• Inner Income Service waives requirement of precise conveyance of property assigned to certified home belief (QDOT) so partner can qualify for marital deduction—In Non-public Letter Ruling 202332013 (Aug. 11, 2023), the decedent’s surviving partner wasn’t a U.S. citizen at his loss of life. Previous to the due date of the property tax return, the partner irrevocably assigned belongings to the QDOT that might have in any other case handed outright to the partner, however the belongings weren’t really conveyed to the belief. The partner grew to become a U.S. citizen earlier than the date that was one 12 months after the due date (together with extensions) for submitting the property tax return, at the moment resides in america and has resided regularly in america for the reason that decedent’s loss of life. The property intends to well timed file a last Type 706-QDT on or earlier than “Date 5” to inform the IRS and certify that the partner has grow to be a U.S. citizen.
On this PLR, the property requested a waiver to the requirement of an precise conveyance of property irrevocably assigned to a QDOT for functions of qualifying for a marital deduction below Inner Income Code Part 2056.
IRC Part 2056(d)(2)(B) offers that property passing from the decedent to the surviving partner will probably be handled as passing to the surviving partner in a QDOT if the property is irrevocably transferred or assigned to the QDOT by the partner earlier than the date on which the property tax return is filed.
Below Part 2056A(b)(12)(A) and Treasury Rules Part 20.2056A-10(a)(1) and (2), a QDOT is not topic to the property tax imposed below Part 2056A(b) if the surviving partner of the decedent turns into a citizen of america, the partner was a U.S. resident always after the date of the loss of life of the decedent and earlier than turning into a U.S. citizen and the U.S. trustee of the QDOT notifies the IRS and certifies in writing that the surviving partner has grow to be a U.S. citizen. Discover is to be made by submitting a last Type 706-QDT on or earlier than April 15 of the calendar 12 months following the 12 months that the surviving partner turns into a citizen, except an extension of time for submitting is granted. Treas. Regs. Part 20.2056A-4(b)(6) offers that, for functions of Part 2056(d)(2), property irrevocably assigned however not really transferred to the QDOT earlier than the property tax return is filed have to be conveyed and transferred to the QDOT below relevant native legislation earlier than the administration of the decedent’s property is accomplished. If there’s no administration of the decedent’s property (as a result of for instance, not one of the decedent’s belongings are topic to probate), the conveyance have to be made on or earlier than the date that’s one 12 months after the due date (together with extensions) for submitting the decedent’s property tax return.
Treas. Regs. Part 20.2056A-4(b)(6) additional offers that the decedent’s property could request an extension of time for finishing the conveyance, or a waiver of the particular conveyance, below Treas. Regs. Part 301.9100-1(a). The IRS granted a waiver of the requirement of precise conveyance of the belongings to the belief.
• Taxpayer challenges IRS’ aggregation of two minority pursuits into one controlling curiosity for valuation functions—In Property of Epstein v. Commissioner, No. 11534-23 (T.C. 2023), the property filed a petition difficult a $2.6 million tax deficiency, arguing that the IRS improperly mixed restricted companion (LP) and common companion (GP) pursuits when valuing an curiosity in an residence advanced for property tax valuation functions. On Jerry Epstein’s loss of life, a marital belief created by his late spouse held an 8.746% LP curiosity and a 1.2% GP curiosity, and a survivor’s belief held a ten.4% LP curiosity. The IRS valued the marital belief’s pursuits at a complete of $15.59 million versus the property’s worth of $12.6 million, and the IRS valued the survivor’s belief curiosity at $16.4 million versus the property’s $13.1 million, for a complete distinction of $6.29 million. Amongst different arguments, the property claimed the IRS improperly aggregated the LP and GP pursuits within the two trusts to reach at its valuation.
The IRS has misplaced on a number of makes an attempt to mixture two minority pursuits held in numerous capacities into one controlling curiosity and has now conceded the difficulty within the case of certified terminable curiosity property (QTIP) marital trusts; that’s, property passing to a person’s property isn’t aggregated, for property tax valuation functions, with property in a QTIP marital belief that’s included in such particular person’s gross property below IRC Part 2044. See Property of Vibrant v. United States, 658 F.second 999 (fifth Cir. 1981); Property of Bonner v. U.S., 84 F.3d 196 (fifth Cir. 1996); Property of Mellinger v. Comm’r, 112 T.C. 26 (1999); Property of Nowell v. Comm’r, 77 T.C.M. 1239 (1999); Property of Lopes v. Comm’r, 78 T.C.M. 46 (1999); and AOD-1999-006 (Aug. 30, 1999). The IRS has acquiesced to this line of circumstances.
The above courts famous that the surviving partner doesn’t possess, management or have any energy of disposition over the belongings within the QTIP belief; that’s, the surviving partner’s property didn’t have management over the belief belongings “such that it might act as a hypothetical vendor negotiating with patrons freed from the handicaps related to fractional undivided pursuits. The valuation of the belongings ought to replicate that actuality.” Property of Bonner v. U.S., 84 F.3d 196, at p. 199. So it appears possible the Tax Court docket in Epstein will rule in favor of the property on this declare.
