Attention To Details Matters in Estate Administration, Court Case Shows

A recent U.S. Tax Court decision is a stark reminder that procedural missteps can cost millions in estate tax savings for married couples relying on portability.

Portability allows a surviving spouse to use any unused portion of their deceased spouse’s federal estate and gift tax lifetime exclusion. For 2026, that exclusion rose to $15 million. However, the Internal Revenue Service (IRS) does not automatically grant portability. Taxpayers must file Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return, within nine months of death, with a possible six-month extension. If the return is filed solely for portability, taxpayers have up to five years from the date of death to submit a complete and properly prepared return.

That phrase—“complete and properly prepared”—proved pivotal in the recently decided Rowland case. Treasury regulations require full compliance for a valid election. Fay Rowland died in 2016, and her estate filed Form 706 listing several assets, including interests in closely held businesses. However, the return lacked adequate descriptions, valuations, and supporting documentation. Qualified appraisals were missing, and estimates were used instead.

When Fay’s husband, Billy Rowland, died in 2018, the IRS reviewed the earlier portability election. Under special rules, the IRS can revisit the deceased spouse’s return at the surviving spouse’s death—there is no standard three-year statute of limitations. The IRS determined Fay’s Form 706 was not “complete and properly prepared,” invalidating the portability election. The Tax Court agreed, resulting in Billy’s estate owing approximately $1.5 million in additional estate tax.