PLR 1037002: IRS granted late GST exemption allocation relief

Plain-English summary

The IRS granted an executor a 120-day extension to allocate the decedent's generation-skipping transfer tax exemption to a trust. The executor's tax professional timely filed the estate tax return but omitted the schedule needed to make the allocation. The IRS also ruled that distributions already made from the GST-exempt trust to the decedent's grandchildren would be exempt from GST tax. The allocation would be effective as of the decedent's date of death and would use the applicable date-of-death value.

Ruling snapshot

• Question: Could the estate make a late GST exemption allocation, and would prior trust distributions be exempt from GST tax?
• Outcome: Approved
• Key authorities: IRC §§ 2010, 2601, 2611, 2631, 2632, 2642, and 6110; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                                          Third Party Communication: None

Number: 201037002 Date of Communication: Not Applicable
Release Date: 9/17/2010 Person To Contact:
-------------------------, ID No. -------------
Index Number: 2642.00-00, 9100.00-00 Telephone Number:
---------------------
----------------------------------------- Refer Reply To:
------------------------------- CC:PSI:B04
------------------------------ PLR-102477-10
Date: JUNE 07, 2010

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

Legend

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

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

    This responds to your letter dated December 18, 2009, requesting an extension

of time under § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the
Procedure and Administration Regulations to make an allocation of Decedent’s
generation-skipping transfer (GST) exemption to transfers to Trust.

      The facts and representations submitted are summarized as follows:

  On Date 1, Decedent established Trust, a revocable living trust. On Date 2,

Decedent amended Trust in its entirety.
PLR-102477-10 2

   In relevant part, Trust provides that upon the death of Decedent, the remaining

trust estate is to be held in two separate trusts, the GST Exempt Trust and the GST
Non-Exempt Trust. The trustee is to divide the GST Exempt Trust into separate shares
for each living child of Decedent.

   Decedent died on Date 3. Decedent was survived by her three children: Son 1,

Son 2, and Daughter. Decedent was also survived by two grandchildren, Grandchild 1
and Grandchild 2, who are the children of Son 1. Pursuant to the terms of Trust, the
trustee divided the trust estate into two trusts. The trustee funded the GST Exempt
Trust with $a and funded the GST Non-Exempt Trust with the remainder of the Trust
property.

   Decedent’s son, Son 1, in his capacity as executor of Decedent’s estate, hired

Attorney to file the Form 706, United States Estate (and Generation-Skipping Transfer)
Tax Return for the estate. Attorney timely filed the Form 706 on Date 4, but failed to file
Schedule R.

 The trustee has distributed $b from Son 1’s share of the GST Exempt Trust to

Grandchildren 1 – 2.

   You have requested an extension of time under § 2642(g) and § 301.9100-3 to

allocate Decedent’s available GST exemption to the GST Exempt Trust, effective as of
Date 3. You have also requested a ruling that the distributions already made to
Grandchildren will be exempt from GST taxes.

LAW AND ANALYSIS

   Section 2601 of the Internal Revenue Service 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.

   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 2631(c) provides that for purposes of § 2631(a), the
GST exemption amount for any calendar year shall be equal to the applicable exclusion
amount under § 2010(c) for such calendar year.

  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
PLR-102477-10 3

this paragraph.

    Section 2642(g)(1)(B) provides that in determining whether to grant relief, 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. Section 2642(g)(1)(B) further provides that for purposes of
determining whether to grant relief, the time for making the allocation 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, the executor is
granted an extension of time of 120 days from the date of this letter to make an
allocation of Decedent’s available GST exemption to the GST Exempt Trust. The
allocation will be effective as of Decedent's date of death and will be based on the fair
market value for federal estate tax purposes on the date of death. Further, we conclude
that the distributions made to Grandchildren will be exempt from GST taxes.

   The executor should make the allocation on a supplemental Form 706. The

supplemental Form 706 should be filed on behalf of the estate with the Cincinnati
Service Center at the following address: Internal Revenue Service Center, Cincinnati,
OH 45999. A copy of this letter should be attached to the supplemental Form 706. A
copy is enclosed for this purpose.
PLR-102477-10 4

  We further conclude that the distributions already made to Grandchildren from

the GST Exempt Trust will also be exempt from GST tax.

     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 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 & 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