+-------------+--------------------------------+----------------------+
| **M         | **Ronald D. Aucutt**           |                      |
| cGuireWoods |                                |                      |
| LLP**       | Direct: 703.712.5497           |                      |
|             |                                |                      |
| 1750 Tysons | raucutt@mcguirewoods.com       |                      |
| Boulevard   |                                |                      |
|             | Direct Fax: 703.712.5286       |                      |
| Suite 1800  |                                |                      |
|             |                                |                      |
| McLean, VA  |                                |                      |
| 22102-4215  |                                |                      |
|             |                                |                      |
| Phone:      |                                |                      |
| 7           |                                |                      |
| 03.712.5000 |                                |                      |
|             |                                |                      |
| Fax:        |                                |                      |
| 7           |                                |                      |
| 03.712.5050 |                                |                      |
|             |                                |                      |
| www.mcgui   |                                |                      |
| rewoods.com |                                |                      |
+-------------+--------------------------------+----------------------+

![](media/image1.bmp)

> July 3, 2008

Internal Revenue Service

CC:PA:LPD:PR (REG-147775-06)

Room 5203

1111 Constitution Avenue, N.W.

Washington, D.C. 20224

***Comments on Proposed Regulations Under Section 2642(g)(1) and\
Request To Present Comments at the Hearing***

Dear Ladies and Gentlemen:

I write, pursuant to the Notice of Proposed Rulemaking published on
April 17, 2008 (REG-147775-06), to comment on the Proposed Regulations
providing guidance on relief from late elections under section
2642(g)(1) of the Internal Revenue Code and to request the opportunity
to participate in the public hearing on those Proposed Regulations.

In Part II of this letter, I applaud the Proposed Regulations for
providing exactly the type of substantive guidance Congress intended. In
Part III, I recommend the relaxation of what I view as unnecessarily
burdensome requirements of affidavits and writings.

**I. Background of the Proposed Regulations**

Section 564(a) of the Economic Growth and Tax Relief Reconciliation Act
of 2001 (P.L. 107-16) ("EGTRRA") added subsection (g)(1) to section
2642, directing Treasury to publish regulations providing for extensions
of time to allocate GST exemption or to elect out of statutory
allocations of GST exemption.

Before EGTRRA, similar extensions of time under Reg. § 301.9100-3
(so-called "9100 relief") were viewed by some as unavailable, because
the deadlines for taking such actions were prescribed by the Code, not
by the regulations. The legislative history of EGTRRA stated that
"\[n\]o inference is intended with respect to the availability of relief
from late elections prior to the effective date of \[section
2642(g)(1)\]," and section 2642(g)(1)(A) itself directs that the
regulations published thereunder "shall include procedures for
requesting comparable relief with respect to transfers made before the
date of the enactment of \[section 2642(g)(1)\]." Section 2642(g)(1)(B)
adds:

> 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.

The GST tax provisions of EGTRRA were developed with a significant
amount of input from bar associations. Those of us who participated in
or closely observed the development of section 2642(g)(1) recall it as
simply the extension of 9100 relief to the GST tax. Congress confirmed
this in the "prescribed by statute" reference in the last sentence of
section 2642(g)(1)(B), which recalls the distinction between "regulatory
elections" that are eligible for 9100 relief and "statutory elections"
that are not, under Reg. § 301.9100-1(a) and (b).

Thus, shortly after the enactment of EGTRRA, Notice 2001-50, 2001-2 C.B.
189, acknowledged that "\[i\]n accordance with section 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" and
therefore stated that taxpayers may seek extensions of time to take
those actions under Reg. § 301.9100-3. As the Notice of Proposed
Rulemaking states, the Service has received and granted several requests
for such relief over the years since the publication of Notice 2001-50.
For the most part (although there are the inevitable stories of
anomalous experiences), 9100 relief pursuant to Notice 2001-50 appears
to have worked reasonably well.

**II. General Reaction to the Proposed Regulations**

Although 9100 relief pursuant to Notice 2001-50 appears to have worked
reasonably well in most cases, the Proposed Regulations, when finalized,
will complete the specific task Congress assigned to Treasury in EGTRRA.
This guidance, tailored to the need for relief in the context of the GST
tax that captured the attention of Congress in 2001, should be welcomed
by estate planning professionals and others who deal regularly with the
GST tax. It provides relevance, thoroughness, and stability that are not
always self-evident under the 9100 regulations that were written with
different tax rules -- indeed, different taxes -- in mind.

