Taxpayer receives more time to allocate GST exemption to trust

Plain-English summary

A taxpayer made a gift to an irrevocable trust with generation-skipping transfer tax potential. Although he hired tax professionals to prepare the gift tax return, they inadvertently failed to allocate his available GST exemption to the transfer. The IRS found that he reasonably relied on qualified tax professionals and satisfied the requirements for relief under Treas. Reg. § 301.9100-3. It granted 120 days to file a supplemental Form 709 allocating exemption based on the property's value when transferred, effective as of the original gift date.

Ruling snapshot

• Question: Could the taxpayer make a late allocation of GST exemption to an earlier trust contribution?
• Outcome: Approved, with 120 days to file a supplemental Form 709.
• Key authorities: IRC §§ 2631, 2632, 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: 201639002                                             Third Party Communication: None
Release Date: 9/23/2016                                       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-103270-16
                                                              Date:
                                                              June 02, 2016

Legend:

Taxpayer                        =   ------------------------
Trust                           =   ----------------------------
Date 1                          =   --------------------------
Date 2                          =   --------------------------

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

       This letter responds to your authorized representative’s letter of
December 21, 2015, 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 a transfer to a
trust.

       The facts, as represented, are as follows. On Date 1, a date before
December 31, 2000, Taxpayer created Trust, an irrevocable trust. Trust has GST tax
potential. On Date 2, also a date before December 31, 2000, Taxpayer made a gift to
Trust. Taxpayer retained tax professionals to prepare his Form 709, United States Gift
(and Generation-Skipping Transfer) Tax Return, to report the gift to Trust. In preparing
the Form 709, the tax professionals inadvertently failed to allocate Taxpayer’s GST
exemption to Trust. Taxpayer represents that he has GST exemption available to
allocate to the Date 2 transfer to Trust.

        Taxpayer requests an extension of time to allocate GST exemption to the Date 2
gift to Trust and that such allocation be based on the value of the property transferred to
Trust on Date 2.

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-103270-16                                 2


       Section 2602 provides that the amount of the tax imposed by § 2601 is the
taxable amount multiplied by the applicable rate.

       Section 2631(a) in effect on the tax year in question, provides that for purposes
of determining the inclusion ratio, every individual shall be allowed a GST exemption
amount 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
exemption under §2631(a) may be made at any time on or before the date prescribed
for filing the estate tax return for such individual’s estate (determined with regard to
extensions), regardless of whether such return is required to be filed.

       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. Under
§ 2642(a), 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
under § 2631 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(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
§ 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 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)
PLR-103270-16                               3

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).

        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)(v) provides, in part, 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 representations made, we conclude that the
requirements of § 301.9100-3 are satisfied. Therefore, Taxpayer is granted an
extension of time of 120 days from the date of this letter to allocate GST exemption to
the Date 2 gift to Trust. The allocation will be based upon the value of the property
transferred to Trust on Date 2 and effective as of Date 2.

       The allocation should be made on a Supplemental Form 709 for the year in
which the Date 2 gift occurred and filed with the Internal Revenue Service Center
Cincinnati Service Center - Stop 82, Cincinnati, OH 45999, for association with the
Form 709. You should attach a copy of this letter 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.

      In accordance with the Power of Attorney on file with the office, we have sent a
copy of this letter to your authorized representatives.
PLR-103270-16                               4

       The ruling contained in this letter is 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,

                                     Melissa C. Liquerman

                                     Melissa C. Liquerman
                                     Chief, Branch 4
                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)


Enclosures: Copy for § 6110 purposes