Definition and Purpose
IRS Form 706, also known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is a form used by estate executors to calculate the federal estate tax owed by a decedent’s estate. Additionally, it is used to compute the generation-skipping transfer (GST) tax, which applies to transfers to beneficiaries who are two or more generations younger than the decedent, such as grandchildren.
Who Must File IRS Form 706
Filing Requirements
The executor of an estate must file Form 706 if the gross estate, increased by any taxable gifts made by the decedent after December 31, 1976, exceeds the estate tax exemption for the year of the decedent’s death. The exemption amount varies by year due to inflation adjustments.
Special Exemptions and Considerations
Certain estates may be exempt from filing based on the value threshold and deductions for marital transfers and charitable contributions. Additionally, portability provisions permit a surviving spouse to use the deceased spouse’s unused exemption.
Calculating Estate Tax
Gross Estate Valuation
The gross estate includes all property in which the decedent had an interest at the time of death (real estate, stocks, bonds, business interests, etc.), as well as certain transfers made during the decedent’s life.
Deductions and Credits
- Deductions: Include funeral expenses, debts owed, charitable donations, and transfers to the decedent’s surviving spouse (marital deduction).
- Credits: Credits may include previously paid gift taxes and certain qualified conservation easements.
Generation-Skipping Transfer (GST) Tax
GST Tax Overview
GST tax applies to transfers that skip a generation, creating tax obligations for gifts or bequests to grandchildren or unrelated persons more than 37.5 years younger than the decedent.
Related Forms
IRS Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return
Form 709 must be filed by individuals for certain gifts and generation-skipping transfers made during their lifetime.
Historical Context
IRS Form 706 has evolved over the years to address changes in legislative tax rates, exemptions, and credits. It became more significant after the Economic Recovery Tax Act of 1981 introduced portability and other tax-friendly measures.
Related Terms
- Estate Tax: A tax on the transfer of the estate of a deceased person.
- Generation-Skipping Transfer (GST) Tax: A federal tax on transfers of property that skip a generation.
- Portability: A tax provision allowing a surviving spouse to use the decedent’s unused estate tax exemption.
Frequently Asked Questions
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Who must file IRS Form 706?
- Executors of estates with a gross estate exceeding the exemption amount for the year of the decedent’s death.
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What is a generation-skipping transfer?
- Transfers of property that skip a generation, such as gifts to grandchildren, subject to GST tax.
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What is the filing deadline for Form 706?
- Nine months after the decedent’s date of death, with a possible six-month extension.
References
- IRS Publication 559: Survivors, Executors, and Administrators.
- IRS Instructions for Form 706.
- Internal Revenue Code (IRC) Sections governing estate and gift taxes.
Summary
IRS Form 706 is a critical document for estate executors tasked with calculating estate and GST taxes. Understanding who must file and the related forms ensures compliance and effective estate planning, minimizing tax burdens and optimizing estate distribution.
By providing a detailed look at the requirements, calculations, and contexts associated with Form 706, this guide aims to clarify the complexities of estate taxes for executors and tax professionals alike.
