Estate and spouse receive 120 days to allocate GST exemption

Plain-English summary

A decedent transferred property to an irrevocable trust for children and their families and elected with the decedent's spouse to treat the gift as made one-half by each spouse. Their accountant timely filed gift tax returns but did not allocate generation-skipping transfer tax exemption to the trust. After the decedent died, the estate and surviving spouse sought additional time to make the omitted allocations effective as of the original transfer date. The IRS concluded that the requirements for discretionary relief were satisfied. It granted 120 days to allocate available GST exemption on a supplemental Form 709 using the gift-tax values of the original transfer.

Ruling snapshot

• Question: Could the decedent's estate and surviving spouse make late GST exemption allocations to the split-gift trust?
• Outcome: approved, with 120 days to file a supplemental Form 709
• Key authorities: IRC §§ 2513, 2631, 2632, and 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: 201711001 Third Party Communication: None
Release Date: 3/17/2017 Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
Person To Contact:
----------------------- -------------------------, ID No. ----------
-------------------------- Telephone Number:
-------------------------------- ---------------------
Refer Reply To:
CC:PSI:B04
PLR-116147-16
Date:
November 10, 2016

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

Legend

Decedent = ---------------------
Spouse = -----------------------
Trust = --------------------------------------------
Date 1 = --------------------
Date 2 = ------------------------
CPA = -------------------

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

This letter responds to the letter dated May 16, 2016, submitted by your authorized
representative, 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 a transfer to a trust.

FACTS

The facts and representations submitted are as follows.

On Date 1 (a date prior to December 31, 2000), Decedent created an irrevocable trust,
Trust, for the benefit of his three children and their families. It is represented that Trust
is a GST trust within the meaning of § 2632(c)(3)(B). Later that year, Decedent
transferred separate property to Trust. CPA prepared Forms 709, United States Gift
(and Generation-Skipping Transfer) Tax Returns, for Decedent and Spouse, reporting
the transfer to Trust. Decedent and Spouse timely filed the Forms 709 and elected
pursuant to § 2513 to treat the gifts as made one-half by Decedent and one-half by
Spouse. Decedent died on Date 2. Thereafter, it was discovered that no GST
allocation had been made with respect to the transfer.
PLR-116147-16 2

Decedent’s estate and Spouse request an extension of time to make an election under
§ 2642(g)(1) and §§ 301.9100-1 and 301.9100-3 to allocate GST exemption to the
transfer to Trust, effective as of the date of the transfer to Trust.

LAW AND ANALYSIS

Section 2513(a) provides, in general, that if both spouses consent, a gift by one spouse
to any person other than his spouse shall be considered as made one-half by him and
one-half by his spouse.

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.

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).
PLR-116147-16 3

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 (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 six 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
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. Decedent’s estate and Spouse are
granted an extension of time of 120 days from the date of this letter to allocate available
GST exemption to the transfer to Trust. The allocations will be effective as of the date
of the transfer, and the values of the transfer, as determined for federal gift tax
PLR-116147-16 4

purposes, will be used in determining the amount of Decedent’s and Spouse’s GST
exemption to be allocated to the transfer.

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 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.

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.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                  Sincerely,

                                  Associate Chief Counsel
                                  Passthroughs & Special Industries



                                   By: Leslie H. Finlow
                                  Leslie H. Finlow
                                  Senior Technician Reviewer
                                 Branch 4
                                 Office of Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes

cc: