The Internal Revenue Service (“IRS”) has offered needed relief for portability elections. Portability, discussed in a prior blog, can save a surviving spouse’s beneficiaries over $2 million (in 2017) in estate taxes! However, to utilize such savings, the surviving spouse must make a portability election on a properly filed Form 706 for the predeceasing spouse’s estate. If such a return is not filed, then such savings will be lost. Unfortunately, many surviving spouses and their advisors miss the deadline.
Prior to this Revenue Procedure 2017-34 (the “Procedure”), taxpayers who missed the deadline had to pay for a private letter ruling (“PLR”) and the associated professional fees to ask for an extension of time. Costs and expenses can be prohibitive for some as a PLR can cost as much as $10,000!
The Procedure, effective June 9, 2017, sets forth specific guidelines for automatic relief for late portability elections. A taxpayer now has until the later of January 2, 2018 or the second anniversary of the decedent’s date of death to file the Form 706 to make a portability election. If the taxpayer still does not file a return within the extension period, then the taxpayer must ask for a private letter ruling.
The Procedure applies to estates that have NO filing requirement other than to elect portability. Thus, if a taxpayer is already required to file a Form 706 because the decedent’s estate exceeds the exemption amount, this Procedure is not applicable.
Good news for taxpayers who have requested relief in a current PLR request pending with the IRS. The IRS will close the file, refund the fee and the taxpayer can request relief under the Procedure. Unfortunately, taxpayers, who received earlier relief under a PLR and paid fees to obtain a PLR PRIOR to the Procedure, have no recourse to recoup those fees.
The executor filing such a Form 706 must state at the top of the form “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A).
The Procedure also sets forth requirements if the election made on the late return creates a refund for the surviving spouse. The claim for refund may only be made if the normal statute of limitations for filing a claim for credit or refund has not expired.
ADVICE: This Procedure is VERY helpful for practitioners and taxpayers who miss the deadline for filing a return only to elect portability. You now have generally have 2 years from the date of death to file the return. All practitioners should have a question on portability on their checklist and advise surviving spouses on such election.
WORD OF THE WEEK: A Revenue Procedure is an official statement by the IRS about a procedure that either affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code and related statutes, treaties, and regulations. Further a Revenue Procedure may also be published if the information should be a matter of public knowledge.
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