IRS Provides Automatic Extension to Make Portability Election (Under Some Circumstances)

A portability election by the estate of a first spouse to die allows the unused unified credit of the first spouse to be used by the surviving spouse for estate and gift tax purposes. Since Code §2010(c)(5)(A) requires the election be made on an estate tax return, the portability election is effective only if made on an estate tax return that is timely filed (including extensions).

Because of numerous requests for extensions of the timing period, and the administrative burden placed on the IRS, the IRS has issued a Revenue Procedure to allow for the filing of a late portability election. The key provisions of this extension are:

1. The portability election must be submitted with a complete and properly filed Form 706 by the later of (a) January 2, 2018, and (b) the second anniversary of the decedent’s death. Once January 2, 2018 is reached, this effectively becomes a two year extension. The January 2, 2018 date allows for late filings by those estates that are already past the two year period.
2. The extension is ONLY AVAILABLE TO ESTATES THAT ARE NOT OTHERWISE REQUIRED TO FILE AN ESTATE TAX RETURN. Thus, if an estate is required to file a return due to the size of the gross estate (including prior taxable gifts), then this automatic extension procedure cannot be used (although the estate can still seek an extension under Treas. Regs. § 301.9100-3).
3. The Form 706 must state at the top that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
4. An estate that does not comply with the requirements of the Revenue Procedure can still seek an extension under Treas. Regs. § 301.9100-3.
5. An estate that files late but within the deadlines of the Revenue Procedure and later learns that it should have filed a Form 706 because the estate exceeded the gross estate filing thresholds cannot rely on the late election - it is treated as null and void.
6. If a valid late election is made and this results in a refund of estate and/or gift taxes of the surviving spouse, the time period for filing for a refund is not extended from the normal statutory periods.
7. A claim for credit or refund of tax filed within the time prescribed in Code § 6511(a) by the surviving spouse or the estate of the surviving spouse in anticipation of a Form 706 being filed to elect portability under the Revenue Procedure will be considered a protective claim for credit or refund of tax.

Rev. Proc. 2017-34, 2017-26 IRB 1282