Rev. Proc. 2014-18: automatic extension for qualifying estates to elect portability.

• Author: Pearson, Clint

On Jan. 27, 2014, the IRS issued Rev. Proc. 2014-18, which provides an automatic extension for certain taxpayers to elect portability of the deceased spousal unused exclusion (DSUE).The new simplified procedure means that qualifying estates that failed to make the election on a timely filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, will no longer be required to submit a ruling request seeking relief under Regs. Sec. 301.9100-3. The new procedure is available if the decedent was a U.S. citizen or resident who died after Dec. 31, 2010, and before Jan. 1, 2014, and the value of the estate did not require filing Form 706. For qualifying estates, the portability election can now be made by filing Form 706 on or before Dec. 31, 2014.

In general, Sec. 2010(c) allows the estate of a decedent who is survived by a spouse to make a portability election, and Sec. 2010(c)(5)(A) requires the election to be made on a Form 706 filed within the time prescribed by law (including extensions). However, some taxpayers were unaware Form 706 was required to elect portability when the value of the estate did not require fifing a return. For estates not required to file a Form 706, Regs. Sec. 301.9100-3 provides the rules for granting an extension of time to elect portability. Prior to the revenue procedure, a letter ruling request was always required to obtain an extension of time to make the election. Due to the large number of ruling requests it received, the IRS issued Rev. Proc. 2014-18 to make the procedure less burdensome.

Background

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, introduced the concept of the portability of the federal estate tax exclusion between married couples for the 2011 and 2012 tax years. Later, the American Taxpayer Relief Act of 2012, P.L. 112-240, made portability of the exclusion between married couples permanent for 2013 and future years. With portability, an unused applicable exclusion amount may be transferred to a decedent's surviving spouse and applied with the surviving spouse's own exclusion to transfers during life and at death.

Example 1: A and B are married U.S. citizens with all their assets titled as joint tenants with right of survivorship, and their net worth is $10 million. A, having made no taxable gifts in his lifetime, dies in 2013, when the estate tax exclusion is $5,250,000.

1. A's estate does not need to use any of his...