Rev. Proc. 2022-14: Simplified Method for Portability

Revenue Procedure 2022-32 provides a simplified method for certain estates to make a late “portability” election. This procedure was established to offer relief for those who missed the standard deadline, serving as a less burdensome alternative to obtaining a private letter ruling (PLR) from the IRS. The goal is to streamline the process for estates that do not have a federal estate tax liability but wish to pass a deceased spouse’s unused estate tax exemption to the surviving spouse.

The IRS created this path in response to the large number of relief requests it received, helping executors avoid the complex and costly PLR process.

Understanding Portability and the DSUE Amount

The federal government imposes a tax on the transfer of a person’s assets after their death, but a substantial amount, known as the estate tax exemption, can be transferred tax-free. This exemption amount is adjusted periodically for inflation. For many individuals, the total value of their estate falls below this threshold, meaning no federal estate tax is due.

For married couples, a provision in the tax law allows for portability. This concept permits a surviving spouse to use any of the deceased spouse’s unused estate tax exemption. The specific amount of the unused exemption is referred to as the Deceased Spousal Unused Exclusion, or DSUE amount. The portability election is not automatic; the executor of the deceased spouse’s estate must file a federal estate tax return, Form 706, to make the election.

The portability election is a valuable tool in estate planning. For example, consider a spouse who passes away with an estate valued well below the federal exemption amount. Without portability, the unused portion of their exemption would disappear. By making the portability election, the executor can transfer this unused DSUE amount to the surviving spouse.

This transferred DSUE amount is then added to the surviving spouse’s own exemption. This can be advantageous for couples with assets that may appreciate over time. It allows the surviving spouse a larger total exemption to apply against their own future taxable gifts or their own estate at death, potentially shielding a greater amount of wealth from federal estate tax.

Eligibility for the Simplified Method

To utilize the simplified method under Rev. Proc. 2022-32, an estate must meet several specific requirements. A central condition is that the estate is not otherwise required to file a federal estate tax return. This means the value of the decedent’s gross estate, combined with their adjusted lifetime gifts, must be less than the statutory filing threshold for the year of death.

Additional requirements include:

• The decedent must have been a U.S. citizen or resident at the time of death, passed away after December 31, 2010, and been survived by a spouse.
• An estate tax return was not previously filed by the standard deadline, which is nine months after the decedent’s death with a possible six-month extension.
• The executor is only filing to elect portability and not to transfer the decedent’s Generation-Skipping Transfer (GST) tax exemption.
• The executor is filing within the five-year deadline established by the revenue procedure.

Required Information and Form Preparation

Before beginning the filing process, the executor must gather specific information to properly complete Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. This includes the decedent’s full name, Social Security number, and date of death, as well as the surviving spouse’s name and Social Security number.

A comprehensive inventory and valuation of the decedent’s assets as of the date of death are required. This includes real estate, bank accounts, investment portfolios, retirement accounts, and personal property. While estates filing only to elect portability may not need to provide detailed descriptions of certain assets, they must still report good faith estimates of the values of these assets to be included in the gross estate calculation.

The core of the portability election is calculated on Part 6 of Form 706. To complete this section, the executor will need the basic exclusion amount for the year of the decedent’s death. The form guides the calculation that subtracts the value of the decedent’s taxable estate from their applicable exclusion amount to determine the DSUE amount.

The executor must ensure all required schedules of Form 706 are completed accurately for the portability election to be valid. This includes providing information on any lifetime taxable gifts made by the decedent, as these affect the total exemption available.

The Filing Process Under Rev. Proc. 2022-32

Once Form 706 is prepared, the executor must write the statement “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY” at the top of the first page. This notation indicates to the IRS that the return is being filed under the special relief provisions.

The deadline for filing under this revenue procedure is on or before the fifth anniversary of the decedent’s date of death. This provides a significantly extended window compared to the standard nine-month deadline.

The completed Form 706 should be mailed to the address specified in the form’s instructions. The correct mailing address depends on the state where the decedent was domiciled at the time of death.

After the return is submitted, the estate should receive a closing letter from the IRS confirming the return has been accepted and the portability election is recorded. This letter should be retained by the surviving spouse as proof of the available DSUE amount for future use.

When the Simplified Method Does Not Apply

The simplified method provided by Rev. Proc. 2022-32 is not available in all situations. The most common reason an estate is ineligible is that the five-year period since the decedent’s date of death has already passed. Once this deadline is missed, the relief offered by this procedure is no longer an option.

In cases where the five-year window has closed, the only remaining avenue to request an extension of time to make the portability election is to seek a private letter ruling (PLR) from the IRS. A PLR is a formal, written determination issued by the IRS that interprets and applies tax laws to a taxpayer’s specific set of facts.

Requesting a PLR is a significantly more involved and costly process. It requires the payment of a substantial user fee to the IRS and typically requires the assistance of a tax professional, adding to the overall expense. The process is also time-consuming, and there is no guarantee of a favorable outcome.