Relief for Late Filed Estate Tax Returns

Internal Revenue Service Offers Further Relief for Late Filed Estate Tax Returns Electing Portability.

Portability is a planning tool available only to married couples. It essentially allows a surviving spouse to take any leftover estate tax exemption that the deceased spouse’s estate did not use.  The exemption is transferred to the surviving spouse to reduce the overall estate tax once the second spouse passes away. 

To take advantage of portability, you must file an estate tax return for the deceased spouse, even if no estate tax is due. The Internal Revenue Service will then carry forward the unused exemption to the surviving spouse; however, there are certain deadlines that need to be followed.

There were time limits imposed on the ability to elect portability.  

On July 8, 2022, the Internal Revenue Service has now granted certain taxpayers more time to elect portability if they missed the original tax filing deadline.

To make the portability election, the surviving taxpayer had to file Form 706, which is due nine months after date of death with a possible 6-month extension. Revenue Procedure 2017-34 allowed for an additional five months, or a total of two years, when filing the return for the portability election.

Revenue Procedure 2022-32 now provides an easier method for qualifying n estates to obtain an extension of time to file a return (under Section 301.9100-3) to file a return to elect portability of the deceased spousal unused exclusion (DSUE) amount.  The new rule now gives the estate five years from the date of death of the first spouse’s anniversary to elect portability for a late return.  This is longer than the original election period of two years from the date of death.   Beyond the election periods, estates that missed the two-year deadline needed to obtain a private letter ruling for the late-filed returns to claim the DSUE.

Like the earlier ruling, Revenue Procedure 2022-32 will apply to estates that do not normally have to file an estate tax  return because the value of the gross estate and adjusted taxable gifts is under the filing threshold in Section 6018(a) ($11,180,000 in 2018, $11,400,000 in 2019, $11,580,000 in 2020, $11,700,000 in 2021, and $12,060,000 in 2022).

Portability is a great way to ensure that your loved ones are taken care of after you're gone. If you have any questions about portability or how to take advantage of it, please click here to contact us.