Estate receives more time for QTIP and reverse QTIP elections

Plain-English summary

A decedent's revocable trust divided its marital share between an exempt marital trust and a non-exempt marital trust for the surviving spouse. The estate hired a law firm to prepare Form 706 and make the required elections, but the firm omitted the trust property from Schedule M. As a result, the estate did not validly elect qualified terminable interest property treatment for either trust or make a reverse QTIP election for the exempt trust. The IRS found that the estate reasonably relied on a qualified tax professional and met the discretionary relief standards. It granted 120 days to file a supplemental Form 706 making both QTIP elections and the reverse QTIP election.

Ruling snapshot

• Question: Could the estate receive more time to elect QTIP treatment for two marital trusts and reverse QTIP treatment for the exempt trust?
• Outcome: Approved, with 120 days from the ruling date to file a supplemental Form 706
• Key authorities: IRC §§ 2056(b)(7) and 2652(a)(3); Treas. Reg. §§ 20.2056(b)-7, 26.2652-2, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202341004                                             Third Party Communication: None
 Release Date: 10/13/2023                                      Date of Communication: Not Applicable
 Index Number: 2056.01-00, 2652.01-02,
               9100.00-00                                      Person To Contact:
                                                               -------------------, ID No. -----------------
 -------------------------------------                         Telephone Number:
 -----------------------------------------------               --------------------
 -----------------------------                                 Refer Reply To:
 ---------------------------                                   CC:PSI:04
 ---------------------------                                   PLR-101139-23
                                                               Date:
                                                               July 11, 2023
 In Re: ---------------------------------------------------
 ------------------------




LEGEND
Decedent         =        ---------------------------------------------------
Spouse           =        --------------------
Law Firm         =        ----------------------------------------------------
Date 1           =        ------------------
Date 2           =        ----------------------
Trust            =        -------------------------------------------------------------

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

This letter responds to your authorized representative’s letter of December 30, 2022,
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) and a “reverse” QTIP
election under § 2652(a)(3).

The facts and representations submitted are as follows.

On Date 1, Decedent executed a revocable trust, Trust. Decedent died on Date 2,
survived by Spouse.

At the death of Decedent, Trust divides into a marital share and a residuary share. The
marital share is to consist of the amount necessary to reduce the amount of Decedent’s
taxable estate to the point where Decedent’s estate would incur the least federal estate
tax, after taking into account certain deductions and credits. The marital share is to be
further held as an Exempt Marital Trust, and a Non-Exempt Marital Trust.
PLR-101139-23                               2

The Exempt Marital Trust is that fraction of the marital share where the numerator is the
amount of Decedent’s generation-skipping transfer (GST) tax exemption and the
denominator shall be the value of the marital share.
The Non-Exempt Marital Trust is to consist of the balance of the Decedent’s marital
share.

Under the terms of Trust, the trustee shall pay to or apply for the benefit of Spouse,
during Spouse’s lifetime, all the income annually of the Exempt Marital Trust and Non-
Exempt Marital Trust. In addition, trustee has discretion to distribute corpus for
Spouse’s health, support, maintenance, or education. No person shall have any power
to appoint any part of the trust property to any person other than Spouse. Upon the
request of Spouse, the Trustee shall dispose of any unproductive trust assets. The
executor of Decedent’s estate is authorized and directed, to the extent the executor
considers advisable, to exercise the election under § 2056(b)(7) and also any election
under § 2652(a)(3). Upon the death of Spouse, the Trustee shall distribute the balance
of the Exempt Marital Trust and the Non-Exempt Marital Trust to those Spouse
appoints, or in default the property passes under the terms of Trust.

Spouse, as executor of Decedent’s estate, engaged Law Firm 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 and a
reverse QTIP election in accordance with the terms of Trust. On Schedules M of Form
706, Law Firm mistakenly did not include the Exempt Marital Trust and Non-Exempt
Marital Trust property as subject to the QTIP election and, therefore, no valid QTIP
election was made with respect to Exempt Marital Trust and Non-Exempt Marital Trust,
and no reverse QTIP election was made with respect to the Exempt Marital Trust.

You have requested an extension of time under §§ 301.9100-1 and 301.9100-3 to make
a QTIP election with respect to Exempt Marital Trust and the Non-Exempt Marital Trust
under § 2056(b)(7) and a reverse QTIP election with respect to Exempt Marital Trust
pursuant to § 2652(a)(3).

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.
PLR-101139-23                                  3

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
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) 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.

Section 2601 imposes a tax on every GST. Section 2611 provides that a GST includes
a taxable distribution, a taxable termination, and a direct skip.

Section 2602 provides that the amount of the GST tax is the taxable amount multiplied
by the applicable rate. Section 2641(a) defines “applicable rate” 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 amount which may be allocated by the
individual (or his executor) to any property with respect to which the individual is the
transferor. Section 2631(b) provides that any allocation under § 2631(a), once made,
shall be irrevocable.

Under § 2632(a), any allocation by an individual of his GST exemption may be made at
any time on or before the date prescribed for filing the individual’s estate tax return
(including extensions).

Section 2632(e)(1) provides that 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.
PLR-101139-23                                 4


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 2652(a)(1) provides that for purposes of chapter 13, the term “transferor”
means: (A) in the case of any property subject to the tax imposed by chapter 11, the
decedent; and (B) in the case of any property subject to the tax imposed by chapter 12,
the donor. An individual shall be treated as transferring any property with respect to
which such individual is the transferor.

Section 2652(a)(3) provides, in pertinent part, that in the case of any trust with respect
to which a deduction is allowed to the decedent under § 2056(b)(7), the estate of the
decedent may elect to treat all of the property in such trust for GST tax purposes as if
the election to be treated as qualified terminable interest property had not been made
(“reverse” QTIP election).

Section 26.2652-2(a) of the Generation-Skipping Transfer Tax Regulations provides, in
part, that a reverse QTIP election is not effective unless it is made with respect to all of
the property in the trust to which the QTIP election applies. Section 26.2652-2(b)
provides that an election under § 2652(a)(3) is made on the return on which the QTIP
election is made.

Section 26.2652-1(a)(3) provides that solely for purposes of chapter 13, if a transferor
makes a reverse QTIP election, the identity of the transferor of the property is
determined without regard to the application of §§ 2044, 2207A and 2519.

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 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.
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.
PLR-101139-23                                  5

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 with respect to Exempt Marital Trust and Non-Exempt
Marital Trust under § 2056(b)(7) and to make a reverse QTIP election with respect to
Exempt Marital Trust under § 2652(a)(3).

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 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.

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


Enclosure
Copy for § 6110 purposes


cc: