Wednesday, March 7, 2012

IRS extends deadline for estate tax portability election

Doeren Mayhew 
IRS extends deadline for estate tax portability election

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) provided that for decedents dying in 2011, the first $5 million of his or her estate's gross assets would be excluded from the estate tax. If the first spouse of a married couple died in 2011 with a taxable estate worth less than $5 million, the estate would have an unused estate tax exclusion, which it could elect to transfer to the surviving spouse. This "portability election" generally is available if the first spouse dies in 2011 or 2012; the latest extension applies to estates of decedents who died in the first six months of 2011.

Following enactment of the 2010 Tax Relief Act, however, the IRS did not come out with guidance (Notice 2011-82) on portability until the end of September, 2011. With estate tax returns due nine months after death, this provided little time for estates to comply with the election requirements. As an answer to this problem, the IRS extended the deadline for certain estates to make a portability election that would allow the surviving spouse to use the remaining amount from the estate and gift tax exclusions of the spouse that was first to die.

I am a surviving spouse. How do I make the election?
To make the election that would allow the surviving spouse to use the unused exclusion of the deceased spouse, the estate of the deceased spouse must timely file (including extensions) Form 706, the estate tax return. The Form 706 must include a computation of the unused exclusion amount. The portability election can only be made by filing Form 706.

How do I obtain an extension of time to file?
Estates can obtain a six-month extension of time to file the estate tax return (giving them a total of 15 months), by submitting Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate Tax. Form 4768 must be filed within nine months after death to obtain the additional six-month extension.
The extension is available to a qualifying estate, where:
  • The decedent is survived by a spouse;
  • The decedent died during the period January 1, 2011-June 30, 2011; and
  • The gross estate's fair market value did not exceed $5 million.
Additionally, the IRS also instructed that if a qualifying estate filed Form 706 more than nine months but less than 15 months after the date of death, the executor could file Form 4768 to request an extension. The IRS advised that it could not grant additional extensions beyond six months, unless the executor was abroad.

IR-2012-24, Notice 2012-21

Contact Doeren Mayhew for more information.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.

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