Tax & Accounting Blog

Deadline Approaching for Executors to Make Portability Election for Post-2010 Estates

ONESOURCE, Tax Information Reporting, Trust Tax March 8, 2012


In a notice and accompanying news release, IRS reminded executors of the estates of married decedents dying after 2010 that they must file an estate tax return in order to pass along the unused estate and gift tax exclusion amount, available for the first time this year, to their surviving spouse. The first estate tax returns for estates eligible to make the portability election were due starting on Oct. 3, 2011 (i.e., nine months after a post-2010 date of death).

Background on the portability election. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 added a new “portability feature” for estates of decedents dying after 2010 and before 2013, under which the applicable exclusion amount is the sum of (1) the “basic exclusion amount” (i.e., $5 million with an adjustment for inflation after 2011), and (2) in the case of a surviving spouse, the “deceased spousal unused exclusion amount.”

The “deceased spousal unused exclusion amount” is the lesser of:

  1. the basic exclusion amount, or
  2. the excess of the basic exclusion amount of the last deceased spouse dying after Dec. 31, 2010, of the surviving spouse, over the amount on which the tentative tax on the estate of the deceased spouse is determined.
  3. A surviving spouse may use the deceased spousal unused exclusion amount in addition to her own $5 million exclusion for taxable transfers made during life or at death.

If a surviving spouse is predeceased by more than one spouse, the amount of unused exclusion that is available for use by the surviving spouse is limited to the lesser of $5 million or the unused exclusion of the last deceased spouse. This so-called “last deceased spouse” limitation applies whether or not the last deceased spouse has any unused exclusion, and whether or not his estate makes a timely election to allow the surviving spouse to use the deceased spousal unused exclusion amount (see below).

IRS has the authority to examine the return of a predeceased spouse, even after the statute of limitations on assessment has expired, to make determinations with respect to the deceased spousal unused exclusion amount.

A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse unless the executor of the estate of the deceased spouse files an estate tax return on which the amount is computed, and makes an election on the return that the amount may be taken into account by the surviving spouse. The election, once made, is irrevocable. No election may be made if the estate tax return of the deceased spouse is filed after the due date, including extensions, for filing the return.

Background on filing deadlines. The executor of a decedent’s estate must file the Form 706 within nine months after the decedent’s death. IRS may grant a reasonable extension to file any return, not to exceed six months. Under Reg. §20.6081-1(b), executors of decedents’ estates are granted automatic six-month extensions to file Form 706, which are requested by timely filing a Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.

New guidance. On September 29, 2011, the IRS released Notice 2011-82. The Notice reminds executors of estates of individuals dying after Dec. 31, 2010, that they must timely file a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, in order to allow the surviving spouse to take advantage of the decedent’s unused exclusion amount. Any attempts to make a portability election for the estate of a decedent dying on or before Dec. 31, 2010 will be ineffective.

Because IRS believes that most married couples will want the surviving spouse to be able to take advantage of the unused basic exclusion amount of the first spouse to die, the election is deemed made if a Form 706 is properly and timely filed. No affirmative statement or other indication is necessary. The IRS stressed that, even if the estate isn’t required to file a Form 706 (e.g., because the value of the gross estate is less than the exclusion amount), the Form 706 must be filed in ordered to make the election.

To ensure the correct exclusion amount and tax rates, executors should use the Form 706 issued for the year of the decedent’s death. Until IRS revises the Form 706 to expressly contain the computation of the deceased spousal unused exclusion amount, a complete and correct Form 706 will be deemed to contain that computation.

To ensure the correct exclusion amount and tax rates, executors should use the Form 706 issued for the year of the decedent’s death. Until IRS revises the Form 706 to expressly contain the computation of the deceased spousal unused exclusion amount, a complete and correct Form 706 will be deemed to contain that computation.

IRS intends to issue regs, to address various issues arising with respect to implementing the new law.

Comments requested. IRS invited comments on the following specific issues:

  1. The determination in various circumstances of the deceased spousal unused exclusion amount and the applicable exclusion amount;
  2. The order in which exclusions are deemed to be used;
  3. The effect of the last predeceasing spouse limitation described in Code Sec. 2010(c)(4)(B)(i);
  4. The scope of IRS’s right to examine a return of the first spouse to die without regard to any period of limitation in Code Sec. 6501; and
  5. Any additional issues that should be considered for inclusion in the proposed regs.
    Effective date. Notice 2011-82 applies for estates of decedents dying after Dec. 31, 2010.