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06/16/2017

IRS Renews Simplified Procedure for Extension to Make Portability Election (article)


In response to taxpayer requests, the IRS has announced an extension of a simplified method to elect portability. The simplified method is to be used in lieu of obtaining a letter ruling, the IRS explained.

Take away. The IRS announced a similar simplified method to obtain an extension to elect portability several years ago. However, that simplified method was available only on or before Dec. 31, 2014. The IRS reported that it has received many letter ruling requests for extensions of time, prompting the agency to revisit the simplified procedure. Many of these ruling requests have involved estates of decedents that discovered the failure to elect portability not long after the due date for filing an estate tax return to elect portability. Other ruling requests have involved estates of decedents with a date of death in the first years after the enactment of the portability election provisions, where the executor did not know about the need to file a return to elect portability, or did not discover the failure to elect portability, until many years later, often after the death of the surviving spouse.

Comment. Rev. Proc. 2017-34 is effective June 9, 2017. If a letter ruling request is pending on June 9, 2017, and the estate is within the scope of Rev. Proc. 2017-34, the file on the ruling request will be closed and the user fee will be refunded, the IRS explained.

Background

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provided that portability would be available to estates of decedents dying after Dec. 31, 2010, and before Jan. 1, 2013, if survived by a spouse. The American Taxpayer Relief Act of 2012 made portability permanent for estates of decedents dying after Dec. 31, 2012. The IRS issued final regs in 2015.

For the surviving spouse to take advantage of the unused exclusion amount, the executor of the pre-deceased spouse's estate must have timely filed (including extensions) Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The return must contain an election to allow the deceased spouse’s unused exclusion amount to be taken into account by the surviving spouse's estate.

Simplified Method

Now, the IRS has extended the simplified procedure for estates requesting an extension of time to make a portability election. To take advantage of the simplified method, an estate must have no filing obligation under Code Sec. 6018(a) for a period the last day of which is the later of January 2, 2018, or the second anniversary of the decedent’s death. If an estate seeks relief after the second anniversary of the decedent’s death, the estate must request a letter ruling, the IRS explained. There is no user fee with the simplified method under Rev. Proc. 2017-34, the IRS added.

Additionally, the IRS has set out several criteria for the simplified method. The taxpayer must be the executor of the estate of a decedent who was survived by a spouse; and was a U.S. citizen or resident at the time of death, among other requirements.

Comment.  Limiting availability of the simplified method, the IRS explained, increases the likelihood that the portability election will be made before the surviving spouse or the executor of the surviving spouse's estate is required to file a return.

Filing Requirements

The IRS instructed estates to write "FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A)" at the top of the Form 706. If the requirements of Rev. Proc. 2017-34 are satisfied, the estate will be deemed to meet the requirements for relief. The IRS explained that relief will be granted to extend the time to elect portability.

Limitations

The IRS further explained that the simplified method does not apply to estates that filed an estate tax return within the time prescribed by Reg. §20.2010-2(a)(1) for the purpose of electing portability. For taxpayers that do not qualify for relief, an estate can seek an extension of time to file the estate tax return to make the portability election by requesting a letter ruling.


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