IRS granted extra time for a GST exemption election

Plain-English summary

The IRS considered a taxpayer who transferred property to a grantor retained annuity trust and failed to elect out of the automatic allocation of generation-skipping transfer tax exemption on a timely Form 709. The taxpayer's accountant had prepared the return but did not make the election. The IRS concluded that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied. It granted a 60-day extension from the ruling letter's date to make the election for the transfer, effective when the estate tax inclusion period ended. The election was to be made on a supplemental Form 709 with a copy of the ruling attached.

Ruling snapshot

• Question: May the taxpayer receive more time to elect out of the automatic GST exemption allocation for the trust transfer?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2611, 2631, 2632(c)(5)(A)(i), and 2642(g); Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201025036 Third Party Communication: None
Release Date: 6/25/2010 Date of Communication: Not Applicable
Index Number: 2642.00-00, 2632.02-00,
9100.00-00 Person To Contact:
-------------------------, ID No. -------------
----------------------------- Telephone Number:
-------------------------- ---------------------
--------------------------------------- Refer Reply To:
CC:PSI:B04
PLR-145496-09
----------------------------------- Date: MARCH 11, 2010
--------------------------
------------------------------

Legend

Taxpayer = ------------------------------------------------------
Accountant = ------------------------------
Trust = -----------------------------------------------------------------------
Year 1 = -------
Year 2 = -------
Date 1 = --------------------------
Date 2 = --------------------------
Date 3 = ---------------------

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

   This responds to your letter dated October 12, 2009 from your authorized

representative requesting an extension of time under § 301.9100-3 of the Procedure
and Administration Regulations and § 2642(g) of the Internal Revenue Code to make an
election out of the automatic allocation of generation-skipping transfer (GST) tax under
§ 2632(c)(5)(A)(i).

     The facts and representations submitted are summarized as follows:

    On Date 1, Taxpayer established and funded Trust, a grantor retained annuity

trust, under which Taxpayer's retained interest would terminate on Date 2. Taxpayer
survived the term. Under the terms of Trust, there is a possibility that a
generation-skipping transfer (GST) may occur. The estate tax inclusion period (ETIP)
with respect to Taxpayer's transfer to Trust closed for GST purposes on Date 2.

     Taxpayer retained Accountant to prepare and file Taxpayer’s Forms 709, United

PLR-145496-09 2

States Gift (and Generation-Skipping Transfer) Tax Return, for Year 1 and Year 2.
Taxpayer reported the transfer to Trust on a timely filed Form 709 for Year 1. On Date
3, Taxpayer filed her Form 709 for Year 2. However, Taxpayer failed to make the
written election out of the automatic allocation of the GST exemption under
§ 2632(c)(5)(A)(i).

   Taxpayer requests an extension of time under § 301.9100-3 to make an election

out of automatic allocation of GST exemption to Trust pursuant to § 2632(c)(5)(A)(i).

LAW AND ANALYSIS

    Section 2601 imposes a tax on every generation-skipping transfer (GST). A GST

is defined under § 2611(a) as (1) a taxable distribution, (2) a taxable termination, and
(3) a direct skip.

   Section 2631(a) provides that, for purposes of determining the inclusion ratio,

every individual shall be allowed a GST exemption amount 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(c)(1) provides that if any individual makes an indirect skip during

such individual's lifetime, any unused portion of such individual's GST exemption shall
be allocated to the property transferred to the extent necessary to make the inclusion
ratio for such property zero. If the amount of the indirect skip exceeds such unused
portion, the entire unused portion shall be allocated to the property transferred.

   Section 2632(c)(3)(A) provides that for purposes of this subsection, the term

"indirect skip" means any transfer of property (other than a direct skip) subject to the tax
imposed by chapter 12 made to a GST trust, as determined in § 2632(c)(3)(B)(i).

    Section 2632(c)(4) provides that, for purposes of the automatic allocation rules to

GST trusts, an indirect skip to which § 2642(f) applies shall be deemed to have been
made only at the close of the ETIP and the fair market value of such transfer shall be
the fair market value of the trust property at the close of the ETIP.

  Section 26.2632-1(c)(3)(ii) of the Generation-Skipping Transfer Tax Regulations

provides, in pertinent part, that an ETIP terminates at the time at which no portion of the
property is includible in the transferor's gross estate (other than by reason of § 2035).

  Section 2632(c)(5)(A)(i)(II) provides that an individual may elect to have this

subsection not apply to any or all transfers made by such individual to a particular trust.
Section 2632(c)(5)(B)(ii) provides that the election may be made on a timely filed gift tax
PLR-145496-09 3

return for the calendar year for which the election is to become effective.

    Section 2642(f)(1) provides that, for purposes of determining the GST tax, when

an individual makes an inter vivos transfer and the value of the property would have
been includible in the individual's gross estate if the individual died after making the
transfer (other than by reason of § 2035), any GST exemption allocation to the property
will not be made before the close of the ETIP.

   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 § 2642(g)(1), which was enacted into law on June 7, 2001.

   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. See Notice 2001-50,
2001-2 C.B. 189.

   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.

   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.

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

the requirements of § 301.9100-3 have been satisfied. Therefore, Taxpayer is granted
an extension of time of 60 days from the date of this letter to make the election out of
PLR-145496-09 4

the automatic allocation of GST under § 2632(c)(5)(A)(i) for the transfer to Trust in Year
1 that is effective on Date 2 at the termination of the ETIP.

  The election should be made on a supplemental Form 709 filed with the Internal

Revenue 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. A copy is enclosed for this purpose.

     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.

   The ruling in this letter pertaining to the federal estate and/or generation-skipping

transfer tax apply only to the extent that the relevant sections of the Internal Revenue
Code are in effect during the period at issue.

  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,

                                    Associate Chief Counsel
                                    Passthroughs & Special Industries

                                    _________________________
                              By:   Lorraine E. Gardner
                                    Senior Counsel, Branch 4
                                    Office of the Associate Chief Counsel
                                    (Passthroughs and Special Industries)

   Enclosures
         Copy for § 6110 purposes
         Copy of this letter