What Is Form 706 of the IRS?

What Is Form 706 of the IRS?

The United States Estate and Generation-Skipping Transfer Tax Return is found on Form 706. The federal estate tax and generation-skipping transfer (GST) tax due by the decedent’s estate are calculated using this tax form.

Definition and Example of Form 706

The generation-skipping transfer (GST) tax, which is imposed on “direct skips,” or transfers that skip over persons of interest in a property that is part of the decedent’s gross estate, which includes any property in which the decedent had an interest, is calculated by the executor of a decedent’s estate using IRS Form 706.

Instead than merely the portion of an estate that a beneficiary gets, the estate tax is assessed on the entire estate’s taxable portion.

Who Uses the 706 Form?

The executor of the estate of any citizen or resident of the United States shall utilize this tax form in either of the following situations:

  • When lifetime donations that surpassed the annual gift tax exclusion are added back, the gross estate’s value exceeds the exemption threshold. The federal gift tax exclusion stayed at $15,000 per person per year as of 2020 and 2021, and the estate tax exemption increased to $11.7 million from $11.58 million in 2021. The inheritance tax exemption increases to $12.06 million for 2022, while the annual gift tax exclusion climbs to $16,000 per person.
  • Regardless of the size of the gross estate, the executor elects to transmit the Deceased Spousal Unused Exclusion (DSUE) to the surviving spouse.

Add up the following to determine whether you meet the first criterion:

  • After December 31, 1976, the decedent made taxable gifts that were greater than the yearly exclusion.
  • The total particular exemption permitted by the Tax Reform Act of 1976 before its repeal for bequests made by the decedent after September 8, 1976, and
  • The gross estate of the decedent is valued at the date of the decedent’s death or an alternative valuation date chosen by the executor.

According to the first requirement, even if there would be no federal estate tax due after applicable deductions and tax credits have been taken into account, any gross estate valued at more than the exemption limit must submit Form 706.

The Deceased Spousal Unused Exclusion

The term “DSUE” alludes to the estate tax exclusion’s portability, which enables the surviving spouse of a person who passed away after December 31, 2010, to “pick up” their deceased spouse’s unused estate tax exemption and add it to their own.

For instance, if the decedent dies in 2021 and the $11.7 million estate tax exclusion is not used, the executor may choose to employ the portability of the DSUE option to pass the unused exclusion to the surviving spouse. Because these transfers are tax-free under the unrestricted marital deduction, this would be the case if the dead bequeathed everything to their spouse. If you want to elect portability to a surviving spouse, submit Form 706, fully filled out, on or before the return’s due date.

Types of Form 706

This tax form comes in two variations: Form 706 and Form 706-NA.

Form 706

For decedents who were citizens or residents of the United States, this is the usual form used to calculate the estate and GST tax due.

Form 706-NA

This is the Estate of a Nonresident Not a Citizen of the United States: United States Estate and Generation-Skipping Transfer Tax Return. For decedents who were designated as “non-resident aliens,” it is utilized to determine the estate and GST tax obligations. Once more, the transfer of the decedent’s taxable estate is subject to estate tax, not the beneficiary’s receipt of any portion of it.

Where to Get Form 706

You can download both Form 706 and Form 706-NA from the IRS website. On the “About Form 706” and “About Form 706-NA” websites’ “Current Revision” section, PDF versions of the most recent revisions and instructions for each form are accessible for downloading.

Select the form version that corresponds to the relevant decedent’s death date. The dates of death to which the form relates are listed at the beginning of the form’s first page.

How to Fill Out and Read Form 706

Six parts make up the form, which also has 19 additional schedules totaling 29 pages. Each section has instructions:

  • Part I—Decedent and Executor: Identify the decedent and the executor by giving pertinent details about them, such as the decedent’s name, Social Security number (SSN), and residence.
  • Part 2—Tax Computation:Applying the unified rates from Table A to all transactions made before and after the decedent’s death, the executor should utilize this section to calculate the estate tax that must be paid. From there, they should deduct gift taxes calculated using the date-of-death rates. Use the Line 4 Worksheet, the Line 7 Worksheet, and Worksheet TG.
  • Part 3—Elections by the Executor: The checkboxes in this section should be used by the executor to indicate whether they’re making any selections, such as the allowance or special-use election, the choice to pay estate taxes in installments or to postpone a portion of the taxes, or any combination of these.
  • Part 4—General Information: By including details such as their title, the decedent’s death certificate number, and their marital status, executors use this section to confirm their authority to act as the estate’s representative. The death certificate itself, together with any other information, must be attached.
  • Part 5—Recapitulation:By adding up the value of various assets, such as real estate, stocks, and bonds, and computing any applicable deductions, use this section to determine the gross estate’s value.
  • Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE): Executors should utilize this section to choose not to port the DSUE or to designate the DSUE amount that will be given to the survivor.

Can Form 706 Be E-Filed?

One of the tax forms that cannot be electronically filed is IRS Form 706. The paper form needs to be mailed to the specified 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 641086

How to File Form 706

The first four pages of the return, along with the sections pertaining to the six main portions, should be filed by mail, along with any schedules that were used to support the elections made on those pages. Executors should download and complete the relevant PDF version of the form.

The estate tax payment and form are due within nine months of the decedent’s passing, but if you need more time, you can apply for 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 any tax is owed, make your estate tax check payable to the “United States Treasury.” To speed up payment processing, write “Form 706,” the decedent’s name, and SSN on the check. Even though you cannot e-file the form itself, you can still make a payment electronically through the Electronic Federal Tax Payment System (EFTPS).

Key Takeaways

  • For U.S. citizens and residents, the IRS Form 706 is the tax return used to determine their estate and GST tax obligations.
  • For non-resident decedents, a different version of the form, Form 760-NA, is available.
  • The form is broken down into six parts and has 19 supplementary schedules totaling 29 pages.
  • The IRS must receive Form 706, which can be downloaded as a PDF online, by mail within nine months after the decedent’s passing.
  • You can pay the estate tax electronically.

Frequently Asked Questions (FAQs)

What time is Form 706 due?

Normally, Form 706, together with any related taxes, are due within nine months of the decedent’s passing. The executor of the estate may, however, request a six-month delay by submitting Form 4768.

How do I disclose an IRA on Form 706?

All annuities, including pension plans, individual retirement accounts (IRAs), bought commercial annuities, and private annuities, must be disclosed under Schedule I in Form 706.

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