Rev. Proc. 2016-49
The recent issuance of Rev. Proc. 2016-49, which modifies and supersedes Rev. Proc. 2001-38, now puts the taxpayer in the driver’s seat. Recall that in Rev. Proc. 2001-38, the Service was providing relief for the surviving spouse when an unnecessary QTIP election was made, by treating such a QTIP election as though it had not been made. Practitioners began to question whether Rev. Proc. 2001-38 would render a QTIP election a nullity when made in order to qualify for a state marital deduction where such an election was not needed to reduce the Federal estate tax liability to zero. Then when portability came into the picture, the enhanced concern about basis adjustment at death drove practitioners to want to make a QTIP election even though not needed to reduce the estate tax liability, to permit the surviving spouse to make larger gifts that would not be subject to gift tax or solely to obtain a basis adjustment at death. Yet in view of Rev. Proc. 2001-38, it was not clear whether a QTIP election that did not result in a reduction in estate tax was viable.
Now the Service has solved this dilemma with Rev. Proc. 2016-49. A QTIP election will only be void if ALL of the following are satisfied:
A QTIP election will not be treated as void where ANY of the following are true:
The taxpayer did not request that the QTIP election be treated as void and follow the procedure for having the election treated as void.