Instructions for Form 706 (10/2006)

Purpose of Form

The executor of a decedent's estate uses Form 706 to figure the estate tax imposed by Chapter 11 of the Internal Revenue Code. This tax is levied on the entire taxable estate, not just on the share received by a particular beneficiary. Form 706 is also used to compute the generation-skipping transfer (GST) tax imposed by Chapter 13 on direct skips (transfers to skip persons of interests in property included in the decedent's gross estate).

Which Estates Must File

For decedents dying in 2006, Form 706 must be filed by the executor for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $2,000,000.

To determine whether you must file a return for the estate, add:

The adjusted taxable gifts (under section 2001(b)) made by the decedent after December 31, 1976;
The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and
The decedent's gross estate valued at the date of death.

Gross Estate

The gross estate includes all property in which the decedent had an interest (including real property outside the United States). It also includes:

Certain transfers made during the decedent's life without an adequate and full consideration in money or money's worth,
Annuities,
The includible portion of joint estates with right of survivorship (see the instructions on the back of Schedule E),
The includible portion of tenancies by the entirety (see the instructions on the back of Schedule E),
Certain life insurance proceeds (even though payable to beneficiaries other than the estate) (see the instructions on the back of Schedule D),
Property over which the decedent possessed a general power of appointment,
Dower or curtesy (or statutory estate) of the surviving spouse, and
Community property to the extent of the decedent's interest as defined by applicable law.

For more specific information, see the instructions for Schedules A through I.

U. S. Citizens or Residents; Nonresident Noncitizens

File Form 706 for the estates of decedents who were either U.S. citizens or U.S. residents at the time of death. For estate tax purposes, a resident is someone who had a domicile in the United States at the time of death. A person acquires a domicile by living in a place for even a brief period of time, as long as the person had no intention of moving from that place.

File Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States, for the estates of nonresident alien decedents (decedents who were neither U.S. citizens nor residents at the time of death).

Residents of U. S. Possessions

All references to citizens of the United States are subject to the provisions of sections 2208 and 2209, relating to decedents who were U.S. citizens and residents of a U.S. possession on the date of death. If such a decedent became a U.S. citizen only because of his or her connection with a possession, then the decedent is considered a nonresident alien decedent for estate tax purposes, and you should file Form 706-NA. If such a decedent became a U.S. citizen wholly independently of his or her connection with a possession, then the decedent is considered a U.S. citizen for estate tax purposes, and you should file Form 706.

Executor

The term “executor” means the executor, personal representative, or administrator of the decedent's estate. If none of these is appointed, qualified, and acting in the United States, every person in actual or constructive possession of any property of the decedent is considered an executor and must file a return.

When To File

You must file Form 706 to report estate and/or generation-skipping transfer tax within 9 months after the date of the decedent's death unless you receive an extension of time to file. Use Form 4768 to apply for an automatic 6-month extension of time to file.

Private delivery services. You can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns and payments. These private delivery services include only the following.

DHL Express (DHL): DHL Same Day Service, DHL Next Day 10:30 am, DHL Next Day 12:00 pm, DHL Next Day 3:00 pm, and DHL 2nd Day Service.
Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, FedEx International First.
United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

Where To File

File Form 706 at the following address:

Internal Revenue Service Center
Cincinnati, OH 45999

Paying the Tax

The estate and GST taxes are due within 9 months after the date of the decedent's death unless an extension of time for payment has been granted, or unless you have been granted an election under section 6166 to pay in installments, or under section 6163 to postpone the part of the tax attributable to a reversionary or remainder interest. These elections are made by checking lines 3 and 4 (respectively) of Part 3—Elections by the Executor, and attaching the required statements.

If the tax paid with the return is different from the balance due as figured on the return, explain the difference in an attached statement. If you have made prior payments to the IRS, attach a statement to Form 706 including these facts.

Paying by check. Make the check payable to the “United States Treasury.” Please write the decedent's name, social security number, and “Form 706” on the check to assist us in posting it to the proper account.

Signature and Verification

If there is more than one executor, all listed executors are responsible for the return. However, it is sufficient for only one of the co-executors to sign the return.

All executors are responsible for the return as filed and are liable for penalties provided for erroneous or false returns.

