The IRS has extended the deadline for certain estates to make a portability election that would allow the surviving spouse to use the unused estate and gift tax exclusions of the spouse that was first to die (Notice 2012-21, 2012-10 IRB 450; IRS News Release IR-2012-24). The 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.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, provided a portability election for married couples. The IRS came out with guidance on portability (Notice 2011-82, 2011-42 IRB 516) but not 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.
The 2010 Tax Relief Act provides a $5 million estate tax exclusion for 2011 (indexed for inflation beginning in 2012). 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.
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.
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 (and Generation-Skipping Transfer) Taxes. Form 4768 must be filed within nine months after death to obtain the additional six-month extension.
The IRS decided to provide an automatic six-month extension for estates to file both Form 4768 and Form 706. The extension is available to a qualifying estate in which:
· 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 does not exceed $5 million.
If an estate timely filed Form 4768 on or before the due date for filing Form 706, it is not a qualifying estate, the IRS noted.
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.