Rule2024-09644
Relief Provisions Respecting Timely Allocation of GST Exemption and Certain GST Elections
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 6, 2024
Effective
May 6, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations that provide guidance describing the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the generation-skipping transfer (GST) tax. The statutory provision underlying these rules was enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The guidance affects individuals (or their estates) who failed to make a timely allocation of GST exemption, a timely election out of the GST automatic allocation rules, or certain other timely GST elections.
Full Text
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<title>Federal Register, Volume 89 Issue 88 (Monday, May 6, 2024)</title>
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[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37116-37127]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09644]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 26, 301, and 602
[TD 9996]
RIN 1545-BH63
Relief Provisions Respecting Timely Allocation of GST Exemption
and Certain GST Elections
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
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SUMMARY: This document contains final regulations that provide guidance
describing the circumstances and procedures under which an extension of
time will be granted to make certain allocations and elections related
to the generation-skipping transfer (GST) tax. The statutory provision
underlying these rules was enacted as part of the Economic Growth and
Tax Relief Reconciliation Act of 2001 (EGTRRA). The guidance affects
individuals (or their estates) who failed to make a timely allocation
of GST exemption, a timely election out of the GST automatic allocation
rules, or certain other timely GST elections.
DATES:
Effective date: These regulations are effective on May 6, 2024.
Applicability date: For dates of applicability, see Sec. Sec.
26.2642-7(j), 301.9100-2(f)(2), and 301.9100-3(g)(2).
FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels at (202) 317-6859
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations in 26 CFR parts 26, 301,
and 602 that provide guidance on the application of section 2642(g)(1)
of the Internal Revenue Code (Code), which describes the circumstances
and procedures under which an extension of time will be granted to make
certain allocations and elections related to the GST tax.
Congress added section 2642(g)(1) to the Code by enacting section
564 of the EGTRRA, Public Law 107-16, section 564, 115 Stat. 91 (2001).
Section 2642(g)(1) directs the Secretary of the Treasury or her
delegate (Secretary) to issue regulations prescribing the circumstances
and procedures under which an extension of time will be granted to make
an allocation of GST exemption, as described in section 2631 of the
Code, to a transfer, and the following three elections under section
2632 of the Code: (1) an election under section 2632(b)(3) not to have
the deemed (automatic) allocation of GST exemption apply to a direct
skip (generally, a transfer subject to gift or estate tax made to a
person more than one generation below the transferor); (2) an election
under section 2632(c)(5)(A)(i) not to have the deemed (automatic)
allocation of GST exemption apply to an indirect skip or to transfers
made to a particular trust; and (3) an election under section
2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of
section 2632(c). In determining whether to grant relief, section
2642(g)(1) directs that all relevant circumstances be considered,
including evidence of intent contained in the trust instrument or the
instrument of transfer.
The legislative history accompanying section 2642(g)(1) indicates
that Congress believed that, in appropriate circumstances, an
individual should be granted an extension of time to allocate GST
exemption regardless of whether any period of limitations had expired.
Those circumstances include situations in which the taxpayer intended
to allocate GST exemption and the failure to allocate the exemption was
inadvertent. H.R. Conf. Rep. No. 107-84, 202 (2001).
After the enactment of section 2642(g)(1), the IRS issued Notice
2001-50 (2001-2 CB 189), which provided guidance for transferors
seeking an extension of time to make an allocation of GST exemption or
an election described in sections 2632(b)(3) or (c)(5). Notice 2001-50
provides, generally, that relief will be granted under Sec. 301.9100-3
of the Procedure and Administration Regulations (regarding requests of
extensions of time for certain regulatory elections) if the taxpayer
satisfies the requirements of those regulations and establishes to the
satisfaction of the Commissioner of Internal Revenue or his delegate
(Commissioner) that the taxpayer acted reasonably and in good faith and
that a grant of the requested relief will not prejudice the interests
of the government. If relief is granted under Sec. 301.9100-3 and the
allocation is made, the amount of GST exemption allocated to the
transfer is the Federal gift or estate tax value of the property as of
the date of the transfer and the allocation is effective as of the date
of the transfer. Notice 2001-50 will be made obsolete upon the
publication of this Treasury decision in the Federal Register.
On August 2, 2004, the IRS issued Rev. Proc. 2004-46 (2004-2 CB
142), which provides a simplified alternate method to obtain an
extension of time to allocate GST exemption in certain situations.
Generally, this method is available only with respect to an inter vivos
transfer to a trust from which a GST may be made and only if each of
the following requirements is met: (1) The transfer qualified for the
gift tax annual exclusion under section 2503(b) of the Code; (2) the
sum of the amount of the transfer and all other gifts by the transferor
to the donee in the same year did not exceed the applicable annual
exclusion amount for that year; (3) no GST exemption was allocated to
the transfer; (4) the taxpayer has unused GST exemption to allocate to
the transfer as of the filing of the request for relief; and (5) no
taxable distributions or taxable terminations have occurred as of the
filing of the request for relief.
On August 9, 2004, the IRS issued Rev. Proc. 2004-47 (2004 CB 169),
which provides alternative relief for taxpayers who failed to make a
reverse qualified terminable interest property (QTIP) election on an
estate tax return.
[[Page 37117]]
On April 17, 2008, proposed regulations (REG-147775-06) were
published in the Federal Register (73 FR 20870). The proposed
regulations provided guidance on the application of section 2642(g)(1)
by identifying the standards that the IRS will apply in determining
whether to grant a transferor or a transferor's estate an extension of
time to make an allocation of GST exemption, as described in section
2631, to property transferred by the transferor and the following three
elections under section 2632: (1) an election under section 2632(b)(3)
not to have the automatic allocation of GST exemption apply to a direct
skip; (2) an election under section 2632(c)(5)(A)(i) not to have the
automatic allocation of GST exemption apply to an indirect skip or to
transfers made to a particular trust; and (3) an election under section
2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of
section 2632(c). In addition to proposing these standards, the proposed
regulations included procedural requirements for establishing
eligibility for the requested relief, including identification of the
various persons from whom affidavits would be required.
In order to evaluate the necessity for and determine the burden
imposed by the requirement to produce affidavits under proposed Sec.
26.2642-7(h), the proposed regulations requested comments specifically
as to (1) whether the affidavits are necessary for the proper
performance of the functions of the IRS, including whether the
information provided by the affidavits will have practical utility, (2)
the accuracy of the estimated burden associated with preparing the
affidavits, (3) how the quality, utility, and clarity of the
information to be provided by the affidavits may be enhanced, (4) how
the burden of providing the affidavits may be minimized, including
through the application of automated collection techniques or other
forms of information technology, and (5) estimates of capital or start-
up costs and costs of operation, maintenance, and purchase of services
to provide the affidavits.
The proposed regulations also identified situations that do not
satisfy the standards for granting relief, and thus when the IRS will
not grant the requested relief.
The IRS received a total of five comments, three of which
explicitly addressed the procedural requirements of proposed Sec.
26.2642-7(h), redesignated in the final regulations as Sec. 26.2642-
7(i). After careful consideration of the comments received on the
proposed regulations, this Treasury decision adopts the proposed
regulations with clarifying changes and additional modifications in
response to comments as described in the Summary of Comments and
Explanation of Revisions. Relief provided under section 2642(g)(1) will
be granted through the IRS private letter ruling program.
Section 301.9100-1 generally provides that the Commissioner has the
discretion to grant a reasonable extension of time under the rules set
forth in Sec. Sec. 301.9100-2 and 301.9100-3 to make a regulatory
election under all subtitles of the Code, except subtitles E, G, H, and
I (section 9100 provisions). On and after the date of publication of
these final regulations, relief under section 2642(g)(1) no longer will
be granted under Sec. 301.9100-3. In addition, because these final
regulations provide a replacement for the automatic six-month extension
under Sec. 301.9100-2(b) without substantive difference, the extension
under Sec. 301.9100-2(b) no longer will be available to transferors or
transferor's estates qualifying for relief under proposed Sec.
26.2642-7(h)(1), redesignated in the final regulations as Sec.
26.2642-7(i)(1), on and after the date of publication of these final
regulations. Accordingly, the final regulations amend Sec. Sec.
301.9100-2(b) and 301.9100-3 to provide that relief under section
2642(g)(1) cannot be obtained through the provisions of Sec. Sec.
301.9100-2(b) and 301.9100-3. However, requests that are pending with
the IRS on the date of publication of these final regulations will
continue to be processed under the section 9100 provisions unless the
taxpayer requesting relief opts to withdraw the request and instead
seek relief under these final regulations. In that case, the taxpayer's
user fee will be refunded and a new user fee will be required with the
new request. Furthermore, the procedures contained in Revenue Procedure
2004-46 and Revenue Procedure 2004-47 will remain effective for
transferors within the scope of those revenue procedures.
