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GST: Predeceased Parent Rule and Deemed Allocation Prop. Regs.

The AICPA's Trust, Estate and Gift Tax Technical Resource Panel submitted comments to the IRS on the proposed regulations on the predeceased parent rule. That rule provides an exception to the generation-skipping transfer (GST) tax generation assignment rules that assign a higher generation to transferees when the transferee's parent is deceased.

The comments state that (1) Prop. Kegs. Sec. 26.2651-1 (b) exceeds statutory authority; (2) Example 6 in Prop. Regs. Sec. 26.26511 (c) should be clarified; and (3) the final version of Prop. Kegs. Sec. 26.2651-203) should clarify that the definition of "legal adoption" therein applies only to Sec. 2651(f)(1).

Deemed allocations: Sec. 2632(c) proposed regulations offer guidance on electing out of GST deemed allocations. The proposed regulations provide guidance for electing under Sec. 2632(c)(5)(A)(i) not to have the deemed allocation of unused GST exemption under Sec. 2632(c)(1) apply to certain transfers to a GST trust. The proposed rules also provide guidance for electing under Sec. 2632(c)(5)(A)(ii) to treat a trust as a GST trust.

The AICPA recommends removing the language "(including an automatic allocation to a direct skip, but not an indirect skip)" from the final version of Regs. Sec. 26.2632-1 (c)(1), to eliminate any confusion about the deemed allocation of a GST exemption to direct and indirect skips.

The AICPA also suggests expanding the last sentence of Prop. Kegs. Sec. 26.2632-1(b)(2)(i), to clarify its application; it recommends the following language:

The transferor may prevent the automatic allocation of GST exemption with regard to an indirect skip (including indirect skips to which section 2642(f) may apply), as provided in paragraphs (b)(2)(ii) and (iii) of this section.

Finally, it suggests including examples in the final regulations that show how the deemed allocation rules for indirect skips apply when trusts subject to an estate tax inclusion period (ETIP) terminate on the expiration of an ETIP and distribute assets to other trusts that may be GST trusts.

The full text of both AICPA comment letters is available at ResourceCenters/Tax/Estate%2c+Gift%2 c+Trust%2c+ Fiduciary/default.htm.
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Title Annotation:AICPA Activities
Author:Laffie, Lesli S.
Publication:The Tax Adviser
Date:Feb 1, 2005
Previous Article:Clarification.
Next Article:FASB proposed guidance on the AJCA.

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