PLRs Reveal Pointers for Fixing Inadvertent §2632 Elections

Parsing recent PLRs helps guide practitioners when making allocations of GST exemption or elections under §2632. But before the tax-related stuff, let’s discuss America’s pastime. We’ve entered the postseason for major league baseball, and life is good. One of the things I love about baseball is its terminology, particularly the phrase relatively new to the baseball lexicon: “oppo taco.” The term refers to an opposite-field home run. When a right-handed hitter steps into the batter’s box on the left side of home plate (facing the pitcher) and hits a home run to right field (i.e., the opposite side of the ballpark from where the batter was standing), that’s an oppo taco. The opposite, or oppo, of an oppo taco is pulling the ball, which happens when a batter hits the ball to the same side of the field from where he was standing (those that do this with regularity are known as pull hitters). These and other fun baseball-isms can be found at baseball-almanac.com.

A Shift to GST Tax

Chapter 13 of Subtitle B of the Internal Revenue Code, devoted to the GST tax, also has great terminology. One of my favorite GST phrases (and elections, for that matter) is the “reverse QTIP election,” the name given to a special election for qualified terminable interest property §2652(a)(3). By making a reverse QTIP election on Form 706 or Form 709 (depending on whether the transfer is made during lifetime or at death), the donor, if living (otherwise the decedent’s executor) chooses to treat the qualified terminable interest property as if such QTIP election had never been made for purposes of Chapter 13. Think of it as a way of going “oppo taco” within Chapter 13 of Subtitle B of the Code: getting the benefit of the marital deduction under §2056(b)(7) or §2523(f), necessitating inclusion in the donee spouse’s estate at death under §2044, yet for GST purposes, having that election treated in the exact opposite manner. In this case, the QTIP election is ignored solely for purposes of Chapter 13. By making the reverse election, it is as if the QTIP election had never been made—reversing course on the marital deduction—hence turning a blind eye to the property’s actual inclusion under §2044. This tax fiction allows the donor or decedent to remain the transferor of the property for purposes of Chapter 13. Otherwise, under §2652(a)(1), a change in transferor would have occurred at the time the property was last subject to estate tax.

In addition to the reverse QTIP election, Chapter 13 contains several other taxpayer elections, many relating to the allocation of GST exemption. A complicated set of rules under §2632 determines when GST exemption is automatically allocated to lifetime transfers and transfers at death. For lifetime transfers, these rules apply to direct skips under §2612(c) and indirect skips §2632(c)(3)(A). However, a transferor or a transferor’s executor can make an election under §2632(b)(3) or §2632(c)(5)(A)(i) to prevent the automatic allocation rules from applying. This election is commonly known as an “election out” or “electing out.” Even if one is not completely certain that a trust satisfies the technical definition of a “GST trust” under §2632(c)(3)(B)—required in order to be considered an indirect skip— §2632(c)(5)(A)(i) allows one to elect out of automatic allocation for any trust (other than a direct skip which is covered under a different section). Assume that electing out under §2632(c)(5)(A)(i) applies to an indirect skip, despite the fact that the section also permits an election out for trusts that are neither direct skips nor indirect skips.

In addition, a transferor or a transferor’s executor can make an election to treat any trust as a “GST trust” under §2632(c)(5)(A)(ii). The election to be treated as a “GST trust” is commonly known as a “GST trust election,” an “election in,” or “electing in.” An election in forces the automatic allocation of GST exemption to a particular trust for the periods covered by the election. Furthermore, the election to treat a trust as a “GST trust” will apply even if one of the six exceptions to the statutorily defined term is present under §2632(c)(3)(B), otherwise preventing the trust from classification as a “GST trust.”

Elections in and elections out are effective when made on a timely filed Form 709 for the calendar year in which the transfer to the trust is made (or deemed to have been made in the case of an ETIP). §2632(c)(4), (5); Reg. §26.2632-1(b)(1)(ii). If an election to treat a trust as a “GST trust” is made in a calendar year following prior year transfers to the same trust, the election in is effective when made on a timely filed Form 709 “for the calendar year in which the first transfer to be covered by the GST trust election is made[.]” §2632(c)(5)(B)(ii); Reg. §26.2632-1(b)(3)(ii).

