PLR 1035001: IRS granted extra time to allocate GST exemption to a trust

Plain-English summary

The IRS considered a taxpayer who created an irrevocable trust, transferred property to it, and failed to report the transfer or allocate generation-skipping transfer tax exemption because an accountant incorrectly advised that no gift tax return was required. The trust was later divided into three trusts for the taxpayer’s children, and no taxable distributions, taxable terminations, or other events had occurred that would create GST tax liability. The IRS granted 60 days to allocate the available GST exemption to the transfers, but stated that the ruling did not extend the time to file Form 709. The allocation had to be made on Form 709 and associated with the IRS service center.

Ruling snapshot

• Question: May the taxpayer make a late allocation of GST exemption to transfers to an irrevocable trust?
• Outcome: Approved
• Key authorities: IRC §§ 2601, 2631, 2632, 2641, 2642, 2652, and 6110; Treas. Reg. §§ 26.2632-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                                          Third Party Communication: None

Number: 201035001 Date of Communication: Not Applicable
Release Date: 9/3/2010 Person To Contact:
------------------ ID No. ------------
Index Number: 9100.00-00, 2642.00-00 Telephone Number:
--------------------
--------------------- Refer Reply To:
------------------ CC:PSI:B04
--------------------------- PLR-100386-10
Date: MAY 24, 2010

Legend:

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

     This responds to a letter dated December 23, 2009, and subsequent

correspondence, from your authorized representative, requesting an extension 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 a trust.

Facts

    On Date, Taxpayer established an irrevocable trust, Trust, and transferred x , y,

and z to Trust. Pursuant to § 1.2 of Trust, Trust was divided into three separate trusts
(Trust A, Trust B, and Trust C) of equal value for Taxpayer’s children.

PLR-100386-10 2

   Accountant incorrectly advised Taxpayer that Taxpayer was not required to file

Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return for Year.
As a result, the transfers to Trust were not reported and Taxpayer’s GST exemption
was not allocated to the transfers.

    Taxpayer requests an extension of time to make an allocation of Taxpayer’s GST

exemption to the transfers to Trust in Year. It is represented that, 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.

Law and Analysis

  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 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
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), as in effect for decedents dying and generation-skipping

transfers before January 1, 2004, provides that, for purposes of determining the
inclusion ratio under § 2642(a), 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)(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.

PLR-100386-10 3

   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
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 § 301.9100-3 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.

PLR-100386-10 4

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

requirements of § 301.9100-3 are satisfied. Therefore, Taxpayer is granted an
extension of time of 60 days from the date of this letter to allocate Taxpayer’s available
GST exemption to the transfers to Trust in Year.

    The allocation of Taxpayer’s GST exemption should be made on 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. This ruling does not extend
the time to file 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 and Special Industries)



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

Enclosure
Copy for § 6110 purposes
Copy of this letter