[Federal Register Volume 73, Number 75 (Thursday, April 17, 2008)]
[Proposed Rules]
[Pages 20870-20877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-8033]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 26 and 301

[REG-147775-06]
RIN 1545-BH63


Regulations Under Section 2642(g)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations providing guidance 
under section 2642(g)(1). The proposed regulations describe the 
circumstances and procedures under which an extension of time will be 
granted under section 2642(g)(1). The proposed guidance affects 
individuals (or their estates) who failed to make a timely allocation 
of generation-skipping transfer (GST) exemption to a transfer, and 
individuals (or their estates) who failed to make a timely election 
under section 2632(b)(3) or (c)(5). This document also provides notice 
of a public hearing.

DATES: Written or electronic comments must be received by July 16, 
2008. Outlines of topics to be discussed at the public hearing 
scheduled for August 5, 2008, must be received by July 15, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-147775-06), Internal 
Revenue Service, Room 5203, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through

[[Page 20871]]

Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
147775-06), 1111 Constitution Avenue, NW., Washington, DC 20224; or 
sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-147775-06). The public hearing will be 
held in the IRS auditorium.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Theresa M. Melchiorre, (202) 622-3090; concerning submissions of 
comments, the hearing, and/or to be placed on the building access list 
to attend the hearing, Richard Hurst at 
[email protected] or (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have 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 collections 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 June 16, 2008.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    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 reporting requirement in these proposed regulations is in Sec.  
26.2642-7(h)(2) and (3). This information must be reported by 
transferors or the executors of transferors' estates requesting relief 
under section 2642(g)(1). This information will be used by the IRS 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, to a transfer; (2) elect under section 2632(b)(3) (the election 
not to have the deemed allocation of GST exemption apply to a direct 
skip); (3) elect under section 2632(c)(5)(A)(i) (the election not to 
have the deemed allocation of GST exemption apply to an indirect skip 
or transfers made to a particular trust); and (4) elect under section 
2632(c)(5)(A)(ii) (the election to treat any trust as a GST trust for 
purposes of section 2632(c)).
    The following estimates are an approximation of the average time 
expected to be necessary for a collection of information. They are 
based on the information that is available to the IRS. Individual 
respondents may require greater or less time, depending on their 
particular circumstances.
    Estimated total annual reporting burden: 1,800 hours.
    Estimated average annual burden: 2 hours.
    Estimated number of respondents: 900.
    Estimated annual frequency of response: When relief is requested.
    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

    The proposed regulations provide guidance on the application of 
section 2642(g)(1). Congress added section 2642(g)(1) to the Internal 
Revenue Code (Code) in section 564 of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 (EGTRRA), (Pub. L. 107-16, Sec.  564, 
115 Stat. 91). This section directs the Secretary to issue regulations 
describing the circumstances and procedures under which an extension of 
time will be granted to: (1) Allocate GST exemption, as defined in 
section 2631(a), to a transfer; (2) elect under section 2632(b)(3) (the 
election not to have the deemed allocation of GST exemption apply to a 
direct skip); (3) elect under section 2632(c)(5)(A)(i) (the election 
not to have the deemed allocation of GST exemption apply to an indirect 
skip or transfers made to a particular trust); and (4) elect under 
section 2632(c)(5)(A)(ii) (the election 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 announced that transferors may seek an 
extension of time to make an allocation of GST exemption. The Notice 
provides, generally, that relief will be granted under Sec.  301.9100-3 
of the Procedure and Administration Regulations if the taxpayer 
satisfies the requirements of those regulations and establishes to the 
satisfaction of the 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 the Treasury decision adopting 
these proposed regulations as final regulations in the Federal 
Register.)
    On August 2, 2004, the IRS issued Rev. Proc. 2004-46 (2004-2 CB 
142), which provides an alternate simplified method to obtain an 
extension of time to allocate GST exemption in certain situations. 
Generally, this method is available only with regard 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); (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

[[Page 20872]]

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.
    To date, the IRS has issued numerous private letter rulings under 
Sec.  301.9100-3 granting an extension of time to timely allocate GST 
exemption in situations in which transferors (or their executors) 
failed to allocate GST exemption to a trust on a timely filed Federal 
gift or estate tax return. These proposed regulations are intended to 
replace Sec.  301.9100-3 with regard to relief under section 
2642(g)(1).
    Accordingly, Sec.  301.9100-3 will be amended to provide that 
relief under section 2642(g)(1) cannot be obtained through the 
provisions of Sec. Sec.  301.9100-1 and 301.9100-3 after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register. Relief under Sec.  301.9100-2(b) 
(the automatic 6-month extension) will continue to be available to 
transferors or transferor's estates qualifying for that relief. In 
addition, the procedures contained in Revenue Procedure 2004-46 will 
remain effective for transferors within the scope of that Revenue 
Procedure.

Explanation of Provisions

    The proposed regulations identify the standards that the IRS will 
apply in determining whether to grant a transferor or a transferor's 
estate an extension of time to: (1) Allocate GST exemption, as defined 
in section 2631, to a transfer; (2) elect under section 2632(b)(3) (the 
election not to have the deemed allocation of GST exemption apply to a 
direct skip); (3) elect under section 2632(c)(5)(A)(i) (the election 
not to have the deemed allocation of GST exemption apply to an indirect 
skip or transfers made to a particular trust); and (4) elect under 
section 2632(c)(5)(A)(ii) (the election to treat any trust as a GST 
trust for purposes of section 2632(c)). The proposed regulations also 
identify situations with facts that do not satisfy the standards for 
granting relief and in which, as a result, an extension of time will 
not be granted.
    If an extension of time to allocate GST exemption is granted under 
section 2642(g)(1), the allocation of GST exemption will be considered 
effective as of the date of the transfer, and the value of the property 
transferred for purposes of chapter 11 or chapter 12 will determine the 
amount of GST exemption to be allocated. 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 section 2642(g)(1), the 
election will be considered effective as of the date of 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 section 2642(g)(1), 
the election will be considered effective as of the date of the first 
(or each) transfer covered by that election.
    The amount of GST exemption that may be allocated to a transfer 
pursuant to an extension granted under section 2642(g)(1) is limited to 
the amount of the transferor's unused GST exemption under section 
2631(c) as of the date of the transfer. Thus, if the amount of GST 
exemption has increased since the date of the transfer, no portion of 
the increased amount may be applied by reason of the grant of relief 
under section 2642(g)(1) to a transfer taking place in an earlier year 
and prior to the effective date of that increase.
    Requests for relief under section 2642(g)(1) will be granted when 
the taxpayer establishes to the satisfaction of the IRS that the 
taxpayer acted reasonably and in good faith, and that the grant of 
relief will not prejudice the interests of the Government.
    For purposes of section 2642(g)(1), the following nonexclusive list 
of factors will be used to determine whether a transferor or the 
executor of a transferor's estate acted reasonably and in good faith: 
(1) The intent of the transferor or the executor of the transferor's 
estate to timely allocate GST exemption or to timely make an election 
under section 2632(b)(3) or (c)(5) as evidenced in the trust 
instrument, instrument of transfer, or contemporaneous documents, such 
as Federal gift or estate tax returns or correspondence; (2) the 
occurrence of intervening events beyond the control of the transferor 
as defined in section 2652(a), or of the executor of the transferor's 
estate as defined in section 2203, that caused the failure to allocate 
GST exemption to a transfer or the failure to elect under section 
2632(b)(3) or (c)(5); (3) the lack of awareness by the transferor or 
the executor of the transferor's estate of the need to allocate GST 
exemption to a transfer after exercising reasonable diligence, taking 
into account the experience of the transferor or the executor of the 
transferor's estate and the complexity of the GST issue; (4) evidence 
of consistency by the transferor in allocating (or not allocating) the 
transferor's GST exemption, although evidence of consistency may be 
less relevant if there is evidence of a change of circumstances or 
change of trust beneficiaries that would otherwise support a deviation 
from prior GST tax exemption allocation practices; and (5) 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 
either (or both) of them, and the failure of the transferor or 
executor, in reliance on or consistent with that advice, to allocate 
GST exemption to the transfer or to make an election described in 
section 2632(b)(3) or (c)(5). The IRS will consider all relevant facts 
and circumstances in making this determination.
    For purposes of section 2642(g)(1), the following nonexclusive list 
of factors will be used to determine whether the interests of the 
Government would be prejudiced: (1) The grant of requested relief would 
permit the use of hindsight to produce an economic advantage or other 
benefit that either would not have been available if the allocation or 
election had been timely made, or 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 made timely; (2) if the 
transferor or the executor of the transferor's estate delayed the 
filing of the request for relief with the intent to deprive the IRS of 
sufficient time (by reason of the expiration or the impending 
expiration of the applicable statute of limitations or otherwise) to 
challenge the claimed identity of the transferor, the value of the 
transferred property that is the subject of the requested relief, or 
any other aspect of the transfer that is relevant for transfer tax 
purposes; and (3) a determination by the IRS that, in the event of a 
grant of relief under section 2642(g)(1), it would be unreasonably 
disruptive or difficult to adjust the GST tax consequences of a taxable 
termination or a taxable distribution that 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 section 2642(g)(1) was filed. The IRS will 
consider all relevant facts and circumstances in making this 
determination.
    Relief under section 2642(g)(1) will not be granted when the 
standard of reasonableness, good faith and lack of prejudice to the 
interests of the Government is not met. This standard is not met in the 
following situations: (1) The transferor or the executor of the 
transferor's estate made an allocation of GST exemption as described in 
Sec.  26.2632-1(b)(4)(ii)(A)(1), or an election under section 
2632(b)(3) or

[[Page 20873]]

(c)(5), on a timely filed Federal gift or estate tax return, and the 
relief requested would decrease or revoke that allocation or election; 
(2) the transferor or the transferor's executor delayed in requesting 
relief in order to preclude the IRS, as a practical matter, from 
challenging the identity of the transferor, the value of the 
transferred interest on the Federal estate or gift tax return, or any 
other aspect of the transaction that is relevant for Federal estate or 
gift tax purposes; (3) the action or inaction that is the subject of 
the request for relief reflected or implemented the decision with 
regard to the allocation of GST exemption or an election described in 
section 2632(b)(3) or (c)(5) that was made by the transferor or 
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; or (4) the IRS determines that 
the transferor's request is an attempt to benefit from hindsight.
    A request for relief under section 2642(g)(1) does not reopen, 
suspend or extend the period of limitations on assessment of any 
estate, gift, or GST tax under section 6501. Thus, the IRS may request 
that the transferor or the transferor's executor consent under section 
6501(c)(4) to extend the period of limitations on assessment of any or 
all gift and GST taxes on the transfer(s) for which relief under 
section 2642(g)(1) has been requested. The transferor or the 
transferor's executor has the right to refuse to extend the period of 
limitations, or to limit such extension to particular issues or to a 
particular period of time. See section 6501(c)(4)(B).
    If the grant of relief under section 2642(g)(1) results in a 
potential tax refund claim, no refund will be paid or credited to the 
taxpayer or the taxpayer's estate if, at the time of filing the request 
for relief, the period of limitations for filing a claim for a credit 
or refund of Federal gift, estate, or GST tax under section 6511 on the 
transfer for which relief is granted has expired.
    Relief provided under section 2642(g)(1) will be granted through 
the IRS letter ruling program.

Proposed Effective Date

    Section 26.2642-7 applies to requests for relief filed on or after 
the date of publication of the Treasury decision adopting these rules 
as final regulations in the Federal Register.

Availability of IRS Documents

    The IRS notice and revenue procedure cited in this preamble are 
published in the Cumulative Bulletin and are available at http://www.irs.gov.

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. Pursuant to 
the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6), it is hereby 
certified that this regulation will not have a significant economic 
impact on a substantial number of small entities. The applicability of 
this rule is limited to individuals (or their estates) and trusts, 
which are not small entities as defined by the RFA (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 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 Code, this regulation has been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small entities.

Comments and 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 also on how they can be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for August 5, 2008 in the IRS 
auditorium. Due to building security procedures, visitors must enter at 
the Constitution Avenue entrance. In addition, all visitors must 
present photo identification to enter the building. Because of access 
restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 30 minutes before the hearing starts. For more 
information about having your name placed on the list to attend the 
hearing, see the FOR FURTHER INFORMATION CONTACT section of this 
preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written (a 
signed original and eight (8) copies) or electronic comments by July 
16, 2008 and an outline of the topics to be discussed and the time to 
be devoted to each topic by July 15, 2008. A period of 10 minutes will 
be allotted to each person for making comments. An agenda showing the 
scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Theresa M. Melchiorre, 
Office of Chief Counsel, IRS.

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.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 26 and 301 are 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 is amended by 
adding an entry 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) * * *

    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), the Secretary has the 
authority to issue regulations describing the circumstances in which a 
transferor, as defined in section 2652(a), or the executor of a 
transferor's estate, as defined in section 2203, will be granted an 
extension of time to allocate generation-skipping transfer (GST) 
exemption as described in sections 2642(b)(1) and (2). The Secretary 
also

[[Page 20874]]

