PLR 1027027: IRS granted extra time to file evidence of a decedent's mental disability

Plain-English summary

Trustees asked for more time to file a physician's certification and other evidence concerning a decedent's mental disability for a generation-skipping transfer tax exception. The decedent had created a revocable trust, and the estate had filed Form 706 without the required certification or other evidence. The IRS granted 60 additional days from the ruling date to file the physician's certification with a supplemental Form 706. The ruling did not decide whether the decedent was in fact mentally disabled during the relevant period. That factual question remained subject to examination.

Ruling snapshot

• Question: Could the trustees file the required physician's certification after the estate tax return had been filed?
• Outcome: approved
• Key authorities: IRC § 2601; Tax Reform Act of 1986 § 1433(b)(2)(C); Treas. Reg. §§ 26.2601-1(b)(3) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                                          Third Party Communication: None

Number: 201027027 Date of Communication: Not Applicable
Release Date: 7/9/2010 Person To Contact:
-------------------------, ID No. -------------
Index Number: 2601.04-05, 9100.00-00 Telephone Number:
---------------------
------------------------------------------ Refer Reply To:
-------------------------------------------------------- CC:PSI:B04
------------------------ PLR-146644-09
Date: MARCH 26, 2010

RE:
      --------------------------------------
     ----------------------

Legend

Decedent = --------------------------------------------------------
Trust 1 = -------------------------------------------------------------------
Trust 2 = -----------------------------------------------------------------------------
Date 1 = -------------------------
Date 2 = -----------------------
Date 3 = -------------------
Date 4 = -----------------------
Daughter = ----------------------
Grandchild 1 = ----------------------
Grandchild 2 = ---------------------
Grandchild 3 = ---------------------------
Grandchild 4 = ---------------------
Attorney = --------------------------

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

     This responds to your letter dated October 13, 2009, requesting an extension of

time under § 301.9100-1 of the Procedure and Administration Regulations to file a
qualified physician's certification with respect to the decedent's incompetency as
required by § 26.2601-1(b)(3) of the Generation-Skipping Transfer Tax Regulations.

      The facts submitted and representations made are summarized as follows:

    Decedent created Trust 1 on Date 1. Trust 1 was revocable during the lifetime of

Decedent. Trust 1 provides, in relevant part, that all income is to be paid to Daughter
for her lifetime. Upon Daughter’s death, the assets are to be held in trust for the benefit
PLR-146644-09 2

of Daughter’s children, Grandchild 1, Grandchild 2, Grandchild 3, and Grandchild 4, until
they reach the age of 35. When each grandchild reaches the age of 35, each
grandchild is to receive his share of the principal of Trust 1. Trust 1 has never been
amended or modified.

   On Date 2, Decedent executed her will which devised her entire residuary estate

to Trust 2. Trust 2 provides, in relevant part, that all income is to be paid to Daughter.
Upon Daughter’s death, the assets of Trust 2 are to be distributed to the issue of
Decedent. Decedent’s surviving issue are Grandchildren 1 – 4.

   Decedent died on Date 3. Upon her death, Trust 1 was included in her gross

estate. No additions were made to Trust 1 from October 22, 1986 to Date 3.
Decedent’s executor hired Attorney to file a Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return, for Decedent’s estate. The Form 706 was
timely filed on Date 4. No physician’s certificate or other evidence of Decedent’s mental
incompetency were attached to the Form 706.

   It is represented that Decedent was incompetent at all times on and after October

22, 1986, and did not regain competency to modify or revoke the terms of her will or
Trust 1 before her death.

     The trustees of Trust 1 have requested an extension of time under § 301.9100-3

to file one or more qualified physician's certifications and other evidence as required by
§ 26.2601-1(b)(3) stating that Decedent was under a mental disability on October 22,
1986, and at all times thereafter until her death.

   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.

   Under § 1433(b)(2)(C) of the Tax Reform Act of 1986 and § 26.2601-1(b)(3)(i), if

an individual was under a mental disability to change the disposition of the individual's
property continuously from October 22, 1986, until the date of death, the provisions of
chapter 13 do not apply to any generation-skipping transfer under a trust (as defined in
§ 2652(b)) to the extent such trust consists of property, or the proceeds of property, the
value of which was included in the gross estate of the individual.

    Section 26.2601-1(b)(3)(ii) defines the term "mental disability" as mental

incompetence to execute an instrument governing the disposition of the decedent's
property, whether or not there was an adjudication of incompetence and whether or not
there has been an appointment of a guardian, fiduciary, or other person charged with
either the care of the decedent or care of the decedent's property.

   Section 26.2601-1(b)(3)(iii)(A) provides that if a decedent has not been adjudged

PLR-146644-09 3

mentally incompetent by a court, the executor must file, with Form 706 either - (1) a
certification from a qualified physician stating that the decedent was mentally
incompetent at all times on and after October 22, 1986, and did not regain competence
to modify or revoke the terms of the trust or will prior to his or her death, or (2) sufficient
other evidence demonstrating that the decedent was mentally incompetent at all times
on and after October 22, 1986, as well as a statement explaining why no certification is
available from a physician.

    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). 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 met. Consequently, we grant an extension
of time of 60 days from the date of this letter for filing the required physician’s
certification. The physician’s certification should be attached to a supplemental Form
706 for Decedent. The Form 706 should be 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 also be attached to the supplemental
Form 706. A copy of this letter 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. Specifically, we express no opinion as to whether Decedent
was under a mental disability within the meaning of § 26.2601-1(b)(3)(ii) on and after
October 22, 1986. Resolution of this factual matter would be under the audit jurisdiction
of the Area Director.

  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.
PLR-146644-09 4

   The rulings 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 and Special Industries



                                      _________________________
                               By:    Leslie H. Finlow
                                      Acting Senior Technician Reviewer
                                      Branch 4
                                      Office of the Associate Chief Counsel
                                      (Passthroughs and Special Industries)



   Enclosures
         Copy for § 6110 purposes
         Copy of this letter