Taxpayer received more time to allocate GST exemption to a trust transfer

Plain-English summary

A taxpayer transferred property to an irrevocable trust with generation-skipping transfer tax potential. Her tax professional timely filed the gift tax return but failed to allocate her available GST exemption to the transfer. The taxpayer sought relief that would make a late allocation effective as of the original transfer date. Because she reasonably relied on a qualified professional who missed the allocation, the IRS found the regulatory relief requirements satisfied. It granted 120 days to allocate the exemption on a supplemental Form 709 using the transfer's gift-tax value.

Ruling snapshot

• Question: Could the taxpayer make a late allocation of GST exemption to the trust effective as of the original transfer date?
• Outcome: Approved. The IRS granted 120 days to file the allocation on a supplemental Form 709.
• Key authorities: IRC §§ 2631, 2632, and 2642(g); Treas. Reg. §§ 26.2632-1 and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201426015
Third Party Communication: None
Release Date: 6/27/2014
Date of Communication: Not Applicable
Index Number: 2632.00-00, 9100.00-00
Person To Contact:
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------------------------------, ID No. ------------
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Telephone Number:
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In RE; Ruling Request
Refer Reply To:
CC:PSI:B04
PLR-141108-13
Date:
March 13, 2014

Legend:

Taxpayer = ---------------------
Trust = -----------------------------------------------------------
Year 1 = ------

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

This letter responds to your personal representative’s letter of September 6, 2013, and subsequent correspondence, requesting an extension of time under § 2642(g) of the Internal Revenue Code and §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to allocate generation-skipping transfer tax (GST) exemption to a transfer to a trust.

In Year 1, Taxpayer established Trust, an irrevocable trust. Trust has GST potential. Also in Year 1, Taxpayer transferred property to Trust. Taxpayer retained a tax professional to file her Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, reporting the transfer to Trust. The Form 709 was timely filed. In preparing the Form 709, however, the tax professional failed to allocate Taxpayer’s GST exemption to the transfer. Taxpayer represents she has sufficient GST exemption available to allocate to this transfer.

Taxpayer is requesting an extension of time under §§ 2642(g) and 301.9100-3 to allocate GST exemption to the Year 1 transfer, effective as of the date of the transfer.

Law and Analysis:

Section 2601 imposes a tax on every GST. A GST 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 applicable
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2

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 the year at issue, provides that for purposes of determining the GST tax, every individual is 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(b) provides that any allocation under § 2631(a), once made, is 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 in a direct skip, 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 or is deemed to be made under § 2632(b)(1) or (c)(1), the value of such property for purposes of § 2642(a) is its value as finally determined for purposes of chapter 12.

Section 2642(g)(1)(A) provides that the Secretary will 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 will 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 will 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) is 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.
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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. Therefore, Taxpayer is granted an extension of time of 120 days from the date of this letter to allocate her available GST exemption to the Year 1 transfer to Trust. The allocation will be effective as of the date of the transfer and the fair market value of the transfer as determined for Federal gift tax purposes will be used to determine the amount of GST exemption to be allocated to Trust.

This allocation should be made on a supplemental Form 709 for Year 1. The Form 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 Form 709.

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.

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,

James F. Hogan

James F. Hogan
Chief, Branch 9
(Passthroughs & Special Industries)

Enclosures: Copy for § 6110 purposes

cc: