Spouses get 120 days to complete GST allocations

Plain-English summary

A married couple made split gifts to two irrevocable trusts with generation-skipping transfer tax potential. Their Forms 709 reported amounts of GST exemption, but the accountant failed to attach the required notices of allocation and the spouses did not sign their respective returns. The IRS found that the couple reasonably relied on a qualified tax professional and satisfied the section 301.9100-3 standards. It granted 120 days from the ruling date to file signed Forms 709 with notices allocating GST exemption effective as of the original transfer dates.

Ruling snapshot

• Question: May the spouses make late allocations of GST exemption to transfers reported on their gift tax returns?
• Outcome: Approved
• Key authorities: IRC §§ 2513, 2631, 2632, and 2642(g); Treas. Reg. §§ 26.2632-1 and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service                                  Department of the Treasury
Washington, DC 20224

Third Party Communication: None
Date of Communication: Not Applicable
Number: 201615006                                          Person To Contact:
Release Date: 4/8/2016                                     ----------------------- #--------------
Telephone Number:
Index Number: 2642.00-00, 9100.00-00                       ---------------------
Refer Reply To:
-----------------------------                             CC:PSI:B04
-------------------------------                           PLR-125942-15
Date:
------------------------------
December 31, 2015
---------------------------

Re: --------------------------------------

Legend:
Taxpayer                                     =    -------------------------
-------------------------
Spouse                                       =   -------------------------
-------------------------
Date 1                                       =   ---------------------------
Date 2                                       =   -----------------------
Date 3                                       =   -------------------------
Date 4                                       =   ------------------
Year                                         =   -------
Trust                                        =   ------------------------------------------------
Other Trust                                  =   --------------------------------------------
x                                            =   -----------
y                                            =   --------
z                                            =   ---------

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

This letter responds to a letter from your authorized representative dated July 27, 2015,
and other correspondence, 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.

The facts and representations submitted are as follows. On Date 1, Taxpayer and
Spouse created an irrevocable trust (Trust). On Date 2, Taxpayer and Spouse created
another irrevocable Trust (Other Trust). Trust and Other Trust have GST tax potential.

PLR-125942-15                                        2

On Date 3, Taxpayer transferred $x to Trust. On Date 4, Taxpayer transferred $y to
Other Trust. Date 3 and Date 4 are in the same year (Year). Taxpayer and Spouse
filed Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns, for
Year reporting the gifts and electing pursuant to § 2513 to treat the gifts as made one-
half by Taxpayer and one-half by Spouse.1

On their returns, Taxpayer and Spouse each allocates z of GST exemption but failed to
attach a Notice of Allocation and to sign his or her respective return. Accountant
prepared the returns and advised Taxpayer and Spouse to affirmatively allocate GST
exemption to the transfers. The failures were later discovered.

Taxpayer and Spouse have requested an extension of time under § 2642(g) and
§§ 301.9100-1 and 301.9100-3 to allocate GST exemption to the transfers.

Section 2601 imposes a tax on every GST, which 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 GST tax is the taxable amount multiplied
by the applicable rate. Section 2641(a) defines “applicable rate” as the product of the
maximum federal estate tax rate and the inclusion ratio with respect to the transfer.

Section 2642(a)(1) provides that for purposes of chapter 13, the inclusion ratio with
respect to any property transferred in a GST is generally defined as the excess (if any)
of one over the “applicable fraction.” The applicable fraction, as defined in § 2642(a)(2),
is a fraction, the numerator of which is the amount of 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 2631(a), as in effect at the time of the transfer, provides that, for purposes of
determining the inclusion ratio, every individual shall be allowed a GST exemption of
$1,000,000 that may be allocated by such individual to any property with respect to
which such individual is the transferor.

1
Under § 2513(a)(1), if both spouses have signified their consent, a gift made by one spouse to any
person other than his spouse shall, for purposes of the gift tax, be considered as made one-half by him
and one-half by his spouse.

PLR-125942-15                                 3

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 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 transfer 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).

Section 2642(g)(1)(B) provides that in determining whether to grant relief, 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 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 § 301.9100-3.

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). Under § 301.9100-1(b), a regulatory election
includes an election whose due date is prescribed by a notice published in the Internal
Revenue Bulletin. In accordance with § 2642(g)(1)(B) and Notice 2001-50, taxpayers

PLR-125942-15                                  4

may seek an extension of time to make an allocation described in § 2642(b)(1) 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. Taxpayer and Spouse are granted
an extension of time of 120 days from the date of this letter to allocate GST exemption
(with an attached Notice of Allocation) to their transfers, as described above. The
allocations will be effective as of the date of the transfers, and the value of the transfers,
as determined for federal gift tax purposes, will be used in determining the amount of
Taxpayer’s and Spouse’s GST exemption to be allocated.

The allocations should be made on a Form 709, United States Gift (and Generation-
Skipping Transfer) Tax Return for the year in which the transfer was made, and filed
with the Internal Revenue Service Center, Cincinnati, Ohio 45999. A copy of this letter
should be attached to the Form 709. A copy is enclosed for this purpose.

Except as expressly provided herein, we express 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 taxpayers 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 representatives.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement

PLR-125942-15                                5

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,

Associate Chief Counsel
(Passthroughs & Special Industries)

Leslie H. Finlow
Leslie H. Finlow
Senior Technician Reviewer, Branch 4

Enclosures: Copy for § 6110 purposes
Two copies of this letter