Mr. Donald Korb and Mr. William O’Shea

June 26, 2007

Page 1 of 3

June 26, 2007

Mr. Donald Korb

Chief Counsel

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, D.C. 20224

Fax: (202) 622-4277

Mr. William P. O’Shea

Associate Chief Counsel for Passthroughs and Special Industries

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, D.C. 20224

Fax: (202) 622 – 4524

RE: AICPA Request forGuidance on the Allocation of GST Exemption to a Trust at the End of the Estate Tax Inclusion Period (ETIP) or Electing Out of the Automatic Allocation Rules at the End of the ETIP

Dear Mr. Korb and Mr. O’Shea:

The American Institute of Certified Public Accountants (AICPA) is submitting this letter to suggest that guidance be issued by the Internal Revenue Service (IRS) onthe allocation of generation-skipping transfer (GST) exemption toa trust at the end of the estate tax inclusion period (ETIP) or electing out of the automatic allocation rules at the end of the ETIP. It is also suggested that these issues be considered for acceptance in the pilot program announced in Notice 2007-17, 2007-12 I.R.B. 748, to obtain input from the public on the initial development of the project.

The AICPA is the national professional organization of certified public accountants comprised of approximately 330,000 members. Our members advise clients on federal, state and international tax matters, and prepare income and other tax returns for millions of Americans. Our members provide services to individuals, not-for-profit organizations, small and medium-sized business, as well as America’s largest businesses.

The issues presented here are best illustrated by considering the following fact pattern:

Taxpayer creates an irrevocable trust, Trust Z, in which a qualified annuity interest (as defined in section 2702(b)) is payable to the taxpayer or his estate for 10 years. Upon the termination of the annuity interest, Trust Z is to be separated into two trusts, Trust A and Trust B. Trust A is for the exclusive benefit of Taxpayer's children and grandchildren. Trust B is for the exclusive benefit of Taxpayer's children. Trust A is to receive from Trust Z so much of the Trust Z's assets as is equal to Taxpayer's remaining GST exemption, if any. Trust B is to receive from Trust Z the balance of Trust Z's assets, if any, after funding Trust A. The taxpayer is alive at the end of the 10 years.

Presumably, the transfer to Trust Z is an indirect skip to which GST exemption will be automatically allocated at the end of the ETIP. Will the automatic allocation rules apply to all the assets remaining in Trust Z at that time? If so and if the taxpayer wants to allocate GST exemption only to the assets going to Trust A, the taxpayer should timely elect out of the automatic allocation rules of section 2632(c), and then affirmatively allocate GST exemption only to the assets going into Trust A at the end of the ETIP. Is that possible?

In the alternative, the automatic allocation rules may apply only to the transfer going into Trust A because Trust B is not by definition a GST trust. Because of the application of the ETIP rules, the transfer from the taxpayer for GST purposes would occur only at the time that the assets are funded into Trust A. If that is the case, then the taxpayer does not need to do anything affirmatively to ensure that GST exemption is allocated to Trust A and not Trust B as he or she desires.

It has been our experience that many trusts are structured in a manner similar to the above referenced fact pattern. By letter dated November 10, 2004, the AICPA submitted comments on the proposed regulations on electing out of deemed allocations of GST exemption under section 2632(c). In that letter, guidance was requested on these issues. The preamble to the final regulations (T.D. 9208) acknowledged this request for the inclusion in the regulations of an example addressing the application of the automatic allocation rules for indirect skips in a situation in which a trust subject to an ETIP terminates upon the expiration of the ETIP, at which time the trust assets are distributed to other trusts that may be GST trusts. According to the preamble, the Treasury Department and the Internal Revenue Service believed that this issue was outside the scope of the regulation project and would consider whether to address these issues in separate guidance.

The AICPA’s Trust, Estate, and Gift Tax Technical Resource Panel again requests guidance on these issues. In addition, some guidance would be helpful to address other practical questions that have arisen about the mechanics of electing out of the automatic allocation rules,even if in the form of adding instructions to the Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. For example, should the election state the name and EIN number of the ETIP trust or the trust(s) to which the assets will be transferred at the termination of the ETIP?

* * * * *

We thank you for the opportunity to present our suggestion and welcome the opportunity to discuss our comments further with you or others at the IRS. Please feel free to contact me at (212) 773-2858 or ; or Steven A. Thorne, Chair of the AICPA Trust, Estate, and Gift Tax Technical Resource Panel, at (312) 486-9847 or ; or Eileen R. Sherr, AICPA Technical Manager, at (202) 434-9256 or ; to discuss the above suggestion or if you require any additional information.

Sincerely,

Jeffrey R. Hoops

Chair, AICPA Tax Executive Committee

cc: Mr. Eric Solomon, Assistant Secretary for Tax Policy, Treasury Department (Fax: (202) 622-0605)

Ms. Catherine Hughes, Attorney Advisor, Treasury Department (Fax (202) 622-9260)

Mr. George Masnik, IRS Branch Chief, Branch Chief, Passthroughs and Special Industries (Fax: (202) 622-4451)

Mr. James F. Hogan, IRS Attorney – Senior Technical Reviewer, Passthroughs and Special Industries (Fax: (202) 622 -4451)