Executors who discovered too late that they should have made a portability election have gotten a reprieve. 

Portability refers to the ability of a surviving spouse to inherit the unused federal estate tax exemption of the predeceasing spouse. In order to receive the benefit of portability, the predeceasing spouse’s executor must make a portability election on a timely-filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Form 706 is timely if filed within 9 months of date of death, or 15 months with an extension.

Form 706 is only required for estates in which the value of the gross estate exceeds the basic exclusion amount (i.e, the estate tax exemption) in effect at the time of death. In many cases, executors of smaller estates failed to file Form 706. As a result, they lost the ability to make the portability election. If they later determined that they needed portability, their only recourse was to request an expensive letter ruling under Treas. Reg. § 301.9100-3. Until now.

On June 26, 2017, the IRS issued a revenue procedure that provides a simplified method for certain taxpayers to obtain an extension of time to make a portability election. No letter ruling is required, and there is no user fee.

In order to qualify for the simplified method of relief, the following conditions must be satisfied:

  • The decedent died after December 31, 2010;
  • He or she was was survived by a spouse;
  • The decedent was a citizen or resident of the United States on the date of death;
  • The decedent’s executor did not timely file Form 706;
  • A Form 706 was not required, except for the purpose of making the portability election; and
  • The decedent’s executor files a complete and properly prepared Form 706 by the deadline set forth in the revenue procedure.

Form 706 must be filed on or before the later of:

  • January 2, 2018, or
  • The second annual anniversary of the decedent’s date of death

Taxpayers who miss the extended deadline or otherwise fail to comply with the conditions of the revenue procedure can still request a letter ruling.

Note that if a taxpayer takes advantage of the simplified method and is later to determined to be ineligible because the gross estate exceeded the estate tax exemption, the extension will be null and void.

Because of ignorance of the tax law, underestimating estate values, bad advice, and cost concerns, many executors of “small” estates (i.e., those under $5.0 million) neglected to file a Form 706. For those who later realized that the surviving spouse’s estate will likely exceed the estate tax exemption, the revenue procedure is a much-needed second chance. However, executors must act now.

Source: Rev. Proc. 2017-34

Posted by Joel D. Roettger, JD, LLM, EPLS