The rules for making late generation-skipping transfer tax exemption allocations and late estate tax payments remain in place, despite an influx of due date extensions stemming from the coronavirus pandemic.
Recent IRS notices extending some filing deadlines don’t change the rules for late GSTT exemption allocations, according to an FAQ on coronavirus relief provisions for gift and estate taxes posted to the IRS website April 23.
According to the FAQ, allocations of GSTT exemptions for transfers made before 2019 are effective on the date of filing, meaning that the fair market value of the trust assets for purposes of determining the trust’s inclusion ratio can be either the value on the date of allocation or the value on the first day of the month during which the allocation was made.
“With GST allocations, it is a substantive difference in the amount of tax due, not just a question of timeliness,” Howard Zaritsky, a retired attorney and frequent lecturer on estate planning topics, said regarding late versus timely GSTT exemption allocations.
Zaritsky explained that when an individual makes a timely GSTT allocation, the exemption is applied taking into account the value of the asset on the date of the transfer, but when a late GSTT allocation is made, the allocation takes into account the value of the asset on the date of the return rather than the date of the gift.
The FAQ states that taxpayers also aren’t allowed to treat an allocation to a 2019 transfer as a late allocation, so a GSTT exemption must be allocated to the transfer based on its FMV on the date of the transfer.
Zaritsky said that with the state of the stock market, a taxpayer might want to intentionally make late allocations of GSTT exemption, to base the exemption on the value of the stock on the date of the return rather than the date of the gift.
“I cannot merely elect to treat the allocation as if it were late,” Zaritsky added.
Other Deadline Extensions
The due date for Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” has been extended to July 15, but that relief doesn’t include postponement of a tax payment that was originally due before April 1, unless it had already been extended to a due date between April 1 and July 15. According to the FAQ, interest will continue to accrue from the original payment due date for those cases.
Extended due dates for Form 706 that fall between April 1 and July 15 have been postponed to July 15. Six-month extension requests for Form 706 can be filed on or before July 15 if the time to file the request expired between April 1 and July 15, but the extension will be calculated from the original due date, according to the FAQ.
Among other extensions, the due date for Form 5227, “Split-Interest Trust Information Return,” and for Form 8971, “Information Regarding Beneficiaries Acquiring Property From a Decedent,” has been extended to July 15.