Estates can now request late portability election relief for 5 years

By Paul Bonner

The IRS issued a revenue procedure (Rev. Proc. 2022-32) Friday that allows estates to elect "portability" of a deceased spousal unused exclusion (DSUE) amount as much as five years after the decedent's date of death.

Estates of decedents dying after Dec. 31, 2010, who are survived by a spouse, if not required to file an estate tax return, may do so under Sec. 2010(c)(5)(A) for the sole purpose of passing on the decedent spouse's DSUE to the surviving spouse, who may add it to his or her own basic exclusion amount under Sec. 2010(c)(2)(B) in calculating an applicable credit amount. The due date of an estate tax return required to elect portability is nine months after 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).

In Rev. Proc. 2017-34, the IRS provided a simplified method for obtaining an extension of time under Regs. Sec. 301.9100-3 to make a portability election under Sec. 2010(c)(5)(A) if that estate was not required by Sec. 6018(a) to file an estate tax return. Under Rev. Proc. 2017-34, this simplified method (which is used in lieu of the letter ruling process) is available for two years after the decedent's date of death.

The IRS stated in Rev. Proc. 2022-32 that, even since it began offering the two-year relief period, "the IRS has continued to issue numerous letter rulings" from estates that missed that deadline, placing "a significant burden" on IRS resources. A "significant percentage" of these requests came before the fifth anniversary of the decedent's date of death, however.

To reduce the number of letter ruling requests, in Rev. Proc. 2022-32, the IRS updates the simplified method in Rev. Proc. 2017-34 by extending the period within which the estate of a decedent may make the portability election under the simplified method to on or before the fifth anniversary of the decedent's date of death.

Under the simplified method in Rev. Proc. 2022-32, the executor makes the portability election by filing on behalf of the estate a complete and properly prepared (in accordance with Regs. Sec. 20.2010-2(a)(7)) Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on or before the fifth anniversary of the decedent's date of death. The executor must state at the top of the Form 706 that it is "filed pursuant to Rev. Proc. 2022-32 to elect portability under Sec. 2010(c)(5)(A)."

To be eligible to use the simplified method, the decedent must have been a citizen or resident of the United States on the date of death and the executor must not have been otherwise required to file an estate tax return under Sec. 6018(a), as determined based on the value of the gross estate and any adjusted taxable gifts. The executor also must not have timely filed the estate tax return within nine months after the decedent's date of death or extended filing deadline.

If it is later determined that the estate was required to file a return, the grant of relief will be deemed null and void, the IRS stated. Also, this relief does not extend the period during which the surviving spouse may claim a credit or refund of overpaid gift or estate tax on the surviving spouse's own gift or estate return.

The revenue procedure also provides guidance on filing a protective claim for credit or refund by the surviving spouse or his or her estate before a portability election by the deceased spouse's executor has been made, with three examples.

Rev. Proc. 2022-32 is effective July 8, 2022, and supersedes Rev. Proc. 2017-34.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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