In Estate of Minnie Lynn Sower v. Commissioner, , 149 T.C. No. 11 (Sept. 11, 2017), the Tax Court held that the IRS could examine a predeceased spouse’s estate tax return to determine the deceased spousal unused exclusion (DSUE) amount available to the surviving spouse’s estate, finding that the statute of limitations didn’t apply regarding the husband’s estate and a letter accepting the husband’s estate tax return wasn’t a closing agreement.

The Abstract is as follows:

H died in 2012, and H’s estate reported a deceased spousal unused exclusion (DSUE) and elected portability of the DSUE. In2013 R sent H’s estate a letter reporting that the return had been accepted as filed. W died in 2013. W’s estate claimed the DSUE reported by H’s estate. As a part of an examination of the estate tax return filed by W’s estate, R also examined the estate tax return filed by H’s estate. R reduced the amount of the DSUE by the amount of taxable gifts given by H but did not determine or assess a deficiency against H’s estate. But R determined an estate tax deficiency against W’s estate. W’s estate filed a petition in which it made several arguments regarding why R should not be allowed to examine the estate tax return filed by H’s estate to determine the proper DSUE amount allowable to W’s estate.

 

Held: R acted within the authority granted by I.R.C. sec. 2010(c)(5)(B) when he examined the estate tax return of a predeceased spouse to determine the correct DSUE amount.

 

Held, further, a letter stating that the estate tax return of a predeceased spouse has been accepted as filed is not a closing agreement under I.R.C. sec. 7121.

 

Held, further, a letter stating that the estate tax return of a predeceased spouse has been accepted as filed does not estop R from examining the return of the predeceased spouse.

 

Held, further, an examination of the estate tax return of a predeceased spouse in which R reviews the records in his possession and asserts no additional tax is not a second examination within the meaning of I.R.C. sec. 7605(b).

 

Held, further, the estate of a later deceased spouse cannot challenge whether an examination of the estate tax return of a predeceased spouse is an improper second examination within the meaning of I.R.C. sec. 7605(b) because only the examined party can seek protection from a second examination under I.R.C. sec. 7605(b).

 

Held, further, the applicable regulations relating to I.R.C. sec. 2010 do not prohibit R from examining the predeceased spouse’s return.

 

Held, further, the effective date of I.R.C. sec. 2010(c)(5)(B) does not preclude R from adjusting the DSUE amount by gifts given before Dec. 31, 2010, when the DSUE amount affects an estate tax return for a decedent dying after Dec. 31, 2010.

 

Held, further, R’s application of I.R.C. sec. 2010(c)(5)(B) did not frustrate congressional intent with respect to portability.

 

Held, further, the period of limitations on assessment of tax for the estate of the predeceased spouse is not implicated if R does not determine an estate tax deficiency for the estate of the predeceased spouse.

See full opinion by clicking Estate of Minnie Lynn Sower v. Commissioner, , 149 T.C. No. 11 (Sept. 11, 2017).

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.