IRS Expands Time to Claim Portability – Providing Tax Relief to Surviving Spouse and Their Families

 

From 2011, an individual has been eligible to carry over the unused portion of his or her deceased spouse’s Federal Estate Tax Credit, known as a Deceased Spouse Unused Election (DSUE) through a process known as Portability.  Portability carries the potential of a massive tax savings for the children of married couples.  Originally, a spouse was given nine (9) months to claim the DSUE, but in 2017, the IRS released Revenue Procedure 2017-34 which expanded the time to claim the DSUE to two (2) years, if the surviving spouse filed a letter with the IRS requesting an accommodation.

On July 8, 2022, by Revenue Procedure 2022-32, the IRS has expanded the time to file and claim Portability and further simplified the process.

What is Portability?

Much like how spouses may pool their income when filing a joint income tax return, married couples are permitted to combine their Lifetime Gift and Estate Tax Exemptions, currently $12,060,000 per person.  Portability allows the surviving spouse to claim the unused portion of the deceased spouse’s Lifetime Exemption and add it to the surviving spouse’s own, so long as a Federal Estate Tax Return (Form 706) is filed for the deceased spouse and Portability is elected.  Considering that the Federal Estate Tax is 40%, portability can result in significant tax savings by using the deceased spouse’s exemption.  Portability may provide an even greater benefit for any family that loses a loved one prior to January 1, 2026, when the exemption is reduced to one half of the current level.

What Changed?

Recently, the IRS published new rules in Revenue Procedure 2022-32.  In these rules, the IRS expanded the period of time in which the deceased spouse’s estate can file a Federal Estate Tax Return to elect portability from nine (9)  months after a death (or two (2) years after filing a request with the IRS) to five (5) years.   The IRS has announced that this change is retroactive, so the executor can claim portability, even if the original window has closed.   Additionally, no more letters requesting accommodations must be written, the executor only needs to file Form 706.

Is it too late to claim Portability for my Parents’ Estates?

Even if both members of the married couple have died, the executor of the second to die can port the first spouse’s DSUE to the second.  As an example, if the father passed away in 2018, and the mother passed away in 2020, the child, as the executor, could claim both their father’s and mother’s estate tax exemptions, instead of just their mother’s.  If the child has already paid the estate taxes on their mother’s estate and they are eligible to file for portability for their father, they could do so and claim a significant tax refund.

What are the requirements for this extension?

In order for the executor to claim Portability:

  • The deceased spouse must have been a US citizen
  • A Federal Estate Tax Return (Form 706) must not have previously been filed for the deceased spouse’s estate
  • The deceased spouse’s gross estate was under the tax filing threshold for the year of his or her death
  • Form 706 is filed claiming portability within five years of the anniversary of death

As always, the attorneys at Winne, Banta, Basralian & Kahn are here to serve you.

If you have specific questions pertaining to the information above please contact one of the attorneys in our Tax, Trusts & Estates Department listed below.

Co-Chairs of the Tax, Trusts & Estates Department

Martin J. Dever, Jr.    mdever@winnebanta.com

Jonathan Kukin         jkukin@winnebanta.com

Partners of the Tax, Trusts & Estate Department:

Arthur I. Goldberg        agoldberg@winnebanta.com

Peter J. Bakarich, Jr.     pbakarich@winnebanta.com

Associates of the Tax, Trusts & Estate Department:

Doris Brandstatter               dbrandstatter@winnebanta.com

Drew J. Ruzanski                  druzanski@winnebanta.com

Marley A. Guerrera              mguerrera@winnebanta.com

THE INFLATION REDUCTION ACT OF 2022

On August 16, President Joe Biden signed the Inflation Reduction Act of 2022 (the “Act”) into law.  The Act is comprised of several key sections which will both increase revenue and spending.

The spending aspects of the Act involve:

  • Prescription Drugs and Medicare
    • The Act expands eligibility for low-income Medicare programs, provides free vaccines, provides rebates and limits increases on costs for drug or medical care, and caps the out of pocket expenses of a Medicare recipient to $2000 annually.
  • Energy and Climate Change Investment
    • The Act provides rebates for energy efficient consumer products, provides money to improve clean energy infrastructure, grant tax credits for green industries to establish new manufacturing.
  • Environmental Justice
    • The Act reserves funds to address pollution in poor communities, improve access to clean water, improve public transportation, plant trees and expand urban parks, improve access to electricity for Native American Tribal governments and communities
  • Rural Community and Wilderness Environmental Support
    • The Act also aims to reduce risk of forest fires through better conservation practices, conserve and restore coastal habitats, support greener agricultural practices and grant tax credits for the domestic production of biofuels.

The revenue portions of the Act are claimed to fully offset the cost of these new initiatives by making some changes to the Tax Code, and providing funding to better enforce the Tax Code, specifically for the IRS to conduct audits of individual and corporate taxpayers earning greater than $400,000 per year.

The Act’s changes are focused primarily on the income taxes of corporations and top earners.

  • Perhaps the most significant change in the tax code which will yield the largest sum of revenue is the implementation of an Alternative Minimum Tax of 15% on corporations that make more than $1 billion per year in profit. If an affected corporation were to pay lower than 15% of its taxable income under existing law, it would now be charged a flat rate of 15%.
  • The Act also imposes of a 1% tax on the fair market value of any stock buy backs unless:
    • the buy back is part of a reorganization,
    • the buy back is used to contribute to an employer-sponsored retirement plan,
    • the buy back is under $1,000,000 in total value,
    • the repurchaser is a dealer in securities
    • the repurchaser is a regulated investment company or real estate investment trust
    • the buy back is treated as a dividend.
  • The limitation on the deductibility of taxes on an individual under 26 USC §164, which includes the $10,000 limit deduction on property taxes, which was set to expire at the end of 2025 under current law, has been extended for two additional years.

As always, the attorneys at Winne, Banta, Basralian & Kahn are here to serve you.

Year End and Future Tax Motivation – Is this the Lull Before the Storm?

As 2021 has come to an end and you begin your estate planning preparations for 2022 and beyond, it is important to reflect upon what almost happened this past year.

Under current law, the lifetime estate and gift tax exemption is set to sunset at the end of 2025, at which time the exemption amount will be reduced by half.  Although the most hastily discussed gift and estate tax rules of this year (i.e., an early sunset of the lifetime exemption amount) were not placed into effect, the proposed new law would have halved the allowable lifetime estate and gift tax exemption by the end of 2021.  While it appears, any immediate changes are on hold, this does not mean one should be complacent with their current estate plan. The changes to the gift and estate tax rules on the horizon should motivate you to review your current plan.

Winne Banta Basralian and Kahn recommends that you schedule a meeting with one of the attorneys in our Tax, Trusts and Estates Department, which will allow you and your family to consider and finalize the most comprehensive and effective estate plan that fits your specific needs and goals. Clearly, you should not remain quietly on the sidelines and defer your important planning until the current exemption sunsets at the end of 2025.  Do not overlook and forgo the value of the extra gifting power available to you while the exemption remains at a historical high.

As of January 1, 2022:

  • Annual Exclusion Increases to $16,000 from $15,000
  • Lifetime Estate and Gift Tax Exemption Increases to $12,060,000 from $11,700,00
  • Generation Skipping Tax Exemption Increases to $12,060,000 from $11,700,00
  • Grantor Trusts will remain an effective way to shift wealth to the next generation

Co-Chairs of the Tax, Trusts & Estates Department

Martin J. Dever, Jr.    mdever@winnebanta.com

Jonathan Kukin         jkukin@winnebanta.com

Partners of the Tax, Trusts & Estate Department:

Arthur I. Goldberg        agoldberg@winnebanta.com

Peter J. Bakarich, Jr.    pbakarich@winnebanta.com

Associates of the Tax, Trusts & Estate Department:

Doris Brandstatter               dbrandstatter@winnebanta.com

Victor Manuel Nazario III    vnazario@winnebanta.com

Marley A. Guerrera              mguerrera@winnebanta.com