Skip to content
Planned Giving Menu
Text Resize
Monday July 22, 2024

Private Letter Ruling

Extension Approved to Opt Out of GSTT Allocation

GiftLaw Note:

Donor established an irrevocable trust for the benefit of Donor's children and the children's issue. Trust was funded with a single transfer. Donor and Spouse hired a tax professional to draft Trust and prepare Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Returns and each indicated their consent to treat all gifts made by Donor and Spouse as being made one-half by each spouse. The tax professional did not advise Donor and Spouse of the rules regarding the automatic allocation of GST and the ability to opt out of automatic allocation of GST. As such, Donor and Spouse did not elect out of automatic allocation of GST exemption. Spouse requests an extension of time under Section 2642(g) and Section 301.9100-3 to elect out of the automatic allocation of GST exemption to transfers made by Donor to Trust.

Section 2601 imposes a tax on every GST made by a transferor to a skip person. Section 2611(a) defines a GST as a taxable distribution, a taxable termination or a direct skip. Under Sec. 2602, the amount of the GST tax equals the taxable amount multiplied by the applicable rate. The applicable rate is defined in Sec. 2641(a) as the product of the maximum federal estate tax rate and the inclusion ratio. Section 2631(a) allows each individual to allocate a GST exemption to property transferred by the individual. Under Sec. 2631(b), the Sec. 2631(a) exemption allocation is irrevocable. Section 2632(c)(1) provides that the automatic allocation will be to the extent necessary to make the inclusion ratio zero, if the individual has any unused portion of GST exemption. An individual may elect out of the automatic allocation rule on a timely filed Form 709. Sec. 2632(c)(5)(A)(i). If the election to prevent the automatic allocation of GST is not made, the Service may grant relief. Sec. 2642(g)(1)(A). Under Sec. 2642(g)(1)(B), all relevant circumstances shall be considered, including evidence of intent contained in the trust instrument. Regulation 301.9100-3 allows 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. Regulation 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 and the tax professional failed to make or advise the taxpayer to make the election. Here, the Service determined that the requirements of Reg. 301.9100-3 were met and granted an extension of 120 days to elect out of the automatic allocation rules with respect to the transfer to Trust.

PLR 202420008          Extension Approved to Opt Out of GSTT Allocation

5/17/2024 (2/12/2024)

Dear * * *:

This letter responds to your authorized representative's letter dated July 24, 2023, requesting an extension of time pursuant to 2642(g) of the Internal Revenue Code and 301.9100-3 of the Procedure and Administration Regulations to make an election under 2632(c)(5) to opt out of the generation-skipping transfer (GST) exemption automatic allocation rules under 2632(c) with respect to transfers to a trust.

FACTS

The facts submitted and the representations made are as follows:

On Date, a date after December 31, 2000, Donor created an irrevocable trust (Trust), for the ultimate benefit of his children and children's issue and funded Trust with a single transfer in Year. Trust has GST tax potential.

Donor and Spouse retained a tax professional to draft Trust and to advise and prepare their respective Forms 709 (United State Gift (and Generations-Skipping Transfer) Tax Return). Both Donor and Spouse elected to split the gift to Trust. The tax professional failed to advise Donor and Spouse of the rules under 2632(c) regarding the automatic allocation of GST exemption and the ability to elect out of the automatic allocation of GST exemption by making an election under 2632(c)(5). Therefore, Donor and Spouse did not elect out of the automatic allocation of GST exemption.

Spouse requests an extension of time to elect out of the automatic allocation rules with respect to the transfer to Trust. Donor, in a separate request for a ruling, has made a similar request.

LAW AND ANALYSIS

Section 2513(a)(1) provides that a gift made by one spouse to any person other than his spouse shall 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 gift made during the calendar year by either while married to the other.

Section 2601 imposes a tax on every generation-skipping transfer (GST) made by a "transferor" to a "skip person." 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 GST tax imposed by 2601 is the taxable amount 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 2631(c) provides that, for purposes of 2631(a), the GST exemption amount for any calendar year shall be equal to the basic exclusion amount under 2010(c) for such calendar year.

Section 2632(a)(1) 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 2632(a)(2) provides that the manner in which allocations are to be made shall be prescribed by forms or regulations issued by the Secretary.

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 that an individual may elect to have the automatic allocation rules of 2632(c)(1) 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)(iii)(A)(2) of the Generation-Skipping Transfer Tax Regulations provides, in 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. A transferor may elect out with respect to one or more (or all) current-year 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 the 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 GST 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 301.9100-2 provides an automatic extension of time for making certain elections. Section 301.9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose 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.

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 on the facts submitted and the 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 make an election under 2632(c)(5) that the automatic allocation rules do not apply to the Year transfer to Trust.

Spouse should make the election on supplemental Form 709 for Year. The supplemental Form 709 should be filed with the Cincinnati Service Center at the following address: Internal Revenue Service Center, Cincinnati, OH 45999. A copy of this letter should be attached to the supplemental Form 709. A copy is enclosed for this purpose.

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.

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.

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.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By: Melissa Liquerman, Senior Counsel
Branch 4
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures
Copy for 6110 purposes


Published May 24, 2024

Previous Articles

Tax-Exempt Status Denied for Group Selling Burial Plots

IRS Approves Scholarship and Grant Procedures

Portability Election Granted

NIL Nonprofit's Exempt Status Denied

IRS Approves Scholarship and Grant Procedures

scriptsknown