IRS waives the requirement that assets be formally conveyed to a qualified domestic trust for the estate marital deduction

Plain-English summary

When a surviving spouse is not a U.S. citizen, property left to that spouse does not qualify for the estate tax marital deduction unless it passes through a qualified domestic trust (QDOT), which ensures the deferred estate tax can still be collected later. Property irrevocably assigned to a QDOT before the estate tax return is filed must also be actually conveyed to the trust, generally within one year of the return's due date, or the marital deduction is lost. Here the surviving spouse (not a citizen at the decedent's death) irrevocably assigned assets to a QDOT and the estate claimed the marital deduction, but the assets were never actually conveyed to the trust. The spouse later became a U.S. citizen within the relevant window, and the trustee intends to file a final Form 706-QDT certifying that. The estate asked the IRS to waive the actual-conveyance requirement under Treas. Reg. § 20.2056A-4(b)(6) and the section 9100 rules. The IRS concluded the requirements were met and granted the waiver, so the estate keeps the marital deduction despite the missing formal conveyance. The ruling is limited to the issue addressed. This is 9100-style relief specific to the QDOT conveyance rules.

Ruling snapshot

• Question: May the IRS waive the requirement that assets irrevocably assigned to a qualified domestic trust be actually conveyed to it, so the estate keeps the marital deduction?
• Outcome: Approved (waiver granted)
• Key authorities: IRC § 2056A; IRC § 2056(d); Treas. Reg. § 20.2056A-4(b)(6); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202332013                                              Third Party Communication: None
 Release Date: 8/11/2023                                        Date of Communication: Not Applicable

 Index Number: 2056A.00-00, 9100.22-00                          Person To Contact:
                                                                ---------------------, ID No. -----------------
 ----------------------------------                             Telephone Number:
 ------------------------                                       --------------------
 -----------------------                                        Refer Reply To:
  ------------------------------                                CC:PSI:B4
                                                                PLR-123125-22
 In re: ---------------------------------                       Date:
                                                                May 16, 2023




Legend

Trust            =        --------------------------------------------------
                 ------------------------
Decedent         =        --------------------
                 --------------------------
Spouse           =        -----------------
                          --------------------------
Trustee          =        ---------------------
Date 1           =        -----------------
Date 2           =        ----------------
Date 3           =        ----------------
Date 4           =        ------------------
Date 5           =        ------------------
Date 6           =         -----------------------------------------------------------------------------------------
                 ---------------------------------------------------------------------------------------------------
                 -------------------------
---------------------------------------------------------------------
State            =        -------------

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

This letter responds to a letter dated September 28, 2022, and supplemental
information, submitted on behalf of Decedent’s estate requesting a ruling under
§ 20.2056A-4(b)(6) of the Estate Tax Regulations and § 301.9100-1 of the Procedure
and Administration Regulations regarding a waiver of the requirement of an actual
conveyance of property irrevocably assigned to a qualified domestic trust (QDOT)
described in § 2056A of the Internal Revenue Code (Code).
PLR-123125-22                                 2

Facts

Taxpayer represents the facts to be as follows:

On Date 1, Decedent died in State. Decedent is survived by Spouse, who was not a
citizen of the United States at the time of Decedent’s death. Decedent’s estate was not
subject to administration under State law.

On Date 2, a date before the due date of Decedent’s estate tax return, Spouse
established Trust and irrevocably assigned to Trust certain assets that passed as a
result of Decedent’s death to Spouse. Trust is a QDOT as described in § 2056A(a) of
the Code.

On Date 3, Decedent’s estate timely filed its Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return. On Schedule M, Decedent’s estate
claimed a marital deduction for the value of the assets Spouse assigned to Trust on
Date 2. Schedule M correctly indicated the establishment of Trust and identified the
assets assigned to Trust. Although the assets for which the Decedent's estate claimed
the marital deduction were irrevocably assigned to Trust, there has been no actual
conveyance to Trust.

