120-day extension to make a late QTIP election after the accountant omitted it from the estate tax return

Plain-English summary

A married couple's trust split into a Marital Trust and a non-marital (Exempt) Trust when the first spouse died, and the estate planning intended the Marital Trust to qualify as qualified terminable interest property (QTIP). A QTIP election under section 2056(b)(7) lets property passing to a marital trust qualify for the unlimited estate tax marital deduction, deferring estate tax until the surviving spouse dies. The accountant who prepared the decedent's estate tax return (Form 706) mistakenly reported the whole estate as passing outright to the spouse, did not flag the Marital Trust for the QTIP election, and left off the GST schedule, so no election was ever made. The estate asked for relief under the section 301.9100-3 late-election rules, which are available when a taxpayer reasonably relied on a tax professional who failed to make the election. The IRS granted a 120-day extension to make the QTIP election on a supplemental Form 706, and noted that once made, the decedent's unused generation-skipping transfer (GST) tax exemption will be automatically allocated to the Exempt Trust.

Ruling snapshot

• Question: May an estate get more time to make a section 2056(b)(7) QTIP election that its accountant failed to make on the original estate tax return?
• Outcome: approved
• Key authorities: IRC § 2056(b)(7); IRC §§ 2631, 2632 (GST exemption allocation); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202229028                                             Third Party Communication: None
 Release Date: 7/22/2022                                       Date of Communication: Not Applicable
 Index Number: 2056.07-00, 2632.03-00,
               9100.00-00                                      Person To Contact:
                                                               -------------------------- ID No. -----------------
 ----------------------------------------                      -----------------------------------------------------
 --------------------------------                              Telephone Number:
 --------------------------                                    --------------------
 --------------------------                                    Refer Reply To:
                                                               CC:PSI:B04
 ----------------------------------------                      PLR-122469-21
                                                               Date:
                                                               April 26, 2022


 Legend

 Decedent                        --------------------------------------------
 Spouse                          -----------------------------------------------------
 Accountant                      -------------------------
 Trust                           ----------------------------------------------------
 Date                            -----------------

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

       This letter responds to a letter from your authorized representative dated
August 29, 2021, and subsequent correspondence, 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 (Code).

        The facts and representations submitted are summarized as follows:

      Decedent, and his spouse, Spouse, (collectively, the grantors) executed Trust.
Decedent died on Date. Decedent was survived by Spouse and children.

       Under Article 5 of Trust, upon the death of the first grantor, the surviving grantor’s
interest in any community property of the trust and the surviving grantor’s separate trust
property will be transferred and administered as the Survivor’s Trust. Trust is to
become irrevocable as it pertains to the administration and distribution of the deceased
grantor’s trust property.

        Under Article 7, the trustee is to divide deceased grantor’s remaining trust
property into two separate shares: Marital Share and Non-Marital Share. The trustees
are to allocate to Marital Share a pecuniary amount equal to the minimum amount
sufficient to reduce the federal estate tax to the lowest possible amount. The trustee is
to allocate the balance of the trust property to Non-Marital Share.
PLR-122469-21                                  2

        Under Article 9, the trustee is to administer the Marital Share as the Marital Trust.
The trustee is to distribute all the net income from the Marital Trust to the surviving
grantor at least quarter-annually during the surviving grantor’s lifetime. The trustee is to
distribute as much of the principal of the Marital Trust to the surviving grantor as the
trustee determines necessary for the surviving grantor’s health, education,
maintenance, and support.

        Article 9 further provides that the grantors intend that the Marital Trust constitute
qualified terminable interest property (QTIP) if and to the extent that the trustee makes
the necessary election. The surviving trustor is to have a testamentary limited power to
appoint all or any portion of the remaining assets of Marital Trust to any of the grantor’s
descendants and their spouses. Marital Trust is to terminate upon the death of the
surviving grantor.

