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Execution is a Lot - Estate Tax Portability Edition

By Joe Kristan
July 18, 2025
Courtroom

Key Takeaways

  • Why you might want to file an estate tax return even if no tax is owed.

  • A "portability election" might save millions when a surviving spouse dies.

  • But you have to do it right.

In giving, it's the thought that counts. In estate planning, more is required. As Peter Reilly puts it in his excellent book Reilly's Laws of Tax Planning (& Life!) (available on Amazon!), execution isn't everything, but it's a lot. It's a lesson learned the hard way by an unfortunate executor this week in Tax Court.

Everyone is entitled to a lifetime estate and gift tax exclusion - currently $13,990,000. If a spouse dies without owing estate tax - for example, because the surviving spouse inherits everything - a "portability election" allows the the surviving spouse to claim the "Deceased Spousal Unused Exclusion," or DSUE. At the 40% estate tax rate, that can be worth millions.

This is where execution comes in. Making the election is deceptively simple—just file a proper Form 706. There's the problem: The DSUE amount can only be claimed if the first spouse’s estate files a complete and properly prepared return, even if no estate tax is owed. 

The case.

Fay Rowland died in 2016. Her estate filed an extension for her estate tax return, but missed the July 8, 2017 extended deadline by five months. The regulations require the return making the DSUE election to be timely, so there's a problem.

Ah, but there was also a mulligan. The IRS, via Rev. Proc. 2017-34, allows an estate with no estate tax liability to file a DSUE election up to two years after the deadline, if a return was not otherwise required. The return met this requirement and was filed within the two-year window. So, problem solved?

Unfortunately, no.

One requirement for Rev. Proc. 2017-34 relief is that the estate "must file a complete and properly prepared Form 706." The Tax Court said the return fell short:

In summary, Fay's Return was not entitled to estimate the gross value of Fay's Estate but instead was required to provide specific valuation information for each property interest listed in the schedules. Fay's Return thus did not constitute a complete and properly prepared return eligible for the Rev. Proc. 2017-34 safe harbor.

This was bad news for the estate of Fay's surviving spouse, which claimed a $3.7 million DSUE on the return filed following his 2018 death. This would have reduced the tax on his Form 709 by about $1.485 million. 

The New Relief Window

The IRS now allows qualifying estates up to 5 years after first deceased spouse’s date of death to file a “portability” estate tax return (Rev. Proc. 2022-32) - but they still require a complete and properly filed estate tax return.

Devin Hecht, leader of the Eide Bailly Wealth Transition Services practice, notes: 

Estate of Rowland vs. Commissioner provides taxpayers and their advisors crucial reminders for “Portability” Form 706 Estate Tax returns and the importance in filing a timely, complete, and properly prepared estate tax return for the first spouse to pass away. Executors should pay strict attention to the statutory requirements for fair market valuation and information required for estate tax returns (including portability returns). Rowland reminds us that only marital deduction property and charitable deduction property qualifies for the “Simplified Valuation Method”. Executors should take notice that the substantial benefits of the deceased spousal unused exclusion (DSUE) amount can be entirely lost if an incomplete or untimely estate tax return is filed.

Execution matters a lot.

 

Further reading: IRS opens door for more late portability elections

 

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About the Author(s)

Joe Kristan

Joe B. Kristan, CPA

Partner
After 38 years centered on tax consulting for closely held businesses and their owners, Joe is joining Eide Bailly's National Tax Office. Joe's responsibilities include communication, process improvement and training. He is a principal contributor to the Eide Bailly Tax News and Views blog, providing daily updates on tax reform and other tax news. Joe is a Certified Public Accountant and a member of the AICPA Tax Section and Iowa Society of Public Accountants.
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