What happens in the case of inadvertent election? For example, if a transferor (or, more realistically, the tax preparer on behalf of the transferor) elects not to have the automatic allocation rules apply to Trust under §2632(c)(5)(A)(i) for all transfers made to Trust in Year 1 and in all subsequent years in which transfers to Trust occur, then later discovers the mistaken election out during Year 3. Can the transferor go “oppo taco” on that prior election, essentially undoing it with respect to Trust and switching it to the opposite election (i.e., making an election in, generating an automatic allocation of GST exemption to Trust as of Year 1)? The IRS has recently offered some clues on this issue and, in so doing, has provided some clarity surrounding the final regulations issued under §2642(g)(1).

Providing Relief

The makers of the antacid Rolaids advertise with the catchy phrase “How do you spell relief?” While indigestion has many root causes, missing a deadline to make a timely allocation or election with respect to GST exemption is a sure way to induce taxpayer heartburn. When it comes to seeking an extension of time to make a GST allocation or election, relief under Chapter 13 is available under §2642(g)(1) and its final regulations (although many Rolaids may be consumed along the way as one anxiously awaits a response from the IRS).

Section 2642(g)(1) gives express authority to the Secretary of Treasury to issue regulations covering the circumstances and procedures for when extensions of time will be granted to make allocations of GST exemption or certain GST elections. If relief is granted, then such allocation or election will be treated as if it had been timely made. Initially, taxpayers followed the procedures for requesting relief under Reg. §301.9100-2(b) and Reg. §301.9100-3 for extensions of time for certain regulatory elections until final regulations under §2642(g)(1) were issued. If certain standards were satisfied (i.e., the taxpayer acted reasonably and in good faith and the relief granted would not prejudice the interests of the government), taxpayers could receive an extension of time to seek relief with respect to the GST allocation or election. Sixteen years following the publication of proposed regulations under §2642(g)(1), the IRS released final regulations on May 3, 2024. T.D. 9996.

Prior to the issuance of these final regulations, taxpayers did not have much flexibility when it came to correcting an inadvertent election. It was clear under the Code that allocations of GST exemption, once made, were irrevocable. §2631(b). In addition to manual or affirmative allocations of GST exemption, however, the proposed regulations under §2642(g)(1) explicitly stated that relief will not be granted to revoke an election under §2632(b)(3) or (c)(5) made on a timely filed federal gift or estate tax return. These elections have to do with the automatic allocation rules. In a welcome change, the preamble to the final regulations stated that “no statute…provides that an election made under §2632(b)(3) or (c)(5) is irrevocable.” As a result, the final regulations no longer contained the statement that relief was unavailable to revoke an election under §2632(b)(3) or (c)(5) made on a timely filed federal gift or estate tax return. Taxpayers having previously made a prior inadvertent election now have options for receiving relief going forward.

Let’s be honest here. Taxpayers are no longer electing like it is 2010 (when it was common to see an election under §2632(b)(3), i.e., an election out of the deemed allocation rules for lifetime direct skips, because the applicable rate for generation-skipping transfers that year was 0%). Instead, it is far more common to only see elections made under §2632(c)(5). Recall that there are two specific elections that can be made under §2632(c)(5): electing out of the deemed allocation rules or electing to have a trust treated as a “GST trust” under these same rules. Given the removal of language previously appearing under the proposed regulations that expressly prohibited the revocation of a prior affirmative election (either an election in or election out), how has the IRS recently handled requests to change the effect of a prior, inadvertent election?

In addition to baseball, I closely follow IRS releases in the form of private letter rulings involving the GST tax (my social life needs an upgrade). Taxpayers interested in seeking relief from an inadvertent election under §2632(c)(5) should pay close attention to the information contained within Private Letter Rulings issued by the IRS. These rulings do not serve as precedent (§6110(k)(3)) and can only be relied upon by the taxpayer to whom the ruling is directed. Like a coaching staff scrutinizing the scouting reports of an opposing team for a key matchup, PLRs containing similar issues can be reviewed by taxpayers and their counsel to glean the common form of relief granted by the IRS. Published PLRs can serve as a template for requesting relief in similar situations. Based on a review of five recent PLRs involving inadvertent elections out, the relief offered to taxpayers after satisfying the preliminary two-factor test (i.e., by demonstrating that the taxpayer acted reasonably and in good faith and that the grant of such relief will not be prejudicial to the interests of the government) has been to allow each taxpayer to make a manual allocation of GST exemption to the trust at issue rather than allowing the taxpayer to revoke or undo the prior election.

