PLR 200927015: Spouses receive extra time to allocate GST exemption to insurance-trust gifts

Plain-English summary

A married couple contributed to an irrevocable life insurance trust for their children and grandchildren and timely filed gift-tax returns electing to split the gifts. Their accountant inadvertently omitted allocations of generation-skipping transfer tax exemption, and attorneys discovered the mistake after one spouse died. The IRS granted 60 days to allocate available GST exemption to the covered transfers. The allocations would take effect on the original transfer dates using the values determined for gift-tax purposes. Supplemental Forms 709 had to be filed with copies of the ruling attached.

Ruling snapshot

• Question: Can the omitted GST exemption allocations be made using the original transfer dates and gift-tax values?
• Outcome: Approved: 60-day extension for supplemental allocations
• Key authorities: IRC § 2642(g)(1); Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200927015
Third Party Communication: None
Release Date: 7/2/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 2642.00-00, 9100.00-00
-------------------------, ID No. -------------
Telephone Number:
---------------------
---------------------
Refer Reply To:
---------------------------------
CC:PSI:B04
-------------------------------
PLR-141199-08
------------------------------
Date:
---------------------------------------
March 17, 2009

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

Legend

Donor = ----------------------------
Spouse = ---------------------------
Trust = -------------------------------------------------------------------------------------
---------------------------------------------------------------------------
Accountant = --------------------------
Attorneys = ----------------------
Date 1 = ---------------------------
Year 1 = -------

Dear -----------

This responds to a letter from your authorized representative dated September 18, 2008, requesting an extension of time under § 301.9100 of the Procedure and Administration Regulations to make an allocation of generation-skipping transfer (GST) exemption.

Facts

The facts and representations submitted are summarized as follows: On Date 1, Donor and Spouse created an irrevocable life insurance trust (Trust) for the benefit of their children and grandchildren. No contributions were made to Trust until Year 1. In Year 1 Donor and Spouse made contributions to Trust. Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns were timely filed reporting the Year 1 gifts

PLR-141199-08
2

and Donor and Spouse elected to split the gifts under § 2513(a). No GST exemption was allocated to the transfers to Trust.

Accountant prepared Donor and Spouse’s Forms 709. He stated in an affidavit that he inadvertently did not include an allocation of Donor and Spouse’s GST exemption to the transfers in Year 1. Spouse died on Date 2. The error was discovered by Attorneys after the death of Spouse.

Law and Analysis

Section 2601 of the Internal Revenue Service 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 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 2631(a), as in effect for the tax years at issue, provided 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 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, 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) 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 estate tax inclusion period, on and after the close of such estate tax inclusion period.

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) or (2), and an election under § 2632(b)(3) or (c)(5). Such regulations shall include procedures for requesting

PLR-141199-08
3

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 § 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 generation-skipping transfer 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.

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)(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 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, Donor and Spouse are granted an extension of time of 60 days from the date of this letter to make an allocation of their available GST exemption, with respect to their transfers to Trust in Year 1. The allocation will be effective as of the respective date of the transfers to Trust and the value of the transfers to Trust as determined for federal gift tax purposes will be used in determining the amount of Donor and Spouse’s exemption to be allocated to Trust.

PLR-141199-08
4

This allocation should be made on a supplemental Form 709 and filed with the Cincinnati Service Center at the following address: Internal Revenue Service, Cincinnati Service Center – Stop 82, Cincinnati, OH 45999. A copy of this letter should be attached to the supplemental Form 709.

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.

Sincerely,

Curt G. Wilson
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy for section 6110 purposes
Copy of this letter

cc: