[Federal Register Volume 69, Number 133 (Tuesday, July 13, 2004)]
[Proposed Rules]
[Pages 42000-42004]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15752]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 26

[REG-153841-02]
RIN 1545-BB54


Election Out of GST Deemed Allocations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: These proposed regulations provide guidance for making the 
election under section 2632(c)(5)(A)(i) of the Internal Revenue Code to 
not have the deemed allocation of unused generation-skipping transfer 
(GST) tax exemption under section 2632(c)(1) apply with regard to 
certain transfers to a GST trust, as defined in section 2632(c)(3)(B). 
The proposed regulations also provide guidance for making the election 
under section 2632(c)(5)(A)(ii) to treat a trust as a GST trust. The 
regulations primarily affect individuals.

DATES: Written and electronic comments and requests for a public 
hearing must be received by October 12, 2004.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-153841-02), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
153841-02), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically, via the IRS 
Internet site at http://www.irs.gov/regs or via the Federal eRulemaking 
Portal at http://www.regulations.gov (IRS--REG-153841-02).

FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels, (202) 622-3090 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; 
Washington, DC 20224. Comments on the collection of information should 
be received by September 13, 2004. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information in this proposed regulation is in 
Sec.  26.2632-1(b)(2)(ii), (b)(2)(iii), and (b)(3). This information is 
required by the IRS for taxpayers who elect to have the automatic 
allocation rules not apply to the current transfer and/or to future 
transfers to the trust or to terminate such election. This information 
is also required by the IRS for taxpayers who elect to treat trusts 
described in section 2632(c)(3)(B)(i) through (vi) as GST trusts or to 
terminate such election. This information will be used to identify the 
trusts to which the election or termination of election will apply. The 
collection of information is required in order to have a valid election 
or termination of election. The likely respondents are individuals 
contributing to trusts that have skip persons as beneficiaries.
    Estimated total annual reporting burden: 12,500 hours.
    Estimated average annual burden hours per respondent: 30 minutes.
    Estimated number of respondents: 25,000.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Section 2601 imposes a tax on every generation-skipping transfer 
(GST). Under section 2631(a), for purposes of determining the amount of 
GST tax imposed on a transfer, every individual is allowed a GST 
exemption ($1,500,000 in 2004) that may be allocated by the individual 
(or his or her executor) to any property with regard to which the 
individual is the transferor. Generally, under section 2632(a), an 
allocation of an individual's GST exemption may be made at any time on 
or before the date prescribed for filing the estate tax return for the 
individual's estate (determined with regard to extensions).
    Section 2632 also provides deemed allocation rules pursuant to 
which an individual's available GST exemption is automatically 
allocated to certain kinds of transfers, without any action on the part 
of the transferor. Under section 2632(b), an individual's unused GST 
exemption is automatically allocated to transfers made during that 
individual's lifetime that are direct skips as defined in section 
2612(c), to the extent necessary to make the inclusion ratio zero for 
the property transferred. Under section 2632(c), in the case of a 
lifetime transfer made after December 31, 2000

[[Page 42001]]

