PLR 1102053: IRS grants more time to allocate a deceased spouse’s GST exemption

Plain-English summary

A grantor and spouse made gifts to an irrevocable trust and elected to treat the gifts as made one-half by each spouse. Their accounting firm prepared the gift tax returns but failed to allocate the spouse’s generation-skipping transfer tax exemption. After the spouse’s death, the taxpayer requested relief to make the allocations late. The IRS granted 120 additional days to allocate the spouse’s available GST exemption to the two transfers and required supplemental Forms 709.

Ruling snapshot

• Question: May the taxpayer receive more time to allocate the deceased spouse’s GST exemption to prior trust transfers?
• Outcome: approved
• Key authorities: IRC §§ 2513, 2631, 2642, 2652, and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201102053 Third Party Communication: None
Release Date: 1/14/2011 Date of Communication: Not Applicable
Person To Contact:
Index Number: 2642.00-00, 9100.00-00 -------------------------, ID No. -------------
Telephone Number:
------------------------------------ ---------------------
----------------------------- Refer Reply To:
----------------------------- CC:PSI:B04
RE: PLR-113952-10
-------------------------------------------- Date:

     ---------------------------                           September 17, 2010

Legend

Grantor -------------------------------
Spouse ---------------------------------------------------------------------
Estate -------------------------------------------------------
Accounting Firm -------------------
Trust -----------------------------------------------------
Year 1 -------
Year 2 -------
Date 1 --------------------------
Date 2 --------------------------
a ---------
b ---------

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

    This letter responds to your letter dated March 18, 2010, requesting an extension

of time under § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the
Procedure and Administration Regulations to allocate Spouse’s GST exemption to
transfers to Trust.

      The facts and representations submitted are summarized as follows:

     On Date 1, prior to December 31, 2000, Grantor established Trust, an irrevocable

trust, for the benefit of the then living lineal descendants of Grantor. Upon the death of
the survivor of Grantor and Spouse, the balance of the trust estate is to be paid to
Grantor’s then living lineal descendants, per stirpes.
PLR-113952-10 2

   In Year 1, Grantor made a gift of $a to Trust. In Year 2, Grantor made a gift of $b

to Trust. Grantor and Spouse consented to treat the gifts made in Year 1 and Year 2 as
being made one-half by each pursuant to § 2513.

   Grantor and Spouse hired Accounting Firm to prepare their Forms 709, United

States Gift (and Generation-Skipping Transfer) Tax Returns, for Year 1 and Year 2.
Accounting Firm prepared the Forms 709, but failed to allocate Spouse’s GST
exemption on those returns. Spouse died on Date 2.

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

allocate Spouse’s available GST exemption to the Year 1 and Year 2 transfers to Trust.

LAW AND ANALYSIS

   Section 2513(a)(1) provides that a gift made by one spouse to any person other

than the donor's spouse is considered for purposes of the gift tax as made one-half by
the donor and one-half by the donor's spouse, but only if at the time of the gift each
spouse is a citizen or resident of the United States.

    Section 2601 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 2602 provides that the amount of the tax imposed by § 2601 is the

taxable amount multiplied by the applicable rate. Section 2641(a) defines applicable
rate as the product of the maximum federal estate tax rate and the inclusion ratio with
respect to the transfer.

   Section 2631(a), as in effect for the years at issue, provides that for purposes of

determining the GST tax, every individual shall be allowed a GST exemption of
$1,000,000 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, other than in a direct skip, is made on Form 709.

   Section 2652(a)(1) provides that for purposes of the GST tax, the term

"transferor" means the decedent in the case of any property subject to the estate tax
and the donor in the case of any property subject to the gift tax.
PLR-113952-10 3

   Section 2652(a)(2) provides that if, under § 2513, one-half of a gift is treated as

made by an individual and one-half of such gift is treated as made by the spouse of
such individual, such gift shall be so treated for purposes of chapter 13.

    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)), or, in the case of an allocation deemed to have been made at the close of
an estate tax inclusion period, its value at the time of the close of the estate tax
inclusion period.

  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
§ 2642(g).

   Section 2642(g)(1)(B) provides that in determining whether to grant relief under

this paragraph, 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 under this paragraph, the time for making the allocation (or
election) 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
PLR-113952-10 4

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, Estate is granted an
extension of time of 120 days from the date of this letter to allocate Spouse’s available
GST exemption to the Year 1 and Year 2 transfers to Trust. The allocation will be
effective as of the respective date of the transfers to Trust and the value of the transfers
to Trust as determined for federal gift tax purposes will be used in determining the
amount of Spouse’s GST exemption to be allocated to Trust.

   These allocations should be made on supplemental Forms 709 for Year 1 and

Year 2. The Forms 709 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 be attached to the supplemental
Forms 709. A copy 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.

  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.
PLR-113952-10 5

  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

cc: