PLR 201315005: Estate receives more time to allocate GST exemption to trust transfers

Plain-English summary

The IRS granted a 120-day extension to allocate a deceased spouse's available generation-skipping transfer tax exemption to transfers made to a trust over 21 years. The couple had hired an accounting firm to prepare their gift tax returns, but the firm failed to advise them to allocate GST exemption. The IRS allowed the spouse's estate representatives to make the allocations effective as of the original transfer dates, using the property values determined for federal gift tax purposes. Supplemental Forms 709 for Years 1 through 21 were required.

Ruling snapshot

• Question: Could the taxpayer's estate make late GST exemption allocations to 21 years of trust transfers?
• Outcome: Approved, the taxpayer received 120 days from the letter date to make the allocations.
• Key authorities: IRC §§ 2642(g), 2631, and 2652; Treas. Reg. §§ 26.2632-1 and 301.9100-3; Notice 2001-50; IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201315005
Third Party Communication: None
Release Date: 4/12/2013
Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B04
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Date:
December 27, 2012

Legend

Husband
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Wife
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Accounting Firm
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Trust
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Child 1
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Child 2
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Year 1
-------
Year 21
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Year 22
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Year 23
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Date
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Dear --------------------:

This letter responds to your authorized representative’s letter dated July 19, 2012, 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 Wife’s GST exemption to the Years 1 through 21 transfers to Trust.

The facts and representations submitted are summarized as follows:
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On Date, Husband and Wife created Trust for the benefit of their children, Child 1 and Child 2, and for the benefit of the children of Child 1. Every year from Year 1 through Year 21, Husband and Wife made contributions to Trust.

Husband and Wife hired Accounting Firm (and its successors) to advise them with respect to their gifts and to prepare their Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns, for Years 1 through 21. Accounting Firm failed to advise Husband and Wife to allocate GST exemption to the transfers to Trust. Husband died in Year 22. Wife died in Year 23.

You have requested an extension of time under § 2642(g) and § 301.9100-3 to allocate Wife’s GST exemption to the Years 1 through 21 transfers to Trust.

LAW AND ANALYSIS

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 the term “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 Years 1 through 18, 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(a), as in effect for Years 20 and 21, 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 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.
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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 professional, including a tax professional employed by the taxpayer, and the tax
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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, Wife is granted an extension of time of 120 days from the date of this letter to allocate her available GST exemption to the Years 1 through 21 transfers to Trust. The allocations will be effective as of the respective dates 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 GST exemption to be allocated to Trust.

These allocations should be made on supplemental Forms 709 for Years 1 through 21. 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.
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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

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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