Must an estate tax return be filed to use the portability rule?

On behalf of Scaringi Law posted in Estate Planning on Saturday, November 21, 2015.

In a recent post, we addressed the question of whether Pennsylvania estates must file an estate tax return, even if the estates did not anticipate any estate tax liability. As we discussed, state law requires an inheritance tax return for property that might be subject to tax. In addition, other filings, such as an IRS Form 706 estate tax return, can be a best practice in other ways.

As a preliminary matter, an estate that earns income will have to report that income at both the state and federal level. In addition, a spouse that wishes to utilize the new portability rules will also have to file a federal estate tax return. That filing is for the purpose of determining the decedent’s unused exemption amount.

In fact, a recent article states that the IRS is experiencing unprecedented numbers of estate tax returns from filers seeking to utilize the portability rules. The influx has required the IRS to slightly change its procedures. Instead of issuing closing letters to confirm that the filing was accepted, such letters will soon issue only upon the taxpayer’s request. This change will apply to filings after June 1, 2016.

The task of preparing an estate tax return may seem like an accounting issue, but the reality is that estate tax law is more complicated than simple arithmetic. Issues like a stepped-up basis in property, applicable spousal exemptions for transfers, and the value of assets held in a trust can also benefit from the experience and skills of an attorney. If an estate administrator has questions about the administration and other duties incumbent upon him or her, a law firm that focuses on estate planning, like ours, can be a sound resource.

Source: LifeHealthPro, “The new IRS rules on estate closing letters,” Tom Nawrocki, Nov. 10, 2015


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