The AICPA  has sent a comment letter responding to the Treasury Department's and the IRS' efforts to address the need to simplify relief procedures to allocate the generation-skipping tax (GST) exemption under section 2642(b)(1)-(2) and elections under subsection (b)(3) or (c)(5) of section 2632.

On April 17, 2024, both agencies issued final regulations that offered guidance on GST exemption allocation relief (TD 9996), effective for requests for relief filed on or after May 6, 2024. This is for taxpayers looking  to correct past mistakes in GST exemption allocations and elections.

According to the AICPA, the final regulations acknowledge the concerns of commentors regarding how complicated the GST rules and the cost of getting relief via private letter rulings (PLRs).  They both concluded that PLRs are still the most efficient way to deal these requests, while acknowledging the burden PLRs place on some taxpayers.

Both agencies said that they are prepared to issue further revenue procedures as well as other guidance if they identify situations where simplified or automatic relief under section 2642(g)(1) would be appropriate and administrable.

According to the AICPA, Rev. Proc. 2004-46, 2004-31 I.R.B. 142, provides a simplified method for obtaining an extension of time under Treas. Reg. § 301.9100-3 to allocate a donor’s GST exemption to transfers in certain limited situations.. It lays out that requirements that need to be met to use this method. 

The AICPA recommends for the Treasury and IRS to extend the relief provided by Rev. Proc. 2004-46 to tax years 2001and later.

"The administrative burden on both taxpayers and the IRS to process PLRs for small amounts is disproportionate to the amounts involved. Extending the relief provided by Rev. Proc. 2004-46 to tax years 2001 and later would streamline the process for taxpayers seeking to allocate their GST exemption to post-2000 transfers, thereby reducing the administrative burdens and costs associated with PLRs for both taxpayers and the government," the AICPA says in the letter.

The AICPA explains that taxpayers frequently make small present interest gifts to trusts that are shielded from gift tax consequences because of the annual gift tax exclusion Because of this, taxpayers are not required to file Forms 709. But, the possible GST tax impact is usually not taken into consideration, and taxpayers inadvertently are subject to the automatic allocation rules that do align with their intended tax planning.

Taxpayers, the AICPA says, depending on their advisors and did not file gift tax returns for prior present interest gifts to trusts under the annual exclusion would be able to arrive at intentional and informed decisions while correcting their  previous oversight to ensure that they utilize their GST exemptions to align with their tax planning goals. 

The second point that the AICPA made has to do with the relief offered by Rev. Proc. 2004-46. This section offers a simplified method to get an extension of time under Treas. Reg. § 301.9100-3 to allocate a donor’s GST exemption to transfers in certain limited situations.

But, there is currently no method other than requesting a PLR to make a late opt-out to ‘un-do’ an automatic allocation of GST exemption that is erroneous or post Dec. 31, 2000 transfers.

The AICPA suggests for the Treasury and IRS to offer a similar revenue procedure to Rev. Proc. 2004-46 for situations where the donor’s GST exemption has been automatically allocated to a previous  transfer. However, in this case, the donor either did not intend for GST exemption to be allocated or the donor was not aware that GST exemption was allocated to the transfer.