When was the last time the IRS did you a favor?

With Rev. Roc. 2017-34, the I.R.S. would seem to be doing taxpayers a big favor.  Of course, it is also possible that the I.R.S. was simply being practical and had grown tired of reviewing and granting so many private letter rulings (PLR) requests.  What is all of this about?

As part of the tax act of 2012, a deceased spouse’s unused portion of the estate/gift tax exemption (DSUE) could be allocated (added) to the exemption of the surviving spouse.  Currently, the exemption amount is five million four hundred ninety thousand dollars ($5,490,000.00) per person.  However, the election to add the unused exemption needed to be made on a timely filed federal estate tax form 706.

Image provided by Flickr, 401kcalculator.org

Simple right?  Well as with all things tax, it got a little bit complicated.  For instance, the IRS decided that if an estate tax return was due because of the size of the taxable estate (gross estate over the exemption amount), the estate could make a normal request for a six month extension and that this extension would also extend the time to make the DSUE election.  What if the estate does not need to file the return because of the size of the estate (decedent’s gross estate under $5,490,000), but wants to file the return solely to make the DSUE election?  Well, the I.R.S. held that an ordinary request for extension would not work and, therefore, if the estate wanted to make the election after the normal 9 month filing period, it would need to request a PLR (Cha-Ching!).

The sad reality was that the I.R.S. was being swamped with these PLR extension requests.  Many of which they granted as a matter of formality.  Of course, the estate still needed to pay the hefty fees and costs associated with the PLR request.

Rev. Roc. 2017-34 creates a procedure by which an estate can file a late filed 706 solely for the purpose of allocating the DSUE without going through the expense of a PLR.  The procedure allows the estate tax return to be filed by the later of January 2, 2018 or two years following the decedent’s date of death.

Kudos to the I.R.S. for doing the right thing.  It is a win-win for all parties.  Surviving spouses get a second bite at the apple and the I.R.S. frees up a lot its time by not needing to continue to grant perfunctory PLRs on this issue.

If you have questions have questions about this article or other estate planning concerns, please contact John Clough.

AUTHOR: John Clough
jclough@pselaw.com