       Under Article 10, the trustee is to administer the Non-Marital Share as the
Exempt Trust. The trustee is to distribute all the net income from the Exempt Trust to
the surviving grantor at least quarter-annually during the surviving grantor’s lifetime.
The trustee is to distribute as much of the principal of the Exempt Trust to the surviving
grantor as the trustee determines necessary for the surviving grantor’s health,
education, maintenance, and support.

       Article 10 further provides that the surviving trustor is to have a testamentary
limited power to appoint all or any portion of the remaining assets of Exempt Trust to
any of the grantor’s descendants and their spouses. Exempt Trust is to terminate upon
the death of the surviving grantor.

       Spouse, in her capacity as personal representative of Decedent’s estate, hired
Accountant to prepare Decedent's Form 706, United States Estate (and Generation-
Skipping Transfer) Tax Return. Accountant prepared and timely filed the Form 706 (with
extension). On Decedent’s Form 706, Accountant mistakenly reported that the entire
estate was treated as passing outright to surviving spouse. Accountant failed to identify
Marital Trust as property subject to the QTIP election. Accountant also failed to include
Schedule R with the return. As a result, no QTIP election was made with respect to
Marital Trust.

       You have requested an extension of time under § 301.9100-3 to make a QTIP
election under § 2056(b)(7) with respect to all of the property of Marital Trust.

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
PLR-122469-21                                  3

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 QTIP, 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 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)(ii) provides that the surviving spouse has a qualifying
income interest for life if: (I) the surviving spouse is entitled to all the income from the
property, payable annually or at more frequent intervals, or has a usufruct interest for
life in the property; and (II) no person has a power to appoint any part of the property to
any person other than the surviving spouse.

      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 (or § 2101). For purposes of § 20.2056(b)-7(b)(4)(i), 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 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.
PLR-122469-21                                4


       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 2632(e)(1) provides that, in general, any portion of an individual's GST
exemption which has not been allocated within the time prescribed by § 2632(a) shall
be deemed to be allocated as follows: (A) first, to property which is the subject of a
direct skip occurring at such individual's death, and (B) second, to trusts with respect to
which such individual is the transferor and from which a taxable distribution or a taxable
termination might occur at or after such individual's death.

        Section 26.2632-1(d)(2) of the Generation-Skipping Transfer Tax Regulations
provides that a decedent's unused GST exemption is automatically allocated on the due
date for filing the Form 706, or Form 706NA, to the extent not otherwise allocated by the
decedent's executor on or before that date. Unused GST exemption is allocated pro
rata (subject to the rules of § 26.2642-2(b)), on the basis of the value of the property as
finally determined for purposes of chapter 11 (chapter 11 value), first to direct skips
treated as occurring at the transferor's death. The balance, if any, of unused GST
exemption is allocated pro rata (subject to the rules of § 26.2642-2(b)) on the basis of
the chapter 11 value of the nonexempt portion of the trust property to trusts with respect
to which a taxable termination may occur or from which a taxable distribution may be
made. No automatic allocation of GST exemption is made to a trust that will have a
new transferor with respect to the entire trust prior to the occurrence of any GST with
respect to the trust. The automatic allocation is irrevocable.

       Section 2642(a)(1) provides that, generally, the inclusion ratio with respect to any
property transferred in a GST is the excess of one over the applicable fraction
determined for the trust. Section 2642(a)(2) provides that, in general, the applicable
fraction is a fraction the numerator of which is the amount of the GST exemption
allocated to the trust and the denominator of which is the value of the property
transferred to the trust, 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 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 date is prescribed by a regulation (and
not expressly provided by statute).
PLR-122469-21                                5


       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 executor 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 the property of Marital Trust. Upon making this
election, Decedent’s available GST exemption will be automatically allocated to Exempt
Trust. This election should be made on a supplemental Form 706 filed with the Internal
Revenue Service Center at the following address: Internal Revenue Service Center,
Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy of this
letter should be attached to the supplemental Form 706.

      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.
PLR-122469-21                                6

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



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

      Enclosure
            Copy for § 6110 purposes




      cc: