SECTION 2. BACKGROUND

.01 Chapter 13 of the Code imposes a GST tax on all transfers, whether made directly or indirectly, to skip persons. Under § 2613(a), a skip person includes a person who is two or more generations below the generation of the transferor or a trust, if all of the interests are held by skip persons. Generally, under § 2652, the transferor is the individual who transfers property in a transaction subject to the federal gift or estate tax. Under § 2611(a), transfers that are subject to the GST tax are direct skips, taxable distributions, and taxable terminations.

.02 Section 2602 provides that the amount of GST tax imposed on a transfer is determined by multiplying the amount transferred by the applicable rate. Under § 2641, the applicable rate for a transfer is the maximum federal estate tax rate multiplied by the inclusion ratio, and the

inclusion ratio (defined under § 2642) is one minus the applicable fraction. The applicable fraction is a fraction the numerator of which is the amount of GST exemption allocated to the trust (or to the property transferred in a direct skip), and the denominator of which is the value of the property transferred to the trust (or involved in the direct skip) reduced by federal estate tax and state estate and death taxes actually recovered from the trust (or transferred property) and any charitable deduction allowed under § 2055 or 2522 with respect to the property.

.03 Section 2631 allows every transferor a GST exemption of $1,000,000 that may be allocated to transfers made by the transferor either during the transferor’s life or at death. For calendar years after 1998, the exemption amount has been indexed for inflation and, for transfers made between January 1, 2004, and December 31, 2009, inclusive, the exemption equals the amount that is exempted from transfer tax by the applicable credit amount described in § 2010.

.04 An outright transfer to an individual who is a skip person that qualifies for the gift tax exclusion under § 2503(b) or 2503(e) is deemed to have an inclusion ratio of zero and, thus, is not subject to the GST tax. A different rule, however, applies for a transfer to a trust that is a direct skip. Under § 2642(c)(2), a transfer to a trust for the benefit of one beneficiary that qualifies for the gift tax annual exclusion will be deemed to have a zero inclusion ratio only if certain requirements are met. Many trusts, however, have more than one beneficiary and thus will not have an inclusion ratio of zero by reason of § 2642(c)(2), even if the trust meets the other requirement of that section. In this case, the transferor must affirmatively allocate GST exemption to the trust if the transferor desires to reduce the inclusion ratio to zero.

.05 Affirmative allocations of GST exemption to transfers made during life generally are made on a federal gift tax return (Form 709, United States Gift (and Gener- ation-Skipping Transfer) Tax Return ), and can be made whether or not the return is timely filed. Under § 2642(b)(1), if a transferor allocates GST exemption on a timely filed federal gift tax return, the transferor may allocate an amount of GST exemption equal to the value of the property on the date of the transfer to reduce the inclu

2004–31 I.R.B. 142 August 2, 2004

(4) Subject to any change in applicable instructions in future forms, instructions, or guidance published by the Service, send the Form 709 with attachments to the Cincinnati Service Center for processing.

(a) If a private delivery service is used, the Form 709 with attachments should be sent to:

Internal Revenue Service Center 201 W. Rivercenter Blvd. Covington, KY 41012.

(b) If a private delivery service is not used, the Form 709 with attachments should be sent to:

Internal Revenue Service Center Cincinnati, OH 45999.

(5) The Form 709 must be filed on or before the date prescribed for filing the federal estate tax return for the transferor’s estate (determined with regard to any extensions actually obtained), regardless of whether an estate tax return is required to be filed.

.02 Relief from Late GST Exemption Al- location . Upon receipt of a request for relief under section 4.01 of this revenue procedure, the Service Center will determine whether the requirements for granting relief to make a GST exemption allocation under this revenue procedure have been satisfied and will notify the taxpayer of the result of this determination. If the Service Center determines that the requirements for granting relief to make a GST exemption allocation under this revenue procedure have been satisfied, the allocation will be effective as of the date of the transfer.

.03 Subsequent Estate Tax Inclusion Pe- riod . A grant of relief under this revenue procedure does not preclude a subsequent determination that the transfer is one described in § 2642(f), specifically an inter vivos transfer the value of which would be included in the transferor’s gross estate under chapter 11 (other than by reason of § 2035) if the transferor died immediately after making the transfer. If it is determined that the transfer is one described in § 2642(f), the GST exemption allocated pursuant to this revenue procedure would not be changed, but the effective date and effect of that allocation of GST exemption would be governed by § 26.2632–1(c)

.08 To date, the Service has issued several letter rulings under § 301.9100–3 granting an extension of time to make a timely allocation in situations in which a transfer to a trust qualified for the gift tax annual exclusion under § 2503(b), but was not deemed to have a zero inclusion ratio because the trust did not meet one or more of the requirements of § 2642(c)(2) (for example, because there was more than one beneficiary of the trust). In most of these cases, the transferor failed to allocate GST exemption to the trust on a timely filed gift tax return because the transferor was not aware of the need to affirmatively allocate the exemption to the transfers. The Service believes that in these cases, it is appropriate to provide an alternate simplified method to obtain an extension of time to make an allocation of GST exemption, provided that certain requirements (set forth in sections 3 and 4 of this revenue procedure) are met. In such a case, the transferor’s GST exemption remaining at the time the gift tax return is filed pursuant to this revenue procedure may be allocated to the transfer based on the value of the property as of the date of the transfer.