Form 706 is the United States Estate and Generation-Skipping Transfer Tax Return. It's a tax form used to compute the federal estate tax and generation-skipping transfer (GST) tax owed by the estate of a decedent.
Definition and Examples of Form 706?
The executor of a decedent's estate uses IRS Form 706 to calculate two types of federal tax: the estate tax and the generation-skipping transfer (GST) tax that's imposed on "direct skips," which are transfers that skip over persons of interest in a property that's part of the decedent's gross estate, which includes any property in which the decedent had an interest.
The estate tax is levied on the taxable portion of the whole estate rather than just the share of an estate that a beneficiary inherits.
Who Uses Form 706?
This tax form should be used by the executor of the estate of any U.S. citizen or resident in either of the following circumstances:
- The gross estate is valued at more than the exemption amount after adding back lifetime gifts that were made and exceeded the annual gift tax exclusion. The federal estate tax exemption is $11.7 million in 2021, up from $11.58 million in 2020, and the gift tax exclusion remains at $15,000 per person per year as of 2020 and 2021. For 2022, the gift tax exclusion increases to $16,000 per person per year and the estate tax exemption rises to $12.06 million.
- The executor chooses to transfer the Deceased Spousal Unused Exclusion (DSUE) to the surviving spouse, regardless of the size of the gross estate.
Add up the following to determine whether you meet the first criterion:
- Taxable gifts made by the decedent after December 31, 1976, that exceeded the annual exclusion
- The total specific exemption allowed by the Tax Reform Act of 1976 before its repeal for gifts made by the decedent after September 8, 1976, and
- The decedent’s gross estate valued at the date of death of the decedent or an alternate valuation date elected by the executor.
The first criterion means that any gross estate valued at more than the exemption amount must file Form 706 even if no federal estate tax will be owed after applicable deductions and tax credits have been applied.
The Deceased Spousal Unused Exclusion
The DSUE refers to the portability of the estate tax exclusion, which allows the surviving spouse of a decedent who died after December 31, 2010, to "pick up" their deceased spouse's unused estate tax exemption and add it to their own.
For example, an executor can elect to transfer the unused exclusion to the surviving spouse under the portability of the DSUE option if the decedent dies in 2021, and none of their $11.7 million estate tax exclusion is used. This would be the case if the deceased left everything to their spouse, because these transfers are tax-free under the unlimited marital deduction. File and complete Form 706 on or before the due date of the return to elect portability to a surviving spouse.
Types of Form 706
There are two versions of this tax form: Form 706 and Form 706-NA.
This is the standard form used to figure estate and GST tax liability for decedents who were U.S. citizens or residents.
This is the United States Estate and Generation-Skipping Transfer Tax Return for the Estate of Nonresident Not a Citizen of the United States. It's used to compute estate and GST tax liability for decedents who were classified as "non-resident aliens." Again, the estate tax applies to the transfer of the decedent's taxable estate—not to the receipt of any share of it by a beneficiary.
Where to Get Form 706
Form 706 and Form 706-NA are both available for download on the IRS website. The latest revisions and instructions for each form are available for download as PDFs under the "Current Revision" section of the "About Form 706" and "About Form 706-NA" pages.
Choose the version of the form that corresponds to the relevant date of death of the decedent. The top of the first page of the form notes the dates of death to which the form applies.
How to Fill Out and Read Form 706
The form consists of six parts and 19 supplemental schedules spanning 29 pages. Each part provides instructions:
- Part I—Decedent and Executor: Provide key information about the decedent and the executor, including the decedent's name and Social Security number (SSN) and the executor's name, SSN, and address.
- Part 2—Tax Computation: The executor should use this section to figure the estate tax owed by applying the unified rates supplied in Table A to total transfers before and upon death, then subtracting the gift taxes based on the date-of-death rates. Use Worksheet TG, the Line 4 Worksheet, and the Line 7 Worksheet.
- Part 3—Elections by the Executor: The executor should use the checkboxes in this part to specify whether they're making any elections, including the allowance or special-use election or the options to pay estate taxes in installments or postpone a portion of the taxes.
- Part 4—General Information: Executors use this part to reinforce their authorization to serve as the representative for the estate by providing information such as their title and the decedent's death certificate number and marital status. Supplemental information including the death certificate itself must be attached.
- Part 5—Recapitulation: Use this section to calculate the value of the gross estate by by totaling the value of various assets, such as real estate and stocks and bonds, and calculating any allowable deductions.
- Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE): Executors should use this part to opt out of portability of the DSUE or specify the DSUE amount that will be transferred to the surviving spouse.
Can Form 706 Be E-Filed?
IRS Form 706 is not among the tax forms that can be e-filed. You must mail the completed paper form to the appropriate address.
Where to Mail Form 706
Send the form to the following address:
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999
Mail the form to the following address if you're using a private delivery service (PDS) designated by the IRS:
Internal Revenue Submission Processing Center
333 W. Pershing Road
Kansas City, MO 64108
How to File Form 706
Executors should download and complete the relevant PDF version of the form, then file the first four pages of the return with the sections pertaining to the six main parts by mail, along with any schedules that were used to support the elections made on those pages.
The due date for the form and the estate tax payment is within nine months of the date of the decedent's death, but you can request an extension using Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate and Generation-Skipping Transfer Taxes if you need more time.
Make your estate tax check payable if any tax is due to "United States Treasury." Include the decedent's name, SSN, and "Form 706" on the check to facilitate payment processing. You can also make payment electronically through the Electronic Federal Tax Payment System (EFTPS) even though you can't e-file the form itself.
- IRS Form 706 is a tax return used to compute estate and GST tax liability for U.S. citizens and residents.
- An alternate version of the form, Form 760-NA, is provided for non-resident decedents.
- The form consists of six parts and 19 supporting schedules spanning 29 pages.
- Form 706 is available as a PDF online and must be filed with the IRS by mail within nine months of the decedent's death.
- The estate tax payment can be made electronically.
Frequently Asked Questions (FAQs)
When is Form 706 due?
Form 706 is typically due, along with any accompanying tax, within nine months of the death of the decedent. However, the estate's executor can seek a six month extension by filing Form 4768.
Where to report IRA on Form 706?
According to the IRS, all annuities "including pension plans, individual retirement arrangements (IRAs), purchased commercial annuities, and private annuities," should be reported under Schedule I in Form 706.