Relief Fr Late Filing f Prtability Electin Returns Fr Decedents Wh Died Befre 2014 Revenue Prcedure 2014-18 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 75201 214-981-9407 akers@bessemer.cm www.bessemer.cm
TABLE OF CONTENTS Backgrund... 1 Summary f Rev. Prc. 2014-18... 1 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. www.bessemer.cm/advisr i
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 301.9100-3 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 301.9100-3. SUMMARY OF REV. PROC. 2014-18 Overview. Rev. Prc. 2014-18 (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 www.bessemer.cm/advisr). 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. 2013-17, 2013-38 I.R.B. 201. Extensin t December 31, 2014. Rev. Prc. 2014-18 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 301.9100-3) 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]; www.bessemer.cm/advisr 1
The estate did nt file an estate tax return within the time specified in Reg. 20.2010-2T(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. 20.2010-2T(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. 20.2010-2T(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. 2014-18 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. 2014-18 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, 2014. 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, 2014. (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 301.9100-3. www.bessemer.cm/advisr 2
2. Key Dates. Tw imprtant due dates are specified. December 31, 2014. 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 300.9100-3 (and pay the hefty user fee)). March 10, 2014. 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 301.9100-3 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. www.bessemer.cm/advisr 3