PLR 1025019: IRS granted more time to allocate GST exemption to trust transfers

Plain-English summary

The IRS granted a grantor and spouse 60 days to allocate their generation-skipping transfer (GST) tax exemptions to transfers made to an irrevocable family trust. Their attorney had failed to advise them to file the required gift tax returns and make the allocations. The trust later experienced a taxable termination, and the error was discovered during an internal review. The IRS concluded that relief under section 301.9100-3 was appropriate, allowing the allocations to be effective as of the dates of the transfers.

Ruling snapshot

• Question: Could the grantor and spouse make late allocations of their GST exemptions to transfers made to the trust?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2631, and 2642; Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201025019 Third Party Communication: None
Release Date: 6/25/2010 Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
Person To Contact:
----------------------- ------------------------, ID No. ------------
-------------------- Telephone Number:
-------------------------- --------------------
-------------------------------------------------- Refer Reply To:
CC:PSI:B04
PLR-132221-09
In Re: ---------------------------------------------------- Date: DECEMBER 08, 2009

Legend

Grantor = ---------------------------------------------------
Spouse = -----------------------------------------------
Son = ---------------------------
Trust = --------------------------------------------------------------------------------------

Firm = ---------------------------------------------------------------------------------------

Vic President = -------------------
Date 1 = -----------------------
Date 2 = -----------------
Year 1 = ------
Year 2 = ------
Year 3 = ------
Year 4 = ------
Year 5 = ------

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

  This responds to your authorized representative’s letter of July 14, 2009,

requesting an extension of time pursuant to § 2642(g) of the Internal Revenue Code
and § 301.9100 of the Procedure and Administration Regulations to make an allocation
of generation-skipping transfer (GST) exemption.

Facts
PLR-132221-09 2

   The facts and representations submitted are summarized as follows: Grantor and

Spouse created an irrevocable trust (Trust) on Date 1, for the benefit of Son and his
family. Trust was funded in Year 1, and additions were made in Years 2 and 3. Firm is
the current Trustee of Trust. Son and his wife had withdrawal rights in each of the
years. Grantor and Spouse had intended to treat each transfer as having been made
one-half by each of them under § 2513(a). Grantor’s attorney failed to adequately
advise Grantor and Spouse of the requirement to file the Forms 709 Unites States Gift
(and Generation-Skipping) Tax Returns to elect to treat the transfer as “split gifts” and
allocate GST exemption. Consequently, no GST exemption was allocated to trust in
Years 1-3. Grantor filed Forms 709 concurrently with this request. Neither Taxpayer
nor Spouse has allocated any of their GST exemption to any transfers they have made.

    Son died in Year 4 and upon his death, the assets became distributable to Son’s

issue. Firm became Trustee in Year 3. Firm failed to advise Grantor that a taxable
termination had occurred at Son’s death and that GST tax could be avoided if Grantor
and Spouse timely filed Year 4 Forms 709 and allocated GST exemption. Grantor and
Spouse have sufficient exemption available to allocate to Trust to reduce the inclusion
ration of Trust to zero. Vice President of Firm signed an affidavit stating that Firm failed
to timely notify Grantor of the taxable termination, and that the taxable termination
resulted in GST tax. He also stated that Firm failed to advise Grantor and Spouse that
each of them could have made a late allocation of their respective GST exemptions to
Trust as of the date of the taxable termination and thereby avoid GST tax. The error
was discovered in Year 5 as a result of an internal review of Trust. No taxable
distributions have been made from Trust to any skip persons.

Law and Analysis

   Section 2601 of the Internal Revenue Code 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 2631(a), as in effect for the tax years at issue, provided that, for

purposes of determining the inclusion ratio, every individual shall be allowed a GST
exemption of $1,000,000 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 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 that, except as provided in § 2642(f), if the allocation

of the GST exemption to any transfers of property is made on a gift tax return filed on or
PLR-132221-09 3

before the date prescribed by § 6075(b) for such transfer, the value of such property for
purposes of § 2642(a) shall be its value as finally determined for purposes of chapter 12
(within the meaning of § 2001(f)(2)).

   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) 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 is to be treated as if not expressly
prescribed by statute and taxpayers may seek an extension of time to make an
allocation described in § 2642(b)(1) or (b)(2) 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.

   Section 301.9100-3 provides the standards used to determine whether to grant

an extension of time to make an election whose 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.

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

the requirements of § 301.9100-3 have been satisfied. Therefore, Grantor and Spouse
are granted an extension of time of 60 days from the date of this letter to make an
allocation of their available GST exemption, with respect to their transfers to Trust in
PLR-132221-09 4

Years 1, 2 and 3. The allocation will be effective as of the respective dates of the
transfers to Trust and the value of the transfers to Trust as determined for federal gift
tax purposes will be used in determining the amount of Grantor’s exemption to be
allocated to Trust.

  This allocation should be made on a supplemental Form 709 and filed with the

Cincinnati Service Center at the following address: Internal Revenue Service, Cincinnati
Service Center – Stop 82, Cincinnati, OH 45999. A copy of this letter should be
attached to the supplemental Form 709.

  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 or imply 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 requesting 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)

Enclosures
Copy for section 6110 purposes
Copy of this letter