Loss of the Portability Election: Estate of Rowland v. Commissioner

“Loss of the Portability Election: Estate of Rowland v. Commissioner, that is the subject of today’s ACTEC Trust and Estate Talk.

This is ACTEC Fellow Travis Hayes from Naples, Florida.

Why Portability Matters — and What Happens When It’s Missed

The portability election has become a familiar and often relied upon tool in estate planning, allowing a surviving spouse to capture unused estate tax exclusion from the first spouse to die. But what happens when an estate fails to make that election on time or to make the portability election at all? The recent Estate of Roland v. Commissioner decision offers a sharp reminder that the IRS and the tax quarter are not always forgiving, and that procedural missteps can carry long-lasting tax consequences.

ACTEC Fellow Scott Filmore of Minneapolis, Minnesota joins us today to walk through the Roland case, what went wrong, and what planners should take away to protect their clients. Welcome, Scott.

Overview of the Rowland Case

Scott Filmore:  Thank you, Travis. Roland v. Commissioner (Estate of Billy S. Rowland v. Commissioner, T.C. Memo. 2025-76) is a tax court memorandum decision released on July 15th of 2025, and this case deals with the validity of a portability election.

Now, a quick definition for those who are unfamiliar, a portability election is only available for married couples after the first spouse’s death. If that spouse’s estate is not large enough to use up all that spouse’s estate tax exemption, then that spouse’s estate can make an election on the estate tax return to transfer, or “port,” unused estate tax exemption to a surviving spouse. The unused estate tax exemption that is transferred to the surviving spouse is called the Deceased Spousal Unused Exclusion amount, or DSUE amount, and the surviving spouse can use the DSUE amount in addition to the surviving spouse’s own gift or estate tax exemption for making future gifts or for the surviving spouse’s own estate.

The previously spouse here was Fay Roland, who died in April of 2016. Fay’s estate plan under her trust agreement directed that 20% of the estate go to a charitable foundation and that her surviving spouse, Billy Roland, receive one fourth of the gross estate. The remainder was to be distributed to trust for grandchildren. The estate reported an estimated gross value of $3 million, which was below the estate tax exemption at that time. It was $5.45 million in 2016. The estate filed an estate tax return in December of 2017, so it was filed late, almost six months after the extended filing deadline.

Late Filing and the Attempt to Claim Portability

Under the statute and regulations, portability elections can only be made on a timely filed estate tax return. However, Fay’s estate sought to elect portability under Revenue Procedure 2017-34, which authorized portability elections for certain estate tax returns filed late. The estate tax return did not provide itemized valuations for assets on the various schedules of the estate tax return. Instead, it estimated the gross value of the estate and claimed the entire estate fell under the relaxed reporting rules contained in the Treasury regulations addressing portability. I’ll get a little more detail about this in a minute, but basically those regulations say that the estate does not need to follow all the numerous requirements for the disclosure of assets on an estate tax return. But those regulations apply only to assets going to a surviving spouse or a charity, and a marital or charitable reduction will be claimed for those assets.

Now, on Fay’s estate tax return, the estate failed to distinguish between marital and charitable deduction property and other assets. And the value of each asset was especially important here because there were hard to value closely held business interests making up a large portion of the estate. So shortly after Fay’s estate tax return was filed, in January of 2018, Billy passes away. On a timely file, the estate tax return, his estate sought to use Fay’s DSUE (Deceased Spousal Unused Exclusion) amount.

Billy Roland’s Estate and IRS Challenge

So, Billy died after the Tax Cuts and Jobs Act was enacted in 2017. His estate had a much larger exemption than Fay’s did, it was $11.18 million. And with the DSUE amount from Fay’s estate, the estate claimed the exemption at his death was nearly $15 million. Now, Billy’s estate, the opinion doesn’t actually say, but his estate must have been roughly an excess of $25 million. So his estate still needed that DSUE amount from Fay’s estate. The IRS challenged the validity of the portability Election made on Fay’s estate and moved for summary judgment on that issue.

Now, first, the portability election is only valid if the estate files a complete and properly prepared estate tax return. But the regulations establish a special rule for marital or charitable reduction property where the estate is not required to file a return. It’s filing just to claim portability. In that case, the executor is not required to report the value of each item but “only the description, ownership, and or beneficiary of such property, along with all other information necessary to establish the right of the estate to the deduction.” Further, the executor must exercise due diligence in determining the estimated value of such property. But where the value of the marital or charitable disposition is needed to determine the value passing to someone other than a surviving spouse or a charity, this exception in the regulations does not apply. And the fair market value of the assets needs to be stated on the estate tax return.

Fay’s estate claimed the relaxed reporting rule for the entire estate, providing only an estimated total value. So consequently, the court found that Fay’s estate’s return was not in compliance with the Treasury regulations. And Fay’s estate would not have qualified for the relaxed reporting rule anyway, because the marital and charitable disposition affected the value that was distributed to other beneficiaries, the remainder interest going to the grandchildren. So the return also failed to provide itemized valuations for any assets, which is also required by the portability regulations.

Now back to Revenue Procedure 2017-34, it authorized late portability elections for certain estate tax returns that are filed within 2 years of the decedent’s death. Fay’s return was filed within the time period authorized by the Rev Proc, but that Rev Proc still requires a complete and properly prepared return, so relief under the Rev Proc was not available. The bottom line here is that Billy’s estate lost the ability to use $3.7 million of a DSUE amount. Keep in mind, the revenue procedure of 2017-34 was superseded by Rev Proc 2022-32, which extended the period within which an estate under the exemption may make a portability election to on or before the fifth anniversary of the decedent’s death. It went from 2 years to 5 years, but the estate must still meet the requirement that the return be complete and properly prepared.

Billy’s estate also argued in this case that Fay’s return substantially complied with the requirements and should be deemed valid. The court rejected that argument. It did not determine whether the doctrine of substantial compliance could ever apply in the situation. It just stated that assuming substantial compliance was even available here, the estate could not qualify. Maybe the decision in Roland is not a surprising result given the facts, but perhaps an example of the problems that can arise after a first spouse’s death when an estate plan intends to rely on portability rather than following other alternatives such as funding a credit shelter trust.

Lessons for Estate Planners

And keep in mind also that the IRS will not determine whether a portability election is valid after the first death, but before the second death. This is not something that’s on the no ruling list that the IRS issues every year, but there are several recent private letter rulings on portability elections where the IRS stated they’re not expressing an opinion on the validity of a portability election before the surviving spouse’s death; so you can’t get any real certainty regarding a portability election until after the surviving spouse’s death. So that’s the summary of Roland v. Commissioner, a good case to keep in mind the next time you are involved in making a portability election. Thank you.

Travis Hayes:  Thank you, Scott, for discussing the Roland case and the reminders and warnings that estate planning advisors should take from the decision.

 

A video to share with your clients:

What is Portability for Estate and Gift Tax?

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