The Department of the Treasury (Treasury Department) and the IRS
are mindful that the proposed regulations were issued 16 years ago on
April 17, 2008. Insofar as there have been no intervening legislative
or regulatory changes regarding allocations of GST exemption or GST
elections and because the issues addressed by the commenters on the
proposed regulations continue to remain relevant, the Treasury
Department and the IRS have determined that a new notice of proposed
rulemaking or a further opportunity for public comment would be
unlikely to generate different comments and, moreover, would
unnecessarily delay further this rulemaking to the continued detriment
of taxpayers seeking relief. In addition, the IRS has a ruling position
that, because of the provisions of the 2008 proposed regulations,
relief cannot be granted in certain otherwise appropriate situations
until the 2008 proposed regulations have been superseded by the
issuance of these final regulations. For such situations, the issuance
of a new notice of proposed rulemaking or a reopening of the comment
period would further delay, and in some cases prevent, the grant of
needed relief to taxpayers.
The Treasury Department and the IRS currently are developing a new
rulemaking that will complement these final regulations. In contrast to
these final regulations, which address the standards for granting
relief under section 2642(g)(1) for a failure to make a timely
allocation or election, the forthcoming proposed regulations would
address the practical effect of a grant of relief and would clarify the
interplay between affirmative allocations and automatic allocations.
Paragraphs in these final regulations have been reserved to accommodate
the forthcoming proposed regulations.
Summary of Comments and Explanation of Revisions
I. Scope of Authority To Issue Regulations
Section 2642(g)(1) gives the Secretary the authority to issue
regulations setting forth the ``circumstances and procedures'' under
which extensions of time will be granted to make certain allocations of
GST exemption and elections, taking into consideration 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. Section 2642(g)(1) makes the late allocations
and elections referenced in that section eligible for consideration for
relief. Because deadlines prescribed by statute are not eligible for
relief under Sec. 301.9100-3, section 2642(g)(1)(B) concludes with the
sentence, 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. Some commenters
maintained that this sentence, creating eligibility for a grant of
relief, limits the authority of the Treasury Department and the IRS to
issue regulations that provide standards for relief that are more
restrictive than those under Sec. 301.9100-3. Neither the statute nor
its legislative history suggests that the standards for relief
[[Page 37118]]
under section 2642(g)(1) are required to be equivalent or limited to
the standards set forth in Sec. 301.9100-3, nor is there any
implication that the enactment of section 2642(g) prohibits or
forecloses the possibility of any future change to the regulatory
standards in Sec. 301.9100-3. Nevertheless, the final regulations
adopt burden reducing provisions as explained later in this preamble.
II. Proposed Sec. 26.2642-7(d)(2)--Reasonableness and Good Faith
Proposed Sec. 26.2642-7(d)(2) provides a nonexclusive list of
circumstances (the underlying facts of which may be either helpful or
harmful to the taxpayer's request for relief) that the IRS will
consider in determining whether the transferor or the transferor's
executor acted reasonably and in good faith.
Commenters requested that the Treasury Department and the IRS
modify proposed Sec. 26.2642-7(d)(2) to provide that the transferor or
the executor of the transferor's estate will be deemed to have acted
reasonably and in good faith if the taxpayer establishes the existence
of any one of the various factors listed in Sec. 26.2642-7(d)(2).
Alternatively, commenters requested that Sec. 26.2642-7(d)(2) be
clarified to denote the sufficiency or relative importance of the
factors listed.
Section 2642(g)(1) directs the Treasury Department and the IRS to
issue regulations that ``prescribe such circumstances and procedures''
under which the IRS will grant relief. Since the enactment of section
2642(g) and through the IRS private letter ruling program, the IRS has
applied a facts and circumstances methodology in considering requests
for relief. Given the inherent complexity of the GST exemption rules,
no single factor can be determinative. While Sec. 301.9100-3(b)(1)
deems the reasonableness and good faith requirements to have been met
if the taxpayer establishes any one of the factors therein, that rule
is expressly made subject to the requirement of the absence of the use
of hindsight and the other factors described in Sec. 301.9100-3(b)(3)
and (c), and thus is not a one-factor test. Accordingly, proposed Sec.
26.2642-7(d)(2) seeks to delineate the many factors implicit in such a
facts and circumstances inquiry, and the final regulations adopt the
same methodology.
The IRS's experience with requests for relief under section
2642(g)(1) indicates that no one factor has more importance in all
cases than any other factor. Further, the satisfaction of one factor
alone may or may not be sufficient, in the context of the facts and
circumstances of that particular taxpayer, to persuade the IRS that
relief under section 2642(g)(1) is warranted. Therefore, the
recommendation to allow one factor to be determinative has not been
adopted in the final regulations. Nevertheless, the final regulations
clarify that not all of these factors may be relevant in a particular
situation (and those that are not relevant would not need to be
addressed in the request for relief). In addition, based on all the
facts and circumstances, a single factor listed in Sec. 26.2642-
7(d)(2) may (or may not) be determinative.
Section 301.9100-3(b)(1)(i) provides that a taxpayer is deemed to
have acted reasonably and in good faith if the taxpayer requests relief
before the failure to make the regulatory election is discovered by the
IRS. A commenter requested that this circumstance be added to the
factors listed in this provision. Thus, a taxpayer would be considered
to have acted reasonably and in good faith if the taxpayer's request
for relief was filed before the failure to make the allocation or
regulatory election is discovered by the IRS. For purposes of section
2642(g)(1), the Treasury Department and the IRS have determined that
this circumstance is not material because, in the context of a request
for relief under section 2642(g)(1), the Treasury Department and the
IRS believe that the party that first discovers the failure to make the
allocation or election (be it the IRS or the taxpayer) generally has no
correlation with the taxpayer's good faith or reasonable action.
Particularly because of the significant length of time that often
elapses between the transfer and the discovery of a missed GST election
or allocation, the discovery by the IRS does not necessarily signify a
lack of good faith or reasonable action by the taxpayer. At the same
time, the taxpayer's discovery generally does not guarantee the
existence of good faith and reasonable action by the taxpayer.
Therefore, this factor has not been added to the final regulations.
However, a delay in requesting relief, after the need for relief is
discovered, may have an adverse effect on the availability of relief.
See, for example, the circumstances described in Sec. 26.2642-
7(d)(3)(ii) and (e)(3).
III. Proposed Sec. 26.2642-7(d)(2)(iv)--Consistency
Proposed Sec. 26.2642-7(d)(2)(iv) provides that one of the factors
to be considered in determining whether the taxpayer has acted
reasonably and in good faith is whether the transferor acted
consistently with regard to the allocation of the transferor's GST
exemption. Section 26.2642-7(d)(2)(iv) is designed to elicit
information relevant to the intent of the transferor with regard to
allocating exemption or making an election. For instance, a
transferor's pattern of allocating GST exemption in an amount equal to
the value of transfers to a trust in three or more years (whether or
not consecutive) tends to support an assumption that the transferor
intended to have that trust be exempt from GST tax and thus supports a
presumed intent to allocate exemption to a transfer to that same trust
taking place in a year in which an allocation in fact was not made.
A commenter requested that this provision be clarified to provide
that the enactment of the statute itself be deemed to be a change in
circumstance that could explain any post-enactment deviations from pre-
enactment decisions regarding the allocation of GST exemption. In
response to this comment, Sec. 26.2642-7(d)(2)(iv) has been modified
in the final regulations to confirm that relief under this provision
will not be denied merely because a pattern does not exist or because
the existing pattern changed at some point, whether in response to the
enactment of a statute or to some other factor unrelated to either a
lack of reasonableness or good faith or prejudice to the interests of
the government.
IV. Proposed Sec. 26.2642-7(d)(3)--Prejudice to the Interests of the
Government
One commenter queried the placement of two of the factors under
Sec. 26.2642-7(d)(3) pertaining to whether a grant of relief would
prejudice the interests of the government. These two factors are (i)
the extent to which the requested relief is an attempt to benefit from
hindsight, and (ii) the extent to which a delay in the filing of the
request for relief was an attempt to deprive the IRS of sufficient time
to challenge the claimed identity of the transferor of the transferred
property that is the subject of the request for relief, the value of
that transferred property for Federal gift or estate tax purposes, or
any other aspect of the transfer that is relevant for Federal gift or
estate tax purposes. The commenter recommended that these two factors,
to the extent they deal with the transferor's subjective intentions, be
moved from proposed Sec. 26.2642-7(d)(3) to proposed Sec. 26.2642-
7(d)(2), which relates to reasonableness and good faith.
