In Revenue Procedure 2017-34 the IRS published a simplified method to obtain permission for an extension of time under Reg. §301.9100-3 to file a Form 706 and elect portability without the need to apply for a private letter ruling and pay the associated fee.

Under IRC §2010 a surviving spouse may make an election to claim any lifetime transfer tax exclusion that was not used to reduce the estate tax on the deceased spouse. This amount, known as the deceased spouse unused exclusion amount (DSUE) can end up being equal to the entire maximum lifetime transfer amount ($5,490,000 for 2017), especially if the deceased spouse left his/her entire estate to his/her spouse.

However, under IRC §2010(c)(5)(A) the election is only effective if made by the due date of the estate tax return (including extensions received) for the deceased spouse. In Reg. §20.2010-2(a)(1) the IRS provided that for an estate that would not otherwise be required to file a return, that due date would be the date on which an estate tax return would have been due had one been required for the decedent. That same regulation provides that if an estate tax return was required for the decedent, no extension of time to file a portability election will be available under Reg. §301.9100-3.

Reg. §301.9100-3 provides for the method by which a taxpayer may request IRS permission to make an election after the date prescribed by regulation for an election to make. The provision cannot be used to obtain an extension of time to make an election if the date for the election is set by Congress in the Internal Revenue Code, as the IRS’s view is that the agency lacks the authority to override the Code on this issue without specific authorization from Congress.

Shortly after the due dates passed for the first individuals to die that had estates eligible to elect portability, the IRS began receiving requests to grant relief to make the portability election on a “late” Form 706. As the IRS pointed out in Chief Counsel Email 201650017, such relief has been granted to estates where no Form 706 was otherwise required, but the agency’s position was that it lacked the authority to grant relief if a Form 706 was otherwise required to be filed. While that offered relief to many estates, it still required filing a private letter request and paying the often substantial fee for such a ruling, along often with fees to professionals to shepherd the request through the letter ruling process.

Despite the cost and complications of making such a request, the IRS has received a relatively large number of such requests. Rev. Proc. 2017-34 notes:

Treasury and the Service have determined that the considerable number of ruling requests for an extension of time to elect portability received since December 31, 2014, indicates a need for continuing relief for the estates of decedents having no filing requirement under § 6018(a). Further, the considerable number of ruling requests received has placed a significant burden on the Service. Accordingly, this revenue procedure provides a simplified method to the estates of decedents having no filing requirement under § 6018(a) to obtain an extension of time under § 301.9100-3 to elect portability, provided that certain requirements (set forth in sections 3.01 and 4.01 of this revenue procedure) are met.

The IRS had received requests that an automatic procedure provide for an unlimited period to make a request, but the procedure notes that the IRS felt this was not appropriate. For this reason, Rev. Proc. 2017-34 limit its relief to estate having no requirement to file a Form 706 which requests the relief by the later of:

January 2, 2018 or
The second anniversary of the decedent’s date of death.[1]

Section 3 of Rev. Proc. 2017-34 provides the scope of the relief. Relief is available if all the following requirements are satisfied:

The decedent:
- was survived by a spouse;
- died after December 31, 2010; and
- was a citizen or resident of the United States on the date of death.
The executor is not required to file an estate tax return under § 6018(a) as determined based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes;
The executor did not file an estate tax return within the time required by § 20.2010-2(a)(1) for filing an estate tax return; and
The executor satisfies all requirements listed below to request relief.

Relief is not available if an estate tax return was timely filed by the executor. As the ruling notes “Such an executor either will have elected portability of the DSUE amount by timely filing that estate tax return or will have affirmatively opted out of portability in accordance with § 20.2010-2(a)(3)(i).”[2]

If an estate was eligible to make the election but fails to do so, all is not lost—the regular process of filing for a ruling under Reg. §301.9100-3 will be available to the estate, though it will require asking for a private letter ruling and paying the applicable fee.

The requirements referenced above for qualified estates to obtain relief are:

·A person permitted to make the election on behalf of the estate of a decedent--that is, an executor described in § 20.2010-2(a)(6)—must file a complete and properly prepared Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death. The Form 706 will be considered complete and properly prepared if it is prepared in accordance with § 20.2010-2(a)(7).
·The executor 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. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”[3]

If it is later determined that the estate was originally required to file an estate tax return, the election is deemed to be void—that is, there is no DSUE for the surviving spouse.[4]

A grant of relief under this procedure will not allow a surviving spouse to obtain a refund of overpaid gift or estate taxes due to the increase in DSUE if the statute of limitations for claiming a refund of that tax has expired prior to the grant of automatic relief. This will generally affect those filing under the special “January 2, 2018” relief date for decedents that passed away after the portability provisions came into the law, since normally the statute should still be open if relief is granted within two years of the decedent’s date of death.[5]

However, the procedure does authorize the filing of protective claim for refund if the statute is still open in anticipation of filing a Form 706 under this procedure. So, if the statute of limitations period for claiming a refund on a gift or estate tax return will shortly expire, a protective claim would be filed under the provisions of Section 5.02 of Revenue Procedure 2017-34.

