The IRS issued a simplified procedure for certain estates to obtain an extension of time in which to to make a portability election under Code Sec. 2010(c)(5)(A), which allows a surviving spouse to use a decedent’s unused exclusion amount for subsequent transfers during life or at death. The procedure, which supersedes Rev. Proc. 2017-34, extends the period within which an estate that is not required to file an estate tax return may make the portability election from the second anniversary of the decedent’s death to the fifth anniversary of the decedent’s date of death. Rev. Proc. 2022-32.
Background
Under Code Sec. 2010(c), the estate of a decedent who is survived by a spouse may make a portability election. For purposes of the federal estate and gift taxes, a portability election allows the surviving spouse to apply the decedent’s unused exclusion amount (deceased spousal unused exclusion amount, or DSUE amount) to the surviving spouse’s own transfers during life and at death. The portability election applies to estates of decedents dying after December 31, 2010, if such decedent is survived by a spouse.
Code Sec. 2010(c)(5)(A) provides certain requirements that the estate of a deceased spouse must satisfy to elect portability, including that the estate must elect portability of the DSUE amount on an estate tax return that is filed within the time prescribed (including extensions) for filing such return. For estates that are not required to file an estate tax return under Code Sec. 6018(a) (as determined based on the value of the gross estate and adjusted taxable gifts), Reg. Sec. 20.2010-2(a)(1) clarifies that 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). Reg. Sec. 20.2010-2(a)(1) further provides that an extension of time to elect portability may be available to an estate that is not required to file an estate tax return under Code Sec. 6018(a).
Rev. Proc. 2017-34
In Rev. Proc. 2017-34, the IRS provided a method for obtaining an extension of time to make a portability election under Code Sec. 2010(c)(5)(A). In general, an extension is available to the estates of decedents dying after December 31, 2010, if that estate was not required to file an estate tax return and if such a decedent was survived by a spouse. Under Rev. Proc. 2017-34, a simplified method is available in lieu of requesting a letter ruling and is available for a period extending to the second anniversary of the decedent’s date of death.
According to the IRS, it has issued numerous letter rulings granting extensions of time to make portability elections in situations in which the decedent’s estate was not required to file an estate tax return and the two-year time for obtaining relief under Rev. Proc. 2017-34 had expired. The IRS said that a significant percentage of these ruling requests have been from estates of decedents who died within five years preceding the date of the request. The considerable number of ruling requests since the publication of Rev. Proc. 2017-34, the IRS concluded, indicates a need for continuing relief for the estates of decedents having no filing requirement under Code Sec. 6018(a).
Rev. Proc. 2022-32
Accordingly, on July 8 the IRS published Rev. Proc. 2022-32, which supersedes Rev. Proc. 2017-34 and extends the period within which the estate of a decedent may make the portability election under the simplified method. The procedure extends the date by which the election must be made to the fifth anniversary of the decedent’s date of death.
The simplified method of Rev. Proc. 2022-32 is available to the executor of the estate of a decedent if four conditions are met. First, the decedent must be survived by a spouse, must have died after December 31, 2010, and must have been a U.S. citizen or resident on the date of death. Second, the executor must not be required to file an estate tax return under Code Sec. 6018(a) as determined based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes. Third, the executor must not have filed an estate tax return within the time required by Reg. Sec. 20.2010-2(a)(1) for filing an estate tax return. And fourth, the executor satisfies all requirements provided in Section 4.01 (relating to the requirements for obtaining relief) under Rev. Proc. 2022-32.
Under Section 4.01 of Rev. Proc. 2022-32, a person permitted to make the portability election on behalf of the estate of a decedent – that is, an executor described in Reg. Sec. 20.2010-2(a)(6) – must file a complete and properly prepared Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on or before the fifth annual anniversary of the decedent’s date of death. The Form 706 will be considered complete and properly prepared if it is prepared in accordance with Reg. Sec. 20.2010-2(a)(7). In addition, the executor must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER Sec. 2010(c)(5)(A).”
If the decedent’s estate is granted relief under Rev. Proc. 2022-32, the DSUE amount of that decedent is generally available to the decedent’s surviving spouse or the estate of the surviving spouse for application to the surviving spouse’s transfers made on or after the decedent’s date of death. However, if the increase in the surviving spouse’s applicable exclusion amount attributable to the addition of the decedent’s DSUE amount as of the decedent’s date of death results in an overpayment of gift or estate tax by the surviving spouse or his or her estate, no claim for credit or refund may be made if the period of limitations under Code Sec. 6511(a) (generally, three years) has expired. That is, an extension of time to elect portability granted under Rev. Proc. 2022-32 does not extend the period during which the surviving spouse or the surviving spouse’s estate may make a claim for credit or refund under Code Sec. 6511(a).
