A recent Tax Court decision highlights a mistake we continue to see far too often: assuming estate tax filings can be handled later, fixed retroactively, or cleaned up with a request to the IRS.
They often cannot.
In Estate of Rowland v. Commissioner,[1] the Tax Court held that a surviving spouse's estate permanently lost the ability to use the deceased spouse's unused federal estate tax exemption because the first spouse's estate failed to file a timely and properly prepared estate tax return.
The case is a powerful reminder that deadlines at the first death matter, even when no tax appears due at the time.
What Happened in Rowland
When the first spouse died, her estate was below the federal estate tax filing threshold, then $5,450,000. No tax was due. Like many families, the executor believed there was no urgency.
The executor later attempted to file an estate tax return (Form 706) solely to preserve portability, which is the ability of the surviving spouse to use the deceased spouse's unused estate tax exemption (often worth millions of dollars).
But there were two fatal problems:
- The return was filed after the applicable deadline, even though extensions and safe-harbor rules were believed to apply.
- The return was not "complete and properly prepared," because it relied on estimates and failed to include required valuation detail.
Years later, after the surviving spouse died, the IRS disallowed the portability election when claimed on the surviving spouse's estate tax return. The Tax Court agreed.
The result: the unused exemption was lost forever, increasing estate tax due at the second death.
The Key Lesson: Filing "Something" Is Not Enough
The Rowland decision makes clear that:
- Portability is not automatic
- Late filings are dangerous, even when the IRS accepts the return initially
- A return filed only to elect portability must still be timely, complete, and defensible
- Errors may not surface until years later, when they can no longer be corrected
In other words, good intentions and informal compliance do not protect against hard deadlines.
Why This Matters Even More Than It Appears
Many families assume that because assets may pass outright to the surviving spouse, probate is avoided or informal, and no estate tax is immediately due, that there is nothing urgent to do at the first death.
Rowland proves the opposite.
The first spouse's death is often the only opportunity to preserve federal portability, fund or disclaim into credit shelter or state exemption trusts, and lock in tax benefits that cannot be recreated later.
Once the filing window closes, the opportunity may be gone permanently.
State Estate Taxes Make the Risk Even Greater
While Rowland involved federal portability, the risk is often even higher at the state level.
Many states impose their own estate tax and do not allow portability of the state exemption. In those states, failure to act at the first death, by timely funding or disclaiming into a state exemption trust, can permanently waste the first spouse's state exemption, even if federal estate tax is never an issue.
Bottom Line
The Rowland case is not about aggressive tax planning or technical gamesmanship. It is about delay, informality, and the assumption that things can be fixed later.
They often cannot.
If a spouse has passed away, or if you serve as executor, trustee, or advisor, the safest course is to engage advisors early, calendar deadlines, and ensure that any required filings are timely and properly prepared.
The cost of doing so is almost always far less than the cost of discovering, years later, that a valuable tax benefit has been lost forever.
[1] Estate of Rowland v. Commissioner, T.C. Memo. 2025-76 (2025).
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