The IRS provides three of examples of how the claim for refund rules will work.

Example 1

(a) Predeceasing Spouse (S1) dies on January 1, 2014, survived by Surviving Spouse (S2). The assets includible in S1’s gross estate consist of cash on deposit in bank accounts held jointly with S2 with rights of survivorship in the amount of $2,000,000. S1 made no taxable gifts during life. S1’s executor is not required to file an estate tax return under § 6018(a), and does not file such a return.

(b) S2 dies on January 30, 2014. S2’s taxable estate is $8,000,000 and S2 made no taxable gifts during life. S2’s executor files a Form 706 on behalf of S2’s estate on October 30, 2014, claiming an applicable exclusion amount of $5,340,000. S2’s executor includes payment of the estate tax with the Form 706.

(c) Pursuant to this revenue procedure, S1’s executor files a complete and properly prepared Form 706 on behalf of S1’s estate on December 1, 2017, reporting a DSUE amount of $5,340,000. The executor includes at the top of the Form 706 the statement required by section 4.01(2) of this revenue procedure. The filing of the return satisfies the requirements for a grant of relief under this revenue procedure and S1’s estate is deemed to have made a valid portability election. The Service accepts S1’s return with no changes.

(d) To recover the estate tax paid, S2’s executor must file a claim for credit or refund of tax by October 30, 2017 (the end of the period of limitations prescribed in § 6511(a)), even though a Form 706 to elect portability has not been filed on behalf of S1’s estate by that date. Such a claim filed on Form 843, Claim for Refund and Request for Abatement, in anticipation of the filing of the Form 706 by S1’s executor will be considered a protective claim for credit or refund of tax. Accordingly, as long as the Form 843 is filed on or before October 30, 2017, the Service can consider and process that claim for credit or refund of tax once S1’s estate is deemed to have made a valid portability election and S2’s estate notifies the Service that the claim for credit or refund is ready for consideration.

Example 2

(a) The facts relating to S1 and S1’s estate are the same as in Example 1. S2 makes a gift to Child of $6,000,000 on December 1, 2014. S2 has made no prior taxable gifts. On April 15, 2015, S2 files a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, claiming an applicable exclusion amount of $5,340,000. S2 tenders payment of the gift tax with the Form 709.

(b) To recover the gift tax paid, S2 must file a claim for credit or refund of tax (protective or otherwise) within the time prescribed in § 6511(a) for filing a claim for credit or refund.

Example 3

(a) The facts are the same as in Example 2 except that S2’s Form 709 claims an applicable exclusion amount of $10,680,000 including a DSUE amount of $5,340,000 from S1’s estate. As a result, the Form 709 reports no tax due and S2 tenders no gift tax.

(b) Although the portability election, once made, makes S1’s DSUE amount available to S2 retroactively to S1’s date of death, that DSUE amount is not available until the election is made. Because S2 files the Form 709 before S1’s estate makes the portability election, S2’s claimed application of the DSUE amount will be denied and gift tax on the transfer will be assessed. To recover that gift tax once the portability election has been made by S1’s estate, S2 must file a claim for credit or refund of tax (protective or otherwise) within the time prescribed in § 6511(a) for filing a claim for credit or refund.

If an estate qualifies to use this procedure, this procedure will be the exclusive method to obtain an extension of time to file a portability election—the IRS will not consider a request for a traditional letter ruling under Reg. §301.9100-3. If an estate that is eligible to use this ruling had a request pending when this ruling was issued, the IRS will close the file and refund the user fee. The estate will need to comply with the procedures in this ruling to obtain relief.[6]

[1] Rev. Proc. 2017-34, Section 2.02(6)

[2] Rev. Proc. 2017-34, Section 3.02

[3] Rev. Proc. 2017-34, Section 4.01

[4] Rev. Proc. 2017-34, Section 4.03

[5] Rev. Proc. 2017-34, Section 5.01

[6] Rev. Proc. 2017-34, Section 6.02