If two or more persons are liable for filing the return, they should all join together in filing one complete return. However, if they are unable to join in making one complete return, each is required to file a return disclosing all the information the person has in the case, including the name of every person holding an interest in the property and a full description of the property. If the appointed, qualified, and acting executor is unable to make a complete return, then every person holding an interest in the property must, on notice from the IRS, make a return regarding that interest.

The executor who files the return must, in every case, sign the declaration on page 1 under penalties of perjury. If the return is prepared by someone other than the person who is filing the return, the preparer must also sign at the bottom of page 1.

Amending Form 706

If you find that you must change something on a return that has already been filed, you should:

File another Form 706;
Enter “Supplemental Information” across the top of page 1 of the form; and
Attach a copy of pages 1, 2, and 3 of the original Form 706 that has already been filed.

If you have already been notified that the return has been selected for examination, you should provide the additional information directly to the office conducting the examination.

Supplemental Documents

Note. You must attach the death certificate to the return.

If the decedent was a citizen or resident and died testate, attach a certified copy of the will to the return. If you cannot obtain a certified copy, attach a copy of the will and an explanation of why it is not certified. Other supplemental documents may be required as explained below. Examples include Forms 712, 709, and 706-CE, trust and power of appointment instruments, death certificate, and state certification of payment of death taxes. If you do not file these documents with the return, the processing of the return will be delayed.

If the decedent was a U.S. citizen but not a resident of the United States, you must attach the following documents to the return:

A copy of the inventory of property and the schedule of liabilities, claims against the estate, and expenses of administration filed with the foreign court of probate jurisdiction, certified by a proper official of the court;
A copy of the return filed under the foreign inheritance, estate, legacy, succession tax, or other death tax act, certified by a proper official of the foreign tax department, if the estate is subject to such a foreign tax; and
If the decedent died testate, a certified copy of the will.

Rounding Off to Whole Dollars

You may show the money items on the return and accompanying schedules as whole-dollar amounts. To do so, drop any amount less than 50 cents and increase any amount from 50 cents through 99 cents to the next higher dollar.

Penalties

Late filing and late payment. Section 6651 provides for penalties for both late filing and for late payment unless there is reasonable cause for the delay. The law also provides for penalties for willful attempts to evade payment of tax. The late filing penalty will not be imposed if the taxpayer can show that the failure to file a timely return is due to reasonable cause. Executors filing late (after the due date, including extensions) should attach an explanation to the return to show reasonable cause.

Valuation understatement. Section 6662 provides a 20% penalty for the underpayment of estate tax that exceeds $5,000 when the underpayment is attributable to valuation understatements. A valuation understatement occurs when the value of property reported on Form 706 is 65% or less of the actual value of the property.

This penalty increases to 40% if there is a gross valuation understatement. A gross valuation understatement occurs if any property on the return is valued at 40% or less of the value determined to be correct.

These penalties also apply to late filing, late payment, and underpayment of GST taxes.

Obtaining Forms and Publications To File or Use

Internet. You can access the IRS website 24 hours a day, 7 days a week at www.irs.gov to:

Download forms, instructions, and publications;
Order IRS products online;
Research your tax questions online;
Search publications online by topic or keyword; and
Sign up to receive local and national tax news by email.

IRS Tax Products CD. You can order Publication 1796, IRS Tax Products CD, and obtain:

Current-year forms, instructions, and publications.
Prior-year forms, instructions, and publications.
Bonus: Historical Tax Products DVD (Ships with the final release).
Tax Map: An electronic research tool and finding aid.
Tax law frequently asked questions (FAQs).
Tax Topics from the IRS telephone response system.
Fill-in, print, and save features for most tax forms.
Internal Revenue Bulletins.
Toll-free and email technical support.

The CD is released twice during the year: The first release will ship the beginning of January 2007. The final release will ship the beginning of March 2007.

Purchase the CD from National Technical Information Service at: www.irs.gov/cdorders for $25 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll-free to buy the CD for $25 (plus a $5 handling fee). Price is subject to change.

Forms and Publications to file or use.

Forms. The title for forms to file or use are given within these instructions.
Publications. Publication 910, Guide to Free Tax Services; and Publication 559, Survivors, Executors, and Administrators.

General Instructions