IRS Finalizes Rules on Portability of Deceased Spousal Unused Exclusion Amount

The Internal Revenue Service has released final regulations on the portability of a deceased spousal exclusion amount for surviving spouses facing estate and gift taxes.

The final regulations provide guidance under Sections 2010 and 2505 of the Tax Code on the estate and gift tax applicable exclusion amount, in general, as well as on the applicable requirements for electing portability of a deceased spousal unused exclusion, or DSUE, amount to the surviving spouse and on the applicable rules for the surviving spouse’s use of this DSUE amount.

The statutory provisions underlying the portability rules were enacted as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and the provisions were made permanent by the American Taxpayer Relief Act of 2012.

The portability rules affect the estates of married decedents dying on or after Jan. 1, 2011, and the surviving spouses of those decedents. The regulations became effective on June 12, 2015.

Section 2010(c) of the Tax Code allows the estate of a decedent who is survived by a spouse to make a portability election, which generally allows the surviving spouse to apply the decedent’s deceased spousal unused exclusion amount to the surviving spouse’s own transfers during life and at death. Under Section 2010(c)(5)(A), a portability election is effective only if made on an estate tax return filed by the executor of the decedent’s estate within the time prescribed by law for filing such return.

Section 20.2010-2T(a)(1) of the 2012 temporary regulations requires every estate electing portability of a decedent’s DSUE amount to file an estate tax return within nine months of the decedent’s date of death, unless an extension of time for filing has been granted.