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Member
 
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Last Login: 8/30/2010 8:41:47 AM
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I am in the process of preparing an amendment to a 706 that was filed in May 04 for a 6/21/03 death. Most of the assets included on the 706 were in the decedent's and surviving spouses living trust. The original 706 included a Schedule M claiming a marital deduction. The net estate before the marital deduction was $1,700,000. Due to prior gifts only $600,000 was scheduled to go into the bypass trust and $1,100,000 to go into the marital trust (QTIP). On the original 706 neither of these trusts was mentioned, no assets were listed on Schedule G but rather on Schedules A, B, C and F. Trust assets were titled in the name of the trust. On Schedule M all $1,700,000 in assets were listed and deducted from the net assets so the 706 showed a zero taxable estate. Effectively what the prior preparer had done was to take the martial deduction or make the QTIP election for all of the assets in both the marital and bypass trusts.
We want to correct the election now before the surviving spouse dies. We are preparing a supplemental 706 to correct several other errors on the return and would like to correct Schedule M as well. However I am not sure that we can since the statutory period for making the OTIP election or amendments has expired. It may be that we will have to wait until the death of the surviving spouse to seek relief. PLR 200603004 would seem to indicate that we won't have to include the assets allocated to the bypass trust in the surviving spouses estate.
Has anyone had to deal with this issue before?
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Power Member
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Last Login: 1/6/2010 6:00:00 PM
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Many years ago we encountered a similar situation on a return prepared by another practitioner, but could not find any precedent for relief. I'm glad to learn that the IRS may be more amenable to working with taxpayers to find a way out.
John Jacobson
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Member
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Last Login: 1/3/2012 10:46:42 AM
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John,
In addition to amending the 706, I'd also fund a bypass trust, and file some 1041 returns, just to be thorough.
bill
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Member
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| Thank you for your reply John. I always enjoy reading your reponses to the questions posted. It looks like I can request relief under Reg. 301.9100-3 since the three year statute on assessment hasn't expired. So I will try filing an amended 706 showing the proper marital deduction amount and request relief under the Reg cited above.
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Member
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Last Login: 8/30/2010 8:41:47 AM
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| Hi Bill, glad you are back. Trust had already been funded and tax returns filed but your suggestion is on point. Also I will try filing an amended 706 showing the proper marital deduction and request relief under Reg 301.9100-3 since the 3 year period for assessment hasn't expired.
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