Taxpayer may make late GST exemption allocation to trust

Plain-English summary

A taxpayer transferred property to an irrevocable trust with generation-skipping transfer tax potential. A tax professional failed to advise the taxpayer to allocate GST exemption on a timely Form 709. The IRS found that the taxpayer reasonably relied on the professional and met the standards for discretionary relief. It granted 120 days to file a supplemental Form 709 allocating available exemption effective as of the original transfer date, but did not rule that the trust would have a zero inclusion ratio.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201552006 Third Party Communication: None
Release Date: 12/24/2015 Date of Communication: Not Applicable
Index Number: 2632.00-00, 9100.00-00
Person To Contact:
--------------------------- -------------------------------, ID No. -----------
---------------------------- -----------------
-------------------------------------- Telephone Number:
----------------------
In Re: ---------------------------------------------------- Refer Reply To:
CC:PSI:B04
PLR-112098-15
Date:
August 18, 2015

Legend:

Taxpayer = ---------------------------
Trust = ------------------------------
Date = -------------------
Year = -------

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

   This letter responds to your authorized representative's letter of

February 23, 2015, requesting an extension of time pursuant to § 2642(g) of the Internal
Revenue Code and § 301.9100 of the Procedure and Administration Regulations to
allocate generation-skipping transfer (GST) exemption to a transfer to a trust.

   The facts submitted and the representations made are summarized as follows.

On Date, in Year, Taxpayer made a transfer to Trust, an irrevocable trust. Trust has
GST tax potential. Taxpayer retained a tax professional to advise him. The tax
professional inadvertently failed to advise Taxpayer to allocate GST exemption to the
transfer on a timely filed Form 709, United States Gift (and Generation-Skipping
Transfer) Tax Return. It has been represented that Taxpayer has sufficient GST
exemption available to allocate to the Date transfer to Trust.

    Taxpayer requests an extension of time pursuant to § 2642(g) and § 301.9100 to

allocate GST exemption to the Date transfer to Trust, with such allocation being
effective as of Date.

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.
PLR-112098-15 2

   Section 2602 provides that the amount of the tax is the taxable amount multiplied

by the applicable rate.

   Section 2631(a) provides that for purposes of determining the inclusion ratio,

every individual is 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, 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, a Federal gift tax
return.

   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 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 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 GST 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 §§ 301.9100-1 through 301.9100-3.

    Sections 301.9100 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).
PLR-112098-15 3

   Section 301.9100-2 provides an automatic extension of time for making certain

elections.

    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)(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 to 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 Taxpayer's
available GST exemption to the Date transfer to Trust. The allocation will be effective
as of Date and the fair market value of the Date transfer (as determined for Federal gift
tax purposes) will be used to determine the amount of Taxpayer's GST exemption to be
allocated to this transfer.

  The allocation should be made on a Form 709, United States Gift (and

Generation-Skipping Transfer) Tax Return, for Year 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 each
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. Specifically, we are not ruling on whether Trust will have a zero
inclusion ratio as a result of the allocation of Taxpayer’s exemption to the Date transfer.

  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.

     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
PLR-112098-15 4

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

                                  Leslie H. Finlow
                                  Senior Technician Reviewer, Branch 4
                                  (Passthroughs & Special Industries)

Enclosures:
Copy for section 6110 purposes

cc: