What Is the Deceased Spousal Unused Exclusion (DSUE) Portability Deadline?

Congress designed our tax system to tax the aggregate of property transferred during an individual's lifetime, commonly referred to as gifts, and the property transferred upon death. The total value of taxable gifts and assets transferred at the time of death must surpass a specific threshold before the IRS levies any gift or estate taxes, as explained in the article "Portability of Deceased Spousal Unused Exclusion Extended" from The CPA Journal. The IRS extended the DSUE portability deadline.

The current federal estate tax exclusion is $12,900,000 for 2023, and within a marriage, each spouse has a unified exclusion amount of $12,900,000. The Unified Exclusion Amount or Unified Transfer Tax Credit for 2023 is $5,113,800.

The portability election allows the estate of a deceased taxpayer whose spouse survives to apply the decedent's unused exemption amount to their transfers during life (gifts) and at the time of their death.

By properly calculating and timely filing the Deceased Spousal Unused Exemption (DSUE), heirs can mitigate their tax liability on the inherited estate. Specific requirements include:

• The deceased was a spouse.
• The deceased died after December 31, 2010.
• The deceased was a citizen or resident of the US at the time of their death.
• The estate was not required to file an estate tax return based on the gross value of the estate and adjusted taxable gifts.

Congress had set the portability provisions of the 2010 legislation to expire on January 1, 2013, but the American Taxpayer Relief Act of 2012 made the ability to elect portability election permanent. The Revenue Procedure 2022-32 became effective on July 8, 2022, and allowed certain taxpayers an extended amount of time—five years—to make a portability election regarding estate and gift taxes. Congress thereby extended the DSUE portability deadline for these tax payers.

When first enacted, the executor of an estate was required to elect portability within nine months of the date of death or on the last day of the period covered by a granted extension. Note Revenue 2022-32 only applies to estates not required to file an estate tax return.

Estates requesting an extension to elect portability regarding the DSUE overwhelmed the IRS. The IRS determined that a high percentage of these requests came from the estates of taxpayers who died within five years preceding the date of the requests for portability. As a result, the IRS extended the period to five years.

The estate executor must complete and properly prepare Form 706, the United States Estate and Generation-Skipping Transfer Tax Return, within five years of the taxpayer's death. In addition, the executor of the estate must state at the top of Form 706 that the return is "Filed Pursuant to Revenue Procedure 2022-32 to Elect Portability under Section 201(c)(5)(a)" to fulfill portability requirements.

Executors who have not made the portability election must file Form 706 within five years of the decedent's death. Speak with an experienced Austin estate planning attorney to be sure this is done in a timely manner. While the federal exemption for estate taxes is very high, the law will decrease by half on January 1, 2026, when more estates must pay federal estate taxes.

Reference: The CPA Journal (August 2023) “Portability of Deceased Spousal Unused Exclusion Extended”