Law Office of John S. Palmer Attorney at Law

Extending the Portability Election Deadline

Posted Thursday, February 13, 2014 by John S. Palmer

The IRS has formally established a simplified procedure by which taxpayers may obtain a retroactive extension of time to make a portability election.

“Portability” allows a surviving spouse to reduce his or her gift and estate taxes by claiming the unused portion of a deceased spouse’s estate tax exclusion amount. Portability is not automatic, though; a portability election must be made on a timely-filed estate tax return for the deceased spouse’s estate, even if a return would otherwise not need to be filed.

The portability election was first made possible by legislation enacted in 2010 for decedents dying on or after January 1, 2011. The availability of the election was set to expire on January 1, 2013, but congress made it permanent in the Taxpayer Relief Act of 2012.

The IRS previously established regulations requiring the portability election to be made on a timely-filed estate tax return (i.e., a return filed within 9 months of a decedent’s date of death or the last day of the period covered by an extension.) However, until the U.S. Supreme Court struck down Section 3 of DOMA last year in U.S. v. Windsor, legally-married same sex couples were precluded from making a portability election. Subsequent to Windsor, the IRS issued Revenue Ruling 2013-17 to provide guidance on the IRS’ interpretation of internal revenue code sections that refer to a taxpayer’s marital status. It held that:

For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex.

For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

To address the fact that DOMA precluded a surviving spouse who was legally married to a same-sex spouse from making a timely portability election, the IRS has now issued Rev. Proc. 2014-18, establishing a simplified method by which taxpayers may obtain a retroactive extension of time to make a portability election. This applies to all taxpayers, regardless of whether they were married to a same- or opposite-sex partner.

The procedure only applies if all of the following conditions are met:

• The taxpayer is the executor of the estate of a decedent who: (a) has a surviving spouse; (b) died after December 31, 2010, and on or before December 31, 2013; and (c) was a citizen or resident of the United States on the date of death.
• The taxpayer is not otherwise required to file an estate tax return.
• The taxpayer did not previously file a timely estate tax return to elect portability.
• A person permitted to make the election on behalf of a decedent files a complete and properly-prepared Form 706 on or before December 31, 2014, with a notation at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2014–18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”

This procedure is effective January 27, 2014, and must be used until January 1, 2015 to obtain an extension of time to make a portability election by estates meeting its requirements; individual letter rulings will not be issued.

Moreover, this revenue procedure does not affect the deadline for filing a claim for a credit or refund of an overpayment of tax, which must be filed within three years from the date of filing the tax return, or within two years from the date of payment of the tax, whichever is later. This would be a consideration if, for example, both spouses of a same-sex couple died between 2011 and 2013, and the estate of the second spouse paid estate tax because the portability election was not yet available. The estate of the first spouse may have until the end of 2014 to make a retroactive portability election, but the estate of the second spouse may need to file a claim for a credit or refund before the portability election is actually made, and the IRS will process the claim once the election is made.

If you have any questions or would like to schedule an appointment, please call us at (425) 455-5513, toll free at (877) 455-5513, or info@palmerlegal.com.