that is an indirect skip, the transferor's available GST exemption is 
automatically allocated to the transfer to the extent necessary to make 
the inclusion ratio zero for the property transferred. Section 
2632(c)(3)(A) defines an indirect skip as a transfer of property (other 
than a direct skip) subject to gift tax that is made to a GST trust. A 
GST trust is defined in section 2632(c)(3)(B), in general, as any trust 
that could have a generation-skipping transfer. However, no trust 
described in section 2632(c)(3)(B)(i) through (vi) is treated as a GST 
trust, because a sufficient possibility exists (based on the statutory 
criteria) that the trust corpus will not be distributed to lower 
generations. A transfer to any trust described in section 
2632(c)(3)(B)(i) through (vi) will not be subject to the automatic 
allocation of the GST exemption. The automatic allocation under section 
2632(c) also applies to an indirect skip occurring upon the post-2000 
termination of an estate tax inclusion period.
    Under section 2632(c)(5)(A)(i)(I), an individual may elect out of 
the deemed allocation rules so that GST exemption will not be allocated 
automatically to a particular transfer that is an indirect skip. Under 
section 2632(c)(5)(B)(i), this election out with regard to a particular 
indirect skip shall be deemed timely if made on a timely filed gift tax 
return for the calendar year in which the transfer was made, or deemed 
to have been made under section 2632(c)(4) with regard to trusts 
subject to an estate tax inclusion period, or on such later dates as 
may be prescribed in regulations.
    Under section 2632(c)(5)(A)(i)(II), an individual may elect out of 
the deemed allocation rules for indirect skips so that GST exemption 
will not be allocated automatically to any or all transfers made to the 
trust by that individual, regardless of when a transfer is, or may in 
the future be, made. Under section 2632(c)(5)(B)(ii), this election out 
with regard to any or all transfers to the trust by that individual may 
be made on a timely filed gift tax return for the calendar year for 
which the election is to become effective.
    Alternatively, under section 2632(c)(5)(A)(ii), an individual may 
elect to treat any trust as a GST trust with regard to any or all 
transfers made by that individual to the trust. If this election is 
made, the rules for the automatic allocation of the GST exemption will 
apply with regard to that individual's transfers to the trust, 
notwithstanding that the trust is described in section 2632(c)(3)(B)(i) 
through (vi). Under section 2632(c)(5)(B)(ii), the election to treat a 
trust as a GST trust may be made on a timely filed gift tax return for 
the calendar year for which the election is to become effective.
    Notice 2001-50 (2001-2 C.B. 189), states that the Treasury 
Department and the IRS will issue regulations providing that the 
election out of the automatic allocation for indirect skips and the 
election to treat any trust as a GST trust must be made on a timely 
filed federal gift tax return (which is the same rule that applies for 
the election out of the automatic allocation for direct skips contained 
in section 2632(b)(3) and Sec.  26.2632-1(b)(1)(i)).

Explanation of Provisions

    Under the proposed regulations, the election out of the automatic 
allocation rules for indirect skips and the election to treat any trust 
as a GST trust are to be made on a timely filed federal gift tax 
return.
    Under the proposed regulations, a transferor who wants to elect out 
of the automatic allocation rules for indirect skips has the option of 
electing out for the specific transfer to the GST trust, or making a 
single election with regard to the trust that applies to the current 
transfer and all subsequent transfers made by that transferor to the 
trust. Under the second option, once the election is made with regard 
to a trust, the election remains effective for all subsequent transfers 
to that trust by the electing transferor, until that transferor's 
election is terminated. Practitioners have commented that in many 
cases, particularly situations in which trust corpus consists of 
primarily insurance contracts, the transferor may not be required to 
file a Federal gift tax return reporting annual transfers to a GST 
trust because the transfers qualify for the gift tax annual exclusion 
under section 2503(b). If under the terms of the trust instrument 
distributions to skip persons are unlikely, the transferor may choose 
not to allocate GST exemption to the trust. The rule in the proposed 
regulation is intended to alleviate the need to repeatedly file a gift 
tax return to elect out of the automatic allocation rules for transfers 
that would not otherwise require a Federal gift tax return to be filed. 
Thus, once the transferor ``elects out'' of the automatic allocation 
rule for indirect skips with regard to any or all transfers made by 
that transferor to the trust, the election out, until terminated, 
remains effective for all subsequent transfers made by that transferor 
to the trust, without any further reporting requirement on the part of 
the transferor. A similar rule applies with regard to the election to 
treat a trust as a GST trust.
    Finally, the proposed regulations revise the examples illustrating 
the rules for allocation of GST exemption to reflect the recent 
statutory changes.

Proposed Effective Date

    The regulations are proposed to be applicable for elections made on 
or after the date that the proposed regulations are published in the 
Federal Register. However, any election under section 2632(c)(5)(A) 
made before that date will be recognized if the election was made on a 
timely filed gift tax return in a manner that provided adequate notice 
to the Commissioner that the transferor made the election.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these proposed regulations, and 
because these proposed regulations do not impose a collection of 
information on small entities, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis 
is not required. Pursuant to section 7805(f) of the Internal Revenue 
Code, the proposed regulations will be submitted to the Small Business 
Administration for comment on their impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department request comments on the clarity of 
the proposed rules and how they can be made easier to understand. All 
comments will be available for public inspection and copying. A public 
hearing will be scheduled if requested in writing by any person that 
timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place for the public hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Mayer R. 
Samuels, Office of the Associate Chief Counsel (Passthroughs and 
Special Industries), IRS. If you have any questions concerning these 
proposed

[[Page 42002]]

regulations, please contact Mayer R. Samuels at (202) 622-3090. Other 
personnel from the IRS and the Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 26

    Estate taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 26 is proposed to be amended as follows:

PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX 
REFORM ACT OF 1986

    Paragraph 1. The authority citation for part 26 continues to read, 
in part, as follows:

    Authority: 26 U.S.C. 7805 * * *.

    Par. 2. In Sec.  26.2600-1, the table is amended under the entries 
for Sec.  26.2632-1 by revising the entry for paragraph (b)(2) and 
adding entries for paragraphs (b)(3), (b)(4) and (e) to read as 
follows:


Sec.  26.2600-1  Table of contents.

* * * * *


Sec.  26.2632-1  Allocation of GST exemption.

* * * * *
    (b) * * *
    (2) Automatic allocation to indirect skips made after December 
31, 2000.
    (3) Election to treat trust as GST trust.
    (4) Allocation to other transfers.
* * * * *
    (e) Effective date
* * * * *
    Par. 3. Section 26.2632-1 is amended as follows:
    1. Paragraph (b)(2) is redesignated as paragraph (b)(4).
    2. Paragraphs (b)(2) and (b)(3) are added.
    3. In newly designated paragraph (b)(4)(i), the third sentence is 
revised.
    4. In newly designated paragraph (b)(4)(ii)(A)(1), the fourth 
sentence is revised.
    5. In newly designated paragraph (b)(4)(ii)(B):
    a. All references to paragraph ``(b)(2)(ii)(A) (1)(i)'' are removed 
and ``(b)(4)(ii)(A)(1)(i)'' is added in its place.
    b. All references to paragraph ``(b)(2)(ii)(A)(1)(ii)'' are removed 
and ``(b)(4)(ii)(A)(1)(ii)'' is added in its place.
    c. All references to paragraph ``(b)(2)(ii)(A)(1)(iii)'' are 
removed and ``(b)(4)(ii)(A)(1)(iii)'' is added in its place.
    6. Examples 1 through 5 in newly designated paragraph (b)(4)(iii) 
are revised.
    7. In paragraph (c)(1), the first sentence is removed and two 
sentences are added in its place.
    8. In paragraph (d)(1), the fourth sentence is revised.
    9. Paragraph (e) is added.
    The additions and revisions read as follows:


Sec.  26.2632-1  Allocation of GST exemption.