Reg. § 301.9100-3 and the Proposed Regulations share a common
orientation around the taxpayer's reasonable action in good faith and an
absence of prejudice to the interests of the Government. Both discourage
the use of the relief provisions to benefit from hindsight, which can be
both a form of bad faith (the emphasis in Rev. Proc. 92-85, 1992-2 C.B.
490, § 5.01(5), and Reg. § 301.9100-3) or a way the interests of the
Government are prejudiced (the historic emphasis in Rev. Proc. 79-63,
1979-2 C.B. 578, § 4.01(4), and the emphasis in the Proposed
Regulations). But the concern with hindsight seems to be considerably
more pervasive in the Proposed Regulations. This can be seen as simply
reflecting the more long-term impact of the GST exemption. Many of the
elections specifically enumerated in Reg. §§ 301.9100-1 through
301.9100-21 affect the current year or in any event the near term.
Although some elections, such as those affecting basis, could have a
long-term effect, few if any other tax elections arise in such an
inherently long-term context as do GST exemption allocations, and few if
any other tax elections are as certain to have very-long-term
consequences. Because hindsight itself is also inherently more important
the longer the term, it is understandable that hindsight would receive
more attention in regulations focused on the long-term world of
generation-skipping.

Even the occurrence of a generation-skipping transfer itself -- a
taxable termination or taxable distribution -- can be a component of
impermissible hindsight, because, for example, in the context of
multiple generation-skipping trusts, observance of an actual
generation-skipping transfer could permit an allocation to be made
precisely to the trust for which, in hindsight, the allocation is most
needed. Thus, it is understandable that Proposed Reg. §
26.2642-7(d)(3)(iii) would state that the intervening occurrence of a
taxable termination or taxable distribution may prejudice the interests
of the Government, even though often it is just such an occurrence that
exposes the failure to make the allocation or election in the first
place. It is even understandable that the regulation might view
"difficulty of adjusting \... the GST tax consequences of that
intervening termination or distribution" as relevant -- presumably not
relevant in its own right but relevant as evidence of the "pick and
choose" opportunity that the exercise of impermissible hindsight might
afford.

Obviously, the elaboration of factors to be taken into account in
considering requests for relief in greater detail in the Proposed
Regulations than in Reg. § 301.9100-3 may make it harder for some
taxpayers to obtain the desired relief, and may make it easier for other
taxpayers, depending on their respective circumstances. But that seems
to be just the natural consequence of the congressional encouragement in
section 2642(g)(1)(B) to Treasury and the Service to identify factors
they deem relevant. Writing a ruling request when the factors by which
it will be evaluated are unknown or open-ended can be unsettling.
Identifying those factors, even though the subjective element cannot be
removed entirely, helps.

Congress left no mistake about what it expected the regulations to do --
apply to all GST-tax-related elections, apply comparably to transfers
made before the enactment of EGTRRA, treat the relevant deadlines as if
they were nonstatutory, and permit the Service, in granting the
contemplated relief, to take into account all relevant circumstances --
an understandably wider universe of circumstances in the context of a
very long-term tax horizon such as that presented by the GST tax.

That is what the Proposed Regulations do. For that reason, I applaud
them and urge their prompt promulgation in final form.

**III. Specific Criticism of the Procedural Requirements in the Proposed
Regulations**

Where, in my judgment, the Proposed Regulations go too far is in the
prescription of more burdensome procedural requirements.

Historically, the most sensitive and frustrating feature of 9100 relief
was the pressure on tax professionals to "fall on their swords" in an
attempt to prevent injury to their clients without any assurance that
the effort would succeed and the injury would be prevented. A
considerable amount of effort, both by representatives of Treasury and
the Service and by members of bar associations and similar professional
groups, went into the development of the explicit reassurances regarding
reliance on tax professionals in Rev. Proc. 92-85, 1992-2 C.B. 490,
§ 5.012(c), and in the modern rules of Reg. § 301.9100-3(b)(1)(v).

