Final Rules Guide Use of Portable Estate Tax Exclusion

In June, the IRS issued final rules governing the requirements for electing portability of a deceased spouse’s unused exclusion (DSUE) amount to the surviving spouse and the rules for the surviving spouse’s use of the DSUE amount (T.D. 9725). The final rules, which apply to estates of decedents dying on or after June 12, 2015, adopt temporary regulations issued three years ago (T.D. 9593) with a few clarifying changes and remove the temporary regulations. (The temporary regulations still apply to estates of decedents dying on or after Jan. 1, 2011, and before June 12, 2015.)

In the final regulations, at the request of commenters, the IRS clarified that a regulatory extension of the time to elect portability will be granted only to an estate with a gross estate value below the Sec. 6018 threshold amount for filing an estate tax return and is thus not otherwise required to file an estate tax return. The final regulation also includes two clarifications to the rules regarding what is a “complete and properly prepared” estate tax return for purposes of the portability election.

The IRS rejected a suggestion (which had previously been made in response to Notice 2011-82) that it provide a short form estate tax return for taxpayers who file a return only to elect portability and are not otherwise required to file an estate tax return. It cited problems with accuracy in other types of abbreviated returns and the administrative problems with creating and maintaining alternate forms as reasons for its decision.

In addition, the final regulations include changes that clarify certain rules about the application of the portability rules to qualified domestic trusts, the availability of a DSUE amount by a surviving spouse who becomes a citizen of the United States, and the impact of credits in Secs. 2012 through 2015 on computing the DSUE amount.