Estate gets more time to fix a botched QTIP marital-deduction election

Plain-English summary

A "QTIP" election under § 2056(b)(7) lets an estate claim the unlimited marital deduction for property left in trust for a surviving spouse, so no estate tax is due at the first spouse's death. Here the decedent's will and trust gave the executor the power to make a QTIP election for a marital trust ("Trust M"), and the estate's accounting firm timely filed the estate tax return (Form 706) claiming the marital deduction. But on Schedule M the firm mistakenly labeled the trust assets as "property other than QTIP property," so no valid QTIP election was actually made. The estate asked the IRS for an extension of time under Treas. Reg. § 301.9100-3. Because the estate reasonably relied on a qualified tax professional who failed to make the election, the IRS found it acted reasonably and in good faith and granted 120 days to file a corrected supplemental Form 706 making the QTIP election. This is the standard fix when a preparer's clerical error, not a deliberate choice, defeats a QTIP election.

Ruling snapshot

• Question: May an estate get an extension of time to make a QTIP election its accounting firm failed to make correctly on the return?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 2056(b)(7); Treas. Reg. §§ 20.2056(b)-7(b)(4), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202238008                                              Third Party Communication: None
 Release Date: 9/23/2022                                        Date of Communication: Not Applicable
 Index Number: 2056.07-01, 9100.00-00
                                                                Person To Contact:
 --------------------------------------                         ---------------------, ID No. ---------------
 -----------------------------                                  Telephone Number:
 -------------------------------                                --------------------
                                                                Refer Reply To:
 --------------------------------                               CC:PSI:B4
                                                                PLR-105912-22
                                                                Date:
                                                                June 29, 2022




Legend

Decedent                  =         ------------------------
Spouse                    =         -------------------
Family Trust              =         -----------------------------------------------------------
                                    ------------------------------------------------------------
Date 1                    =         ----------------------
Date 2                    =         ---------------------
Date 3                    =         ------------------
Date 4                    =         ------------------
Accounting Firm           =         -----------------------------------

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

      This letter responds to a letter dated February 25, 2022, and subsequent
correspondence, 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 each established a separate revocable trust.
On Date 2, Decedent and Spouse combined their separate revocable trusts to establish
Family Trust. Family Trust became irrevocable upon the death of Decedent on Date 3.
Under the terms of Decedent's last will and testament, the residuary of Decedent's
estate passed to Family Trust.

      Paragraph 6.7 of Decedent's last will and testament authorizes the executor of
Decedent's estate to elect to have all or a specific portion of Decedent's estate treated
as qualified terminable interest property for the purpose of qualifying for the marital
PLR-105912-22                                 2

deduction allowable in determining Decedent's federal estate tax. In addition,
paragraph 6.7 provides, in part, that without limiting the executor's discretion, it is
Decedent's expectation that the executor will elect to minimize the estate tax payable by
Decedent's estate unless such election appears to be inappropriate because of (a) the
timing of the deaths of Decedent and Spouse and the computation of the combined
death taxes in Decedent's and Spouse's estates, or (b) Spouse's age or condition of
health at the date of Decedent's death.

      Under section 3.2 of Family Trust, upon the death of the first to die of Decedent
or Spouse, the trustee is directed to divide the trust estate into three (3) separate trusts
designated as Trust A, Trust B, and Trust M.

        Under section 3.2A, Trust A is to be funded with that part of the trust estate that
is the surviving spouse's interest in community property, the surviving spouse's
separate property, and any property received by the trustee that is specifically
designated to be added to or held as part of Trust A.

       Under section 3.2B, Trust B is to be funded with the Credit Equivalent Gift
(defined in section 14.1) and any property received by the trustee that is specifically
designated to be added to or held as part of Trust B.

       Under section 3.2C, Trust M is to be funded with all remaining property
comprising the trust estate and any property received by the trustee that is specifically
designated to be added to or held as part of Trust M. Section 3.4B provides that the
trustee shall distribute all the net income of Trust M to the surviving spouse in monthly
or other periodic installments (no less frequently than annually) as the trustee and
surviving spouse shall agree. Section 3.4C provides that the trustee shall distribute to
the surviving spouse so much of the principal of Trust M as will provide for the surviving
spouse's needs. Section 3.4D provides that Trust M shall terminate upon the death of
the surviving spouse.

      Under section 14.1, Credit Equivalent Gift means property equal to the largest
pecuniary amount which would result in the least possible federal estate tax being
payable.

        Under Section 14.2A Spouse shall has the power to require the trustee to make
the property of Trust M productive or convert it to productive property within a
reasonable time. Under section 14.2B all provisions of Family Trust are to be construed
and applied so that Trust M qualifies for the marital deduction in the estate of the first to
die of the Decedent or Spouse and any provision of Trust incapable of being so
construed or applied is to be disregarded. Section 14.2B provides that in no event shall
the trustee take any action or have any power that will jeopardize the qualification of the
marital deduction, and all provisions regarding Trust M shall be interpreted to conform to
this primary objective. Under section 14.2C the trustee may elect to make the election
to have all or a specific portion of Trust M treated as qualified terminable interest
PLR-105912-22                                  3

property for the purpose of qualifying for the marital deduction allowable in determining
the federal estate tax of the first to die of Decedent or Spouse.

       The personal representative of Decedent's estate engaged Accounting Firm to
prepare the Form 706, United States Estate (and Generation-Skipping Transfer) Tax
Return, for Decedent's estate. The Form 706 was timely filed on Date 4, and a marital
deduction was claimed for all property passing to Spouse. On Schedule M of the Form
706, however, Accounting Firm inadvertently characterized Trust M assets as "property
other than QTIP property," instead of "QTIP property." You have requested an
extension of time under §§ 301.9100-1 and 301.9100-3 to make a valid QTIP election
under § 2056(b)(7) to qualify all property allocated to Trust M 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
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.
PLR-105912-22                                4

      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, 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 all property allocated to Trust M. The election should be made
by filing a complete and properly prepared supplemental Form 706 and a copy of this
letter, within 120 days from the date of this letter, with the Service Center at the
following address: Department of the Treasury, Internal Revenue Service, Stop 824G,
7940 Kentucky Drive, Florence, KY 41042-2915.

       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.

      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.
PLR-105912-22                               5


      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)

                                     Melissa C. Liquerman
                                     Melissa C. Liquerman
                                     Chief, Branch 4
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

Enclosure (1)

      Copy for § 6110 purposes


cc: