Form 706 2017 Instructions: Estate Tax Filing Guide

Filing Form 706 for the 2017 tax year can feel overwhelming, especially for those new to estate administration. This form, issued by the Internal Revenue Service, is officially known as the United States Estate (and Generation-Skipping Transfer) Tax Return. It is used to calculate and report any federal estate tax that may be owed after a person’s death. Executors or personal representatives are responsible for filing the form on behalf of the deceased person’s estate, ensuring that all assets and deductions are correctly documented.

Form 706 applies to estates that meet the 2017 filing threshold, which includes a federal estate tax exemption of $5.49 million. Even if no tax is due, filing may still be required to elect portability of the deceased spousal unused exclusion for a surviving spouse. The form helps determine the total value of the gross estate, account for adjusted taxable gifts, and identify applicable deductions such as the marital deduction and charitable contributions.

This guide provides step-by-step instructions for completing Form 706 for 2017 in clear, simple terms. It outlines the required documents, explains how to calculate the estate value, and provides instructions on filing with the Internal Revenue Service. Whether the estate includes real property, business interests, or other assets, this resource helps executors file an accurate and compliant federal estate tax return with confidence.

Understanding Form 706 and Who Must File?

Form 706, also known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is a federal tax form used to determine whether a deceased person’s estate owes estate tax to the Internal Revenue Service. It reports the total value of everything the decedent owned at the date of death and calculates any applicable estate tax liabilities.

Purpose of Form 706

The form ensures proper reporting of an estate’s value for tax purposes. It also allows the executor or personal representative to claim deductions, elect portability for a surviving spouse, and comply with estate tax provisions under the Internal Revenue Code. Form 706 is essential for filing the federal estate tax return, based on the fair market value of assets at the date of death or the alternate valuation date.

Who Must File Form 706 for 2017?

An executor or estate representative must file Form 706 for 2017 if any of the following apply:

1. The gross estate, combined with adjusted taxable gifts and the specific gift tax exemption, exceeds 5.49 million dollars.
   
   
2. The executor intends to elect portability of the deceased spousal unused exclusion (DSUE) for the surviving spouse, even if no estate tax is due.
   
   
3. The decedent made lifetime gifts that reduce the available unified credit or estate tax exemption.

What Is Included in the Gross Estate?

The gross estate includes all property, whether tangible or intangible, owned by the decedent at the time of death. Common examples include:

• Real estate, including a primary residence and any investment properties.
  
  
• Financial assets, such as bank accounts, stocks, bonds, and mutual funds.
  
  
• Retirement accounts, life insurance proceeds, and annuities payable to the estate or designated beneficiaries.
  
  
• Business interests, including ownership shares in partnerships, corporations, or closely held companies.
  
  
• Personal property, such as vehicles, jewelry, artwork, and valuable collections.

Key Terms to Understand

• Taxable estate: The value remaining after subtracting allowable deductions, including funeral expenses, debts, and the marital deduction.
  
  
• Adjusted taxable gifts: Lifetime gifts made after 1976 that must be added to the estate for tax computation.
  
  
• Deceased spousal unused exclusion: The unused portion of a deceased spouse’s estate tax exemption that may be transferred to a surviving spouse through a portability election.
  
  
• Fair market value: The price at which property would change hands between a willing buyer and a willing seller when neither is under compulsion to act.

By understanding these definitions, executors can correctly determine whether an estate meets the filing threshold and ensure compliance with federal estate tax requirements. Filing Form 706 accurately helps prevent penalties and ensures the estate’s assets and deductions are correctly reported to the Internal Revenue Service.

What’s New for Tax Year 2017

The 2017 version of Form 706 introduced several updates that affected filing thresholds, valuation limits, and filing deadlines. Executors and estate representatives must be aware of these changes to ensure accuracy when preparing the estate tax return.

Updated Exclusion and Valuation Amounts

For 2017, the federal estate tax exemption increased to $5.49 million per individual, reflecting inflation adjustments. This exemption determines whether an estate is required to file Form 706 or qualifies to file only to elect portability for the surviving spouse. Additional updates included:

• Special-use valuation ceiling: Increased to 1.12 million dollars for farms and closely held business property under Section 2032A.
  
  
• Installment payment threshold: Raised to 1.49 million dollars for estates electing to pay in installments under Section 6166.

Same-Sex Marriage Recognition

Beginning with the 2017 tax year, same-sex marriages were fully recognized for all federal estate and gift tax purposes. However, registered domestic partnerships and civil unions were not treated as marriages for federal estate tax filing. Executors must ensure that marital deductions and portability elections accurately reflect these provisions.

