In Chief Counsel Email Advice 201650017 the IRS confirmed what had been strongly hinted at in private letter rulings issued that allowed late portability elections under IRC §2010—that relief is not available to estates if a Form 706 was otherwise required to be filed but the estate did not do so.
The IRS has traditionally taken the position that its authority to grant taxpayers relief to make elections after their due date is limited to elections whose date is set by regulations. If a date is set by statute, the IRS position is that the agency lacks the authority to grant relief.
IRC §2010(c)(5)(A) provides:
(A) Election required
A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse under paragraph (2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. Such election, once made, shall be irrevocable. No election may be made under this subparagraph if such return is filed after the time prescribed by law (including extensions) for filing such return.
However, despite that language the IRS has granted relief to estates asking to make a late portability election. But in each case the estate stated that it was not otherwise required to file an estate tax return. And, in each case, the IRS made relief contingent upon that representation being true—if it later turned out the estate should have filed an estate tax return then the relief would be voided.
The apparent position of the IRS is that Congress only provided a mandated estate tax return due date for estates that are required to file Form 706. The election due date for estates not required to file a Form 706 was provided for by the IRS in Reg. §20.2010-2, although the agency simply tied the date to the one that would have applied had an estate tax return been due.
Nevertheless, the IRS has treated that as a regulatory due date. But if a return was required, then the date is one set by statute.
The email in question, outlining when relief could be granted, clearly states that whether a return should have been filed is the key issue.
The email provides the following:
If the taxpayer had a GROSS ESTATE of more than $5 million -- no relief is available to him at all, even if the estate is nontaxable due to the marital deduction. The taxpayer had an absolute obligation to file a Form 706 within 9 months of date of death and having failed to do so, the election for portability is missed.
Note that it appears this ruling may relate to the first year of the $5 million exclusion, since it doesn’t refer to the higher number found in later years. Nevertheless, in later years the amount in question would be the higher number allowed due to inflation adjustments.
Similarly, the email makes clear that if no return was due, relief can be granted—but it absolutely requires a private letter ruling (and the required fee for the ruling):
If the taxpayer had a GROSS ESTATE of less than $5 million, having missed the ability of timely filing a Form 706, the taxpayer's only recourse for obtaining the portability election is to seek relief through the private letter ruling process. The relief will likely be granted. Merely filing a late Form 706 would be ineffective in making this election and the election will not be respected.