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IRS extends time to file Form 706 portability election

Miss a federal estate tax Form 706 filing deadline? The IRS made a rule change that you need to know about for late portability elections.   

In Revenue Procedure 2022-34, the IRS provides a simplified method that allows an estate to obtain an extension of time to make a portability election up to five years after a decedent’s death. Previously, if an estate missed the two-year deadline, then the estate would have to request a private letter ruling, a potentially expensive and time-consuming process that does not guarantee a positive result.   

This new rule only applies where an estate was not required to file Form 706 and is only voluntarily filing in order to allocate the decedent’s unused estate exemption amount “DSUE” to the surviving spouse. This means that an estate where the sum of gross assets and prior taxable lifetime gifts exceeds the federal estate exemption amount, currently set at $12.06 million, may not make a portability election.  

Under the revised method, an estate files a federal Form 706 on or before the five-year anniversary after the decedent’s death. Form 706 must include language at the top of Ford 706 that states, “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” 

As background, Congress originally enacted the portability law in 2010 to simplify estate tax planning for a married couple. Previously, a couple would need to use expensive and complex bypass trust planning in their testamentary documents. Portability is a good backup plan where a couple fails to execute wills or does simple wills that leave everything outright to the surviving spouse.  After the decedent’s estate makes a portability election, the surviving spouse can then apply the DSUE amount to the surviving spouse’s own transfers during life and at death. This allows a couple to use both $12.6 million estate tax exemptions amounts, i.e. effectively sheltering up to $25.2 million in assets from federal estate tax. Furthermore, unlike other federal estate tax provisions that expire in 2026, the portability law was made permanent by Congress in 2013. 

Keep in mind that portability has limitations. Portability does not apply to the federal generation skipping transfer tax exemption. It also may not apply to state estate, gift or inheritance taxes. Finally, if the surviving spouse remarries and the new spouse dies before the surviving spouse, then the unused federal estate tax exemption transferred from the first to die is lost. However, the surviving spouse may use the new spouse’s unused exemption if another portability election is made  

Revenue Procedure 2022-34 is expected to be in IRB 2022-30 to be issued on July 25, 2022 and is effective July 8, 2022. 

For more information on Revenue Procedure 2022-34 or to learn how a Baker Tilly professional can help you, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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