Estates receive time to allocate GST exemptions to trust

Plain-English summary

A married couple transferred community-property cash to an irrevocable trust for their son, daughter-in-law, and grandchildren. Their accountant did not advise them to file gift tax returns or allocate generation-skipping transfer exemptions because no gift tax was due. After both spouses died, their son discovered the omission while no taxable distribution, termination, or other GST event had occurred. The IRS found that the estates reasonably relied on a qualified tax professional and satisfied the regulatory relief standards. It granted each estate 120 days to file Form 709 and allocate the deceased spouse's GST exemption to the original trust transfer.

Ruling snapshot

• Question: May the spouses' estates make late allocations of their GST exemptions to the lifetime trust transfer?
• Outcome: Approved. Each estate received a 120-day extension to make its allocation.
• Key authorities: IRC §§ 2631, 2632, 2642(g); Notice 2001-50; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201434019
Third Party Communication: None
Release Date: 8/22/2014
Date of Communication: Not Applicable
Index Number: 2601.00-00, 9100.00-00
Person To Contact:
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---------------, ID No. ----------------
------------------------------------------ Telephone Number:
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Refer Reply To:
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CC:PSI:04
PLR-151395-13
Date:
April 29, 2014

RE: ---------------------------------------

Legend

Husband = -------------
Wife = ------------
Trust = ------------------------------------------------------
Date 1 = --------------------------
Attorney = ----------
Accountant = ------------------------
Son = ----------------------
Daughter-in-law = --------------
X = ---------
Date 2 = ----------------
Date 3 = -----------------

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

This letter responds to your submission dated November 11, 2013, 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 generation-skipping transfer (GST) exemption to Trust.
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The facts and representations submitted are summarized as follows.

On Date 1, Husband and Wife established an irrevocable trust, Trust, for the benefit of Son, Daughter-in-law and their children. Trust has GST potential. The co-trustees of Trust are Attorney and Accountant.

On the date Trust was established, Husband and Wife made a gift of cash held by them as community property to Trust in the amount of $X. Husband and Wife retained Accountant to prepare their tax returns, including Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Return. However, Accountant failed to advise Husband and Wife to file Forms 709 or to allocate any GST exemption to the gift. Accountant believed that no returns were required since no gift tax was due.

Husband died on Date 2. Wife died on Date 3. Son became aware of the necessity to allocate GST exemption upon Wife’s death.

Son, as Executor of Husband’s estate and Wife’s estate, requests an extension of time pursuant to § 2642(g) and §§ 301.9100-1 and 301.9100-3 to allocate Husband’s GST exemption and Wife’s GST exemption to the Date 1 transfer to Trust. It is represented that, to date, no taxable distributions, taxable terminations, or any other events have occurred with respect to Trust that would give rise to a GST tax liability.

Section 2601 provides that a tax is imposed on every generation-skipping transfer. Section 2611(a) provides that the term “generation-skipping transfer” means: (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) provides that, for purposes of determining the inclusion ratio, 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(b) provides that any allocation under § 2631(a), once made, shall be irrevocable.

Section 2632(a)(1) provides that any allocation by an individual of his or her GST
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exemption may be made at any time on or before the date prescribed for filing the estate tax return for such individual’s estate, regardless of whether such a return is required to be filed. Section 2632(a)(2) provides that the manner in which allocations are to be made shall be prescribed by forms or regulations issued by the Secretary.

Under Section 2642(a)(1), the inclusion ratio with respect to any property transferred in a GST is the excess (if any) of 1 over the applicable fraction. The applicable fraction, as defined in § 2642(a)(2), is a fraction, the numerator of which is the amount of the GST exemption allocated to the trust (or to property transferred in a direct skip), and the denominator of which is the value of the property transferred to the trust or involved in the direct skip.

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)).

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 under § 2642(g)(1), 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.

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 generation-skipping transfer 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.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a).
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Section 301.9100-2 provides an automatic extension of time for making certain elections. 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.

Section 301.9100-3(a) provides, in part, that requests for relief subject to § 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) provides, in part, except as provided in § 301.9100-(b)(3)(i) through (iii), 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. Accordingly, Husband’s estate and Wife’s estate are each granted an extension of time of 120 days to allocate Husband’s GST exemption and Wife’s GST exemption, respectively. The allocation of Husband’s GST exemption and Wife’s GST exemption should be made on Forms 709 and filed with the Cincinnati Service Center. A copy of this letter should be forwarded to the Internal Revenue Service, Cincinnati Service Center - Stop 82, Cincinnati, OH 45999, for each Form 709.

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.

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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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.

Sincerely,

James F. Hogan
Chief, Branch 4
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)

cc: