Estate receives 120 days for missed GST allocations

Plain-English summary

A decedent's will made direct cash skips to grandchildren and divided the residue into two trusts for the decedent's sons, both with generation-skipping transfer potential. The estate's attorney reviewed the timely filed Form 706 but failed to allocate the decedent's available GST exemption properly to the direct skips and trusts. The IRS found that the estate acted reasonably and in good faith by relying on a qualified tax professional and that relief would not prejudice the government. It granted the personal representative 120 days to make the allocations on a supplemental Form 706. The allocations would be effective as of the decedent's death using values determined for federal estate tax purposes.

Ruling snapshot

• Question: Could an estate receive extra time to allocate the decedent's GST exemption after its attorney failed to make the allocations on Form 706?
• Outcome: Approved; the personal representative received 120 days to allocate the exemption to the direct skips and two trusts.
• Key authorities: IRC §§ 2631, 2632(a), 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: 201927013                                             Third Party Communication: None
Release Date: 7/5/2019                                        Date of Communication: Not Applicable
Index Number: 9100.00-00, 2632.00-00,
              2642.00-00                                      Person To Contact:
                                                              -----------------------------------------------------
----------------------------------------------------------    --------------------------------------
-----------------------                                       Telephone Number:
-------------------------                                     ----------------------

-                                                             Refer Reply To:
                                                              CC:PSI:B04
                                                              PLR-134287-18
                                                              Date:
                                                              March 19, 2019
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Legend

Decedent                             ---------------------------------------------------------
Date                                 ------------------------
Trust 1                              --------------------------------------------------------------------------------
                                     ------
Trust 2                              ---------------------------------------------------------
                                     ---------------------
Attorney                             ----------------------

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

       This letter responds to your authorized representative’s letter dated
November 15, 2018, and subsequent correspondence, requesting an extension of time
under § 2642(g) of the Internal Revenue Code (Code) and § 301.9100-3 of the
Procedure and Administration Regulations to allocate Decedent’s generation-skipping
transfer (GST) exemption to Trust.

         The facts and representations submitted are summarized as follows:

       Decedent died on Date. Decedent’s will provided direct skips of cash to each of
her grandsons. Pursuant to Decedent’s will, the residuary of the estate is divided into
two trusts for the benefit of her two sons, Trust 1 and Trust 2. Both Trust 1 and Trust 2
have GST potential.

       The personal representatives of Decedent’s estate hired Attorney to assist with
the administration of the estate. Attorney prepared Decedent’s will and was very much
involved in the administration of the estate. Attorney reviewed the estate’s Form 706,
United States Estate (and Generation-Skipping Transfer) Tax Return prior to filing. The
Form 706 contained several mistakes; in particular, Decedent’s available GST

PLR-134287-18                                2

exemption was not properly allocated to the direct skips, Trust 1, and Trust 2. Form 706
was timely filed prior to the extended due date.

       You have requested an extension of time under § 2642(g) and § 301.9100-3 to
allocate Decedent’s GST exemption to the direct skips, Trust 1, and Trust 2.

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 2632(a)(1) provides that an individual's GST exemption may be allocated
at any time on or before the date prescribed for filing the estate tax return for such
individual's estate (determined with regard to extensions), regardless of whether such
return is required to be filed.

       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.

      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

PLR-134287-18                                3

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
§ 2642(g).

       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. See Notice 2001-50,
2001-2 C.B. 189.

        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, is 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 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). 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. Therefore, the 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 direct skips
and to the transfers to Trust 1 and Trust 2. The allocations will be effective as of
Decedent’s date of death and the value of the transfer as determined for federal estate
tax purposes will be used in determining the amount of GST exemption to be allocated
to the direct skips, Trust 1, and Trust 2.

PLR-134287-18                                4

        The allocation should be made on a supplemental Form 706. The Form 706
should be 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 706. A copy is enclosed for this
purpose.

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

       Except as expressly provided herein, we neither express nor imply any opinion
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

      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)
provides that it may not be used or cited as precedent.



                                         Sincerely,

                                         Associate Chief Counsel
                                         Passthroughs and Special Industries




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



      Enclosures
            Copy for § 6110 purposes
            Copy of this letter


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