Final Portability Regulations

The Internal Revenue Service has issued T.D. 9725 containing final regulations on electing portability for the deceased spousal unused exclusion (DSUE) amount.  Among the revisions that were made (and not made) to the proposed and temporary regulations are the following:

  • The portability election must be made on a timely filed return, and an extension of time to file a return to elect portability may be allowed under Treas. Reg. § 301.9100-3 if a return is not required to be filed because the gross estate is too small to require a return (see Rev. Proc. 2014-18), but not if an estate tax return is otherwise required (although an extension may be allowed under IRC section 6081).
  • Only an “executor” as defined by IRC section 2203 can file the estate tax return to elect portability.
  • If an estate tax return is not otherwise required, only descriptions, and not values, are required for assets qualifying for marital or charitable deductions, subject to exceptions for partial interests,  values needed to determine other non-deductible interests, and values needed to determine the eligibility of the estate under other transfer tax provisions.
  • The IRS considered, and rejected, requests for a shorter Form 706 for portability elections.
  • The general rule is that a non-citizen surviving spouse cannot apply the DSUE until the final amount of any additional estate tax on a qualified domestic trust has been determined, such as at the spouse’s death, but an exception to that rule has been created when the surviving spouse becomes a US citizen.
  • In examining the return of a decedent who claims credit for DSUE from a deceased spouse, the IRS may examine the return of the deceased spouse for purposes of determining the correct amount of DSUE even though the statute of limitations does not allow for an assessment of tax in the estate of the deceased spouse, and the examination is not limited to the valuation of assets but can include any issue affect the calculation of the DSUE.
  • Under Rev. Proc. 2001-38, the IRS will disregard a QTIP election that is not necessary to avoid federal estate tax, but it may be desirable in some cases to file an estate tax return to elect portability and make a QTIP election even though the QTIP election is not necessary to avoid federal estate.  This issue is not addressed in the final regulations, but the IRS stated that it intends to provide guidance in a future Internal Revenue Bulletin.
  • The DSUE cannot be increased by applying credits other than the unified credit (such as the foreign tax credit and credit for property previously taxed) before applying the unified credit.

The final regulations are generally applicable to estates of decedents dying on or after June 12, 2015.


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