In Notice 2011-82, 2011-42 IRB 516, 09/26/2011 the Service reiterated much of the instructions on portability addressed informally in the Instructions for Form 706 for 2011 decedents. The Form 706 Instructions contain detailed instructions for dealing with making the election to allow the surviving spouse to use the predeceased spouse’s unused exclusion amount and for computing the maximum unified credit amount on the death of the surviving spouse.

The instructions for Form 706 state that the executor will be considered to have made the predeceased spouse’s unused exclusion election by filing a “timely and complete Form 706.” There will be no need to check a box on the return. This has again been reaffirmed in Notice 2011-82. The use of the word “complete” in the instructions lead most practitioners to conclude that the Service is looking for a 706 with all the information that would be required in a taxable estate, and that there will be no 706EZ created to use to make this election. Again Notice 2011-82 reaffirms this conclusion. However, it is still unclear whether the Service will be able to defeat the election in the future by claiming that the Form 706 filed by the predeceased spouse’s executor was not complete.

Notice 2011-82 more formally addresses making a portability election. The Service makes a preliminary observation in the Notice that they anticipate that the executors for all married decedents dying after December 31, 2010 will want to make the portability election. For that reason, the Service wanted to make the procedure for making the election “straightforward and uncomplicated.” A portability election is not available to a decedent dying prior to January 1, 2011.

However, the Service reaffirms in this Notice that the election can only be made by the timely filing of a complete “and properly prepared” Form 706 prepared “in accordance with the instructions for that form”, even if a Form 706 is not otherwise required to be filed for such decedent. Thus is seems clear that a full and complete Form 706 with all of the appraisals and information that would be included on a Form 706 where one is required to be filed would be required in order to make the portability election. However, it is also clear that there is no need to make an affirmative statement that a portability election is being made, or check a box to make the election.

In addition, until a new Form 706 has been issued, there is no need to compute the deceased spousal unused exclusion amount. The Service has now clarified that, until the Form 706 has been revised to include detail on computing the amount of the decedent’s unused exclusion, an election will be deemed to have been made, and will be deemed to have included the computation of the deceased spousal unused exclusion amount, without more, with the timely filing of a complete Form 706 prepared in accordance with the instructions for that form. If the intention is not to have made the election, the executor must attach a statement to that effect to the Form 706. The instructions to Form 706 direct the executor, in that event, to either (1) attach a statement to the return stating that the election is not being made or (2) write across the top of the return “No Election under Section 2010(c)(5)”.

Since the Form 706 will be “timely” filed if it is filed “within the time prescribed by law (including extensions)”, it will be advisable to obtain the automatic 6 month extension to file.

Finally, the Service has stated that they intend to issue regulations. The Service must assume that portability is here to stay. For that reason, the Service has requested comment on (i) determining the deceased spousal unused exclusion amount in various circumstances, (ii) the order in which the deceased spousal unused exclusion amount and the surviving spouse’s basic exclusion amount is used, (iii) the effect of the last deceased spouse limitation, and (iv) the scope of the Service’s ability to audit the predeceased spouse’s Form 706 after the death of the surviving spouse.

For a more in-depth discussion of portability, see our previous post, Portability: the Good, the Bad, and the Ugly by Stephanie Moll and Michael N. Newmark.