Portability Elections

IRS Provides Simplified Method to Obtain Extensions

By Stuart R. Josephs, CPA
Rev. Proc. 2017-34 (IRB 2017-26, June 26, 2017), effective June 9, provides a simplified method for certain taxpayers to obtain an extension of time to make a portability election under IRC Sec. 2010(c)(5)(A).

For gift and estate tax purposes, this election allows a decedent’s unused exclusion amount (deceased spousal unused exclusion amount, or DSUE amount) to be available for the surviving spouse’s subsequent transfers during life or at death. This simplified method is to be used in lieu of the letter ruling process. No user fee is required for submissions under Rev. Proc. 2017-34.

Note: For IRS guidance on portability and QTIP elections, see the December 2016 issue of California CPA, Page 23. 

Rev. Proc. 2017-34’s Scope 
The simplified method is available to the executor [either appointed or, if none, a non-appointed executor under Regs. Sec. 20.2010-2(a)(6)(ii)] of a decedent‘s estate if:

1. The decedent died after 2010, was survived by a spouse and was a U.S. citizen or resident on the date of death;
2. The executor is not required to file an estate tax return, based on the value of the gross estate and adjusted taxable gifts—without regard to the need to file for portability purposes;
3. The executor did not file an estate tax return within nine months after the decedent’s death or by the extended due date; and
4. The executor satisfies Rev. Proc. 2017-34, Sec. 4.01’s requirements.

This simplified method is not available to a decedent’s estate if its executor timely filed an estate tax return.

The executor of an estate, not within Rev. Proc. 2017-34’s scope only because the executor does not satisfy Sec. 4.01’s requirements, may request an extension to elect portability by requesting a letter ruling and paying the user fee. 

Rev. Proc. 2017-34, Sec. 4.01 Requirements for Relief 

1. A person permitted to make the election on behalf of a decedent’s estate—i.e., an executor described in Regs. Sec. 20.2010-2(a)(6)—must file a complete and properly prepared Form 706, “U.S. Estate (and Generation-Skipping Transfer) Tax Return” by the later of Jan. 2, 2018; or the second annual anniversary of the decedent’s death. This Form 706 will be considered complete and properly prepared if it is prepared in accordance with Regs. Sec. 20.2010-2(a)(7).
2. The executor filing the Form 706 must state at the top of this form that it is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER SEC. 2010(c)(5)(A).”

Extent of Relief 
Satisfaction of Sec. 4.01’s relief requirements, by an executor for whom relief is available under Rev. Proc. 2017-34’s scope, is deemed to satisfy Regs. Sec. 301.9100-3’s relief requirements and, therefore, relief is granted under Regs. Sec. 301.9100-3 to extend the time to elect portability under Sec. 2010(c)(5)(A). Accordingly, for electing portability purposes, the decedent’s estate’s Form 706 will be considered to have been filed timely in accordance with Regs. Sec. 20.2010-2(a)(1).

Subsequent Determination That Estate Tax Return Was Required 
If, subsequent to the grant of relief pursuant to Rev. Proc. 2017-34, it is determined that, based on the gross estate’s value and taking into account any taxable gifts, the executor was required to file an estate tax return under Sec. 6018(a), Rev. Proc. 2017-34’s grant of an extension is deemed null and void.

Impact of Relief on Surviving Spouse
If the decedent’s estate is granted Rev. Proc. 2017-34 relief, the decedent’s DSUE is available to the surviving spouse or the surviving spouse’s estate for application to the surviving spouse’s transfers made on or after the decedent’s death under Estate Tax Regs. Sec. 20.2010-3 and Gift Tax Regs. Sec. 25.2505-2.

However, if the increase in the surviving spouse’s applicable exclusion attributable to the addition of the decedent’s DSUE results in a gift or estate tax overpayment, no refund claim may be made if the statute of limitations (SOL) has expired. That is, an extension to elect portability under Rev. Proc. 2017-34 does not extend the time for the surviving spouse or the spouse’s estate to file a refund claim. 

Protective Refund Claims 
Because a surviving spouse has no DSUE from a deceased spouse to apply to the surviving spouse’s transfers until the portability election has been made by the deceased spouse’s executor, a refund claim within the SOL by the surviving spouse or the surviving spouse’s estate in anticipation of Form 706 being filed to elect portability pursuant to Rev. Proc. 2017-34 will be considered a protective refund claim.

Rev. Proc. 2017-34, Sec. 5.03 contains three examples illustrating this protective refund claim process, including the use of Form 843, “Claim for Refund and Request for Abatement,” to make such a claim.
Stuart R. Josephs, CPA has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients’ tax questions and problems. He is chair of the Federal Subcommittee of CalCPA’s Committee on Taxation.