IRS extends portability deadline for Surviving Spouses to 5 years
July 18, 2022
Since the adoption of “portability,” which allows a surviving spouse to apply a deceased spouse’s unused exclusion amount (DSUE) to the surviving spouse’s gift and estate transfers, the IRS has been flooded with requests to extend the portability filing deadline in estates where an estate tax return was not required, i.e. where the value of the gross estate, adjusted for taxable gifts, fell below the federal exclusion amount for the decedent’s year of death. Rather than continue addressing numerous extension requests (the original deadline to file a portability request was 9 months after date of death, or within the applicable extension period if one was timely filed), the IRS last week issued a new ruling that simplifies the method for certain estates to obtain an extension of time to elect portability. Under the new procedure, a portability request can be made on or before the fifth anniversary of the decedent's death. This simplified method can now be used in lieu of the very expensive and time-consuming private letter ruling process.
To capture the DSUE for the surviving spouse, an estate tax return (Form 706) must still be filed for the deceased spouse’s estate, and the executor filing the Form 706 on behalf of the deceased spouse's estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
It is important to note, however, that for Maryland, which has a state-level estate tax and its own portability rules, the state filing deadline for state-level portability remains unchanged. To elect portability in Maryland, a Form 706 must accompany the state estate tax return anyway. Thus, without coordination from the states, the new federal extension is only helpful to surviving spouses that reside in states with no state-level estate tax. Nevertheless, the federal portability extension can offer significant retroactive tax relief and simplify the surviving spouse’s planning horizon. While this flexibility from the IRS is welcome relief at the federal level, practitioners in estate tax states should remain mindful of the state portability differences.
The attorneys at Niles, Barton &Wilmer, LLP are experienced in handling all phases of estate administration, including estate tax planning and portability election. If you have an estate tax issue or questions about portability, or if you simply need assistance navigating the complexities of estate administration, please contact M. David Stallings, Esquire.