Chief Counsel's Office Discusses Options Where Portability Election Is Filed Late

(Parker Tax Publishing December 2016)

The Office of Chief Counsel advised that a taxpayer cannot make a portability election where Form 706 is filed late and the gross estate exceeded the estate tax exclusion amount, even if the estate is nontaxable due to the marital deduction. However, if no Form 706 was filed and the estate was less than the estate tax exclusion amount, relief may be available under the private letter ruling process. CCA 201650017.

Code Sec. Sec. 2010(c) was amended in 2010 to allow the estate of a decedent who is survived by a spouse to make a portability election, which allows the surviving spouse to apply the decedent's spousal unused exclusion (DSUE) amount to a surviving spouse's own transfers during life and at death. This is the difference between the maximum amount of a gross estate that is exempt from estate tax and the amount of the taxpayer's estate. Thus, for example, if a taxpayer dies in 2017, when the maximum gross estate exclusion is $5,490,000 and his estate is $3 million, the taxpayer's surviving spouse can receive a DSUE amount of $2,490,000 to add to her estate tax exclusion amount when she dies.

A taxpayer's gross estate is reported on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Form 706 must be filed when a decedent's gross estate exceeds the estate tax exclusion amount; otherwise, Form 706 is not required to be filed.

The DSUE amount cannot be used by a surviving spouse unless the executor of the estate of the deceased spouse files a Form 706 on which such amount is computed and an election is made on such return. The election, once made, is irrevocable. An election is not available if the return is filed after the due date (including extensions) for filing such return.

In CCA 201650017, the issue was raised as to what happens when a portability election is missed. The Office of Chief Counsel advised that if the taxpayer had a gross estate that exceed the estate tax exclusion amount for the year of death, no relief is available at all, even if the estate is nontaxable due to the marital deduction. According to the Chief Counsel's Office, there is an absolute obligation to file a Form 706 within nine months of date of death and if it's not filed, the election for portability is lost forever.

However, the Chief Counsel's Office stated, if the taxpayer had a gross estate of less than the exemption amount and did not timely file a Form 706 to make the portability election, the taxpayer may request relief through the private letter ruling process. According to the Chief Counsel's Office, the relief will likely be granted. Merely filing a late Form 706, the Chief Counsel's Office observed, is ineffective in making the portability election and such an election will not be respected.

For a discussion of the portability election, see Parker Tax ¶227,215.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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