By Alda E. Boateng, Esq.

Failure by the estate to timely file the federal estate tax return results in the loss of the portability election, even if the decedent’s estate is not required to file a timely federal estate tax return. This often comes to the surprise of many personal representatives who find themselves requesting relief from the IRS in the form of a private letter ruling. The IRS has simplified the governing regulation in order to help practitioners.

The deadline to elect portability has long been a source of contention. For purposes of federal estate and gift taxes, electing portability allows a decedent’s estate to apply the decedent’s deceased spousal unused exclusion (“DSUE”) to a surviving spouse’s subsequent transfers during life or at death. To elect for portability, the decedent’s estate must make a portability election on a timely federal estate tax return within nine months of the death of the first spouse (or fifteen months if on extension).

In 2017, as a solution to the increased demand in private letter rulings requesting an extension of time to elect portability, the IRS issued Rev. Proc. 2017-34, which aimed to simplify the process to obtain an extension of time. At the time, the IRS considered the possibility of adopting a permanent and unlimited extension but declined to do so after considering “the statutory requirement of a timely filed return and the prejudice to the government from a lack of available record and current appraisals resulting from a long delay between a decedent’s death and the filing of an estate tax return for that decedent’s estate.” As an alternative, the IRS provided a simplified method under Treas. Reg. Sec. 301.9100-3, extending the deadline to elect portability until the second anniversary of a decedent’s death.

Fast forward to 2022, the IRS remains inundated with requests for private letter ruling relief. In response, the IRS issued Rev. Proc. 2022-32 which supersedes Rev. Proc. 2017-34. Upon discovering that a “significant percentage” of the ruling requests occurred prior to the fifth anniversary of the decedent’s date of death, the IRS updated the procedures set forth by Rev. Proc. 2017-34 by extending the period under which a decedent’s estate may elect portability under the simplified method to on or before the fifth anniversary of the decedent’s date of death. 

Rev. Proc 2022-32 outlines the following requirements to take advantage of the simplified method: 

1. The decedent must have died after December 31, 2010, as a citizen or resident of the United States, and survived by a spouse;
2. Based on the total gross value of the estate, there is no requirement to file an estate tax return under § 6018(a); and
3. The personal representative must not have filed an estate tax return within the time required by §20.2010-2(a)(1) for filing an estate tax return (i.e., within nine months after the decedent’s death or the last day of the period covered by an extension).

Despite the change in federal law, the State of Maryland still adheres to its own portability regulations enacted in 2018. Similar to the federal law, Maryland permits the surviving spouse to elect portability of the Maryland DSUE on a timely filed Maryland estate tax return. However, unlike federal law, Maryland has not extended the period under which the portability election may be made. Practitioners counseling Maryland estates should not confuse the new federal deadline with the Maryland portability election deadline. While the issuance of Rev. Proc. 2022-32 represents a change in the portability election deadlines under federal law, practitioners should be mindful that Maryland law remains unchanged.

Alda E. Boateng is with Venable’s Baltimore office, where she advises clients on matters related to trusts and estate planning. Alda’s practice is informed by her experience counseling high-net-worth individuals; drafting estate planning documents; and advising business owners, corporate executives, real estate developers, and technology entrepreneurs on business succession planning and wealth transfer. She also helps clients with estate, trust, and charitable giving plans to address income tax issues and achieve multigeneration transfer of assets.