PLR 201233013: IRS grants more time to allocate generation-skipping transfer tax exemption

Plain-English summary

The IRS granted a taxpayer 120 additional days to allocate generation-skipping transfer (GST) tax exemption to a transfer to an irrevocable trust. The taxpayer had relied on a qualified tax professional, but the professional did not advise the taxpayer to file the required gift tax returns or make the GST exemption allocation. The IRS concluded that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The allocation was to be made on the original Form 709 for the year of the later transfer, with the ruling attached.

Ruling snapshot

• Question: Could the taxpayer receive an extension of time to allocate GST exemption to the later transfer to the trust?
• Outcome: Approved. The IRS granted 120 days from the ruling date.
• Key authorities: IRC §§ 2601, 2602, 2611, 2631, 2632, 2641, and 2642; Treas. Reg. §§ 26.2632-1(b)(4)(i) and 301.9100-1 through 301.9100-3; Notice 2001-50.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201233013
Third Party Communication: None
Release Date: 8/17/2012
Date of Communication: Not Applicable
Index Number: 9100.00-00, 2642.00-00
Person To Contact:
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-------------------------------------------- Refer Reply To:
CC:PSI:4
RE: PLR-147484-11
Date: APRIL 30, 2012

Legend

Taxpayer = --------------------------------------------- Trust = ------------------------------------------------------------------------------------------------- Date 1 = ------------------------------------------------------------------------------------------------- Date 2 --------------------------
A = --------
B = -----
Attorney = ---------------------------------------------- Law Firm = ------------------------------- Year 1 = ------- Year 2 = ------- Year 3 = -------

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

This letter responds to a letter from your authorized representatives dated September 8, 2011, requesting an extension of time pursuant to § 2642(g) of the Internal Revenue Code and § 301.9100-3 of the Procedure and Administration Regulations to allocate generation-skipping transfer (GST) exemption to a transfer.

The facts and representations submitted are summarized as follows: Taxpayer created and funded an irrevocable trust (Trust) for the benefit of his children and their issue on Date 1 (in Year 1). On the same date, Taxpayer contributed $A of property to Trust. On Date 2 (in Year 2), Taxpayer contributed $B of property to Trust.

Taxpayer retained Attorney to advise him concerning both transfers. Attorney did not advise Taxpayer to file the Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return for Year 1 and 2. No returns were filed. Date 1 is prior to

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September 25, 1985 and Date 2 is after September 25, 1985. In Year 3, Law Firm discovered that Taxpayer failed to file Form 709 for Years 1 and 2, which resulted in Taxpayer not making an allocation of his GST exemption to Trust in Year 2.

Taxpayer represents that no taxable distributions or taxable terminations have occurred with respect to Trust and that no contributions, other than the Dates 1 and 2 transfers, have been made to Trust.

Taxpayer requests an extension of time under § 2642(g) and §§ 301.9100-1 and 301.9100-3 to allocate his GST exemption to the Date 2 transfer to Trust.

Section 2601 imposes a tax on every GST, which 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 GST tax is the taxable amount multiplied by the applicable rate. Section 2641(a) defines the term “applicable rate” as the product of the maximum federal estate tax rate and the inclusion ratio with respect to the transfer.

Section 2642(a)(1) provides that for purposes of chapter 13, the inclusion ratio with respect to any property transferred in a GST is generally defined as the excess (if any) of 1 over the “applicable fraction.” The applicable fraction, as defined in § 2642(a)(2), is a fraction, the numerator of which is the amount of GST exemption allocated to the trust (or to property transferred in a direct skip), and the denominator of which is the value of the property transferred to the trust or involved in the direct skip.

Section 2631(a), as in effect at the time of the Date 2 transfer, provides that, for purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption of $1,000,000 that 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)(i) of the Generation-Skipping Transfer Tax Regulations provides that an allocation of GST exemption to property transferred during the transferor’s lifetime is made on Form 709.

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, 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)).

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

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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)(1)(A), which was enacted into law on June 7, 2001.

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. 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 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). Under § 301.9100-1(b), a regulatory election includes an election whose due date is prescribed by a notice published in the Internal Revenue Bulletin. 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) 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.

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Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Taxpayer is granted an extension of time of 120 days from the date of this letter to allocate his available GST exemptions to the Date 2 transfer. The allocations will be effective as of the date of the transfer to Trust, and the value of the transfer Trust, as determined for federal gift tax purposes, will be used in determining the amount of Taxpayer’s GST exemption to be allocated to Trust.

The allocation should be made on the original Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, for the year in which the Date 2 transfer was made, and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to the Form 709. A copy is enclosed for this purpose.

Except as expressly provided 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.

This ruling is directed only to the taxpayers 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 representatives.

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 material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

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

Enclosures: Copy for § 6110 purposes
Two copies of this letter