Opinion ID: 4116340
Heading Depth: 1
Heading Rank: 3

Heading: the deceased spousal unused exclusion amount and portability

Text: ¶11 With the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296 (2010), a concept known as portability was introduced into the United States Tax Code. The mechanism was made permanent by the American Taxpayer Relief Act of 2012, Pub. L. No. 112-240, 126 Stat. 2313 (2013). In the event a first-to-die spouse has not fully used the estate tax exclusion, portability allows for the unused portion to be transferred to the surviving spouse. Details concerning the mechanics are provided in 26 U.S.C.A. § 2010. 2 The unused exclusion amount that may be transferred to the surviving spouse is called the Deceased Spousal Unused Exclusion Amount (DSUE). 26 U.S.C.A. § 2010(c)(4). However, in order for a surviving spouse to make use of the DSUE, an election must be made by the executor of the deceased spouse's estate, who must also file an estate tax return. Specifically, 26 U.S.C.A. § 2010(c)(5)(A) provides: (A) Election required.--A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse under paragraph (2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. Such election, once made, shall be irrevocable. No election may be made under this subparagraph if such return is filed after the time prescribed by law (including extensions) for filing such return. ¶12 The Internal Revenue Service has promulgated rules 3 concerning portability that further clarify the election process and who may make the election. Specifically, 26 C.F.R. § 20.2010-2 provides in pertinent part: (6) Persons permitted to make the election -- (i) Appointed executor. An executor or administrator of the estate of a decedent survived by a spouse that is appointed, qualified, and acting within the United States, within the meaning of section 2203 (an appointed executor), may timely file the estate tax return on behalf of the estate of the decedent and, in so doing, elect portability of the decedent's DSUE amount. An appointed executor also may elect not to have portability apply pursuant to paragraph (a)(3) of this section. (ii) Non-appointed executor. If there is no appointed executor, any person in actual or constructive possession of any property of the decedent (a non-appointed executor) may timely file the estate tax return on behalf of the estate of the decedent and, in so doing, elect portability of the decedent's DSUE amount, or, by complying with paragraph (a)(3) of this section, may elect not to have portability apply. A portability election made by a non-appointed executor when there is no appointed executor for that decedent's estate can be superseded by a subsequent contrary election made by an appointed executor of that same decedent's estate on an estate tax return filed on or before the due date of the return, including extensions actually granted. An election to allow portability made by a non-appointed executor cannot be superseded by a contrary election to have portability not apply made by another non-appointed executor of that same decedent's estate (unless such other non-appointed executor is the successor of the non-appointed executor who made the election). See § 20.6018-2 for additional rules relating to persons permitted to file the estate tax return. ¶13 In its Summary of Comments and Explanation of Revisions, the IRS further clarified why only an executor, and not a surviving spouse who is not an executor (such as Vose in this cause) may make the DSUE portability election. Portability of a Deceased Spousal Unused Exclusion Amount, 80 Fed. Reg. 34,279-01, 34,281 (June 16, 2015). Specifically, the IRS explained: 3. Persons Permitted to Make the Election Several commenters requested that the final regulations allow a surviving spouse who is not an executor as defined in section 2203 of the Code to file an estate tax return and make the portability election in several different circumstances. A few of the circumstances described include those in which the spouse is given the right to file the estate tax return in a prenuptial or marital agreement, or the spouse has petitioned the appropriate local court for the spouse's appointment as an executor solely for the limited purpose of filing the estate tax return and the executor does not make the portability election. The Treasury Department and the IRS recognize the possibility that an executor may exercise the executor's discretion to not make the portability election, thus causing the estate to forfeit the opportunity to elect portability, but note that section 2010(c)(5) of the Code permits only the executor of the decedent's estate to file the estate tax return and make the portability election. The 2012 temporary regulations address the circumstances in which an appointed executor or a non-appointed executor may file the estate tax return and decide whether or not to elect portability. The Treasury Department and the IRS believe that any consideration of what, if any, state law action might bring the surviving spouse within the definition of executor under section 2203 is outside of the scope of this regulation. Accordingly, the final regulations adopt the applicable rules in the 2012 temporary regulations without change. Id. ¶14 Lee asserts that he is the appointed executor within the meaning of the relevant federal law. 4 Accordingly, Lee argues on appeal that, pursuant to 26 U.S.C.A. § 2010 and the applicable regulations, the decision to elect portability of the DSUE is discretionary and entirely his to make. He further argues that the district court therefore had no subject matter jurisdiction over the matter, and that its order compelling him to make the election is directly contrary to federal law and any state law grounds on which it might be based are defeated by the preemption doctrine.