In Revenue Procedure 2017-34, the IRS provides a simplified method to obtain an extension of time under Reg. Section 301.9100-3 to file a return to elect portability of the deceased spousal unused exclusion (DSUE) amount under Section 2010(c)(5)(A). The revenue procedure applies to estates not normally required to file estate tax returns because they fall below the Section 6018(a) filing threshold.

Background

Before 2011, married couples could not preserve any unused lifetime applicable exclusion amount of the first-to-die spouse. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) then amended Section 2010(c) to allow portability of the applicable exclusion amount between spouses. The 2010 Tax Act provides that, when a spouse passes away in 2011 or 2012, the surviving spouse can add to his or her own applicable exclusion amount the amount of the deceased spouse's unused estate and gift tax exclusion available at death. This provision was set to expire on December 31, 2012, but the American Taxpayer Relief Act of 2012 made portability permanent.

In June 2012, the IRS issued temporary (T.D. 9593) and proposed (REG-141832-11) regulations on the requirements for electing portability of a DSUE. The IRS issued final regulations (T.D. 9725; see Tax Alert 2015-1157) in June 2015 on the estate and gift tax applicable exclusion amount, as well as the requirements for electing portability of a DSUE amount to the surviving spouse. Largely adopting the regulations issued in 2012, the final regulations apply to estates of decedents dying on or after June 12, 2015.

Section 2010(c)(3) defines the basic exclusion amount as $5 million adjusted for inflation each year after 2011. Section 2010(c)(4) defines the DSUE amount as the lesser of: (1) the basic exclusion amount, or (2) the excess of the applicable exclusion amount of the surviving spouse's last-deceased spouse over the amount with respect to which the tentative tax is determined under Section 2001(b)(1) on the estate of the deceased spouse.

Section 2010(c)(5) provides that the executor of the estate of the deceased spouse must elect portability of the DSUE amount on a timely filed estate tax return and that the return must include a computation showing how the amount was calculated. The due date for an estate tax return on which a portability election is made is nine months after the date of death or the last day of an extension period, if an extension of time to file was requested (Reg. Section 20.2010-2(a)(1)).

An extension of time to elect portability will not be granted to an estate that must file an estate tax return under Section 6018(a) (Reg. Section 20.2010-2(a)(1)). But an extension to elect portability under Section 2010(c)(5)(A) may be available to an estate that is not required under Section 6018(a) to file an estate tax return (Reg. Section 301.9100-3).

In Revenue Procedure 2014-18, 2014-7 IRB 513 (see Tax Alert 2014-214), the IRS provided a simplified method until December 31, 2014, for obtaining an automatic extension of time to elect portability for estates of decedents with surviving spouses that were not required to file an estate tax return. Since December 31, 2014, the IRS has issued numerous private letter rulings granting extensions of time to elect portability for estates not required under Section 6018(a) to file an estate tax return.

Revenue Procedure 2017-34

Revenue Procedure 2017-34 states that continuing relief is needed for estates that are not required to file an estate tax return, because the IRS has received "considerable number of ruling requests for an extension of time to elect portability … since December 31, 2014" and this has placed a "significant burden on the Service." Therefore, the new revenue procedure provides a simplified method for estates that are not required to file an estate tax return to obtain an extension of time to elect portability for a period ending on the later of January 2, 2018 or the second anniversary of the decedent's death. After this time period expires, a taxpayer will be able to seek relief by requesting a private letter ruling under Reg. Section 301.9100-3.

The simplified method provided in Revenue Procedure 2017-34 may be used if: (1) the decedent (a) was survived by a spouse, (b) died after December 31, 2010, and (c) was a citizen or resident of the United States on the date of death; (2) the executor is not required under Section 6018(a) to file an estate tax return; (3) the executor did not file an estate tax return within the time required under Reg. Section 20.2010-2(a)(1); and (4) the executor follows the requirements for relief set out in Section 4.01 of the revenue procedure.

To meet the requirements for relief under Revenue Procedure 2017-34, the executor must: (1) file a complete and properly prepared estate tax return on or before the later of January 2, 2018 or the second anniversary of the decedent's death; and (2) write at the top of the Form 706 "FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER Section 2010(c)(5)(A)."

If an estate that has obtained relief under Revenue Procedure 2017-34 is later determined to be an estate for which an estate tax return should have been filed under Section 6018(a), "the grant of an extension as provided in [Section] 4.02 of this revenue procedure is deemed null and void ab initio."

If the decedent's estate is granted relief under Revenue Procedure 2017-34 and the estate tax return is considered timely filed for purposes of electing portability, the DSUE amount of the decedent is available to his or her surviving spouse or the spouse's estate for application to the surviving spouse's transfers made on or after the decedent's date of death in accordance with the rules prescribed under Reg. Sections 20.2010-3 and 25.2505-2. But, if the increase in the surviving spouse's applicable exclusion amount attributable to the addition of the decedent's DSUE amount causes the surviving spouse or his or her estate to overpay gift or estate tax, no claim for credit or refund may be made if the Section 6511(a) time for filing a claim for credit or refund of a tax overpayment has expired.

Revenue Procedure 2017-34 includes a provision enabling an estate to file a protective claim for credit or refund of tax in anticipation of relief under the revenue procedure, and provides three examples illustrating how the revenue procedure is to be applied.

Implications

Although the revenue procedure is designed to free up resources at the IRS to focus on more substantive matters, it also has the effect of relieving an estate of the burden of having to file a private letter ruling to request an extension of time to make a portability election — at least if the estate realizes within two years of the decedent's death that it may make the election by filing an estate tax return. If the estate fails to realize this omission within two years of the decedent's death, it can still file a private letter ruling to obtain relief for an extension of time to make a portability election. This revenue procedure, however, does not provide any relief for estates that were otherwise required to file a return under Section 6018(a).

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