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The Internal Revenue Service has released new procedures that help a taxpayer make the decision on whether to opt for a qualified terminable interest property election to reduce estate taxes.

The new procedures mean the IRS may disregard and treat as null and void for transfer tax purposes a qualified terminable interest property election in those situations where the QTIP election was not necessary to reduce the estate tax liability to zero.

Revenue Procedure 2016-49 specifies that such procedures are unavailable where QTIP elections are made in estates in which the executor elected portability of the deceased spousal unused exclusion amount under Section 2010(c)(5)(A) of the Tax Code. The guidance modifies and supersedes Rev. Proc. 2001-38, 2001-1 C.B. 1335. 

An amendment in 2010 of the Tax Code allowed an estate executor to make a portability election that could influence a decision on whether to make a QTIP election that would reduce a decedent’s taxable estate and maximize the amount of the unused exclusion that’s available to be used by a decedent’s surviving spouse. An executor who elects portability of the decedent’s unused applicable exclusion amount (also known as the deceased spousal unused exclusion amount, or DSUE amount) might want to make a QTIP election without regard to whether the QTIP election is necessary to reduce the estate tax liability to zero.

Rev. Proc. 2001-38 provides a procedure through which the IRS will disregard and treat as a nullity for federal estate, gift and generation-skipping transfer tax purposes a QTIP election made in cases where the election was not necessary to reduce the estate tax liability to zero. Rev. Proc. 2001-38, when issued, provided relief to the surviving spouse of a decedent whose estate received no benefit from the unnecessary QTIP election.

With the availability of portability elections, however, the procedure to void and nullify QTIP elections in Rev. Proc. 2001-38 may affect the ability of a decedent’s estate to make an otherwise unnecessary QTIP election to maximize the available unused exclusion amount. The new revenue procedure modifies and supersedes Rev. Proc.2001-38. Although the new revenue procedure confirms the procedures by which the IRS will disregard a QTIP election, it excludes from its scope those estates in which the executor made the portability election in accordance with the Section 2010(c)(5)(A) regulations.

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