The Internal Revenue Service has announced that the two-year period for filing an estate tax return merely to elect portability has been extended to five years from date of death. Rev. Proc. 2022-32, IRB 2022-30 IRB ___ (7/25/2022).
In Rev. Proc. 2017-34, 2017-26 IRB 1282 (6/26/2017), the IRS first announced a new simplified procedure for obtaining relief for filing a late estate tax return in order to elect portability. (See “New Late Filing Portability Relief.”)
Under IRC section 2010(c)(5)(A), the federal estate tax exclusion amount for a surviving spouse can be increased by the “deceased spousal unused exclusion amount” of the deceased spouse, but only if the executor elects “portability” by filing an estate tax return for the deceased spouse within the time prescribed by law (including extensions) for filing the return.
The IRS does not have the power to extend the time to make an election with the due date is set by statute, but can extend deadlines when the due date is prescribed by regulation. When the combined gross estate and adjusted taxable gifts exceeds the base exclusion amount, the due date for the return is prescribed by IRC § 6018(a) and so the IRS does not have the power to allow for a late filed election, but when no estate tax return is required by § 6018(a) and the return is being filed only to make the portability election, the due date is prescribed by Treas. Reg. § 20.2010-2(a) and the IRS can grant an extension of time under Treas. Reg. § 301.9100-3.
Rev. Proc. 2017-34 allowed a late portability election if (1) the estate tax return was not required due to the combined values of the gross estate and total adjusted taxable gifts and (2) the federal estate tax return is filed not later than two years after the decedent’s death or January 2, 2018, whichever is later. This was intended to avoid the need for requests for letter rulings, but Rev. Proc. 2022-32 reports that the IRS has continued to issue “numerous” letter rulings allowing elections more than two years after the death of the decedent, and that the number of requests “continues to place a significant burden on the available resources of the IRS.” A “significant percentage” of the ruling requests have been from estates of decedents who died within five years of the request, and so the IRS has extended to time for late filing to five years after the decedent’s death.
The new revenue procedure supersedes Rev. Proc. 2017-34, and the requirements for filing a return in accordance with the procedure are found in Section 4.01 of the new Rev. Proc. 2022-32.
[DBE Comment: The federal estate tax basic exclusion amount is currently $12,060,000 (with adjustments for inflation), but will be reduced by one half after 2025. When the combined estates of the deceased spouse and the surviving spouse are likely to be less than the current exclusion amount, but likely to be more than the exclusion amount after 2025, it is not often clear if preparing a federal estate tax return will actually save any tax. The new five year period within which to file a return for a portability election may allow many estates to wait until after 2025, and to see if Congress allows the exclusion amount to be halved, before going to the time and expense of preparing and filing a federal estate tax return for the portability election.]