PLR 200953004: 60-day extension to allocate GST exemption to two trusts

Plain-English summary

An individual created two irrevocable trusts for a child and later descendants, but failed to allocate generation-skipping transfer tax exemption to transfers reported on timely gift tax returns. The individual still had sufficient exemption available, and no generation-skipping transfers had occurred from the trusts. The IRS concluded that the requirements for relief were satisfied and granted a 60-day extension to allocate the exemption to the specified transfers, effective as of the transfer dates. The ruling directed the taxpayer to make the allocations on amended Forms 709. It did not address other federal tax consequences.

Ruling snapshot

• Question: Could an individual receive more time to allocate GST exemption to reported transfers to two irrevocable trusts?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2611, 2631, 2632, 2641, and 2642; Treas. Reg. §§ 26.2632-1(b)(4)(i) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200953004
Third Party Communication: None
Release Date: 12/31/2009
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
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PLR-116910-09
Date:
September 18, 2009

Donor = ------------------------
Date 1 = --------------------------
Date 2 = ---------------------------
Trust 1 = ------------------------------------------------------------------ Trust 2 = -------------------------------------------------------------- Accountant = ---------------------------
Year 1 = -------
Year 2 = -------
Year 3 = -------

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

This responds to your submission dated March 23, 2009, and subsequent correspondence, requesting an extension of time pursuant to § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to allocate generation-skipping transfer (GST) exemption.

On Date 1 in Year 1, Donor established Trust 1, an irrevocable trust, for the benefit of Donor’s child and the child’s issue. Income and corpus are payable for their support, education, comfort, happiness or any other purpose, as the trustees determine in their sole discretion. Trust 1 terminates 21 years after the death of certain individuals living on Date 1, at which time trust corpus is to be distributed to the then living beneficiaries.

On Date 2 in Year 2, Donor established Trust 2, an irrevocable trust, for the benefit of Donor’s child and the child’s issue. Income and corpus are payable for their support, education, comfort, happiness or any other purpose, as the trustees determine in their sole discretion. Upon the child’s death, the trust is divided into equal shares, one for each of the grandchildren. Upon a grandchild’s death, the share is divided into equal shares, one for each of the great grandchildren. Trust 2 terminates 21 years after the death of certain individuals living on Date 2, at which time trust corpus is to be distributed to the then living beneficiaries.
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On a timely filed return prepared by Accountant for Year 2, Donor reported transfers to each of the trusts, but failed to allocate his GST exemption to the transfers. On a timely filed return prepared by Accountant for Year 3, Donor reported a transfer to Trust 2, but failed to allocate his GST exemption to the transfer. In the interim, there have been no generation skipping transfers from Trust 1 or Trust 2, and Donor has sufficient GST exemption available to allocate to the Year 2 and Year 3 transfers.

Section 2601 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 the applicable rate as the product of the maximum estate tax rate and the inclusion ratio with respect to the transfer.

Under § 2642(a)(1), the inclusion ratio with respect to any property transferred in a generation-skipping transfer is generally defined as the excess of 1 over the applicable fraction. The applicable fraction, as defined in § 2642(a)(2), is a fraction, the numerator of which is the amount of GST exemption under § 2631 allocated to the trust (or to property transferred in a direct skip), and the denominator of which is the value of the property transferred to the trust or involved in the direct skip.

Section 2631(a), as effective in the years at issue, 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)(4)(i) provides, in part, 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. The allocation must clearly identify the trust to which the allocation is being made and the amount of GST exemption allocated to it.

Section 2642(b)(1) provides, in relevant part, that if the allocation of the GST exemption to any transfers of property is made on a timely filed gift tax return or is deemed to be made under § 2632(b)(1) or (c)(1), the value of such property for purposes of determining the inclusion ratio shall be its value as finally determined for gift tax purposes and such allocation shall be effective on and after the date of such transfer.
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Section 2642(g)(1)(A) provides, generally, 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 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.

Section 301.9100-3(a) provides, in part, that requests for relief subject to § 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 the grant of relief will not prejudice the interests of the Government.

Section 301.9100-3(b)(1) provides, in part, except as provided in § 301.9100-3(b)(3)(i) through (iii), 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(c)(1) provides, in part, that the Commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the Government will not be prejudiced by the granting of relief.

Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, an extension of time of 60 days from the date of this letter is granted in which to allocate Donor’s GST exemption to the Year 2 and Year 3 transfers to Trust 1 and Trust 2. The allocations will be effective as of the date of the transfers to Trust 1 and Trust 2. The allocations should be made on amended Forms 709 and filed with the Internal Revenue Service
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Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to each Form

709. Two copies of this letter are enclosed for this purpose.

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.

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.

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

Sincerely,

______
CURT G. WILSON
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures
Copy for § 6110 purposes (1)
Copy of this letter (2)

cc: