PLR 1025021: IRS granted more time to make a QTIP election for a trust

Plain-English summary

The IRS granted a taxpayer 60 days to make a late qualified terminable interest property (QTIP) election for a stock transfer to a trust benefiting the taxpayer's spouse. The taxpayer had timely filed a gift tax return, but the QTIP election was omitted. The IRS found that the taxpayer acted reasonably and in good faith because the taxpayer relied on a qualified tax professional who failed to make or advise about the election. The extension was granted under Treas. Reg. § 301.9100-3, and the election must be made on a supplemental Form 709.

Ruling snapshot

• Question: Could the taxpayer make a late QTIP election for the stock transferred to the trust?
• Outcome: Approved
• Key authorities: IRC § 2523(f); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201025021 Third Party Communication: None
Release Date: 6/25/2010 Date of Communication: Not Applicable
Index Number: 2523.06-01, 9100.00-00
Person To Contact:
----------------------- ------------------------, ID No. ------------
-------------------------- Telephone Number:
--------------------------------------------- --------------------
Refer Reply To:
CC:PSI:B04
----------------------------- PLR-138612-09
-------------------------- Date: FEBRUARY 19, 2010
------------------------------

Legend

Grantor = -------------------------------------------------
Spouse = ------------------------------
Date 1 = ------------------
Date 2 = -----------------------
Trust = -------------------------------------------------
Law Firm = -------------------------------
Year 1 = -------
a = -------------
Dear ------------------:

   This responds to your authorized representative’s letter, dated August 17, 2009,

requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure
and Administration Regulations to make a qualified terminable interest property (QTIP)
election under § 2523(f)(2) for a Year 1 transfer of stock to a trust for the benefit of
Spouse.

     The facts and representations submitted are summarized as follows:

   On Date 1, Grantor executed Trust for the benefit of her spouse, Spouse. Trust

was an irrevocable trust. In Year 1, Trust was funded with stock worth $a. Article Two,
Paragraph A, of Trust provides, in relevant part, during the lifetime of Spouse, the
trustees are to pay to him at least quarterly all of the net income of Trust and as much of
the principal as the trustees consider advisable for his health, education, maintenance,
and support.
PLR-138612-09 2

    Article Two, Paragraph B, provides, in relevant part, that Grantor intends, to the

extent that QTIP elections are made on the gift tax returns with respect to Trust, to be
entitled to the maximum federal gift tax marital deduction.

    Article Three, Paragraph B, provides, in relevant part, that upon Spouse’s death,

the trustees are to divide the remaining property of Trust, including any accrued and
undistributed income, into as many equal shares as there are children of Spouse then
living and children of Spouse then deceased leaving issue then living.

  Grantor hired Law Firm to prepare and file the Form 709, United States Gift (and

Generation-Skipping Transfer) Tax Return for Year 1. Form 709 was timely filed. The
QTIP election, under § 2523(f)(2) was not made on the Form 709. Spouse died on Date
2.

  You are requesting an extension of time to make a QTIP election under

§ 2523(f)(2) with respect to the Year 1 transfer of stock to Trust.

     Section 2501 imposes a tax on the transfer of property by gift by an individual.

Section 2511 provides that the tax imposed by § 2501 shall apply whether the transfer is
in trust or otherwise, whether the gift is direct or indirect, and whether the property is
real or personal, tangible or intangible.

   Section 2523(a) provides that where a donor transfers during the calendar year by

gift an interest in property to a donee who at the time of the gift is the donor's spouse,
there shall be allowed as a deduction in computing taxable gifts for the calendar year an
amount with respect to such interest equal to its value.

   Section 2523(b) provides, in part, that where, on the lapse of time, on the

occurrence of an event or contingency, or on the failure of an event or contingency to
occur, such interest transferred to the spouse will terminate or fail, no deduction shall be
allowed with respect to such interest if the donor retains in himself, or transfers or has
transferred (for less than an adequate and full consideration in money or money's worth)
to any person other than such donee spouse (or the estate of such spouse), an interest in
such property, and if by reason of such retention or transfer the donor (or his heirs or
assigns) or such person (or his heirs or assigns) may possess or enjoy any part of such
property after such termination or failure of the interest transferred to the donee spouse.

   Section 2523(f)(1) provides that in the case of qualified terminable interest

property, for purposes of § 2523(a), such property shall be treated as transferred to the
donee spouse, and for purposes of § 2523(b)(1), no part of such property shall be
considered as retained in the donor or transferred to any person other than the donee
spouse.
PLR-138612-09 3

   Section 2523(f)(2) provides that the term "qualified terminable interest property"

means any property which is transferred by the donor spouse, in which the donee spouse
has a qualifying income interest for life, and to which an election under § 2523(f)(4)
applies.

   Section 2523(f)(4)(A) provides that an election under § 2423(f) with respect to

any property shall be made on or before the date prescribed by § 6075(b) for filing a gift
tax return with respect to the transfer (determined without regard to § 6019(2)) and shall
be made in such manner as the Secretary shall by regulations prescribe. Section
2523(f)(4) provides that an election under § 2523(f)(4), once made, is irrevocable.

    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.

   Requests for relief under §§ 301.9100-2 and 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 because Grantor acted
reasonably and in good faith, and the grant of relief will not prejudice the interests of the
Government. Therefore, Grantor is granted an extension of time until sixty (60) days
from the date of this letter to make a QTIP election with respect to Trust. The election
should be made on a supplemental Form 709 filed with the Internal Revenue Service
Center, Cincinnati, OH 45999. A copy of this letter should be attached to the form.

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representatives.

   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 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.

  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 & Special Industries


  Enclosures
        Copy for § 6110 purposes
        Copy of this letter