Since estate tax exclusion portability became available to taxpayers in 2011, the personal representative of the first dying spouse’s estate needed to file a Form 706 (the estate tax return) after the death of the first dying spouse in order to appropriately make the portability election for the surviving spouse. This Form 706 needed to be filed within nine (9) months following the date of death of the first dying spouse, unless the personal representative filed for and was granted an automatic six (6) month extension to this deadline.
However, a great number of personal representatives and surviving spouses were not aware of this deadline or otherwise did not file the Form 706 in order to take advantage of any unused estate tax exclusion amount that remained at the death of the first dying spouse. Revenue Procedure 2014-18 provides relief for taxpayers who neglected to timely a Form 706 for purposes of making a portability election.
The IRS recently issued Revenue Procedure 2014-18, which provides for an extension of time for the personal representative of the first dying spouse to file a Form 706 with respect to the first dying spouse’s estate for the sole purpose of electing portability. This Rev. Proc. generally allows the personal representative until December 31, 2014 to file a Form 706 for the first dying spouse’s estate if the first dying spouse died after December 31, 2010 and on or before December 31, 2013, and if no estate tax return was required to be filed for the first dying spouse because the first dying spouse died with assets with a value less than their estate tax exclusion amount.
Under Rev. Proc. 2014-18, the taxpayer is entitled to relief under Treasury Regulation §301.9100-3, which allows the personal representative to file a Form 706 for the first dying spouse in order to take advantage of such spouse’s unused estate tax exclusion amount. This Rev. Proc. only applies if the taxpayer is the personal representative of the estate of a decedent who (1) has a surviving spouse; (2) died after December 31, 2010 and on or before December 31, 2013; and (3) was a citizen or resident of the United States on the date of death. Further, this Rev. Proc. only applies if the personal representative is not required to file an estate tax return because the first dying spouse’s assets were less than his or her estate tax exclusion amount upon his or her death or if the taxpayer did not timely file an estate tax return to elect portability.
When filing Forms 706 pursuant to this Rev. Proc., the Form 706 must be complete and properly prepared in accordance with Treasury Regulation §20.2010-2T(a)(7) (i.e., it must be prepared in accordance with the instructions to the Form 706), and it must be filed on or before December 31, 2014. Additionally, the following language must be included at the top of the Form 706 in capital letters: “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER §2010(c)(5)(A)”.
If the above requirements are satisfied, then the personal representative will be considered to have timely filed the Form 706 to elect for portability to apply, and the personal representative will receive an estate tax closing letter acknowledging receipt of the decedent’s Form 706.
The impetus for this Rev. Proc. is the recent Supreme Court case of United States v. Windsor, in which the Supreme Court struck down Section 3 of the Defense of Marriage Act to provide that a law defining “marriage” as a legal union between one man and one woman as unconstitutional. After the Windsor decision, the IRS released Revenue Ruling 2013-17 to provide the IRS’ interpretation of the Internal Revenue Code vis-a-vis taxpayers’ marital status in light of the Windsor decision. This Revenue Ruling held that for federal tax purposes the terms “spouse,” “husband and wife,” “husband,” and “wife,” include an individual married to a person of the same sex if the individuals were lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex.
Rev. Proc. 2014-18 provides a good analysis of the legal effect of Windsor and Revenue Ruling 2013-17 on the tax law, and indicates that this Rev. Proc. is significantly based upon the outcome in the Windsor decision and the IRS’ interpretation of the Internal Revenue Code as a result thereof.
Nevertheless, the benefits afforded by this Rev. Proc. are available to provide relief for late portability elections for opposite sex surviving spouses, as well as same sex surviving spouses.
This Rev. Proc. did not address the situation where a surviving spouse has previously filed a Form 706 late, and the Form 706 was not accepted for the purposes of electing portability due to the late filing. It seems that in this case the surviving spouse would simply need to re-file the Form 706 (assuming that it was properly completed and appropriately prepared) with the magic capitalized words on top of the first page in order to take advantage of the relief provided by this Rev. Proc.
For some personal representatives and surviving spouses who neglected to timely file a Form 706 to take advantage of portability, Rev. Proc. 2014-18 provides taxpayers with a second chance. The relatively new concept of estate tax exclusion portability is still being understood by many taxpayers, and this Rev. Proc. provides another opportunity for taxpayers who were not aware or certain of the benefits afforded by portability.
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