Grants 120 days for late GST exemption allocation

Plain-English summary

An estate timely filed its federal estate and generation-skipping transfer tax return, but its CPA failed to allocate the decedent's available GST exemption to a trust with generation-skipping potential. The personal representative requested additional time under section 2642(g)(1) and the Treasury regulations governing late regulatory elections. The IRS found that the estate acted reasonably and in good faith because it had relied on a qualified tax professional who failed to make the allocation. It granted 120 days from the ruling date to allocate the exemption on a supplemental Form 706. The allocation would be effective as of the original transfer date and would use the trust property's value determined for federal estate tax purposes.

Ruling snapshot

• Question: Could the estate receive extra time to allocate the decedent's GST exemption to the trust?
• Outcome: Approved, with a 120-day extension from the date of the ruling.
• Key authorities: IRC §§ 2631 and 2642(g)(1); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201834005 Third Party Communication: None
Release Date: 8/24/2018 Date of Communication: Not Applicable
Index Number: 2632.00-00, 2632.02-00,
7701.00-00, 9100.00-00 Person To Contact:
-------------------, ID No. ------------------
----------------------------------------------------------- Telephone Number:
---------------------------------------- --------------------
----------------------------------- Refer Reply To:
CC:PSI:B01
Re: ------------------------------------------ PLR-103785-18
Date:
May 14, 2018

LEGEND

Decedent = -----------------------------

Personal
Representative = -------------------------

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

Trust = -----------------------------------------------------------

Date = ---------------------------

Year = --------

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

This letter responds to your Personal Representative’s letter of January 29, 2018,
requesting an extension of time under § 301.9100 of the Procedure and Administration
Regulations and § 2642 of the Internal Revenue Code to allocate the generation-
skipping transfer (GST) exemption to a trust.

FACTS

The facts and representations submitted are summarized as follows: Decedent died
PLR-103785-18 2

testate on Date. Decedent’s estate included the assets in Trust. Trust has GST
potential.

CPA prepared and timely filed a Form 706, United States Estate (and Generation-
Skipping Transfer) Tax Return for Year. However, CPA failed to allocate Decedent’s
available GST exemption to Trust.

Personal Representative of Decedent’s estate requests an extension of time under
§ 2642(g)(1) and § 301.9100-1 to allocate Decedent’s available GST exemption to
Trust.

LAW AND ANALYSIS

Section 2601 imposes a tax on every generation-skipping transfer. A generation-
skipping transfer 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 tax imposed by § 2601 is the taxable
amount multiplied by the applicable rate.

Section 2631(a) provides that, for purposes of determining the GST tax, every individual
shall be 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, shall be
irrevocable.

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 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 the GST
exemption under § 2631 allocated to the trust, and the denominator of which is the
value of the property transferred to the trust.

Section 2642(b)(2)(A) provides that if property is transferred as a result of the death of
the transferor, the value of such property for purposes of § 2642(a) shall be its value as
finally determined for purposes of chapter 11; except that, if the requirements
prescribed by the Secretary respecting allocation of post-death changes in value are not
met, the value of such property shall be determined as of the time of the distribution
concerned. Section 2642(b)(2)(B) provides that any allocation to property transferred
as a result of the death of the transferor shall be effective on and after the date of the
death of the transferor.
PLR-103785-18 3

Section 2642(b)(4) provides that if the value of property is included in the estate of a
spouse by virtue of § 2044, and if such spouse is treated as the transferor of such
property under § 2652(a), the value of such property for purposes of subsection (a) shall
be its value for purposes of chapter 11 in the estate of such spouse.

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 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, are to be
treated as if not expressly prescribed by statute and taxpayers may seek an extension
of time to make an allocation described in § 2642(b)(1) or (b)(2) 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).

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.
PLR-103785-18 4

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, Personal Representative
of Decedent’s estate, is granted an extension of time of 120 days from the date of this
letter to allocate Decedent’s available GST exemption to the Year transfer to Trust. The
allocation will be effective as of the respective date of the transfer to Trust and the value
of the transfer to Trust as determined for federal estate tax purposes will be used in
determining the amount of Decedent’s GST exemption to be allocated to Trust.

This allocation should be made on a supplemental Form 706 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 Forms 709.

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.

Except as specifically ruled herein, we express or imply 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 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.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)

                                   Lorraine E. Gardner
                                   ______________________________
                               By: Lorraine E. Gardner
                                   Senior Counsel, Branch 4
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosures

Copy for section 6110 purposes
Copy of this letter