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). 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 and/or to 
make an election under section 2632(b)(3) or (c)(5). Relief provided 
under this section will be granted through the IRS letter ruling 
program. See paragraph (h) of this section.
    (b) Effect of Relief. If an extension of time to allocate GST 
exemption is granted under this section, the allocation of GST 
exemption will be considered effective as of the date of the transfer, 
and the value of the property transferred for purposes of chapter 11 or 
chapter 12 will determine the amount of GST exemption to be allocated. 
If an extension of time to elect out of the automatic allocation of GST 
exemption under section 2632(b)(3) or (c)(5) is granted under this 
section, the election will be considered effective as of the date of 
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 will be considered effective as of the date of 
the first (or each) transfer covered by that election.
    (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 is limited to the amount of the transferor's unused GST 
exemption under section 2631(c) 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 the transferor or the executor 
of the transferor's estate provides evidence (including the affidavits 
described in paragraph (h) of this section) to establish 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 (d)(3) of this section set forth nonexclusive 
lists of factors the IRS will consider in determining whether this 
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, IRS will consider these factors, 
as well as all other relevant facts and circumstances. Paragraph (e) of 
this section sets forth situations in which this standard has not been 
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 to determine whether the 
transferor or the executor of the transferor's estate acted reasonably 
and in good faith for purposes of this section:
    (i) 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 beyond the control of the transferor or of 
the executor of the transferor's estate as the cause of 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 by the transferor or the executor of the 
transferor's estate of the need to allocate GST exemption to the 
transfer, despite the exercise of reasonable diligence, taking into 
account the experience of the transferor or the executor of the 
transferor's estate and the complexity of the GST 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 by the transferor with regard to the allocation of 
the transferor's GST exemption (for example, the transferor's 
consistent allocation of GST exemption to transfers to skip persons or 
to a particular trust, or the transferor's consistent election not to 
have the automatic allocation of GST exemption apply to transfers to 
one or more trusts or skip persons pursuant to section 2632(b)(3) or 
(c)(5)). Evidence of consistency may be less relevant if there has been 
a change of circumstances or change of trust beneficiaries that would 
otherwise explain a deviation from prior GST exemption allocation 
decisions.
    (v) 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, in reliance on or 
consistent with that 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) The interests of the Government would be prejudiced to the 
extent to which the request for relief is an effort to benefit from 
hindsight. The interests of the Government would be prejudiced if the 
IRS determines that the requested relief is an attempt to benefit from 
hindsight rather than to achieve the result the transferor or the 
executor of the transferor's estate intended at the time when the 
transfer was made. 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. Similarly, there would be prejudice if a 
grant of the

[[Page 20875]]

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. Finally, in a situation where the only choices 
were whether or not to make a timely allocation or election, prejudice 
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 
or not the making of the allocation of exemption or election would be 
more beneficial.
    (ii) 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 the transferor or the executor of the 
transferor's estate delayed the filing of the request for relief with 
the intent 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 fact that any period of limitations on the assessment or 
collection of transfer taxes has expired prior to the filing of a 
request for relief under this section, however, will not by itself 
prohibit a grant of relief under this section. Similarly, the 
combination of the expiration of any such period of limitations with 
the fact that the asset or interest was valued for transfer tax 
purposes with the use of a valuation discount will not by itself 
prohibit a grant of relief under this section.
    (iii) 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 under this section. 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. 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.
    (e) Situations in which the standard of reasonableness, good faith, 
and lack of prejudice to the interests of the Government has not been 
met. 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, and/or that the 
grant of relief would prejudice the interests of the Government. The 
following situations provide illustrations of some circumstances under 
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:
    (1) Timely allocations and elections. Relief will not be granted 
under this section 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.
    (2) Timing. Relief will not be granted if the transferor or 
executor delayed the filing of the request for relief with the intent 
to deprive the IRS of sufficient time to challenge the claimed identity 
of the transferor or the valuation of the transferred property for 
Federal gift or estate tax purposes. (However, see paragraph (d)(3)(ii) 
of this section for examples of facts which alone do not constitute 
prejudice.)
    (3) 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.
    (4) Hindsight. Relief under this section will not be granted if the 
IRS determines that the requested relief is an attempt to benefit from 
hindsight rather than an attempt to achieve the result the transferor 
or the executor of the transferor's estate intended when the transfer 
was made. One factor that will be relevant to this determination is 
whether the grant of relief will give the transferor the benefit of 
hindsight by providing an economic advantage that may not have been 
available if the allocation or election had been timely made. Thus, 
relief will not be granted if that relief will shift GST exemption from 
one trust to another trust unless the beneficiaries of the two trusts, 
and their respective interests in those trusts, are the same. 
Similarly, relief will not be granted if there is evidence that the 
transferor or executor had not made a timely allocation of the 
exemption in order to determine which of the various trusts achieved 
the greatest asset appreciation before selecting the trust that should 
have a zero inclusion ratio.
    (f) 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. 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 limitation on assessment or collection of 
any or all gift and GST taxes for the transfer(s) 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 such extension to particular issues or to a particular period of 
time. See section 6501(c)(4)(B).
    (g) 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 for filing a claim for refund or credit of an overpayment. 
In the event the grant of relief under section 2642(g)(1) results in a 
potential claim for refund or credit of an overpayment, no such refund 
or credit will be 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. The period of limitations 
under section 6511 is generally the later of three years from the time 
the original return is filed or two years from the time the tax was 
paid. If the IRS and the taxpayer agree to extend the period for 
assessment of tax, the period for filing a claim for refund or credit 
will be extended. Section 6511(c). The taxpayer or the taxpayer's 
estate is responsible for preserving any potential claim for refund or 
credit. A taxpayer who seeks and is granted relief under section 
2642(g)(1) will not be regarded as having filed a claim for refund or 
credit by requesting such relief. In order to preserve a right of 
refund or credit, the taxpayer or the executor of the

