Revenue Procedure 2017-34 offers taxpayers a simplified method to extend Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” in order to make a late portability election. A portability election allows a spouse to make use of the unused lifetime exclusion of a spouse who predeceases the surviving spouse.
Federal estate and gift tax law grants taxpayers a lifetime exclusion from gift and estate tax. The amount is indexed annually for inflation and is $5.49 million for taxpayers who pass away during 2017. If a decedent passes away after Dec. 31, 2010, and does not use the entire amount of his or her gift and estate tax exclusion during his or her lifetime or at death, the executor for the estate of the spouse who dies can make the portability election, which must be done on a timely filed estate tax return (Form 706).
Other than a short-term relief program provided to taxpayers who filed a late portability election by Dec. 31, 2014, the only way to request relief for a late-filed portability election has been to request a private letter ruling from the IRS.
Revenue Procedure 2017-34 provides estates a simplified way to request relief for a late-filed portability election. Taxpayers qualify for the relief if all of the following apply:
- The taxpayer was survived by a spouse.
- The taxpayer died after Dec. 31, 2010.
- The taxpayer was a citizen of the United States on the date of death.
- The executor was not required to and did not file an estate tax return based on the value of the estate and adjusted taxable gifts.
- The executor files an estate tax return on or before the later of Jan. 2, 2018, or the second anniversary of the date of death.
- The top of Form 706 includes the following sentence, in all caps: “FILED PURSUANT TO REVENUE PROCEDURE 2017-34 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A).”
If the relief under Revenue Procedure 2017-34 is not available, relief still may be obtained by requesting a letter ruling from the IRS. For example, if an estate tax return was filed but the portability exclusion was not made, relief is not available under this revenue procedure.
Because the revenue procedure is effective for portability elections filed on or before the later of Jan. 2, 2018, or the second anniversary of the date of death, there is an opportunity for retroactive relief. However, the normal statute of limitations (generally three years) applies to any claims for refund related to a late portability election for the second spouse who passes away. For example, assume the first spouse died on Jan. 1, 2014, with $2 million in assets and an estate tax return was not filed. The surviving spouse died on Jan. 30, 2014, and a timely filed estate tax return was filed on that spouse’s behalf on Oct. 30, 2014, but without claiming any additional lifetime exclusion for portability. The executor for the first spouse can use the revenue procedure to make a late portability election by Jan. 2, 2018, but the estate of the surviving spouse must file a claim for refund of overpaid estate and gift tax related to the portability election by Oct. 30, 2017, to fall within the three-year statute of limitations.
