Important New IRS Rule for Late Portability Election
Starting with deaths that occurred in 2011, a surviving spouse can carry over the unused portion of the estate tax exemption of the deceased spouse. This is sometimes referred to as portability. This means if your spouse dies in 2022, up to $12.06 million in estate tax exemption can be transferred to the surviving spouse. To avail himself or herself of the benefits of portability, the surviving spouse is required to timely file an estate tax return (Form 706) within nine (9) months of the date of death plus any extensions. For a variety of reasons, many do not file and lose their ability to elect portability, but later come to regret it. Because of an abundance of requests for relief from this rule, in 2017, the IRS issued Rev. Proc. 2017-34 granting an automatic extension to file the portability election late under certain circumstances. The extension was for two years following the individuals date of death.
Despite this automatic extension, the IRS continued to receive many requests to make the portability election even after the two-year period had expired. Pursuant to the recently released Rev. Proc. 2022-32, the IRS has now determined to extend the automatic extension to five years from the date of death. Given the potential upcoming reduction of the estate tax exemption in 2026, if you have a spouse that died within the last five years and did not file for portability, you should re-consider whether filing makes sense in your situation. If there is any doubt, filing is almost certainly the answer. If you are outside the new five-year rule, you should still consider seeking a private letter ruling from the IRS allowing you to file late. In a period of uncertainty, the best strategy is always to have as many tools at your disposal as possible.
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