PLR 1026019: IRS granted more time to allocate GST exemption to five trusts

Plain-English summary

The IRS granted the husband and wife a 60-day extension to allocate their available generation-skipping transfer tax exemptions to transfers made to five trusts. Their tax advisers had prepared gift-tax returns but failed to allocate the spouses' GST exemptions properly to the transfers. The IRS found that the requirements for relief were satisfied and allowed the allocations to be effective as of the original transfer dates, using the value of the contributions on those dates. The allocations had to be made on supplemental Forms 709 and filed with the IRS service center.

Ruling snapshot

• Question: Could spouses receive extensions to allocate their GST exemptions to transfers made to five trusts after their tax advisers failed to make the allocations properly?
• Outcome: approved
• Key authorities: IRC §§ 2513, 2601, 2602, 2611, 2631, 2632, 2641, 2642, and 2652; Treas. Reg. §§ 26.2632-1 and 301.9100-3; Notice 2001-50; IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201026019 Third Party Communication: None
Release Date: 7/2/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00, 2642.00-00, ------------------ ID No. -------------
2652.01-02 Telephone Number:
---------------------
------------------------------------------------ Refer Reply To:
------------------- CC:PSI:B04
----------------------------- PLR-144677-09
Date:
March 23, 2010

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

Legend:
Husband = -----------------------------------------
Wife = --------------------------------------
Date = ---------------------
Trust 1 = --------------------------------------------------------
Trust 2 = --------------------------------------------------
Trust 3 = --------------------------------------------------
Trust 4 = ------------------------------------------------------
Trust 5 = ---------------------------------------------------
X Corporation = -------------------------
$A = -----------
$B = -------------
$C = -------------
$D = -------------

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

    This responds to a letter dated October 1, 2009, from your authorized

representative, requesting extensions of time under §§ 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations to allocate your generation-skipping
transfer (GST) exemption to five trusts.
PLR-144677-09 2

Facts

   Taxpayers are Husband and Wife. On Date, Husband established five

irrevocable trusts, Trust 1, Trust 2, Trust 3, Trust 4, and Trust 5. Husband transferred
shares of class A common stock in X Corporation to the trusts.

   Husband and Wife each filed Form 709, United States Gift (and Generation-

Skipping Transfer) Tax Returns for Year, and elected under § 2513 to treat the gifts as
made one-half by each spouse. However, Taxpayers’ tax advisors who prepared the
Forms 709 failed to allocate Husband’s and Wife’s GST exemption properly to the
transfers attributable to each spouse.

    Taxpayers request extensions of time to make allocations of their GST

exemption to the transfers to the trusts. It is represented that, to date, no taxable
distributions, taxable terminations, or any other events have occurred with respect to
any trust that would give rise to a GST tax liability.

Law and Analysis

    Section 2513(a) provides generally that, for gift tax purposes, if the parties

consent, a gift made by one spouse to any person other than his or her spouse shall, for
gift tax purposes, be considered as made one-half by the donor spouse and one-half by
his or her spouse.

   Section 2601 imposes a tax on every generation-skipping transfer (within the

meaning of subchapter B) made by a “transferor” to a skip person. In general, under
§ 2652(a)(1) and § 26.2652-1(a)(1), the individual with respect to whom the property
was last subject to Federal estate or gift tax is the transferor of the property for GST tax
purposes. Section 2652(a) and § 26.2652-1(a)(4) provide that, if, under § 2513,
one-half of a gift is treated as made by an individual and one-half is treated as made by
the spouse of the individual, then for purposes of the GST tax, each spouse is treated
as the transferor of one-half of the entire value of the property transferred by the donor
spouse, regardless of the interest the electing spouse is actually deemed to have
transferred under § 2513.

   Section 2602 provides that the amount of the GST tax is determined by

multiplying the taxable amount by the applicable rate. Section 2641(a) provides that the
term "applicable rate" means with respect to any GST transfer, the product of the
maximum federal estate tax rate and the inclusion ratio with respect to the transfer.

    Under 2642(a)(1), the inclusion ratio with 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
PLR-144677-09 3

property transferred in a direct skip), and the denominator is the value of the property
transferred to the trust or involved in the 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 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 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
before the date prescribed by § 6075(b) for such transfer or is deemed to be made
under § 2632(b)(1) or (c)(1), 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

§ 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.

    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
PLR-144677-09 4

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.

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

requirements of § 301.9100-3 are satisfied. Therefore, Husband is granted an
extension of time of 60 days from the date of this letter to allocate his available GST
exemption to the transfers to the trusts as follows:

   1. Trust 1, an allocation of GST exemption of $A;
   2. Trust 2, an allocation of GST exemption of $D;
   3. Trust 3, an allocation of GST exemption of $C;
   4. Trust 4, an allocation of GST exemption of $B; and
   5. Trust 5, an allocation of GST exemption of $B.

   The allocations will be effective as of the date of the transfers to Trust 1, Trust 2,

Trust 3, Trust 4, and Trust 5, and will be based on the value of the contributions on the
date Husband made the transfers.

    In addition, Wife is granted an extension of time of 60 days from the date of this

letter to allocate her available GST exemption to the transfers to the trusts as follows:

   1. Trust 1, an allocation of GST exemption of $A;
   2. Trust 2, an allocation of GST exemption of $C;
   3. Trust 3, an allocation of GST exemption of $D;
   4. Trust 4, an allocation of GST exemption of $B; and
   5. Trust 5, an allocation of GST exemption of $B.

PLR-144677-09 5

   The allocations will be effective as of the date of the transfers to Trust 1, Trust 2,

Trust 3, Trust 4, and Trust 5, and will be based on the value of the contributions on the
date Wife made the transfers.

    The allocation of Taxpayers’ GST exemption should be made on supplemental

Forms 709 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 Forms 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 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,

                                       Associate Chief Counsel
                                       (Passthroughs and Special Industries)



                                       By_________________________
                                         James F. Hogan
                                         Chief, Branch 4
                                         Office of the Associate Chief Counsel
                                         (Passthroughs and Special Industries)

Enclosure
Copy for § 6110 purposes
Copy of this letter

cc: