The Internal Revenue Service has issued Rev. Proc. 2014-18, which addressed two related issues:

  • First, it provides a method for an extension of time to elect portability of a decedent’s unused exclusion amount (DSUEA) for the benefit of the decedent’s surviving spouse; and
  • Second, it includes same-sex marriages in the extension of the filing deadline.
Pursuant to this Revenue Procedure, certain taxpayers now have a simplified way to obtain an extension of time to make a portability election. Portability allows a surviving spouse to take advantage of his or her deceased spouse’s unused exclusion amount, or DSUEA, and apply it to the surviving spouse’s subsequent transfers during his or her life or at death.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 amended the Tax Code to allow the estate of a decedent who is survived by a spouse to make an election that allows the surviving spouse to apply the decedent’s DSUEA to the surviving spouse’s own transfers during life and at death. This portability election applied to estates of decedents dying after Dec. 31, 2010.
Under the 2010 Act, the portability provisions were scheduled to expire on Jan. 1, 2013, but the American Taxpayer Relief Act of 2012 made portability permanent. The exclusion amount used to determine the credit amount has been defined as the sum of the basic exclusion amount and, in the case of a surviving spouse, the DSUEA. The basic exclusion amount is $5 million, adjusted for inflation in each year after 2011 ($5.34 million in 2014). The DSUEA is the lesser of either the basic exclusion amount, or the excess of the applicable exclusion amount of the last deceased spouse of the surviving spouse over the amount with respect to which the tentative tax is determined for the estate of the deceased spouse.
There are requirements that the executor of the estate of a deceased spouse must satisfy in order for the surviving spouse’s transfers to qualify for the decedent’s DSUEA. Specifically, the executor of the estate of the deceased spouse must elect portability of the DSUEA on a Form 706. A portability election is effective only if it is made on a Form 706 filed within the time prescribed by law, including extensions.
In June 2012, the Treasury Department and the IRS issued temporary regulations under which the portability provisions have retroactive effect, applying to estates of decedents dying on or after Jan. 1, 2011.
The due date of an estate tax return required to elect portability is nine months after the decedent’s date of death, or the last day of the period covered by an extension, if an extension of time for filing has been obtained from the IRS.
However, the Supreme Court’s decision in U.S. v. Windsor and Rev. Rul. 2013-17, struck down Section 3 of the Defense of Marriage Act, under which the term “marriage” had been defined as a legal union between one man and one woman. In the Windsor case, the Supreme Court held that Section 3 of DOMA was unconstitutional because it violated Fifth Amendment principles.
Subsequently, the IRS issued Rev. Rul. 2013-17 to provide guidance on the effect of the Windsor decision on the agency’s interpretation of sections of the Tax Code referring to taxpayers’ marital status. Under that revenue ruling, 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.
In general the revenue procedure issued on Monday by the IRS applies only if the taxpayer is the executor of the estate of a decedent who (a) has a surviving spouse; (b) died after Dec. 31, 2010, and on or before Dec. 31, 2013; and (c) was a citizen or resident of the U.S. on the date of death. Taxpayers can get an extension of time to file Form 706 without needing to get a private letter ruling as long as they file by Dec. 31, 2014. In order to qualify for the extension, the person filing the Form 706 on behalf of the decedent’s estate must state 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).”
Taxpayers can also claim a credit or refund for estate taxes they have overpaid in past years, but the statute of limitations for doing that is within three years of filing Form 706.
– Heinz J. Brisske