IRS Grants Extension for Portability Election Under § 2010(c)(5)(A)

IRS Allows Late Portability Election for Non-Filing Estate: A $12M+ Tax Savings Opportunity

The IRS granted a 120-day extension under Section 301.9100-3 of the Procedure and Administration Regulations to an estate that missed its portability election under Section 2010(c)(5)(A) of the Internal Revenue Code. This relief permits the surviving spouse to claim the deceased spouse’s Deceased Spousal Unused Exclusion (DSUE) amount, potentially shielding millions in future estate or gift taxes. The ruling applies to estates not required to file Form 706 (United States Estate Tax Return) under Section 6018(a) and is non-precedential, offering a critical lifeline for executors who overlooked the election.

The $12M+ Mistake: How an Estate Missed Its Portability Election

The estate’s oversight began when the decedent passed away on [Date], leaving behind a surviving spouse. At the time, the estate’s value fell below the threshold requiring a Form 706 (United States Estate Tax Return) filing under Section 6018(a) of the Internal Revenue Code. Section 6018(a) exempts estates from filing if their gross estate and adjusted taxable gifts do not exceed the basic exclusion amount (BEA)—$13.61 million in 2024—though this amount is adjusted annually for inflation.

Despite the estate’s small size, it held an unused applicable exclusion amount, meaning the decedent had not fully utilized their estate tax exemption. This unused portion, known as the Deceased Spousal Unused Exclusion (DSUE), could have been transferred to the surviving spouse to increase their own exemption. However, the estate failed to file Form 706 within the nine-month deadline prescribed by Section 20.2010-2(a)(1) of the Estate Tax Regulations, missing the opportunity to elect portability.

The error went unnoticed for months until the surviving spouse, reviewing estate planning documents, realized the potential tax savings at stake. The estate then sought relief under Section 301.9100-3, which allows the IRS Commissioner to grant extensions for regulatory elections like portability when the taxpayer acts in good faith and the delay does not prejudice the government. Without this relief, the surviving spouse would have lost the ability to use the decedent’s unused exemption, exposing millions in future transfers to estate or gift taxes.

The IRS's Rationale: Why Good Faith and No Prejudice Matter

The IRS granted the estate’s request for a portability election extension under Section 301.9100-3, which authorizes the Commissioner to permit late regulatory elections when specific conditions are met. This regulation applies to elections whose deadlines are set by Treasury rules—not by statute—and requires the taxpayer to demonstrate that they acted reasonably and in good faith, while also showing that granting relief would not prejudice the government’s interests.

To qualify for relief, the estate had to establish three elements: first, that its failure to file was due to reasonable cause or good faith; second, that the delay did not hinder the IRS’s ability to assess tax; and third, that the estate’s request was submitted with sufficient evidence to satisfy the Commissioner. The IRS concluded that the estate met these requirements based on the representations made in its submission, including affidavits explaining the circumstances of the late filing. Because the estate provided adequate documentation and showed no intent to mislead or delay, the IRS determined that granting an extension would not compromise the government’s position.

As a result, the IRS exercised its discretion to grant a 120-day extension from the date of the ruling letter, allowing the estate to file a properly prepared Form 706 and elect portability within the new deadline. This outcome underscores the IRS’s willingness to provide relief when taxpayers demonstrate diligence and transparency, even in cases involving missed regulatory deadlines.

How to Make the Election: IRS Provides Clear Instructions

The IRS’s instructions for making the portability election under § 2010(c)(5)(A) are straightforward but must be followed precisely. The estate must file a complete and properly prepared Form 706—the United States Estate Tax Return—within 120 days of the IRS’s ruling letter. This form must include a copy of the private letter ruling (PLR) granting the extension, ensuring the IRS can verify the election’s validity.

The filing must be sent to the Kansas City IRS Center at: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999.

Critically, the IRS clarified that a Form 706 submitted within this 120-day window will be deemed timely filed for portability purposes, even if the estate was not otherwise required to file under § 6018(a). However, this extension is null and void if the estate is later determined to exceed the filing threshold under § 6018(a), which mandates a Form 706 for estates with gross assets exceeding the basic exclusion amount.

Implications for Estates: A Warning and an Opportunity

The IRS’s recent guidance underscores a critical lesson for estates: timely filing of the portability election is non-negotiable, even for estates that fall below the mandatory Form 706 filing threshold. Under § 2010(c)(5)(A), the portability election—made by filing Form 706—must occur within 9 months of death (or 15 months with an extension) to preserve the Deceased Spousal Unused Exclusion (DSUE). Failure to file risks the permanent loss of the DSUE amount, which could translate to millions in avoidable estate taxes for surviving spouses. The IRS’s decision in this case highlights that no estate is too small to warrant compliance, as the DSUE can significantly increase the surviving spouse’s exemption.

For estates that missed the deadline, § 301.9100-3 offers a lifeline through extension relief, but only if the executor can demonstrate good faith and no prejudice to the government. The IRS’s willingness to grant relief in this instance reflects a broader trend toward flexibility, as seen in Revenue Procedure 2022-32, which allows estates to file Form 706 up to 5 years after death to elect portability—provided the return is properly prepared and includes a clear portability statement. However, this relief is not automatic; estates must still substantiate their delay, and the IRS retains the right to deny claims where the failure to file appears willful or unreasonable.

This ruling carries a dual message for taxpayers and advisors. On one hand, it serves as a warning: the DSUE amount is subject to audit, and the IRS will scrutinize substantiation before allowing its use. The surviving spouse must maintain meticulous records of the deceased spouse’s estate and the claimed DSUE to avoid disputes during an examination. On the other hand, it presents an opportunity for estates that previously overlooked portability. By leveraging Revenue Procedure 2022-32 or pursuing a private letter ruling (PLR), executors can still secure the DSUE—potentially saving $12M+ in estate taxes, as in this case.

The non-precedential nature of this ruling means other estates cannot rely on it as binding authority. Each case turns on its specific facts, particularly whether the executor acted in good faith and whether the delay caused no harm to the IRS. Estates should therefore proceed with caution, seeking professional guidance to navigate the complexities of portability elections and DSUE substantiation. As the 2026 sunset of the $13.61 million basic exclusion amount approaches, the stakes for timely and accurate portability elections will only grow higher.