Deceased Spouse Unused Exclusion Portability Election Simplified

Deceased Spouse Unused Exclusion Portability Election Simplified

In the recent history of the estate tax, one of the most beneficial changes is the creation of portability election under IRC Section 2010(c), which allows the deceased spouse’s unused exclusion (DSUE) amount to be used by the surviving spouse's subsequent transfers during life or at death. To take advantage of the DSUE, the executor of the deceased spouse’s estate  must satisfy certain requirements including electing portability of the DSUE amount on a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Under IRC Section 2010(c)(5)(A), a portability election is effective only if made on a Form 706 that is filed within the time prescribed by law (including extensions) for filing such return. However, this filling requirement can be daunting, especially for estates that previously did not need to file an estate tax return because they lacked sufficient assets requiring them to file Form 706.

Rev Proc 2014-18 provides a simplified method for eligible estates to obtain an extension of time under section 301.9100-3 of the Procedure and Administration Regulations to make a "portability" election. An estate is eligible if:

  • the decedent is a U.S. citizen or resident;
  • the decedent died after 2010 and before 2014;
  • the decedent is survived by a spouse;
  • the estate was not required to file an estate tax return under IRC Section 6018(a) because the estate lacked sufficient assets; and
  • the estate did not file a timely estate tax return.

Eligible estates will have an automatic extension of time to file a timely estate tax return until the end of 2014.
 
The IRS will not issue letter rulings to obtain an extension of time to file for estates meeting the eligibility criteria in the revenue procedure. Rev Proc 2014-18 also provides transition rules for estates that have pending ruling requests. Taxpayers may withdraw the ruling request and rely on the revenue procedure or continue to await an IRS ruling. 

Hopefully this automatic extension of time to file will provide some breathing room for estates that had not planned on filing an estate tax return but now will need to file Form 706 to take advantage of the DSUE amount.

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