Under federal tax law, executors of estates of married decedents can elect to transfer the deceased spouse’s unused estate tax exclusion to the surviving spouse. This “portable” exclusion is known as the deceased spouse unused exclusion (DSUE). A surviving spouse can utilize the DSUE to lower or even potentially avoid their own estate or gift tax liability entirely.

The porting of the DSUE to the surviving spouse is not automatic; in order for the DSUE to be available to the surviving spouse, a portability election must be made on a timely filed estate tax return (Form 706). Pursuant to current IRS rules, a portability election can be made within five years from the date of the decedent’s death for estates not required to file a Form 706 based on the value of the gross estate.

PLR 202350011 addressed a request by an estate that was below the filing threshold for filing an estate tax return and failed to timely file an estate tax return to elect portability of the DSUE to the surviving spouse. The IRS exercised its discretion to grant the estate a 120-day extension of time to file an estate tax return to make a portability election, thereby potentially saving the surviving spouse and their estate a significant amount of transfer taxes.

This PLR follows numerous earlier PLRs that granted similar relief to taxpayers, and offers a few key lessons. It is important for executors, even for modest estates, to engage with tax counsel early on to assess the benefit of a portability election, as it will be a smoother and more cost-effective process if such election is timely made rather than having to request permission from the IRS to make a late election. On the other hand, even if an estate misses the deadline for making a portability election, relief in the form of a PLR may be available.

A copy of the PLR can be downloaded from this link: 202350011.pdf (irs.gov)

Thank you Richmund C. Sta. Lucia for this week’s Tax Tracker!