IRS Extension of Estate Tax Break Takes Effect

Virginia Beach, VA (Law Firm Newswire) March 12, 2014 – The Internal Revenue Service (IRS) recently extended a tax break for married couples.

The ruling, announced in Revenue Procedure 2014-18, extends the deadline to take advantage of an estate tax break known as “portability.” The break went into effect on an interim basis in 2011, and it was made permanent under the American Taxpayer Relief Tax Act of 2012.

“The IRS grants every U.S. citizen a “basic exclusion,” which is a lifetime exclusion amount from estate and gift taxes,” Andrew Hook, a Virginia Beach estate planning attorney, explained. “For 2014, that amount is $5.34 million. Portability allows widows and widowers to add the unused portion of their deceased spouse’s basic exclusion to their own, increasing the amount of assets they can hand over to their own heirs tax-free.”

In order to elect portability, an estate tax return (IRS Form 706) must be filed on behalf of the estate of the deceased spouse. The normal deadline for doing so is nine months after the death, plus six months if an extension is requested.

Previously, many people who should have elected portability failed to do so, either because they or their advisors were unaware of the rule or because they did not expect the surviving spouse’s financial worth to exceed the basic exclusion amount.

The recent IRS ruling allows portability to be elected for persons who died during calendar years 2011 through 2013, were U.S. citizens or residents upon death and had a surviving spouse. The deadline to take advantage of this extension by filing Form 706 is December 31, 2014. The IRS instructs those taking advantage of the ruling to write at the top of the form, “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”

The Revenue Procedure announcement also allows for the credit or refund of any taxes overpaid as the result of failure to elect portability. The deadline for doing so is three years from filing Form 706 or two years from the payment of the tax — whichever comes later.

“This Revenue Procedure is of particular interest to same-sex married couples, who were only recently allowed to elect portability,” Hook added. “Like opposite-sex couples, they can now not only elect portability going back to 2011, but likely get a refund on taxes they paid as the result of their previous exclusion from this tax break.”