In Private Letter Ruling 201536005 the IRS granted an executrix, who was also the surviving spouse of the decedent, the right to make a late portability election under IRC §2010. By making that election, the estate of the surviving spouse will be able to take into account the decedent’s deceased spousal unused exclusion amount (DSUE).
The estate had failed to file a Form 706 to make the portability election by what would have been the due date of the return had there been a taxable estate. Under Reg. §20.2010-2(a)(2) the election is made by the timely filing of an estate tax return for estates not otherwise required to file a return (those that must file a return have to make it on the Form 706 that they are required to file).
At IRC §2010(c)(5)(A) the law provides that the election must be made on a timely filed Form 706. However, if no Form 706 is actually required then there is no due date. Using the authority granted the agency under IRC §2010(c)(6) to write regulations implementing this rule, the IRS provided that estates that do not have a filing requirement will still make the election on a Form 706 filed by the date that one would have been due.
The IRS has always taken the position that it does not have the authority to waive statutory due dates for elections unless Congress specifically grants the agency the authority for the provision in question. There is no such grant of authority in this case.
However the IRS has given itself discretionary authority under Reg. §301.9100-3 to allow for late elections where the due date is set by regulation. In this case the IRS has decided that while the due date is set by statute for estates that have to file a Form 706, the due date for estates without a Form 706 filing responsibility was set by Reg. §§20.2010-2(a)(2) and (7).
In this case the estate asked for relief under Reg. §301.9100-3 to make the election late. The request was submitted with a letter ruling request where the executrix described the fact that she was not advised of the ability to make the election until after the due date had passed. She also represented that the decedent’s estate value was below the level at which a Form 706 filing would have been required.
The IRS granted the late election relief, but with a caveat. The IRS noted that if it is later determined that the estate of the executrix’s spouse was in excess of the amount that would have required an estate tax return, the portability election would no longer be valid, since the IRS has no authority to waive the election date, as that one would be set by statute.