REV. PROC. 2014-18: PORTABILITY

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Author: Alison I. Glover, Esq., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Purpose

The revenue procedure provides a simplified method for estates which were below the estate tax filing threshold and failed to file an estate tax return to elect portability.  This procedure provides relief to executors who may have been unaware of or misunderstood the filing requirement and also to executors of estates of same-sex couples who were recognized as spouses after the filing date.

Estates meeting the specified requirements will avoid having to file for relief under §301.9100-3.

Background

Sections 302(a)(1) and 303(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 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 Deceased Spousal Unused Exclusion Amount (“DSUE”) to the surviving spouse’s own transfers during life and at death. The DSUE amount is defined as the lesser of “(A) the basic exclusion amount, or (B) the excess of the applicable exclusion amount of the last deceased spouse of the surviving spouse over the amount with respect to which the tentative tax is determined under Section 2001(b)(1) on the estate of the deceased spouse.” In order for the surviving spouse to apply the decedent’s DSUE amount to the surviving spouse’s transfers, the surviving spouse must elect portability of the DSUE amount on a timely filed Form 706, which must include a computation of the DSUE amount. The due date of an estate tax return required to elect portability is 9 months after the decedent’s date of death or the last day covered by extensions.

In 2013, United States v. Windsor struck down portions of the Defense of Marriage Act (“DOMA”). Previously, DOMA prevented the Service from recognizing same-sex marriages. According to Rev. Rul 2013-17, the Windsor decision allows, among other benefits, the surviving spouse of a same-sex married couple to make a portability election upon the death of his/her spouse.

The due date for estates required to file an estate tax return is prescribed by statute. However, if an executor is not required to file an estate tax return but may file an estate tax return to elect portability, the due date for electing portability is prescribed by regulation (20.2010-2T(a)).  Accordingly, an executor may seek relief under Section 301.9100-3 for a late filing.  In general, relief will be granted if the taxpayer acted reasonably and in good faith and the grant of relief will not prejudice the government. The Service has issued several letter rulings under Section 301.9100-3 granting an extension of time to elect portability under Section 2010(c)(5)(A) in situations in which the decedent’s estate was not required to file an estate tax return.

Applicability

This revenue procedure applies if:

  • The taxpayer is the executor of the estate of a decedent who:
    • Has a surviving spouse;
    • Died after December 31, 2010 and on or before December 31, 2013; and
    • Was a citizen or resident of the United States on the date of death.
  • The taxpayer was not required to file an estate tax return because decedent’s estate was under the applicable filing threshold;
  • The taxpayer did not file a timely estate tax return;
  • The taxpayer files a complete and properly prepared Form 706 on or before December 31, 2014; and
  • The taxpayer states on the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A).”

Provided that all of these requirements are met, the taxpayer’s Form 706 will be considered to have been timely filed, unless it is subsequently determined that the taxpayer actually owed estate tax, in which case the relief will not be granted.

Limitations Period for Claim for Credit or Refund by the Surviving Spouse

To obtain a credit or refund of an overpayment of tax by reason of a portability election made under this revenue procedure, the surviving spouse (or the executor of the estate of a deceased surviving spouse) must file a claim for credit or refund of tax before the general limitations period. For example, a predeceasing spouse (“S1”) died on January 1, 2011. The assets included in the gross estate of S1 were under the exclusion. The surviving spouse (“S2”) did not file a Form 706. S2 died on January 14, 2011. S2’s taxable estate was over the exclusion. S2’s executor filed a Form 706 and paid estate tax on October 14, 2011. Under this revenue procedure, S2’s executor should file a claim for refund by October 14, 2014 – even if the estate of S1 has not yet filed a Form 706 under this procedure to make the portability election. Assume that in 2015, the Service determines that (i) S1’s estate has met the requirements for a grant of relief under this revenue procedure and is deemed to have made a valid portability election, (ii) accepts S1’s return with no changes, and (iii) issues an estate closing letter to S1’s estate. The refund claim filed by S2’s executor in anticipation of the filing of Form 706 by S1’s executor will be considered a protective claim for credit or refund of tax.

Effective Date; Pending Requests

This Revenue Procedure is effective on January 27, 2014. With respect to any ruling requests pending on January 27, 2014, the executor may rely on this revenue procedure, withdraw the letter ruling request and receive a refund of its user fee.