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Life Health > Life Insurance > Life Planning Strategies

IRS Adds Generation-Skipping Transfer Deadline Relief After 16 Years

By Allison Bell

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What You Need to Know

  • The GST tax can take 40% of asset transfers to grandchildren and some other recipients.
  • The exclusion is $13.61 million for an individual and $27.22 million for a couple.
  • For now, a client who wants an extension will have to pay at least $3,000 to to ask for one.

The Internal Revenue Service has taken 16 years to complete regulations that may help wealthy clients fix failures to declare how they would use their generation-skipping transfer exemption.

The IRS published the final rule — “Relief Provisions Respecting Timely Allocation of GST Exemption and Certain GST Elections” — Monday in the Federal Register, an official government regulatory publication.

IRS officials note that they published the draft regulations in April 2008, received five comments at the time, and decided against providing a new public comment period.

“The issuance of a new notice of proposed rulemaking or a reopening of the comment period would further delay, and in some cases prevent, the grant of needed relief to taxpayers,” IRS officials say.

About 45 million Americans have died since the IRS posted the 2008 draft regulations.

What it means: IRS regulation drafters face challenges of their own with meeting deadlines.

Generation-skipping transfer taxes: The U.S. federal government imposes a 40% generation-skipping transfer tax on efforts by individuals or couples to pass large amounts of cash or other assets to grandchildren, great-grandchildren and certain other people in younger generations.

The 2024 GST exemption is $13.61 million for an individual taxpayer and $27.22 million for a married couple.

A taxpayer can notify the IRS about intent to use the GST exemption to shield transfers of assets to two or more people from federal estate and gift taxes.

Congress included a provision changing the rules in the Economic Growth and Tax Relief Reconciliation Act of 2001.

The IRS issued one set of rules for asking for a GST tax allocation time extension in 2001, then provided a simpler strategy in 2004.

The 2001 procedure requires a taxpayer to show the IRS 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.”

In the 2008 draft regulations, the IRS gave more details about how it would evaluate extension requests and how it wanted taxpayers to document that they were eligible for extensions.

Officials recommended that taxpayers seek extensions by asking the IRS for private letter rulings and submitting affidavit letters from parties that could confirm that they were eligible for extensions.

Getting an IRS private letter ruling now costs $3,000 for people with annual income under $250,000, $8,500 for people with income from $250,000 to $1 million, and $12,600 for people with income over $1 million, according to Internal Revenue Bulletin: 2024-1.

The final regulations: The new final regulations took effect Monday.

The regulations state that the old procedures for asking for a GST exemption allocation time extension no longer work.

Now, taxpayers seeking extensions must send in affidavits along with requests for private letter rulings; show that they are reasonable and acted in good faith; show that they intended to make timely allocation decisions or were unaware of the need to do so, despite being reasonably diligent; and, if relevant, show whether events beyond their control kept them from allocating the GST exemption on time.

Other facts that taxpayers can discuss include evidence of efforts to treat certain recipients of transfers in a consistent way and evidence that the taxpayers received bad advice from their tax advisors.

The IRS is planning to add more paragraphs indicating how approvals of extension requests will affect taxpayers.

It also hopes to add provisions for some taxpayers to apply for extensions without submitting requests for private letter rulings, but it says it needs to see the private letter ruling requests for now to get the information it needs to develop a simpler, private-letter-ruling-free process for at least some taxpayers.

Credit: fizkes/Adobe Stock

Allison Bell

Think_Allison

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