PLR 201109016: The IRS granted more time for a reverse QTIP election and GST exemption allocation

Plain-English summary

An estate asked for more time to make a reverse qualified terminable interest property (QTIP) election and allocate the decedent's generation-skipping transfer tax exemption to two trusts. The estate's tax professional had reported one trust on the estate tax return, making the regular QTIP election, but failed to make the reverse QTIP election and the related exemption allocations. The IRS found that the estate acted reasonably and in good faith because it relied on a qualified tax professional, and that relief would not prejudice the government. It therefore granted 120 days from the ruling date to make the election and allocations under IRC §§ 2652(a)(3), 2642(g), and 301.9100-3.

Ruling snapshot

• Question: May the estate receive more time to make a reverse QTIP election and allocate the decedent's GST exemption to two trusts?
• Outcome: Approved.
• Key authorities: IRC §§ 2056(b)(7), 2642(g)(1), and 2652(a)(3); Treas. Reg. §§ 26.2652-2 and 301.9100-3; Notice 2001-50.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201109016
Release Date: 3/4/2011
Index Number: 9100.00-00, 2642.00-00,
Person To Contact:
2652.01-00, 2652.01-02
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Telephone Number:
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Refer Reply To:
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CC:PSI:B04 – PLR-145075-10
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Date: December 2, 2010

Re:
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Legend:

Decedent = ---------------------------------------------
Spouse = -----------------------
Trust = --------------------------------------------------------------------------------------------
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Credit = ------------------------------------------------------------------
Shelter Trust
Exempt = ---------------------------------------------------------------------
QTIP Trust
Date = -----------------------
Attorney = --------------------

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

This letter responds to the letter dated October 29, 2010, and subsequent correspondence, submitted by your authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make a “reverse” qualified terminable interest property (QTIP) election under § 2652(a)(3) of the Internal Revenue Code and to allocate Decedent's available generation-skipping transfer (GST) exemption to two trusts.

The facts and representations submitted are summarized as follows: On Date, Decedent died, with Spouse surviving him. At Decedent’s death, under the terms of his revocable trust (Trust), Credit Shelter Trust and Exempt QTIP Trust were created for the benefit of Spouse and the issue of Spouse and Decedent.

Attorney, who prepared the Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return for Decedent’s estate, reported Exempt QTIP
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Trust on Schedule M, Bequests to Surviving Spouse. Accordingly, Decedent’s estate is deemed to have made the QTIP election with respect to Exempt QTIP Trust. However, Attorney failed to make a “reverse” QTIP election for Exempt QTIP Trust and to allocate Decedent’s GST exemption to Exempt QTIP Trust and Credit Shelter Trust.

Decedent’s estate requests an extension of time under § 301.9100-3 to make a “reverse” QTIP election under § 2652(a)(3) for Exempt QTIP Trust and to allocate Decedent’s GST exemption to Exempt QTIP Trust and Credit Shelter Trust.

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 2056(b)(7)(B)(i) defines the term “qualified terminable interest property” as property: (I) which passes from the decedent; (II) in which the surviving spouse has a qualifying income interest for life; and (III) to which an election under § 2056(b)(7) applies.

Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with respect to any property shall be made by the executor on the return of tax imposed by § 2001. Such an election, once made, shall be irrevocable.

Section 2601 imposes a tax on every generation-skipping transfer (GST) made by a “transferor” to a “skip person.” 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 the year at issue, provides that, for purposes of determining the GST tax, 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, once made, shall be irrevocable.

Section 2632(a) provides that any allocation by an individual of his or her GST exemption under § 2631(a) may be made at any time on or before the date prescribed for filing the estate tax return for such individual's estate (determined with regard to extensions), regardless of whether such a return is required to be filed.

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.

Section 2652(a)(1) provides that for purposes of chapter 13, the term “transferor” means: (A) in the case of any property subject to the tax imposed by chapter 11, the decedent; and (B) in the case of any property subject to the tax imposed by chapter 12, the donor. An individual shall be treated as transferring any property with respect to which such individual is the transferor.

Section 2652(a)(3) provides, in pertinent part, that in the case of any trust with respect to which a deduction is allowed to the decedent under § 2056(b)(7), the estate of the decedent may elect to treat all of the property in such trust for GST tax purposes as if the election to be treated as qualified terminable interest property had not been made (reverse QTIP election).

Section 26.2652-2(a) of the Generation-Skipping Transfer Tax Regulations provides, in part, that a reverse QTIP election is not effective unless it is made with respect to all of the property in the trust to which the QTIP election applies. Section 26.2652-2(b) provides that an election under § 2652(a)(3) is made on the return on which the QTIP election is made.

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
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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 301.9100-3 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.

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.

Under § 301.9100-3(b)(iv), 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 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 make a “reverse” QTIP election under § 2652(a)(3) for Exempt QTIP Trust and to allocate Decedent’s GST exemption to Exempt QTIP Trust and Credit Shelter Trust.

The reverse QTIP election and 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 taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the
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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. Specifically, we are not ruling on whether Exempt QTIP Trust and Credit Shelter Trust will have zero inclusion ratios as a result of the allocation of Decedent’s GST exemption to the trusts. 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 who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

In accordance with a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

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

Enclosures
Copy for section 6110 purposes
Copy of this letter