Effective July 8, 2022, the IRS issued Revenue Procedure 2022-32 to supersede Revenue Procedure 2017-34 and now allow for a late estate tax exemption portability election to be made up to five (5) years from a deceased spouse’s death. Previously, this window was only two (2) years from the deceased spouse’s death. Revenue Procedure 2022-32 allows a wider window for a surviving spouse who may have missed or just been unaware of the ability to transfer (or “port”) the deceased spouse’s unused estate tax exemption (the “Deceased Spousal Unused Exclusion Amount” or “DSUE”) by filing a Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) (“Estate Tax Return”) with the Internal Revenue Service (“IRS”). The requirements are the same as under the prior Revenue Procedure and include the following: (A) the decedent: (i) was survived by a spouse; (ii) died after December 31, 2010 and was a citizen or resident of the United States on his or her death; (B) the estate must not be required to file an Estate Tax Return; (C) an Estate Tax Return was not timely filed; and (D) all the requirements for relief under Revenue Procedure 2022-32 are satisfied.
The requirements for relief under the Revenue Procedure 2022-32 are that an executor must file with the IRS a complete and properly prepared Estate Tax Return on or before the fifth (5th) anniversary of the decedent’s death and the executor filing the Estate Tax Return on behalf of the decedent states at the top of the Estate Tax Return that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
This streamlined late election procedure is important because since January 1, 2011, federal law has allowed a deceased spouse’s estate to port any DSUE to the surviving spouse for his or her future use. Before this enactment of estate tax portability, the unused estate tax exemption of the first spouse to die was a “use it or lose it” proposition. A married couple that fails to utilize a first spouse to die’s estate tax exemption either because the assets pass outright to a surviving spouse or there are not sufficient assets in the first spouse to die’s estate to utilize the deceased spouse’s available estate tax exemption will not necessarily lose the benefit of the DSUE. Through a portability election to port the DSUE on a timely filed Estate Tax Return or an Estate Tax Return filed late consistent with the terms of Revenue Procedure 2022-32, the DSUE can be ported to the surviving spouse.
Importantly, the surviving spouse can use the DSUE for future gifting and/or to be applied to testamentary transfers on his or her eventual death. With the enhanced five (5) year window, there will be more opportunities to take advantage of late filed portability elections under Revenue Procedure 2022-32 for taxpayers who may have overlooked this potential benefit or potentially not qualified under the previous two (2) year window.
However, if the five (5) year window in Revenue Procedure 2022-32 has passed, the surviving spouse can still request late election relief in a Private Letter Ruling (“PLR”) from the IRS. Of course, the PLR involves a high user fee, more time, and legal fees.