Overview of IRS Form 706 for Estates and Generation-Skipping Transfers
Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return is a critical IRS form used by an executor of a decedent’s estate to compute the owed estate tax as stipulated under Chapter 11 of the Internal Revenue Code (IRC). This tax applies to the entire taxable estate, ensuring smooth calculations even for the share intended for individual beneficiaries. Executors also utilize Form 706 to compute the generation-skipping transfer tax (GSTT) enforced by Chapter 13 of the IRC.
Key Highlights
- Purpose: Calculating estate tax owed as per Chapter 11, and GSTT as per Chapter 13 of IRC.
- Filing Requirement: Necessary for estates exceeding the exclusion amount ($12.92 million in 2023 and $13.61 million in 2024).
- Other Versions: Form 706-GS(D) is used to assess taxes on trust distributions subjected to GSTT.
Form 706 assists executors in assessing the total estate value prior to distributing assets to beneficiaries, adhering to the decedent’s will or trust. The IRS employs a stepped-up valuation method, which means the property’s cost basis is aligned to its fair market value as of the decedent’s death date, thereby helping minimize capital gains taxes.
Filing IRS Form 706
Executors are required to file Form 706 under certain situations:
- Estates of U.S. citizens or residents exceeding the stipulated exclusion amount.
- To transfer the “deceased spousal unused exclusion” (DSUE) amount to the surviving spouse.
To check if the estate surpasses the exclusion amount, consider the following:
- Adjusted taxable gifts post Dec. 31, 1976.
- Specific exemptions allowed, particularly gifts made after Sept. 8, 1976.
- Gross estate valuation as of the date of death.
Components of the Gross Estate
The gross estate includes all properties where the decedent had an interest such as:
- Real estate properties
- Lifetime transfers without adequate consideration
- Annuities
- Joint estates with rights of survivorship and tenancies by the entirety
- Certain life insurance proceeds and properties subject to a general power of appointment
Submission Requirements and Addresses
Form 706 should be filed within nine months of the decedent’s death. An automatic 6-month extension can be requested using Form 4768. Use the following address for submission:
- Standard Mail: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999.
- Private Delivery Services: Internal Revenue Submission Processing Center, 333 W. Pershing Road, Kansas City, MO 64108.
- For Amended Filings: Internal Revenue Service Center, Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.
Common Inquiries about Form 706
Does every estate require Form 706?
No. Filing is mandatory for estates exceeding the annual exclusion level together with adjusted taxable gifts and specific exemptions.
IRS Form 706 vs IRS Form 709
Form 706 deals with estate tax analysis post-death. Meanwhile, Form 709 attends to gift taxes surpassing annual giving limits during an individual’s lifetime.
What triggers an estate tax return?
An estate earning over $600 in annual gross income must file Form 1041. Such estate may also need to pay quarterly estimated taxes.
Conclusion
IRS Form 706, utilized for United States Estate and Generation-Skipping Transfer Tax Return, serves to report the value of a deceased’s estate, inclusive of assets, deductions, and assigned beneficiaries. This form is fundamental for the IRS in determining owed taxes owing to annual fluctuation in estate tax exclusions.
Related Terms: gross estate, capital gains taxes, stepped-up valuation.
References
- Internal Revenue Service. “About Form 706-GS (D-1), Notification of Distribution From a Generation-Skipping Trust”.
- Internal Revenue Service. “About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return”.
- Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2024.”
- Internal Revenue Service. “About Form 706-GS (D), Generation-Skipping Transfer Tax Return for Distributions”.
- Internal Revenue Service. “Frequently Asked Questions: Gifts & Inheritances”.
- Internal Revenue Service. “Instructions for Form 706 (09/2023)”.
- Internal Revenue Service. “What’s New - Estate and Gift Tax”.
- Internal Revenue Service. “About Form 706-NA”.
- Internal Revenue Service. “Instructions for Form 706-GS (D-1)”, Pages 1-3.
- Internal Revenue Service. “About Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes”.
- Internal Revenue Service. “Where to File - Forms Beginning With The Number 7”.
- Internal Revenue Service. “Submission Processing Center Street Addresses for Private Delivery Service (PDS)”.
- Internal Revenue Service. “Filing Estate and Gift Tax Returns”.
- Electronic Federal Tax Payment System. “Welcome to EFTPS”.
- Internal Revenue Service. “Frequently Asked Questions on Estate Taxes”.
- Internal Revenue Service. “Deceased Person”.
- Internal Revenue Service. “About Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return”.
- Internal Revenue Service. “File an Estate Tax Income Tax Return”.