* * * * *
    (b) * * *
    (2) Automatic allocation to indirect skips made after December 31, 
2000--(i) In general. An indirect skip is a transfer of property to a 
GST trust as defined in section 2632(c)(3)(B) provided that the 
transfer is subject to gift tax and does not qualify as a direct skip. 
In the case of an indirect skip made after December 31, 2000, to which 
section 2642(f) (relating to transfers subject to an estate tax 
inclusion period) does not apply, the transferor's unused GST exemption 
is automatically allocated to the property transferred (but not in 
excess of the fair market value of the property on the date of the 
transfer). In the case of an indirect skip to which section 2642(f) 
does apply, the indirect skip is deemed to be made at the close of the 
estate tax inclusion period and the GST exemption is deemed to be 
allocated at that time. The transferor may prevent the automatic 
allocation of GST exemption with regard to an indirect skip, as 
provided in paragraphs (b)(2)(ii) and (iii) of this section.
    (ii) Election to have automatic allocation rules not apply to the 
current transfer. The transferor may prevent the automatic allocation 
of GST exemption with regard to the current indirect skip (and not to 
any other transfer) to a trust, or to one or more separate shares that 
are treated as separate trusts under Sec.  26.2654-1(a)(1), by 
attaching a statement to a timely filed Form 709 (as defined in 
paragraph (b)(1)(ii) of this section) for the calendar year in which 
the transfer was made (whether or not a Form 709 would otherwise be 
required for that year). The statement must identify the trust (or 
separate share), describe the transfer, and specifically provide that 
the transferor is electing, pursuant to section 2632(c)(5)(A), to have 
the automatic allocation rules contained in section 2632(c)(1) not 
apply to the described transfer to the trust (or separate share). In 
the case of a transfer treated as made one-half by the transferor and 
one-half by the transferor's spouse under section 2513, a statement 
must be attached to the return filed by each transferor seeking to 
prevent the automatic allocation. The election will apply only with 
regard to the described transfer, and all subsequent transfers to the 
trust (or separate share) will be subject to the automatic allocation 
rules, unless the transferor subsequently files an election described 
in paragraph (b)(2)(iii) of this section, or files an election under 
this paragraph with regard to each transfer as additional transfers are 
made.
    (iii) Election to have automatic allocation rules not apply to both 
the current transfer and any or all future transfers to the trust--(A) 
In general. The transferor may prevent the automatic allocation of GST 
exemption to both the current transfer and any or all subsequent 
transfers made by the transferor to the trust or to one or more 
separate shares that are treated as separate trusts under Sec.  
26.2654-1(a)(1). The transferor must attach a statement to a timely 
filed Form 709 (as defined paragraph (b)(1)(ii) of this section) for 
the calendar year in which the current transfer was made (whether or 
not a Form 709 would otherwise be required for that year). The 
statement must identify the trust (or separate share), describe the 
current transfer, and specifically provide that pursuant to section 
2632(c)(5)(A) the transferor is electing to have the automatic 
allocation rules contained in section 2632(c)(1) not apply to the 
described current transfer as well as all future transfers made by the 
transferor to the trust (or separate share). The election, unless and 
until terminated, will remain in effect for all future transfers made 
by the transferor to the trust (or separate share). No future gift tax 
return will have to be filed by the transferor in order to prevent the 
automatic allocation of the GST exemption to such future transfers.
    (B) Termination of election. The election described in paragraph 
(b)(2)(iii)(A) of this section may be terminated by the transferor for 
transfers to the trust (or separate share) in a subsequent year by 
attaching a statement to a timely filed Form 709 (as defined in 
paragraph (b)(1)(ii) of this section) for the calendar year in which 
the first transfer to which the election is not to apply was made 
(whether or not a Form 709 would otherwise be required for that year). 
The statement must identify the trust (or separate share), describe the 
transfer, and provide that the prior election out of the GST automatic 
allocation rule described in Sec.  26.2632-1(b)(2)(iii)(A) is 
terminated. Accordingly, the automatic allocation rules contained in 
section 2632(c)(1) are to apply to the described current transfer as 
well as to all future transfers made by the transferor to the trust (or 
separate share) unless and to the extent that another election under 
section 2632(c)(5)(A) is made in the future.