Extended Portability Filing Deadline

Under Revenue Procedure 2017-34, the Internal Revenue Service extended the deadline for estates filing solely to elect portability. Executors could file up to the later of January 2, 2018, or the second anniversary of the decedent’s death. This change gave estates that were not otherwise required to file Form 706 additional time to preserve the deceased spousal unused exclusion.

These adjustments simplified estate administration by aligning filing thresholds with inflation and expanding opportunities for portability elections. Executors preparing the federal estate tax return for 2017 should confirm all figures match the applicable year’s guidance.

Step-by-Step Form 706 2017 Instructions

The following step-by-step process guides executors through the essential tasks required to complete Form 706 for the 2017 tax year. Each step helps ensure compliance with Internal Revenue Service requirements and accurate reporting of the decedent’s estate.

Step 1: Gather Required Documents.

Before starting the form, the executor should collect all supporting documentation related to the decedent’s estate. This includes:

• Death certificate and certified copy of the will.
  
  
• Bank and investment account statements dated as of the date of death.
  
  
• Appraisals for real property, personal property, and business interests.
  
  
• Life insurance policies and Form 712 for each policy.
  
  
• All previously filed Form 709 gift tax returns.
  
  
• Documentation of debts, mortgages, and liabilities.

These records provide the necessary information to determine the fair market value of the estate’s assets and ensure that all items are correctly accounted for.

Step 2: Obtain an Employer Identification Number (EIN).

Every estate must have an EIN separate from the decedent’s Social Security number. Executors can:

• Apply online through IRS.gov for immediate issuance.
  
  
• File Form SS-4 by mail or fax.
  
  
• Call the IRS Business and Specialty Tax Line for assistance.

An EIN is required for opening estate bank accounts, filing tax returns, and managing estate income.

Step 3: Determine the Gross Estate Value.

The executor must list all property the decedent owned or had an interest in at the time of death. Items to include:

• The estate consists of real estate owned solely or jointly.
  
  
• It includes cash, investments, and other financial accounts.
  
  
• Life insurance proceeds payable to the estate or beneficiaries must be reported.
  
  
• Retirement accounts, annuities, and business interests must be included in the estate.
  
  
• The estate also includes tangible personal property such as art, jewelry, or vehicles.

Valuation should reflect fair market value as of the date of death or the alternate valuation date, whichever applies. Accurate valuation ensures the correct calculation of the taxable estate and prevents underreporting of assets.

Step 4: Complete Required Pages and Schedules.

Form 706 includes multiple pages and schedules to document the estate’s composition and deductions:

• Pages 1–4: Basic information, tax computation, and elections.
  
  
• Schedules A–O: Itemized lists for real estate, securities, life insurance, debts, and deductions.
  
  
• Schedule F: Required for every estate tax return, even if no property is reported.

Executors must verify totals and transfer them correctly to the Recapitulation section on page 3 to ensure all calculations align.

Step 5: Calculate Deductions and Credits.

Once all assets are listed, deductions must be applied to determine the taxable estate. Deductions include:

• Funeral and administrative expenses must be deducted.
  
  
• Outstanding debts and mortgages should be reported.
  
  
• The marital deduction applies to property passing to a surviving spouse.
  
  
• Charitable deductions apply to qualifying organizations.

Credits may also apply to previously paid gift taxes or taxes on prior transfers. These adjustments directly affect the final estate tax liability.

A carefully organized approach ensures accurate completion of the estate tax return and compliance with Internal Revenue Service filing requirements. Executors should double-check all supporting documents and maintain copies for their records.

Filing and Payment Procedures

Filing and payment procedures for Form 706 must follow Internal Revenue Service guidelines to avoid penalties or delays. Executors should confirm deadlines, payment methods, and mailing addresses before submitting the estate tax return.

Filing Method

Form 706 for the 2017 tax year must be filed on paper. Electronic filing was not available for estate tax returns in that year. The form must include all schedules, attachments, and supporting documents.

Where to File

• Standard mail:
  Department of the Treasury
  Internal Revenue Service Center
  Cincinnati, OH 45999
  
  
• Private delivery services:
  201 W. River Center Boulevard
  Covington, Kentucky 41011
  Attn: Submission Processing, Stop 31

Executors should use certified mail or a traceable service to confirm delivery.

Deadlines and Extensions

Form 706 and any tax due must be filed within nine months after the decedent’s date of death. If additional time is needed, the executor may request an automatic six-month extension using Form 4768. This extension applies only to filing, not payment.

