PLR 201220017: Estate receives more time to file a QDOT citizenship notice

Plain-English summary

The IRS granted a qualified domestic trust more time to file Form 706-QDT and notify the IRS that the surviving spouse had become a United States citizen. The spouse had continuously resided in the United States, but the trustee did not make the required notice and certification on time because the attorney failed to advise the spouse about the filing. The IRS concluded that the taxpayer acted reasonably and in good faith under the relief rules for late regulatory elections. The extension lasted until the date on which the estate filed Form 706-QDT.

Ruling snapshot

• Question: May a qualified domestic trust receive more time to file the notice and certification that its surviving spouse became a United States citizen?
• Outcome: Approved
• Key authorities: IRC §§ 2001, 2056, and 2056A; Treas. Reg. §§ 20.2056A-10 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201220017
Third Party Communication: None
Release Date: 5/18/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00, 2056A.00-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:04
PLR-142738-11
RE: -----------------------------
Date:
January 26, 2012

Legend

Decedent = ---------------------------------------------
Spouse = ---------------------------------------------------
Trust = -----------------------------------------------------------------------------------------
-
------------------------
U.S. Trustee = ----------------------------------------------------------
Date 1 = ----------------
Date 2 = ----------------
Date 3 = ---------------------
Date 4 = ---------------------
Date 5 = -------------------
Date 6 = -----------------------
Attorney = -------------------------

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

This letter responds to your letter dated October 10, 2011, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to file Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts, to notify and certify to the Internal Revenue Service (Service) that Spouse, who is the beneficiary of Trust, has become a United States citizen.

Decedent died intestate on Date 1, survived by Spouse. At the time of Decedent’s death, Spouse was not a United States citizen. On Date 2, Spouse established a Qualified Domestic Trust (QDOT) (Trust) under § 2056A. Also, on Date 2, Spouse executed an irrevocable assignment to Trust. On Date 3, Spouse, as executrix of Decedent’s estate, timely filed Decedent’s Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and elected, on Schedule M, to treat Trust as a QDOT. On Date 4, Spouse became a U.S. citizen. It is represented that Spouse has continuously resided in the United States from the date of Decedent’s death and at all times thereafter and remains a resident of the United States. On Date 5, Trust was
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funded with assets that passed to her from Decedent. On Date 6, Decedent’s estate filed a Form 706-QDT.

It is represented that no distributions have been made from Trust to Spouse or any other person. Attorney inadvertently failed to advise Spouse about the necessity to file the form and failed to prepare Form 706-QDT until Date 6. Thus, the U.S. Trustee did not make such notification and certification of Spouse’s U.S. citizenship during the required time period. Upon discovery of this failure, U.S. Trustee and Spouse promptly submitted this private letter ruling request.

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 is determined by deducting from the value of the gross estate an amount equal to the value of any interest in property that passes or has passed from the decedent to the surviving spouse.

Section 2056(d)(1) provides that, except as provided in paragraph (2), if the surviving spouse is not a citizen of the United States, no deduction shall be allowed under § 2056(a). Section 2056(d)(2) provides that paragraph (1) shall not apply to any property passing to the surviving spouse in a QDOT.

There are three main requirements under § 2056A that must be satisfied in order for a trust to be a QDOT. The trust instrument must require that at least one trustee of the trust be an individual citizen of the United States or a domestic corporation, and provides that no distribution (other than a distribution of income) may be made from the trust unless a trustee who is an individual citizen of the United States or a domestic corporation has the right to withhold from the distribution the tax imposed by § 2056A on the distribution. In addition, the trust must meet the requirements of the regulations under § 2056A(b)(1). Finally, the executor must make an election under this section on the federal estate tax return to qualify the property for the federal estate tax marital deduction.

Section 2056A(b)(1) provides that an estate tax is imposed on — (A) any distribution before the date of death of the surviving spouse from a qualified domestic trust, and (B) the value of the property remaining in a qualified domestic trust on the date of the death of the surviving spouse.

Section 2056A(b)(12) provides, in part, that if the surviving spouse of the decedent becomes a citizen of the United States and if such spouse was a resident of the United States at all times after the date of death of the decedent and before such
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spouse becomes a citizen of the United States, then the tax imposed by
§ 2056A(b)(1)(A) shall not apply to any distributions before such spouse becomes a citizen, and the tax imposed by § 2056A(b)(1)(B) shall not apply.

Section 20.2056A-10(a)(1) and (2) of the Estate Tax Regulations provides, in part, that a QDOT is no longer subject to the § 2056A estate tax if the surviving spouse becomes a citizen of the United States and the spouse was a resident of the United States at all times after the death of the decedent and before becoming a United States citizen; and the U.S. Trustee of the QDOT notifies the Internal Revenue Service and certifies in writing that the surviving spouse has become a United States citizen. Notice is to be made by filing a final Form 706-QDT on or before April 15th of the calendar year following the year in which the surviving spouse becomes a United States citizen, unless an extension of time for filing is granted under § 6081.

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 six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except in subtitles E, G, H, and I.

Section 301.9100-3 sets forth the standards that the Commissioner uses 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. These standards indicate that the Commissioner should grant relief when the taxpayer provides evidence proving 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 to 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, U.S. Trustee is granted an extension of time until Date 6 to file the required notice and certification with the Service that Spouse is a U.S. citizen.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

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

Sincerely,

Lorraine E. Gardner
Senior Counsel, Branch 4
(Passthroughs & Special Industries)

Enclosure (1)

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