PLR 1024009: IRS granted more time to allocate GST exemption

Plain-English summary

A spouse made several transfers to an irrevocable trust but did not allocate generation-skipping transfer tax exemption on timely filed gift tax returns. The taxpayers represented that no generation-skipping transfer had occurred from the trust and that no inconsistent exemption allocation had been made elsewhere. The IRS granted a 60-day extension for the spouse to allocate GST exemption to the prior transfers, with the allocations effective as of the transfer dates. The allocations were to be made on amended Forms 709.

Ruling snapshot

• Question: Can the spouse receive more time to allocate GST exemption to prior trust transfers?
• Outcome: Approved
• Key authorities: IRC §§ 2513, 2631, 2632, 2642, and 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201024009 Third Party Communication: None
Release Date: 6/18/2010 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2642.00-00
Person To Contact:
------------------------------------- ---------------------------, ID No. ---------------
------------------------------------------ -----------------
------------------------------ Telephone Number:
---------------------
Refer Reply To:
CC:PSI:B04
PLR-138129-09
Date:
February 12, 2010

Date 1 = --------------------------
Year 1 = -------
Grantor = -------------------
Trust = -----------------------------------------
Accountant = ---------------------------------------------------------
Year 2 = -------
Spouse = ----------------------
Year 3 = -------

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

This responds to your submission dated June 17, 2009, requesting an extension of time
pursuant to § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure
and Administration Regulations for Spouse to allocate generation-skipping transfer
(GST) exemption.

On Date 1 in Year 1, Grantor established Trust, an irrevocable trust, for the benefit of
Grantor’s child and the child’s issue. Income and principal is distributable to the
beneficiaries in the trustee’s discretion. Trust terminates 21 years after the death of
certain individuals living on Date 1, at which time trust corpus is to be distributed to the
child’s then living issue.

On timely filed returns prepared by Accountant for Year 1 and Year 2, Grantor and
Spouse reported transfers to Trust and elected under § 2513 to treat the transfers as
made one-half by each of them, but failed to allocate GST exemption to the transfers.
On a timely filed return prepared by Accountant for Year 3, Spouse reported a transfer
to Trust but failed to allocate GST exemption to the transfer. In the interim, there has
been no generation skipping transfer from Trust, and no inconsistent allocation of GST
exemption to any other transfers.
PLR-138129-09 2

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.
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.
PLR-138129-09 3

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 Spouse’s GST
exemption to the Year 1, Year 2 and Year 3 transfers to Trust. The allocations will be
effective as of the date of the transfers to Trust. The allocations should be made on
amended Forms 709 and filed with the Internal Revenue Service Center, Cincinnati,
Ohio 45999. A copy of this letter should be attached to each Form 709. Three 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. The ruling in this letter pertaining to the federal generation-skipping transfer
tax applies only to the extent that the relevant sections of the Internal Revenue Code
are in effect during the period at issue.
PLR-138129-09 4

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 (3)

cc: