Estate Tax Portability - What Is A Timely Filed Estate Tax Return?

Lewis Saret for Forbes writes: To make a valid portability election, the Internal Revenue Code (“Code”) requires an executor to make the election on an estate tax return filed within the “time prescribed by law” (including extensions) for filing that return.

The Code further requires estate tax returns be filed within nine months of the date of the decedent’s death.   However, the Code also only, as a general rule, requires an estate tax return to be filed when the decedent’s gross estate exceeds his/her unused applicable exclusion amount (i.e., $5.25 million for 2013).

Issue.            One issue raised by the portability election is that no Code provision provides a “time prescribed by law” for filing an estate tax return on behalf of a decedent’s estate when the basic exclusion amount exceeds the value of the decedent’s gross estate, as would be the case for estates making the portability election.   As a result, there is an issue regarding what the phrase “time prescribed by law” means in the context of making the portability election.

Rule.   The temporary portability regulations require every estate electing portability to file an estate tax return within nine (9) months of the decedent’s date of death, unless an extension of time for filing has been granted.  This timing requirement for filing a return applies to all estates electing portability regardless of the size of the gross estate.  The temporary regulations also provide that an estate choosing to elect portability will be deemed to be required to file an estate tax return under the Code.

Rationale.            The preamble to the Temporary Regulations states that this rule (i.e., the rule that deems an estate electing portability to be treated as being required to file an estate tax return under the Code, and therefore required to file such return within the “time prescribed by law”) will benefit the Service as well as taxpayers choosing the benefit of portability because the records required to compute and verify the DSUE amount for portability purposes are more likely to be available at the time of the death of the first deceased spouse than at the time of a subsequent transfer by the surviving spouse by gift or at death, which could occur many years later.

The preamble to the Temporary Regulations states that this rule also is consistent with the legislative history of the Tax Relief Act of 2010, which suggests that estates deciding to elect portability that are not otherwise required to file an estate tax return under Code Sec. 6018(a) are intended to be subject to the same timely-filing requirements applicable to estates required to file an estate tax return under Code Sec. 6018(a).

This post discusses one of several issues that the portability election raises.  Future posts will discuss other key issues.