Tax Law Update: November 2026
• Self-dealing ruling for estate plans with charitable gifts of company stock to private foundation—In Private Letter Ruling 202625012 (June 18, 2026), a related group of taxpayers owned a majority of the stock of a company. The taxpayers, their estates, their revocable trusts and the trustees of those trusts were all disqualified persons with respect to a certain private foundation (PF).
The taxpayers’ estate plans all used a similar structure. Their revocable trusts provided for a charitable share, designated irrevocably for charitable organizations selected by the trustees. Based on the taxpayers’ assets, a significant portion of their company stock would be included in the charitable share. The trustee would have six months to determine which charitable organizations to benefit after the taxpayers’ deaths, including the PF.
Separately, each taxpayer had entered into an agreement giving the company the option to buy company stock from the taxpayer’s estate, revocable trust or marital trust at fair market value (FMV) as determined by appraisal.
The taxpayers sought confirmation from the Internal Revenue Service that the estate plans wouldn’t run afoul of the self-dealing rules and trigger any excise taxes. The IRS determined that, prior to the trustee’s irrevocable determination of the charities to receive the charitable share, the PF had no interest in the estate or revocable trust. The PF only had an interest if and when the trustee determined to distribute some portion of the charitable share to the PF. So, during the period prior to the trustee’s determination, the exercise of the options or any other transactions with the family or the company wouldn’t be considered a transaction between the disqualified persons and the PF because the PF had no clear interest.
However, once the trustee determines to direct assets to the PF, any transaction between the estates/revocable trusts and the company would be between the PF and a disqualified person. A transaction at this point would constitute self-dealing but for the estate administration exception. That exception in Treasury Regulations Section 53.4941(d)-1(b)(3) provides that transactions relating to property held in an estate or trust isn’t indirect self-dealing if: (1) it occurs during the period of estate administration prior to termination; (2) the administrator/executor/trustee has the power to sell the property and the sale is permitted under local law; (3) the estate or trust receives FMV of the foundation’s interest; and (4) the PF receives an interest at least as liquid as the one it gave up.
Further, Treas. Regs. Section 53.4941(d)-2(c)(1) generally provides that lending of money or other extension of credit between a PF and a disqualified person shall constitute an act of self-dealing. An act of self-dealing occurs when a note, the obligor of which is a disqualified person, is transferred by a third party to a PF that becomes the creditor under the note. So if the company issues a note to the trust in payment of the option and the note passes to the PF, the note between the company and the PF would be self-dealing. However, there’s an exception to the foregoing: If a note is transferred to the PF “in the case of the receipt and holding of a note pursuant to a transaction described in Treas. Reg. § 53.4941(d)-1(b)(3).”
Accordingly, the IRS ruled that the estate administration exception would apply to any exercise of the option or sale of company stock, including future payments under a note the company issued to purchase its stock. However, this exception for the note only applies if the note was received in a transaction that occurred during the administration of the estate described in Treas. Regs. Section 53.4941(d)-1(b)(3). For example, if the trust held a note from a family member prior to the taxpayer’s death and that note passed to the PF, the ongoing extension of credit and future note payments would be acts of self-dealing. But see PLRs 201407023 (Nov. 18, 2013) and 201723005 (June 9, 2017) for a potential workaround.
• Taxpayer requests to file amended returns to opt out of generation-skipping transfer (GST) tax allocation—In PLR 202633002 (Aug. 14, 2026), the taxpayer set up a series of grantor retained annuity trusts (GRATs) over many years, each with varying terms. Specifically, the taxpayer created a 2-, 3- and 4-year GRAT in Year 1, 2-year GRATs in Years 6 and 7 and a 2-year GRAT in Year 9. At the end of each term, the remainder, if any, was distributed to an irrevocable trust established by the taxpayer. There were multiple irrevocable trusts established to receive the GRAT remainders, but all were classified as GST trusts under Internal Revenue Code Section 2632 with potential distributions to a skip person.
The taxpayer wasn’t fully advised by the drafting lawyers, their family office or their accounting firm to file gift tax returns that opt out of the automatic GST tax allocation to a trust classified as a GST trust. Gift tax returns were filed for some, but not all years, and the returns that were filed didn’t opt out of the automatic GST tax exemption allocation.
The mistake was discovered on the taxpayer’s death, and the estate requested an extension of time to elect out of the automatic allocation of GST tax exemption for the funding of the GRATs.
Under the GST regulations, GST tax exemption is automatically allocated to all indirect skips. For a transfer that’s subject to inclusion in the taxpayer’s estate for a certain period (known as the “estate tax inclusion period” (ETIP)), the taxpayer may elect out of automatic allocation on or before the due date for a gift tax return relating to a transfer in the year in which the ETIP closes. For a GRAT, this means that the election out must be made on a gift tax return filed for the year in which the last annuity is paid.
Treas. Regs. Section 26.2642-7 sets forth the procedures for requesting an extension of time to allocate GST tax exemption and the standards used to determine whether relief may be granted. Treas. Regs. Section 26.2642-7(d)(1) provides that requests for relief will be granted when and to the extent that the transferor or the executor of the transferor’s estate provides evidence establishing to the satisfaction of the IRS that the transferor or the executor of the transferor’s estate acted reasonably and in good faith and that the grant of relief won’t prejudice the interests of the government.
Here, the IRS granted the taxpayer’s request for relief, finding that the estate had provided sufficient evidence that the taxpayer had acted in good faith and reasonably relied on their advisors.
The PLR didn’t explain some statements in the PLR about the ETIP period for each GRAT. As noted above, the taxpayer created a 2-, 3- and 4-year GRAT in Year 1, and the ruling said the ETIP for the 3- and 4-year GRATs ended when the GRATs ended. The 2-year GRAT terminated before Jan. 1, 2001, when the deemed GST tax allocation rule under IRC Section 2632(c) became effective, and the ruling didn’t mention when the ETIP ended because the automatic allocation rule wouldn’t apply.
However, the PLR said that the 2-year GRATs created in Years 6 and 7 weren’t subject to ETIP because, under Treas. Regs. Section 26.2632-1(c)(2)(ii)(A), the possibility that the assets would be included in the grantor’s estate was so remote as to be negligible (that is, a less than 5% probability). Why were the GRATs created in Years 6 and 7 not subject to ETIP, but the GRATs from Years 1 and 9 were subject to ETIP? The grantor was older in Year 9 than in Years 6 and 7, so perhaps the probability of death during the term of the Year 9 GRATs passed the 5% mark. And perhaps, way back in Year 1, the probability of death during a 3- or 4-year GRAT was more than 5%, but that’s hard to fathom if, six years later, the probability was less than 5% for a 2-year GRAT—a mystery.
