Estate may elect out of automatic GST exemption allocations to two trusts

Plain-English summary

A taxpayer created and funded separate trusts primarily for a daughter and a son, both with generation-skipping transfer potential. The taxpayer did not intend to allocate GST exemption to the transfers, but the return preparer failed to attach elections opting out of the automatic allocation rules. The taxpayer later died, and the preparer discovered the omission. The IRS found the requirements for relief satisfied and granted the estate's executor 120 days to elect out for the original transfers. The election must be made through an amended gift and GST tax return for the transfer year.

Ruling snapshot

• Question: May the estate make late elections preventing automatic GST exemption allocations to the two trusts?
• Outcome: Approved, with 120 days to file the elections on an amended Form 709
• Key authorities: IRC §§ 2632(c)(5), 2642(g); Treas. Reg. §§ 26.2632-1(b)(2), 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202447003 Third Party Communication: None
Release Date: 11/22/2024 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-103238-24
Date:
Re: ------------------------------------ August 14, 2024

Legend

Taxpayer = -----------------------
-------------------------
Trust 1 = -----------------------------------------------------------------
-----------------------
Trust 2 = -------------------------------------------------------------------------
-----------------------
Firm = ------------------------------------------------------------------------------------------

Year 1 = -------
Year 2 = -------
Year 3 = -------

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

   This letter responds to your authorized representative’s letter dated February 6,

2024, 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 to have the GST exemption automatic allocation
rules not apply with respect to transfers Taxpayer made in Year 1 to Trusts 1 and 2.

     The facts and representations submitted are summarized as follows:

   In Year 1, Taxpayer created and funded Trust 1 for the primary benefit of

Daughter and Trust 2 for the primary benefit of Son. Trusts 1 and 2 have GST potential.
Taxpayer did not intend for any portion of his GST exemption to be applied to the
transfers he made in Year 1 to Trusts 1 and 2.
PLR-103238-24 2

   Taxpayer retained Firm to prepare Taxpayer’s Year 1 Form 709, United States

Gift (and Generation-Skipping Transfer) Tax Return. Firm timely filed Taxpayer’s
Year 1 Form 709, but failed to elect under § 2632(c)(5) to have the GST exemption
automatic allocation rules not apply with respect to transfers Taxpayer made in Year 1
to Trusts 1 and 2.

    In Year 2, Taxpayer died. In Year 3, Firm discovered the failure to make an

election under § 2632(c)(5) on Taxpayer’s Year 1 Form 709. The executor of
Taxpayer’s estate requests an extension of time under § 2642(g) and § 301.9100-3 to
elect to have the GST exemption automatic allocation rules not apply with respect to
transfers Taxpayer made in Year 1 to Trusts 1 and 2.

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 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 is
treated as 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.

   Under § 2632(c)(3)(A), 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,
as defined in § 2632(c)(3)(B). Under § 2632(c)(3)(B), a GST trust is a trust that could
have GST potential with respect to the transferor unless the trust satisfies any of the
exceptions listed in § 2632(c)(3)(B)(i)-(vi).

    Section 2632(c)(5)(A)(i) provides, in part, that an individual may elect to have

§ 2632(c) not apply to an indirect skip or any or all transfers made by such individual to
a particular trust. Section 2632(c)(5)(B)(ii) provides that the election 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)(ii) provides that, except as otherwise provided, the

transferor may prevent the automatic allocation of GST exemption with regard to an
indirect skip by making an election as provided in § 26.2632-1(b)(2)(iii).
PLR-103238-24 3

   Section 26.2632-1(b)(2)(iii)(A) provides, in relevant part, that a transferor may

prevent (1) the automatic allocation of GST exemption (elect out) with respect to one or
more (or all) current-year transfers made by the transferor to a specified trust or trusts,
and (2) the automatic allocation of GST exemption (elect out) with respect to all future
transfers made by the transferor to a specified trust or trusts.

    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 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). Such regulations shall include procedures for requesting
comparable relief with respect to transfers made before the date of the enactment of
§ 2642(g).

    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.

    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 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.
PLR-103238-24 4

   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.

   Under § 301.9100-3(g)(1), the procedures set forth in § 301.9100-3 do not apply

to requests for relief under § 2642(g)(1) that are filed on or after May 6, 2024,
regardless of the date of the transfer. Since this ruling request was filed with the
Internal Revenue Service prior to May 6, 2024, the procedures set forth in § 301.9100-3
may still be applied to grant relief under § 2642(g)(1). For requests for relief under
§ 2642(g)(1), see § 26.2642-7 of the GST Tax Regulations.

   Based on the facts submitted and the representations made, we conclude that

the requirements of § 301.9100-3 have been satisfied. Therefore, the executor of
Taxpayer’s estate is granted an extension of time of 120 days from the date of this letter
to elect to have the GST exemption automatic allocation rules not apply with respect to
transfers Taxpayer made in Year 1 to Trusts 1 and 2.

  The allocation should be made on an amended Year 1 Form 709. The Form 709

should be filed with the Internal Revenue Service at the following address: Internal
Revenue Service Center, ATTN: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY
41042-2915.

   Except as expressly provided herein, we neither express nor imply any opinion

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-103238-24 5

  In accordance with the Power of Attorney on file with this office, we have sent a

copy of this letter to your authorized representatives.

                                             Sincerely,

                                             Associate Chief Counsel
                                             Passthroughs & Special Industries


                                         By: ______________________________
                                             Daniel J. Gespass
                                             Senior Technician Reviewer
                                             Office of the Associate Chief Counsel
                                             (Passthroughs & Special Industries)

Enclosure

     Copy for § 6110 purposes.

cc: ---------------------------

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