The IRS recently issued final regulations and made an announcement that may be of interest to estate executors, personal representatives and married couples. Here are the details of both developments:

1. Final Regulations Issued on the Portability Election for Spouses

The IRS released final regulations on the portability election, which allows the executor to transfer a decedent's unused exclusion amount to the decedent's surviving spouse, who can then use it for his or her gift or estate tax purposes. To make the election, estates must file an estate tax return on IRS Form 706, "United States Estate (and Generation-Skipping Transfer) Tax Return"— even if they're not otherwise required to file because they're below the filing threshold.

What's Included in Your Estate?

The gross estate of a decedent consists of everything you own, or have certain interests in, at the date of death. The fair market value of these items is used — not necessarily what you paid for them or what the values were when you acquired them.

The total of all these items is your "gross estate." The property may consist of cash, securities, real estate, insurance, trusts, annuities, business interests and other assets.

The gross estate usually includes non-probate as well as probate property.

The amount received by the surviving spouse is called the deceased spousal unused exclusion, or DSUE, amount.

The final regulations, which are effective on June 12, 2015, generally adopt the 2012 temporary regulations with clarifying changes, as well as a new rule allowing the decedent's unused exclusion amount to be used by a surviving spouse who becomes a U.S. citizen after the decedent's death.

Among other things, the temporary regulations provided guidance on:

  • Making the portability election;
  • The timely filing requirement;
  • The requirement that the election be made on a "complete and properly-prepared estate tax return;"
  • Who can make the election;
  • How to opt out of the portability election;
  • Computing the DSUE amount;
  • Use of the DSUE amount by the surviving spouse; and
  • Miscellaneous other provisions, including the effect of multiple spouses and previously applied DSUE amount, the authority of the IRS to examine returns of deceased spouses, the applicability of the portability rules to nonresidents who aren't citizens, and the applicability of portability in case of qualified domestic trusts (QDOTs).

If you would like more information about the portability election, consult with your estate planning or tax adviser.

2. Want an Estate Tax Closing Letter? Now You Have to Request One

The IRS announced on its website that it will only issue estate tax closing letters upon the taxpayer's request for estate tax returns. This affects those who file IRS Form 706 on or after June 1, 2015.

The tax agency also clarified whether, and under what circumstances, it will issue a closing letter for estate tax returns filed before that date.

In the past, estate tax closing letters were sent out to executors automatically four to six months after they filed estate tax returns.

New Procedure: An executor should wait at least four months after filing the estate tax return to request a closing letter. This will allow the IRS time for processing.

Also, for estate tax returns filed after January 1, 2015 and before June 1, 2015, the IRS policy for issuing closing letters has been changed to reflect the portability election rules. For example, a closing letter will be issued if the filing threshold was met and the portability election was:

  • Denied due to late filing or
  • Accepted.

A closing letter also will be issued if the estate was below the filing threshold and the portability election was accepted. However, no closing letter will be issued if the estate was below the filing threshold and the portability election was denied due to late filing.

If you have more questions about the federal (and state) estate tax in your situation please contact the Goralka Law Firm at (916) 440-8036.

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