Not Too Late to Make Portability Election!

• January 28, 2014
• Paul Neiffer

The IRS just released Revenue Procedure 2014-018 that now allows an executor of an estate to make a late portability election.

Portability allows the unused estate exemption of the first spouse to pass away to be “ported” over to the surviving spouse.  For example, if Farmer Bean passes away in 2013 with a total estate value of $2,250,000, there is a $3 million estate exemption that has not been used ($5.25 million less $2.25 million).  If the executor of the estate does not make a timely filed Form 706 electing portability, the law currently states that the estate will not be allowed to port over this $3 million exemption to the surviving spouse increasing her total exemption to $8.25 million.

This law is only a couple of years old and the there has been mass confusion by the public and practitioners on how this election was to be timely filed including the fact that the IRS had not issued a new Form 706 for several months after the law was in effect.

Therefore, the IRS has come out with Revenue Procedure 2014-018 to allow for almost any estate to now easily file Form 706 and elect portability.  In order to qualify for the automatic extension, the following requirements must be met:

1. The taxpayer is the executor of the estate of a decedent who: (a)  has a surviving spouse; (b)  died after Dec. 31, 2010, and on or before Dec. 31, 2013; and   (c)  was a citizen or resident of the United States on the date of death.
2. The taxpayer is not required to file an estate tax return (their estate was less than the lifetime exemption amount);
3. The taxpayer did not file an estate tax return during the time period required for filing an estate tax return to elect portability;
4. A person permitted to make the election on behalf of a decedent, must file a complete and properly prepared Form 706 on or before Dec. 31, 2014; and
5. The person filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER Code Sec.  2010(c)(5)(A).”

Many farmers and their families are not aware of this special provision.  If anyone you know has a family member that as passed away during 2011-2013 and their estate was less than $5 million, this provision may apply to them and it is important for them to discuss this with the appropriate estate tax advisor.  It may save them a $1 million or more in additional estate taxes.

Paul Neiffer, CPA

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