PLR 201240010: IRS extends time to allocate GST tax exemption to a trust

Plain-English summary

An estate and a surviving spouse asked for more time to allocate their generation-skipping transfer tax exemptions to transfers made to an irrevocable trust. An accountant had failed to allocate the exemptions properly on the relevant gift tax returns, and the taxpayers represented that no taxable distributions or terminations had occurred. The IRS granted each spouse a 120-day extension, with the allocations effective as of the original transfer dates and based on the contributions' values on those dates. The allocations must be made on supplemental Forms 709.

Ruling snapshot

• Question: Can an estate and surviving spouse make late GST exemption allocations to prior trust transfers?
• Outcome: Approved
• Key authorities: IRC §§ 2513, 2631, and 2642; Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201240010
Third Party Communication: None
Release Date: 10/5/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00, 2642.00-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B04
PLR-104517-12
Date:
June 28, 2012

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

Legend

Husband
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Wife
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Date 1
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Date 2
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Date 3
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Year
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Trust
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Property
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Accountant
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Dear ------------------:

This letter responds to a letter dated January 30, 2012, and subsequent correspondence, from your authorized representative, requesting extensions of time under § 2642(g)(1) of the Internal Revenue Code (Code) and §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to allocate generation-skipping transfer (GST) exemption to a trust.

Facts

You represent the facts to be as follows. Taxpayers are Husband and Wife. On Date 1, a date prior to December 31, 2000, Husband created an irrevocable trust, Trust, for the benefit of Taxpayers’ children and more remote issue. Husband transferred property, Property, to Trust on Date 2. Husband and Wife each filed a Form 709,
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United States Gift (and Generation-Skipping Transfer) Tax Returns for Year, and elected under § 2513 to treat the gifts as made one-half by each spouse.

Husband died on Date 3. In the process of preparing Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, Taxpayers’ accountant, Accountant, discovered that Accountant had failed to allocate Husband’s GST exemption and Wife’s GST exemption properly to the transfers attributable to each spouse on Husband’s Form 709 for Year and on Wife’s Form 709 for year.

Husband’s Estate and Wife request extensions of time to make allocations of his GST exemption and her GST exemption to the transfers to Trust. It is represented that, to date, no taxable distributions, taxable terminations, or any other events have occurred with respect to Trust that would give rise to a GST tax liability.

Law and Analysis

Section 2513(a) provides generally that, for gift tax purposes, if the parties consent, a gift made by one spouse to any person other than his or her spouse shall, for gift tax purposes, be considered as made one-half by the donor spouse and one-half by his or her spouse.

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 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 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, other than a direct skip, is made on Form 709.

Section 2642(b)(1)(A) 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)).

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
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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.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a).

Section 9100-2 provides an automatic extension of time for making certain elections. 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.

Section 301.9100-3(a) provides, in part, that requests for relief subject to § 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 the grant of relief will not prejudice the interests of the Government.

Section 301.9100-3(b)(1) provides, in part, except as provided in § 301.9100-3(b)(3)(i) through (iii), 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.

Based on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 are satisfied. Therefore, Husband’s Estate is granted an extension of time of 120 days from the date of this letter to allocate his available GST exemption to the Date 2 transfers to Trust. In addition, Wife is granted an extension of time of 120 days from the date of this letter to allocate her available GST exemption to the Date 2 transfers to Trust. The allocations will be effective as of the date of the transfers and will be based on the value of the contributions on the date of the transfers.
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The allocation of Wife’s GST exemption and Husband’s GST exemption should be made on supplemental Forms 709 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 each Form 709.

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.

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.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By: _____
James F. Hogan
Branch Chief, Branch 4
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosure
Copy for § 6110 purposes

cc: