QDOT received more time to report surviving spouse's citizenship

Plain-English summary

A surviving spouse who was not a U.S. citizen when the decedent died later became a citizen after continuously residing in the United States. The trustee of the qualified domestic trust relied on an accountant who failed to advise it to file the final Form 706-QDT notice and certification needed to end the trust's exposure to section 2056A estate tax. The IRS found that the trustee acted reasonably and in good faith under Treas. Reg. § 301.9100-3. It granted 120 days from the ruling date to file the required Form 706-QDT.

Ruling snapshot

• Question: Could the QDOT trustee receive more time to notify the IRS that the surviving spouse had become a U.S. citizen?
• Outcome: Approved, with 120 days from the ruling date to file Form 706-QDT.
• Key authorities: IRC § 2056A; Treas. Reg. §§ 20.2056A-10 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201431019 Third Party Communication: None
Release Date: 8/1/2014 Date of Communication: Not Applicable
Index Number: 2056A.00-00, 9100.00-00
Person To Contact:
-------------------- ----------------, ID No. ------------------
---------------------------------- Telephone Number:
--------------------- ----------------------
---------------------- Refer Reply To:
CC:PSI:04
PLR-150632-13
RE: --------------------------------------------- Date: APRIL 10, 2014

Legend

Decedent = ----------------------
Spouse = --------------------
Date 1 = ----------------------
Trustee = ----------------------
Date 2 = ---------------------------
Date 3 = ------------------
Accountant = ----------------------

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

    This letter responds to your authorized representative’s letter of

December 12, 2013, and other submissions, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file the notice and
certification required under § 20.2056A-10(a)(2) of the Estate Tax Regulations that
Spouse has become a United States citizen.

     The facts and representations submitted are as follows:

   Decedent died testate on Date 1, survived by Spouse, who was not a United

States citizen as of Date 1.

    Under the terms of Article 5 of Decedent’s Will, if Spouse is not a United States

citizen at the time of Decedent's death, a portion of the Trust assets (determined in
accordance with a specified formula) is to be distributed to a trust (QDOT) intended to
qualify as a qualified domestic trust described in § 2056A. Trustee, a domestic
corporation, is the trustee of the QDOT.

    It is represented that the executor of Decedent's estate timely filed the Form 706

(United States Estate (and Generation-Skipping Transfer) Tax Return) on or about
Date 2. The executor made an election (on Schedule M of the return) under § 2056A(d)
to treat the QDOT as a qualified domestic trust and claimed an estate tax deduction for
the value of the property transferred to the QDOT.

    On Date 3, Spouse became a United States citizen. It is represented that

Spouse has continuously resided in the United States from the date of Decedent's death
until the time that Spouse became a United States citizen.

   Subsequent to Date 3, Trustee requested advice from Accountant as to the effect

of Spouse becoming a United States citizen on future corpus distributions from QDOT.
Accountant failed to advise that Trustee must file the final Form 706-QDT (U.S. Estate
Tax Returns for Qualified Domestic Trusts) as required under § 20.2056A-10(a)(2), in
order that QDOT will no longer be subject to the estate tax imposed under § 2056A(b).
Accordingly, Trustee did not file a final Form 706-QDT. Recently, Trustee made
another inquiry as to the tax consequences of corpus distributions from QDOT. At that
time, Accountant became aware of the requirement to file a final Form 706-QDT by
April 15 of the subsequent year after the spouse obtains citizenship.

   Trustee requests an extension of time pursuant to § 301.9100-3 of the Procedure

and Administration Regulations to file a final Form 706-QDT notifying and certifying to
the Internal Revenue Service that Spouse has become a United States citizen, as
required by § 20.2056A-10(a)(2).

LAW AND ANALYSIS

 Section 2001(a) imposes a tax on the transfer of the taxable estate of every

decedent who is a citizen or resident of the United States.

   Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the

value of the taxable estate is to be determined by deducting from the value of the gross
estate an amount equal to the value of any interest in property that passes or has
passed from the decedent to the surviving spouse. Section 2056(d)(1)(A) and
2056(d)(2)(A) provides that if the surviving spouse of the decedent is not a United
States citizen, the marital deduction is not allowed under § 2056(a), unless the property
passes to the surviving spouse in a qualified domestic trust.

   Under § 2056A(a), a qualified domestic trust is any trust in which: (1) the trust

instrument requires that at least one trustee of the trust be an individual citizen of the
United States or a domestic corporation and provides that no distribution (other than
income) may be made from the trust unless a United States trustee has the right to
withhold from such distribution the tax imposed under § 2056A(b) on the distribution;
(2) the trust meets the requirements as the Secretary may by regulations prescribe to
ensure collection of the tax imposed by § 2056A(b); and (3) an election is made by the
executor of the decedent with respect to the trust.

   Under § 2056A(b)(1)(A), an estate tax is imposed on any distribution of principal

from the qualified domestic trust (other than on account of hardship) before the date of
death of the surviving spouse. In addition, under § 2056A(b)(1)(B) an estate tax is
imposed on the value of the property remaining in a qualified domestic trust on the date
of the death of the surviving spouse.

     Under § 2056A(b)(12) and § 20.2056A-10(a)(1) and (2) of the Estate Tax

Regulations, a QDOT is no longer subject to the estate tax imposed under § 2056A(b) if
the surviving spouse becomes a citizen of the United States, and the spouse was a
resident of the United States at all times after the death of the decedent and before
becoming a United States citizen, and the U.S. Trustee of the qualified domestic trust
notifies the Internal Revenue Service and certifies in writing that the surviving spouse
has become a United States citizen. Notice is to be made by filing a final
Form 706-QDT on or before April 15th of the calendar year following the year that the
surviving spouse becomes a citizen, unless an extension of time of up to 6 months for
filing is granted under § 6081.

    Under § 301.9100-1(c) of the Procedure and Administration Regulations, 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 Internal Revenue Code except subtitles E, G, H, and I.

   Section 301.9100-2 provides automatic extensions of time for making certain

elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

  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). The time for filing the notice required under
§ 20.2056A-10(a)(2) is not expressly prescribed by statute. Accordingly, Trustee may
seek an extension of time to file with the Internal Revenue Service the required notice
and certification that Spouse has become a United States citizen.

   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 the grant of 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. Therefore, Trustee is granted an
extension of time of 120 days from the date of this letter to file with the Internal Revenue
Service the required notice and certification that Spouse has become a citizen of the
United States. The required notice and certification should be made on a
Form 706-QDT. The Form 706-QDT should be filed with the Internal Revenue Service
Center, Cincinnati, OH 45999. A copy of this letter should be attached to the
Form 706-QDT. A copy is enclosed for this purpose.

   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.

  This ruling is directed only to the taxpayer 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 representative.

                                   Sincerely,


                                   Leslie H. Finlow
                                   Senior Technician Reviewer, Branch 4
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosures (2)