What Form 706 Is For

Form 706 is the tax return used to report and calculate federal estate taxes when someone dies. Think of it as the final tax return for a person's estate—not for the deceased individual themselves, but for everything they owned at death. The executor (the person legally responsible for handling the deceased's affairs) uses this form to figure out if the estate owes any federal estate tax and, if so, how much.

In addition to estate taxes, Form 706 also calculates the Generation-Skipping Transfer (GST) tax. This special tax applies when assets skip a generation—for example, when a grandparent leaves property directly to grandchildren instead of to their children. This prevents wealthy families from avoiding estate taxes by bypassing generations.

The form covers everything in the "gross estate," which includes real estate, stocks, bonds, insurance proceeds, jointly owned property, gifts made during the person's lifetime without full payment, and even property over which the deceased had certain powers. Essentially, if the deceased had an interest in it, it's likely part of the estate.

Source

When You’d Use Form 706 (Including Late and Amended Returns)

Who Must File

For people who died in 2014, you must file Form 706 if either:

• The gross estate (total value of everything owned) plus adjusted taxable gifts and specific exemptions exceeds $5,340,000, OR
• The executor wants to elect "portability"—a valuable option that transfers any unused estate tax exemption to a surviving spouse, regardless of estate size.

Filing Deadline

Form 706 must be filed within 9 months of the date of death. For example, if someone died on March 15, 2014, the return is due by December 15, 2014.

Extensions

If you need more time, you can get an automatic 6-month extension by filing Form 4768. This pushes the deadline to 15 months after death. However, any taxes owed are still due at the original 9-month mark—the extension only gives you more time to file paperwork, not to pay.

Late Returns

If you miss the deadline without requesting an extension, you may face penalties unless you can prove "reasonable cause" for the delay. The IRS won't consider your explanation unless you receive a penalty notice first—don't attach explanations to your original filing.

Amended Returns

If you discover errors after filing, file another Form 706 with "Supplemental Information" written across the top of page 1. Attach copies of the first four pages of your original return. This is your chance to correct mistakes, add missing information, or make certain elections you initially overlooked.

Source

Key Rules or Details for 2014

Understanding the 2014-specific thresholds is crucial:

• Basic Exclusion Amount: $5,340,000 (also called the "exemption"). This is the amount every person can pass tax-free at death before federal estate tax kicks in.
• Applicable Credit Amount: $2,081,800 (the tax credit that corresponds to the $5.34 million exemption).
• Estate Tax Rate: Once you exceed the exemption, the top federal estate tax rate is 40%.
• Special-Use Valuation Ceiling: $1,090,000 (maximum reduction for qualifying family farms or businesses under Section 2032A).
• Installment Payment Threshold: $1,450,000 (relevant for Section 6166 elections allowing certain estates to pay taxes in installments).
• Annual Gift Exclusion: $14,000 per recipient (for lifetime gifts made in 2014).

Portability: One of the most important 2014 developments is "portability" of the Deceased Spousal Unused Exclusion (DSUE). If a married person dies without using their full $5.34 million exemption, the surviving spouse can add the unused portion to their own exemption. To preserve this benefit, the executor must file a timely, complete Form 706—even if the estate is small and wouldn't otherwise owe taxes. Simply filing the form makes the portability election; opting out requires affirmatively checking a box.

Source

Step-by-Step (High Level)

1. Gather Documentation: Collect the death certificate, certified copy of the will, appraisals of all assets, prior gift tax returns (Form 709), life insurance statements (Form 712), trust documents, and records of debts and expenses.
2. Identify the Executor: The court-appointed executor (or personal representative) is responsible for filing. Provide documentation proving executor status—a statement alone isn't sufficient.
3. Value the Estate: Determine the fair market value of all assets as of the date of death. You may elect "alternate valuation" (6 months after death) if it reduces both estate value and taxes.
4. Complete the Schedules: Form 706 has multiple schedules for different asset types:
   • Schedule A: Real estate
   • Schedule B: Stocks and bonds
   • Schedule C: Mortgages, notes, cash
   • Schedule D: Life insurance
   • Schedule E: Jointly owned property
   • Schedule F: Other miscellaneous property
   • Schedules G-I: Transfers, powers of appointment, annuities
   • Schedules J-L: Expenses, debts, losses
   • Schedules M-O: Marital deduction, charitable deductions
   • Schedule P-Q: Credits for foreign taxes and prior transfers
   • Schedule R: Generation-skipping transfer tax
5. Calculate Deductions: Subtract allowable deductions including funeral expenses, debts, estate administration costs, bequests to a surviving spouse (marital deduction), and charitable donations.
6. Figure the Tax: Use the unified rate schedule (Table A) to calculate the tentative tax, then subtract applicable credits and any gift taxes previously paid on lifetime gifts.
7. Sign and File: The executor signs under penalty of perjury. File the return with the IRS Service Center in Cincinnati, Ohio. Payment can be made by check or electronically through EFTPS.
8. Keep Records: Maintain copies of everything for future reference, especially if the estate is examined or if you need to amend the return.

