On June 9, 2017 the IRS issued Rev. Proc. 2017-34, 2017-26 IRB. The purpose of this Rev. Proc. is to simplify the procedure and reduce the cost of obtaining extensions of time to file federal estate tax returns for the sole purpose of electing portability.
Portability of the unused applicable exclusion amount of the first spouse to die was first approved by Congress in 2010. Subsequent regulations provided that the only way to elect portability was to file a complete timely federal estate tax return for the estate of the first spouse to die.
Because of the newness of this requirement, the IRS published a Rev. Proc. that permitted estates of decedent's dying on or before December 31, 2014 to file a federal estate tax return solely to elect portability whether it was timely or not. However, since that date elections have had to be made on a timely filed return. The only exception has been to request a letter ruling that grants an extension of time. Since 2014, the IRS has been flooded with requests for letter rulings requesting extensions that have for the most part been routinely granted. That demand has indicated to the IRS that there is a need for continued relief for estates of decedents wanting to elect portability but which are not otherwise required to file a federal estate tax return. The result is the issuance of this Rev. Proc.
This Rev. Proc. contains a simplified method to obtain an extension of time to elect portability that is available to the estates of decedents having no filing requirement for a period the last day of which is the later of January 2, 2018 or the second anniversary of the decedent's date of death. To obtain relief, the executor of the estate must file a complete and properly prepared Form 706 as described in the regulations on or before the expiration of the above deadlines. Also the executor filing the return must state at the top of the Form 706 that the return is "FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)." In addition to qualify the decedent must have been survived by a spouse, died after December 31, 2010, and been a citizen or resident of the United States on the date of death; the executor must not have been required to file an estate tax return due to the size of the estate; and the executor must not have timely filed an estate tax return. If it is subsequently determined that the estate exceeded the size requiring the filing of an estate tax return, the grant of an extension under this revenue procedure will be deemed to be null and void.
This revenue procedure is effective June 9, 2017. Through the later of January 2, 2018 or the second anniversary of a decedent's date of death, it contains the exclusive procedure for obtaining an extension of time to make a portability election. Letter ruling requests will not be accepted and if one is pending on June 9, 2017 the file will be closed and the user fee refunded.
One thing to keep in mind is that an extension of time to file a federal estate tax return in the estate of the first spouse to die to elect portability does not extend the time to file for a credit or refund of federal estate tax paid in the survivor's estate. Thus if the surviving spouse paid gift tax or the estate paid federal estate tax prior to the filing of a federal estate tax return in the estate of the first spouse to die to elect portability, a claim for credit or refund must be timely filed.
In another matter pertaining to portability, the Oklahoma Supreme Court has held that the personal representative of an estate where there is a surviving spouse has a duty to file a federal estate tax return to elect portability. Also an antenuptial agreement is which the spouse relinquished all interests in the other spouse's estate did not bar her from asserting an interest in the portability of DSUE.
With regard to user fees, under IR-2017-102, June 1, 2017, beginning June 15, taxpayers requesting letter rulings, closing agreements and certain other rulings from the IRS will need to make user fee payments electronically using the federal government's Pay.gov system.