As discussed above, section 2642(g)(1) was originally conceived as
simply the extension of 9100 relief to the GST tax, and Notice 2001-50,
remitting taxpayers to Reg. § 301.9100-3, reflected that view. In
contrast to Reg. § 301.9100-3, Proposed Reg. § 26.2642-7(h)(3)(i)(D)
requires a "detailed affidavit" from "\[e\]ach tax professional who
advised or was consulted by the transferor or the executor of the
transferor's estate with regard to any aspect of the transfer, the
trust, the allocation of GST exemption, and/or the election under
section 2632(b)(3) or (c)(5)." The reference to "any aspect of the
transfer \[or\] the trust" sweeps in advisors who had nothing to do with
preparing the return and have nothing to offer about the failure to make
the allocation or election. The only contribution that such persons
could make to the ruling request would be a representation that they did
not advise the transferor or the transferor's executor to make the
election. But that fact can be fully established by the affidavit of the
transferor or the transferor's executor.

In my experience and judgment, pulling in professionals who have nothing
relevant to add and on whom the transferor did not rely regarding the
election would be a mischievous step backward to the pre-Rev. Proc.
92-85 days of indiscriminate "fall on your sword" pressure. The anxiety
would be especially great in the context of the GST tax, because of the
very long-term nature of the tax and therefore the likelihood that it
could be many years before the "damages" from a professional's mistake
are known and the statute of limitations on that mistake begins to run.
The return preparer, any individual who made a substantial contribution
to the preparation of the return, and any tax professional who advised
the taxpayer with regard to the allocation or election are currently
required to provide affidavits under Reg. § 301.9100-3(e)(3) and would
presumably be required to do so under Proposed Reg.
§26.2642-7(h)(3)(i)(B), (C), and (D). The intrusiveness and disruption
created by sweeping in professionals who advised with regard to "any
aspect of the transfer \[or\] the trust" but had nothing or little to do
with the return or the allocation or election would not be justified by
the tiny increment of relevant information such a professional could
contribute, especially when many cases for relief under the Proposed
Regulations would be very clear in any event.

And, in contrast to the "circumstances" and "factors" that would be
considered in a ruling request under the Proposed Regulations, there is
no congressional invitation in section 2642(g)(1)(B) or anywhere else to
materially and intrusively broaden the procedural burdens on taxpayers
in this way.

Another way in which the Proposed Regulations go beyond the procedural
requirements of Reg. § 301.9100-3 is in the requirements of Proposed
Reg. §§ 26.2642-7(h)(2)(ii) and (3)(iii) to provide copies of "any
writing \... relevant to the transferor's intent with regard to the
application of GST tax to the transaction." In a typical case there may
be no such writings, because the typical transferor has no real "intent"
regarding the GST tax unless and until an advisor explains the tax and
the exemption and their significance. In any event, the burden imposed
-- sometimes long after the fact -- is again disproportionate to any
perceived contribution such writings might make, when many cases for
relief under the Proposed Regulations would be very clear in any event.

Where the case for relief under the Proposed Regulations is not clear --
that is, where initial analysis of the circumstances and factors
identified in the Proposed Regulations pursuant to section 2642(g)(1)(B)
is inconclusive -- there is no reason the Service cannot ask for
additional affidavits or "writings." To require such affidavits and
writings, not clearly called for by section 2642(g)(1)(B), to be
submitted with every request for relief would be disproportionately
burdensome.

Accordingly, I urge the deletion from the final regulations of the
requirements of affidavits and writings that go beyond those of Reg. §
301.9100-3.

**IV. Request to Present Oral Comments at the Public Hearing**

If there is a public hearing on the Proposed Regulations (because other
commentators have asked to present oral comments), I request the
opportunity to participate also. (I do not ask to participate in a
hearing if I would be the only speaker.) An outline of the topics I
would discuss is enclosed.

Sincerely,

![](media/image2.png){width="3.126388888888889in" height="0.64375in"}

Ronald D. Aucutt

Enclosure: Outline of Topics To Be Discussed at a Public Hearing

PUBLIC HEARING ON PROPOSED REGULATIONS\
UNDER SECTION 2642(g)(1)\
(REG-147775-06)

RONALD D. AUCUTT'S OUTLINE OF TOPICS

1\. Explanation of why the procedural requirements of the Proposed
Regulations 5 minutes\
are too burdensome and should be relaxed

2\. Explanation of why the substantive provisions of the Proposed
Regulations 5 minutes\
provide helpful guidance and should be promptly finalized