Late GST exemption allocations received 120-day extension

Plain-English summary

A taxpayer transferred property to two irrevocable trusts with generation-skipping-transfer potential and hired a tax professional to prepare Form 709, but the professional failed to allocate or recommend allocating the taxpayer's available GST exemption. The IRS concluded that the regulatory relief requirements were satisfied and granted 120 days to file a supplemental Form 709 allocating the exemption, effective as of the original transfer dates and using the gift-tax values of the transfers.

Ruling snapshot

• Question: Could the taxpayer make late allocations of GST exemption to transfers to two trusts?
• Outcome: Approved, with a 120-day extension and retroactive effect to the transfer dates.
• Key authorities: IRC §§ 2631, 2632, and 2642(g); Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201432008 Third Party Communication: None
Release Date: 8/8/2014 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-144796-13
Date:
April 15, 2014

Legend:

Taxpayer = ----------------------
Year = ------
Trust 1 = -------------------------------------------------------------------------------------
-------------------------------------------------------
Trust 2 = -------------------------------------------------------------------------------------
--------------------------------------------------
X = ---------
Y = ----------

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

   This letter responds to your personal representative’s letter of October 28, 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 (GST) exemption to
transfers to two trusts.

   In Year, Taxpayer established two irrevocable trusts, Trust 1 and Trust 2. Trust 1

and Trust 2 have GST potential. Also in Year, Taxpayer transferred property he valued
at $X to each of Trust 1 and Trust 2. Taxpayer retained a tax professional to prepare
his Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, to
report the transfers. In preparing the Form 709, however, the tax professional failed to
allocate or advise Taxpayer to allocate his GST exemption to the transfers. Taxpayer
represents that he has $Y of GST exemption available to allocate to these transfers.

   Taxpayer is requesting an extension of time under § 2642(g) and § 301.9100-3 to

allocate GST exemption to the Year transfers, effective as of the date of the transfers.

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 the 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 the year at issue, provides that for purposes of

determining the inclusion ratio, every individual shall be allowed a GST exemption of
$1,000,0000, 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 2642(b)(1), as in effect for the year at issue, provides that, 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) or is deemed to be made under
§ 2632(b)(1), the value of such property for purposes of § 2642(a) is its value for
purposes of chapter 12 and the allocation will be effective on and after the date of such
transfer.

  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.

  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 his available GST
exemption to the Year transfers to Trust 1 and Trust 2. The allocation will be effective
as of the date of the transfers and the fair market value of the transfers as determined
for Federal gift tax purposes will be used to determine the amount of GST exemption to
be allocated to Trust 1 and Trust 2.

   These allocations should be made on a supplemental Form 709 for Year. 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.

   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.

                                  Sincerely,


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

Enclosures: Copy for § 6110 purposes

cc: