IRS provides guidance on using QTIP elections for reducing estate taxes
In Rev. Proc. 2016-49, the IRS removed a prohibition on utilizing a QTIP election when the election would have been null and void because the estate had a zero estate tax liability. Now when an estate makes the portability election under Sec. 2010(c)(5)(A) to transfer the decedent’s unused applicable exclusion amount, this new procedure allows the executor to make a QTIP election, and have it apply, regardless of whether the election is necessary to reduce the estate tax to zero.
Given the ability to make the portability election, the executor may choose to use the QTIP election to increase the amount of unused exclusion that passes through to the spouse. Under the prior rules, the IRS would disregard that election. The new guidance modifies and supersedes Rev. Proc. 2001-38 for estates filing an estate return to only make a portability election, and allows for the QTIP election to be applied.
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.