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06.20.2017 Estate Administration Update: A Simplified Procedure for the Portability Election By: Mary Rennie Rowe “M.R.” Litman

Recently, the IRS issued Revenue Procedure 2017-34 (the “Revenue Procedure”), providing a simplified process for certain estates requiring an extension of time to make a portability election under § 2010(c)(5)(A) of the Internal Revenue Code (the “Code”).  For purposes of Federal estate and gift taxes, a portability election allows a decedent’s unused exclusion amount (deceased spousal unused exclusion amount, referred to as a “DSUE” amount) to become available for application to the surviving spouse’s transfers during life or at death.  The exclusion amount is $5 million per person (as indexed for inflation); in 2017 it is $5.49 million.  The simplified method outlined in the Revenue Procedure is an alternative to the private letter ruling process and does not require the payment of a substantial user fee. 

Reason for Simplified Method

Previously, the IRS offered a simplified procedure for personal representatives to obtain extensions to elect portability for estates that did not fall under the requirements of § 6018(a) of the Code.  Unfortunately, that method was only available until December 31, 2014.  Since then, the IRS has issued many letter rulings granting extensions for portability elections where personal representatives do not file returns under § 6018(a) of the Code.  The number of requests that the IRS has received over the last couple of years indicated a need for continuing relief for such estates.  Because of the burden these requests placed on the IRS, the Service elected to continue relief for estates that have no filing requirement under § 6018(a) for a period the last day of which is the later of January 2, 2018 or the second anniversary of the decedent’s death.  The personal representative of an estate seeking relief after the second anniversary of the decedent’s death may request an extension through the traditional, but cumbersome and expensive, private letter ruling process.

Portability Election Requirements

Section 2010(c)(5)(A) of the Code provides certain requirements that a personal representative must satisfy to elect portability and make the decedent’s DSUE amount available to the surviving spouse.  Specifically, the personal representative must elect portability of the DSUE amount on a Federal estate tax return, which includes a calculation of the DSUE amount.  Pursuant to § 2010(c)(5)(A), a portability election is only effective if the personal representative files a properly prepared Federal estate tax return within the time period prescribed by law.

Section 20.2010-2(a)(1) of the Estate Tax Regulations provides that the due date for the Federal estate tax return is nine months after the decedent’s date of death or the last day of the period covered by an extension.  Section 20.2010-2(a)(1) also provides that the IRS will not grant an extension to elect portability under § 301.9100-3 of the Regulations for an estate required to file a return under § 6018(a) of the Code.  A personal representative must file a return under § 6018(a) if the value of the gross estate and adjusted taxable gifts are more than the estate tax exclusion amount for the year the decedent died.  However, an extension may be available to a personal representative of an estate not required to file a Federal estate tax return under § 6018(a).  The personal representative of such an estate may seek an extension of time pursuant to § 301.9100-3 of the Regulations to elect portability under § 2010(c)(5)(A) of the Code.

By timely filing a properly prepared Federal estate tax return, a personal representative of an estate of a decedent survived by a spouse elects portability of the decedent’s DSUE amount unless the personal representative chooses not to elect portability and satisfies the requirements set forth in § 20.2010-2(a)(3)(i) of the Estate Tax Regulations for the portability election not to apply.

Criteria for Application of Revenue Procedure

The simplified procedure set forth in the Revenue Procedure is available to estates that meet the criteria set forth in the Revenue Procedure.  First, the taxpayer must be the personal representative of the estate of a decedent who:  (1) had a surviving spouse, (2) died after December 31, 2010, and (3) was a U.S. citizen or resident at the time of his or her death.  Second, the personal representative of the estate must not have filed an estate tax return under § 6018(a) of the Code and must not have filed an estate tax return within the period prescribed by § 20.2010-2(a)(1) of the Regulations.  Third, the taxpayer must meet two procedural requirements.  The personal representative of the estate must file a properly prepared Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) on or before the later of January 2, 2018 or the second anniversary of the decedent’s date of death.  In addition, the personal representative must write at the top of the Form 706: “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”

If the estate meets the requirements set forth in the Revenue Procedure, the IRS will grant relief to extend the period to elect portability.  If the IRS grants relief and later determines that the personal representative of the estate was required to file a federal estate tax return based on the value of the gross estate, plus any adjusted taxable gifts, the extension of time is null and void.

If an estate does not qualify because it is not able to meet the procedural requirements of the Revenue Procedure, the personal representative may request an extension of time by requesting a letter ruling.

Effective Dates

The Revenue Procedure became effective June 9, 2017.  If a letter ruling request was pending on June 9, 2017 in the National Office and the estate falls within the scope of the Revenue Procedure, the Office of the Associate Chief Counsel will close the file on the ruling request and refund the user fee, and the estate may obtain relief as outlined in the Revenue Procedure.