Portability Rules
Fay Rowland died on April 8, 2016. The federal estate tax return for her estate was due nine months later, but the executor of her estate applied for and received an automatic extension of time for the filing, making the due date July 18, 2017. Unfortunately, the extended deadline was not met, as the estate tax return was mailed on December 29, 2017.
Actually, Fay’s estate was not required to file a federal estate tax return at all, because her estate was less than the basic exclusion amount of $5.45 million in the year of her death. The only reason for the filing was to claim the Deceased Spousal Unused Exclusion (DSUE). In that way, unused exclusion amounts may be “ported” to the surviving spouse. Fay’s total estate was estimated to be $3 million, but the specific value for each of the estate’s assets was not included in the return. After taking into account charitable deductions and lifetime taxable gifts, the claimed DSUE was over $3.7 million.
Fay’s surviving spouse, Billy, died on January 24, 2018. Because he died after the passage of the Tax Cuts and Jobs Act of 2017, the basic exemption for his estate was $11.18 million, well over double that for Fay’s estate. Still, his estate was large enough that the DSUE was claimed, bringing his total applicable exclusion to $14,892,562. A net federal estate tax of $4,477,555 was timely paid.
The IRS audited the estate tax return for Billy’s estate, and determined that his estate could not claim the DSUE because a proper portability election had not been made. In the first place, the election was filed late. More importantly, the estate tax return as filed was incomplete, relying upon round numbers for the total value of the estate instead of the fair market value of each asset.
The estate turned to the Tax Court for relief, but did not find it there. Under these circumstances, a valid DSUE election had not been made, and the IRS determination was sustained (Estate of Billy S. Rowland v. Commissioner).
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