Estate receives 120 days to make a late QTIP election

Plain-English summary

A revocable trust became irrevocable at the decedent's death and divided property between a survivor's trust and a marital trust. The marital trust required all net income to be paid to the surviving spouse, permitted principal distributions for support, and was intended to qualify for the estate tax marital deduction if a qualified terminable interest property election was made. The estate's accountant timely filed Form 706 but omitted Schedule M, so no QTIP election was made. New estate-planning counsel found the error. Because the personal representative reasonably relied on a tax professional who failed to make the election, the IRS granted 120 days to file a supplemental Form 706 electing QTIP treatment for the marital trust.

Ruling snapshot

• Question: May the estate make a late QTIP election after its return preparer omitted Schedule M from a timely Form 706?
• Outcome: approved (a 120-day extension was granted)
• Key authorities: IRC §§ 2001 and 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202021003                                             Third Party Communication: None
 Release Date: 5/22/2020                                       Date of Communication: Not Applicable
 Index Number: 2056.07-00, 9100.00-00
                                                               Person To Contact:
 --------------------------------                              ---------------, ID No. -----------------
 ----------------------------------------------------          Telephone Number:
 --------------------------------                              --------------------
 --------------------------                                    Refer Reply To:
                                                               CC:PSI:04
                                                               PLR-118696-19
                                                               Date:
          RE: ------------- --------------------               January 29, 2020




Legend

Decedent         =        ---------------------------- -----------------
Spouse           =        --------------------------------------------
Trust            =        -----------------------------------------------------------------
Date 1           =        ----------------------
Date 2           =        --------------------------
Date 3           =        --------------------------
Accountant       =        --------------------

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

This letter responds to a letter dated July 31, 2019, submitted on behalf of Decedent’s
estate, 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. On Date 1, Decedent and
Spouse established a revocable trust, Trust, which was restated and amended on
Date 2. Trust became irrevocable upon Decedent’s death on Date 3.

Section 5.01 of Trust provides that upon the death of the first to die of Decedent or
Spouse, the surviving Trustmaker’s interest in community property and separate
property will be held in Survivor’s Trust. The deceased Trustmaker’s interest in
community property and separate property will be administered as Marital Trust.

Article Nine provides the terms of Marital Trust. Under this Article, the trustee shall
distribute all of the net income of Marital Trust to Spouse at least annually during
Spouse’s lifetime and the trustee shall distribute as much of the principal of Marital Trust
PLR-118696-19                                2

to Spouse as the trustee determines necessary for Spouse’s health, education,
maintenance and support. In addition, Spouse has the power to require the trustee to
convert unproductive property held in Marital Trust to productive property and Spouse
has the testamentary limited power to appoint all or any portion of the principal
remaining in Marital Trust among the descendants of Spouse and Decedent. Marital
Trust will terminate upon the death of Spouse. If Spouse has not fully exercised the
testamentary power of appointment over the trust property remaining at Spouse’s death,
the unappointed balance of Marital Trust is to be distributed in further trust for the
benefit of the descendants of Spouse and Decedent.

Section 9.07 provides that Marital Trust property is intended to constitute QTIP for
federal and state death tax purposes if and to the extent the trustee and or personal
representative makes the necessary elections.

Spouse, in her capacity as personal representative of the estate, retained Accountant to
prepare the Form 706, United States Estate (and Generation-Skipping Transfer) Tax
Return, for Decedent’s estate. Accountant prepared Form 706 for Decedent’s estate
but failed to prepare a Schedule M to include with the return. Form 706 was timely filed,
however, no QTIP election was made. After Form 706 was filed, new counsel was
retained to advise Spouse in her estate planning. It was at this time that Decedent’s
Form 706 was reviewed and the failure to file Schedule M and make the QTIP election
was discovered.

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 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
PLR-118696-19                                  3

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
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.

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, Spouse, as the personal
representative 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 Marital Trust.

The election should be made on a supplemental Form 706 filed with the Internal
Revenue Service Center at the following address: Department of the Treasury, Internal
Revenue Service Center, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.
A copy of this letter should be attached to the supplemental Form 706. A copy is
enclosed for this purpose.
PLR-118696-19                                4

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, including any issues pertaining to the Form 706 as filed.

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.

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


                                      Sincerely,


                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                  By: Karlene M. Lesho
                                     Karlene M. Lesho
                                     Senior Technician Reviewer, Branch 4
                                     (Passthroughs & Special Industries)



Enclosures (2)
      Copy for § 6110 purposes
      Copy of this letter


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