PLR 1021012: IRS granted more time to allocate generation-skipping transfer tax exemptions

Plain-English summary

The IRS granted a married couple an extension of time to allocate their generation-skipping transfer tax exemptions to transfers made to three trusts. Their attorneys and accountant reported the gifts on Forms 709 but failed to make the exemption allocations. The IRS found that the taxpayers reasonably relied on qualified tax professionals and satisfied the requirements for relief under Treas. Reg. § 301.9100-3. It allowed 60 days from the letter date to make the allocations, which would be effective as of the dates of the transfers.

Ruling snapshot

• Question: Could the taxpayers receive more time to allocate their generation-skipping transfer tax exemptions to prior trust transfers?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2611, 2631, 2632, 2642, and 6110(k)(3); 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: 201021012
Release Date: 5/28/2010
Index Number: 2601.00-00, 9100.00-00

-------------------------- Person To Contact:
------------------------------- ---------------------, ID No. -------------
----------------------------- Telephone Number:
-------------------------------------------- ---------------------
Refer Reply To:
CC:PSI:B04 – PLR-133428-09
----------------------------- Date: JANUARY 12, 2010

     Legend:

     Wife                                   = ---------------------------

     Husband                                = -----------------------

     Daughter 1                             = -------------------------

     Daughter 2                             = ----------------------

     Daughter 3                             = -----------------------

     Attorney 1                             = ------------------------------

     Law Firm 1                             = -----------------------------------------------------------------

     --------------------------------------------------------

     Attorney 2                             = ---------------------------------

     Law Firm 2                             = ---------------------------------

     Accountant                             = ------------------------------

     Accounting Firm                        = ----------------------------

     Trust 1                                = ------------------------------------------------------------------

     ------------------------------------------------

PLR-133428-09 2

     Trust 2                                = ------------------------------------------------------------------

     ------------------------------------------------

     Trust 3                                = ------------------------------------------------------------------

     ------------------------------------------------

    Year 1                                = -------

    Year 2                                = -------

    Year 3                                = -------

    Date 1                              = -----------------------------

    Date 2                              = -----------------------------

    x                                     = -----------

    y                                     = ---------

    z                                     = ---------

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

    This letter responds to a letter from your authorized representative dated July 14,

2009, and other 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 your GST exemptions to Year 1 and Year 2 transfers to Trusts
1, 2, and 3.

   The facts and representations submitted are summarized as follows: In Year 1,

Wife executed three substantially identical irrevocable trusts for the benefit of the
daughters of Husband and Wife (Taxpayers) and the daughters’ issue. Trust 1 was
created for the benefit of Daughter 1 and her issue; Trust 2 was created for the benefit
of Daughter 2 and her issue; and Trust 3 was created for the benefit of Daughter 3 and
her issue.

   On Date 1 in Year 1, Husband and Wife each transferred $x in cash to each of

Trusts 1, 2, and 3. Taxpayers engaged Attorney 1 of Law Firm 1 to prepare their Forms
709, United States Gift (and Generation-Skipping Transfer) Tax Returns, to report the
Year 1 gifts to Trusts 1, 2, and 3 and to allocate Taxpayers’ GST exemptions to those
PLR-133428-09 3

gifts. Attorney 1 reported the Year 1 gifts; however, Attorney failed to allocate
Taxpayers’ GST exemptions to the transfers to the trusts.

   On Date 2 in Year 2, Taxpayers each transferred $y in cash to each of Trusts 1

and 3; Taxpayers also each transferred $z in cash to Trust 2. Taxpayers engaged the
services of Accounting Firm to prepare their Year 2 Forms 709 to report the Year 2 gifts
to Trusts 1, 2, and 3 and to allocate Taxpayers’ GST exemptions to those gifts.
Accountant at Accounting Firm reported the Year 2 gifts; however, Accountant failed to
allocate Taxpayers’ GST exemptions to the transfers to the trusts.

   In Year 3, Taxpayers’ attorney, Attorney 2 at Law Firm 2, reviewed Taxpayers’

Year 1 and Year 2 Forms 709, and Attorney 2 immediately discovered the failures to
allocate Taxpayers’ GST exemptions to the transfers to the trusts.

    Section 2601 imposes a tax on every generation-skipping transfer (GST). A GST

is defined under § 2611(a) as (1) a taxable distribution, (2) a taxable termination, and
(3) a direct skip.

   Section 2631(a) provides that, for purposes of determining the GST tax, 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)(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, 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.

   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
include procedures for requesting comparable relief with respect to transfers made
PLR-133428-09 4

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. 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 § 2642(g)(1)(B), the time

for allocating the GST exemption to lifetime transfers is 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) 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 Internal Revenue
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)(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. Thus, Taxpayers are granted an
extension of time of 60 days from the date of this letter to allocate Taxpayers’ available
GST exemptions to their Date 1 transfers to Trusts 1, 2, and 3 and their Date 2 transfers
PLR-133428-09 5

to Trusts 1, 2, and 3, based on the gift tax values of those transfers as finally
determined for gift tax purposes. Each such allocation of Taxpayers’ GST exemptions
will be effective as of the date of the respective transfer to which the allocation is made.

  Each allocation should be made on a supplemental Form 709, United States Gift

(and Generation-Skipping Transfer) Tax Return for the year in which the transfers were
made and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A
copy of this letter should be attached to each supplemental Form 709. A copy is
enclosed for this purpose.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayers 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, no opinion is expressed or implied concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Further, we are not ruling on whether Trusts 1, 2, and 3 will
have a zero inclusion ratio as a result of the allocation of Taxpayers’ GST exemptions to
the Date 1 and Date 2 transfers to the trusts.

  This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

   In accordance with a 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 and Special Industries)

Enclosures
Copy for § 6110 purposes
Copy of this letter