What IRS Form 706 (2016) Is For

Form 706 is the United States Estate (and Generation-Skipping Transfer) Tax Return used by executors to calculate the federal estate tax imposed on a decedent's entire taxable estate. This form is also used to compute the generation-skipping transfer (GST) tax on direct skips and to elect portability of the deceased spousal unused exclusion (DSUE) amount to transfer unused estate tax exemption to a surviving spouse (IRS Instructions for Form 706, 2016).

When You'd Use Form 706 for 2016 (Late or Amended Filing)

Late or amended Form 706 (2016) filings typically occur when executors discover they should have filed originally but missed the deadline, receive IRS notices about unreported estates, or need to correct errors on previously filed returns. Common scenarios include estates where the $5,450,000 filing threshold was exceeded once all assets and lifetime gifts were properly valued, situations where executors later decide to elect portability for a surviving spouse, or cases where asset valuations or deductions were incorrectly calculated on the original return. The IRS may also contact executors who failed to file when required, resulting in penalties and interest that continue to accrue until the return is filed and any tax due is paid (IRS Instructions for Form 706, 2016).

Key Rules Specific to 2016

For decedents dying in 2016, the basic exclusion amount was $5,450,000, with an applicable credit amount of $2,125,800. Form 706 was required if the gross estate plus adjusted taxable gifts and specific exemptions exceeded this threshold, or if the executor elected to transfer DSUE to a surviving spouse regardless of estate size. The ceiling on special-use valuation under Section 2032A was $1,110,000, and the threshold for determining the 2% portion of estate tax payable in installments was $1,480,000. Executors filing solely to elect portability were permitted to estimate certain marital and charitable deduction assets rather than obtaining full appraisals, provided the estimated values were included in gross estate totals (IRS Instructions for Form 706, 2016).

Step-by-Step (High Level)

• Gather transcripts and records: Obtain account transcripts from the IRS, copies of all previously filed gift tax returns (Form 709), death certificates, wills, and documentation of executor authority
  
  
• Complete the correct-year form: Use the November 2016 revision of Form 706 for 2016 decedents, ensuring all required pages (1-4) and applicable schedules are completed entirely
  
  
• Attach required schedules and documentation: Include Schedules A through I as appropriate, certified copy of the will, Form 712 for life insurance, and any supplemental documents specific to claimed deductions or elections
  
  
• Prepare filing statement: For amended returns, write "Supplemental Information" across the top of page 1 and attach copies of pages 1-4 from the original return
  
  
• Mail to correct address: Send to IRS Cincinnati Service Center (or Covington, KY for private delivery services) with proper postmark for timely filing determination
  
  
• Keep copies and proof of mailing: Retain copies of all filed documents and obtain delivery confirmation for your records (IRS Instructions for Form 706, 2016)
  
  

Common Mistakes and How to Avoid Them

• Failing to include all lifetime gifts: Executors often overlook unreported taxable gifts exceeding annual exclusions ($14,000 per recipient in 2016) that push the estate over filing thresholds—review all gift tax returns and bank records for large transfers
  
  
• Incorrect asset valuations: Using outdated appraisals or failing to obtain professional valuations for complex assets like closely-held businesses, which can trigger 20-40% penalties for substantial understatements under Section 6662
  
  
• Missing executor documentation: Submitting returns without certified copies of court orders, wills, or other proof of executor authority delays processing—a simple executor statement is insufficient
  
  
• Incomplete portability elections: Filing to elect DSUE transfer but failing to complete Part 6 properly or missing the deadline, which permanently forfeits the ability to transfer unused exemption to surviving spouses
  
  
• Claiming unavailable deductions: Attempting to deduct state death taxes before they're actually paid or claiming marital deductions for assets that don't qualify under Sections 2056 or 2056A
  
  
• Mathematical errors in tax calculations: Incorrectly applying the unified rate schedule or miscalculating adjusted taxable gifts, which can be avoided by using the provided worksheets and double-checking all computations (IRS Instructions for Form 706, 2016)
  
  

What Happens After You File

The IRS typically takes 6-12 months to process estate tax returns, though complex returns may take longer. Executors will receive acknowledgment of receipt, but closing letters are no longer automatically issued—you must specifically request one and wait at least four months after filing. If the IRS has questions or finds discrepancies, they'll send notices requesting additional information or proposing changes to tax calculations. Payment options for any tax due include installment agreements under Section 6166 for qualifying closely-held business interests, or general installment agreements using Form 9465 for other situations. Executors maintain appeal rights throughout the process and can contest IRS determinations through Appeals procedures or Tax Court if necessary, though interest continues to accrue on unpaid balances during disputes (IRS Instructions for Form 706, 2016).

FAQs

Can I still file Form 706 for 2016 if I missed the original deadline?

Yes, you should file as soon as possible even if late. While penalties and interest will apply from the original due date, filing stops additional failure-to-file penalties from accruing and is required by law if filing thresholds were met.

How are penalties calculated for late-filed 2016 returns?

Late filing penalties under Section 6651 are generally 5% per month (or part of month) up to 25% maximum, while late payment penalties are 0.5% per month. Interest compounds daily on both tax and penalties from the original due date until paid in full.

Can I get transcripts for a 2016 estate tax return?

Yes, account transcripts showing return processing and payment history are available through Form 4506-T or online through the IRS Transcript Delivery System for authorized representatives. These transcripts serve as alternatives to traditional closing letters.

Is there a time limit for claiming estate tax refunds from 2016?

Generally, you have three years from the return due date (or date filed, if later) to claim refunds. For 2016 returns due March 2017, the refund statute typically expires in March 2020, though extensions or other factors may modify this deadline.

Should I amend my state estate tax return if I file an amended federal Form 706?

This depends on your state's laws and whether state estate tax was calculated based on federal return information. Consult your state tax authority to determine if state amendments are necessary based on federal changes.

Can I elect portability on a late-filed 2016 return?

Portability elections must generally be made on timely-filed returns. However, relief may be available under Treasury Regulations Section 301.9100-3 for late portability elections, though approval is not automatic and requires demonstrating reasonable cause.

What documentation do I need to prove I'm authorized to file as executor?

You must provide certified copies of court orders appointing you as executor, letters testamentary, or certified copies of the will showing your appointment. Simple self-declarations or statements are insufficient for IRS acceptance.

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