United States

New simplified method to obtain an extension to elect portability

Simplified method limits need for 9100 relief requests

TAX ALERT  | 

On June 9, 2017, the IRS issued Rev. Proc. 2017-34 to simplify the method to obtain an extension of time to elect portability under section 2010(c)(5)(A). The simplified method is available for the estates of decedents that have no filing requirement under section 6018(a), and can be used before Jan. 2, 2018, or the second anniversary of the decedent’s date of death, whichever is later. The IRS issued the revenue procedure in response to the large number of  Reg. section 301.9100-3 relief requests for late Form 706 filings with the sole purpose of electing portability.

Beginning in 2011, a decedent spouse’s unused exclusion amount (DSUE) was available for use by the surviving spouse. As a result, the surviving spouse was able to increase his or her exclusion amount by the unused portion of the deceased spouse’s exclusion. This ‘portability’ of the unused exemption made it possible for the spouses to avoid paying estate tax on combined gross estates of up to $10,980,000 (2017 exclusion amount of $5,490,000 doubled). For the election to be effective, it must be made on a timely filed Form 706. Unfortunately, many executors failed to timely file the Form 706 when the sole purpose of that filing was to make a portability election.

Since the expiration of the availability of a simplified method after 2014 under Rev. Proc. 2014-18, the IRS expended considerable resources issuing letter rulings under Reg. section 301.9100-3 for situations in which  decedents’ estates failed to make the election and were not required by section 6018(a) to file an estate tax return. In an effort to ease the burden on both itself and taxpayers, the IRS issued Rev. Proc. 2017-34.

Eligibility

The simplified method for the portability election outlined in the revenue procedure is available to all eligible estates through Jan. 2, 2018, or the second anniversary of the decedent’s date of death, whichever is later. After that time, the relief is still available by requesting a letter ruling per Reg. section 301.9100-3 and Rev. Proc. 2017-1, 2017-1 I.R.B.1.

An estate is eligible for the simplified relief where the decedent died after Dec. 31, 2010, was survived by a spouse, and was a citizen or resident of the United States on the date of death. Additionally, the simplified relief is only available in those cases where an executor is not required to file an estate tax return based on the value of the gross estate and adjusted taxable gifts, but for the need to make a portability election, and did not in fact file an estate tax return within the time required by section 20.2010-2(a)(1) for filing an estate tax return. The executor must also satisfy all requirements of section 4.01 of the revenue procedure.

Method for making the election

To make the portability election using the simplified method, the executor must:

  1. File a complete and properly prepared Form 706 on or before the later of Jan. 2, 2018, or the second anniversary of the decedent’s date of death
  2. The executor filing the Form 706 on behalf of the decedent’s estate must state at the top of the form that the return is FILED PURSANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A).

Conclusion

The IRS’s issuance of this revenue procedure makes it considerably easier and less expensive for an estate to make the portability election after failing to timely file the Form 706. The previous requirement for requesting a letter ruling was costly in terms of the user fees, which started at a reduced user fee of $2,400 for certain taxpayers and could be as high as $10,000 for those taxpayers who do not qualify for a reduced fee. The time needed to prepare a letter ruling under Reg. section 301.9100-3 was significant and there was still uncertainty as to whether the IRS would grant such relief. The new procedure to extend the time to make a late portability election takes less time and relief appears automatic, so long as the estate is eligible.

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