IRS Passes New Revenue Procedure—Simplifies Surviving Spouse Portability Election

The Federal government  imposes an estate tax which is calculated on the value of your assets when you die.  The first $5,490,000 (2017 exemption) is excluded for Federal Estate tax purposes.  This is a cumulative lifetime exemption; therefore taxable gifts made during your lifetime utilize part of this exemption.  Upon death, the remaining exemption is essentially applied to the remaining estate.

For federal estate tax purposes, if you follow proper compliance procedures, you can port the exemption of the first spouse to the second spouse for all deaths after 2010.  This provides for the availability of approximately $10,980,000 in assets to be exempt from estate tax.

The exemption ported is known as the “Deceased Spouse Unused Exemption” or DSUE.

This Portability election requires the filing of a return for the estate of the first deceased spouse, even if that estate is too small to require filing otherwise. It must be elected on a timely filed return including extensions.

In the earlier years after these portability provisions were enacted,  the IRS provided for a simplified method for obtaining an extension of time to make the portability election for estates that would not normally be required to file an estate tax return.  However, that was only available through December 31, 2014.

After December 31, 2014, the IRS has issued numerous letter rulings under   §301.9100-3 to make a portability election for those estates not otherwise required to file and who missed the deadline for filing.  This request involved the paying of a substantial fee (currently $10,000) to the IRS.

Revenue Procedure 2017-34, recently enacted, provides a new simpler opportunity for estates to make this election.

For estates of decedents who died from January 1, 2011 to January 2, 2016,( who are not otherwise required to file an estate tax return and missed the deadline for timely filing)  the election can be made up to January 2, 2018.

For estates of decedents who died after January 2, 2016, an election can be made up to 2 years after date of death.

For the surviving spouse, the tax savings for making this election is significant.  As much as $ 2,200,000!

For further information, contact Lisa Rispoli, Partner-in-Charge of Trust & Estates services at Grassi & Co. at lrispoli@grassicpas.com.