While these two factors may reflect unreasonableness or bad faith
on the part of the transferor or the transferor's executor, each of
these factors also represents an instance in which granting relief
would prejudice the interests of
[[Page 37119]]
the government. Therefore, the Treasury Department and the IRS have not
adopted this suggestion in the final regulations.
V. Proposed Sec. 26.2642-7(d)(3)(i)--Hindsight
Proposed Sec. 26.2642-7(d)(3)(i) provides, in part, that one of
the relevant factors in determining whether the government's interests
would be prejudiced is whether the grant of the requested relief would
permit an economic advantage or other benefit that would not have been
available if the allocation or election had been timely made. A
commenter suggested that the definition of the term ``economic
advantage'' is vague and may be overbroad, in that no request for
relief is ever made unless the grant of relief will be advantageous to
the taxpayer by producing an economic advantage in the form of a
reduction of tax liability. This provision, however, is intended to
limit the reference to economic advantage to an advantage that may not
have been available through a timely allocation or election. One
example of an economic advantage that would not have been available at
the time of a timely allocation of GST exemption would be a request to
allocate exemption to only one of two trusts (specifically, to the
trust with the greater appreciation) if the two trusts were created on
the same date with the same beneficiaries but with different assets.
Therefore, the Treasury Department and the IRS have not adopted this
suggestion in the final regulations.
VI. Proposed Sec. 26.2642-7(d)(3)(ii)--Timing of the Request for
Relief
Proposed Sec. 26.2642-7(d)(3)(ii) provides, in part, that the
expiration of any period of limitations on the assessment or collection
of transfer taxes prior to the filing of a request for relief will not
by itself prohibit a grant of relief. The proposed regulation further
states that the combination of the expiration of a period of
limitations with the fact that the asset or interest was valued with
the use of a valuation discount will not by itself prohibit a grant of
relief. A commenter indicated that the relevance of the use of
valuation discounts and the period of limitations in determining
whether to grant section 2642(g)(1) relief is not clear. The commenter
stated that the use of valuation discounts that are consistent with
established valuation methods neither prejudices the government nor
constitutes an act of bad faith and therefore should not be considered,
even in combination with other factors, in determining whether relief
should be granted. The commenter also stated that any consideration
given to the expiration of the period of limitations is contrary to the
legislative history of section 2642(g), which clearly directs that the
IRS is to disregard the expiration of any period of limitations in
considering requests for relief. The commenter maintains that the IRS
should not use hindsight to deny relief simply because the IRS failed
to challenge the valuation of transferred property or any other aspect
of the transaction reported on a return prior to the expiration of a
limitations period.
The sentences of proposed Sec. 26.2642-7(d)(3)(ii) that discuss
the expiration of the period of limitations and the use of valuation
discounts as factors that are considered for relief are removed from
the final regulations. Section 26.2642-7(d)(3)(iv) is added to the
final regulations to confirm that, subject to the considerations
related to the timing of the request for relief described in Sec.
26.2642-7(d)(3)(ii), the expiration of the period of limitations on the
assessment or collection of transfer taxes prior to the filing of a
request for relief generally is not relevant to the determination of
whether the requirements for a grant of relief under section 2642(g)(1)
have been met. Section 26.2642-7(d)(3)(iv) provides, however, that if
the IRS concludes that the value of the transferred asset or assets as
reported by the transferor or the executor of the transferor's estate
on the Federal gift or estate tax return was so understated that it is
likely to have satisfied the definition of a ``gross valuation
misstatement'' as defined in section 6662(h)(2)(C) of the Code, the IRS
will consider the purported transfer tax undervaluation in determining
whether a grant of relief would prejudice the interests of the
government. This provision is tied to the definition of a gross
valuation misstatement to confirm that the perceived understatement in
value would have to be exceptional in degree to raise the possibility
of prejudice to the interests of the government. This provision is
relevant only if the period of limitations on assessment or collection
for transfer tax purposes expired before the filing of the request for
relief.
VII. Proposed Sec. 26.2642-7(d)(3)(iii)--Intervening Taxable Events
Proposed Sec. 26.2642-7(d)(3)(iii) provides that the occurrence
and effect of an intervening taxable termination or taxable
distribution will be considered in determining whether the interests of
the government would be prejudiced by granting relief. The proposed
regulations further state that the interests of the government may be
prejudiced if a taxable termination or taxable distribution occurred
between the time for making a timely allocation of GST exemption or a
timely election described in section 2632(b)(3) or (c)(5) and the time
at which the request for relief under this section was filed. A
commenter requested that this language be removed from the final
regulations and replaced with a sentence or example indicating that the
existence of a GST tax liability when relief is requested is not
relevant in determining whether relief under section 2642(g)(1) will be
granted. Alternatively, the commenter requested that the final
regulations provide that these rules not apply if the period of
limitations on the assessment of resulting GST tax has not expired when
relief is requested. In addition, the commenter requested that the
final regulations provide transferors with the option of paying the GST
tax resulting from the taxable termination or taxable distribution
occurring prior to submission of the request for relief, or of
forfeiting any refund of GST tax to which the transferor otherwise
would be entitled upon the grant of relief.
These recommendations have not been adopted in the final
regulations. Although an intervening taxable distribution or taxable
termination itself does not necessarily bar a grant of relief under
section 2642(g)(1), it may be relevant in identifying the existence of
hindsight or in ascertaining the intent of the transferor. In addition,
the difficulty and complexity of making all of the related adjustments
caused by a grant of relief (including, for example, the grantor's
willingness to pay any GST tax liability and any transfer tax
consequences of that payment), some of which might also impact other
taxpayers, will be a factor to be considered in determining whether the
government's interests would be prejudiced.
VIII. Proposed Sec. 26.2642-7(e)(1)--Timely Allocations and Elections
Proposed Sec. 26.2642-7(e)(1) provides that relief will not be
granted to decrease or revoke a timely allocation of GST exemption as
described in Sec. 26.2632-1(b)(4)(ii)(A)(1), or to revoke an election
under section 2632(b)(3) or (c)(5) made on a timely filed Federal gift
or estate tax return. Section 2631(b) provides that an allocation of
GST exemption under section 2631(a), once made, is irrevocable. No
statute, however, provides that an election made under section
2632(b)(3) or (c)(5) is irrevocable.
[[Page 37120]]
Accordingly, proposed Sec. 26.2642-7(e)(1), redesignated in the
final regulations as Sec. 26.2642-7(e)(2), does not include the
statement that relief is not available to revoke an election under
section 2632(b)(3) or (c)(5) made on a timely filed Federal gift or
estate tax return. Such relief may be available provided that the
requirements of Sec. 26.2642-7 of these final regulations are
satisfied. Further, as described below, the final regulations, as they
pertain to timely allocations, include three narrow exceptions that
allow for relief from affirmative allocations of GST exemption.
Proposed Sec. 26.2642-7(e)(1), redesignated in the final
regulations as Sec. 26.2642-7(e)(2), has been further modified to
clarify that the allocation and election referred to is an affirmative
(not an automatic) allocation or election. The Treasury Department and
the IRS will address the effect of a grant of relief on automatic
allocations in future guidance to be issued under section 2642(g).
A commenter indicated that it is not clear whether proposed Sec.
26.2642-7(e)(1) also applies to allocations of GST exemption with
respect to transfers made at death. This rule has been clarified in the
final regulations to encompass transfers made at death and confirms
that relief will not be granted to decrease or revoke an affirmative
allocation (as opposed to an automatic allocation) of GST exemption,
regardless of whether the transfer or the allocation of exemption was
made during a transferor's life or upon the transferor's death.
The commenter further requested that the provision be modified to
provide that affirmative allocations (as opposed to automatic
allocations) of exemption or elections made on a timely filed estate
tax return of the estate of a decedent dying prior to 2001 be exempted
from this provision because section 2642(g)(1) relief was not available
before December 31, 2000. Although this recommendation has not been
adopted in the final regulations for all such allocations of exemption,
relief from the problem raised by this comment is provided by the third
of the exceptions included in the final regulations, as described in
the following paragraphs.
The final regulations have been modified to include three narrow
exceptions that allow for relief from affirmative allocations and
elections. The first exception is that an allocation of GST exemption
to a transfer or a trust (other than a charitable lead annuity trust
(CLAT) or a trust subject to an estate tax inclusion period (ETIP)
before the termination of the lead interest or ETIP, respectively) is
void to the extent that the amount allocated exceeds the amount
necessary to obtain an inclusion ratio of zero. See Sec. 26.2632-
1(b)(4)(i). (The allocation of exemption to a CLAT upon its creation
may turn out to be insufficient or excessive for the purpose of making
the CLAT fully GST exempt, but the allocation will not be voided. The
allocation of exemption to a trust subject to an ETIP does not become
irrevocable until the termination of the ETIP.)
