IRS Extends Late Portability Election Automatic Relief from 2 to 5 Years

On July, 8, 2022, the Internal Revenue Service released Revenue Procedure 2022-32, which provides a simplified method for certain estates to make a late portability election to allow the surviving spouse of the decedent to use the decedent’s unused unified gift and estate tax exemption (also known as the deceased spousal unused exclusion (DSUE)).

The Revenue Procedure expressly supersedes Rev. Proc. 2017-34, which allowed an estate that wasn’t required to file an estate tax return (due to the value of the gross estate and adjusted taxable gifts being under the filing threshold in Internal Revenue Code Section 6018(a)) to make a late election through the second anniversary of death.  

The IRS stated in Rev. Proc. 2022-32 that, even since it began offering the two-year relief period, “the IRS has continued to issue numerous letter rulings” from estates that missed that deadline, placing “a significant burden” on IRS resources. A “significant percentage” of these requests came before the fifth anniversary of the decedent’s date of death, however. To reduce the number of letter ruling requests, in Rev. Proc. 2022-32, the IRS updates the simplified method in Rev. Proc. 2017-34 by extending the period within which the estate of a decedent may make the portability election under the simplified method to on or before the fifth anniversary of the decedent’s date of death.

New Requirements for Portability Election

Under the new procedure, the executor of the decedent’s estate may elect for portability of the DSUE to a surviving spouse if: (1) the decedent died after Dec. 31, 2010, (2) the decedent was a citizen or resident on date of death, (3) the decedent’s estate isn’t required to file an estate tax return (that is, the decedent’s estate is below the filing threshold in IRC Section 6018(a)) and (4) the estate didn’t in fact file a timely estate tax return. To avail themselves of the new procedure, the executor of the decedent’s estate is required to file a completed estate tax return on or before the fifth anniversary of the decedent’s date of death, and the top of the return must state: “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER 2010(C)(5)(A).” If the requirements of the revenue procedure are met, the return and the election will be considered timely filed, and the DSUE amount of the decedent is available to the decedent’s surviving spouse (or the estate of the surviving spouse) for application to the surviving spouse’s transfers made on or after the decedent’s date of death. 

The new IRS announcement is good news because it allows for easy relief to “port over” the decedent’s unused unified estate tax exemption to the surviving spouse.

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