PLRs 202507003, 202507005, 202521013, 202531004, and 202531005 all involved the same issue. The donors made a lifetime transfer to an irrevocable trust and, when it came time to reporting the transfer on Form 709, each donor (or the return preparer) elected out of the automatic allocation rules with respect to the transfer under §2632(c)(5)(A)(i). The result was that the election prevented the automatic allocation of GST exemption to the trusts, presumably in opposition to the donor’s intent. These elections appear to have been inadvertent, and the donors sought relief under §2642(g)(1) and Reg. §26.2642-7 to bring about the opposite result. Unfortunately, none of these PLRs indicated whether the donors, in seeking relief, initially requested an extension of time to make a different election, e.g., electing in under §2632(c)(5)(A)(ii), which would have had the effect of undoing the prior election out. Instead, these PLRs only indicate that the donor had requested an extension of time to allocate GST exemption.

Unwritten Rules

Baseball is full of unwritten rules, and it seems to me that the IRS has its share of them too. If we’re calling balls and strikes here, the absence of any PLR allowing a taxpayer to revoke a prior election is a strike against taxpayers. Despite the final regulations no longer containing any prohibition against a taxpayer revocation of a prior election, it appears the unwritten rule—the “no revocation of a prior election” rule—remains the status quo. As a result, it seems likely that we won’t be seeing any taxpayer “oppo taco” anytime soon, which would have enabled a taxpayer to go opposite on a prior erroneous election by replacing it with a new, opposite election. Rather, when it comes to granting relief to taxpayers demonstrating that they acted reasonably and in good faith and the relief requested would not prejudice the interests of the government, the IRS has shown us that relief in these situations is achieved via allocation of GST exemption.

In each of the five PLRs previously cited, the IRS permitted the donor to achieve the desired goal of an inclusion ratio of zero by means of manually allocating GST exemption to the trust, not by revoking the prior inadvertent election. Such allocation, made on an amended Form 709 for the year of the original transfer, will be treated as if the manual allocation of GST exemption had been timely made, wiping away any trace of that prior inadvertent election. Like a backdoor pitch fooling a batter and winding up in the strike zone, the ability to manually allocate GST exemption to a trust and have such allocation treated as if it had been timely made is a backdoor way of undoing a prior inadvertent election.

It appears the IRS has another unwritten rule in the context of GST elections: No relief will be available under §2642(g)(1) for a prior inadvertent election in. Following the issuance of the final regulations under Reg. §26.2642-7, no published PLR has allowed a donor to undo a prior election in, despite its preamble declaring that these final regulations no longer included a ban on revoking a prior election under §2632(b)(3) or (c)(5) made on a timely filed federal gift or estate tax return. Some people think the removal of the ban on revocations of prior elections only applies to elections out given the combined reference to “section 2632(b)(3) or (c)(5)” under the preamble. Since §2632(b)(3) applies to the election out of the automatic allocation rules for direct skips, some believe the reference to (c)(5) only pertains to elections out for transfers to trusts other than direct skips, grouping the elections out together like a righty batter, lefty pitcher matchup. Yet recall that there are two elections under §2632(c)(5)(A), and the preamble’s language does not contain any qualifying language that would permit revocations of prior elections only for elections out made under §2632(c)(5)(A)(i). Therefore, this language seems to suggest that it may be possible for taxpayers to revoke a prior election in made with respect to a particular trust. However, any such allowance would clearly contradict how the IRS has always viewed allocations of GST exemption.

The consequence of making an election in and treating a trust as a “GST trust” is a forced allocation of GST exemption to the trust. The election in serves as proxy for manually allocating GST exemption to a trust. GST exemption, once allocated, is irrevocable under §2631(b) and Reg. §26.2632-1(b)(4)(i). However, these same regulations, and those under Reg. §26.2642-7, provide very limited exceptions for when a manual allocation can be decreased or revoked, treating an allocation as void under limited circumstances. In a ruling issued on July 1, 2025 (202539002), the Service denied an executor’s request for relief under §2642(g) and Reg. §26.2642-7 to go back in time and manually (or affirmatively) allocate GST exemption to a trust created during the decedent’s lifetime which had received a pre-2001 transfer. You do not see many “swing and miss” letter rulings published by the Service. This rare published denial reminds taxpayers of the few exceptions that exist for decreasing or revoking a prior manual allocation of GST exemption. In this case, granting the executor such relief would have required the Service to allow the executor to decrease a subsequent manual allocation of GST exemption made on the decedent’s Form 706 without the executor satisfying any exception to the general rule.