The second exception is that an allocation is void if the
allocation is made with respect to a trust that, at the time of the
allocation, has no GST potential with respect to the transferor making
the allocation. For this purpose, a trust has GST potential even if the
possibility of a GST is so remote as to be negligible. See Sec.
26.2632-1(b)(4)(i).
The third exception is that a late allocation (as defined in
section 2642(b)(3)) will be deemed to be void as part of the relief
granted under section 2642(g) if the late allocation was made in an
effort to mitigate the tax consequences of the missed allocation that
is the subject of the grant of relief and that was not eligible for
relief prior to the enactment of section 2642(g)(1). Specifically, such
a late allocation is deemed to be void if (1) prior to December 31,
2000, a transfer was made to a trust with GST potential with respect to
the transferor; (2) a timely allocation of GST exemption to the trust
was not made; (3) prior to December 31, 2000, a late allocation of GST
exemption was made to the trust; (4) the late allocation is disclosed
as part of the request for relief or during the IRS's consideration of
that request; and (5) relief under section 2642(g)(1) is granted to
make a timely allocation to the transfer made prior to December 31,
2000.
Finally, the commenter questioned what effect a grant of relief
under section 2642(g)(1) has on a timely allocation (whether
affirmative or automatic) of the same transferor's GST exemption to a
transfer made subsequent to the transfer for which relief is requested.
The commenter suggested that, if relief is granted under section
2642(g)(1) to timely allocate GST exemption to an earlier transfer, the
GST exemption timely allocated (whether affirmatively or automatically)
to a later transfer could be reduced or eliminated. The commenter
suggested that the grant of relief for the earlier transfer could be
conditioned on payment of the GST tax that may be due if the inclusion
ratio with respect to the subsequent transfer is increased by the grant
of relief. The Treasury Department and the IRS believe that, because
the response to this comment may go beyond the scope of the proposed
regulations, this issue is among those they intend to address in
subsequent guidance.
IX. Proposed Sec. 26.2642-7(f)--Period of Limitations Under Section
6501
Proposed Sec. 26.2642-7(f), redesignated in the final regulations
as Sec. 26.2642-7(g), provides that a request for relief does not
reopen, suspend, or extend the period of limitations on assessment or
collection of any estate, gift, or GST tax under section 6501 of the
Code. Thus, the IRS may request that the transferor or the transferor's
executor consent under section 6501(c)(4) to an extension of the period
of limitations on assessment or collection of any or all gift and GST
taxes.
A commenter requested that the references to gift tax be removed
from this provision, apparently in an effort to eliminate the
possibility that the grant of relief might be conditioned on the
taxpayer's agreement to extend the gift tax period of limitations. The
commenter's rationale for this request is that the request for relief
relates only to the GST tax. The references to gift tax in this
provision, however, complement Sec. 26.2642-7(d)(3)(ii) of the final
regulations, in effect, by allowing the taxpayer to avoid a finding of
prejudice to the interests of the government by agreeing to an
extension of the gift tax period of limitations. An agreement to extend
the period of limitations is voluntary and declining to agree to an
extension would not necessarily mean that relief would be denied, but
it is a factor that may be taken into consideration. By retaining this
reference to the gift tax, the government would be given adequate time
to consider the reported identity of the transferor, the valuation of
the transferred interest that will eventually determine the amount of
GST exemption that may be allocated to the transfer, or any other
aspect of the transfer that is relevant for Federal gift or estate tax
purposes. Therefore, this reference has not been deleted from the final
regulations.
A taxpayer who seeks relief under section 2642(g)(1) will not be
regarded as having filed a claim for refund or credit merely by
requesting such relief.
X. Proposed Sec. 26.2642-7(h)(2) and (3)--Affidavits and Declarations
Commenters recommended against requiring affidavits that provide
more information than is required under Sec. 301.9100-3(e)(2) and (3).
One
[[Page 37121]]
commenter characterized the proposed procedural requirements as more
burdensome than the corresponding procedural requirements under the
section 9100 provisions and stated that these ``more burdensome''
requirements for relief are inconsistent with the statutory mandate in
section 2642(g). Since the enactment of section 2642(g), the IRS has
issued a significant number of private letter rulings granting relief
under section 2642(g)(1). After considering the circumstances in the
requests, the IRS has concluded that certain information in addition to
that specified in Sec. 301.9100-3(e)(2) and (3) is necessary to
determine whether relief should be granted. Accordingly, based on the
IRS's experience in evaluating such requests for relief, the Treasury
Department and the IRS have not adopted this recommendation in the
final regulations.
Another commenter maintained that the affidavits required by
proposed Sec. 26.2642-7(h) are not necessary for the proper
performance of the functions of the IRS and, therefore, the quality,
utility, and clarity of the information to be provided by the
affidavits cannot be enhanced. In support, the commenter argued that
the affidavits demand more substantiation from taxpayers than is
contemplated by section 2642(g)(1)(B). In addition, the commenter
asserted that the IRS can grant relief under section 2642(g)(1) without
requiring these affidavits if the IRS focuses on the government's
interest and the transferor's intent as evidenced in the transfer
documents and other supporting documents. Finally, the commenter stated
that the IRS could determine from the documents previously filed with
the IRS that the period of limitations had expired or that a taxable
termination or distribution had occurred, both factors that may be
indicative of prejudice to the government.
In the course of issuing private letter rulings under Sec.
301.9100-3, the IRS has determined that, while transfer instruments and
other relevant documents provided by the transferor or the transferor's
executor provide useful information, these documents do not necessarily
provide all of the information needed to evaluate properly a request
for relief under section 2642(g)(1). Accordingly, the final regulations
retain the requirement that requests for relief include detailed
affidavits. However, after consideration of the comments and review of
the proposed regulations, the Treasury Department and the IRS have
modified the regulations by decreasing the amount of information
required in affidavits in order to replicate more closely the
requirements of Sec. 301.9100-3(e)(2) and (3). As a result, the final
regulations reduce the burden the proposed regulations would have
imposed.
Commenters also requested a narrowing of the categories of
individuals from whom affidavits will be required. In addition to
individuals involved in the preparation of the tax return, proposed
Sec. 26.2642-7(h)(3) also includes in this group each tax professional
who advised or was consulted on ``any aspect of the transfer'' or on
the trust, and each agent or legal representative of the transferor who
participated ``in the transaction.'' Commenters noted that this group
may include advisors, agents, or legal representatives of the
transferor who had nothing to do with preparing the return or with the
decision or failure to allocate exemption or to make an election on
that return.
In response to these comments, the Treasury Department and the IRS
have modified the regulations by narrowing the categories of
individuals required to submit affidavits under proposed Sec. 26.2642-
7(h)(3), redesignated in the final regulations as Sec. 26.2642-
7(i)(4). Specifically, the final regulations do not include in this
group of required affiants any tax professional unless that
professional participated in or provided advice with regard to the GST
tax exemption allocation or election, or with regard to the preparation
of the return. As a result, the final regulations reduce the burden the
proposed regulations would have imposed.
The final regulations, however, also have been modified to confirm
that the IRS, consistent with current procedures in the IRS private
letter ruling program, may require affidavits and copies of writings
from persons not included in the more narrow group described in Sec.
26.2642-7(i)(4) in cases in which the IRS believes additional
information is required or would be helpful in making the determination
as to whether relief under section 2642(g)(1) will be granted.
XI. Proposed Sec. 26.2642-7(h)(3)(iii)--Affidavits of Other Parties
Proposed Sec. 26.2642-7(h)(3)(iii) provides that a party making an
affidavit must attach to each affidavit copies of any writing
(including, without limitation, notes and emails) and other
contemporaneous documents within the possession of the affiant relevant
to the transferor's intent with regard to the application of GST tax to
the transaction. A commenter requested that this provision be modified
to provide that a lawyer or accountant is not deemed to possess any
documents that are in the possession of his or her law firm or
accounting firm. In response to this comment, this provision of the
final regulations, redesignated in the final regulations as Sec.
26.2642-7(i)(4)(iii), clarifies that the writings to be submitted under
these regulations are those that the affiant discovers by conducting,
in good faith, a reasonably diligent search of records in the
possession of or accessible to the affiant, or subject to the affiant's
control. A reasonably diligent search generally would include, without
limitation, a review of the records in the possession or control of the
affiant or the firm with which the affiant is employed or associated
relating to the transaction or tax return at issue.
XII. Proposed Sec. 26.2642-7(h)(3)(v)--Death or Incapacity
Proposed Sec. 26.2642-7(h)(3)(v) provides that, if a person who
would be required to provide an affidavit under proposed Sec. 26.2642-
7(h)(3)(i) has died or is not competent, the transferor or the
transferor's executor must include a statement to that effect in the
affidavit of that transferor or executor.
A commenter suggested that this proposed provision would require
the transferor or the transferor's executor to determine the competency
of a person and that such a requirement would be inappropriate.
Further, the commenter noted that, in addition to death and
incompetence, serious physical illness or other physical impairment
also could render a person unable to provide an affidavit. The
commenter recommended that this provision be modified to provide that
the transferor or the transferor's executor may satisfy the
requirements of this provision with a statement that such transferor or
executor, despite his or her best efforts in good faith, was unable to
obtain the affidavit required under proposed Sec. 26.2642-7(h)(3)(i)
and an explanation of the basis for the transferor's or executor's
conclusion, based on his or her best knowledge and reasonable belief
that such affidavit was not obtainable.
The corresponding provision in the final regulations (Sec.
26.2642-7(i)(4)(vi)) has been modified to apply to persons who have
died or who are unwilling or unable to provide the required affidavit
at the time relief is requested. For purposes of this provision, the
term unwilling refers to a person who does not (other than one who is
unable to) provide the required affidavit, despite the best efforts of
the transferor or the transferor's executor, made in good faith, to
obtain the required affidavit.
[[Page 37122]]
The unwillingness of certain persons to provide an affidavit, however,
may be considered by the IRS in determining whether or not to grant the
requested relief. In addition, for purposes of this provision, the term
unable refers to a permanent condition such as physical or mental
incapacity that prevents a person from providing the required
affidavit, but not a temporary condition such as a temporary physical
or mental incapacity or a person's inability due to a leave of absence,
travel, or a contractual requirement such as a confidentiality
agreement.
XIII. User Fee and Estimated Burden
A commenter noted that taxpayers have to pay a user fee when
seeking relief under section 2642(g)(1) through the IRS private letter
ruling program. The commenter proposed that, given the complexity of
the rules and the frequency of changes to the rules, relief under
section 2642(g)(1) should be granted without charging a user fee. The
commenter noted that, under other circumstances, the IRS has developed
simplified procedures that do not necessitate a private letter ruling
request and suggested that the compliance burden would be eased
significantly if a simplified procedure to administer relief under
section 2642(g)(1) were developed.
The Treasury Department and the IRS believe that the most efficient
way to address these requests for relief continues to be through the
IRS private letter ruling program. The user fee is imposed to recover
the government's full cost for providing the service. The Treasury
Department and the IRS agree that the compliance burden would be eased
significantly if it was possible to develop a simplified procedure to
administer relief under section 2642(g)(1). For instance, Rev. Proc.
2004-46 (2004-2 CB 142) and Rev. Proc. 2004-47 (2004-2 CB 169) identify
situations in which the Treasury Department and the IRS believe that
relief may be granted without adversely affecting the interests of the
government. See Sec. 601.601(d)(2)(ii)(b). The Treasury Department and
the IRS are prepared to issue additional revenue procedures or other
guidance when they identify situations for which simplified or
automatic relief under section 2642(g)(1) would be appropriate and
administrable. Until such guidance is issued, however, the IRS private
letter ruling program will continue to allow the IRS to obtain and
evaluate the information necessary to identify such situations. The
user fee would follow the same schedule and amount as rulings under
Sec. 301.9100-1. See Appendix A of Rev. Proc. 2024-1, 2024-1 I.R.B. 1,
85.
The IRS had estimated in the proposed regulations that the annual
burden to prepare the affidavits was two hours. Many commenters
mentioned that the estimated burden was drastically underestimated due
to the numerous requirements of the proposed regulations. In response
to these comments, the IRS has reconsidered this estimate of the annual
burden and has increased the estimated annual burden to 20 hours.
Effect on Other Documents
Notice 2001-50, 2001-2 CB 189, is obsolete as of May 6, 2024.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act, 44 U.S.C. 3501 et
seq. (PRA), information collection requirements contained in these
final regulations are in Sec. 26.2642-7(i)(3) and (4). These
provisions require transferors or the executors of transferors' estates
to provide one or more affidavits when requesting relief under section
2642(g)(1) of the Internal Revenue Code. The IRS will use the
information in the affidavits to determine whether to grant a
transferor or a transferor's estate an extension of time to (1)
allocate GST exemption as defined in section 2631, (2) elect under
section 2632(b)(3) not to have the automatic allocation of GST
exemption apply to a direct skip, (3) elect under section
2632(c)(5)(A)(i) not to have the automatic allocation of GST exemption
apply to an indirect skip or to transfers made to a particular trust,
and (4) elect under section 2632(c)(5)(A)(ii) to treat any trust as a
GST trust for purposes of section 2632(c).
The reporting burden associated with the information collection in
the final regulations are included in the aggregate burden estimates
for OMB control number 1545-2116. The estimated number of respondents,
who are mainly attorneys representing the taxpayers, for each year is
estimated to be 50. The estimated burden for each respondent to prepare
the private letter ruling request and the accompanying affidavits is 20
hours per respondent. Thus, the total annual burden is estimated to be
1000 hours. It should be noted that the burden is not an annual burden
for each taxpayer, as taxpayers do not need to request a private letter
ruling each year.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
Books or records relating to a collection of information must be
retained as long as their contents might become material in the
administration of any Internal Revenue law. Generally, tax returns and
tax information are confidential, as required by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
It is hereby certified that these regulations will not have a
significant economic impact on a substantial number of small entities.
The applicability of these regulations is limited to individuals (or
their estates) and trusts, which are not small entities as defined by
the Regulatory Flexibility Act (5 U.S.C. 601). Although it is
anticipated that there may be a beneficial economic impact for some
small entities, including entities that provide tax and legal services
that assist individuals in the IRS private letter ruling program, any
benefit to those entities would be indirect. Further, this indirect
benefit will not affect a substantial number of these small entities
because only a limited number of individuals (or their estates) and
trusts would submit a private letter ruling request under this rule.
Therefore, only a small fraction of tax and legal services entities
would generate business or benefit from this rule. Accordingly, a
regulatory flexibility analysis is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was submitted
to the Chief Counsel for Advocacy of the Small Business Administration
for comment on its impact on small business and no comments were
received in response.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated
[[Page 37123]]
annually for inflation. This rule does not include any Federal mandate
that may result in expenditures by State, local, or Tribal governments,
or by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Drafting Information
The principal author of these regulations is Mayer R. Samuels,
Office of the Associate Chief Counsel (Passthroughs and Special
Industries), IRS. However, other personnel from the Treasury Department
and the IRS participated in their development.
List of Subjects
26 CFR Part 26
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, the Treasury Department and the IRS amend 26 CFR parts
26, 301, and 602 as follows:
PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX
REFORM ACT OF 1986
0
Paragraph 1. The authority citation for part 26 is amended by adding an
entry for Sec. 26.2642-7 in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 26.2642-7 also issued under 26 U.S.C. 2642(g).
* * * * *
0
Par. 2. Section 26.2642-7 is added to read as follows:
Sec. 26.2642-7 Relief under section 2642(g)(1).
(a) In general. Under section 2642(g)(1)(A) of the Internal Revenue
Code (Code), the Secretary of the Treasury or her delegate (Secretary)
has the authority to issue regulations describing the circumstances in
which a transferor, as defined in section 2652(a) of the Code, or the
executor of a transferor's estate, as defined in section 2203 of the
Code, will be granted an extension of time to allocate generation-
skipping transfer (GST) exemption as described in section 2642(b)(1)
and (2). The Secretary also has the authority to issue regulations
describing the circumstances under which a transferor or the executor
of a transferor's estate will be granted an extension of time to make
the elections described in section 2632(b)(3) and (c)(5) of the Code.
Section 2632(b)(3) provides that an election may be made by or on
behalf of a transferor not to have the transferor's GST exemption
automatically allocated under section 2632(b)(1) to a direct skip, as
defined in section 2612(c), made by the transferor during life. Section
2632(c)(5)(A)(i) provides that an election may be made by or on behalf
of a transferor not to have the transferor's GST exemption
automatically allocated under section 2632(c)(1) to an indirect skip,
as defined in section 2632(c)(3)(A), or to any or all transfers made by
such transferor to a particular trust. Section 2632(c)(5)(A)(ii)
provides that an election may be made by or on behalf of a transferor
to treat any trust as a GST trust, as defined in section 2632(c)(3)(B),
for purposes of section 2632(c) with respect to any or all transfers
made by that transferor to the trust. This section generally describes
the factors that the Internal Revenue Service (IRS) will consider when
an extension of time is sought by or on behalf of a transferor to
timely allocate GST exemption or to make an election under section
2632(b)(3) or (c)(5). If the time period for an automatic six-month
extension under paragraph (i)(1) of this section has passed, relief
provided under this section can be requested through the IRS private
letter ruling program. See paragraph (i) of this section.
(b) Effect of relief--(1) In general. If an extension of time to
allocate GST exemption is granted under this section, the allocation of
GST exemption, once made, will be considered effective as of the date
of the transfer. Further, the amount of the transferor's GST exemption
required to be allocated in order to produce a zero inclusion ratio
solely with regard to that transfer will be the value of the property
transferred for purposes of chapter 11 or chapter 12 of the Code as of
the date of the transfer. If an extension of time to elect out of the
automatic allocation of GST exemption under section 2632(b)(3) or
(c)(5)(A)(i) is granted under this section, the election, once made,
will be considered effective as of the date of and immediately prior to
the transfer. If an extension of time to elect to treat any trust as a
GST trust under section 2632(c)(5)(A)(ii) is granted under this
section, the election, once made, will be considered effective as of
the date of and immediately prior to the first (or each) transfer
covered by that election. See paragraph (h) of this section with regard
to preserving a taxpayer's eligibility for a refund generated by a
grant of relief, if applicable.
(2) [Reserved]
(3) Effect on other transfers. Except as otherwise provided in
paragraph (e)(2)(ii) of this section, an allocation of exemption or an
election made pursuant to a grant of relief under this section does not
reduce or eliminate any affirmative allocation or void any election
made with respect to any other transfer occurring contemporaneously
with or subsequent to the transfer or transfers for which relief has
been granted.
(c) Limitation on relief. The amount of GST exemption that may be
allocated to a transfer as the result of relief granted under this
section in no event may exceed the amount of the transferor's unused
GST exemption under section 2631(c) of the Code as of the date of the
transfer. Thus, if, by the time of the making of the allocation or
election pursuant to relief granted under this section, the GST
exemption amount under section 2631(c) has increased to an amount in
excess of the amount in effect for the date of the transfer, no portion
of the increased amount may be applied to that earlier transfer by
reason of the relief granted under this section.
(d) Basis for determination--(1) In general. Requests for relief
under this section will be granted when and to the extent that the
transferor or the executor of the transferor's estate provides evidence
(including the affidavits described in paragraph (i) of this section)
establishing to the satisfaction of the IRS that the transferor or the
executor of the transferor's estate acted reasonably and in good faith,
and that the grant of relief will not prejudice the interests of the
government. Paragraphs (d)(2) and (3) of this section set forth
nonexclusive lists of factors the IRS will consider in determining
whether this
[[Page 37124]]
standard of reasonableness, good faith, and lack of prejudice to the
interests of the government has been met so that such relief will be
granted. In making this determination, the IRS will consider those
factors set forth in paragraphs (d)(2) and (3) of this section, as well
as all other facts and circumstances not specifically set forth herein
that are relevant to the particular situation. Paragraph (e) of this
section sets forth some situations in which this standard is not met
and, as a result, in which relief under this section will not be
granted.
(2) Reasonableness and good faith. The following is a nonexclusive
list of factors that will be considered in determining whether the
transferor or the executor of the transferor's estate acted reasonably
and in good faith for purposes of this section. Not all of these
factors may be relevant in a particular situation (and those that are
not relevant are not required to be addressed in the request for relief
made in accordance with paragraph (i) of this section). Further, it is
possible that the evidence relating to any one of these factors, in the
context of all of the facts and circumstances of the particular
situation, may be sufficient to persuade the IRS that the grant of
relief under section 2642(g)(1) would be appropriate. However, as a
general rule, no single factor (whether listed or not) will be
determinative in all cases. The factors are as follows:
(i) Intent. The intent of the transferor to timely allocate GST
exemption to a transfer or to timely make an election under section
2632(b)(3) or (c)(5), as evidenced in the trust instrument, the
instrument of transfer, or other relevant documents contemporaneous
with the transfer, such as Federal gift and estate tax returns and
correspondence. This may include evidence of the intended GST tax
status of the transfer or the trust (for example, exempt, non-exempt,
or partially exempt), or more explicit evidence of intent with regard
to the allocation of GST exemption or the election under section
2632(b)(3) or (c)(5).
(ii) Intervening events. Intervening events beyond the control of
the transferor or of the executor of the transferor's estate that
caused the failure to allocate GST exemption to a transfer or the
failure to make an election under section 2632(b)(3) or (c)(5).
(iii) Lack of awareness. Lack of awareness, despite the exercise of
reasonable diligence, by the transferor or the executor of the
transferor's estate of the need to allocate GST exemption to the
transfer, taking into account the experience of the transferor or the
executor of the transferor's estate and the complexity of the GST tax
issue, as the cause of the failure to allocate GST exemption to a
transfer or to make an election under section 2632(b)(3) or (c)(5).
(iv) Consistency. Consistency by the transferor with regard to the
allocation of the transferor's GST exemption to one or more trusts or
skip persons. For example, the transferor's consistent pattern of
allocation of GST exemption to transfers (whether or not made in
consecutive years) to skip persons or to a particular trust, or the
transferor's consistent pattern of electing not to have the automatic
allocation of GST exemption apply to transfers (whether or not made in
consecutive years), will be taken into consideration. Evidence of
consistency may be less relevant if there has been a change of
circumstances or a change of trust beneficiaries that otherwise would
explain a deviation from prior GST exemption allocation decisions.
Relief under this section will not be denied merely because a pattern
of allocation or election does not exist or because the existing
pattern changed at some point, whether in response to the enactment of
section 2642(g) or to some other factor unrelated to either a lack of
reasonableness or good faith or prejudice to the interests of the
government.
(v) Qualified tax professional. Reasonable reliance by the
transferor or the executor of the transferor's estate on the advice of
a qualified tax professional retained or employed by one or both of
them and either the failure of the tax professional, or, in reliance on
or consistent with (or in the absence of) that tax professional's
advice, the failure of the transferor or the executor, to allocate GST
exemption to the transfer or to make an election described in section
2632(b)(3) or (c)(5). Reliance on a qualified tax professional will not
be considered to have been reasonable if the transferor or the executor
of the transferor's estate knew or should have known that the
professional either--
(A) Was not competent to render advice on the GST exemption; or
(B) Was not aware of all relevant facts.
(3) Prejudice to the interests of the government. The following is
a nonexclusive list of factors that will be considered to determine
whether the interests of the government would be prejudiced for
purposes of this section:
(i) Hindsight. An attempt to benefit from hindsight will be deemed
to prejudice the interests of the government. A factor relevant to this
determination is whether the grant of the requested relief would permit
an economic advantage or other benefit that would not have been
available if the allocation or election had been timely made. For
example, there may be prejudice if a grant of the requested relief
would permit an economic advantage or other benefit that results from
the selection of one out of a number of alternatives (other than
whether or not to make an allocation or election) that were available
at the time the allocation or election could have been timely made, if
hindsight makes the selected alternative more beneficial than the other
alternatives. Prejudice also would exist if the transferor failed to
make the allocation or election in order to wait to see (thus, with the
benefit of hindsight) whether making an allocation of exemption or
election would be more beneficial than not making the allocation or
election. For instance, assume that a transferor funds several trusts
with different property interests on the same date, and does not
allocate GST exemption to any trust. Several years later, the
transferor seeks relief to allocate GST exemption to the trust that
enjoyed the greatest asset appreciation and thus constitutes the most
effective use of the transferor's GST exemption. Relief will not be
granted because the transferor attempted to benefit from hindsight and
thereby acquire an economic advantage.
(ii) Timing of the request for relief. The timing of the request
for relief will be considered in determining whether the interests of
the government would be prejudiced by granting relief under this
section. The interests of the government would be prejudiced if delay
by the transferor or the executor of the transferor's estate in the
filing of the request for relief was intended to deprive the IRS of a
sufficient period of time in which to challenge any element of the
transfer that is the subject of the request for relief, such as the
value of the transferred property for Federal gift or estate tax
purposes, the claimed identity of the transferor of the transferred
property, or any other aspect of the transfer that is relevant for
Federal gift or estate tax purposes. For this purpose, such intent will
be presumed, but may be rebutted by evidence persuasive to the IRS of
the existence of other reasons for or circumstances causing the delay.
(iii) Intervening taxable events. The occurrence and effect of an
intervening taxable termination or taxable distribution will be
considered in determining whether and to what extent the interests of
the government would be prejudiced by a grant of relief under this
section. The interests of the government may be prejudiced if a taxable
termination or a taxable
[[Page 37125]]
distribution occurred between the time for making a timely allocation
of GST exemption or a timely election described in section 2632(b)(3)
or (c)(5) and the time at which the request for relief under this
section was filed. The impact of a grant of relief on (and the
difficulty of adjusting) the GST tax consequences of that intervening
termination or distribution will be considered in determining whether
the occurrence of a taxable termination or taxable distribution
constitutes prejudice.
(iv) Closed years. Subject to the considerations described in
paragraph (d)(3)(ii) of this section, the expiration of any period of
limitations on the assessment or collection of transfer taxes prior to
the filing of a request for relief under this section generally is not
relevant to the determination of whether the requirements for a grant
of relief under this section have been met. If that period has expired,
however, and if the IRS concludes that the value of the transferred
asset or assets as reported on a Federal gift or estate tax return by
the transferor or the executor of the transferor's estate is likely to
have satisfied the definition of a gross valuation misstatement as
defined in section 6662(h)(2)(C) of the Code, the IRS will consider the
purported undervaluation in determining whether a grant of relief will
prejudice the interests of the government.
(e) Situations in which the standard of reasonableness, good faith,
and lack of prejudice to the interests of the government has not been
met--(1) In general. Relief under this section will not be granted if
the IRS determines that the transferor or the executor of the
transferor's estate has not acted reasonably and in good faith, or that
the grant of relief would prejudice the interests of the government.
The following situations illustrate some circumstances in which the
standard of reasonableness, good faith, and lack of prejudice to the
interests of the government has not been met, and as a result, in which
relief under this section will not be granted.
(2) Affirmative allocations--(i) In general, relief will not be
granted under this section to the extent that it would decrease or
revoke an affirmative (but not automatic) allocation of GST exemption
under section 2632(a) or 2642(b) that was made on a Federal gift or
estate tax return, regardless of whether the transfer or the allocation
of exemption was made during the transferor's life or upon the
transferor's death.
(ii) There are three exceptions to this general rule, as follows.
No request for relief is required for either of the first two
exceptions:
(A) An allocation of GST exemption is void to the extent the amount
allocated exceeds the amount necessary to obtain an inclusion ratio of
zero with respect to the property transferred or to the trust. This
provision does not apply to charitable lead annuity trusts, nor does it
apply to an allocation made to a trust subject to an estate tax
inclusion period before the termination of that period. See Sec.
26.2632-1(b)(4)(i).
(B) An allocation is void if the allocation is made with respect to
a trust that, at the time of the allocation, has no GST potential with
respect to the transferor making the allocation. For this purpose, a
trust has GST potential even if the possibility of a GST is so remote
as to be negligible. See Sec. 26.2632-1(b)(4)(i).
(C) A late allocation of GST exemption, as described in section
2642(b)(3), to a transfer or to a trust will be deemed void upon the
grant of relief under this section if--
(1) Prior to December 31, 2000, a transfer is made that is subject
to GST tax or to a trust that has GST potential with respect to the
transferor;
(2) A timely allocation of GST exemption was not made to the
transfer or the trust, and this missed allocation was not eligible for
relief prior to the enactment of section 2642(g)(1);
(3) Prior to December 31, 2000, a late allocation of GST exemption
was made to the transfer or the trust;
(4) The late allocation is disclosed as part of the request for
relief or during the IRS's consideration of that request; and
(5) Relief under this section is granted to make a timely
allocation to the transfer or the trust described in paragraph
(e)(2)(ii)(C)(1) of this section.
(3) Timing. Relief will not be granted with regard to a transfer
reported on the transferor's gift tax return in the situation in which
the transferor filed the request for relief shortly after the
expiration of the period during which an assessment of gift tax could
be made with respect to that transfer, the IRS reasonably concludes
that the transferor intentionally delayed that filing for the purpose
of preventing an IRS examination of the reported value of the property
subject to that transfer or the claimed identity of the transferor or
other fact relevant for transfer tax purposes, and the transferor is
unable to produce evidence sufficient to convince the IRS that the
filing delay was attributable to some other reason or purpose.
(4) Failure after being accurately informed. Relief will not be
granted under this section if the decision made by the transferor or
the executor of the transferor's estate (who had been accurately
informed in all material respects by a qualified tax professional
retained or employed by either (or both) of them with regard to the
allocation of GST exemption or an election described in section
2632(b)(3) or (c)(5)) was reflected or implemented by the action or
inaction that is the subject of the request for relief.
(5) Hindsight. Relief under this section will not be granted if the
IRS determines that the requested relief is an attempt to benefit from
hindsight by waiting to see which of multiple transfers, made at
substantially the same time but consisting of different property
interests, enjoyed the greatest appreciation and thus would constitute
the most effective use of the transferor's GST exemption.
(f) [Reserved]
(g) Period of limitations under section 6501. A request for relief
under this section does not reopen, suspend, or extend the period of
limitations on assessment or collection of any estate, gift, or GST tax
under section 6501 of the Code. The IRS may request that the transferor
or the transferor's executor consent, under section 6501(c)(4) and
prior to the expiration of that period of limitations, to an extension
of the period of limitations on assessment or collection of any or all
gift and GST taxes for the transfer or transfers that are the subject
of the requested relief. The transferor or the transferor's executor
has the right to refuse to extend the period of limitations, or to
limit any such extension to particular issues or to a particular period
of time. See section 6501(c)(4)(B). Because a consent to an extension
(whether or not limited) may eliminate prejudice to the interests of
the government described in paragraphs (d)(3)(ii) and (e)(3) of this
section, a refusal to consent to an extension is a factor that may
adversely impact the availability of the requested relief.
(h) Refunds. The filing of a request for relief under section
2642(g)(1) with the IRS does not constitute a claim for refund or
credit of an overpayment and no implied right to refund will arise from
the filing of such a request for relief. Similarly, the filing of such
a request for relief does not extend the period of limitations under
section 6511 of the Code for filing a claim for refund or credit of an
overpayment. If the grant of relief under section 2642(g)(1) results in
the decrease of a trust's inclusion ratio or a reduction in the amount
of a direct skip, and thus in a potential claim for refund or credit of
an overpayment of tax, no such refund or credit will be
[[Page 37126]]
allowed to the taxpayer or to the taxpayer's estate if the period of
limitations under section 6511 for filing a claim for a refund or
credit of the Federal gift, estate, or GST tax that was reduced by the
granted relief has expired, unless a claim for refund or credit was
filed before the expiration of that period. The taxpayer or the
taxpayer's estate is responsible for preserving any potential claim for
refund or credit.
(i) Procedural requirements--(1) Automatic 6-month extension. An
automatic extension of 6 months from the due date of the gift or estate
tax return, or of the Form 8939, Allocation of Increase in Basis for
Property Acquired From a Decedent, of a decedent dying in calendar year
2010, (in each case, excluding extensions) is granted to file a
supplemental return or Form 8939 on which the transferor or the
executor of the transferor's estate may allocate GST exemption or make
an election under section 2632(b)(3) or (c)(5). This extension,
however, is available only if the transferor (or the executor of a
transferor's estate) both timely filed the gift or estate tax return or
the Form 8939 on which the GST exemption should have been allocated or
the election should have been made, and, within that 6-month extension
period, files a supplemental return or other supplementary filing. On
the supplemental return or other filing, the taxpayer must comply with
all of the requirements for allocating GST exemption under section 2632
or for making the election under section 2632(b)(3) or (c)(5) for the
year the allocation or election should have been made to make a valid
allocation or election. Any supplemental return filed pursuant to this
paragraph must say FILED PURSUANT TO Sec. 26.2642-7(i)(1) on the front
page of the return or the Form 8939, and must be sent to the same
address that a timely return or Form 8939 on which the allocation or
election should have been made would have been sent, subject to address
changes in future forms or instructions or guidance published in the
Internal Revenue Bulletin. See Sec. 601.601(d)(2) of this chapter. No
request for a private letter ruling is required and, as a result, no
user fee is required to be paid.
(2) Private letter ruling program. Except for the automatic 6-month
extension provided in paragraph (i)(1) of this section, the relief
described in this section is provided through the IRS's private letter
ruling program. Requests for relief may be submitted in accordance with
the applicable procedures for requests for a private letter ruling.
