PLR 201315014: Taxpayers receive more time to allocate GST exemption

Plain-English summary

The IRS granted an extension of time for two taxpayers to allocate generation-skipping transfer tax exemption to transfers made to an irrevocable trust. An accountant prepared the taxpayers' gift tax returns but inadvertently failed to make the allocations, and the omission was discovered during a later estate-plan review. The ruling allows the allocations on Forms 709 for the relevant years. The taxpayers must attach a copy of the ruling to each return.

Ruling snapshot

• Question: What did the IRS decide under the facts presented?
• Outcome: Approved, on the stated facts and representations.
• Key authorities: IRC § 2642; IRC § 9100; IRC § 6110.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201315014
Third Party Communication: None
Release Date: 4/12/2013
Date of Communication: Not Applicable
Index Number: 2632.00-00, 9100.00-00
Person To Contact:
---------------------------------
-------------------------------, ID No. -----------
---------------------------
-----------------
---------------------------------------------------- Telephone Number:
----------------------
In Re: Ruling Request
Refer Reply To:
CC:PSI:B04
PLR-148316-12
Date:
December 17, 2012

Legend:

Taxpayer 1 = -----------------------
Taxpayer 2 = ---------------------
Trust = ----------------------------------------
Date 1 = --------------------------
Date 2 = ----------------------
Year 1 = -------
Year 2 = -------
Year 3 = -------

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

This letter responds to a letter from your authorized representative dated November 7, 2012, and subsequent correspondence, 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 Taxpayer 1’s and 2’s GST exemption to two transfers to a trust.

The facts and representations submitted are summarized as follows. On Date 1, in Year 1, Taxpayer 1 and 2 created and funded an irrevocable trust (Trust) for the benefit of their children and their descendants. It has been represented that neither taxpayer filed a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return for Year 1.

On Date 2, in Year 2, Taxpayer 1 and 2 each contributed property to Trust.
Taxpayer 1 and 2 retained an accountant to prepare their respective Forms 709 to report their transfers and allocate their GST exemption to Trust. Dates 1 and 2 are prior to December 31, 2000. In preparing the Forms 709 for Taxpayer 1 and 2, the accountant inadvertently failed to allocate their respective GST exemption to the transfers. This failure was discovered in Year 3, when their estate plan was reviewed.
PLR-148316-12
2

Taxpayer 1 and 2 represent that no taxable distributions or taxable terminations have occurred with respect to Trust and that no contributions, other than the Year 1 and 2 transfers, have been made to Trust. Taxpayer 1 and 2 further represent that, except for the Year 1 and 2 transfers, they have not made any other transfers that would utilize their respective GST exemptions.

Taxpayer 1 and 2 request an extension of time under § 2642(g) and §§ 301.9100-1 and 301.9100-3 to allocate their respective GST exemption to the Year 1 and 2 transfers to Trust.

Law and Analysis:

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 2631(a), as in effect at the time of the Year 1 and 2 transfers, provides that, for purposes of determining the GST tax, 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 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.
PLR-148316-12
3

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.

Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Taxpayer 1 and 2 are each granted an extension of time of 120 days from the date of this letter to allocate their respective GST exemption to the Year 1 and Year 2 transfers. The allocations will be effective as of the date of each transfer to Trust, and the value of each transfer to Trust, as determined for federal gift tax purposes, will be used in determining the amount of GST exemption to be allocated to Trust.

The allocations should be made on Forms 709 for Years 1 and 2 and filed with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter should be attached to each Form 709.
PLR-148316-12
4

This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3) 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.

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)

Lorraine E. Gardner
______
Lorraine E. Gardner
Senior Counsel, Branch 4
(Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures: Copy for § 6110 purposes