PLR 1032024: Estate granted more time to allocate generation-skipping transfer tax exemption

Plain-English summary

The taxpayer created an irrevocable trust and made transfers to it, but the required gift tax returns did not allocate the taxpayer's generation-skipping transfer tax exemption. No taxable distributions, taxable terminations, or other GST-tax events had occurred. The IRS found that the taxpayer acted reasonably and in good faith and that relief would not prejudice the government. It granted the taxpayer's estate 60 days from the date of the letter to allocate the available GST exemption to the trust. The allocation will be effective as of each transfer date, using the specified valuation rules.

Ruling snapshot

• Question: May the taxpayer receive an extension to allocate GST exemption to an irrevocable trust?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2611, 2631, 2642, 2652; Treas. Reg. §§ 26.2632-1, 26.2652-1, 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201032024
Release Date: 8/13/2010
Index Number: 9100.00-00, 2642.00-00 Person To Contact:
-------------------, ID No. -------------
Telephone Number:

                                                         ---------------------

------------------------------------------- Refer Reply To:
-------------------- CC:PSI:B04 – PLR-149267-09
-------------------------------------- Date:
May 05, 2010

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

Legend:
Donor = ---------------------------------------------------
Year A = -------
Year B = -------
Year C = -------
Year D = -------
Year E = -------
Trust = ------------------------------------------------
$A = ---------
Law Firm = ----------------------------------------------------
Accounting Firm = -----------------------

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

    This responds to a letter dated November 3, 2009, and prior correspondence,

submitted by your authorized representative, requesting an extension of time under
§§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to
allocate Donor’s available GST exemptions to a trust.

Facts

     Donor established an irrevocable trust, Trust, and made transfers to Trust in

Years A-C. In Year D, Donor’s transfers exceeded his available GST exemption by $A.
The following year, Year E, the Donor’s available GST exemption increased. The
beneficiaries of Trust include Donor’s spouse and descendants.

PLR-149267-09 2

    Donor hired Law Firm to prepare the Trust and Accounting Firm to prepare all

tax returns for Years. Because of some confusion between the parties the Form 709,
United States Gift (and Generation-Skipping Transfer) Tax Returns were filed and no
GST exemption was allocated by Donor to Trust.

   To date, no taxable distributions, taxable terminations, or any other events have

occurred with respect to Trust that would give rise to a GST tax liability on the part of
Trust or any of its beneficiaries.

Law and Analysis

   Section 2601 of the Internal Revenue Code imposes a tax on every generation-

skipping transfer (GST) (within the meaning of subchapter B). 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 generation-skipping transfers before January 1,

2004, provides that, for purposes of determining the inclusion ratio, every individual
shall be allowed a GST exemption of $1,000,000 (adjusted for inflation under § 2631(c))
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)(4) 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

PLR-149267-09 3

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. See Notice 2001-50, 2001-20 C.B. 189.

    Section 2652(a)(2) 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 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.

   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, Donor’s estate is granted an
extension of time of 60 days from the date of this letter to allocate his respective GST
exemption to Trust with respect to the transfer to Trust in Years A-D. The allocation will
be effective as of the respective date of the transfer to Trust, and will be based on the
value of the assets contributed to Trust in Years A-C, and with respect to Year D, the
fair market value of $A in Year E.

PLR-149267-09 4

    The allocations of Donor’s GST exemption should be made on the Form 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 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 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 & Special Industries)



                                By: _________________
                                    Leslie H. Finlow
                                    Acting Senior Technician Reviewer, Branch 4
                                    Office of Associate Chief Counsel
                                    (Passthroughs & Special Industries)

Enclosure
Copy for section 6110 purposes
Copy of this letter

cc: