Updated simplified method for estate portability elections

On July 8, 2022, the IRS released Rev. Proc. 2022-32, which updates and expands the simplified method for estates to obtain an extension of time to make a portability election under Sec. 2010(c) (5)(A). The revenue procedure became effective the day it was released, supersedes Rev. Proc. 2017-34, and allows estates with no filing requirement under Sec. 6018(a) to obtain an extension to make a portability election up until the fifth anniversary of a decedent’s date of death, subject to certain requirements.

What are portability elections?

Estate portability elections stem from Sec. 2010(c)(5)(A), which provides that a deceased spousal unused exclusion (DSUE) amount becomes available to a surviving spouse’s subsequent transfers during life and at death but only if the executor of the decedent’s estate timely files Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Regs. Sec. 20.2010-2(a)(1) establishes the requirements for a timely filed portability election and provides that the due date of an estate tax return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been obtained. After Form 706 is timely filed, the portability election is automatically made for estates required to file, unless affirmatively stated otherwise by the estate’s executor on the return. Once made, the election is irrevocable. An estate’s executor is required to file an estate tax return in all cases where the gross estate exceeds the basic exclusion amount in effect under Sec. 2010(c), which for 2022 is $12,060,000 (see Sec. 6018(a)).

Why was the simplified method updated?

Treasury and the IRS first provided a simplified method in Rev. Proc. 2017-34, which was available for a period extending to the second anniversary of the decedent’s date of death. An underlying intention of Rev. Proc. 2017-34 was to lessen the need for private letter rulings to grant portability extensions for estates with no filing requirement, but the IRS continued to issue numerous letter rulings. This placed a “significant burden” on its available resources (see Rev. Proc. 2022-32). The IRS noted that a “significant percentage” of the letter rulings were received from estates of decedents who died within five years preceding the date of the extension request. Accordingly, Rev. Proc. 2022-32 extends the portability election period to on or before the fifth anniversary of the decedent’s date of death.

How does an estate’s executor obtain relief for a late portability election?

The updated simplified method is available only if the estate’s executor was not required to file an estate tax return and did not timely file an estate tax return (see Regs. Sec. 20.2010-2(a)(1)) and the decedent died after Dec. 31, 2010; was survived by a spouse; and was a U.S. citizen. To qualify for relief for a late portability election, the estate’s executor must complete and properly prepare Form 706 on or before the fifth anniversary of the decedent’s date of death and must state at the top of Form 706 that it is “filed pursuant to Rev. Proc. 2022-32 to elect portability under § 2010(c)(5)(A).” If extension relief is granted, and it is subsequently determined that an estate tax return was required under Sec. 6018(a), based on the value of the gross estate and taxable gifts, the extension will be deemed null and void ab initio.

What happens if relief is granted?

If relief is granted under Rev. Proc. 2022-32, the decedent’s spouse or the spouse’s estate can apply the DSUE amount to transfers made on or after the decedent’s date of death. If application of the DSUE amount to the surviving spouse’s transfers subsequently results in an overpayment of gift or estate tax by either the spouse or the spouse’s estate, no claim for credit or refund may be made if the Sec. 6511(a) period of limitation has expired. Sec. 6511(a) provides that claims for credits or refunds of tax overpayments shall be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever period expires later. If no return was filed by the taxpayer, the claim for credit or refund must be filed within two years from the time the tax was paid. Because of potential timing issues involved in making the portability election via the filing of Form 706, Rev. Proc. 2022-32 provides that a claim for credit or refund of tax filed within the Sec. 6511(a) time limits in anticipation of a valid Form 706 being filed to elect portability pursuant to the revenue procedure will serve as a protective claim for credit or refund of tax.

Additional information

Rev. Proc. 2022-32 became effective July 8, 2022. On or before the fifth anniversary of a decedent’s date of death, it is the exclusive procedure for obtaining an extension of time to make a portability election for a decedent’s estate and should be used in lieu of the letter ruling process. However, letter rulings may still be requested if a portability election is sought after the fifth anniversary of the decedent’s date of death. If a request for a letter ruling seeking an extension of time to make a portability election was pending in the IRS National Office on July 8, 2022, the IRS is required to close the file on the ruling request and refund the user fee, and the estate may obtain the extension of time to make a portability election by complying with the revenue procedure.

Editor Notes

Mark G. Cook, CPA, CGMA, MBA, is the lead tax partner with SingerLewak LLP in Irvine, Calif. For additional information about these items, contact Mr. Cook at 949-623-0478 or mcook@singerlewak.com. Contributors are members of or associated with SingerLewak LLP.