IRS Extends Deadline for Obtaining Estate Tax Portability

A small percentage of estates are affected by the federal estate tax. Provided that an individual’s estate plus his lifetime taxable gifts (under the federal gift tax) are less than $11,200,000.00, no federal estate tax applies. However, for a married person with an estate exceeding that amount the concept of lifetime exemption portability is a very important one.
Portability is the process by which the unused estate tax lifetime exemption of the first to die spouse is “ported” to the estate of the second to die spouse. In a (simplified) example, the first spouse to die would transfer his estate to his spouse, using the marital deduction to shield his estate from tax and leaving his exemption unused. Provided his executor filed an estate tax return, the first spouse’s estate could “port” that unused exemption to the surviving spouse. Under this process, if a husband died in 2016 (when the exemption shielded an estate of $5,450,000), he could port that unused exemption such that if the wife died in 2018 (when the exemption is $11,180,000), her estate could include $16,630,000 in assets, without having to pay an estate tax.
A recurring problem was that the executor of the first spouse to die would often not file a timely estate tax return; however thereafter it was discovered that such a filing would benefit the estate of the surviving spouse because of the credit that could have been “ported.” There were methods of obtaining relief, but it often required a request for a Private Letter Ruling, and the IRS was reportedly inundated with such requests.
Now, however, the IRS has promulgated “Revenue Procedure 2017-34” that provides relief for the filing of a late filed Estate Tax Return. Provided that a decedent was survived by a spouse, died after December 31, 2010, was a citizen of the United States, and did not have to file an estate tax return (because his or her estate was valued below the requisite amount), then that decedent’s executor has an extended due date to file the estate tax return: the second anniversary of the decedent’s death.
– Rod Fluck