IRS Extends Portability Election to Five Years
The IRS issued a revenue procedure (Rev. Proc. 2022-32) Friday that allows estates to elect “portability” of a deceased spouse unused exclusion (DSUE) amount as much as five years after the decedent’s date of death.
Estates of decedents dying after Dec. 31, 2010, who are survived by a spouse, if not required to file an estate tax return, may do so under Sec. 2010(c)(5)(A) for the sole purpose of passing on the decedent spouse’s DSUE to the surviving spouse, who may add it to his or her own basic exclusion amount under Sec. 2010(c)(2)(B) in calculating an applicable credit amount. 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).
In Rev. Proc. 2017-34, the IRS provided a simplified method for obtaining an extension of time under Regs. Sec. 301.9100-3 to make a portability election under Sec. 2010(c)(5)(A) if that estate was not required by Sec. 6018(a) to file an estate tax return. Under Rev. Proc. 2017-34 this method was available for 2 years after the decedent’s date of death.
Why the Change?
Previously, the IRS stated in Rev. Proc. 2022-32 that though the IRS provided the two-year relief period, the IRS continued to face problems pertaining to letter rulings and estates that failed to meet deadlines, creating resource issues within the IRS. A “significant percentage” of these requests came before the fifth anniversary of the decedent’s date of death, however.
To decrease the amount of letter rulings, the IRS has extended the portability election period to five years.
How to Claim the New Portability Election
Under the simplified method in Rev. Proc. 2022-32, the executor makes the portability election by filing on behalf of the estate a complete and properly prepared (in accordance with Regs. Sec. 20.2010-2(a)(7)) Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on or before the fifth anniversary of the decedent’s date of death. The executor must state at the top of the Form 706 that it is “filed pursuant to Rev. Proc. 2022-32 to elect portability under Sec. 2010(c)(5)(A).”
Eligibility for New Portability Election
To be eligible to use the simplified method, individuals need to meet the requirements below:
- There must have not been a § 6018 estate tax filing requirement. As set forth in §20.2010-2(a)(1), an extension of time to elect portability under § 301.9100-3, including through the simplified method of this revenue procedure, is not available to an estate that is required to file an estate tax return under § 6018(a) (as determined based on the value of the gross estate and adjusted taxable gifts) because, in that case, the due date of the election is prescribed by statute and not by regulation.
- The decedent must have been a citizen or resident of the United States on the date of death and the executor must not have been otherwise required to file an estate tax return under Sec. 6018(a), as determined based on the value of the gross estate and any adjusted taxable gifts. The executor also must not have timely filed the estate tax return within nine months after the decedent’s date of death or extended filing deadline.
Estate Required to File a 706, This Procedure Becomes Null & Void
As stated on page 6 of the 11-page PDF the IRS produced, if subsequent to the grant of relief pursuant to this revenue procedure, it is determined that, based on the value of the gross estate and taking into account any taxable gifts, the executor was required to file an estate tax return under § 6018(a), the grant of an extension as provided in section 4.02 of this revenue procedure is deemed null and void ab initio.
Examples for Protective Claims & Refunds
The Rev. Proc. 2022-32 also provides three examples for protective claims and refunds:
Example 1
- (a) Predeceasing Spouse (S1) dies on January 1, 2018, survived by Surviving Spouse (S2). The assets includible in S1’s gross estate consist of cash on deposit in bank accounts held jointly with S2 with rights of survivorship in the amount of $4,500,000. S1 made no taxable gifts during life. S1’s executor is not required to file an estate tax return under § 6018(a) and does not file such a return.
- (b) S2 dies on January 29, 2021. S2’s taxable estate is $17,000,000 and S2 made no taxable gifts during life. S2’s executor files a Form 706 on behalf of S2’s estate on October 29, 2021, claiming an applicable exclusion amount of $11,700,000. S2’s executor includes payment of the estate tax with Form 706.
- (c) Pursuant to this revenue procedure, S1’s executor files a complete and properly prepared Form 706 on behalf of S1’s estate on December 1, 2022, reporting a DSUE amount of $11,180,000. The executor includes at the top of Form 706 the statement required by section 4.01(2) of this revenue procedure. The filing of the return satisfies the requirements for a grant of relief under this revenue procedure and S1’s estate is deemed to have made a valid portability election. The IRS accepts the return of S1’s estate with no changes.
- (d) To recover the estate tax paid, S2’s executor must file a claim for credit or refund of tax by October 29, 2024 (the end of the period of limitations prescribed in § 6511(a)), even though a Form 706 to elect portability was not filed on behalf of S1’s estate at the time S2’s estate filed its Form 706. Such a claim filed on Form 843, Claim for Refund and Request for Abatement, in anticipation of the filing of the Form 706 by S1’s executor will be considered a protective claim for credit or refund of tax. Accordingly, as long as the Form 843 is filed on or before October 29, 2024, the IRS 9 can consider and process that claim for credit or refund of tax once S1’s estate is deemed to have made a valid portability election and S2’s estate notifies the IRS that the claim for credit or refund is ready for considerations
Example 2
- (a) The facts relating to S1 and S1’s estate are the same as in Example 1. S2 makes a gift to Child of $13,000,000 on December 1, 2020. S2 has made no prior taxable gifts. On April 15, 2021, S2’s executor files a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, claiming an applicable exclusion amount of $11,580,000. S2’s executor tenders payment of the gift tax with the Form 709.
- (b) To recover the gift tax paid, S2’s executor must file a claim for credit or refund of tax (protective or otherwise) within the time prescribed in § 6511(a) for filing a claim for credit or refund; in this case, April 15, 2024.
Example 3
- a) The facts are the same as in Example 2 except that S2’s Form 709 claims an applicable exclusion amount of $22,760,000, including a DSUE amount of $11,180,000 from S1’s estate. As a result, the Form 709 reports no tax due and S2’s executor tenders no gift tax.
- (b) Although the portability election, once made, makes S1’s DSUE amount available to S2 retroactively to S1’s date of death, that DSUE amount is not available until the election is made. Because S2’s executor files the Form 709 before S1’s estate makes the portability election, the claimed application of the DSUE amount will be denied and gift tax on the transfer will be assessed. S2’s executor pays the gift tax assessed. To recover that gift tax once the portability election has been made by S1’s 10 estate, S2’s executor must file a claim for credit or refund of tax (protective or otherwise) within the time prescribed in § 6511(a) for filing a claim for credit or refund.
Please contact Ryan & Wetmore with any questions you may have regarding your estate and election claims.
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