IRS Extends Deadline to File Estate Tax Returns for Portability

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On July 8, 2022, the IRS issued Revenue Procedure 2022-32, which provides a simplified method for taxpayers to obtain an extension of time to make a portability election of a deceased spouse’s unused exclusion amount (“DSUE”) up to five years after such deceased spouse’s date of death. 

Background

Under Section 2010(c)(5)(A) of the Internal Revenue Code (the “Code”), the estate of a decedent who died survived by a spouse after December 31, 2010, which is not otherwise required to file a Form 706 United States (and Generation-Skipping Transfer) Tax Return, may make a “portability” election, allowing such decedent’s federal estate and gift tax DSUE amount to be transferred or “ported” to their surviving spouse.

This has the effect of increasing such surviving spouse’s federal estate and gift tax exclusion amount by the DSUE amount, thereby permitting such surviving spouse to make tax free gifts or transfers during their life and/or at death up to the amount of their own unused exclusion amount plus the DSUE amount.

New Rule

Under prior Revenue Procedure 2017-34, estates of decedents with a surviving spouse not required to file a federal estate tax return had up to two (2) years after the decedent’s date of death to file a Form 706 to elect portability. 

Revenue Procedure 2022-32 supersedes that prior Revenue Procedure and now affords such estates five (5) years from date of death to make such an election.

The simplified method to obtain an extension to make a portability election afforded by Revenue Procedure 2022-32 only applies to estates not otherwise required to file a Form 706.  Estates subject to federal estate tax must continue to file Form 706 within nine months of the decedent’s date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained).  Additionally, the simplified method afforded by Revenue Procedure 2022-32 is not available to the estate of a decedent whose personal representative filed a Form 706 within the nine month deadline but did not elect portability, even if such estate was not subject to federal estate tax.

A personal representative filing a Form 706 to elect portability after nine months but within five years of the decedent’s date of death must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)” in order to take advantage of the simplified extension procedure.

As under the prior Revenue Procedure, estates that fail to file a Form 706 to elect portability within the extended time afforded by Revenue Procedure 2022-32 may still seek an extension of time to make such election under Section 2010(c)(5)(A) of the Code by requesting a letter ruling from the IRS under the provisions of Section 301.9100-3 of the Estate Tax Regulations.  However, it is not guaranteed that an extension will be granted through this letter ruling process and it therefore remains incumbent upon personal representatives and their counsel to timely file the Form 706 to elect portability within five years of the decedent’s date of death.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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