U.S. families face expensive consequences due to mistakes in submitting estate tax returns
Headline: The Importance of Properly Filing Estate Tax Returns: A Cautionary Tale from the Billy Rowland Case
In a recent ruling by the U.S. Tax Court, the estate of Billy Rowland, an Ohio businessman who passed away in 2018, faced an additional $1.5 million in estate taxes due to improperly filed portability elections. This case underscores the need for careful attention to detail in estate-tax returns, even when no tax is owed initially.
Portability, a tax break for married couples, allows the surviving spouse to use any unused portion of the deceased spouse's federal estate tax exemption. However, to correctly file for portability and ensure the deceased spousal unused exclusion (DSUE) is transferred, specific requirements must be met.
Firstly, it is mandatory to file Form 706 (United States Estate [and Generation-Skipping Transfer] Tax Return) if:
- The decedent’s gross estate plus adjusted taxable gifts and specific exemption exceeds $13,990,000 in 2025; or
- The executor elects to transfer any unused exclusion (DSUE) to the surviving spouse, even if the gross estate is below the threshold.
Even if Form 706 is filed solely to elect portability and the estate is below the filing threshold, all estate tax filing requirements must be fully met, including valuation and information disclosure. The executor must also elect portability on the initial return, as there's no provision to file a late portability election without IRS approval or special circumstances.
The portability election requires a “timely filed” and “complete and properly prepared” Form 706, whether or not the estate owes federal estate tax. The normal deadline is nine months after the date of death, with an automatic extension of six months available, making a possible total of 18 months to file.
Filing Form 706 correctly involves preparing multiple schedules, including detailed asset valuations, considering adjusted taxable gifts made after 1976, accurately computing the DSUE amount, and maintaining proper documentation consistent with IRS standards to avoid underreporting penalties.
Portability only applies to the federal estate tax exemption; most states do not offer portability at this time. Additionally, portability amounts are not adjusted for inflation after the decedent’s death, so the surviving spouse’s exemption can be less favorable over time.
The executor's decision to file the return and elect portability should be made carefully, considering cost and complexity. Failure to file timely or properly can cause the surviving spouse to lose the ability to use any unused exemption, potentially subjecting the surviving spouse’s estate to larger federal estate taxes and penalties.
This case serves as a reminder of the risks for wealthy families with combined estates over the $15 million per-person exemption for 2026. Tax experts warn that portability elections must be filed correctly, as mistakes often go unnoticed until the second spouse's death, when it's too late to fix them.
In conclusion, to prevent penalties and ensure portability election, the executor must file a complete and timely Form 706 for the deceased spouse and meet all IRS filing requirements to properly transfer the unused exemption to the surviving spouse. The Rowland case underscores the potential for unforeseen complications in estate planning, emphasizing the need for professional advice.
Business owners and those dealing with personal-finance matters should pay keen attention to estate-tax filings, particularly the portability election process, as demonstrated by the Billy Rowland case. A mistake in filing could lead to additional finance-related burdens, such as an extra $1.5 million in estate taxes, as seen in the Rowland case. Therefore, it's crucial to carefully follow the detailed requirements when filing Form 706 (United States Estate [and Generation-Skipping Transfer] Tax Return) to make use of the portability rules and avoid potential penalties.
