Estate received 120 days to divide a reverse-QTIP trust for GST purposes

Plain-English summary

A decedent's estate made both a QTIP election and a reverse-QTIP election for an
entire marital trust. A later transitional regulation allowed certain pre-1995
reverse-QTIP trusts with allocated GST exemption to be treated as two trusts,
but the estate missed the 1996 election deadline and discovered the omission
after the surviving spouse died. The IRS granted 120 days to make the late
election on a supplemental Form 706. One resulting trust will have a zero GST
inclusion ratio and remain subject to the reverse-QTIP election, with the
decedent treated as transferor; the other will have an inclusion ratio of one.

Ruling snapshot

• Question: May the estate make the transitional election to split the marital trust into GST-exempt and nonexempt portions after the deadline?
• Outcome: Approved for 120 days from the ruling date
• Key authorities: IRC §§ 2056(b)(7), 2652(a)(3), and 2654(b); Treas. Reg. §§ 26.2652-2(c) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202407004 Third Party Communication: None
Release Date: 2/16/2024 Date of Communication: Not Applicable
Index Number: 2056.07-00, 9100.00-00
Person To Contact:
--------------------------- -------------------------- ID No. -----------------
------------------- -----------------------------------------------------
---------------------------------------------------- Telephone Number:
--------------------------- --------------------
--------------------------- Refer Reply To:
-------------------------- CC:PSI:B04
PLR-112636-23
Date:
---------- -------------------------------------------------- November 15, 2023

Legend

Decedent ---------------------------------------------------------------
Spouse ---------------------------------------------------------------
Trust ---------------------------------------------
Marital Trust ---------------------------------------
Date 1 ------------------------------------
Date 2 ---------------------------
Date 3 ------------------------------------
-

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

    This letter responds to your authorized representative’s letter dated June 13,

2023, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to make an election to treat a marital trust as two separate
trusts under § 26.2652-2(c) of the Generation-Skipping Transfer Tax Regulations.

    The facts submitted and representations made are as follows:

  On Date 1, Decedent established Trust, a revocable trust. Decedent died on

Date 2, survived by Decedent’s spouse, Spouse. Trust became irrevocable on
Decedent’s death.

      The Trust agreement provides that the net residue of the trust property, after

payment of taxes and expenses, would be allocated to Marital Trust. During Spouse’s
life, all of the income of Marital Trust is to be paid to Spouse in monthly installments.
After Spouse’s death, the remaining corpus was allocated in equal shares to trusts for
the nieces of Decedent.
PLR-112636-23 2

   Decedent’s executor timely filed Decedent’s Form 706, United States Estate (and

Generation-Skipping Transfer) Tax Return. On Schedule M of the Form 706, an
election was made under § 2056(b)(7) to treat Marital Trust as QTIP. On Schedule R,
the executor made a reverse QTIP election to treat Decedent as the transferor, for GST
tax purposes, for the entire Marital Trust.

    Subsequent to the filing of Decedent’s Form 706, §26.2652-2(c) was issued.

This regulation provides a transitional rule that allows certain trusts subject to a reverse
QTIP election to be treated as two separate trusts, so that only a portion of the trust
would be treated as subject to the reverse QTIP election, and that portion would be
treated as having a zero inclusion ratio. The deadline for making the election set forth
in the transitional rule was June 24, 1996.

   Spouse died on Date 3. In the course of preparing Form 706 for Spouse’s

estate, the trustee of Marital Trust became aware that the election under
§26.2652-2(c) was not made.

   You request an extension of time under §§ 301.9100-1 and 301.9100-3 to make

an election to treat Marital Trust as two separate trusts pursuant to § 26.2652-2(c) so
that one trust has an inclusion ratio of zero (GST Exempt QTIP Trust) and the other
trust has an inclusion ratio of one (GST Non-Exempt QTIP Trust) for GST tax purposes.

LAW AND ANALYSIS

    Section 2601 imposes a tax on every generation-skipping transfer. A GST 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 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) (in effect at the time of Decedent's death) provided that, for

purposes of determining the inclusion ratio, every individual shall be allowed a GST
exemption of $1,000,000 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) 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 (determined with regard to
extensions), regardless of whether such a return is required to be filed.
PLR-112636-23 3

   Section 2632(c)(1) (in effect at the time of Decedent’s death) 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.

    Section 2632(c)(2)(A) (in effect at the time of Decedent’s death) provides that the

allocation under § 2632(c)(1) is made among the properties described in
§ 2632(c)(1)(A) and the trusts described in § 2632(c)(1)(B) in proportion to the
respective amounts (at the time of allocation) of the nonexempt portions of such
properties or trusts.

   Section 2652(a)(3) provides that, in the case of any property with respect to

which a deduction is allowed under § 2056(b)(7) (regarding QTIP), the estate of the
decedent may elect to treat all of the property in such trust for purposes of the GST tax
provisions as if the QTIP election had not been made.

  The election under § 2652(a)(3) is referred to as the "reverse" QTIP election.

The consequence of a reverse QTIP election is that the decedent remains, for GST tax
purposes, the transferor of the QTIP trust for which the election is made. As a result,
the decedent's GST exemption may be allocated to that QTIP trust.

    Section 26.2652-2(a) provides 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(c) provides that if a reverse QTIP election is made with

respect to a trust prior to December 27, 1995, and the GST exemption has been
allocated to that trust, the transferor (or the transferor's executor) may elect to treat the
trust as two separate trusts, one of which has a zero inclusion ratio by reason of the
transferor's GST exemption previously allocated to the trust. The separate trust with the
zero inclusion ratio consists of that fractional share of the value of the entire trust equal
to the value of the nontax portion of the trust under § 26.2642-4(a). The reverse QTIP
election is treated as applying only to the trust with the zero inclusion ratio. An election
under this section is made by attaching a statement to a copy of the return on which the
reverse QTIP election was made under § 2652(a). The statement is to be filed before
June 24, 1996.

   Section 2654(b) (in effect at the time of Decedent's death) provided that

substantially separate and independent shares of different beneficiaries in a trust shall
be treated as separate trusts.
PLR-112636-23 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 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).

    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 the election
under § 26.2652-2(c) to treat Marital Trust as two separate trusts, one of which has a
zero inclusion ratio by reason of Decedent's GST exemption allocated to the QTIP
Trust, the other of which has an inclusion ratio of one. The reverse QTIP election will
be treated as applying only to the trust with the zero inclusion ratio and Decedent will be
considered the transferor of this portion of Marital Trust.

   The election under § 26.2652-2(c) should be made by completing the statement

required in § 26.2652-2(c) and attaching the statement to the supplemental Form 706.
The Form 706 should be filed at the following address: Internal Revenue Service
Center, ATTN: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.

     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
PLR-112636-23 5

material submitted in support of the request for rulings, it is subject to verification on
examination.

   The rulings in this letter pertaining to the federal estate and/or

generation-skipping transfer tax apply only to the extent that the relevant sections of the
Internal Revenue Code are in effect during the period at issue.

   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

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



   Enclosure:
         Copy for § 6110 purposes

cc: