Late QDOT citizenship notice (Form 706-QDT) allowed so the trust escapes the section 2056A estate tax

Plain-English summary

When a U.S. decedent's surviving spouse is not a U.S. citizen, property qualifies for the estate-tax marital deduction only if it passes to a qualified domestic trust (QDOT), and distributions of principal from a QDOT are subject to a special § 2056A estate tax. That special tax stops applying if the surviving spouse later becomes a U.S. citizen, but only if the trustee notifies the IRS by filing a final Form 706-QDT. Here the spouse became a citizen but did not realize she had to file (and did not tell the trustee), so the certifying Form 706-QDT was never filed; the trustee learned of the citizenship only after the spouse died. The trustee asked the IRS for an extension under the § 301.9100-3 relief rules. The IRS granted 120 days to file the Form 706-QDT, finding the trustee acted reasonably and was unaware of the filing requirement, so distributions from the trust will not be subject to the § 2056A estate tax.

Ruling snapshot

• Question: May the trustee get an extension of time to file the Form 706-QDT certifying that the surviving spouse became a U.S. citizen, ending the § 2056A estate tax on the QDOT?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC §§ 2056A(b)(12), 2056(d); Treas. Reg. §§ 20.2056A-10, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202202006 [Third Party Communication:
Release Date: 1/14/2022 Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 2056A.00-00
Person To Contact:
-------------------------------- --------------------------, ID No. ----------------
---------------------------- Telephone Number:
-------------------------- --------------------
-------------------------------- Refer Reply To:
CC:PSI:B04
PLR-109793-21
Re: ------------------------------------------------------ Date:
-------------------------------------------------------- June 01, 2021

Legend

Decedent = ----------------------
Spouse = ----------------------
Trust = -------------------------------------------------------------------

Date 1 = --------------------------
Trustee = --------------------
Date 2 = ------------------
Date 3 = ---------------------------

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

This letter responds to your authorized representatives’ letter, dated April 23, 2021,
requesting an extension of time under § 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 submitted and representations made are as follows.

Decedent died on Date 1, survived by Spouse. Spouse was not a United States citizen
at the time of Decedent’s death. Shortly after Decedent’s death, Trustee established
and funded Trust, a Qualified Domestic Trust (QDOT), for the benefit of Spouse
pursuant to § 2056A of the Internal Revenue Code.

The executor of Decedent’s estate timely filed Decedent’s Form 706, United States
Estate (and Generation-Skipping Transfer) Tax Return, and elected, on Schedule M, to
treat Trust as a QDOT. The initial trustee and current trustee is Trustee, a United
States citizen.
PLR-109793-21 2

On Date 2, Spouse became a United States citizen. Spouse was unaware of the
necessity to file a final Form 706-QDT, United States Estate Tax Return for Qualified
Domestic Trusts), and did not inform Trustee that she had become a United States
citizen. Accordingly, Trustee did not file a Form 706-QDT as required under
§ 20.2056A-10(a)(2) in order that Trust would no longer be subject to the estate tax
imposed under § 2056A(b). Spouse died on Date 3. Following Spouse’s death,
Trustee learned that Spouse had become a United States citizen.

It is represented that Spouse continuously resided in the United States from the date of
Decedent’s death until Spouse became a United States citizen. It is represented that
from the time Trust was formed until Spouse’s date of death, Trustee distributed only
the income from Trust.

Trustee requests a ruling that an extension of time be granted pursuant to § 301.9100-3
to file a Form 706-QDT notifying and certifying that Spouse became a United States
citizen, as required under § 20.2056A-10(a)(2) and that distributions from Trust will not
be subject to tax under § 2056A(b)(1)(A) and (B).

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 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of
the taxable estate is 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) and 2056(d)(2)(A) provide that if the surviving spouse of the
decedent is not a United States citizen, no marital deduction is allowed under § 2056(a)
unless the property passes to the surviving spouse in a qualified domestic trust (QDOT).

Under § 2056A(a), a QDOT is any trust in which (1) the trust instrument requires that at
least one trustee of the trust is an individual citizen of the United States or a domestic
corporation, and provides that no distribution (other than income) may be made from the
trust unless a United States trustee or domestic corporation has the right to withhold
from such distribution the tax imposed on such distribution; (2) the trust meets the
requirements as the Secretary may by regulations prescribe to ensure collection of the
tax imposed by § 2056A(b); and (3) an election is made by the executor of the decedent
with respect to the trust.

Under § 2056A(b)(1)(A), an estate tax is imposed on any distributions 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
PLR-109793-21 3

on the value of the property remaining in the 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 QDOT 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 for filing is granted
under § 6081.

Under § 301.9100-1(c), the Commissioner may grant an 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 6 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 an automatic extension of time for making certain
elections.

Section 301.9100-3(a) provides the standards used to determine whether to grant an
extension of time to make an election whose due date is prescribed by 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, the trustee
may seek an extension of time to file with the Internal Revenue Service the required
notice and certification that Spouse became a United States citizen.

Requests for relief subject to § 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)(iii) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer failed to make the election because, after
exercising reasonable diligence (taking into account the taxpayer’s experience and the
complexity of the return or issue), the taxpayer was unaware of the necessity for the
election.

Based upon the facts submitted and representations made, we conclude that the
requirements of § 301.9100-3 have been met. Therefore, Trustee is 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 became 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 Department of the Treasury, Internal Revenue
PLR-109793-21 4

Service Center, Kansas City, MO 64999. A copy of this letter should be attached to the
Form 706-QDT.

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 representative.

                                Sincerely,

                                Associate Chief Counsel
                                (Passthroughs & Special Industries)




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

Enclosure:

   Copy for § 6110 purposes

cc: