Tax Court Denies Portability Benefit to Surviving Spouse Based on Incomplete Return

A recent Tax Court case serves as a warning for taxpayers attempting to use portability to claim a first-to-die spouse's remaining estate tax exemption amount. In 2010, tax reform made the deceased spouse unused exclusion (DSUE) portable between spouses. Essentially, if one spouse failed to "use up" their entire exemption amount, the surviving spouse's estate can use the unused portion. The case, Estate of Billy Rowland, TC Memo 2025-76, dealt with a taxpayer who had passed away in 2018. His estate tried to claim his predeceased wife's remaining exclusion. However, while the spouse filed their required Form 706 on time, it did not contain certain valuation details with respect to her assets. The IRS found that this made the return incomplete, so the second-to-die spouse's estate was unable to use her remaining exemption. The Tax Court agreed, rejecting the estate's argument that they substantially complied with the rules that they found confusing. Because the estate did not precisely comply with the IRS reporting rules, it lost the ability to claim the DSUE. For more information on the rules governing estate tax portability, visit Tax Facts Online. Read More: Link to Q823. Note: Q is updated.