The IRS has issued a new taxpayer friendly procedure for certain estate tax returns that missed the filing deadline to obtain the portability election. Rev. Proc. 2017-34 provides a simplified method to receive an extension of time to make a portability election if you didn't file the 706 return on time. A portability election allows a deceased taxpayer to transfer any unused gift/estate tax exemption amount (currently the maximum is $5,490,000 in 2017) to their surviving spouse.
Many estates are not required to file a Form 706 due to the value of the gross estate and adjusted taxable gifts being below the filing threshold listed above. These estates may still file a 706 return in order to make the portability election.
Before the new procedure, in order to make a portability election, the executor of the estate had to elect portability on a timely filed estate tax return which is due nine months after the date of death (unless they asked for the automatic six month extension). If you missed this filing date, you lost the ability to elect the portability. The IRS later came out with a procedure to allow the executor to make a late election by filing for a Private Letter Ruling, but this was both time consuming and costly. Many estates still did file for a Private Letter Ruling which inundated the IRS with additional requests. This is part of the reason for the new Revenue Procedure.
Rev. Proc. 2017-34 allows estates that would otherwise not have to file an estate return to get more time to make a portability election without requesting a Private Letter Ruling. Under the new revenue procedure, the executor of the estate must file an estate tax return by Jan. 2, 2018, or the second anniversary of the decedent's death, whichever is later. The return must state at the top "Filed Pursuant to Rev. Proc. 2017-34." By doing this the 706 return will be treated as timely filed and the election for the portability to be allowed.
This simplified method is available as long as certain requirements are met:
If a Form 706 has already been timely filed without making the portability election, this new Revenue Procedure isn't available. This new method is especially beneficial to smaller estates that may not have been aware of the benefits of the portability election; didn't realize they should have filed and missed the deadlines; or didn't want to pay the costs of a Private Letter Ruling request.
For assistance making a portability election, contact your local UHY LLP professional.
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