Source

Common Mistakes and How to Avoid Them

Mistake #1: Missing the Deadline
Many executors don't realize the 9-month deadline is firm. File Form 4768 early if you need an extension—don't wait until it's too late.

Mistake #2: Incomplete Returns
The IRS won't process returns missing required information. Make an entry on every line of the Recapitulation (even if it's zero). Include CUSIP numbers for all stocks and bonds, and employer identification numbers (EINs) for trusts and partnerships.

Mistake #3: Forgetting Required Attachments
Always attach the death certificate and certified will copy. If the deceased made lifetime gifts, attach all Forms 709. Missing documents delay processing and may trigger penalties.

Mistake #4: Not Electing Portability
If you're a surviving spouse's executor and don't file Form 706, you forfeit potentially millions in tax savings. Even small estates should file to preserve DSUE for the surviving spouse.

Mistake #5: Undervaluing Assets
Property values reported at 65% or less of actual value trigger a 20% penalty; values at 40% or less trigger a 40% penalty. Get professional appraisals for real estate, businesses, and hard-to-value assets.

Mistake #6: Failing to Document Executor Status
A simple statement claiming to be executor isn't enough. Attach court orders, letters testamentary, or certified will documents proving your authority.

Mistake #7: Ignoring Prior Gift Tax Returns
The estate tax calculation includes all lifetime taxable gifts. Track down every Form 709 the deceased filed—or make a reasonable effort to discover unreported gifts above the annual exclusion.

Source

What Happens After You File

Processing: The IRS receives your Form 706 at the Cincinnati Service Center, where it's reviewed for completeness and accuracy. Basic processing typically takes several months.

Examination Selection: The IRS may select your return for audit (called an "examination"). Not all returns are examined—the IRS uses various criteria to select cases. If selected, an estate tax examiner will contact you requesting additional documentation, appraisals, or clarification.

Providing Additional Information: If examination is required, work directly with the examining agent. Respond promptly to information requests and provide thorough documentation. The process can take a year or longer for complex estates.

Account Transcripts: After 9 months from filing, you can request an account transcript showing the status of your return. Transcripts have replaced estate tax closing letters for most cases. For examined returns, wait 30 days after examination closes before requesting transcripts.

Estate Tax Closing Letter (ETCL): In limited situations, you can request a formal closing letter by paying a fee and filing Form 4810. However, transcripts now serve as proof of filing and acceptance for most purposes, including transferring assets and closing probate.

Refunds and Adjustments: If you overpaid taxes or the examination results in changes, the IRS will process refunds or send notices of additional taxes due. Interest applies to both underpayments and overpayments.

Time Limits: Generally, the IRS has 3 years from the filing date to assess additional taxes, though this extends if you substantially undervalue assets or commit fraud.

Source

FAQs

Q1: Do I need to hire a professional to prepare Form 706?

While not legally required, most executors work with estate attorneys or tax professionals experienced with Form 706. The form is highly complex, mistakes are costly, and professional guidance usually pays for itself through proper tax planning and avoiding penalties.

Q2: What if the estate can't pay the tax bill immediately?

You have options. File Form 4768 to request a payment extension (up to 12 months in some cases). If the estate includes a closely-held business representing 35% or more of the adjusted gross estate, you may qualify under Section 6166 to pay taxes in installments over 14 years.

Q3: Can I use alternate valuation to lower the estate tax?

Yes, but only if two conditions are met: (1) alternate valuation (6 months after death) reduces the total estate value, AND (2) it reduces the estate tax liability. You can't cherry-pick which assets to value on alternate dates—it's all or nothing.

Q4: What's the difference between the gross estate and taxable estate?

The gross estate is everything the deceased owned or had an interest in. The taxable estate is what's left after subtracting deductions like funeral expenses, debts, estate administration costs, marital deduction (property passing to spouse), and charitable deductions.

Q5: How does portability work, and should I always elect it?

Portability lets a surviving spouse inherit any unused exemption from their deceased spouse. If your spouse died in 2014 with a $3 million estate, their unused $2.34 million exemption can be added to yours. You must file Form 706 timely to elect portability. The only reason not to elect is if you're certain the surviving spouse will never need it—but there's rarely a downside to preserving the option.

Q6: What if I discover assets after filing the return?

File an amended Form 706 as soon as possible. Write "Supplemental Information" on page 1, list the newly discovered assets on the appropriate schedules, and recalculate the tax. Include copies of the original return's first four pages.

Q7: Will the IRS audit my estate tax return?

Not necessarily. The IRS examines a relatively small percentage of estate tax returns, focusing on larger estates, returns with unusual deductions or valuations, and estates involving complex assets like business interests or art collections. Filing a complete, well-documented return reduces audit risk.

Source

Important Note: This guide provides general information about Form 706 for 2014. Estate tax law is complex and varies by individual circumstances. Always consult with qualified estate planning attorneys and tax professionals before making filing decisions or elections that could impact your tax liability.

For More Information: Visit IRS.gov/form706 for current forms, instructions, and guidance, or consult IRS Publication 559, "Survivors, Executors, and Administrators."

‍