New Extension of Time for Portability Election

Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused estate tax exclusion to the surviving spouse. The surviving spouse can then use that amount along with his or her own exclusion amount against any tax liability from lifetime gifts and estate taxes.

Example: Wanda died in January 2013. Her total assets were $1 million. Wanda’s executor filed Form 706 electing to transfer her unused exclusion of $4.25 million ($5.25 million minus $1 million) to her surviving spouse, Ralph. Assume Ralph dies later in 2013. His estate exclusion amount for 2013 is $9.5 million ($5.25 million plus $4.25 million).

Election. To make the portability election, the executor must file an estate tax return (Form 706) within nine months of the decedent’s date of death, unless an extension of time for filing has been granted. This applies regardless of the size of the gross estate and regardless of whether the predeceased spouse otherwise is required to file an estate tax return. If no estate return is filed, the portability election is treated as not being made.

New simplified method for extension of time to make portability elections. Revenue Procedure 2014-18 provides a new simplified method for certain taxpayers to obtain an extension of time to make a portability election. The relief in part was issued to help taxpayers affected by the Supreme Court decision in Windsor and subsequent IRS guidance in Revenue Ruling 2013-17 in which same-sex couples legally married under state law are now treated as married for federal tax purposes. The simplified method applies only if:

1)  The taxpayer is the executor of the estate of a decedent who:

a)  Has a surviving spouse,

b)  Died after December 31, 2010 and on or before

December 31, 2013, and

c)   Was a citizen or resident of the U.S. on the date of death.

2)  The taxpayer is not otherwise required to file an estate tax return because the deceased spouse had a gross estate below the filing requirements,

3)  The taxpayer did not file an estate tax return within the time period required for making a portability election, and

4)  The taxpayer follows the procedural requirements for relief under Revenue Procedure 2014-18.

Procedural requirements. If the above requirements are met, the executor can make the portability election by filing Form 706 on or before December 31, 2014. Write on the top of Form 706: “This return is filed pursuant to Rev. Proc. 2014-18 to elect portability under §2010(c)(5)(A).”

By following this procedure, the taxpayer is deemed to have met the filing deadline requirements for making a portability election. The taxpayer will receive an estate tax closing letter from the IRS acknowledging receipt of the taxpayer’s Form 706. If it is later determined that the taxpayer was required to file an estate tax return for the decedent, based upon a re-evaluation of the decedent’s gross estate and taxable gifts, the relief provided under Revenue Procedure 2014-18 will be deemed null and void.

Example: Dave and Mike were legally married under the same-sex marriage laws of their state. Dave died in 2011 at a time when federal estate tax laws did not recognize their marriage. Dave’s estate was valued below the filing requirement for filing Form 706 and so no estate return was filed (and thus no portability election was made). Under the new IRS guidance, Dave’s executor has until December 31, 2014 to file Form 706 on behalf of Dave to make the portability election which passes Dave’s unused estate tax exclusion amount over to Mike.

Cross References

•    Rev. Proc. 2014-18

•    IRC §2010(c)