PLR 1022002: Estate receives more time to elect a family-owned business deduction

Plain-English summary

The IRS granted an estate an additional 60 days to make an election under former § 2057 for a deduction for qualified family-owned business interests. The decedent had operated residential apartment buildings, but the attorney who prepared the estate tax return was unaware of the election and did not make it. The IRS found that the estate acted reasonably and in good faith because it relied on a qualified tax professional who failed to make or advise about the election. The ruling granted more time to file the election on a supplemental Form 706, but expressed no opinion on whether the estate ultimately qualified for the deduction or whether a refund claim would be timely.

Ruling snapshot

• Question: May the estate receive an extension of time to elect the former § 2057 deduction for qualified family-owned business interests?
• Outcome: Approved
• Key authorities: IRC §§ 2001, 2032A, and 2057; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201022002 Third Party Communication: None
Release Date: 6/4/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 2057.00-00, 9100.00-00 ---------------------------, ID No. ----------------
-----------------
Telephone Number:
----------------- ---------------------
------------ Refer Reply To:
--------------------------- CC:PSI:B04
---------------------------- PLR-133434-09
Date:
January 07, 2010

Decedent = --------------
Date 1 = --------------------------
Daughter = -----------------
Son = ----------------
Attorney = --------------------

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

This letter responds to your authorized representative's letter, dated June 29, 2009, and
subsequent correspondence, submitted on behalf of Decedent's estate, requesting an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
to make an election under § 2057(b)(1)(B) of the Internal Revenue Code.

Decedent died testate on Date 1, survived by Daughter and Son. Included in
Decedent's gross estate are interests in residential multi-unit apartment buildings that
Decedent had operated prior to Decedent’s death. The executrix of Decedent's estate
retained Decedent’s personal attorney to prepare the federal estate tax return. Attorney
was unaware of the provisions of § 2057, relating to an election to deduct certain
qualified family-owned business interests. Accordingly, no election was made.

Decedent's estate tax return was examined, and additional estate tax was paid. At the
close of the examination, the executrix retained additional counsel to assist in the
completion of the administration of the estate. It was at that time that the failure to
make the election was first discovered. The executrix now requests an extension of
time to make the election.

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent
who is a citizen or resident of the United States.

Section 2057(a)(1) provides that for purposes of the tax imposed by § 2001, the value of
the taxable estate shall be determined by deducting from the value of the gross estate
the adjusted value of the qualified family-owned business interests of the decedent.
Section 2057(a)(2) provides that the deduction shall not exceed $675,000.

Section 2057(b)(1) provides, generally, that § 2057 shall apply to an estate if (A) the
decedent was a citizen or resident of the United States, (B) the executor elects the
application of this section and files the agreement referred to in § 2057(h), (C) the sum of
the adjusted value of the qualified family-owned business interests plus the amount of
the gifts of such interests exceeds 50 percent of the adjusted gross estate, and (D)
during the 8-year period ending on the date of the decedent's death there have been
periods aggregating 5 years or more during which such interests were owned by the
decedent or a member of the decedent's family, and there was material participation
(within the meaning of § 2032A(e)(6)) by the decedent or a member of the decedent's
family in the operation of the business to which such interests relate.

Section 2057(b)(2) provides that the qualified family-owned business interests
described in this paragraph are the interests which are included in determining the value
of the gross estate, and are acquired by any qualified heir from, or passed to any
qualified heir from, the decedent (within the meaning of § 2032A(e)(9)).

Section 2057(e)(1) provides, generally, that the term “qualified family-owned business
interest” means an interest as a proprietor in a trade or business carried on as a
proprietorship, or an interest in an entity carrying on a trade or business, if: (1) at least
50 percent of such entity is owned (directly or indirectly) by the decedent and members
of the decedent's family; (2) at least 70 percent of such entity is so owned by members
of 2 families and at least 30 percent of such entity is so owned by the decedent and
members of the decedent's family; or (3) at least 90 percent of such entity is so owned
by members of 3 families and at least 30 percent of such entity is so owned by the
decedent and members of the decedent's family.

Section 2057(i)(3)(H) provides that for purposes of § 2057, rules similar to the rules
under §§ 2032A(d)(1) and (3) (relating to election; agreement) shall apply.

Section 2057(j) provides that the provisions of § 2057 shall not apply to estates of
decedents dying after December 31, 2003.

Section 2032A(d)(1) provides that the election under § 2032A shall be made on the
return of tax imposed by § 2001. The election shall be made in such manner as the
Secretary shall by regulations prescribe. Such an election, once made, shall be
irrevocable. Section 2032A(d)(3) provides that the Secretary shall prescribe procedures
which provide that in any case in which the executor makes an election under
§ 2032A(d)(1) (and submits the agreement referred to in § 2032A(d)(2)) within the time
prescribed therefor, the executor will have a reasonable period of time (not exceeding
90 days) after notification of such failure to provide such information.

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.

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 make an election under
§ 2057(b)(1)(B). The election should be made on a supplemental Form 706, and filed
with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter
should be attached to the supplemental Form 706. A copy is enclosed for that 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. Specifically, we express or imply no opinion on whether the estate qualifies
for the deduction under § 2057 or whether a claim for refund may be timely filed.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

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

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.

                                  Sincerely,


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

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

cc: