IRS Issues Private Letter Ruling Regarding QDOT Election Extension Granted

On July 27, 2018 the Internal Revenue Service issued a private letter ruling regarding QDOT election extension:

Decedent passed away leaving Surviving Spouse, a non-U.S. citizen, as the beneficiary of Decedent’s estate. Surviving Spouse was the trustee of Trust 1 and executor of Decedent’s estate. A provision in Trust 1 stated that the trustee was to distribute outright the trust estate to Surviving Spouse. Surviving Spouse was advised by an accountant and a law firm that to claim a marital deduction for the estate, a Qualified Domestic Trust (QDOT) was required. Trust 2 was created with a QDOT election and the estate claimed a marital deduction on Form 706. After Form 706 was filed, additional estate assets were discovered. Decedent’s estate requested an extension of time under Sec. 301.9100-3 to make a QDOT election under Sec. 2056A(d) on the subsequently discovered assets.

Under Sec. 2001(a) there is a tax imposed on the transfer of a taxable estate of every U.S. decedent citizen or resident. The value of the taxable estate is determined by deducting amounts passed to the surviving spouse from the gross estate. Sec. 2056(a). Section 2056(d)(1)(A) states that if a surviving spouse is not a U.S. citizen, no deduction is allowed under Sec. 2056(a). Section 2056(d)(2)(A) provides that property passing to a surviving spouse in a QDOT is exempted from treatment under Sec. 2056(d)(1)(A). For a trust to qualify as a QDOT, three requirements must be met. First, the trust instrument must have at least one U.S. citizen or domestic corporation trustee with the right to withhold estate tax from principal distributions of the trust. Second, the trust must meet the Sec. 2056A(b) tax collection requirements. The third requirement is that the executor must elect QDOT treatment. Regulation 301.9100-3 allows for an extension of time to be granted if the taxpayer acted reasonably and in good faith and the relief granted will not prejudice the interests of the government. Regulation 301.9100-3(b)(1)(v) states that a taxpayer will be deemed to have acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax professional who failed to make, or advise the taxpayer to make, the election. Here, the Service determined that Surviving Spouse met the requirements of Sec. 301.9100-3 and granted an extension of 120 days from the date of the letter to make a QDOT election on the subsequently discovered assets.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.