FEDERAL ESTATE TAX -Final Portability Regulations

The IRS issued final portability regulations concerning the election of portability for the deceased spousal annual exclusion (DSUE) amount and the rules for the use of the DSUE amount by the surviving spouse. These regulations, which generally conform to the proposed regulations issued in 2012, are generally applicable to estates of decedents dying after June 12, 2015. Among the principal requirements are the following:

  • The portability election can be filed only by an “executor” as defined under IRC Section 2203.
  • The portability election must be made on a timely filed return. If the gross estate value is below the threshold federal estate tax filing amount in IRC §6018, and is filing a return only for the purpose of electing portability, an extension of time to file may be allowed under Treas. Reg. Section 301.9100-3 However, Treas. Reg. Section 301.9100-3 does not authorize an extension of time to file if an estate tax return is otherwise required.
  • A computation of the DSUE amount is required in order for an estate tax return intending to make the portability election to be considered “complete and properly prepared” under IRC 2010(c)(5)(A). However, if the DSUE amount is uncertain at the time of filing, as can occur in cases where pending claims against an estate paid after the filing of the estate tax return result in unused exemption, the return will be considered “complete and properly prepared” if the requirements of Reg. §20.2010-2(a)(7) are met and the return is timely filed. Adjustments to reported amounts will be allowed after the initial filing.
  • A non-citizen surviving spouse cannot apply the DSUE until the final amount of any estate tax on a qualified domestic trust has been determined, except in the case when the surviving spouse becomes a U.S. citizen.
  • When examining the return of a decedent who claims credit for the DSUE of a predeceased spouse, the IRS reserves the right to examine the return of the predeceased spouse for the purpose of determining the correct amount of DSUE, although the statute of limitations does not permit the assessment of tax in the estate of the deceased spouse. The examination may include any issue affecting the calculation of the DSUE, not just the valuation of assets.
  • Credits other than the unified credit, such as the foreign tax credit and the credit for previously taxed property, cannot be used to increase the DSUE.

Reference: Margery J. Schneider, Tax Update; Probate & Trust Law Section Newsletter, Philadelphia Bar Association (November 2015)

Filed Under: Federal Estate Tax Return; Portability

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