Grantor receives 120 days to allocate GST exemption to trust

Plain-English summary

A grantor created an irrevocable trust for a spouse and descendants and transferred stock to it. The grantor intended the trust to avoid generation-skipping transfer tax but relied on an accountant who failed to allocate GST exemption on the gift tax return. The IRS found that the regulatory-relief requirements were satisfied. It granted 120 days to file a supplemental Form 709 allocating available GST exemption, effective as of the original transfer date and using the transfer's gift-tax value.

Ruling snapshot

• Question: May the grantor make a late allocation of GST exemption to the trust?
• Outcome: Approved
• Key authorities: IRC §§ 2631, 2642(b), 2642(g); Treas. Reg. §§ 26.2632-1(b)(4), 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201537011 [Third Party Communication:
Release Date: 9/11/2015 Date of Communication: Month DD, YYYY]
Index Number: 2642.00-00, 9100.00-00
Person To Contact:
-------------------- ------------------------------, ID No. ------------
------------------------------ ---------
----------------------------------- Telephone Number:
----------------------
In Re: -------------------------------------------- Refer Reply To:
-------------------------------------------------- CC:PSI:B04
PLR-106904-15
Date: JUNE 01, 2015

Legend

Grantor = -----------------------------------------------
Spouse = -----------------------
Trust = ---------------------------------------------------------------------------------------

Trustees = ------------------------------------------------------
Accountant = ----------------------
Accounting Firm = ----------------------------
Law Firm = ------------------------------
Date 1 = --------------------------
Year 1 = -------
Year 2 = -------

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

   This responds to your personal representative's letter of January 29, 2015,

requesting an extension of time under § 301.9100 of the Procedure and Administration
Regulations and § 2642(g) of the Internal Revenue Code to allocate generation-skipping
transfer (GST) exemption to a trust.
PLR-106904-15 2

Facts

   The facts and representations submitted are summarized as follows: Grantor

established Trust, an irrevocable trust, on Date 1, in Year 1. Trust was created for the
benefit of Spouse and Grantor’s descendants. Trust was funded with stock. No
additional transfers have been made to Trust.

   Section 3 of Trust provides, in part, that during Spouse’s lifetime, the

independent Trustee, in his sole discretion, may distribute so much of the net income of
Trust as the Trustee may deem appropriate. Upon the written request of Spouse, the
Trustee will pay to Spouse, or use for Spouse’s benefit, so much of the principal of Trust
as Spouse may request not to exceed five percent of the value of the principal of Trust
valued at the end of the calendar year. In addition, Trustee may, in his sole discretion,
pay so much of the principal as is necessary for Spouse’s maintenance, support and
health.

    At Spouse’s death, Trust is to be divided into equal shares to provide one share

for each living child of Grantor, and one equal share for the then living descendants of a
deceased child of Grantor. Until the 10th anniversary of Spouse’s death, Trustee, in
Trustee’s sole and absolute discretion, may pay to each child so much of the net
income and principal as Trustee deems appropriate for the child’s maintenance in
reasonable comfort, support, health and for other purposes as Trustee deems
appropriate. After the 10th anniversary of Spouse’s death, Trustee may distribute to or
for the benefit of the child, so much of the net income as Trustee, in its sole discretion,
deems appropriate. Upon the written request of the child, the Trustee will pay to the
child, or use for the child’s benefit, so much of the principal of Trust as the child may
request not to exceed five percent of the value of the principal of Trust valued at the end
of the calendar year. In addition, Trustee, in its sole discretion, may pay so much of the
principal as is necessary for the child’s maintenance, support and health. In addition,
after the 10th anniversary of Spouse’s death, and for the life of the child, each child has
a limited power to appoint the principal and income of their trust to any of Grantor’s
descendants, other than such child, as the child designates, in writing.

    Accountant prepared the Form 709 United States Gift (and Generation-Skipping

Transfer) Tax Return for Year 1. Grantor’s Year 1 Form 709 reflected the gift to Trust.
However, Grantor failed to allocate any of her GST exemption to Trust. The error was
discovered in Year 2 when Law Firm discovered that no GST exemption had been
allocated to the Year 1 transfer on Grantor’s Form 709.

   Grantor signed an affidavit stating that she intended that Trust be a generation-

skipping trust and that she relied on Accountant to make the election in order for Trust
to pass without triggering the GST tax. Accountant signed an affidavit stating that
PLR-106904-15 3

Accounting Firm prepared Grantor’s Form 709, but did not allocate any of Grantor’s
GST exemption to Trust.

   You have requested an extension of time under § 2642(g)(1)and § 301.9100-3 to

allow Grantor to allocate her GST exemption to the transfer to Trust in Year 1.

Law and Analysis

   Section 2601 imposes a tax on every generation-skipping transfer. A generation-

skipping transfer is defined under § 2611(a) as (1) a taxable distribution, (2) a taxable
termination, and (3) a direct skip.

   Section 2631(a) provides that, for purposes of determining the GST tax, every

individual shall be allowed a GST exemption amount 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 26.2632-1(b)(4) 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, 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
this paragraph.

   Section 2642(g)(1)(B) provides that in determining whether to grant relief under

this paragraph, 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 under this paragraph, 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 is to be treated as if not expressly
PLR-106904-15 4

prescribed by statute and taxpayers may seek an extension of time to make an
allocation described in § 2642(b)(1) or (b)(2) 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). 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, Grantor 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
respective date of the transfer to Trust and the value of the transfer to Trust as
determined for federal gift tax purposes will be used in determining the amount of
Grantor’s GST exemption to be allocated to Trust.

  This allocation should be made on a supplemental Form 709 and 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 Forms 709.

  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.
PLR-106904-15 5

   Except as specifically ruled herein, we express or imply no opinion on the federal

tax consequences of the transaction under the cited provisions or under any other
provisions of the Code.

  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,

                                  Associate Chief Counsel
                                 (Passthroughs & Special Industries)




                          By:     ________________________
                                  Lorraine E. Gardner
                                  Senior Counsel, Branch 4
                                  Office of the Associate Chief Counsel
                                  (Passthroughs and Special Industries)

Enclosures
Copy for section 6110 purposes
Copy of this letter