The IRS has recently released Revenue Procedure 2017-34 (effective 6/9/2017) to provide a permanent simplified method for estates to make an election to pass the Deceased Spouse’s Unused Exemption (DSUE) to the surviving spouse (aka the estate tax portability election).
IRC Section 2010(c)(5)(A) provides that for a DSUE election to be valid, the election must be made on a timely filed Form 706 (Estate Tax Return) for the deceased spouse, even if the estate for the deceased spouse does not meet the filing requirements. For a Form 706 to be considered timely filed, it must be filed within 9 months of the decedent’s death or the last day of the period covered by an extension (if an extension of time for filing has been obtained).
The IRS had previously issued Rev. Proc. 2014-18 which provided a simplified method for obtaining an extension of time to make a portability election for decedent’s that died after 12/31/2010, but this was only available for late elections made on or before 12/31/2014.
For late elections made after 12/31/2014, Regulation 301.9100-3 was the only way to request an extension of time to elect portability. Under §301.9100-3, late election relief will be granted if a taxpayer can prove to the IRS that the taxpayer acted reasonably, in good faith and that the grant of relief will not prejudice the interest of the government. In addition to the preparation of the request for a Private Letter Ruling requesting relief under §301.9100-3, the taxpayer must also pay a user fee ($9,800 for requests received prior to 2/2/2017, $10,000 for requests received after 2/1/2017).
DETAILS OF NEW PERMANENT SIMPLIFIED METHOD
To qualify for the automatic extension under Rev. Proc. 2017-34, the following requirements must be met:
1. The decedent:
a) Was survived by a spouse;
b) Died after December 31, 2010; and
c) Was a citizen or resident of the United States on the date of death
2. The executor is not required to file an estate tax return under §6018(a) based upon the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes;
3. The executor did not file an estate tax return within the time required by §20.2010-2(a)(1) (9 months from date of death, plus any extension) for filing an estate tax return;
4. The executor must file a complete and properly prepared Form 706 on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death; and
5. The executor filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).”
WHAT DOES THIS MEAN?
Executors for eligible estates that missed their chance to make an estate tax portability election by the original filing deadline (9 months after date of death, plus any extensions) now have until January 2, 2018 to elect portability without having to go through the additional work and cost of requesting relief under §301.9100-3.
With a Federal Estate Tax Rate of 40% and maximum DSUE elections from 2011-2016 ranging from $5,000,000-$5,450,000, significant estate tax could potentially be saved upon the death of the surviving spouse.
Minnesota currently does not have an estate tax portability election.
If you have any questions about this or any other estate tax questions, please contact Pete at (952)476-7110 or Pete_Finch@CopelandBuhl.com.