Decedent established an irrevocable trust (Trust) for the benefit of his nephews and their descendants. Trust has GST potential. On Date 2, Decedent funded Trust with marketable securities Decedent valued at $X.

Decedent retained a qualified tax professional to prepare his Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, reporting the Date 2 gift. The tax professional prepared the Form 709 and mailed it to Decedent with instructions to sign and file the return with the Internal Revenue Service. On the Form 709, the tax professional had allocated Decedent’s GST exemption to the Date 2 gift. At approximately the same time Decedent underwent quadruple bypass surgery. As a result, Decedent failed to sign and file the return with the Service. Decedent died on Date 3. Decedent’s executor discovered the return and accompanying instructions from the tax professional in Decedent’s home after his death. It has been represented that all of Decedent’s GST exemption is available to allocate.
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Decedent’s estate is requesting an extension of time pursuant to '' 2642(g), 301.9100- 1, and 301.9100-3, to allocate Decedent’s available GST exemption to the Date 2 transfer to Trust, and that the GST exemption allocated to the transfer will be effective as of the date of the transfer.

Law and Analysis:

Section 2601 imposes a tax on every GST. A GST 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) (in effect at the time of the transfers) provides that for purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption of
$1,000,000 that 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) 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) 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) B (A) 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 ETIP, its value at the time of the close of the ETIP, and (B) 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 ETIP, on and after the close of such ETIP.

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
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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.

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 made 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. Therefore, Decedent’s estate is
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granted an extension of time of sixty (60) days from the date of this letter to allocate Decedent’s available GST exemption to the transfer made to Trust on Date 2. The allocation should be made on a Form 709 for the year in which the Date 2 gift was made and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to the 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

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

Enclosures: Copy for ' 6110 purposes

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