The Internal Revenue Service recently significantly simplified the process for making a late portability election for an individual’s unused gift and estate tax exemption. The concept of portability of a person's unused gift and estate tax exemption became law on a temporary basis in 2010 and on a permanent basis in 2013. Portability allows the estate of a deceased spouse to transfer to his or her spouse, the decedent’s unused lifetime gift and estate tax exemption, therefore, allowing the surviving spouse to use the remaining exemption of his or her deceased spouse, in addition to his or her own exemption to shelter assets from estate and gift tax. For a more in-depth discussion of portability, please refer to our December 2015 blog article Portability of the Estate Tax Exemption: How it Happens.
One of the requirements for electing portability is that the estate of deceased spouse must timely file an estate tax return to make the election. An estate tax return is due nine months from the date of death, though you may obtain a six-month extension, and a return on extension will still count as a timely-filed return. If the deceased spouse’s estate fails to file an estate tax return within this time period, the estate loses the ability to elect portability. Before this recent change, the only option left to an estate that failed to file a timely return was to try to obtain an additional extension through a costly and time-consuming process (for both the taxpayer and the IRS) of obtaining a private letter ruling under Regs. Sec. 301.9100-3.
The IRS has received a considerable number of letter ruling requests dealing with portability. In part due to the number of requests, the IRS issued Revenue Procedure 2017-34, which now allows a longer period of time for the estate of a deceased spouse to file an estate tax return to elect for portability. Additionally, it allows a window of time for estates that failed to file in the past an opportunity to do so now.
The Revenue Procedure gives estates that would not otherwise have to file an estate tax return (for 2017 this would be estates with assets under $5,490,000), until the second anniversary of decedent’s date of death to file an estate tax return to elect for portability.
The Revenue Procedure also provides relief for estates of decedents who died after December 31, 2010 but before January 2, 2016, as these estates have until January 2, 2018 to file an estate tax return and elect portability. This is intended to allow estates that did not file an estate tax return to elect portability because the executor and/or the executor’s advisors were not aware that electing for portability was an option due to it being a relatively new tax concept a final chance to elect portability. Additionally, this may be useful for estates that did not file to elect portability because they were not sure if portability was going to become permanent.
If you have questions about portability or think you may want to file an estate tax return for a deceased spouse to elect portability, please call our office to schedule an appointment with Christine or me.