Portability and the Late DSUE Election

Here is a pattern I see in second-death estates. The first spouse died years ago. Everything passed to the survivor, the estate was well under the filing threshold, and the family's accountant correctly said no estate tax return was required. Nobody filed one.

Now the surviving spouse has died, the estate has grown, and the family discovers it could have used the first spouse's unused exclusion. That benefit is called portability, and it only exists if someone filed a Form 706 to claim it.

How portability works

Every person has a basic exclusion amount that shelters transfers from estate and gift tax. For 2026, it is $15,000,000 under Rev. Proc. 2025-32, as set by the One Big Beautiful Bill Act. If a married person dies and does not use all of that exclusion, IRC 2010(c)(4) lets the unused portion, called the deceased spousal unused exclusion or DSUE amount, pass to the surviving spouse.

The survivor's applicable exclusion becomes their own basic exclusion plus the DSUE amount. For a couple whose combined wealth may eventually exceed one person's exclusion, that can be the difference between owing estate tax and owing none.

A few rules are worth knowing:

• The DSUE amount comes from the last deceased spouse. Remarriage and the death of a second spouse can replace it.
• The DSUE amount is fixed at the first death. Unlike the survivor's own exclusion, it does not grow with inflation.
• Portability applies to estate and gift tax. It does not apply to the generation-skipping transfer tax exemption.

The election requires a return

IRC 2010(c)(5)(A) is strict. The DSUE amount is available only if the executor of the deceased spouse's estate elects portability on an estate tax return filed within the time prescribed by law, including extensions.

For an estate that was not otherwise required to file, Treas. Reg. 20.2010-2(a)(1) sets the deadline at nine months after death, or the end of an extension period. And Treas. Reg. 20.2010-2(a)(7)(ii) lets those estates use simplified reporting for certain property passing to the spouse or to charity, so the return does not require a full appraisal of every asset.

The election is made by filing a complete and properly prepared Form 706. Filing the return makes the election unless the executor affirmatively opts out.

The late election: Rev. Proc. 2022-32

Because so many families missed the nine-month window, the IRS created a simplified path. Rev. Proc. 2022-32 allows a late portability election if:

1. The decedent was survived by a spouse, died after December 31, 2010, and was a U.S. citizen or resident at death.
2. The executor was not required to file a Form 706 based on the value of the gross estate and adjusted taxable gifts.
3. The executor did not timely file a Form 706.
4. A complete and properly prepared Form 706 is filed on or before the fifth anniversary of the date of death.
5. The top of the return states: "FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)."

No user fee is required. If those conditions are met, the return is treated as timely for portability purposes.

Two limits matter. First, the relief is not available to an estate that was required to file. If the first estate was over the filing threshold, the deadline is set by statute and cannot be extended this way. Second, if it later turns out the estate was required to file after all, the relief is void from the beginning.

After five years

Once the fifth anniversary passes, Rev. Proc. 2022-32 no longer applies. The remaining route is a request for a private letter ruling under Treas. Reg. 301.9100-3, asking the IRS to grant an extension of time to make the election. That process carries a user fee, takes time, and has no assured outcome. The IRS evaluates whether the executor acted reasonably and in good faith and whether granting relief would prejudice the government's interests.

If you are approaching the five-year mark, do not wait. The difference between month 59 and month 61 is the difference between a filing and a ruling request.

Protecting the surviving spouse's refund rights

Timing problems can arise in the other direction. Suppose the survivor already made large gifts or has died, and the survivor's estate paid tax without the DSUE amount because portability had not been elected yet. Rev. Proc. 2022-32 explains that a late election does not extend the refund period under IRC 6511(a) for the survivor's returns.

The solution is a protective claim for refund, typically on Form 843, filed by the survivor or the survivor's estate within the normal refund period, in anticipation of the late portability return. The revenue procedure's examples walk through exactly this sequence.

How the survivor uses the DSUE amount

Once portability is elected, the surviving spouse can apply the DSUE amount to lifetime gifts as well as at death. Under the gift tax regulations in Treas. Reg. 25.2505-2, a DSUE amount is applied to the survivor's taxable gifts before the survivor's own basic exclusion amount. That ordering is useful: the DSUE amount does not grow with inflation, while the survivor's own exclusion does, so using the DSUE amount first preserves the part that keeps growing.

The IRS can look back at the first return

IRC 2010(c)(5)(B) gives the IRS a special power. Notwithstanding the normal limitations periods, the IRS may examine the return of the deceased spouse to determine the DSUE amount when it is applied by the survivor. The IRS cannot assess more estate tax against the first estate after its statute has run, but it can recompute the DSUE amount.

That means the first return still matters years later. Values reported loosely on a portability-only return, or lifetime gifts that were never reported, can reduce the DSUE amount when the survivor's estate is audited. Keep the work papers. See what happens in an estate tax audit and the guide to estate valuation disputes.

What the late return has to include

A late portability return under Rev. Proc. 2022-32 must be "complete and properly prepared" under Treas. Reg. 20.2010-2(a)(7). That does not mean a full appraisal of every asset passing to the surviving spouse. The regulation allows estates that are not otherwise required to file to report estimated values for property qualifying for the marital or charitable deduction, using good faith estimates within specified ranges, while fully valuing everything else.

It does mean the return must list the assets, show the computation of the DSUE amount, and include the required notation at the top. A form with blanks is not a return for this purpose.

Is it worth filing?

With a $15,000,000 basic exclusion in 2026, many couples will never need the first spouse's DSUE amount. Then again, many Sarasota couples did not expect their real estate to appreciate the way it has. Wealth grows. Spouses outlive expectations. Laws change.

A portability-only Form 706 costs a fraction of the estate tax it can prevent. For a surviving spouse with substantial assets, a long life expectancy, or appreciating property, it is usually worth doing. For an estate where the survivor's assets are clearly modest, it may not be.

Either way, decide on purpose. Filing late under Rev. Proc. 2022-32 is a gift from the IRS. It expires on the fifth anniversary.

For deadlines on regular estate tax returns, see Form 706 deadlines and extensions. For why Florida families still deal with the federal estate tax at all, see Florida has no estate tax; the IRS still does.

If a spouse died within the last five years and nobody filed a Form 706, call (813) 229-7100. Let's talk.