The Journal of The DuPage County Bar Association

Back Issues > Vol. 30 (2017-18)

Executors Rejoice – IRS Implements a Simplified Method to Obtain Extension of Time to Make the Portability Election
By Ryan M. Holmes and Mallory A. Kallabat

A simplified method for executors to obtain an extension of time to make the estate tax portability election is now permanently available to certain estates under a new Revenue Procedure issued by the Internal Revenue Service (the “IRS”).1 A decedent’s estate that is not required to file an estate tax return based upon the value of the gross estate2 may benefit from Rev. Proc. 2017-34, provided it meets certain requirements.

What is the “portability election”? Section 2010(c) of the Internal Revenue Code (the “IRC”) allows the estate of a decedent who leaves a surviving spouse to make a “portability election,” which allows the unused portion of the decedent’s exclusion amount to be ported, or transferred, to the surviving spouse.3 The amount of the decedent’s available exclusion ported to the surviving spouse is applied to the surviving spouse’s applicable exclusion amount, and can thereafter be used by the surviving spouse to avoid or minimize tax on lifetime gifts or estate tax at death.4 The amount of the decedent’s applicable exclusion amount ported to the surviving spouse is referred to as the “deceased spousal unused exclusion” (the “DSUE”).5

In order to transfer the DSUE amount to the surviving spouse, the executor of the deceased spouse’s estate must elect to port the DSUE by filing a Form 706, United Stated Estate Tax Return, and affirmatively elect portability.6 Form 706 must be filed for an executor to elect portability, even if the decedent’s estate is valued under the basic exclusion amount.7 Because a Form 706 is required to make the election, the executor of the decedent’s estate must timely and properly prepare, complete and file an estate tax return.

Typically, an executor must file the estate tax return nine months after the decedent’s date of death, or, if an extension of time is obtained, by the last day of the period covered by the extension.8 According to the IRS, many executors of estates of decedents who died shortly after the enactment of DSUE portability missed the deadline to file a Form 706 for the decedent’s estate.9 In these instances, in order to obtain an extension of time to file an estate tax return, these executors had to establish to the IRS that the executor acted reasonably and in good faith, and that the grant of the extension would not prejudice any interest of the government.10

Temporary Relief for Executors who Missed the Deadline to Make Portability Election. The IRS eventually issued Rev. Proc. 2014-18, which provided certain estates a simplified method to obtain an extension of time to file Form 706 to make the portability election. By following this revenue procedure, an executor could receive an extension of time to file the estate tax return and make the election if the estate was not required to file Form 706 under IRC § 6018(a) based upon the value of the gross estate and any taxable gifts.11 However, this simplified method was only available through December 31, 2014.12

Following the expiration of the simplified method under Rev. Proc. 2014-18, the IRS was inundated with letter ruling requests from executors seeking to obtain an extension of time to make the election.13 The IRS generally granted relief in situations in which the estate was not required to file a Form 706 apart from making the portability election. Ruling requests were also granted in situations where the decedent died shortly after the IRS enacted the portability election provisions, but the executor did not know or discover the need to make the election until years later.14

 Need for Permanent Relief and Enactment of Rev. Proc. 2017-34. The volume of ruling requests submitted to obtain an extension of time to elect portability served as an indication to the IRS of the need for continuing and permanent relief for certain estates to make the election.15 The number of ruling requests received placed a significant burden on the IRS and its resources, which further contributed to the Service’s decision to implement permanent relief. The Service determined it necessary to provide a simplified, permanent procedure for executors of decedent estates with no filing requirement under IRC § 6018(a) to obtain an extension of time to make the portability election.16

 Effective June 9, 2017, the IRS implemented a simplified method for obtaining an extension of time to make the portability election, which is permanently available to estates of decedents having no filing requirements under IRC § 6018(a). This simplified method is set forth under Rev. Proc. 2017-34, which includes several requirements for eligibility. The new procedure provides that, for purposes of electing portability, an estate tax return will be considered to have been timely filed in accordance with Treas. Reg. § 20.2010-2(a)(1) if the return complies with the requirements of the procedure.17

In general, the simplified method for obtaining an extension of time to make the portability election under Rev. Proc. 2017-34 is available to the executor of the estate of a decedent if:
(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 his or her date of death;

(2) The executor of the decedent’s estate was not required to file an estate tax return under IRC § 6018(a) based upon the gross value of the decedent’s estate and adjusted taxable gifts, without regard to the portability election; and

(3) The executor did not file an estate tax return within the time required under Treas. Reg. 20.2010-2(a)(1).18

If the decedent’s estate meets criteria (1) through (3) above, then the method set forth under Rev. Proc. 2017-34 is the exclusive method for such estate to obtain an extension of time to make the portability election under Treas. Reg. §301.9100-3.19

The executor may obtain an extension of time to make the portability election under Rev. Proc. 2017-34 by:

(1) completing and filing a properly prepared Form 706 on or before the later of:
(a) January 2, 2018; or
(b) the second annual anniversary of the decedent’s date of death; and

(2) stating on the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER CODE SEC. 2010(c)(5)(A).”20

Who will benefit? The Revenue Procedure extends the simplified method to obtain an extension of time to make the portability election to the estates of decedents for a period ending on the later of January 2, 2018 or the second anniversary of the decedent’s death so long as the estate is not required to file Form 706 under IRC § 6018(a).21 Accordingly, the relief extends to estates of decedents who died shortly after the portability election provisions came in effect, provided that the requirements of Rev. Proc. 2017-34 are met and a properly prepared Form 706 is filed by January 2, 2018. Taxpayers seeking to elect portability after the second anniversary of the decedent’s death may continue to do so by requesting a letter ruling under Treas. Reg. §301.9100-3, and adhering to the requirements set forth under Rev. Proc. 2017-1, or any subsequent revenue procedure.22

While this Revenue Procedure is of benefit to certain estates, the benefits do not apply to all executors or surviving spouses of the decedent. While the Revenue Procedure is beneficial to allow a surviving spouse to take advantage of the DSUE, the extension of time to file the Form 706 to make the election does not extend the period of time during which the surviving spouse may make a claim for credit or refund under IRC § 6511(a).23 For instance, if the surviving spouse’s applicable exclusion amount attributable to the addition of the decedent’s DSUE amount results in an overpayment of gift or estate tax by the surviving spouse, or his or her estate, there is no claim for a credit or refund for overpayment of tax if the period of limitations under IRC § 6511(a) has expired.

The Revenue Procedure only applies if the executor has not already filed a Form 706.24 If the executor previously filed an estate tax return for the decedent’s estate, and the portability election was not made on such Form 706, then the estate is not eligible to now make the portability election. Furthermore, the grant of an extension under Rev. Proc. 2017-34 will be deemed void if, subsequent to obtaining relief under the Revenue Procedure, it is determined that a federal estate tax return was in fact required to be filed based upon the value of the decedent’s gross estate and any taxable gifts.25

Overall, these new rules extend the time for executors to determine the need to elect portability and file a Form 706.
Rev. Proc. 2017-34 provides a unique opportunity for executors who have already missed the deadline to file an estate tax return by January 2, 2018 to elect portability and claim the DSUE amount. Going forward, the deadline for filing Form 706 for purposes of making the portability election will be two years from the date of the decedent’s death. Despite this extended period of time to make the portability election, it is still possible for an executor to wait too long to file the return, or fail to recognize the benefit in making the portability election itself. The assistance of an attorney experienced in federal estate and gift tax planning is essential in order to provide you with the guidance, advice, and expertise needed to determine when and how to make the portability election.

1. Rev. Proc. 2017-34
2. In 2017, estates valued under the basic exclusion amount of $5.49 million.
3. Treas. Reg. § 20.2010–2
4. IRC §2010(c)(2)
5. IRC §2010(c)(4)
6. IRC §2010(c)(5)(A)
7. Treas. Reg. §20.2010-2(a)(1)
8. Treas. Reg. § 20.6075–1
9. Rev. Proc. 2017-34; This often occurred as the value of the decedent’s estate was well below the basic exclusion amount, Form 706 was not  therwise required to be filed, and the executor had no knowledge of the need to make the portability election.
10. Treas. Reg. §301.9100-3
11. Rev. Proc. 2014-18
12. Id.
13. Rev. Proc. 2017-34, Section 2.02(4); Many private letter rulings were made by estates requesting an extension of time to make the portability election in situations where the decedent’s estate was not required to file an estate tax return based upon the value of the decedent’s gross estate. In other letter ruling requests, the executor discovered the need to make the election shortly after the date on which the Form 706 was required to be filed.
14. Rev. Proc. 2017-34, Section 2.02(5)
15. Id.
16. Id.
17. Rev. Proc. 2017-34, Section 4.02
18. Rev. Proc. 2017-34, Section 3; The simplified method to obtain an extension of time under Rev. Proc. 2017-34 is only available to those estates that meet these requirements.
19. Rev. Proc. 2017-34, Section 4.02
20. Rev. Proc. 2017-34, Section 4.01
21. Id.
22. Rev. Proc. 2017-34, Section 3.03
23. Rev. Proc. 2017-34, Section 5.01
24. Rev. Proc. 2017-34, Section 3.02
25. Rev. Proc. 2017-34, Section 4.03

Ryan M. Holmes is a Member of Clark Hill PLC in the firm’s Chicago office. Holmes focuses his practice on estate and trust planning and administration, estate planning for digital assets, special needs planning and administration, income, gift, generational and estate tax planning, probate and guardianship administration, and probate, trust and guardianship litigation. He also maintains an active corporate and real estate practice, both residential and commercial.

Mallory A. Kallabat is an Associate of Clark Hill PLC in the firm’s Birmingham, Michigan office.
Kallabat focuses her practice on estate, tax and business planning, tax planning, as well as probate and trust administration. Kallabat also advises individuals and families on all matters relating to estate planning, including probate avoidance, tax strategy, charitable giving, wealth transfer planning, and planning for incapacity.

 
 
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