Monday January 21, 2019
Private Letter Ruling
GSTT Allocation Extension Granted
Decedent created two irrevocable trusts on Date 1 for the benefit of Decedent's sons and descendants. Decedent made additional transfers to these trusts in later years, each of which was prior to December 31, 2000. Decedent and Spouse each filed Form 709 for the years of each transfer, indicating that the transfers were made one-half by each spouse, but not allocating each spouse's generation skipping transfer (GST) exemption to each transfer. Decedent's estate requested an extension of time to allocate Decedent's and Spouse's GST exemption. The estate also requested that the exemption allocated to the transfer be effective as of the date of transfer. Decedent and Spouse relied on tax professionals to prepare their tax documents.
Under Sec. 2601 there is a tax imposed on every GST. The calculation to determine the amount of tax imposed relies on the inclusion ratio. Section 2631(a) provides an exemption amount which an individual may allocate to any transferred property when determining the inclusion ratio. According to Sec. 2632(a), the GST exemption allocation may be made on or before the date on which the individual's estate tax is due. Section 2642(g)(1)(A) allows for requests for an extension of time to make the GST exemption allocation. Reg. 301.9100-3 allows for an extension of time to be granted if the taxpayer acted reasonably and in good faith and the relief granted will not prejudice the interests of the government. Reg. 301.9100-3(b)(1)(v) states that a taxpayer will be deemed to have acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax professional who failed to make, or advise the taxpayer to make, the election. Here, the Service determined that Decedent and Spouse met the requirements and granted an extension of 120 days from the date of the letter to allocate their GST exemption to the trusts.
Dear * * *:
This letter responds to your authorized representative's letter dated July 20, 2017, requesting an extension of time under § 2642(g) of the Internal Revenue Code and 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to allocate generation-skipping transfer (GST) exemption to certain transfers to trusts.
The facts and representations submitted are summarized as follows. On Date 1, a date in Year 1, Decedent created and funded Trust A and Trust B, both irrevocable trusts, for the benefit of Decedent's sons and Decedent's descendants. Decedent also made transfers to Trusts A and B in Year 2 and Year 3. Year 1, Year 2 and Year 3 are years prior to December 31, 2000.
Decedent and Spouse filed timely Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns for Year 1, Year 2 and Year 3 to report the transfers to Trusts A and B. On each form, Decedent and Spouse signified their consent to treat the transfers as having been made one-half by each spouse under § 2513. The Forms 709 did not allocate Decedent's and Spouse's GST exemption to the respective transfers. Decedent and Spouse relied on tax professionals to prepare all necessary tax returns.
Decedent died on Date 2 and Spouse died on Date 3. The failure to allocate Decedent's and Spouse's GST exemption was discovered by CPA upon a review of Decedent's and Spouse's respective estates. It is represented that no additions (constructive or actual) were made to Trusts A and B after Date 1 and that Decedent and Spouse have sufficient GST exemption to allocate to the Years 1, 2 and 3 transfers.
You request an extension of time pursuant to § 2642(g) and §§ 301.9100-1 and 301.9100-3 to allocate Decedent's and Spouse's GST exemption to the transfers to Trusts A and B and that the GST exemption allocated to the transfers will be effective as of the date of each transfer.
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 2602 provides that the amount of the tax imposed by § 2601 is the taxable amount multiplied by the applicable rate. Section 2641(a) defines the term "applicable rate," with respect to any GST transfer, as the product of the maximum federal estate tax rate and the inclusion ratio with respect to the transfer.
Section 2642(a)(1) provides that the inclusion ratio with respect to any property transferred in a generation-skipping transfer is the excess (if any) of one over the "applicable fraction." Under § 2642(a)(2), the applicable fraction is defined as a fraction the numerator of which is the amount of the GST exemption allocated to the trust (or to property transferred in a direct skip), and the denominator of which is the value of the property transferred to the trust (or involved in the direct skip), 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 2631(a), as in effect for Year 1, provides 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 or her 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. Section 26.2632-1(b)(4) of the Generation-Skipping Transfer Tax Regulations provides, in part, that an allocation of GST exemption to property transferred during the transferor's lifetime, other than in a direct skip, is made on Form 709.
Section 2642(b)(1) provides, in part, that, except as provided in § 2642(f), if the allocation of the GST exemption to any transfers of property is made on a gift tax return filed on or before the date prescribed by § 6075(b) for such transfer, the value of such property for purposes of § 2642(a) shall be its value as finally determined for purposes of chapter 12 (within the meaning of § 2001(f)(2)) and such allocation will be effective on and after the date of such transfer.
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 this paragraph.
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.
Notice 2001-50, 2001-2 C.B. 189, provides, in part, that, under § 2642(g)(1)(B), the time for allocating the GST exemption to lifetime transfers is to be treated as if not expressly prescribed by statute and taxpayers may seek an extension of time to make an allocation described in § 2642(b)(1) or (b)(2) under the provisions of § 301.9100-3.
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(a) provides that, in general, requests for extension 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.
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). In accordance with § 2642(g)(1)(B) and Notice 2001-50, 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.
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 §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, Decedent's and Spouse's estates are granted an extension of time of 120 days from the date of this letter to allocate Decedent and Spouse's available GST exemption to each transfer to Trusts A and B. The allocations will be effective as of the respective date of the transfers to Trusts A and B, and the value of the transfer to the Trusts as determined for federal gift tax purposes will be used in determining the amount of Settlor's GST exemption to be allocated to Trusts.
This allocation should be made on an amended Form 709 and filed with the Cincinnati Service Center at the following address: Internal Revenue Service, Cincinnati Service Center Stop 82, Cincinnati, OH 45999. A copy of this letter should be attached to the supplemental Forms 709.
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.
Except as specifically ruled herein, we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the Code.
In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.
Associate Chief Counsel
(Passthroughs& Special Industries)
Leslie H. Finlow
Senior Technician Reviewer, Branch 4
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Copy of this letter
Copy for § 6110 purposes
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