[[Page 42003]]

    (iv) Subsequent allocations. Making an election under paragraph 
(b)(2)(ii) or (iii) of this section does not prevent the transferor 
from allocating the transferor's available GST exemption to a current 
transfer (or, in the case of an election made under paragraph 
(b)(2)(iii) of this section, to any future transfer) to a trust (or 
separate share) either on a timely filed Form 709 (as defined in 
paragraph (b)(1)(ii) of this section) reporting the transfer, or at a 
later date in accordance with the provisions of paragraph (b)(4) of 
this section.
    (3) Election to treat trust as GST trust--(i) In general. A 
transferor may elect to treat any trust as a GST trust, in which case 
the automatic allocation rules will apply to current and future 
transfers made by the electing transferor to the trust. The transferor 
must attach a statement to a timely filed Form 709 (as defined in 
paragraph (b)(1)(ii) of this section) for the calendar year in which a 
transfer was made by the transferor (whether or not a Form 709 would 
otherwise be required for that year). The statement must identify the 
trust, describe the current transfer, and specifically provide that, 
pursuant to section 2632(c)(5)(A)(ii), the transferor is electing to 
have the trust treated as a GST trust as defined in section 
2632(c)(3)(B). As a result of this election, the current transfer and 
all future transfers made by the transferor to the trust will be 
indirect skips as defined in paragraph (b)(2)(i) of this section to 
which the transferor's unused GST exemption will be automatically 
allocated in accordance with paragraph (b)(2) of this section. The 
election will remain in effect for all future transfers made by the 
transferor to the trust unless and until terminated (as described 
below).
    (ii) Termination of election. The election may be terminated by the 
transferor in a subsequent year by attaching to a timely filed Form 709 
(as defined in paragraph (b)(1)(ii) of this section) for the calendar 
year in which the first transfer to which the election is not to apply 
was made (whether or not a Form 709 would otherwise be required for the 
year), a statement identifying the trust, describing the current 
transfer, and providing that the prior election to treat the trust as a 
GST trust as provided under Sec.  26.2632-1(b)(3)(i) is terminated. 
Accordingly, if the trust does not satisfy the definition of a GST 
trust, the automatic allocation rules contained in section 2632(c)(1) 
will not apply to the described current transfer or to any future 
transfers made by the transferor to the trust, unless and until another 
election under section 2632(c)(5)(A) is made in the future.
    (4) Allocation to other transfers--(i) In general. * * * See 
paragraph (b)(4)(ii) of this section. * * *
    (ii) Effective date of allocation--(A) In general. (1) * * * For 
purposes of this paragraph (b)(4)(ii), the Form 709 is deemed filed on 
the date it is postmarked to the Internal Revenue Service address as 
directed in forms or other guidance published by the Service. * * *
* * * * *
    (iii) Examples. The following examples illustrate the provisions of 
this paragraph (b):

