IRS Provides Relief for Late or Missed Portability Election

The IRS has issued a revenue procedure, Rev. Proc. 2017-34, which provides a simplified way to obtain an extension for making a late or missed “portability” election.  Ordinarily, to make this election, the executor must timely file a federal estate tax return (and not elect out) so that the surviving spouse effectively “inherits” the predeceased spouse’s unused estate tax exclusion.  Even if an estate is under the “filing threshold” and is therefore not otherwise required to file an estate tax return, the executor still must file an estate tax return to claim portability.  (The “filing threshold” means that if the decedent’s gross estate plus adjusted taxable gifts don’t exceed the basic exclusion amount in effect at the decedent’s death, no estate tax return is necessary; in 2017, the basic exclusion amount is $5.49 million.)

Until this revenue procedure was issued, executors of estates below the filing threshold that did not timely file an estate tax return to elect portability could only obtain relief by requesting a letter ruling.  Because the IRS was being inundated with such requests, Rev. Proc. 2017-34 was issued. 

Rev. Proc. 2017-34 provides that estates under the filing threshold that missed the portability election no longer need to request a letter ruling to obtain relief  as long as the executor files a complete and properly prepared estate tax return on or before the later of January 2, 2018, or the second anniversary of the decedent’s date of death. The top of the Form 706 must state that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A)”.

Note that for estates of decedents who died more than 2 years ago, this relief is only available until January 2, 2018.  If a ruling request was already pending in the IRS National Office on June 9, 2017, Rev. Proc. 2017-34 states that the ruling request file will be closed and the user fee refunded.