On Date 4, Spouse became a United States citizen. Date 4 is a date before the date
that is one year after the due date (including extensions) for filing Decedent’s estate tax
return. Spouse currently resides in the United States and has resided continually in
the United States since Decedent’s death.

It is represented that, as required by § 20.2056A-10(a)(2), Trustee of Trust (a U.S.
trustee) intends to timely file a final Form 706-QDT on or before Date 5 to notify the
Internal Revenue Service (IRS) and certify that Spouse has become a United
States citizen.

Decedent’s estate is requesting a waiver to the requirement of an actual conveyance of
property irrevocably assigned to a QDOT described in § 2056A for purposes of
qualifying for a marital deduction under § 2056 of the Code.

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 to be 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.
PLR-123125-22                                3

Section 2056(d)(1)(A) and (d)(2)(A) provides 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 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.

Section 2056(d)(2)(B) provides that property passing from the decedent to the surviving
spouse will be treated as passing to the surviving spouse in a QDOT, if the property is
irrevocably transferred or assigned to the QDOT by the spouse before the date on
which the estate tax return is filed.

Section 2056A(b)(1)(A) imposes an estate tax on any distribution made from a QDOT
before the date of death of the surviving spouse. Section 2056A(b)(1)(B) imposes an
estate tax on the value of the property remaining in a QDOT on the date of the death of
the surviving spouse.

Under § 2056A(b)(12)(A) 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 of the decedent
becomes a citizen of the United States, the spouse was a resident of the United States
at all times after the date of the death of the decedent and before becoming a United
States citizen, and the United States trustee of the QDOT notifies the IRS 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.

Section 20.2056A-4(b)(6) provides that, for purposes of § 2056(d)(2), property
irrevocably assigned but not actually transferred to the QDOT before the estate tax
return is filed must be conveyed and transferred to the QDOT under applicable local law
before the administration of the decedent's estate is completed. If there is no
administration of the decedent's estate (because for example, none of the decedent’s
assets are subject to probate under local law), the conveyance must be made on or
before the date that is one year after the due date (including extensions) for filing the
decedent's estate tax return. If an actual transfer to the QDOT is not timely made, the
marital deduction is not allowed. Section 20.2056A-4(b)(6) further provides that an
extension of time for completing the conveyance, or a waiver of the actual conveyance,
may be requested by the decedent's estate under § 301.9100-1(a).
PLR-123125-22                                4

Section 301.9100-1(a) of the Procedure and Administration Regulations provides that
the regulations under §§ 301.9100-1 through 301.9100–3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make a
regulatory election. However, the granting of an extension of time is not a determination
that the taxpayer is otherwise eligible to make the election. Section 301.9100-2
provides automatic extensions of time for making regulatory and statutory elections
when the deadline for making the election is the due date of the return or the due date
of the return including extensions. Section 301.9100-3 provides extensions of time for
making regulatory elections that do not meet the requirements of § 301.9100-2.

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 301.9100-3(a) provides, in relevant part, that 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. 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)(i) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer requests relief under § 301.9100-3 before
the failure to make the regulatory election is discovered by the IRS.

Section 301.9100-3(c)(1) provides, in relevant part, that the Commissioner will grant a
reasonable extension of time to make a regulatory election only when the interests of
the Government will not be prejudiced by the granting of relief.

Based upon the facts submitted and the representations made, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been met. Consequently, in
accordance with § 20.2056A-4(b)(6), a waiver of the requirement of actual conveyance
is granted.

The ruling contained in this letter is 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.

Except as we have specifically ruled herein, we express no opinion as to the
consequences of this transaction under the cited provisions or under any other
provisions of the Code.
PLR-123125-22                                  5

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 representatives.


                                       Sincerely,

                                       Associate Chief Counsel
                                       Passthroughs & Special Industries


                                       Karlene M. Lesho
                                  By: ______________________________
                                      Karlene M. Lesho
                                      Chief, Branch 4
                                      Office of Associate Chief Counsel
                                      (Passthroughs & Special Industries)

Enclosure (1)

       Copy for § 6110 purposes



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