Relief For Late Filing of Portability Election Returns For Decedents Who Died Before 2014 Revenue Procedure

Transcription

1 Relief Fr Late Filing f Prtability Electin Returns Fr Decedents Wh Died Befre 2014 Revenue Prcedure January 29, 2014 Autmatic Extensin f Time (Thrugh 2014) t File Estate Tax Return Making Prtability Electin Fr Estates f Decedents Wh Died Befre 2014 And Did Nt Otherwise Have t File An Estate Tax Return Steve R. Akers Senir Fiduciary Cunsel Suthwest Regin, Bessemer Trust 300 Crescent Curt, Suite 800 Dallas, TX akers@bessemer.cm

2 TABLE OF CONTENTS Backgrund... 1 Summary f Rev. Prc Observatins... 2 Cpyright 2014 Bessemer Trust Cmpany, N.A. All rights reserved. Imprtant Infrmatin Regarding This Summary This summary is fr yur general infrmatin. The discussin f any estate planning alternatives and ther bservatins herein are nt intended as legal r tax advice and d nt take int accunt the particular estate planning bjectives, financial situatin r needs f individual clients. This summary is based upn infrmatin btained frm varius surces that Bessemer believes t be reliable, but Bessemer makes n representatin r warranty with respect t the accuracy r cmpleteness f such infrmatin. Views expressed herein are current nly as f the date indicated, and are subject t change withut ntice. Frecasts may nt be realized due t a variety f factrs, including changes in law, regulatin, interest rates, and inflatin. i

3 BACKGROUND Sectin 2010(c)(5)(A) requires that the prtability electin be made n an estate tax return fr the decedent whse unused exclusin amunt is being made available t the surviving spuse, and fr the electin t be effective the return must be filed within the time prescribed by law (including extensins) fr filing the estate tax return. Fr estates having a grss estate and adjusted taxable gifts under the basic exclusin amunt, n return is required t be filed, 6018(a), s there is n statutrily prescribed filing date. The prtability regulatins add that fr thse estates under the filing threshld limit, if the estate makes the prtability electin it will be cnsidered t be required t file a return under 6018(a), s the due date is 9 mnths after the decedent s date f death (r 15 mnths if the return is extended). Because there is n statutry filing deadline fr estates under the filing threshld, the IRS has the authrity t grant extensins fr filing the return under t make the prtability electin. The IRS has granted varius such extensins fr estates under the filing threshld wh have made frmal letter ruling requests fr extensins pursuant t SUMMARY OF REV. PROC Overview. Rev. Prc (issued January 27, 2014) allws a simplified relief prcedure (with n user fee being required), generally adpting ne f the recmmendatins made by the Sectin f Real Prperty, Trust and Estate Law f the American Bar Assciatin in cmments filed with the IRS n September 27, 2013 (the ABA RPTE Sectin Cmments are described in Item 8.l f the Ht Tpics and Current Develpments Summary (December 2013) fund here and available at The relief measure assists thse estates belw the filing threshld wh did nt file the electin return timely because they were unaware f the need t file the return in light f the newness f the regulatins and als thse same-sex cuples wh were retractively recgnized as spuses in Rev. Rul , I.R.B Extensin t December 31, Rev. Prc grants an autmatic extensin fr filing the estate tax return making the prtability electin until December 31, 2014 (withut filing a letter ruling fr relief under ) if the fllwing cnditins f the prcedure are satisfied. Cnditins t Qualify fr Autmatic Extensin. The requirements t qualify fr the autmatic extensin under the Revenue Prcedure are: The decedent f the estate has a surviving spuse, died after 2010 [prtability first became available fr decedents dying after 2010] and n r befre December 31, 2013, and was a citizen r resident f the United States n the date f death; The estate was nt therwise required t file an estate tax return because the value f the grss estate and adjusted taxable gifts was less than the basic exclusin amunt [$5 millin in 2011, $5.12 millin in 2012, and $5.25 millin in 2013]; 1

