What Form 706 (2011) Is For
Form 706 is the federal estate tax return that reports the total value of a deceased person’s estate, including all assets, lifetime gifts, and deductions. Executors use it to calculate estate taxes, apply the federal estate tax exemption, and claim deductions under the Internal Revenue Code. It also determines if generation-skipping transfer taxes apply when assets pass to grandchildren. Filing ensures compliance with the Internal Revenue Service and allows the surviving spouse to elect the portability of any unused exclusion of the deceased spouse.
When You’d Use Form 706 (2011)
You must file Form 706 within nine months after the decedent’s death if the gross estate plus adjusted taxable gifts exceeds the exemption amount of $5 million for the 2011 tax year. Large estates or those with closely held businesses, charitable donations, or life insurance proceeds typically meet this requirement for filing. Executors may request an automatic six-month extension before the due date using Form 4768. Filing is also necessary to preserve the deceased spouse’s unused exemption, even when no tax is due.
Key Rules or Details for 2011
- Filing Requirement: Executors must file an estate tax return if the decedent’s gross estate, adjusted taxable gifts, and specific exemptions exceed $5 million under the estate tax exemption.
- Estate Tax Rates: The top estate tax rate for 2011 is 35 percent, applying to taxable estates above the federal estate tax exemption threshold.
- Fair Market Value Rule: All decedents’ assets must be reported at their fair market value as of the decedent’s date of death, including real estate, securities, and personal property.
- Unlimited Marital Deduction: Property passing to a surviving spouse who is a U.S. citizen qualifies for an unlimited marital deduction that reduces the taxable estate.
- Portability Election: Filing Form 706 allows executors to elect portability and transfer the deceased spouse's unused exclusion to the surviving spouse for future use.
- Non-Resident Aliens: Estates of individuals who are not citizens of the United States have separate filing thresholds and must file with the appropriate Internal Revenue Service office.
- Payment and Address: All checks must be payable to the United States Treasury and sent to the IRS Service Center in Cincinnati, Ohio, or via private delivery service if preferred.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather Documentation
Collect records showing the decedent’s assets and liabilities, such as bank accounts, appraisals, prior gift tax returns, medical expenses, and charitable donations. Accurate documentation ensures correct asset valuations and smooth estate administration.
Step 2: Identify the Executor
Determine who is legally responsible for the decedent’s estate. Executors must provide court appointment papers or letters of administration verifying their authority to file the tax return.
Step 3: Report the Gross Estate
List the total value of all assets in the decedent’s gross estate, including real property, closely held businesses, life insurance proceeds, and personal effects. Each item must reflect its fair market value.
Step 4: Calculate Deductions
Include deductions for debts, funeral expenses, charitable donations, and administrative costs. These deductions reduce the taxable estate and affect the amount owed when you calculate estate taxes.
Step 5: Apply the Estate Tax Exemption
Use the applicable exemption amount of $5 million and the corresponding unified credit to determine any tax due. This calculation ensures accurate tax bills and compliance with the Internal Revenue Code.
Step 6: Pay Estate Taxes
Submit payment to the United States Treasury for any balance due. Include a check payable to the U.S. Treasury with the decedent’s name, Social Security number, and “Form 706” written clearly.
Step 7: Request the Estate Tax Closing Letter
After filing, request an estate tax closing letter from the IRS to confirm that the estate tax return has been accepted and reviewed. Keep this letter with other estate administration records.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing the Filing Deadline: Executors who fail to file within nine months risk penalties and interest. To avoid this, submit Form 4768 for an automatic six-month extension before the due date.
- Incorrect Asset Valuations: Using outdated or estimated values can lead to a distorted taxable estate. Obtain professional appraisals to report assets at their true fair market value.
- Failure to Elect Portability: Executors often overlook the option to elect portability, even when no tax is due. Always file to preserve the deceased spouse’s unused exemption for the surviving spouse.
- Omitting Prior Gifts: Failing to include lifetime gifts or prior gift tax returns results in an incorrect tax computation. Review financial records for all annual gifts and lifetime transfers to ensure accuracy.
- Improper Payment Submission: Payments not made to the United States Treasury or mailed after the filing deadline delay processing. Use a private delivery service when needed to meet key deadlines.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once you file the estate tax return, the Internal Revenue Service reviews the form for accuracy and completeness. If the estate owes tax, interest begins nine months after the decedent’s death. Executors may request a closing letter for the estate tax about four months after payment confirmation. The IRS generally has three years to audit under the revenue procedure rules. Keep all supporting records for at least four years after filing to protect against future inquiries.
FAQs
What is the federal estate tax exemption for the 2011 tax year?
For 2011, the federal estate tax exemption is $5 million. Executors must calculate estate taxes using this exemption amount when determining the taxable estate.
How do I request an estate tax closing letter from the IRS?
You can request an estate tax letter after all tax bills have been paid and the IRS has completed its processing. This letter verifies acceptance of the estate tax return.
How does fair market value affect estate and gift tax reporting?
All assets in the decedent’s estate must be valued at their fair market value. Accurate valuations ensure the correct tax is calculated under estate and gift tax rules.
What are the 2011 estate tax rates, and how are they applied?
The estate tax rates for 2011 range from 0 percent to 35 percent. The rate applies to the portion of the taxable estate exceeding the federal estate tax exemption.
How does the deceased spouse's unused exclusion benefit the surviving spouse?
The deceased spouse’s unused exclusion allows the surviving spouse to use the deceased person’s unused exemption. This portability election reduces future estate tax liability.
How can I elect portability on the estate tax return?
To elect portability, the executor must file Form 706 and indicate the election on the estate tax return. This preserves the deceased spouse’s unused exemption for later use.
What happens if the estate includes generation-skipping transfers?
If assets pass directly to grandchildren, a generation-skipping transfer tax may apply. Executors must report such transfers on Form 706 under the estate and generation-skipping section.
For more resources on filing or understanding prior-year IRS forms, visit our guide on Business Income Tax Forms.
