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

IRS Grants 120-Day Extension for Portability Election: What Estates Need to Know

The IRS granted a 120-day extension under § 301.9100-3 to an estate seeking to make a portability election under § 2010(c)(5)(A), allowing the surviving spouse to claim the deceased spouse’s unused estate tax exemption. The estate, which was not required to file Form 706 under § 6018(a), must now file the return within 120 days of the IRS’s letter to secure the election. The decision underscores that estates exempt from filing Form 706 may still benefit from portability if they act within the extended window.

Why the Estate Needed an Extension

The estate required an extension under § 301.9100-3 to file a portability election under § 2010(c)(5)(A), which permits a surviving spouse to claim the deceased spouse’s unused estate tax exemption. Normally, this election is made by filing Form 706 within 9 months of death, but estates below the filing threshold under § 6018(a) are exempt from this requirement.

In this case, the estate’s value ($2.8 million) fell below the 2024 exclusion amount ($13.61 million), so no Form 706 was filed. However, the estate later discovered an unused Deceased Spousal Unused Exclusion (DSUE) of $10.81 million. Without an election, this benefit would be lost. The estate’s delay stemmed from oversight, not willful neglect, prompting a request for relief to file retroactively.

Key Facts Behind the IRS’s Decision

The IRS granted the extension based on four core facts:

1. Good faith and reasonable cause: The delay resulted from oversight, not willful neglect. The estate’s representative confirmed in affidavits that the failure to file stemmed from a misunderstanding of requirements, not disregard for tax obligations.

2. No filing obligation: The estate’s $2.8 million value fell well below the 2024 exclusion threshold ($13.61 million), so no Form 706 was required. This eliminated any prejudice to the IRS’s interests, as no tax liability was at risk.

3. Existence of DSUE: The estate had an unused exemption of $10.81 million. Preserving this benefit for the surviving spouse was central to the IRS’s decision, as it facilitated tax planning without costing the government revenue.

4. Documented explanation: The estate attributed the delay to reliance on a tax professional who failed to advise on portability. Sworn statements and supporting evidence substantiated this claim, meeting the IRS’s criteria for relief under § 301.9100-3.

The Rationale: Why Did the IRS Grant the Extension?

The IRS granted the 120-day extension under § 301.9100-3, which governs extensions for regulatory elections missed due to reasonable cause. This regulation allows the Commissioner to grant relief when a taxpayer demonstrates three core requirements: reasonable action, good faith, and no prejudice to government interests. The estate satisfied each of these conditions.

First, the estate established reasonable action by submitting sworn statements and supporting documentation explaining why it failed to file the portability election within the 9-month deadline. The IRS accepted that the estate’s reliance on a tax professional who did not advise them of the requirement constituted a reasonable basis for the delay. Second, the estate acted in good faith by promptly seeking relief once the oversight was discovered, submitting verifiable evidence of the miscommunication. Third, the IRS determined that granting the extension would not prejudice its interests, as the estate’s gross value and adjusted taxable gifts fell below the filing threshold under § 6018(a), meaning no tax liability was at risk.

The IRS’s decision also hinged on its discretionary authority under § 301.9100-3, which permits the Commissioner to grant extensions for elections prescribed by regulation—such as the portability election under § 20.2010-2(a)(1)—even when no statutory deadline exists. The regulation explicitly states that relief may be granted if the taxpayer’s failure to act timely was not willful and the election is made as soon as practicable. Here, the estate’s documentation demonstrated that the delay was inadvertent and that the portability election was now being pursued without delay.

However, the extension is conditional: if it is later determined that the estate was required to file Form 706 under § 6018(a)—for example, if the gross estate exceeded the filing threshold—the IRS’s authority under § 301.9100-3 is void, and the extension becomes null and void. The IRS made this clear in its response, stating: "If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void." This safeguard ensures the IRS’s interests remain protected while providing estates with a limited window to correct honest oversights.

Key Takeaways for Other Estates

The IRS’s decision highlights critical lessons for estates considering portability elections:

• Portability preserves tax savings: The election under § 2010(c)(5)(A) allows surviving spouses to inherit unused exemptions, doubling tax-free transfer potential. Without it, even small estates risk losing millions in tax benefits.

• Relief is conditional: The IRS granted an extension under § 301.9100-3, but it is void if the estate later proves required to file Form 706 under § 6018(a). The ruling is also non-precedential, meaning it applies only to this case.

• Documentation is essential: Estates seeking relief must provide sworn statements and evidence explaining the delay, such as reliance on advisors or oversight. The 5-year relief period under Rev. Proc. 2022-32 remains the primary safeguard for late filers.

• Proactive filing is best: Tax professionals should file Form 706 for all estates, regardless of size, to preserve DSUE. For missed deadlines, documenting specific reasons for the delay is crucial when pursuing relief under § 301.9100-3 or a private letter ruling.