Portability Election Deadline Extended

On February 17, 2012, the IRS issued Notice 2012-21, which allows certain estates of married individuals who died during the first six months of 2011 to extend the time to make the portability election.

Code section 2010(c) was amended in 2010 to allow the estate of a decedent who dies after 2010 and who is survived by a spouse to make a portability election that permits the surviving spouse to apply the deceased spouse’s unused exclusion amount (“DSUEA”) to the surviving spouse’s own transfers during life and at death. This portability election is made by the executor of the estate of the deceased spouse on a timely filed estate tax return (i.e., Form 706), which includes a computation of the DSUEA. The due date for filing Form 706 is nine months after the date of the decedent’s death. However, an automatic six month extension of time to file Form 706 is granted when the estate files an application for such an extension (i.e,. Form 4768) within nine months after the decedent’s date of death.

The IRS received numerous comments expressing that the executors of estates of decedents dying in the early part of 2011 did not have the benefit of guidance on electing portability of the decedent’s DSUEA and might have been unaware of the requirement of filing a Form 706. Consequently, the Treasury Department and the IRS offer executors of qualifying estates a six-month extension of time to file Form 706 (until 15 months after the decedent’s date of death), provided that the executor files an application for a six-month extension on Form 4768 before the date that is 15 months from the decedent’s date of death.

Generally, Notice 2012-21 allows “qualifying estates” to apply for the six-month extension of time to make the portability election. A “qualifying estate” is the estate of a decedent (1) whose date of death is after December 31, 2010, and before July 1, 2011, (2) who is survived by a spouse, and (3) whose gross estate does not exceed the $5 million basic exclusion amount for 2011. Thus, a qualifying estate is one that would not have been required to file a Form 706 in the first place. If the estate meets the definition of a qualifying estate, then to take advantage of the six-month extension of time, that qualifying estate must (1) file Form 4768 with the IRS office designated in the form’s instructions no later than 15 months following the decedent’s date of death and (2) include at the top of the filed Form 4768 the notation “Notice 2012-21, Extension for Good Cause Shown” or words of similar effect.

Notice 2012-21 also addresses the following points concerning the extension of time to make the portability election:

1. If it is later determined that an estate does not meet the requirements of a qualifying estate, then no extension will be granted and the Form 706 will not be timely.

2. If an executor of a qualifying estate filed a Form 706 after the due date had passed, but before 15 months from the decedent’s date of death, without having timely requested an extension of time to file Form 706, then the executor may file Form 4768 and the extension will relate back to the due date of Form 706. Thus, it is possible to cure late filed estate tax returns, but only for those estates that were not required to file in the first place.

3. An executor of a qualifying estate may file Form 4768 at the same time as the executor files Form 706, so long as both are filed on or before the date that is 15 months after the decedent’s date of death.

4. The IRS cannot generally grant an extension of time to file Form 706 beyond the six-month extension granted in Notice 2012-21.