The decedent’s pre-2001 transfer went unreported during the decedent’s lifetime and was not discovered by the executor until after timely filing the decedent’s Form 706 and manually allocating the decedent’s remaining GST exemption to a GST Exempt Marital Trust created for decedent’s surviving spouse. The executor made elections under §2056(b)(7) and §2652(a)(3) with respect to the GST Exempt Marital Trust. In denying the executor relief to go back and manually allocate GST exemption to the trust that received the pre-2001 transfer (and treating such allocation as having been timely made), the Service noted that under Reg. §26.2642-7(e)(2)(i) “relief will not be granted to the extent that it would decrease or revoke an affirmative (but not automatic) allocation of GST exemption under §2632(a) or 2642(b) that was made on a Federal gift or estate tax return, regardless of whether the transfer or the allocation of exemption was made during the transferor’s life or upon the transferor’s death.” Since the executor affirmatively allocated all of the decedent’s remaining GST exemption at death to the GST Exempt Marital Trust, granting relief to the executor would have equated to the Service allowing the executor to go “oppo” on some portion of the decedent’s GST exemption previously allocated to the GST Exempt Marital Trust, freeing up GST exemption to be allocated to the trust that received the pre-2001 transfer. The executor’s request for relief was denied because the facts did not satisfy the limited circumstances where the Service will allow a reduction to, or revocation of, a manual allocation of GST exemption under Reg. §26.2642-7(e)(2)(ii). As a result, the manual allocation of GST exemption made by the executor to the GST Exempt Marital Trust on the decedent’s Form 706 remained unchanged. No “retroactive” allocation of GST exemption was permitted to be made to the trust receiving the pre-2001 transfer since none of the decedent’s GST exemption remained following the executor’s manual allocation on Form 706.

An election in under §2632(c)(5)(A)(ii) is the functional equivalent to a manual allocation of GST exemption. Therefore, such election shall too be irrevocable once made. Presumably, any election in and subsequent automatic allocation will also be treated as void if the trust at issue has no “GST potential” with respect to the transferor under Reg. §26.2632-1(b)(4)(i). This would appear to be akin to satisfying one of the three limited exceptions where the Service will allow a reduction to, or revocation of, a manual allocation of GST exemption under § 26.2642-7(e)(2)(ii). In all other cases, however, allowing a taxpayer to go opposite on a prior election in would essentially permit the return of a taxpayer’s GST exemption, contrary to the IRS’s strict “no refund” policy following a timely allocation. In order to reverse course on a trust’s status as a “GST trust” under §2632(c)(3)(B) for future transfers, one must either terminate the GST trust election under Reg. §26.2631-1(b)(3)(iv), which will be applied prospectively and may result in GST exemption still being allocated under the automatic allocation rules, or make an entirely different GST election with respect to the trust (e.g., an election out of the automatic allocation rules). Either way, the final decision will ultimately affect the trust’s inclusion ratio, so proceed cautiously.

Plan for Post-GST Election Relief

If your team is one of the teams playing baseball this October and chasing a pennant, you likely have projected their path to the World Series after considering all the possibilities (get the Rolaids ready). Likewise, if you find yourself in the position where you are mapping out your options for requesting relief under §2642(g)(1), it will serve you well to keep these factors in mind: First, a successful prayer for relief on a prior inadvertent election out should request permission to allocate GST exemption to the prior transfer in trust instead of seeking to revoke that prior election out and replacing it with an election in. Second, if you are seeking relief from a prior election in made on a timely filed return, relying on the language contained in the preamble to the final regulations under Reg. §26.2642-7, it appears you have already struck out before entering the batter’s box. Instead, you might want to consider other options going forward and put that inadvertent election in behind you. Here’s hoping you hit your next request for relief right out of the park.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Steve Bonneau is Senior Vice President and Senior Tax Counsel at The Northern Trust Company, Chicago, Illinois. Steve is a Fellow in the American College of Trust and Estate Counsel (ACTEC). Steve is also a visiting member of the Adjunct Faculty at the Heckerling Graduate Program in Estate Planning at the University of Miami School of Law, where he teaches generation-skipping transfer tax to LLM students.

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