4 The estate did nt file an estate tax return within the time specified in Reg T(a)(1) fr filing the estate tax return t elect prtability [i.e., the 9-mnth (r 15- mnth, if extended) perid fr filing the estate tax return; if a timely return was filed, that return either autmatically made (r affirmatively declined t make) the prtability electin, Reg T(a)(3)(i)]; and The estate satisfies the fllwing prcedural requirements The executr (r ther persn permitted t make the electin) files a cmplete and prperly-prepared Frm 706 (i.e., meeting the requirements f Reg T(a)(7) [which allws simplified reprting prcedures fr estates that are belw the filing threshld]) n r befre December 31, 2014, and The return must state at the tp f Frm 706 FILED PURSUANT TO REV. PROC TO ELECT PORTABILITY UNDER 2010(c)(5)(a). The IRS will send an estate tax clsing letter acknwledging receipt f the Frm 706; but if it is subsequently determined that the estate was ver the filing threshld the autmatic grant f extensin is deemed null and vid. Limitatins n Refund Claims by Surviving Spuses Estates. If the surviving spuse has subsequently died after the decedent wh is making the late electin, Rev. Prc addresses the limitatins perid fr requesting a credit r refund. The surviving spuse must file a claim fr refund befre the general refund limitatin perid. Fr example, assume S1 died n January 1, 2011, S2 died January 14, 2011, and the Frm 706 fr S2 was filed and tax was paid n Octber 14, 2011 (withut taking advantage f unused exclusin amunt frm S1, which wuld have eliminated the estate tax ttally fr S2). The estate f S2 must file a claim fr refund 3 years after filing the Frm 706 (i.e., by Octber 14, 2014), even if the estate f S1 des nt file the return making the prtability electin r receive a clsing letter regarding such electin befre that date. The claim will be a prtective claim fr refund pending the determinatin that the estate f S1 is ultimately determined t have elected prtability pursuant t the extensin measures under the new prcedure. Effective Date; Pending Requests. The prcedure is effective January 27, Any estate that has a ruling request pending may withdraw the ruling request and receive a refund f its user fee if it des s by March 10, (The next sentence in the Rev. Prc. is cnfusing it says the natinal ffice will prcess ruling requests pending n January 27, 2014 unless the executr withdraws the request prir t the earlier f March 10 r the issuance f the letter ruling. By implicatin, this may suggest that the IRS culd issue a letter ruling befre March 10 and avid having t return the user fee as lng as the executr has nt ntified the IRS t withdraw the ruling request befre the letter ruling is issued.) OBSERVATIONS 1. Welcme Relief. This prcedure is quite welcme. It will prevent estates wh meet the requirements f the prcedure frm having t pay the $10,000 filing fee (which can be reduced fr certain taxpayers) fr making the letter ruling request fr an extensin pursuant t

5 2. Key Dates. Tw imprtant due dates are specified. December 31, The Frm 706 making the prtability electin must be filed by December 31, 2014, r else this autmatic extensin will n lnger apply (and the estate wuld have t make a frmal request under (and pay the hefty user fee)). March 10, Estates with any pending ruling requests fr extending the date t file the return must d s by March 10, 2014 t receive a refund f its user fee (and perhaps even befre that date s file the ntificatin request t withdraw the ruling request as sn as pssible). Refund Claim. There is n specific date fr this item, but if the surviving spuse has died and paid estate tax, the refund claim (based n having the first decedent s DSEU amunt, which wuld reduce the surviving spuse s estate tax) must be filed within the nrmal 3-year date f filing the surviving spuse s return. 3. Prcrastinatin Pays!!! Estates that realized they had nt timely filed the return t make the prtability electin and that filed a ruling request (and paid the user fee) and received the ruling apparently will nt get their mney back. (Shame n them fr being respnsible and practively filing fr relief under as sn as reasnably pssible.) 4. Estates That Filed Returns After Due Date But Have Nt Filed Ruling Request. In light f the uncertainty surrunding the filing date issue, sme estates may have simply filed the estate tax return late making the prtability electin, but have nt yet filed a ruling request fr an extensin f time t file late. Thse returns bviusly wuld nt have included the required ntice at the tp f the return. Thse estates are nt prhibited under the prcedure frm using the extended due date by reasn f the earlier-filed return, because it was nt timely filed. T be cnservative, any estate in this situatin shuld re-file the estate tax return, with the required ntice added at the tp f the return. 3