Estate granted more time for GST allocation and reverse QTIP election

Plain-English summary

The IRS granted an estate 60 more days to allocate the decedent's generation-skipping transfer tax exemption to two trusts and to make a reverse QTIP election for the exempt marital trust. The estate had filed Forms 706 without making the GST exemption allocation, and it had not made the reverse QTIP election. The IRS concluded that the requirements for relief under the regulations were satisfied, and made the allocations effective as of the decedent's death based on the federal estate tax fair market value at death. The ruling stated that no taxable distributions, taxable terminations, or other events giving rise to GST tax liability had occurred.

Ruling snapshot

• Question: Could the estate receive more time to allocate GST exemption and make a reverse QTIP election?
• Outcome: Approved
• Key authorities: IRC §§ 2056(b)(7), 2642, and 2652(a)(3); Treas. Reg. §§ 26.2652-2 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201023007
Release Date: 6/11/2010
Index Number: 9100.00-00, 2642.00-00,
2056.00-00
Person To Contact:
-------------------------------------- ------------------, ID No. -------------
-------------------------------------- Telephone Number:
-------------------------------------------------- ---------------------
---------------------------- Refer Reply To:
------------------------------ CC:PSI:B04 – PLR-138126-09
Date: JANUARY 22, 2010

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

Legend:
Decedent = ----------------------------------------
Spouse = -----------------------------------------------
Date 1 = -----------------
Date 2 = --------------------------
Date 3 = ----------------------
Date 4 = -------------------
Trust = --------------------------------------------------
Attorney = -------------------------------

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

    This letter responds to a letter from your authorized representative dated

August 17, 2009, and subsequent correspondence, requesting an extension of time
under §' 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations
to make a “reverse” QTIP election under § 2652(a)(3) of the Internal Revenue Code and
to allocate Decedent’s available generation-skipping transfer (GST) tax exemption to
two trusts.

Facts
PLR-138126-09 2

  Decedent established a revocable trust, Trust, on Date 1. Decedent died on

Date 2, survived by Spouse.

   Article THIRD of Trust provided for the creation of Family Trust utilizing

Decedent’s unified credit and a Marital Trust. Article FOURTH directed the trustee to
divide the marital trust into two separate subtrusts, the Exempt Trust and the
Nonexempt Trust, for GST tax purposes.

  Attorney prepared Decedent’s Form 706, United States Estate (and Generation-

Skipping Transfer) Tax Return, and it was filed on Date 3. The Marital Trust was listed
on Schedule M. No allocation of GST tax exemption was made on Schedule R. A
supplemental Form 706 was filed on Date 4 to show additional assets. A Schedule R
was included in the supplemental Form 706, but again no allocation was made on
Schedule R.

   An extension of time under §§ 301.9100-1 and 301.9100-3 is requested (1) to

make a “reverse” QTIP election under § 2652(a)(3) with respect to the Exempt Trust,
and (2) to allocate Decedent’s GST exemption to the Exempt Trust and the Family
Trust. To date, no taxable distributions, taxable terminations, or any other events have
occurred with respect to the trusts that would give rise to a GST tax liability.

Law and Analysis

 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 2056(a) provides that, for purposes of the tax imposed by § 2001, the

value of the taxable estate shall, except as limited by § 2056(b), be determined by
deducting from the value of the gross estate an amount equal to the value of any
interest in property which passes or has passed from the decedent to the surviving
spouse, but only to the extent that such interest is included in determining the value of
the gross estate.

   Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest

property, for purposes of § 2056(a), such property shall be treated as passing to the
surviving spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be
treated as passing to any person other than the surviving spouse.

    Section 2601 imposes a tax on every generation-skipping transfer (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 2602 provides that the amount of the tax is the taxable amount multiplied
PLR-138126-09 3

by the applicable rate.
Section 2641(a) defines the term "applicable rate" with respect to any GST as the
product of the maximum federal estate tax rate and the inclusion ratio with respect to
the transfer.
Section 2642(a)(1) provides that, generally, the inclusion ratio with respect to any
property transferred in a GST is the excess of 1 over the "applicable fraction." With
respect to a GST that is not a direct skip, § 2642(a)(2) provides that, in general, the
applicable fraction is a fraction the numerator of which is the amount of the GST
exemption under § 2631 allocated to the trust and the denominator of which is the value
of the property transferred to the trust.

   Section 2631(a), as in effect for decedents dying and 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 2642(g)(1)(A) provides that the Secretary shall prescribe by regulation

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.

  Section 2652(a)(1) provides that for purposes of chapter 13, the term “transferor”

means: (A) in the case of any property subject to the tax imposed by chapter 11, the
decedent; and (B) in the case of any property subject to the tax imposed by chapter 12,
the donor. An individual shall be treated as transferring any property with respect to
which such individual is the transferor.

    Section 2652(a)(3) provides, in pertinent part, that in the case of any trust with

respect to which a deduction is allowed to the decedent under § 2056(b)(7), the estate
of the decedent may elect to treat all of the property in such trust for GST tax purposes
as if the election to be treated as qualified terminable interest property had not been
made (reverse QTIP election).
PLR-138126-09 4

    Section 26.2652-2(a), in part, that a reverse QTIP election is not effective unless

it is made with respect to all of the property in the trust to which the QTIP election
applies. Section 26.2652-2(b) provides that an election under § 2652(a)(3) is made on
the return on which the QTIP election is made.

    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 GST 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 301.9100-1(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.
PLR-138126-09 5

   Based on the facts submitted and representations made, we conclude that the

requirements of § 301.9100-3 are satisfied. Therefore, Decedent’s Estate is granted an
extension of time of 60 days from the date of this letter to allocate Decedent’s available
GST exemption to the Family Trust and to the Exempt Marital Trust. The allocations will
be effective as of the date of Decedent’s death and will be based on the fair market
value for federal estate tax purposes on the date of death. An extension of time is also
granted to make the reverse QTIP election with respect to the Exempt Marital Trust.

  The allocation of Decedent’s GST exemption and the reverse QTIP election

should be made on a supplemental Form 706 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 706.

  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