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Tax Law Update: June 2024

The most pressing tax law developments of the past month.

Final regulations establish rules for applying for a time extension for certain generation-skipping transfer (GST) tax elections—Internal Revenue Code Section 2642(g)(1) directs Treasury to implement regulations to provide extensions of time when a taxpayer fails to make a timely election to:

• allocate GST tax exemption to a transfer;

• opt out of the automatic allocation of GST tax exemption for a direct skip; 

• opt out of the automatic allocation of GST tax exemption for an indirect skip or to transfers made to a particular trust; and

• treat any trust as a GST tax-exempt trust.

This IRC section was enacted in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act. The Internal Revenue Service didn’t issue proposed regulations until 2008. In the interim 16 years, taxpayers were directed to file under Treasury Regulations Section 301.9100-3 to request extensions of time for GST elections via a private letter ruling. The IRS will still handle pending filings seeking Treasury regulation relief, but going forward, requests for extensions of time for GST elections should be filed based on the final regulations published in TD 9996.

The final regulations, 89 FR 37116 (May 6, 2024) adopt the 2008 proposed regulations with certain modifications. The taxpayer must show they acted reasonably and in good faith in their request for an extension of time. The IRS may consider a (non-exhaustive) list of factors. No one factor is determinative, and any one factor could be sufficient; factors may be weighed differently. The listed factors include:

• Consistency by the taxpayer in making allocations or elections;

• Prejudice to the interests of the government;

• Whether an advantage was gained by waiting to make the election (hindsight);

• Timing of the relief request;

• Intervening taxable events; and

• Timely allocations and elections

The taxpayer must include detailed affidavits as part of the request. The affidavit should describe the events that led to the failure to make the allocation or intended election and the events that led to the discovery of the failure. In addition, affidavits from parties involved in the transaction, such as the tax preparer and other tax advisors or professionals who advised or consulted with the taxpayer, are required in certain circumstances.

• IRS Notice 2024-35 continues waiver for failure to take 2024 RMDs—In 2022, the IRS proposed regulations that generally provided that a non-eligible beneficiary who inherited a retirement account after the account owner’s required beginning date must take the account owner’s required minimum distributions (RMDs). These beneficiaries must take the RMDs and withdraw the account by the end of the 10th calendar year following the account owner’s death. The IRS further provided that a beneficiary who failed to take such RMDs would be subject to excise tax. In response to commentators’ confusion about the proposed regulations, the IRS later issued Notices 2022-53 and 2023-54, providing transitional relief by waiving the excise tax for failure to take such RMDs. The most recent notice extends that relief to 2024. These notices only waive the penalties; they don’t waive the RMD requirements. The IRS expects to have final regulations in place that would apply to calendar year 2025 RMDs.

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