Private Client Services Update – Portability Election Simplified

    By Robert H. Powell III, Estate, Trust & Wealth Transfer

    “Portability” came into existence with the enactment of the Tax Relief Act of 2010 and was made permanent with the enactment of The American Taxpayer Relief Act of 2012. The portability election had to be made with the filing of a Form 706 Federal Estate & Gift Tax Return. Many practitioners failed to timely file the 706 where the only reason for doing so was to make the portability election. An extension for filing the 706 could often be obtained but to get the extension it was necessary to request and obtain a Private Letter Ruling (“PLR”) granting the request. In 2014 the IRS granted a simplified procedure for requesting an extension to elect portability (see Rev. Proc. 2014-18) but at the end of 2014 this simplified method of obtaining relief ended. Since the end of 2014 and up until June 9th of this year, the only way for an estate to make the portability election where it had failed to file the 706 in a timely manner was to request and obtain a PLR granting an extension of time to file the 706. Not only is there currently a user fee of $10,000 that must be paid to the IRS when applying for the PLR, the process is time consuming and often involves significant fees that must be paid to the attorney or tax professional requesting the PLR.

    Effective June 9, 2017, the IRS announced (see Rev. Proc. 2017-34) a simplified method for electing portability in lieu of the estates obtaining a PLR. There are seven (7) requirements for the decedents estate to take advantage of this simplified procedure. They are: (1) The decedent was survived by a spouse; (2) died after December 31, 2010 and (3) was a resident of the United States on the date of death. In addition, (4) the personal representative (the “PR”) was not required to file an estate tax return based on the value of the gross estate and adjusted taxable gifts and (5) the PR failed to file a timely estate tax return. Finally, (6) the “person permitted to make the portability election on behalf of the estate of the decedent *** must file a complete and properly prepared Form 706 *** on or before the later of January 2, 2018, or the second annual anniversary of the decedents date of death;” and (7) the 706 must state at the top of the return that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER 2010(c)(5)(A).”

    RECOMMENDATION: Check those estates in which you were involved and where, because of the size of the estate, no 706 was filed, and see if it might be worthwhile to now take advantage of this simplified procedure for making the portability election.

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.