Donor's estate and spouse receive 120 days to allocate GST exemption to a charitable remainder trust

Plain-English summary

A donor created a charitable remainder unitrust that paid a lifetime unitrust amount to a grandchild and then passed the remainder to charity. The donor and spouse elected to split the gift, but their accounting firm did not allocate either spouse's generation-skipping transfer tax exemption on their Forms 709. They discovered the GST consequences while preparing the donor's estate tax return after the donor died. The IRS found that the failure resulted from reliance on a qualified tax professional and granted relief. The executor and surviving spouse each received 120 days to file amended Forms 709 allocating available GST exemption effective as of the original transfer date.

Ruling snapshot

• Question: Could the donor's executor and surviving spouse make late GST exemption allocations to their split gift to the charitable remainder unitrust?
• Outcome: Approved, with 120 days from the ruling date to file amended Forms 709.
• Key authorities: IRC §§ 2513, 2631, 2642(a), 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: 202133006 Third Party Communication: None
Release Date: 8/20/2021 Date of Communication: Not Applicable
Index Number: 2632.00-00, 2642.00-00,
9100.00-00 Person To Contact:
------------------------, ID No. -----------------
------------------------------ Telephone Number:
--------------------------- --------------------
------------------------------ Refer Reply To:
CC:PSI:B04
PLR-121020-20
Date:
March 03, 2021

In Re: ----------------------------------------------------

Legend

Date 1 = -------------------------
Year = -------
Date 2 = --------------------------
Donor = -------------------------

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

Executor = --------------------------
Grandson = ----------------------------

Charity = --------------------------------------------------
CRUT = -----------------------------------------------------------------------------

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

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

   This letter responds to your personal representative’s letter of August 15, 2020,

and subsequent correspondence, requesting an extension of time under § 2642(g) of
the Internal Revenue Code (Code) and § 301.9100-1 and § 301.9100-3 of the
Procedure and Administration Regulations to allocate generation-skipping transfer
(GST) tax exemption to CRUT.

PLR-121020-20 2

   The facts and representations submitted are as follows:

    On Date 1, in Year, a date after September 24, 1985 and before July 29, 1997,

Donor established and funded CRUT, a charitable remainder unitrust, which provides
for the annual payment of a unitrust amount for life to Grandchild. At Grandchild’s
death, the remainder of CRUT will be paid to Charity. On Date 1, Donor was married to
Spouse.

     Donor and Spouse relied on Accounting Firm to prepare for each taxpayer a

separate Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
reporting Donor’s Year transfer to CRUT. On each form, Donor and Spouse elected to
split gifts, noting on each of their Form 709s their consent to treat the transfers
occurring in Year as having been made one-half by each under § 2513 of the Code.
Accounting Firm reported the value of the transfer to CRUT but did not allocate any part
of either of Donor or Donor’s Spouse’s GST exemption to Donor’s Year transfer to
CRUT. As a result, no part of either of Donor or Donor’s Spouse’s GST exemption was
allocated to Donor’s Year transfer to CRUT.

  Donor died on Date 2. Executor, the executor of Donor’s estate, and Spouse

learned of the GST tax consequences of the unitrust payments from CRUT when the
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return was
being prepared for Donor’s estate.

    Executor requests an extension of time pursuant to § 2642(g) and § 301.9100-3

to allocate Donor’s available GST exemption to the Year transfers to CRUT and
requests that the GST exemption allocated to the transfers will be effective as of the
date of each transfer.

   Because Donor and Spouse elected to split Donor’s gifts for Year, Spouse

requests an extension of time pursuant to § 2642(g) and § 301.9100-3 to allocate
Spouse’s available GST exemption to the Year transfers to CRUT and requests that the
GST exemption allocated to the transfers will be effective as of the date of each
transfer.

Law and Analysis

    Section 2513(a)(1) provides that a gift made by one spouse to any person other

than his spouse shall be considered as made one-half by him and one-half by his
spouse, but only if at the time of the gift each spouse is a citizen or resident of the
United States. Under § 2513(a)(2), paragraph (a)(1) only applies if both spouses have
signified their consent to the application of paragraph (a)(1) in the case of all such gifts
made during the calendar year by either while married to the other.

  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)

PLR-121020-20 3

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 2641(a) defines the term
“applicable rate,” with respect to any GST transfer, as the product of the maximum
federal estate tax rate and the inclusion ratio with respect to the transfer.

   Section 2631(a), as in effect for Year, provides that, for purposes of determining

the inclusion ratio, every individual shall be allowed a GST exemption of $1,000,000
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 26.2632-1(b)(4) of the Generation-Skipping Transfer Tax Regulations

provides, in part, that an allocation of GST exemption to property transferred during the
transferor’s lifetime, other than in a direct skip, is made on Form 709.

   Section 2642(a)(1) provides that the inclusion ratio with respect to any property

transferred in a generation-skipping transfer is the excess (if any) of one over the
“applicable fraction.” Under 2642(a)(1), the applicable fraction is defined as a fraction
the numerator of which is the amount of the GST exemption allocated to the trust (or to
property transferred in a direct skip), and the denominator of which is the value of the
property transferred to the trust (or involved in the direct skip), reduced by the sum of
any federal estate tax or state death tax actually recovered from the trust attributable to
such property and any charitable deduction allowed under § 2055 or 2522 with respect
to such property.

    Section 2642(b)(1) provides, in part, that, except as provided in § 2642(f), if the

allocation of the GST exemption to any transfers of property is made on a gift tax return
filed on or before the date prescribed by § 6075(b) for such transfer, the value of such
property for purposes of § 2642(a) shall be its value as finally determined for purposes
of chapter 12 (within the meaning of § 2001(f)(2)) and such allocation will be effective
on and after the date of such transfer.

   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

PLR-121020-20 4

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, in part, that, under § 2642(g)(1)(B),

the time for allocating the GST exemption to lifetime transfers 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(a) provides that, in general, requests for extensions of time

for regulatory elections that do not meet the requirements of § 301.9100-2 must be
made under the rules of § 301.9100-3.

   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). In accordance with § 2642(g)(1)(B) and Notice
2001-50, taxpayers may seek an extension of time to make an allocation described in
§ 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5) under the
provisions of § 301.9100-3.

   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 representations made, we conclude that the

requirements of § 301.9100-3 have been satisfied. Accordingly, Executor is granted an
extension of time of 120 days from the date of this letter to allocate Donor’s available
GST exemption to Donor’s Year transfer to CRUT. Additionally, Spouse is granted an
extension of time of 120 days from the date of this letter to allocate Spouse’s available
GST exemption to Donor’s Year transfer to CRUT.

  Each election should be made on an amended Form 709 and filed with the

Kentucky Service Center at the following address: Internal Revenue Service Center

PLR-121020-20 5

Attn: E&G, Stop 824G 7940 Kentucky Drive Florence, KY 41042-2915. A copy of this
letter should be attached to each Form 709.

     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.

  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, a copy of this

letter is being sent to your authorized representatives.

                                       Sincerely,

                                       Associate Chief Counsel
                                       Passthroughs and Special Industries



                                       _________________________
                                By:    Melissa C. Liquerman
                                       Branch Chief, Branch 4
                                       Office of the Associate Chief Counsel
                                       (Passthroughs and Special Industries)

PLR-121020-20 6

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

cc:

cc: