Donor received 120 days to elect GST trust treatment for prior transfers

Plain-English summary

A donor created a trust for descendants and transferred cash and securities to it over two years. The donor instructed an attorney to elect on Form 709 to treat the trust as a generation-skipping transfer trust, but the attorney inadvertently failed to make the election properly. That election would allow the automatic allocation rules to apply to qualifying indirect skips. Because the donor reasonably relied on a qualified tax professional and satisfied the regulatory relief standards, the IRS granted 120 days to make the election for all transfers on an amended Form 709.

Ruling snapshot

• Question: Could the donor make a late election to treat the descendant trust as a GST trust for all prior transfers?
• Outcome: Approved, with a 120-day extension
• Key authorities: IRC §§ 2601, 2611, 2631, 2632(c), and 2642(g); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202316006 Third Party Communication: None
Release Date: 4/21/2023 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-120493-22
Date:
January 25, 2023

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

Legend

Donor = -------------------------------

Year 1 = -------
Year 2 = -------
Date 1 = --------------------------
Date 2 = --------------------------
Date 3 = --------------------------
Date 4 = --------------------------
Date 5 = ------------------
Date 6 = ------------------
Date 7 = ----------------------
Trust = ----------------------------------------------------------
Attorney = ----------------------

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

  This letter responds to your personal representative’s letter of October 11, 2022,

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
make an election under § 2632(c)(5)(A)(ii).

    The facts and representations submitted are as follows:
    On Date 1 in Year 1, a date after December 31, 2000, Donor established Trust

for the benefit of his descendants. On Dates 2, 3, and 4, all in Year 1, Donor

PLR-120493-22 2

transferred cash and securities to Trust. On Dates 5, 6, and 7, all in Year 2, Donor
transferred additional cash and securities to Trust.

    Donor relied on Attorney to prepare Form 709, United States Gift (and

Generation-Skipping Transfer) Tax Return reporting Donor’s Year 1 transfers to Trust.
Donor instructed Attorney to make an election under § 2632(c)(5)(A)(ii) to treat Trust as
a GST trust. Although Attorney intended to make such election, Attorney inadvertently
failed to properly make the election on the Year 1 Form 709.

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

make an election under § 2632(c)(5)(ii) to treat Trust as a GST trust with respect to all
transfers made by Donor to Trust.

Law and Analysis

  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 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) provides that, for purposes of determining the inclusion ratio,

every individual shall be allowed a GST exemption 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 2632(a)(1) provides that any allocation by an individual of his GST

exemption under § 2631(a) may be made at any time on or before the date prescribed
for filing the estate tax return for such individual’s estate.

    Section 2632(c)(1) provides that if any individual makes an indirect skip during

such individual’s lifetime, any unused portion of such individual’s GST exemption shall
be allocated to the property transferred to the extent necessary to make the inclusion
ratio for such property zero. If the amount of the indirect skip exceeds such unused
portion, the entire unused portion shall be allocated to the property transferred.

   Section 2632(c)(3)(A) provides that for purposes of this subsection, the term

“indirect skip” means any transfer of property (other than a direct skip) subject to the tax
imposed by chapter 12 made to a GST trust.

   Section 2632(c)(5)(A)(ii) provides that any individual may elect to treat any trust

PLR-120493-22 3

as a GST trust for purposes of this subsection with respect to any or all transfers made
by such individual to such trust.

   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)(2) provides that if property is transferred as a result of the death

of the transferor, the value of such property shall be its value as finally determined for
purposes of chapter 11. Any allocation to property transferred as a result of the death
of the transferor shall be effective on and after the date of the death of the transferor.

  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 election to treat a trust as a GST trust under § 2632(c)(5)(A)(ii).

   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
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

PLR-120493-22 4

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)(2) 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, Donor is granted an
extension of time of 120 days from the date of this letter to make an election under
§ 2632(c)(5)(A)(ii) to treat Trust as a GST trust with respect to all transfers made by
Donor to Trust.

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

Kentucky Service Center at the following address: Department of the Treasury, Internal
Revenue Service, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy
of this letter should be attached to the Form 709.

   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.

PLR-120493-22 5

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

Enclosure:
Copy for § 6110 purposes

cc: