Spouse granted time to elect out of automatic GST allocation

Plain-English summary

A taxpayer funded a three-year grantor retained annuity trust whose remainder would pass to a separate trust for descendants. The taxpayer and spouse elected gift splitting, so each was treated as the transferor of half the transferred property. Their accountant reported the transfer on the spouse's timely Form 709 but failed to elect out of the automatic allocation of generation-skipping transfer tax exemption. The IRS found that the regulatory relief requirements were met. It granted the spouse 120 days to elect out for the transfer to the grantor retained annuity trust by filing an amended Form 709.

Ruling snapshot

• Question: Could the spouse receive additional time to elect out of automatic GST-exemption allocation for the split-gift transfer to the trust?
• Outcome: approved
• Key authorities: IRC §§ 2513, 2632(c)(5), 2642(g); Treas. Reg. §§ 26.2632-1, 26.2652-1, 301.9100-1, 301.9100-3; Notice 2001-50

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202403009                                             Third Party Communication: None
 Release Date: 1/19/2024                                       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-110910-23
                                                               Date:
                                                               October 19, 2023




Legend

Taxpayer                           ----------------------------------------------
Spouse                             --------------------------------------------------
Date 1                             --------------------------
Date 2                             ----------------------
Year                               -------
Trust 1                            ---------------------------------------------------------
Trust 2                            ------------------------------
Accountant                         ---------------------------------------

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

        This letter responds to your authorized representative’s letter dated May 18,
2023, and subsequent correspondence, requesting an extension of time under
§ 2642(g) of the Internal Revenue Code (Code) and § 301.9100-3 of the Procedure and
Administration Regulations to elect out of the generation-skipping transfer (GST)
exemption automatic allocation rules under § 2632(c)(5) with respect to certain transfers
to a trust.

        The facts and representations submitted are summarized as follows:

        On Date 1, Taxpayer established and funded Trust 1, a grantor retained annuity
trust. The terms of Trust 1 provide, in relevant part, for Taxpayer to receive an annuity
for a three-year term at specified percentages of the original Trust 1 value. At the
conclusion of the three-year term, the trustees of Trust 1 are to distribute the remaining
principal to Trust 2, a trust for the benefit of Taxpayer’s descendants. Taxpayer
represents that no additional gifts were made to Trust 1 after Date 1.

PLR-110910-23                                2

       Trust 2 provides, in relevant part, that the trustees may pay to any one or more of
Taxpayer’s descendants any of the net income and/or principal, in the discretion of the
trustees, as may be necessary or advisable for such person’s health, education,
maintenance, and/or support. Upon the death of Taxpayer’s spouse, Spouse, the
trustees shall distribute to such qualified charities and descendants of Taxpayer as
Spouse appoints. Any unappointed portion of the trust is to be divided per stirpes to the
descendants of Taxpayer in further trust.

       Taxpayer and Spouse retained Accountant to prepare their Year Forms 709,
United States Gift (and Generation-Skipping Transfer) Tax Returns. On their respective
Forms 709, Taxpayer and Spouse signified their consent to treat all gifts made by
Taxpayer and Spouse in Year as having been made one-half by each spouse under
§ 2513. Accountant reported the transfer to Trust 1 on Spouse’s Form 709. However,
Accountant failed to elect out of the automatic GST allocation pursuant to
§ 2632(c)(5)(A)(i). Taxpayer and Spouse timely filed their Forms 709 (with extensions)
on Date 2.

        Spouse requests an extension of time under § 2642(g) and § 301.9100-3 to elect
out of the automatic allocation of GST exemption under § 2632(c)(5)(A)(i) with respect
to Taxpayer’s Date 1 transfer to Trust 1.

LAW AND ANALYSIS

        Section 2513(a)(1) provides that a gift made by one spouse to any person other
than his spouse shall, for the purposes of this chapter, be considered as made one-half
by him and one-half by his spouse, but only if at the time of the gift each spouse is a
citizen or resident of the United States.

       Section 2513(a)(2) provides that § 2513(a)(1) shall apply only if both spouses
have signified (under the regulations provided for in § 2513(b)) their consent to the
application of § 2513(a)(1) in the case of all such gifts made during the calendar year
by either while married to the other.

        Section 26.2652-1(a)(4) of the Generation-Skipping Transfer Tax Regulations
provides that in the case of a transfer with respect to which the donor’s spouse makes
an election under § 2513 to treat the gift as made one-half by the spouse, the electing
spouse is treated as the transferor of one-half of the entire value of the property
transferred by the donor, regardless of the interest the electing spouse is actually
deemed to have transferred under § 2513. The donor is treated as the transferor of one-
half of the value of the entire property.

       Section 2601 provides that a tax is imposed on every generation-skipping
transfer (GST). Section 2611(a) provides that the term "generation-skipping transfer"
means: (1) a taxable distribution; (2) a taxable termination; and (3) a direct skip.
       Section 2602 provides that the amount of GST tax is the taxable amount

PLR-110910-23                                 3

multiplied by the applicable rate. Section 2641(a) defines the 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
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(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 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)(3)(B) provides, in relevant part, that the term "GST trust"
means a trust that could have a GST with respect to the transferor unless an exception
listed in § 2632(c)(3)(B)(i)-(vi) applies.

       Section 2632(c)(4) provides that an indirect skip to which § 2642(f) applies is
deemed to have been made only at the close of the estate tax inclusion period (ETIP)
and the fair market value of any such transfer shall be the value of the property at the
close of the ETIP.

        Section 2632(c)(5)(A)(i) provides, in relevant part, that an individual may elect to
have the automatic allocation rules of § 2632(c)(1) not apply to—(I) an indirect skip, or
(II) any or all transfers made by such individual to a particular trust. Section
2632(c)(5)(B)(ii) provides, in relevant part, that the election under § 2632(c)(5)(A)(i)(II)
may be made on a timely-filed gift tax return for the calendar year for which the election
is to become effective.

        Section 26.2632-1(b)(2)(iii)(A) provides, in relevant part, that a transferor may
prevent the automatic allocation of GST exemption (elect out) with respect to any
transfer or transfers constituting an indirect skip made to a trust or to one or more
separate shares that are treated as separate trusts under § 26.2654-1(a)(1). A
transferor may elect out with respect to: (1) one or more prior-year transfers subject to
§ 2642(f) (regarding ETIPs) made by the transferor to a specified trust or trusts; (2) one
or more (or all) current-year transfers made by the transferor to a specified trust or
trusts; (3) one or more (or all) future transfers made by the transferor to a specified trust
or trusts; and (4) all future transfers made by the transferor to all trusts (whether or not
in existence at the time of the election out); or (5) any combination of (1) through (4).

PLR-110910-23                                 4

        Section 26.2632-1(b)(2)(iii)(B) provides that to elect out, the transferor must
attach an election out statement to a Form 709 filed within the time period provided in
§ 26.2632-1(b)(2)(iii)(C). In general, the election out statement must identify the trust,
and specifically must provide that the transferor is electing out of the automatic
allocation of GST exemption with respect to the described transfer or transfers. Under
§ 26.2632-1(b)(2)(iii)(C), to elect out, the Form 709 with the attached election out
statement must be filed on or before the due date for timely filing the Form 709 for the
calendar year in which: (1) for a transfer subject to § 2642(f), the ETIP closes; or (2) for
all other elections out, the first transfer to be covered by the election out was made.

       Section 2642(g)(1)(A) provides, generally, that the Secretary shall by regulation
prescribe such circumstances and procedures under which extensions of time will be
granted to make an allocation of GST exemption described in § 2642(b)(1) or (2), and
an election under § 2632(b)(3) or (c)(5).

       Section 2642(g)(1)(B) provides that in determining whether to grant relief under
§ 2642(g)(1), 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, 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 that, under § 2642(g)(1)(B), the time
for allocating the GST exemption to lifetime transfers and transfers at death, the time for
electing out of the automatic allocation rules, and the time for electing to treat any trust
as a generation-skipping transfer trust are to be treated as if not expressly prescribed by
statute. The Notice further provides that taxpayers may seek an extension of time to
make an allocation described in § 2642(b)(1) or (b)(2) or an election described in
§ 2632(b)(3) or (c)(5) under the provisions of § 301.9100-3.

       Sections 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 an
election. Section 301.9100-1(a).

        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 6 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 due date is prescribed by a regulation
(and not expressly provided by statute). Under § 301.9100-1(b), a regulatory election
includes an election whose due date is prescribed by a notice published in the Internal
Revenue Bulletin. In accordance with § 2642(g)(1)(B) and Notice 2001-50, taxpayers

PLR-110910-23                                  5

may seek an extension of time to make an allocation described in § 2642(b)(1) or (b)(2)
or an election described in § 2632(b)(3) or (c)(5) under the provisions of § 301.9100-3.

        Section 301.9100-3(a) provides, in part, that 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 upon the facts submitted and representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Accordingly, Spouse is granted an
extension of time of 120 days from the date of this letter to elect out of the automatic
allocation rules under § 2632(c)(5)(A)(i) for the transfer made by Taxpayer during Year
to Trust 1. This ruling is only applicable with respect to Trust 1. The election should be
made on an amended Form 709 for Year. The amended Form 709 should be filed with
the Internal Revenue Service Center at the following address: Internal Revenue
Service Center, Attn: E & G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-
2915. You should attach a copy of this letter to the amended Form 709.

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representatives.

       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.

PLR-110910-23                                           6

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.

                                           Sincerely,

                                           Associate Chief Counsel
                                           Passthroughs and Special Industries


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



       Enclosure:
             Copy for § 6110 purposes



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