In a taxpayer-friendly development, the IRS has issued guidance permitting certain estates to make a late “portability” election. This election allows a deceased person’s unused estate tax exemption amount ($5,000,000, indexed for inflation since 2011) to be “ported” to their surviving spouse by the filing of an estate tax return (IRS Form 706), due nine months after the first spouse’s death.  The ported exemption is then available to shelter the surviving spouse’s subsequent transfers during lifetime or at death from the Federal gift/estate tax.  Unfortunately, many individuals have been unaware of the availability of this portability election, and have failed to file a timely estate tax return.

Previously, the IRS had provided a simplified method for obtaining an extension of time to make a portability election. However, this simplified method was available only before January 1, 2015.  Since then, the only way to make a late portability election has been to submit a private ruling request, which is an expensive and time-consuming process. Even so, the IRS has issued a substantial number of favorable private rulings granting an extension of time to elect portability on a late-filed estate tax return.

To provide relief for taxpayers and reduce the burden on the IRS, Rev. Proc. 2017-34 now provides a simplified method to obtain an extension of time to elect portability.  This is available to estates of decedents that are not otherwise required to file an estate tax return (i.e., a gross estate below the $5,000,000+ threshold).  This opportunity is only available until the later of Jan. 2, 2018, or the second anniversary of the first spouse’s date of death, by the filing of a complete IRS Form 706.  There is no user fee for submissions for relief under this procedure.

If you know of an estate where the portability election was not timely made and could be of benefit to the surviving spouse, we encourage you to contact one of the Farner & Perrin attorneys to determine if this IRS relief might apply.  We are always looking for ways to remediate and save taxes.