PLR 200946002: A donor received more time to allocate a GST exemption to a trust

Plain-English summary

The IRS granted Donor an additional 60 days to allocate Donor's generation-skipping transfer tax exemption to an irrevocable trust. Donor and Spouse had transferred property to the trust, but no Form 709 was filed and neither initially allocated a GST exemption because of confusion between the parties. The ruling granted relief to Donor, with the allocation effective as of the transfer date and based on the value of the contributed assets. It directed Donor to make the allocation on Form 709 and forward a copy to the Cincinnati Service Center.

Ruling snapshot

• Question: May the donor receive an extension to allocate a GST exemption to the trust?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2611, 2631, 2642, and 2652; Treas. Reg. §§ 26.2632-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200946002
Release Date: 11/13/2009
Index Number: 9100.00-00, 2642.00-00

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Person To Contact:
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-------------------, ID No. -------------
------------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:B04 – PLR-101951-09
Date: JULY 07, 2009

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

Legend:
Donor = --------------------------------------------------- Spouse = ------------------------------------------------- Year = ------- Trust = -------------------------------------------------------------------------------------
$A = -----------
Law Firm = --------------------------------------
Accounting Firm = --------------------------

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

This responds to a letter dated December 29, 2008, submitted by your authorized representative, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to allocate Donor’s available GST exemptions to a trust.

Facts

Donor and Spouse established an irrevocable trust, Trust, in Year and each transferred $A to Trust. The beneficiaries of Trust include Donor and Spouse’s descendants. Donor and Spouse hired Law Firm and Accounting Firm to prepare all tax returns for Year. Because of some confusion between the parties no Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return was filed and no GST exemption was allocated by Donor or Spouse to Trust.
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To date, no taxable distributions, taxable terminations, or any other events have occurred with respect to Trust that would give rise to a GST tax liability on the part of Trust or any of its beneficiaries.

Law and Analysis

Section 2601 of the Internal Revenue Code imposes a tax on every generation- skipping transfer (GST) (within the meaning of subchapter B). 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 for generation-skipping transfers before January 1, 2004, 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 26.2632-1(b)(4) 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 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)).

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 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, 2001-20 C.B. 189.
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Section 2652(a)(2) and § 26.2652-1(a)(4) provide that, if, under § 2513, one-half of a gift is treated as made by an individual and one-half is treated as made by the spouse of the individual, then for purposes of the GST tax, each spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor spouse, regardless of the interest the electing spouse is actually deemed to have transferred under § 2513.

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.

Section 301-9100-2(b) provides that an automatic extension of 6 months from the due date of a return excluding extensions is granted to make regulatory or statutory elections whose due dates are the due date of the return or the due date of the return including extensions provided the taxpayer timely filed its return for the year the election should have been made and the taxpayer takes corrective action as defined in § 301.9100-2(c) within that 6-month extension period.

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 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 representations made, we conclude that the requirements of § 301.9100-3 are satisfied. Therefore, Donor is granted an extension of time of 60 days from the date of this letter to allocate his respective GST exemption to Trust with respect to the transfer to Trust in Year. The allocation will be effective as of the respective date of the transfer to Trust, and will be based on the value of the assets contributed to Trust in Year.

The allocations of Donor’s GST exemption should be made on the Form 709 and filed with the Internal Revenue Service Center in Cincinnati. A copy of this letter should be forwarded to the Internal Revenue Service, Cincinnati Service Center – Stop 82, Cincinnati, OH 45999, for association with the Form 709.
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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 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 who requested 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)

Enclosure
Copy for section 6110 purposes
Copy of this letter