In a recent Revenue Procedure, the IRS has provided a permanently available simplified method for estates to obtain an extension of time to make the estate tax portability election. The simplified method is only available to estates that are not required to file an estate tax return based on the value of the gross estate and is effective June 9, 2017.
Background—portability election. In simple terms, portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use all of the deceased spouse’s federal exemption from estate taxes, then the amount of the exemption that was not used for the deceased spouse’s estate may be transferred to the surviving spouse’s exemption so that he or she can use the deceased spouse’s unused exemption plus his or her own exemption when the surviving spouse later dies. The IRS allows the estate of a decedent who is survived by a spouse to make a portability election, which allows the surviving spouse to apply the decedent’s unused exclusion amount to the surviving spouse’s own transfers during life and at death. The amount received by the surviving spouse is called the deceased spousal unused exclusion, (“DSUE”), amount.
The Internal Revenue Code (“IRC”) provides certain requirements that the executor of the estate of a deceased spouse must satisfy. In particular, the executor of the estate of the deceased spouse must elect portability of the DSUE amount on an Estate Tax Return, which must include a computation of the DSUE amount. Under the IRC, a portability election is effective only if made on an Estate Tax Return (“Form 706”) that is filed within the time prescribed by law for filing such return.
Accordingly, the due date of an estate tax return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained).
New permanent simplified method. IRS has provided a permanently available simplified method for estates to obtain an additional extension of time to make the estate tax portability election. The simplified method is only available to estates that are not required to file an estate tax return based on the value of the gross estate and is effective June 9, 2017.
A taxpayer who meets the requirements listed below will be deemed to meet the requirements for relief to extend the time to elect portability under the IRC. Accordingly, for purposes of electing portability, the taxpayer’s Form 706 will be considered to have been timely filed.
In order to qualify for the automatic extension, the following requirements must be met:
- The taxpayer is the executor of the estate of a decedent who:
- Has a surviving spouse;
- Died after Dec. 31, 2010; and
- Was a citizen or resident of the U.S. on the date of death;
- The taxpayer is not required to file an estate tax return under the IRC (as determined based on the value of the gross estate and adjusted taxable gifts, without regard to the need to file for portability purposes);
- The taxpayer did not file an estate tax return within the time prescribed for filing an estate tax return required to elect portability;
- The executor must file a complete and properly-prepared Form 706 on or before the later of Jan. 2, 2018, or the second annual anniversary of the decedent’s date of death; and
- The executor filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER Code Sec. 2010(c)(5)(A)”.
IRS notes that making the simplified method of Rev Proc 2017-34 available for all eligible estates through Jan. 2, 2018 provides additional relief to the estates of decedents with a date of death in the first years after the enactment of the portability election provisions because the executors of those estates and their advisors may not have been aware of the opportunity and need to file an estate tax return to elect portability. Making the simplified method of this revenue procedure available after Jan. 2, 2018, to estates during the 2-year period immediately following the decedent’s date of death should not unduly compromise the ability of the taxpayer or IRS to compute and verify the DSUE amount because the necessary records are likely to be available during that period.
Effect of new automatic extension on letter ruling requests. Through the later of Jan. 2, 2018, or the second anniversary of a decedent’s date of death, the exclusive procedure for obtaining an extension of time to make a portability election for the estate of a decedent, if the decedent and executor meet the requirements (1)-(3) above, is the procedure described in requirements (4) and (5) above.
If an executor of such an estate has filed a request for a letter ruling seeking an extension of time to make a portability election under a private letter ruling, and that letter ruling is pending in the IRS National Office on June 9, 2017, IRS will close its file on the ruling request and refund the user fee, and the estate may obtain the relief granted by this revenue procedure only by complying with requirements (4) and (5) above.