120-day extension granted to make a § 2032A special-use farm valuation election

Plain-English summary

When someone dies owning farmland, the estate can elect under Internal
Revenue Code § 2032A to value that land at its farm-use value rather than its
(usually higher) fair market value, which can cut the estate tax. The election
must be made on the estate tax return (Form 706). Here, the surviving spouse's
attorney never told her the election was available, so the timely-filed Form
706 omitted it; a later court-appointed administrator and his accounting firm
also missed the chance to fix it. The estate asked the IRS for more time under
Treasury Regulation § 301.9100-3, which lets the IRS extend the deadline for
certain elections when the taxpayer acted reasonably and in good faith (for
example, by relying on a tax professional who failed to advise them) and the
government is not prejudiced. The IRS found those standards met and granted a
120-day extension to make the § 2032A election on a supplemental Form 706. The
IRS expressed no view on whether the estate actually qualifies for special-use
valuation, only that it may now make the election.

Ruling snapshot

• Question: Should the estate get an extension of time to make the § 2032A
  special-use valuation election it missed on its original return?
• Outcome: Approved (120-day extension granted)
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; IRC § 2032A

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201908018                                                 Third Party Communication: None
Release Date: 2/22/2019                                           Date of Communication: Not Applicable
Index Number: 2032A.00-00, 9100.00-00
                                                                  Person To Contact:
-----------------------------------------------------------       ----------------------, ID No. ------------------
-----------------------                                           Telephone Number:
---------------------------------                                 ----------------------
                                                                  Refer Reply To:
                                                                  CC:PSI:B4
                                                                  PLR-122920-18
                                                                  Date:
Re: -------------------------------------                         October 30, 2018

Legend

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

Date 1                              =        ------------------

Date 2                              =        ---------------------------

Date 3                              =        ---------------------------

Date 4                              =        ------------------------

Spouse                              =        ------------------

Administrator Ad Litem              =        ----------------------------

Attorney                            =        -------------------------------------------

Accounting Firm                     =        -----------------------------------------------

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

This letter responds to your authorized representative’s letter of July 9, 2018, requesting
an extension of time pursuant to § 301.9100-3 of the Procedure and Administration
Regulations to elect to specially value qualified real property under § 2032A of the
Internal Revenue Code.

The facts and representations submitted are summarized as follows:

Decedent died on Date 1. Decedent named Spouse as personal representative of his
estate. Decedent’s estate included farmland. Spouse retained Attorney to prepare and
timely file Decedent’s Form 706, United States Estate (and Generation-Skipping
PLR-122920-18                                 2

Transfer) Tax Return. Attorney failed to advise Spouse that the Decedent’s estate had
an option to elect to specially value the farmland under § 2032A. On Date 2, Spouse
timely filed Form 706; however, she failed to make the § 2032A election. On Date 3,
Court removed Spouse as personal representative of Decedent’s estate and appointed
Administrator Ad Litem to complete the administration of Decedent’s estate.
Administrator Ad Litem retained Accounting Firm to prepare and file any additional tax
returns necessary to completion of the estate administration. Accounting Firm failed to
advise Administrator Ad Litem of actions he could take to request an extension of time
to make the § 2032A election. On Date 4, Administrator Ad Litem filed a supplemental
Form 706 to correct errors on the original Form 706; however, he failed to make the
§ 2032A election.

LAW AND ANALYSIS

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

Section 2032A(a)(1) provides, generally, that if the decedent was (at the time of his
death) a citizen or resident of the United States, and the executor elections the
application of § 2032A and files the agreement referred to in § 2032A(d)(2), then, for
purposes of chapter 11, the value of qualified real property shall be its value for the use
under which it qualifies under § 2032A(b)(1), as qualified real property.

Section 2032A (d)(1) provides that the election under § 2032A shall be made on the
return of tax imposed by § 2001. Such elections shall be made in such manner as the
Secretary shall by regulations prescribe. Such an election, once made, shall be
irrevocable.

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 301.9100-3 provides the standards the Commissioner will use 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).

A request for relief under § 301.9100-3 will be granted when the taxpayer provides
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.
PLR-122920-18                                3

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 filed to make, or advise the taxpayer to make, the election.

Based upon the facts submitted and the representations made, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, we
grant an extension of time of 120 days from the date of this letter to elect to specially
value the farmland under § 2032A. The election should be made on a supplemental
Form 706 filed with the Cincinnati Service Center at the following address: Internal
Revenue Service, Cincinnati Service Center – Stop 82, Cincinnati, Ohio 45999. A copy
of this letter should be attached to the supplemental Forms 709. A copy is enclosed for
this purpose.

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. Specifically, we express or imply no opinion on whether the estate qualifies
for special use valuation under § 2032A.

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.

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.

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

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)

                                 By: Lorraine E. Gardner
                                     Lorraine E. Gardner
                                     Senior Counsel, Branch 4
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)
Enclosures (2)

      Copy of this letter
      Copy for § 6110 purposes