    Example 1. Modification of allocation of GST exemption. On 
December 1, 2003, T transfers $100,000 to an irrevocable GST trust 
described in section 2632(c)(3)(B). The transfer to the trust is not 
a direct skip. The date prescribed for filing the gift tax return 
reporting the taxable gift is April 15, 2004. On February 10, 2004, 
T files a Form 709 on which T properly elects out of the automatic 
allocation rules contained in section 2632(c)(1) with respect to the 
transfer in accordance with paragraph (b)(2)(ii) of this section, 
and allocates $50,000 of GST exemption to the trust. On April 13th 
of the same year, T files an additional Form 709 on which T confirms 
the election out of the automatic allocation rules contained in 
section 2632(c)(1) and allocates $100,000 of GST exemption to the 
trust in a manner that clearly indicates the intention to modify and 
supersede the prior allocation with respect to the 2003 transfer. 
The allocation made on the April 13 return supersedes the prior 
allocation because it is made on a timely-filed Form 709 that 
clearly identifies the trust and the nature and extent of the 
modification of GST exemption allocation. The allocation of $100,000 
of GST exemption to the trust is effective as of December 1, 2003. 
The result would be the same if the amended Form 709 decreased the 
amount of the GST exemption allocated to the trust.
    Example 2. Modification of allocation of GST exemption. The 
facts are the same as in Example 1, except on July 8, 2004, T files 
a Form 709 attempting to reduce the earlier allocation. The return 
is not a timely filed return. The $100,000 GST exemption allocated 
to the trust, as amended on April 13, 2004, remains in effect 
because an allocation, once made, is irrevocable and may not be 
modified after the last date on which a timely filed Form 709 can be 
filed.
    Example 3. Effective date of late allocation of GST exemption. 
On December 1, 2003, T transfers $100,000 to an irrevocable GST 
trust described in section 2632(c)(3)(B). The transfer to the trust 
is not a direct skip. The date prescribed for filing the gift tax 
return reporting the taxable gift is April 15, 2004. On February 10, 
2004, T files a Form 709 on which T properly elects out of the 
automatic allocation rules contained in section 2632(c)(1) in 
accordance with paragraph (b)(2)(ii) of this section with respect to 
that transfer. On December 1, 2004, T files a Form 709 and allocates 
$50,000 to the trust. The allocation is effective as of December 1, 
2004.
    Example 4. Effective date of late allocation of GST exemption. T 
transfers $100,000 to a GST trust on December 1, 2003, in a transfer 
that is not a direct skip. On April 15, 2004, T files a Form 709 on 
which T properly elects out of the automatic allocation rules 
contained in section 2632(c)(1) with respect to the entire transfer 
in accordance with paragraph (b)(2)(ii) of this section and T does 
not make an allocation of any GST exemption on the Form 709. On 
September 1, 2004, the trustee makes a taxable distribution from the 
trust to T's grandchild in the amount of $30,000. Immediately prior 
to the distribution, the value of the trust assets was $150,000. On 
the same date, T allocates GST exemption to the trust in the amount 
of $50,000. The allocation of GST exemption on the date of the 
transfer is treated as preceding in point of time the taxable 
distribution. At the time of the GST, the trust has an inclusion 
ratio of .6667 (1-(50,000/150,000)).
    Example 5. Automatic allocation to split-gift. On December 1, 
2003, T transfers $50,000 to an irrevocable GST Trust described in 
section 2632(c)(3)(B). The transfer to the trust is not a direct 
skip. On April 30, 2004, T and T's spouse, S, each files an initial 
gift tax return for 2003, on which they consent, pursuant to section 
2513, to have the gift treated as if one-half had been made by each. 
Previously, neither T nor S filed a timely gift tax return electing 
out of the automatic allocation rules contained in section 
2632(c)(1). As a result of the election under section 2513, which is 
retroactive to the date of T's transfer, T and S are each treated as 
the transferor of one-half of the property transferred in the 
indirect skip. Thus, $25,000 of T's unused GST exemption and $25,000 
of S's unused GST exemption is automatically allocated to the trust. 
Both allocations are effective on and after the date that T made the 
transfer. The result would be the same if T's transfer constituted a 
direct skip subject to the automatic allocation rules contained in 
section 2632(b).

    (c) Special rules during an estate tax inclusion period--(1) In 
general. An allocation of GST exemption (including an automatic 
allocation to a direct skip, but not an indirect skip) to property 
subject to an estate tax inclusion period (ETIP) cannot be revoked, but 
becomes effective no earlier than the date of any termination of the 
ETIP with respect to the trust. See paragraph (b)(2)(i) of this section 
regarding the automatic allocation of GST exemption to an indirect skip 
subject to an ETIP. * * *
* * * * *
    (d) Allocations after the transferor's death--(1) * * * A late 
allocation of GST exemption by an executor, other than an allocation 
that is deemed to be made under section 2632(b)(1) or (c)(1), with 
respect to a lifetime transfer of property is made on Form 706, Form 
706NA, or Form 709 (filed on or before the due date of the transferor's 
estate tax

[[Page 42004]]

return) and is effective as of the date the allocation is filed. * * *
* * * * *
    (e) Effective Date. Paragraphs (b)(2) and (b)(3), the third 
sentence of paragraph (b)(4)(i), the fourth sentence of paragraph 
(b)(4)(ii)(A), paragraph (b)(4)(iii), the first two sentences of 
paragraph (c)(1), and the fourth sentence of paragraph (d)(1) of this 
section, when published as final regulations, will apply as of July 13, 
2004.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 04-15752 Filed 7-12-04; 8:45 am]
BILLING CODE 4830-01-P