Payment Options

Estate tax may be paid by check, electronic funds transfer, or same-day wire payment through the Electronic Federal Tax Payment System (EFTPS). Payment must be received by the due date to avoid penalties and interest. For large estates, payments exceeding 100 million dollars cannot be made with a single check.

Installment Payments and Elections

Suppose the estate includes closely held business interests representing more than 35 percent of the adjusted gross estate. In that case, the executor may elect to pay the federal estate tax in installments under Section 6166. This election allows tax payment over up to 14 years with a special interest rate applied to the first portion of the tax due.

Following the proper filing and payment procedures ensures that the Internal Revenue Service processes the estate tax return efficiently and that the estate remains in compliance with federal estate tax laws and regulations. Executors should retain copies of all submissions and confirmations for future reference.

Portability and DSUE Explained

Portability allows a surviving spouse to use the unused portion of a deceased spouse’s federal estate tax exemption, referred to as the Deceased Spousal Unused Exclusion (DSUE). This provision helps reduce or eliminate future estate tax liabilities by transferring the remaining exemption amount to the surviving spouse.

How Does Portability Work?

• When one spouse dies, their estate may not use the entire federal estate tax exemption available for that year.
  
  
• The executor must file Form 706 to elect portability and report the unused exemption amount.
  
  
• The surviving spouse can later apply the DSUE to offset their own estate or gift tax obligations.

How to Elect Portability?

• The election is made by filing a complete and timely Form 706 for the deceased spouse’s estate.
  
  
• Filing the return itself constitutes the election; no separate statement is required unless the taxpayer opts out of this election.
  
  
• Executors filing solely to elect portability should include the notation: “Filed Pursuant to Rev. Proc. 2017-34 to Elect Portability Under Section 2010(c)(5)(A)” at the top of page 1.
  
  
• The election must be filed within nine months of the decedent’s death or within the automatic six-month extension period if Form 4768 is filed on time.

Common Mistakes with Portability

• Missing the filing deadline and failing to request relief under Revenue Procedure 2017-34.
  
  
• Reporting the DSUE amount inaccurately on Form 706.
  
  
• Omitting required schedules or supporting documentation for marital deduction claims.

Filing a portability election provides substantial long-term benefits by preserving the deceased spouse’s unused exclusion for future transfers or estate planning purposes. Executors are encouraged to take advantage of this provision when a surviving spouse is likely to have a taxable estate.

Key Elections and Valuation Options

The Internal Revenue Code allows several elections that can reduce an estate’s taxable value or simplify payment of the estate tax. Understanding these options helps executors plan strategically and minimize tax liability.

Alternate Valuation Election (Section 2032)

• This election allows the executor to use asset values six months after the date of death, rather than the values as of the date of death.
  
  
• It may only be used if it decreases both the value of the gross estate and the total estate tax.
  
  
• The executor must check “Yes” on Part 3, line 1 of Form 706 and complete the alternate value column on each schedule.

Special Use Valuation (Section 2032A)

• Estates with farms or closely held businesses may value qualifying real property based on its actual use rather than its highest and best use.
  
  
• The reduction in value is limited to 1.12 million dollars for 2017.
  
  
• To qualify, the property must have been used in business or farming for at least five of the last eight years before the decedent’s death, and the family must continue using it for 10 years afterward.

Installment Payment Election (Section 6166)

• This provision allows estates with closely held business interests that exceed 35 percent of the adjusted gross estate to pay federal estate tax in installments.
  
  
• Up to 14 years may be allowed for payment, with a special interest rate applied to the first 1.49 million dollars of tax.
  
  
• The election must be made on a timely filed return, with the executor checking “Yes” on Part 3, line 3 of Form 706.

Qualified Terminable Interest Property (QTIP) Election

• This election allows a marital deduction for certain trusts that provide income to the surviving spouse for life.
  
  
• The executor makes this election on Schedule M and attaches a statement describing the trust terms.
  
  
• The election is irrevocable once made and can be particularly helpful in blended family situations or asset protection planning.

Choosing the correct elections can have a lasting impact on the estate’s financial outcome. Executors should carefully evaluate these options, considering the type of property, business interests, and family circumstances, before filing the estate tax return.

Common Mistakes and How to Avoid Them

Completing Form 706 requires careful attention to detail. Even minor errors can delay processing or prompt correspondence from the Internal Revenue Service (IRS). Executors should verify all entries and attachments carefully before filing the return.

Frequent Filing Errors

• Executors sometimes fail to attach the death certificate, certified will, or documentation confirming their appointment as required by law.
  
