We have encountered a few situations where clients believe to have missed their opportunity to take advantage of the surviving spouse’s “portability” election to transfer a deceased spouse’s unused estate tax exclusion to the surviving spouse. The IRS is simplifying the process to remedy the situation. Note that this development can be especially advantageous to surviving same-sex spouses whose marriages were not recognized for federal tax purposes until the Supreme Court’s recent decision in United States v. Windsor.
Simplified method offered for requesting extended time to make portability electionBY ALISTAIR M. NEVIUS, J.D.JANUARY 27, 2014The IRS on Monday offered certain executors a simplified way to request an extension of time to make the “portability” election to transfer a deceased spouse’s unused estate tax exclusion to the surviving spouse (Rev. Proc. 2014-18). Executors of estates of spouses who died in 2011, 2012, or 2013 and that did not timely file an estate tax return to make the portability election will have until Dec. 31, 2014, to make the election on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, rather than having to go through the process of making a letter ruling request to get an extension of time to make the election.Temporary regulations issued in 2012 require executors to file Form 706 to make the election to transfer the deceased spousal unused exclusion (DSUE) to the surviving spouse. To make the election, executors must file Form 706, computing the DSUE amount, even if the estate would not otherwise be required to file an estate tax return. Unfortunately, because they are not otherwise required to file Form 706, some executors have failed to make the election.And while the due date for filing Form 706 is prescribed by statute for estates that are required to file an estate tax return, the requirement to file Form 706 just to make the election is prescribed by the regulations, not by statute, so it is the IRS’s position that executors may seek an extension of time under Regs. Sec. 301.9100-3 to elect portability. This so-called Sec. 9100 relief will be granted if the taxpayer establishes to the IRS’s satisfaction that the taxpayer acted reasonably and in good faith and that granting relief will not prejudice the government’s interests.Until now, the IRS has been granting such relief in private letter rulings, but with Monday’s revenue procedure it is providing a simplified method for taxpayers who meet certain requirements.The simplified method applies to the executor of the estate of a decedent who died after Dec. 31, 2010, and on or before Dec. 31, 2013, who has a surviving spouse, and who is a U.S. citizen or resident of the United States on the date of death. The estate must not be required to file an estate tax return under Sec. 6018(a), and the executor must not have filed an estate tax return during the time period required to elect portability.To qualify for relief under the revenue procedure, the executor must file a complete and properly prepared Form 706 for the estate on or before Dec. 31, 2014, and must write “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)” at the top.If the executor meets these requirements, he or she will be deemed to have satisfied the conditions for relief under Regs. Sec. 301.9100-3, and relief will automatically be granted to extend the time to elect portability.The simplified method does not apply to estates that timely filed an estate tax return under the temporary regulations to elect portability.Executors of estates that do not meet the requirements of the revenue procedure, including those that died after Dec. 31, 2013, may request an extension by making a letter ruling request under Regs. Sec. 301.9100-3.Claims for credit or refund by surviving spouseIf a surviving spouse wants to obtain a credit or refund of a tax overpayment as a result of a portability election made under Monday’s revenue procedure, the surviving spouse must file a claim for credit or refund before the expiration of the Sec. 6511(a) limitation period (generally, three years from the date a return was filed or two years from the day of tax payment, whichever expires later).
Pending letter ruling requests
Executors with letter ruling requests pending on Jan. 27, 2014, seeking an extension of time to make the portability election, may, if the estate is within the scope of the revenue procedure, withdraw the letter ruling request and receive a refund of the user fee it paid. Such withdrawals must be made by the earlier of March 10, 2014, or the date the letter ruling is issued.
Effect of the Windsor decision
The IRS notes that some decedents who died during the 2011–2013 period may have been spouses in same-sex marriages, whose marriages were not recognized for federal tax purposes until the Supreme Court’s decision in Windsor, 133 S. Ct. 2675 (U.S. 2013), and subsequent IRS guidance in Rev. Rul. 2013-17. Executors of the estates of such decedents would not have been eligible to make the portability election and may have therefore missed the Form 706 filing deadline. They may now be eligible under Monday’s revenue procedure to make the election and get Sec. 9100 relief.
—Alistair M. Nevius (firstname.lastname@example.org) is the JofA’s editor-in-chief, tax.