Internal Revenue Code 2010(c) grants a surviving spouse’s estate the ability to utilize unused estate tax exemption amounts from the estate of the first spouse to die in certain situations.  This has been a most welcomed estate and gift tax management tool in recent years.  In many cases it has simplified estate planning for married couples tremendously.

However, to qualify, an estate tax return (Form 706) must be timely filed, generally within 9 months of the first spouse’s date of death, but an automatic 6-month extension can be requested.  Limited late-filing relief has been granted in some years, but recently prior to Rev Proc 2017-34, issued on June 26, 2017, if an estate executor missed this window, generally the only relief mechanism was to file a Private Letter Ruling and pay an expensive user fee and filing costs, which could easily exceed $15,000.

Now, under Rev Proc 2017-34, the Internal Revenue Service (IRS) provides for a simplified and “permanent” mechanism for certain estates to make a late portability election as long as:

  • The decedent was a US citizen or resident on their date of death
  • The decedent died after December 31, 2010.
  • The decedent was survived by a spouse.
  • The executor was not otherwise required to file an estate tax return for the decedent’s estate, except to make a portability election.
  • The executor did not file an estate tax return within the time required by Reg Section 20.2010-2(a)(1) for the decedent’s estate.

Qualifying estates have until the later of January 2, 2018 or the 2nd anniversary of the decedent’s date of death to file the late Form 706 to make the portability election.  A qualified executor must file the late Form 706 and write “Filed Pursuant to Rev. Proc. 2017-34 to elect portability under Sec. 2010(c)(5)(A)” in addition to following the normal reporting rules.

This may present a great opportunity for certain estates of decedents who died in prior years but whose executors failed to file Form 706 timely to make the portability election to do so now, but they will need to act quickly in many cases to meet the January 2, 2018 deadline. Filing a late portability election could have tremendous tax savings impact in the surviving spouse’s estate.

Our team of Certified Public Accountant has extensive experience with estate tax returns and portability elections.  Please contact one of our professionals to explore the many ways we can assist you.