The United States Tax Court recently issued a decision that estate planners and taxpayers alike should take to heart. In Estate of Billy S. Rowland v. Commissioner (T.C. Memo. 2025-76), the Court ruled that the Rowland family could not take advantage of spousal portability—a common estate tax planning tool—because of errors made on the first deceased spouse’s estate tax return. The result: an additional $1.5 million in estate taxes from the surviving spouse’s estate.
A Refresher on Portability
Under current law, each U.S. taxpayer can pass $13.99 million (in 2025) free of estate tax. Married couples can effectively double that amount—up to $27.98 million—if the surviving spouse properly elects “portability.” As we previously shared on our website, these figures are due to increase to $15 million per person ($30 million for a married couple) in 2026.
Portability allows a surviving spouse to use any unused exclusion (called the DSUE amount) from the first spouse to die. But portability is not automatic. To secure it, the executor of the first deceased spouse’s estate must file a timely and properly prepared Form 706 (estate tax return) to elect portability, even if no estate tax is otherwise due from the first deceased spouse’s estate.
What Went Wrong in Rowland
Fay Rowland died in 2016. Her executor applied for an automatic extension to file Form 706 but did not mail the return until five months after the extended deadline. Normally, late filings doom portability. However, the IRS provides a “safe harbor” under specific Revenue Procedures. At the time of Fay’s passing, the applicable Revenue Procedure allowed a return filed within two years of death to still qualify as a “timely” portability election. The applicable Revenue Procedure today allows for up to five years to file a portability return for an estate that is not otherwise taxable. This safe harbor only applies when the value of the first deceased spouse’s gross estate is less than his or her applicable exclusion amount ($13.99 million in 2025). However—the return must also be “complete and properly prepared.”
Unfortunately, Fay’s return fell short:
- Incomplete filing: While the return was filed within the applicable two-year window, it lacked required fair market valuations for many assets. Instead, it estimated the gross estate value.
- Misuse of the “special rule”: The IRS allows simplified reporting for property passing from a non-taxable estate outright to a spouse or charity. But Fay’s trust allocated percentages to her husband and a family foundation, with the balance to grandchildren’s trusts. Because the spouse’s and charity’s shares directly affected what others received, full valuations were required. Fay’s return incorrectly applied the exception across the board.
As a result, the Tax Court held that the return was not “properly prepared” under Treasury regulations and could not qualify for the two-year filing safe harbor. That meant the DSUE amount—worth over $3.7 million—was lost.
The Court’s Rejection of “Fairness” Arguments
Billy Rowland’s estate argued that the return substantially complied with the rules, or that the IRS should be estopped from rejecting it. Essentially they argued that disallowing the election was unfair, and the estate should be excused for the mistakes. The Tax Court disagreed. It stressed that Congress requires strict compliance for portability elections: only a timely, accurate Form 706 secures the benefit.
Key Takeaways for Families
The Rowland case underscores important lessons for anyone with a potentially taxable estate:
- File Form 706 even if not required. If a spouse dies with a modest estate, filing may feel unnecessary—but it is the only way a surviving spouse can preserve portability of a deceased spouse’s unused exemption amount.
- Meet deadlines. The return must be filed within nine months (or 15 months with an extension). The (now, five-year) safe harbor provides extra time, but only if the return is also prepared accurately and complete.
- Follow valuation rules carefully. Even when assets pass to a spouse or charity, reporting shortcuts are limited. If distributions affect other beneficiaries, full valuations are mandatory.
Why It Matters
The Rowland heirs paid the price for small but costly mistakes—$1.5 million in additional estate taxes. For families whose combined assets approach the federal exemption amount, careful estate tax compliance is critical at each spouse’s death.
Our estate planning attorneys regularly assist clients with preparation and review of portability filings to ensure these benefits are preserved. If you and your spouse have assets approaching the exemption threshold, we recommend reviewing your plan to understand what tax elections may be required by your family as part of an estate administration.
