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IRS Issues PLR Granting Extension to File Notice of Citizenship for QDOT/Marital Deduction Purposes

Posted Friday, June 15, 2012 by John S. Palmer

The IRS has issued a Private Letter Ruling granting a surviving spouse’s request to extend the deadline for her to file a form 706-QDT, officially notifying the IRS that she has become a United States citizen. The ruling will permit the surviving spouse to avoid having to pay estate tax on distributions from a Qualified Domestic Trust (QDOT) established for her benefit with assets of her deceased spouse.

Property left to a surviving spouse is not subject to estate tax, but this unlimited marital deduction is only available if the surviving spouse is a US citizen. However, if assets are placed in a QDOT for the benefit of a noncitizen spouse, they are taxed only upon their distribution from the trust; and if the surviving spouse becomes a US citizen and other requirements are met, the assets in the QDOT are no longer subject to estate tax, provided that the surviving spouse notifies the IRS that he or she is now a citizen by filing a form 706-QDT by April 15 of the year after obtaining citizenship.

In the case that is the subject of the Private Letter Ruling, the surviving spouse failed to file a timely 706-QDT because her attorney failed to inform her of the deadline.

In granting an extension to file the form, the IRS relied on Treasury Regulation 301.9100-3, which states an extension should be granted when the taxpayer provides evidence proving to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government. Additionally, 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or to advise the taxpayer to make, the election.

Private Letter Ruling 201220017, Issued May 18, 2012

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