QDOT trustees get 120 days to report the surviving spouse's citizenship

Plain-English summary

A decedent's estate claimed the marital deduction for property passing to a qualified domestic trust because the surviving spouse was not a U.S. citizen. The spouse later became a citizen after continuously residing in the United States from the decedent's death. Neither the spouse nor the CPA knew that the trust had to notify the IRS and certify the citizenship change by filing Form 706-QDT. The IRS found that the requirements for discretionary election relief were met. It granted the co-trustees 120 days to file the notice and certification on Form 706-QDT and attach the ruling. Filing the notice permits the QDOT to cease being subject to the additional estate-tax regime under IRC § 2056A(b), assuming the stated requirements are satisfied.

Ruling snapshot

• Question: May the QDOT trustees file a late notice and certification that the surviving spouse became a U.S. citizen?
• Outcome: Approved, with Form 706-QDT due within 120 days
• Key authorities: IRC § 2056A(b)(12); Treas. Reg. §§ 20.2056A-10(a), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201903012                                             Third Party Communication: None
Release Date: 1/18/2019                                       Date of Communication: Not Applicable
Index Number: 9100.00-00, 2056A.00-00
                                                              Person To Contact:
--------------------------                                    --------------------, ID No. ------------------
--------------------------------                              Telephone Number:
---------------------------------------                       ----------------------
                                                              Refer Reply To:
                                                              CC:PSI:4
                                                              PLR-113548-18
                                                              Date:
                                                              October 17, 2018

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

Legend 1

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

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

This letter responds to your personal representative’s letter of April 17, 2018, requesting
an extension of time pursuant to § 301.9100-3 of the Procedure and Administration
Regulations to file the notice and certification required under § 20.2056A-10(a)(2) of the
Estate Tax Regulations that Spouse has become a United States citizen.

The facts and representations submitted are as follows:

On Date 1, Decedent died, survived by spouse (Spouse). Spouse was not a citizen of
the United States at that time. On Schedule M of Decedent’s Form 706, the estate
claimed a marital deduction for property passing to a Qualified Domestic Trust (QDOT),
Trust. On Date 2, Spouse became a United States citizen. Spouse has continuously
resided in the United States from Date 1. Spouse was not aware of the notice and
certification requirements under § 20.2056A-10(a)(2) and was not advised by her CPA.

Spouse is requesting an extension of time under §301.9100-3 to file the notice and
certification required under § 20.2056A-10(a)(2).

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 is to be determined by deducting from the value of the gross estate
an amount equal to the value of any interest in property that passes or has passed from
the decedent to the surviving spouse. Section 2056(d)(1)(A) provides that if the
surviving spouse is not a citizen of the United States, the martial deduction is not
allowed under § 2056(a), unless the property passes to the surviving spouse in a
qualified domestic trust.

Under § 2056A, a qualified domestic trust is any trust in which: (1) the trust instrument
must require that at least one trustee of the trust be an individual citizen of the United
States or domestic corporation and that no distribution other than a distribution of
income may be made from the trust unless a trustee who is an individual citizen of the
United States or a domestic corporation has the right to withhold from the distribution
the additional estate tax imposed by § 2056A(b)(1) on the distribution; (2) the trust must
meet the requirements that are prescribed under Treasury regulations to ensure the
collection of the tax imposed by § 2056A(b); and (3) the executor must make the
election prescribed by § 2056A(d) to treat the trust as QDOT.

Under § 2056A(d) and § 20.2056A-3(a) of the Estate Tax Regulations, the election to
treat a trust as a QDOT must be made on the last federal estate tax return filed before
the due date (including extensions of time to file actually granted) or, if a timely return is
not filed, on the first federal estate tax return filed after the due date. The election, once
made, is irrevocable. No election may be made if the return is filed more than one year
after the due date of the return.

Under § 2056A(b)(1)(A), an estate tax is imposed on any distribution of principal from
the qualified domestic trust (other than on account of hardship) before the date of death
of the surviving spouse. In addition, under § 2056A(b)(1)(B) an estate tax is imposed on
the value of the property remaining in a qualified domestic trust on the date of the death
of the surviving spouse.

Under § 2056A(b)(12) and § 20.2056A-10(a)(1) and (2), a QDOT is no longer subject to
the estate tax imposed under § 2056A(b) if the surviving spouse becomes a citizen of
the United States, and the spouse was a resident of the United States at all times after
the death of the decedent and before becoming a United States citizen, and the U.S.
Trustee of the qualified domestic trust notifies the Internal Revenue Service and certifies
in writing that the surviving spouse has become a United States citizen. Notice is to be
made by filing a final Form 706-QDT on or before April 15th of the calendar year
following the year that the surviving spouse becomes a citizen, unless an extension of
time of up to 6 months for filing is granted under § 6081.

Section 301.9100-1(c) provides that the Commissioner may 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 301.9100-2 provides automatic extensions of time for making certain elections.
Section 301.9100-3 provides extensions of time for making elections that do not meet
the requirements of § 301.9100-2.

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). The time for filing the notice required under §
20.2056A-10(a)(2) is not expressly prescribed by statute. Accordingly, co-trustees may
seek an extension of time to file the required notice and certification with the Internal
Revenue Service that Spouse has become a United States citizen.

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 the grant of 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. Therefore, the co-trustees are
granted an extension of time of 120 days from the date of this letter to file with the
Internal Revenue Service the required notice and certification that Spouse has become
a citizen of the United States. The required notice and certification should be made on a
Form 706-QDT. The Form 706-QDT should be filed with the Internal Revenue Service
Center, Cincinnati, OH 45999. A copy of this letter should be attached to the Form 706-
QDT. A copy is enclosed for this purpose.

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

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.


                                     Sincerely,


                                     Associate Chief Counsel
                                    (Passthroughs and Special Industries)

                                     Melissa Liquerman
                               By: _____________________________

                                    Melissa Liquerman, Chief Branch 4
                                    Office of Associate Chief Counsel
                                    (Passthroughs and Special Industries)




Enclosures
     Copy for § 6110 purposes
     Copy of this letter



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