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GiftLaw Note: An irrevocable trust ("Trust") was set-up by Husband to benefit children and remote issue. On Date 1, Husband and Wife ("Taxpayers") each transferred X% interested in a limited partnership to Trust. Taxpayers each filed Form 709. However, their gift tax advisor who prepared Form 709 failed to allocate both Husband and Wife's generation-skipping transfer (GST) exemption to the transfers. Taxpayers each requested an extension of time to allocate their GST exemption to the transfers to Trust.

Secs. 301.9100-1 through 301.9100-3 contain standards the Commissioner will use to determine the granting of extensions. Under Sec. 301.9100-3, requests for relief will be granted if a taxpayer is deemed to have acted reasonably and in good faith and the grant of relief will not prejudice the interests of the Government. Based on the facts submitted and representations made, the Service concluded the requirements of Sec. 301.9100-3 were satisfied and Taxpayers were each granted a 120-day extension to allocate their available GST exemption to the transfers to Trust.
PLR 201108002 Extension Granted to Allocate GSTT Exemption

Dear * * *:

This letter responds to a letter dated April 5, 2010, from your authorized representative, requesting extensions of time under § 2642(g)(1) of the Internal Revenue Code and §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to allocate your generation-skipping transfer (GST) exemption to a trust.

FACTS


Taxpayers are Husband and Wife. On Date 1, prior to December 31, 2000, Husband created an irrevocable trust, Trust, to benefit Taxpayers' children and more remote issue. Husband and Wife each transferred a w percent interest in a limited partnership, X, to Trust.

On Date 2, Husband and Wife each filed a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return reporting his/her transfer to Trust. However, their tax advisor, CPA Firm, who prepared the Forms 709, failed to allocate Husband's GST exemption and Wife's GST exemption to the transfers.

Husband and Wife request extensions of time to allocate his GST exemption and her GST exemption to the Date 1 transfers to Trust. It is represented that, to date, no taxable distributions, taxable terminations, or any other events have occurred with respect to Trust that would give rise to a GST tax liability.

LAW AND ANALYSIS


Section 2601 imposes a tax on every generation-skipping transfer (within the meaning of subchapter B) made by a "transferor" to a skip person. Under § 2611(a), the term "generation-skipping transfer" means a taxable distribution, a taxable termination and a direct skip.

Section 2602 provides that the amount of the GST tax is determined by multiplying the taxable amount by the applicable rate. Section 2641(a) provides that the term "applicable rate" means, with respect to any GST transfer, the product of the maximum federal estate tax rate and the inclusion ratio with respect to the transfer.

Under 2642(a)(1), the inclusion ratio with respect to any property transferred in a generation-skipping transfer is generally defined as the excess of 1 over the "applicable fraction". The applicable fraction, as defined in § 2642(a)(2), is a fraction, the numerator of which is the amount of 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.

Section 2631(a), as in effect for decedents dying and generation-skipping transfers before January 1, 2004, provides that, for purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption of $1,000,000 (adjusted for inflation under § 2631(c)) 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 26.2632-1(b)(4) of the Generation-Skipping Transfer Tax Regulations provides that an allocation of GST exemption to property transferred during the transferor's lifetime is made on Form 709.

Section 2642(b)(1)(A) provides 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 or is deemed to be made under § 2632(b)(1) or (c)(1), 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)).

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 § 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.

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 301.9100-2(b) provides that an automatic extension of 6 months from the due date of a return excluding extensions is granted to make regulatory or statutory elections whose due dates are the due date of the return or the due date of the return including extensions provided the taxpayer timely filed its return for the year the election should have been made and the taxpayer takes corrective action as defined in § 301.9100-2(c) within that 6-month extension period.

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 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.

Based on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 are satisfied. Therefore, Husband is granted an extension of time of 120 days from the date of this letter to allocate his available GST exemption to the Date 1 transfer to Trust. In addition, Wife is granted an extension of time of 120 days from the date of this letter to allocate her available GST exemption to the Date 1 transfer to Trust. The allocations will be effective as of the date of the transfers and will be based on the value of the contributions on the date Husband and Wife made the transfers.

The allocation of Taxpayers' GST exemption should be made on supplemental Forms 709 and filed with the Internal Revenue Service Center in Cincinnati. A copy of this letter should be forwarded to the Internal Revenue Service, Cincinnati Service Center - Stop 82, Cincinnati, OH 45999, for association with the 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 no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the Code.

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 who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely,

Lorraine E. Gardner
Associate Chief Counsel
(Passthroughs and Special Industries)

Related Topics On Extension to Allocate GSTT Exemption

1.4.1  Generation-Skipping Transfer Tax Overview:    The Generation-Skipping Transfer Tax (GSTT) is applicable for a transfer to a skip person. A skip person is a descendent two or more generations away from the transferor - usually a grandchild or a great-grandchild. Sec. 2613(a). If the beneficiary is not a grandchild or a great-grandchild, then the second generation is defined as a person 37½ or more years younger than the decedent. However, if a child is deceased, then that child's children will be considered as moving up to the child's generation. Sec. 2651(e).


1.4.2  Exclusion and Exemption:    The annual gift tax exclusion applies in limited cases to generation-skipping transfer taxes. Sec. 2642(c)(3)(A). The exclusion applies to direct transfers. It also applies to transfers in trust in which all principal and income is paid only to the skip person and the assets are either distributed to the skip person during life or to his or her estate.



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