Qualified estates get automatic extension for portability election

“Most relatively simple estates . . . do not require the filing of an estate tax return,” according to the IRS. For decedents dying in 2013 or 2014, estates valued at less than $5,250,000 (2013) or $5,340,000 (2014) are excluded from estate tax.

When a person dies owning assets less than the applicable exclusion amount, the executor of the estate can elect to transfer the unused portion to the surviving spouse. This so-called “portability election” has been available since 2011.

However, the election must be made on a timely filed estate tax return. Therefore, the election would not be effective for an estate that did not file a return because the value of the assets in the estate was below the filing threshold.

Now, if estates of decedents who died before Jan. 1, 2014, and fall below the dollar threshold for having to file an estate tax return want to elect to take the portability exclusion, they can get an automatic extension to make that election, according to a recent IRS revenue procedure.

Under Revenue Procedure 2014-18, the estate of a decedent who is survived by a spouse is permitted to make a portability election, allowing the surviving spouse to apply the decedent’s unused exclusion amount to the surviving spouse’s own transfers during life and at death. The amount received by the surviving spouse is called the deceased spousal unused exclusion, or DSUE, amount.

The executor of the estate of the deceased spouse must elect portability of the DSUE amount on a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, which must include a computation of the unused exclusion amount. A portability election is effective only if made on a Form 706 filed no later than nine months after the decedent’s date of death or by the last day of the period covered by an extension – if an extension for filing has been obtained.

When an estate is filing an estate tax return only to make a portability election, the new revenue procedure provides an automatic extension of the Form 706 filing deadline.

To qualify for the automatic extension, the following requirements must be met:

  • The taxpayer must be the executor of the estate of a decedent who:
    • Has a surviving spouse
    • Died after Dec. 31, 2010, and on or before Dec. 31, 2013
    • Was a citizen or resident of the United States on the date of death
  • The taxpayer must not be required to file an estate tax return as determined based on the value of the gross estate and adjusted taxable gifts.
  • The taxpayer must not have timely filed an estate tax return.
  • A person permitted to make the election on behalf of a decedent must file a complete and properly prepared Form 706 on or before Dec. 31, 2014.
  • The person filing the Form 706 on behalf of the decedent’s estate must state at the top of the form that the return is “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER Code Sec. 2010(c)(5)(A).