Private Letter Ruling   
Number: 202202007   
Internal Revenue Service   
October 20, 2021   
     
     
     
Internal Revenue Service   
Department of the Treasury   
Washington, DC 20224   
     
Number: 202202007   
Release Date: 1/14/2022   
Index Number: 2652.01-00, 2652.01-02, 2632.03-00, 2654.00-00, 9100.00-00   
Third Party Communication: None   
Date of Communication: Not Applicable   
Person To Contact:   
ID No.   
Telephone Number:   
Refer Reply To:   
CC:PSI:4   
PLR-109807-21   
Date:  October 20, 2021   
     
Dear *******:     
     
This letter responds to a letter dated February 25, 2021, and subsequent correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make a reverse qualified terminable interest property (QTIP) election under § 2652(a)(3) of the Internal Revenue Code (Code).   
     
The facts and representations submitted are as follows:   
     
Decedent died on Date survived by Spouse. Under the terms of Decedent's will, the residue of Decedent's probate estate passes to Trust. Trust, a revocable living trust, was established by Decedent, as grantor and trustee, during Decedent's lifetime. Trust became irrevocable on Date.   
     
After distributing the specific bequests provided for in Article 2-2 of Trust, Section 2-3.1 of Trust directs the trustee to divide the remaining trust estate into two separate trusts - Marital Trust and Credit Shelter Trust.   
     
Article 2-4 of Trust directs the trustee to divide Marital Trust into two separate trusts - GST Exempt Marital Trust and GST Non-Exempt Marital Trust - provided there is GST exemption remaining after allocating GST exemption to Credit Shelter Trust. Article 2-4 of Trust also directs the trustee to allocate to GST Exempt Marital Trust a portion of the trust estate equal to Decedent's GST exemption remaining after allocation of GST exemption to Credit Shelter Trust. Article 2-4 of Trust provides that it is Decedent's desire that the trustee make a reverse QTIP election under § 2652(a)(3) with respect to GST Exempt Marital Trust and allocate Decedent's GST exemption to GST Exempt Marital Trust. Article 2-4 further provides that the language of Article 2-4 shall be interpreted in a manner which complies with § 26.2654-1 of the Generation-Skipping Transfer Tax Regulations.   
     
Section 2-4.1 of Trust directs the trustee to distribute the net income of GST Exempt Marital Trust and GST Non-Exempt Marital Trust semiannually or at more frequent intervals to Spouse. Section 2-4.2 of Trust provides that the trustee may distribute the principal of GST Exempt Marital Trust and GST Non-Exempt Marital Trust to Spouse for Spouse's support; however, the trustee is prohibited from distributing principal from GST Exempt Marital Trust until GST Non-Exempt Marital Trust is exhausted.   
     
Sections 2-4.5, 2-4.6, and 4-1.3(d) of Trust provide that upon Spouse's death, any accrued or undistributed income passes to Spouse's estate, and subject to Spouse's testamentary limited power of appointment over GST Exempt Marital Trust and Spouse's testamentary general power of appointment over GST Non-Exempt Marital Trust, the remaining principal is divided into equal shares for Decedent's descendants, by representation. A share for a child of Decedent is distributed outright, and a share for a more remote descendant is held in trust.   
     
Spouse, as personal representative of Decedent's estate and trustee of Trust, engaged Attorney, the drafter of Trust, to properly prepare Decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Form 706 was timely filed. On Schedule M (Bequests to Surviving Spouse), Decedent's estate made the election under § 2056(b)(7) to treat the property of Marital Trust as QTIP. Schedule M did not indicate that Article 2-4 of Trust requires division of Marital Trust into GST Exempt Marital Trust and GST Non-Exempt Marital Trust. Due to Attorney's error, no Schedule R (Generation-Skipping Transfer Tax) was filed with Decedent's Form 706, and Decedent's estate, therefore, did not make a reverse QTIP election with respect to GST Exempt Marital Trust or affirmatively allocate Decedent's available GST exemption.   
     
Decedent's estate represents that $y of Decedent's GST exemption was affirmatively or automatically allocated to Decedent's lifetime transfers, leaving $z of GST exemption available at Decedent's death. Decedent's estate further represents that, after GST exemption is automatically allocated to Credit Shelter Trust, GST exemption is available to automatically allocate to GST Exempt Marital Trust.   
     
Decedent's estate requests an extension of time under § 301.9100-3 to make a reverse QTIP election under § 2652(a)(3) with respect to GST Exempt Marital Trust.   
     
LAW AND ANALYSIS   
     
Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.   
     
Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of the taxable estate shall, except as limited by § 2056(b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to the surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.   
     
Section 2056(b)(1) provides, in pertinent part, that no deduction is allowed under § 2056(a) where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail.   
     