(3) Affidavit and declaration of transferor or the executor of the
transferor's estate. (i) The transferor or the executor of the
transferor's estate must submit a detailed affidavit describing the
events that led to the failure to timely allocate GST exemption to a
transfer or the failure to timely elect under section 2632(b)(3) or
(c)(5), and the events that led to the discovery of the failure. In
situations described in paragraph (i)(4)(vi) of this section, this
affidavit also must include the additional information and statements
described in that paragraph. If the transferor or the executor of the
transferor's estate relied on a tax professional for advice with
respect to the allocation or election, the affidavit also must
describe--
(A) The scope of the engagement;
(B) The responsibilities the transferor or the executor of the
transferor's estate believed the professional had assumed; and
(C) The extent to which the transferor or the executor of the
transferor's estate relied on the professional.
(ii) Attached to each affidavit must be copies of any writings
(including, without limitation, notes and emails) and other
contemporaneous documents within the possession or control of the
affiant relevant to the determination of the transferor's intent with
regard to the application of GST tax to the transaction for which
relief under this section is requested.
(iii) The affidavit must be accompanied by a dated declaration,
signed by the transferor or the executor of the transferor's estate,
that states:
Under penalties of perjury, I declare that I have examined this
affidavit, including any attachments thereto, and to the best of my
knowledge and belief, this affidavit, including any attachments
thereto, is true, correct, and complete. In addition, under penalties
of perjury, I declare that I have examined all the documents included
as part of this request for relief, and that, to the best of my
knowledge and belief, these documents collectively contain all the
relevant facts relating to the request for relief and such facts are
true, correct, and complete.
(4) Affidavits and declarations from other parties. (i) The
transferor or the executor of the transferor's estate must submit
detailed affidavits from the individuals specified in paragraphs
(i)(4)(i)(A) through (D) of this section and other individuals who have
knowledge or information about the events that led to the failure to
allocate GST exemption or to elect under section 2632(b)(3) or (c)(5),
or to the discovery of the failure. These individuals may include
individuals whose knowledge or information is not within the personal
knowledge of the transferor or the executor of the transferor's estate.
The individuals described in this paragraph must include--
(A) Each agent or legal representative of the transferor who
participated in the consideration of, or the decision with regard to,
the allocation of GST exemption or the election under section
2632(b)(3) or (c)(5), or the preparation of the return for which relief
is being requested;
(B) The preparer of the relevant Federal estate or gift tax return
or returns;
(C) Each individual (including an employee of the transferor or of
the executor of the transferor's estate) who provided information or
advice with regard to, or otherwise made a significant contribution to,
the decision concerning the allocation of GST exemption, the election
under section 2632(b)(3) or (c)(5), or the preparation of the relevant
Federal estate and/or gift tax return or returns; and
(D) Each tax professional who advised or was consulted by the
transferor or the executor of the transferor's estate with regard to
the allocation of GST exemption, the election under section 2632(b)(3)
or (c)(5), or the preparation of the relevant Federal estate or gift
tax return or returns.
(ii) Each affidavit must describe the scope of the engagement and
the responsibilities of the individual as well as the advice or service
the individual provided to the transferor or the executor of the
transferor's estate.
(iii) Attached to each affidavit must be a copy of each writing
(including, without limitation, notes and emails) and other
contemporaneous documents within the possession of the affiant relevant
to the transferor's intent or the affiant's advice with regard to the
application of GST tax to the transaction for which relief under this
section is requested. The documents that the affiant discovers by
conducting in good faith a reasonably diligent search of records in the
possession of or accessible to the affiant, or subject to the affiant's
control, will be sufficient to satisfy the requirements of this
paragraph (i)(4)(iii). A reasonably diligent search generally would
include, without limitation, a review of the records in the possession
or control of the affiant or the firm at which the affiant is employed
or associated relating to the transaction or tax return at issue.
(iv) The IRS may require additional affidavits from persons not set
forth in paragraph (i)(4)(i) of this section as well
[[Page 37127]]
as additional documents when additional information or documents with
respect to a transfer is believed by the IRS to be required or helpful
in making its determination as to whether relief under this section
should be granted.
(v) Each affidavit also must include the name and current address
of the affiant, and must be accompanied by a dated declaration signed
by the affiant that states:
Under penalties of perjury, I declare that I have personal
knowledge of the information set forth in this affidavit, including any
attachments thereto. In addition, under penalties of perjury, I declare
that I have examined this affidavit, including any attachments thereto,
and, to the best of my knowledge and belief, the affidavit contains all
the relevant facts and the attachments include copies of all relevant
writings or other documents resulting from a reasonably diligent
search, conducted in good faith, of all records within my possession,
accessible to me, or subject to my control, relating to the allocation
of GST exemption, the election under section 2632(b)(3) or (c)(5), and
the preparation of the tax return at issue in the request for relief
filed by or on behalf of [transferor or executor of transferor's
estate], and such facts and attached documents are true, correct, and
complete.
(vi) If an individual who would be required to provide an affidavit
under paragraph (i)(4)(i) of this section has died or is unwilling or
otherwise unable to provide the required affidavit, the affidavit
required under paragraph (i)(3) of this section must include a
statement to that effect, as well as a statement describing the
relationship between that individual and the transferor or the executor
of the transferor's estate; the information or knowledge the transferor
or the executor of the transferor's estate believes that individual had
about the events that led to the failure to make the allocation or the
election or to the discovery of that failure; and, in cases other than
the death of the individual, a detailed description of the efforts made
to obtain the affidavit from the individual. The unwillingness of
certain affiants to provide an affidavit, however, may be considered by
the IRS in determining whether to grant the requested relief. For
purposes of this paragraph (i)(4)(vi), the term unwilling refers to a
person who is apparently able but refuses or otherwise fails, despite
the best efforts, made in good faith, of the transferor or the
transferor's executor, to provide the required affidavit. In addition,
for purposes of this paragraph, the term unable refers to a permanent
or potentially long-term condition such as physical or mental
incapacity that prevents the person from providing the required
affidavit, but not a temporary condition such as a temporary physical
or mental incapacity or a person's inability due to a leave of absence,
travel, or a contractual requirement such as a confidentiality
agreement.
(5) Additional rules regarding relief. For purposes of relief under
paragraphs (i)(1) and (2) of this section, the grant of relief in the
form of an extension of time is not a determination that the taxpayer
is otherwise eligible to make the election. In addition,
notwithstanding the provisions of this section, an extension of time
will not be granted under this section if alternative relief is
provided by a statute, a regulation published in the Federal Register,
or a revenue ruling, revenue procedure, notice, or announcement
published in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of
this chapter).
(j) Applicability date. This section applies to requests for relief
to which section 2642(g)(1) applies that are filed on or after May 6,
2024, regardless of the date of the transfer.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 3. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805.
0
Par. 4. Section 301.9100-2 is amended by adding paragraph (f) to read
as follows:
Sec. 301.9100-2 Automatic extensions.
* * * * *
(f) Automatic 6-month extension for certain generation-skipping
transfer tax allocations and elections--(1) Availability. Paragraph (b)
of this section is not available to obtain an automatic 6-month
extension to allocate generation-skipping transfer (GST) exemption to a
transfer pursuant to section 2632 or to make an election under section
2632(b)(3) or (c)(5). An automatic 6-month extension to allocate GST
exemption under section 2632 or to make an election under section
2632(b)(3) or (c)(5) is available to transferors or the executors of
transferors' estates pursuant to Sec. 26.2642-7(i)(1) of this chapter
if the requirements of that provision are satisfied.
(2) Applicability date. Paragraph (f) of this section applies to
any gift or estate tax return or Form 8939, Allocation of Increase in
Basis for Property Acquired from a Decedent, for which the date
prescribed for filing is on or after May 6, 2024 (excluding
extensions), regardless of the date of the transfer.
0
Par. 5. Section 301.9100-3 is amended by adding paragraph (g) to read
as follows:
Sec. 301.9100-3 Other extensions.
* * * * *
(g) Relief under section 2642(g)(1)--(1) Procedures. The procedures
set forth in this section are not applicable for requests for relief
under section 2642(g)(1). For requests for relief under section
2642(g)(1), see Sec. 26.2642-7 of this chapter.
(2) Applicability date. This paragraph (g) applies to requests for
relief to which section 2642(g)(1) applies that are filed on or after
May 6, 2024, regardless of the date of the transfer.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 6. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 7. In Sec. 602.101, amend the table in paragraph (b) by adding an
entry in numerical order for ``Sec. 26.2642-7(i)(3) and (4)'' to read
as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
26.2642-7(i)(3) and (4)................................. 1545-2116
* * * * *
------------------------------------------------------------------------
Douglas W. O'Donnell,
Deputy Commissioner.
Approved: March 12, 2024.
Aviva R. Aron-Dine,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-09644 Filed 5-3-24; 8:45 am]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on May 6, 2024.
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