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

IRS Grants 120-Day Extension for Portability Election After Missed Deadline

The IRS granted a 120-day extension under § 301.9100-3 to an estate that missed the deadline to elect portability under § 2010(c)(5)(A), preserving the deceased spousal unused exclusion (DSUE) amount for the surviving spouse. The estate, which was not required to file Form 706 under § 6018(a), sought relief after discovering the missed election. Without the extension, the surviving spouse would have permanently lost the DSUE amount, resulting in a higher estate tax liability upon their subsequent death. The decision underscores the IRS’s willingness to grant relief for late portability elections when the estate demonstrates reasonable cause and good faith under § 301.9100-3.

Estate Below Filing Threshold Overlooks Portability Election

The decedent died on [Date], survived by their spouse. At the time of death, the gross estate—including all assets, transfers within three years of death, and adjusted taxable gifts—valued below the filing threshold under § 6018(a), which requires an estate tax return (Form 706) only if the gross estate exceeds the basic exclusion amount. Because the estate’s value fell beneath this threshold, no Form 706 was filed, and no portability election was made.

Months after the decedent’s death, the surviving spouse’s advisors reviewed the estate plan and discovered the missed opportunity to preserve the deceased spouse’s unused exclusion (DSUE) amount. The estate then submitted a request under § 301.9100-3 for an extension of time to make the portability election, seeking to file Form 706 retroactively to capture the DSUE amount for the surviving spouse. Without this election, the surviving spouse would forfeit the DSUE amount permanently, increasing potential estate tax liability upon their subsequent death.

IRS Grants Relief Under § 301.9100-3: Reasonable Action and Good Faith

The IRS granted the estate’s request for a 120-day extension to make a late portability election under § 301.9100-3, which authorizes the Commissioner to grant discretionary relief for regulatory elections where the taxpayer demonstrates reasonable action, good faith, and no prejudice to the government’s interests. Section 301.9100-3 applies to elections whose due dates are set by regulation—not statute—and requires the IRS to evaluate whether the taxpayer’s failure to timely act was reasonable and in good faith, and whether granting relief would harm the government’s ability to assess tax.

The estate satisfied these requirements by submitting detailed representations explaining the circumstances of the missed election. The IRS concluded that the estate acted reasonably and in good faith based on the affidavits and information provided, and that granting the extension would not prejudice the government’s interests. The Commissioner exercised discretion under § 301.9100-1(c) to grant a 120-day extension from the date of the ruling letter, allowing the estate to file Form 706 retroactively to elect portability.

The relief is expressly conditioned on the estate not being later determined to have been required to file under § 6018(a). If the estate is found to exceed the filing threshold, the extension is deemed null and void, and the election cannot be made retroactively. The IRS emphasized that its authority under § 301.9100-3 is contingent on the estate’s compliance with the factual and legal conditions at the time of the ruling.

How to File: Form 706 and the 120-Day Deadline

To take advantage of the 120-day extension for the portability election, the estate must file a complete and properly prepared Form 706 along with a copy of the PLR within 120 days of the letter’s date. The filing must be sent to the Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999.

A Form 706 filed within this 120-day window will be considered timely filed for portability purposes under § 2010(c)(5)(A), which permits the surviving spouse to elect to use the deceased spousal unused exclusion (DSUE) amount. The election is made by submitting the return to the specified IRS address, ensuring compliance with the procedural requirements set forth in the ruling.

Implications for Estates: Portability Elections and the Filing Threshold

Estates that fall below the § 6018(a) filing threshold—currently $13.61 million for 2024—often overlook the portability election under § 2010(c)(5)(A), which allows surviving spouses to inherit a deceased spouse’s unused estate tax exemption. The IRS’s recent private letter ruling (PLR-104353-26) underscores that even small estates must act in good faith to preserve portability, as relief under § 301.9100-3 is not guaranteed if the estate later exceeds the filing threshold.

The ruling clarifies that if an estate is later determined to have been required to file Form 706 under § 6018(a), any extension granted under § 301.9100-3 is deemed null and void. The IRS explicitly states: “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 means executors and advisors must exercise caution when relying on extensions, as the IRS’s authority to grant relief is contingent on the estate’s actual filing obligations at the time of the election.

The implications for tax practitioners are significant. Advisors should proactively file Form 706 for all estates—regardless of size—to avoid the risk of losing portability if the estate’s value later exceeds the threshold. The IRS’s warning is stark: “The Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability” if the estate was required to file. This underscores the importance of timely compliance, as even a retroactive determination of filing obligations can invalidate prior relief.

Additionally, the ruling highlights the non-precedential nature of PLRs and the audit risks associated with DSUE amounts. The IRS notes: “We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse.” Any claimed DSUE amount remains subject to audit, and the IRS reserves the right to challenge the estate’s valuation or the election’s validity during examination.

For estates and practitioners navigating these rules, the takeaway is clear: timely elections or proactive extensions are critical. The IRS’s guidance suggests that reliance on hindsight—such as filing Form 706 only after determining the estate exceeded the threshold—is risky. Instead, advisors should err on the side of filing, leveraging Revenue Procedure 2022-32 for late elections where applicable, or seeking a private letter ruling with documented reasonable cause if necessary. Failure to do so risks the permanent loss of the DSUE, with no recourse if the estate’s value later triggers filing obligations.