For individuals dying after December 31, 2010, Section 2010(c) of the Internal Revenue Code provides that the unused estate tax exemption of the first deceased spouse is “portable” between spouses at death. Under this law, a surviving spouse’s estate can use the unused estate tax exemption amount of the first spouse to die in addition to the surviving spouse’s own estate tax exemption, which can result in significant estate tax savings at the death of the second spouse. To qualify for portability of the estate tax exemption, the estate of the first spouse to die must file a timely-filed Federal estate tax return (Form 706). If the estate fails to file a Form 706, the first deceased spouse’s estate tax exemption may not be used by the second spouse, which could generate estate tax that would not otherwise be owed. Since the portability rule was enacted, the IRS has received numerous requests for relief from estates that failed to timely file a Form 706 to elect portability.
The IRS recently issued Rev. Proc. 2017-34 to allow estates that failed to file a timely-filed Form 706 for the purpose of electing portability time to correct that mistake. Rev. Proc. 2017-34 provides an automatic extension until the later of (i) January 2, 2018 or (ii) two years after the decedent’s death to file a Form 706 for the purpose of making a portability election. It is important to note that this automatic extension of time to file a Form 706 does not apply to estates that were required to file a Federal estate tax return because the value of the decedent’s gross estate exceeded the decedent’s available estate tax exemption amount. When filing a Form 706 under Rev. Proc 2017-34 to elect portability, the executor must write “filed pursuant to Rev. Proc. 2017-34 to elect portability under § 2010(c)(5)(A)” on the top of the Form 706.
A surviving spouse’s estate may request a refund based on the extension granted under this Rev. Proc. if the surviving spouse’s estate paid estate tax due to a failure to file a Form 706 to elect portability at the death of the first spouse. This relief is only available if the time prescribed in §6511(a) for filing a claim for credit or refund of an overpayment of tax has not expired – i.e., within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever expires later, and the extension of time to elect portability under Rev. Proc. 2017-34 does not extend the time for filing a claim or refund for overpayment of estate tax.