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Navigating the Portability Election from a Valuator’s Point of View
By Brian A. Sullivan, CPA/ABV

Executive Summary

The Tax Court’s decision in Estate of Billy S. Rowland v. Commissioner represents a watershed moment in portability planning and significantly reshapes how practitioners must approach valuation and reporting on Form 706 filings intended to elect portability. While Treasury Regulation §20.2010-2(a)(7)(ii) permits relaxed reporting for certain marital and charitable deduction properties, the scope of this rule is far narrower than many estates have assumed. Misapplying it can have serious consequences. In the Rowland case, Billy Rowland’s estate lost the ability to port his predeceased wife Fay’s unused estate tax exemption amount (DSUE), resulting in approximately $1.5 million in additional estate taxes. This article examines the valuation requirements under the relaxed reporting rule, explains why the Rowland estate’s approach failed, and outlines key compliance lessons for practitioners advising clients on portability elections.

Legal Framework for Relaxed Reporting

Treasury Regulation §20.2010-2(a)(7)(ii) introduced a special reporting rule designed to reduce the compliance burden for smaller estates filing an estate tax return solely to elect portability. Under this rule, executors may use estimated valuations in $250,000 increments rather than obtaining precise appraisals for certain assets. However, the rule includes important limitations. It applies only to property that qualifies entirely for the marital or charitable deduction, a complete description of each asset is still required, and the rule cannot be used when valuation is necessary to determine distributions to non-marital or non-charitable beneficiaries or to support other estate or generation-skipping transfer tax elections.

Revenue Procedure 2017-34 further provides a safe harbor for portability elections by allowing estates additional time to file a return to elect portability. Subsequent guidance under Revenue Procedure 2022-32 extended this window to as much as five years for certain estates. Despite the extended filing timeline, the return must still be complete and properly prepared in order to qualify for the relief.

The Rowland Facts and Valuation Failures

The problems in the Rowland case began with the filing of Fay Rowland’s estate tax return. Although the executor obtained an automatic extension, the Form 706 was not filed within the original deadline. The return was eventually submitted under the safe harbor provided by Revenue Procedure 2017-34. However, it contained no fair market valuations and instead listed “$0” for each property category. At the same time, Fay’s trust allocated assets by percentage among her surviving spouse, a family foundation, and trusts for her grandchildren. Because these distributions included both marital and non-marital beneficiaries, accurate valuations were essential.

The Internal Revenue Service challenged the validity of the portability election, arguing that Billy Rowland’s estate could not claim Fay’s DSUE because Fay’s Form 706 was incomplete. The IRS maintained that the absence of complete descriptions and valuations prevented the agency from verifying the amount of the unused exemption and therefore invalidated the portability election.

The Court’s Valuation Analysis

The Tax Court agreed with the IRS and emphasized that strict compliance is required for portability elections. The court rejected arguments that the estate had substantially complied with the rules or that equitable principles should apply. According to the court, only a timely and accurate Form 706 can secure portability benefits.

The court further determined that the absence of valuations constituted substantive noncompliance rather than a minor technical defect. Fay’s return failed to provide fair market values for any assets, and the court stressed that these omissions made it impossible for the IRS to verify the DSUE amount being claimed.

In addition, the court interpreted the relaxed reporting rule narrowly. The rule is intended to apply only when no non-marital or non-charitable beneficiaries are affected. Because Fay’s estate included trusts for grandchildren that would receive residuary portions, asset valuations were required to determine the proper allocation of the estate. As a result, the estate could not rely on the relaxed reporting provisions.

Implications for Valuation Practice

The Rowland decision underscores the close relationship between valuation and the validity of a portability election. Valuation is not merely an administrative detail—it is a structural prerequisite for a valid election. Executors and their advisors must analyze the structure of the trust or will before relying on relaxed reporting provisions.

The decision also highlights significant documentation and audit considerations. The IRS retains the authority to examine portability elections even after the normal statute of limitations has expired. Maintaining contemporaneous valuation support is therefore essential both for compliance and for protection during potential audits.

Another important lesson from the case is the danger of misapplying the estimation rule. Practitioners may assume that simplified reporting reduces the need for detailed valuations, but applying the rule incorrectly can invalidate the portability election entirely. In practice, portability filings should be approached with the same rigor as estate tax returns for taxable estates.

Valuations also play a role in establishing beneficiaries’ income tax basis. Estimated values used under the relaxed reporting rule do not establish tax basis for inherited assets. For this reason, close collaboration among valuation professionals, estate attorneys, and executors is critical to ensure that assets are properly documented.

Practitioners must also understand the expanded five-year filing window created by Revenue Procedure 2022-32. While this simplified method allows certain small estates additional time to elect portability, it still requires a fully prepared and accurate estate tax return. Estates that do not qualify for the simplified procedure may need to seek relief through a private letter ruling under Treasury Regulation §301.9100-3.

Additional compliance considerations include documenting client decisions not to file an estate tax return, confirming that the executor (as defined under 26 U.S.C. §2203) has the authority to make the portability election, and evaluating whether state law or court involvement could affect the filing process. Practitioners should also clarify responsibility for the costs associated with preparing Form 706 and remember that portability elections become irrevocable once the filing deadline has passed.

Recommendations for Valuation Practitioners

Valuation professionals should begin with a thorough pre-filing analysis. This includes reviewing the deceased spouse’s trust or will to identify all beneficiaries and determine whether any non-marital or non-charitable interests exist. If there is any uncertainty about whether the relaxed reporting rule applies, obtaining full valuations is the safer course.

Proper valuation documentation is equally important. Practitioners should maintain contemporaneous appraisals and supporting records, avoid estimated values unless the special rule clearly applies, and carefully document the methodology and timing of each valuation.

From a filing perspective, estates should aim to file within the standard nine-month deadline, including any available extensions, whenever possible. The return should include detailed asset descriptions and credible valuations. Even when an estate is filing solely to elect portability, the return should be prepared with the same level of care and precision required for a taxable estate.

Conclusion

The Rowland decision demonstrates that valuation accuracy is central to a valid portability election. The relaxed reporting rule is not intended to serve as a shortcut, and misapplying it can lead to severe tax consequences. Practitioners should treat portability elections as a technical compliance exercise, ensure that valuations are properly supported, and conduct careful beneficiary analysis before filing. By following these practices, advisors can protect their clients’ portability elections, reduce audit risk, and prevent the loss of valuable estate tax exemption amounts.

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