PLR 1039004: IRS extended time to allocate generation-skipping transfer tax exemption

Plain-English summary

An estate asked for more time to allocate the decedent's available generation-skipping transfer tax exemption to a family trust. The estate's accountant had mistakenly allocated exemption to a marital trust even though the will directed that the marital trust receive exemption only after the family trust and certain other bequests were fully exempt. The IRS found that the requirements for relief were satisfied and granted 120 days from the ruling date to make the allocation on a supplemental Form 706. The allocation would be effective as of death and based on the federal estate tax date-of-death value.

Ruling snapshot

• Question: Could the estate receive more time to allocate the decedent's GST exemption to the family trust?
• Outcome: Approved
• Key authorities: IRC §§ 2631, 2642, and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201039004
Release Date: 10/1/2010
Index Number: 9100.00-00, 2642.00-00 Person To Contact:
------------------, ID No. -------------
Telephone Number:
------------------------------------- ---------------------
Refer Reply To:
----------------------------------- CC:PSI:B04 – PLR-103715-10
---------------------- Date: JUNE 24, 2010

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

Legend:
Decedent = ---------------------------------------------
Spouse = --------------------
Date = -----------------------
Trust = ---------------------------
x = -----------
y = -----------
Accountant = ----------------------------------------------------------------

Dear -----:

     This letter responds to a letter from your authorized representative dated

December 15, 2009, and subsequent correspondence, requesting an extension of time
under §' 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations
to allocate Decedent’s available generation-skipping transfer (GST) exemption.

Facts

    Decedent died testate on Date, survived by Spouse. Item VI of Decedent’s Will

provides for a marital trust for Spouse and a division of such trust into an Exempt
Marital Trust and a Non-Exempt Marital Trust if sufficient GST exemption is available to
allocate to the Marital Trust and warrant the division. Item VII of Decedent’s Will directs
that the remainder of Decedent’s estate be distributed to a family trust, Trust, and that
Trust be divided into a Family Exempt Trust and a Family Non-Exempt Trust based
upon the amount of Decedent’s GST exemption allocated to Trust. Item XII specifically
PLR-103715-10 2

prohibits the allocation of any of Decedent’s GST exemption to the Marital Trust unless
Trust and certain other bequests are fully exempt from GST tax and additional GST
exemption remains available for allocation to the Marital Trust.

   In preparing Decedent’s Form 706, United States Estate (and Generation-

Skipping Transfer) Tax Return, Accountant mistakenly allocated x of Decedent’s
available GST exemption to the Marital Trust so that the Marital Trust was fully exempt
from GST tax. Accountant allocated Decedent’s remaining available GST exemption, y,
to Trust.

   You request an extension of time under §§ 301.9100-1 and 301.9100-3 to

allocate Decedent’s GST exemption to Trust as provided in Decedent’s Will. To date,
no taxable distributions, taxable terminations, or any other events have occurred with
respect to the trust that would give rise to a GST tax liability.

Law and Analysis

 Section 2001(a) imposes a tax on the transfer of the taxable estate of every

decedent who is a citizen or resident of the United States.

   Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the

value of the taxable estate shall, except as limited by § 2056(b), be determined by
deducting from the value of the gross estate an amount equal to the value of any
interest in property which passes or has passed from the decedent to the surviving
spouse, but only to the extent that such interest is included in determining the value of
the gross estate.

   Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest

property, for purposes of § 2056(a), such property shall be treated as passing to the
surviving spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be
treated as passing to any person other than the surviving spouse.

   Section 2601 imposes a tax on every generation-skipping transfer (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 2602 provides that the amount of the tax is the taxable amount multiplied

by the applicable rate.

   Section 2641(a) defines the term "applicable rate" with respect to any GST as the

product of the maximum federal estate tax rate and the inclusion ratio with respect to the
transfer.
PLR-103715-10 3

   Section 2642(a)(1) provides that, generally, the inclusion ratio with respect to any

property transferred in a GST is the excess of 1 over the "applicable fraction." With
respect to a GST that is not a direct skip, § 2642(a)(2) provides that, in general, the
applicable fraction is a fraction the numerator of which is the amount of the GST
exemption under § 2631 allocated to the trust and the denominator of which is the value
of the property transferred to the trust.

   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, 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 2642(g)(1)(A) provides that the Secretary shall prescribe by regulation

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.

  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, Decedent’s Estate is granted an
extension of time of 120 days from the date of this letter to allocate Decedent’s available
GST exemption to Trust. The allocation will be effective as of the date of Decedent’s
death and will be based on the fair market value for federal estate tax purposes on the
date of death.

    The allocation of Decedent’s GST exemption should be made on a supplemental

Form 706 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 706.

  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.
PLR-103715-10 5

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

  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:__________________________
                                         Lorraine E. Gardner
                                         Senior Counsel, Branch 4
                                         Office of the Associate Chief Counsel
                                         (Passthroughs and Special Industries)

Enclosure
Copy for section 6110 purposes
Copy of this letter