  
• Some filers leave blank lines on the Recapitulation page instead of entering “0,” which can cause delays in processing.
  
  
• Others omit Schedule F, which is required for all estate tax returns.
  
  
• Executors occasionally use an incorrect valuation date or fail to make the alternate valuation election properly.

Asset Reporting Mistakes

• Executors may overlook listing all assets, including jointly owned property or assets held in trust.
  
  
• Some returns are submitted without CUSIP numbers for stocks and bonds, which are required to identify specific securities.
  
  
• Errors often occur when business interests are misreported or when employer identification numbers for partnerships and corporations are omitted.
  
  
• Executors sometimes fail to include life insurance policies or the necessary Form 712 for each policy covering the decedent.

Computation and Payment Issues

• Executors may miscalculate adjusted taxable gifts or fail to include all lifetime gifts.
  
  
• Some filers do not apply the marital deduction or charitable deduction correctly.
  
  
• Errors can occur when sending a single extensive check that exceeds the IRS payment limits, rather than making multiple smaller payments.
  
  
• Executors occasionally neglect to request an extension when more time is needed to settle the estate.

By thoroughly reviewing all figures, attachments, and schedules before filing, executors can reduce the risk of delays and penalties. A final review checklist is strongly recommended to ensure accuracy throughout the federal estate tax return.

Filing a Zero-Tax or Portability-Only Return

Many estates file Form 706 even when no estate tax is due. This commonly occurs when the estate’s value falls below the federal filing threshold or when the executor files only to elect portability for the surviving spouse.

When Is No Tax Due?

An estate may have no federal estate tax liability for several reasons. Common situations include:

• The total gross estate is below the $5.49 million exemption threshold for the 2017 tax year.
  
  
• Allowable deductions, such as the marital deductions and charitable contributions, reduce the taxable estate to zero.
  
  
• Special elections, including installment payments or special-use valuations, may further minimize or eliminate the tax owed.

Filing a Portability-Only Return

Executors filing solely to elect portability must still complete Form 706 accurately and in full. Key requirements include:

• Estimate property values for marital and charitable deduction assets when formal appraisals are not required.
  
  
• Complete all applicable schedules even if specific values are estimated or approximate.
  
  
• Include a notation at the top of page 1 stating: “Filed Pursuant to Rev. Proc. 2017-34 to Elect Portability.”
  
  
• Attach the death certificate and all relevant supporting documentation.

Importance of Filing Even with Zero Tax

Filing ensures that the surviving spouse retains access to the deceased spousal unused exclusion, which may be valuable for future estate planning. It also documents the estate’s fair market value for reference in later income tax or inheritance matters. Filing a complete and organized return helps avoid complications if the estate later requires an estate tax closing letter or audit review.

Frequently Asked Questions

What is Form 706, and who must file it?

Form 706, also known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is required when a deceased person's estate exceeds the federal estate tax exemption for 2017, which was $5.49 million. Executors or personal representatives must also file the form to elect portability for a surviving spouse. Filing ensures compliance with Internal Revenue Service requirements under the estate tax provisions of the Internal Revenue Code.

How is fair market value used when completing Form 706?

Fair market value represents the price at which a property would exchange between a willing buyer and a willing seller when neither is under pressure to act. Executors must report each asset’s value as of the decedent’s date of death or alternate valuation date. Using accurate fair market values helps determine the gross estate and ensures the taxable estate and estate tax liabilities are correctly calculated for the federal estate tax return.

What are adjusted taxable gifts, and how do they affect the estate tax return?

Adjusted taxable gifts include lifetime gifts made by the decedent after 1976 that must be added back to the gross estate for estate or gift tax purposes. These gifts affect the total taxable estate and can influence whether the estate exceeds the filing threshold. Executors must also account for any specific gift tax exemption or previously filed Form 709 when computing the total estate tax.

How does the portability election help a surviving spouse?

The portability election allows a surviving spouse to use the deceased spouse's unused exclusion from the prior spouse’s estate. By filing Form 706, the executor transfers the unused federal estate tax exemption, which can lower future estate tax liabilities. The election must be made within nine months of the decedent’s death or under the automatic six-month extension allowed by the Internal Revenue Service through Form 4768.

What happens after filing an estate tax return with the Internal Revenue Service?

Once the Internal Revenue Service receives and processes Form 706, it may issue an estate tax closing letter confirming that the federal estate tax return has been reviewed and accepted. This letter assists executors in finalizing estate administration and probate matters. Executors may also need to settle outstanding estate income tax returns, address federal estate tax liens, and confirm that all estate tax requirements are satisfied.

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