By now you are probably aware of the fact that portability can be a great option for a surviving spouse. But what if you miss the portability filing deadline? Is there a late portability election?
In this post, we will address the available options when an estate executor misses the portability election deadline.
Estate executors run into problems when Form 706 is not timely filed. Under the current IRS code, estates electing portability must file Form 706 within nine months after the decedent’s death. The executor can file an extension to extend the due date.
Late Portability Election Options
The IRS rules for missed portability elections can result in two scenarios. One such scenario is for those who would have been required to file Form 706 without regard to the portability election.
In this case, no additional extension is available under the tax code. As such, if the executor of the estate was required to file Form 706 aside from portability within nine months of the date the decedent passed away (including extensions) but failed to file, the portability election was not allowed.
However, executors who did not timely file Form 706 and the portability election were not required to file Form 706 have another option to provide relief.
The IRS issued guidance in 2014 (Rev. Proc. 2014-18) that provides a simplified method for executors in this situation to extend the filing period for portability for decedents who passed away between December 31, 2010, and December 31, 2013. This relief was available until December 31, 2014. Subsequent to that, executors seeking relief had to use the letter ruling process.
As a result, the IRS was overwhelmed with private letter ruling requests for portability extension relief. The vast majority of these came from estate executors who did not realize the filing requirement to make the portability election until after the surviving spouse dies. Due to the massive volume of requests, the IRS modified the process to allow a simplified method of extending the election. This procedure was finalized in 2017 under Rev. Proc. 2017-34.
Extension under the simplified method
Under the IRS Revenue Procedure, if the estate executor missed the original portability election date and was not otherwise required to file estate tax Form 706, the executor has two options. To obtain a portability election extension, they can file a complete Form 706 by January 2, 2018, or the second anniversary of the decedent’s death (whichever is later).
The estate tax return must include a note at the top stating that it is “filed pursuant to Rev. Proc. 2017-34 to elect portability under Sec. 2010(c)(5)(a).” No private letter ruling or user fee is required.
The IRS notes that this portability extension relief does not extend the time available to the surviving spouse’s estate to claim a or refund for the overpayment of taxes. It also will not extend the period the surviving spouse’s estate has to file Form 706 upon the surviving spouse’s death.
However, suppose the claim for refund on the surviving spouse’s return is filed within the time required in anticipation of the decedent spouse’s executor’s making a late portability election. In that case, it will be considered a protective claim for the refund of tax.
If after the grant of relief under the simplified method, it is determined that, based on the gross estate’s value and considering any taxable gifts, the estate executor was required to file an estate tax return, the grant of an extension under the simplified method is deemed null and void. Not a great outcome.
Suppose the decedent passed away on or after January 1, 2011, and the executor did not elect portability of the DSUE due to not being otherwise required to file a Form 706. In that case, there is extension relief pursuant to Rev. Proc. 2017-34. But it is important to note that this relief will go away for estates of decedents who passed away before January 2, 2016. The only option at that point is the private letter ruling process.