[[Page 20876]]

taxpayer's estate also must file before the expiration of the period of 
limitations under section 6511 for filing such a claim any required 
forms for requesting a refund or credit in accordance with the 
instructions to such forms and applicable regulations.
    (h) Procedural requirements--(1) Letter ruling program. The relief 
described in this section is provided through the IRS's private letter 
ruling program. See Revenue Procedure 2008-1 (2008-1 IRB 1), or its 
successor, (which are available at http://www.irs.gov). Requests for 
relief under this section that do not meet the requirements of Sec.  
301.9100-2 of this chapter must be made under the rules of this 
section.
    (2) 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. 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 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, if any; 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 writing 
(including, without limitation, notes and e-mails) 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 for which relief under this section is being 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, 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.''
    (3) Affidavits and declarations from other parties--(i) The 
transferor or the executor of the transferor's estate must submit 
detailed affidavits from 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), and/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 paragraph (h)(3)(i) of this section must include--
    (A) Each agent or legal representative of the transferor who 
participated in the transaction and/or the preparation of the return 
for which relief is being requested;
    (B) The preparer of the relevant Federal estate and/or gift tax 
return(s);
    (C) Each individual (including an employee of the transferor or the 
executor of the transferor's estate) who made a substantial 
contribution to the preparation of the relevant Federal estate and/or 
gift tax return(s); and
    (D) Each tax professional who advised or was consulted by the 
transferor or the executor of the transferor's estate with regard to 
any aspect of the transfer, the trust, the allocation of GST exemption, 
and/or the election under section 2632(b)(3) or (c)(5).
    (ii) Each affidavit must describe the scope of the engagement and 
the responsibilities of the individual as well as the advice or 
service(s) the individual provided to the transferor or the executor of 
the transferor's estate.
    (iii) Attached to each affidavit must be copies of any writing 
(including, without limitation, notes and e-mails) 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 for which relief under this section is being requested.
    (iv) Each affidavit also must include the name, and current address 
of the individual, and be accompanied by a dated declaration, signed by 
the individual 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 of which I am 
aware relating to the request for relief filed by or on behalf of 
[transferor or the executor of the transferor's estate], and such facts 
are true, correct, and complete.''
    (v) If an individual who would be required to provide an affidavit 
under paragraph (h)(3)(i) of this section has died or is not competent, 
the affidavit required under paragraph (h)(2) 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 and the information or knowledge 
the transferor or the executor of the transferor's estate believes that 
individual had about the transfer, the trust, the allocation of 
exemption, or the election. If an individual who would be required to 
provide an affidavit under paragraph (h)(3)(i) of this section refuses 
to provide the transferor or the executor of the transferor's estate 
with such an affidavit, the affidavit required under paragraph (h)(2) 
of this section must include a statement that the individual has 
refused to provide the affidavit, a description of the efforts made to 
obtain the affidavit from the individual, the information or knowledge 
the transferor or the executor of the transferor's estate believes the 
individual had about the transfer, and the relationship between the 
individual and the transferor or the executor of the transferor's 
estate.
    (i) Effective/applicability date. Section 26.2642-7 applies to 
requests for relief filed on or after the date of publication of the 
Treasury decision adopting these proposed rules as final regulations in 
the Federal Register.

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 3. The authority citation for part 301 continues to read in 
part as follows:

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

    Par. 4. Section 301.9100-3 is amended by adding a new 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.
    (2) Effective/applicability date. Paragraph (g) of this section 
applies to requests for relief under section 2642(g)(1) filed on or 
after the date of publication of the Treasury decision

[[Page 20877]]

adopting these rules as final regulations in the Federal Register.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E8-8033 Filed 4-16-08; 8:45 am]
BILLING CODE 4830-01-P