The IRS recently issued guidance that allows certain estates to make a late portability election if they did not make a timely election. (Rev. Proc. 2017-34). For the purposes of Federal estate (and gift) tax purposes, a portability election allows a decedent’s unused exclusion amount (Deceased Spousal Unused Exclusion (DSUE) amount) to be available for the surviving spouse’s subsequent transfers at death or during lifetime on gifts.
The portability election applies to the estates of decedent’s dying after December 31, 2010, if such decedent is survived by a spouse. Under §2010(c)(5)(A), a portability election is only effective if made on a timely filed estate tax return including extensions.
The IRS has previously provided a simplified method for obtaining an extension of time to make a portability election if the estate was not required to file an estate return (generally under the $5M gross estate filing threshold) and the decedent was survived by a spouse. However, this method was only available on or before December 31, 2014. Since then, the only way to file for a late portability election has been to submit a ruling request under Regs. Sec. 301.9100.3. Such ruling requests are very expensive and time consuming for taxpayers; and, the IRS has been overwhelmed with requests.
To provide further relief for taxpayers and to reduce the burden on the IRS, Rev. Proc. 2017-34 provides another simplified method to obtain an extension to make the portability election no later than January 2, 2018, or the second anniversary of the decedent’s death. A ruling request is no longer required and there is no user fee for submissions for relief under this procedure. Estates that are otherwise required to file an estate tax return (gross estates over the filing threshold) are not eligible for this relief.
A taxpayer seeking relief after January 2, 2018, or the second anniversary of the decedent’s death will have to request a letter ruling in accordance with the requirements of §301.9100-3 and Rev. Proc 2017-1 (or any successor).
To qualify for the simplified late election, the executor must file a complete and properly prepared Form 706, United States Estate Tax Return, on or before the later of January 2, 2018, or the second anniversary of the decedent’s date of death. Also, the executor must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).”
For questions or assistance with your individual tax situation, please contact Emily Nathlich at ENathlich@aronsonllc.com, Michael Yuen at MYuen@aronsonllc.com; or, Richard Lee at RLee@aronsonllc.com.