Estate receives 120 days to make QTIP election

Plain-English summary

A decedent's will created a marital trust that paid all net income to the surviving spouse at least quarterly and allowed principal distributions for the spouse's support. The estate's Form 706 listed the trust property on Schedule M but treated it as non-QTIP property and did not make the qualified terminable interest property election. The executors requested relief to correct the omission. The IRS found that the requirements of Treasury Regulation section 301.9100-3 were satisfied and granted 120 days to make the QTIP election. The election had to be made on a supplemental Form 706 with a copy of the ruling attached.

Ruling snapshot

• Question: Could the estate make a late QTIP election for the marital trust property listed on its estate tax return?
• Outcome: approved, with 120 days to file a supplemental Form 706
• Key authorities: IRC § 2056(a) and (b)(7); Treas. Reg. §§ 20.2056(b)-7 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201714020 Third Party Communication: None
Release Date: 4/7/2017 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2056.07-01
Person To Contact:
------------------------ -----------------------, ID No. ------------
--------------------------- Telephone Number:
------------------- --------------------
---------------------------- Refer Reply To:
CC:PSI:04
Re: ---------------------------------- PLR-123620-16
Date:
December 06, 2016

LEGEND
Decedent = ------------------------

Spouse = ------------------
Child = ----------------------
Date = ------------------------
Marital Trust = -----------------------------------------------------------------------

-

-------------------------------------------------------------------------------------------------------------

CPA = -------------------

Dear -----------------

This letter responds to your authorized representative’s letter of July 26, 2016,
requesting an extension of time under § 301.9100-1 and § 301.9100-3 of the Procedure
and Administration Regulations to make a qualified terminable interest property (QTIP)
election under § 2056(b)(7) of the Internal Revenue Code.

The facts and representations submitted are as follows. Decedent died on Date. Under
Section V.A. of her will, a trust (Marital Trust) is to be established for the lifetime benefit
of Spouse. Under Section V. B., all of the net income of the Marital Trust is to be paid
to Spouse at least quarterly. In addition, the trustee may pay to Spouse such amounts

PLR-123620-16 2

of principal as the trustee may, from time to time, determine necessary to support and
maintain Spouse in the standard of living to which he was accustomed during
Decedent’s lifetime. On Spouse’s death, the Marital Trust is to terminate, and the trust
property is to be distributed to or for Decedent’s then living descendants.

Under Section IX.A., Spouse has the power to appoint the assets of any trust of which
he is a beneficiary to Decedent’s children and descendants of Decedent’s children.

Under Section XI.V., the trustee may divide any trust into two separate trusts in the
event the undivided trust will have an inclusion ratio for federal Generation-Skipping
Transfer Tax purposes greater than zero but less than one and, in the trustee’s
discretion, such division is otherwise advisable.

Spouse and Child are the co-executors of Decedent’s estate. They engaged CPA to
prepare the Form 706, United States Estate (and Generation-Skipping Transfer) Tax
Return for Decedent’s estate. On Schedule M, the value of the property that passed to
the Marital Trust was listed as property other than QTIP property, and for which no
QTIP election was made.

You have requested an extension of time under §§ 301.9100-1 and 301.9100-3 to make
a QTIP election under § 2056(b)(7) to treat the Marital Trust as QTIP property.

LAW AND ANALYSIS

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent
who is a citizen or resident of the United States.

Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of the
taxable estate shall, except as limited by § 2056(b), be determined by deducting from the
value of the gross estate an amount equal to the value of any interest in property which
passes or has passed from the decedent to the surviving spouse, but only to the extent that
such interest is included in determining the value of the gross estate.

Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest property,
for purposes of § 2056(a), such property shall be treated as passing to the surviving
spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be treated
as passing to any person other than the surviving spouse.

Section 2056(b)(7)(B)(i) defines the term “qualified terminable interest property” as
property: (I) which passes from the decedent; (II) in which the surviving spouse has a
qualifying income interest for life as defined in § 2056(b)(7)(B)(ii); and (III) to which an
election under § 2056(b)(7) applies.

Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with respect to

PLR-123620-16 3

any property shall be made by the executor on the return of tax imposed by § 2001.
Such an election, once made, shall be irrevocable.

Section 20.2056(b)-7(b)(4)(i) of the Estate Tax Regulations provides that, in general, the
election referred to in § 2056(b)(7)(B)(i)(III) and (v) is made on the return of tax imposed
by § 2001. For purposes of this paragraph, the term “return of tax imposed by § 2001”
means the last estate tax return filed by the executor on or before the due date of the
return, including extensions or, if a timely return is not filed, the first estate tax return
filed by the executor after the due date.

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 Internal
Revenue 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 date is prescribed by a regulation (and not
expressly provided by statute).

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.

In the present case, the Marital Trust was created for the benefit of Spouse. Although it
was identified on Schedule M, the return did not include a QTIP election for the Marital
Trust property.

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, the executor of
Decedent’s estate is granted an extension of time of 120 days from the date of this letter
to make a QTIP election with respect to the Marital Trust.

The election should be made on a supplemental Form 706 filed with the Cincinnati
Service Center at the following address: Internal Revenue Service Center, Cincinnati,
OH 45999. A copy of this letter should be attached to the supplemental Form 706. A
copy is enclosed for this purpose.

PLR-123620-16 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 ruling, it is subject to verification on examination.

Except as specifically ruled 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 taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs and Special Industries)


                                     Leslie H. Finlow
                                     Leslie H. Finlow, Senior Technician Reviewer,
                                     Branch 4
                                     Office of Associate Chief Counsel
                                     (Passthroughs and Special Industries)

Enclosure
Copy of letter for 6110 purposes