PLR 200949021: Grantor granted more time to allocate GST exemption to a trust

Plain-English summary

The IRS granted a grantor a 60-day extension to allocate available generation-skipping transfer tax exemption to a trust. The grantor had hired an accountant to prepare a gift tax return, but the accountant failed to make the allocation. An attorney later discovered the error while reviewing the grantor's estate plan. The IRS concluded that the requirements for relief under § 301.9100-3 were satisfied and made the allocation effective as of the transfer date, using the transfer's federal gift tax value.

Ruling snapshot

• Question: May the grantor receive more time to allocate GST exemption to the trust?
• Outcome: Approved
• Key authorities: IRC §§ 2631, 2632, 2642, and 301.9100-3; Treas. Reg. § 26.2632-1(b)(2)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200949021
Third Party Communication: None
Release Date: 12/4/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 2642.00-00, 9100.00-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B04
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PLR-123247-09
Date:
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August 13, 2009
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Legend

Grantor = -------------------------------------------------
Accountant = ------------------------------
Accounting Firm = -----------------------------------------------
Trust = -----------------------------------------------------------
Attorney = ----------------------
Law Firm = -------------------------------
LP = --------------------------
Year 1 = -------
Date 1 = ------------------
Date 2 = ----------------------
a = ---------
b = -----------

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

This responds to your letter dated April 30, 2009, requesting an extension of time under § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to make an allocation of Grantor’s generation-skipping transfer (GST) exemption to Trust.

The facts and representations submitted are summarized as follows:

On Date 1, Grantor established Trust for the benefit of his wife and descendants.
On Date 2, Grantor funded Trust with an a% interest in LP, a limited partnership, valued at $b.
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Grantor hired Accountant of Accounting Firm to prepare Grantor’s Form 709, United States Gift (and Generation-Skipping Transfer) Tax return, for Year 1. The Form 709 was timely filed. However, Accountant failed to allocate Grantor’s GST exemption to Trust. In the course of reviewing Grantor’s estate plan, Attorney of Law Firm discovered the error.

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.

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.
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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. See Notice 2001-50, 2001-2 C.B. 189.

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.

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.

Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Therefore, Grantor is granted an extension of time of 60 days from the date of this letter to make an allocation of his available GST exemption, with respect to the transfer to Trust in Year 1. The allocation will be effective as of the respective date of the transfer to Trust and the value of the transfer to Trust as determined for federal gift tax purposes will be used in determining the amount of Grantor’s exemption to be allocated to Trust.

This allocation should be made on a supplemental Form 709 for Year 1. The Form 709 should be 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. A copy is enclosed for this purpose.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives.
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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.

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.

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 & Special Industries

Enclosures
Copy for § 6110 purposes
Copy of this letter

cc: