Portability and Simplified Reporting – A Warning from the Tax Court

A decedent’s estate is not required to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, if the gross estate is below the filing threshold -- $13.99 million for 2024 and $15 million for 2025. However, if the decedent is survived by a spouse, the decedent’s estate may want to file a Form 706 to port any remaining exemption the decedent may have had at death to the surviving spouse. There is a common misconception that if a Form 706 is being filed for portability purposes only, the Form 706 filing requirements can be ignored, modified, or not followed completely, particularly if the estate’s executor makes an election to use the special rule introduced in Reg. §20.2010-2(a)(7)(ii), which relaxes the reporting requirements governing valuation of property in an estate. 

Contrary to popular belief, estate tax filing requirements must still be observed: the IRS reminds tax practitioners of those requirements in Estate of Rowland v. Comm., T.C. Memo. 2025-76 (July 15, 2025). 

Case Facts

Decedent Billy Rowland died on January 24, 2018, two years after his wife Fay, who had died on April 8, 2016. While the value of Fay’s estate was below the 2016 filing threshold ($5.45 million) for Form 706, the executor of Fay’s estate applied for and received an automatic extension to file Fay’s estate tax return; with the extension, the return would have been due on July 8, 2017. Fay’s executor ultimately filed Fay’s Form 706 on December 29, 2017, electing portability pursuant to Rev. Proc. 2017-34. Fay’s gross estate reflected an estimated value of $3 million and payments to 13 named beneficiaries totaling $1,401,000. The deceased spousal unused exclusion (DSUE) amount was calculated as $3,712,562. Billy’s estate, which was a taxable estate, sought to port Fay’s unused exclusion. 

Fay’s estate completed the Form 706 schedules by listing various assets in which Fay had an interest at the time of her death. The listed assets included real property, shares of Rowland Motors, Inc., shares of Rowland Marietta, Inc, a note receivable of Rowland Enterprises, and bank accounts. Using the special rule of Reg. §20.2010-2(a)(7(ii), the return estimated the gross value of the estate, rather than providing any information as to the fair market value of each asset. 

On April 22, 2019, Billy’s estate timely filed its Form 706, reporting a DSUE amount of $3,712,562 that resulted in a $22,445 refund for the estate. Billy’s return was selected for examination. The IRS issued a notice of deficiency that indicated Fay’s return was not timely filed, and therefore, no DSUE amount was available for Billy’s estate. The IRS concluded that Fay’s Form 706 was not eligible to use the simplified reporting structure under Reg. §20.2010-2(a)(7)(ii); hence, Fay’s estate failed to timely submit a “complete and properly prepared estate tax return,” as required by Rev. Proc. 2017-34. 

Statutory Framework

A DSUE amount is available to a surviving spouse for transfers made on or after the decedent’s date of death, but only if the executor of the decedent’s estate makes the election on a timely filed Form 706. Section 2010(c)(5)(A) provides that a portability election is timely if the Form 706 is filed nine months after the decedent’s date of death, but an executor may apply to request an additional six-month extension for filing. 

For estates that are not required to file a Form 706 because the gross estate value is below the filing threshold, Rev. Proc. 2017-34¹ extends the time to file an estate return to make a portability election, under certain circumstances. The revenue procedure provides that “a complete and properly prepared” Form 706 is considered timely if filed “on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death.” Form 706 is “complete and properly prepared” if it is prepared in compliance with the Form 706 instructions and in satisfaction of Reg. §§ 20.6018-2 through 20.6018-4. 

Form 706 requires the listing and fair market valuation of various property types. However, Reg. §20.2010-2(a)(7)(ii) allows an estate to report good faith estimates of the property’s fair market value, rather than report the fair market value as is traditionally required. The regulation generally applies to assets subject to bequests and transfers that receive the estate tax marital deduction or charitable deduction. The reporting requirements are simplified, but only if the value of that property does not relate to, affect, or is not needed to determine the value of property passing from the decedent to a noncharitable or nonmarital beneficiary. The election is available to estates that file Form 706 for portability purposes only. The regulations also require the reporting of “the description, ownership, and beneficiary of such property.”

Court’s Analysis

In Rowland, Fay’s trust agreement provided for specific bequests totaling $950,000 to children, grandchildren, and friends; distributions of certain percentages to the surviving spouse (Billy) and to a charitable family foundation; and the trust residue to fund trusts for grandchildren. Fay’s Form 706 reported an estimated value for the entire estate, grouping the marital and charitable deduction property rather than separately reporting those properties. However, even if Fay’s return had separately identified the marital and charitable deduction property, the court concluded that estimated reporting would not apply, because the value of property passing to the charitable family foundation and to the surviving spouse was needed to determine the value passing to the trusts for the grandchildren. The disposition of Fay’s estate precluded the estimated reporting approach allowed by Reg. §20.2010-2(a)(7)(ii). 

Detailed reporting, including fair market value, for all estate property on Fay’s Form 706 would have been required to represent a “complete and properly prepared” return, the court said. Consequently, Fay’s estate failed to make a timely portability election under Rev. Proc. 2017-34, because Form 706 was an incomplete and improperly prepared return – lacking detailed valuation information as of the date of death. Accordingly, Billy’s estate could not port the DSUE amount to reduce its taxable estate.

Billy’s estate argued that Fay’s return substantially complied with the requirements to make a valid portability election by filing a Form 706 that reported the “information necessary to determine that no estate tax is due and estate tax exemption remains available.” The court did not opine on whether the doctrine of substantial compliance is ever available for making a valid portability election. However, the court stated that had the doctrine been available, Fay’s estate did not substantially comply by doing “all that was reasonably possible” to comply with Reg. §20.2010-(2)(a)(7)(ii). The court found that Fay’s return concealed, rather than clarified, the information needed to verify the DSUE amount.

Billy’s estate also argued the doctrine of equitable estoppel; however, the court held that Billy’s estate did not meet the requirements for an equitable estoppel claim.

¹ Rev. Proc. 2022-32 supersedes Rev. Proc. 2017-34, extending the time to make a portability election from two years to five years – on or before the fifth anniversary of the decedent’s date of death.