Section 2056(b)(7)(A) provides that, in the case of QTIP, for purposes of § 2056(a), such property shall be treated as passing to the surviving spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse.   
     
Section 2056(b)(7)(B)(i) defines "qualified terminable interest property" as property:: (I) which passes from the decedent; (II) in which the surviving spouse has a qualifying income interest for life as defined in § 2056(b)(7)(B)(ii); and (III) to which an election under § 2056(b)(7) applies.   
     
Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with respect to any property shall be made by the executor on the return of tax imposed by § 2001. The election, once made, is irrevocable.   
     
QTIP is subject to federal gift tax under § 2519 on the date the surviving spouse disposes of all or part of the qualifying income interest or is subject to federal estate tax under § 2044 upon the surviving spouse's death.   
     
Section 2601 imposes a tax on every generation-skipping transfer (GST). 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 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 2642(a)(1) defines "inclusion ratio" as the excess (if any) of 1 over the applicable fraction. Under § 2642(a)(2), the "applicable fraction" is a fraction the numerator of which is the amount of the GST exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust 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) provides that, for purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption amount which may be allocated by the individual (or the individual's executor) to any property with respect to which the individual is the transferor. Section 2631(b) provides that any allocation under § 2631(a), once made, shall be irrevocable.   
     
Section 2632(a)(1) provides that any allocation by an individual of GST exemption under § 2631(a) may be made at any time on or before the date prescribed for filing the estate tax return for the individual's estate (determined with regard to extensions), regardless of whether an estate tax return is required to be filed.   
     
Under § 2632(e) and § 26.2632-1(d)(2), an individual's unused GST exemption is automatically allocated on the due date to the extent not otherwise allocated by the individual's executor on or before that date. The unused exemption is allocated: (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. However, no automatic allocation of GST exemption is made to a trust that will have a new transferor with respect to the entire trust prior to the occurrence of any GST with respect to the trust.   
     
Section 2652(a)(1) provides that, for GST tax purposes, an individual shall be treated as transferring any property with respect to which the individual is the transferor. Under § 2652(a)(1), the "transferor" is the decedent with respect to any property subject to federal estate tax and the donor with respect to any property subject to federal gift tax.   
     
However, under § 2652(a)(3), in the case of any trust for which a marital deduction is allowed to the decedent by reason of § 2056(b)(7), the estate of the decedent may elect to treat all of the property in the trust for GST tax purposes as if the QTIP election had not been made. The election under § 2652(a)(3) is referred to as a "reverse QTIP election." The consequence of a reverse QTIP election is that, for GST tax purposes, the decedent, not the surviving spouse, is the transferor of the trust for which the QTIP election is made, and the decedent's GST exemption may be allocated to the trust.   
     
Section 26.2652-2(a) provides, in part, 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. Under § 26.2652-2(b), the reverse QTIP election is made on the return of tax on which the QTIP election is made.   
     
Section 26.2654-1(b)(1) provides, in part, that the severance of a trust that is included in the transferor's gross estate (or created under the transferor's will) into two or more trusts is recognized for GST tax purposes if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor.   
     
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 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 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.   
     
In this case, the terms of Trust direct the severance of Marital Trust into GST Exempt Marital Trust and GST Non-Exempt Marital Trust. Therefore, under § 26.2654-1(b)(1)(i), the severance of Marital Trust into GST Exempt Marital Trust and GST Non-Exempt Marital Trust is recognized for GST tax purposes. As a result of the QTIP election made on Form 706, and pursuant to § 2519 or § 2044(a), Spouse will become the transferor of GST Exempt Marital Trust for GST tax purposes prior to the occurrence of any GST, thereby precluding automatic allocation of Decedent's GST exemption to GST Exempt Marital Trust. However, if Decedent's estate is granted an extension of time to make a reverse QTIP election, Decedent will remain the transferor of GST Exempt Marital Trust for GST tax purposes, and Decedent's available GST exemption will be automatically allocated under § 2632(e).   
     
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 a reverse QTIP election with respect to GST Exempt Marital Trust.   
     
The reverse QTIP election should be made on a supplemental Form 706. The supplemental Form 706 should be filed with the Service Center at the following address: Internal Revenue Service Center, Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy of this letter should be attached to the supplemental Form 706.   
     
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 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) provides that it may not be used or cited as precedent.   
     
In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.   
     
Sincerely,   
     
Associate Chief Counsel   
(Passthroughs & Special Industries)   
     
By:    Karlene M. Lesho       
Karlene M. Lesho   
Senior Technician Reviewer, Branch 4   
Office of the Associate Chief Counsel   
(Passthroughs & Special Industries)   
     
Enclosure   
Copy for § 6110 purposes   
     
cc: