IRS Simplifies Procedures To Extend Time To
Make Estate Tax Portability Election

Background

Portability allows a surviving spouse (including same-sex married spouses) to apply the decedent spouse’s unused estate tax exclusion amount ($5,250,000 for 2013) to the calculation of estate and gift tax owed by the surviving spouse during life or at death.

Portability applies to estates of decedents dying after December 31, 2010, if survived by a spouse, and before January 1, 2013. The American Taxpayer Relief Act of 2012 made portability permanent for estates of decedents dying after December 31, 2012.

In order to elect portability, the executor of the estate of the deceased spouse must make the election on a timely filed US Estate tax return, Form 706. The due date of an estate tax return required to elect portability is nine months after the date of the decedent’s death or the last day of the period covered by an extension. For estates below the threshold for filing (assets whose value was less than $5,250,000 in 2013), the only reason to file a return is to make the portability election. Obviously, there have been numerous cases where returns were not filed and elections not made, causing the loss of the opportunity to retain the decedent’s spouse’s unused exclusion. While there were relief provisions, they were not practical due to vast paperwork and cost.

IRS Relief

The IRS thus issued guidance providing a simplified procedure for taxpayers to obtain an extension of time to elect portability.

The IRS has now granted relief for decedents who died in 2011, 2012, and 2013. To obtain relief, the estate must file a complete and properly prepared Form 706 on or before December 31, 2014. The Form 706 will be deemed timely filed and the IRS will provide an estate tax closing letter acknowledging receipt of Form 706.