Estate gets extra time to make a QTIP marital-deduction election after preparer's Schedule M error

Plain-English summary

When one spouse dies leaving property in a marital trust, the estate can defer
estate tax by making a "QTIP" election under IRC § 2056(b)(7), which treats the
trust property as passing to the surviving spouse and qualifying for the marital
deduction. Here the estate's accountant, hired to prepare and file the estate tax
return (Form 706), mistakenly listed the trust property on the wrong part of
Schedule M (Part B instead of Part A), which failed to make the QTIP election. The
accountant caught the error two weeks later and sought relief. The estate asked
the IRS for extra time under the 9100-relief rules (Treas. Reg. §§ 301.9100-1 and
301.9100-3). Because the estate reasonably relied on a qualified tax professional
who failed to make the election, the IRS found it acted in good faith and granted
120 days to file a supplemental Form 706 making the QTIP election.

Ruling snapshot

• Question: May an estate get a late-filing extension to make the § 2056(b)(7) QTIP election after its preparer botched the Schedule M entry?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 2056(b)(7); Treas. Reg. § 20.2056(b)-7(b)(4)(i); 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: 202234002                                             Third Party Communication: None
 Release Date: 8/26/2022                                       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:B04
                                                               PLR-123699-21
          RE: -------------------------------------            Date:
                                                               May 16, 2022




LEGEND

Decedent         =        ---------------------------------------------------
Spouse           =        ------------------------------------------------------
Accountant       =        -----------------------------------------------
Date 1           =        --------------------------
Date 2           =        -----------------------
Date 3           =        ------------------------
Date 4           =        ------------------
Trust            =         ----------------------------------------------------------------
                          ----------------------------------



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

This letter responds to your authorized representative’s letter of November 5, 2021,
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 as follows.

On Date 1, Decedent and Spouse executed a revocable trust, Trust, which was most
recently amended on Date 2. Decedent died on Date 3, survived by Spouse.

Article 3 of Trust provides that upon the death of the first of Decedent and Spouse, the
trust estate is to be divided into three separate trusts: the Survivor’s Trust, the Marital
Trust, and the Exemption Trust. This ruling pertains to the Marital Trust only. The
Marital Trust is to be funded in an amount consisting of the minimum pecuniary amount
PLR-123699-21                                  2

necessary to eliminate entirely (or to reduce to the maximum extent possible) any
federal estate tax at the death of the surviving spouse.

Article 3 further provides that the Marital Trust is intended to qualify for the marital
deduction under § 2056 of the Code, and states that the trustee may make a QTIP
election under § 2056(b)(7). Under Article 3, the entire net income of the Marital Trust
is to be paid to the surviving spouse for life in quarter-annual or other convenient
installments, but no less frequently than annually. In addition, the trustee has the
discretion to pay principal to the surviving spouse for health, support and maintenance.

Spouse, as executor of Decedent’s estate, engaged Accountant to prepare and timely
file Decedent’s Form 706 (United States Estate (and Generation-Skipping Transfer) Tax
Return) and to make any necessary elections, including making a QTIP election.
Accountant mistakenly included the QTIP property on Part B of Schedule M on the
Form 706 that was filed Date 4, instead of Part A. Accountant discovered the mistake
two weeks later and immediately began the process of seeking relief under § 9100.

You have requested an extension of time under §§ 301.9100-1 and 301.9100-3 to make
a QTIP election with respect to the 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 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(b)(1) provides the general rule that no
deduction shall be allowed under § 2056(a) for an interest passing to the surviving
spouse if, on the lapse of time, on the occurrence of an event or contingency, or on the
failure of an event or contingency to occur, the interest will terminate or fail.

Section 2056(b)(7)(A) provides that, in the case of QTIP, such property shall be treated
as passing to the surviving spouse, and for purposes of § 2056(a), no part of the
property shall be treated as passing to any person other than the surviving spouse.

Section 2056(b)(7)(B)(i) defines the term “QTIP” as property: (1) which passes from the
decedent; (2) in which the surviving spouse has a qualifying income interest for life; and
(3) 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: (1) 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
PLR-123699-21                                 3

property; and (2) 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 is to be made by the executor on the return of tax imposed by § 2001. The
election, once made, is irrevocable.

Section 20.2056(b)-7(b)(4)(i) of the Estate Tax Regulations provides, generally, that the
QTIP election is made on 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.

Sections 301.9100-1 through 301.9100-3 provide standards the Commissioner will use
to determine whether to grant an extension of time to make a regulatory election.

Under § 301.9100-1(c), the Commissioner may 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.

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)(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 are satisfied. Accordingly, Decedent’s estate is granted
an extension of time of 120 days from the date of this letter to file a supplemental
Form 706 to make a QTIP election.

The supplemental Form 706 should be filed with the Internal Revenue Service Center,
Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy of this letter
should be attached to the return.

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 ruling, it is subject to verification on examination.
PLR-123699-21                                  4

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: