Portability Pitfalls: Why Complete and Accurate Estate Tax Returns Matter

The Internal Revenue Code permits a surviving spouse to utilize or “port” the deceased spousal unused exclusion (“DSUE”) if: (1) the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed; (2) that executor makes an election on the deceased spouse’s estate tax return; and, (3) such return is timely filed. This is commonly referred to as portability. On July 15, 2025, the U.S. Tax Court granted partial summary judgment to the IRS and determined that the estate of Billy Rowland could not port the DSUE of his predeceased wife Fay because her estate failed to make a proper election on a complete and properly filed estate tax return.

Fay and Billy Rowland were married at the time of Fay’s death in 2016. Under Fay’s revocable trust agreement, she left certain bequests to various beneficiaries, a fraction of her gross estate to charitable beneficiaries and the balance of her estate to trusts for the benefit of her grandchildren. Fay’s estate tax return listed various categories of assets and estimated the total value of her gross estate to be $3,000,000 (well below the threshold for filing an estate tax return in 2016), but did not include any information as to the fair market value of the specific assets reported. Fay’s estate relied on IRS guidance permitting relaxed reported rules for estate tax returns filed solely to elect portability when reporting property eligible for the marital or charitable deduction; in such a case, the executor is not required to report the value of such property, but only sufficient information to establish the right of the estate to take such deduction.

Billy Rowland died in 2018 and the estate tax return filed for his estate reflected Fay’s DSUE. During an estate tax audit, the IRS claimed Billy’s estate was ineligible to claim the DSUE because Fay’s estate tax return was not timely filed and was not proper and complete. The IRS claimed that since Fay’s residuary property was not to be distributed exclusively to Billy and/or charity, the estate tax return required itemization and valuation of all the estate’s property, and not simply an estimate as to the value of the overall gross estate. The Tax Court agreed and its Memorandum Opinion granted partial summary judgment to the IRS and determined that Billy’s estate could not port Fay’s DSUE.

In light of this decision, and the fact that every dollar ported could potentially save 40 cents of federal estate tax, practitioners should not be “penny wise and pound foolish” and should be careful to prepare complete and proper estate tax returns, even when filing solely to elect portability.

For more information, check out this Tax Notes summary: Estate Didn’t Make Portability Election; Safe Harbor Doesn’t Apply | Tax Notes