Convincing a Surviving Spouse to File an Estate Tax Return

The doubled estate and gift tax exemption, albeit temporary, resulting from the Tax Cuts and Jobs Act, has made it more difficult to convince surviving spouses with modest estates to file a Form 706 estate tax return to preserve the deceased spouse’s unused exemption (“DSUE”) amount.  Failure to file a Form 706 causes all of that remaining exemption to be forfeited.

If, as a practitioner, you are unable to convince a surviving spouse to file a Form 706, you’ll want to document your communications with the surviving spouse on this topic.  And, you’re not alone.  According to IRS data, only 681 NONtaxable returns were filed in 2017 claiming  DSUE amounts.

Curry, Jonathan. Getting Surviving Spouse to File Estate Return Now Even Harder. Taxnotes.com. Feb. 1, 2019.

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Where Oh Where is the Updated Form 706?

On October 25, 2018, the IRS has released Draft Form 706 and Draft Form 706 Instructions for decedents dying after December 31, 2017.  The draft forms reflect changes from the Tax Cuts and Jobs Act.

The Tax Cuts and Jobs Act increased the federal estate and gift tax unified credit basic exclusion amount and the federal GST exemption amount to $10 million (adjusted for inflation), effective for decedents dying and gifts made after 2017 and before 2026.

For decedents dying in 2018, the instructions reflect the following amounts: (1) the basic exclusion amount is $11,180,000; (2) the ceiling on special-use valuation is $1,140,000; (3) the amount used in figuring the 2% portion of estate tax payable in installments is $1,520,000; and (4) the basic credit amount is $4,417,800.

Bloomberg Tax. Tax Management Weekly Report. October 29, 2018 – Number 44.

Request for 9100 Relief to Make Alternate Valuation Election Granted

In PLR 201825013, the Co-Executors of Decedent’s estate hired Attorney to prepare the estate’s Form 706.  Attorney prepared Form 706, but did not make the alternate valuation date election under § 2032.  The Co-Executors timely filed the Form 706.

At a later date, after the due date of Form 706, the Co-Executors filed a supplemental Form 706 making the alternate valuation date election under § 2032.  The IRS issued a letter to the Co-Executors stating that because the § 2032 election was not timely filed, the estate’s assets could not be valued under § 2032 unless an extension of time was granted under the relief provisions of §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations (“9100 Relief”).

Section 20.2032-1(b)(3) of the Estate Tax Regulations provides that a request for an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 will not be granted unless the estate tax return is filed no later than 1 year after the due date of the return (including extensions actually granted).

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time to make a regulatory election, or statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer has acted reasonably and in good faith, and granting relief will not prejudice the interests of the government.

Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.

The IRS concluded that the standards for 9100 relief had been satisfied granted the estate an extension of time of 120 days from the date of this letter to make the alternate valuation election under § 2032.

Compare to PLR 201815001 where the estate’s CPA intended to make the alternate valuation election, but failed to check the box.  The IRS granted 9100 relief there as well.