Determination of the Applicable Exclusion Amount

Determination of the Applicable Exclusion Amount

For decedents dying in 2011 and 2012, the applicable exclusion amount is comprised of the "basic applicable exclusion amount" and the "deceased spousal unused exclusion amount" (DSUE amount) The basic applicable exclusion amount equals $5 million in 2011. [IRC § 2010(c)(3)(A)].  In 2012, indexing of the basic applicable exclusion amount begins. Indexing for cost of living adjustment is based on calendar year 2010 dollars and increased in $10,000 intervals. [IRC § 2010(c)(3)(B)]. The basic applicable exclusion is then added to the DSUE amount, to determine the applicable exclusion amount available to estates of decedents dying in 2011 and 2012.

The Code indicates the DSUE amount may only be claimed by the estate of a surviving spouse, if the deceased spouse's estate filed an estate tax return, computed the DSUE amount, and made an election on a timely filed return (including extensions). [IRC § 2010(c)(4)]. It also limits the DSUE amount claimed by the estate of the surviving spouse to the DSUE amount elected in the estate of the "last . . . deceased spouse." [IRC § 2010(c)(4)]. The Service has not yet issued regulations addressing the DSUE amount. It has, however, issued Notice 2011-82 providing guidance as to how the election is to be made.

...

The election is made by filing a timely return. Notice 2011-82 provides that a timely filed estate tax return "automatically" results in an election to take the DSUE amount...

The election is irrevocable and must be made on a timely filed return, including extensions. It is notable that, regardless of the statute of limitations, a return of a deceased spouse may be examined to "make determinations with respect to" the DSUE amount. [IRC § 2010(c)(4); Notice 2011-82]. For this reason, some estates may choose not to make the election.

Notice 2011-82 specifically relieves the electing estate from calculating the DSUE amount, as required by I.R.C. Section 2010(c)(4), until such time as the Service revises the estate tax return to include such calculation. [IRC § 2010(c)(4); Notice 2011-82]...

The Code specifies that the DSUE amount equals the lesser of two amounts: (1) the basic exclusion amount, or (2) the basic exclusion amount of the last deceased spouse less the aggregate of the gross estate and adjusted taxable gifts of the last deceased spouse. [IRC § 2010(c)(4); Notice 2011-82]...

The Report of the Joint Committee on Taxation issued on December 10, 2010 ("Conference Report") provides three examples explaining the DSUE amount. The first two examples track the language of the statute, but the third example does not...

...

Some have suggested that a technical correction would correct the issues raised by the formulation of the DSUE amount... As of the beginning of 2012, Congress has not made any technical correction.

...

LEXIS users can access the complete commentary HERE. Additional fees may apply. (Approx. 6 pages.)

Discover the features and benefits of LexisNexis® Tax Center.

For quality Tax & Accounting research resources, visit the LexisNexis® Store.

For more information about LexisNexis products and solutions connect with us through our corporate site.