Form 706 for Decedents Dying in 2010: Comprehensive Filing Checklist
Understanding the 2010 Form 706 Year-Specific Context
The 2010 Form 706 represents a unique year in federal estate tax history. Executors faced an unprecedented choice between two mutually exclusive options: file Form 706 under standard estate tax rules with reinstated rates and a $5,000,000 applicable exclusion amount, or completely opt out of federal estate tax by filing a Form 8939 and electing modified carryover basis treatment under Section 1022. This bifurcation existed only for decedents dying in the calendar year 2010 and has never been repeated.
Year-Specific Election Framework
For estates of decedents dying between January 1, 2010, and December 31, 2010, executors could make an irrevocable election to apply Section 1022 carryover basis rules by filing Form 8939 by January 17, 2012. This deadline was extended from the original November 15, 2011, date, as per IRS Notice 2011-76. Estates chosen for the Section 1022 election paid no federal estate tax. They received modified carryover basis treatment with the ability to allocate up to $1,300,000 in basis increase to specific property, plus an additional $3,000,000 in basis increase for property passing to a surviving spouse.
If Form 8939 was filed for Section 1022 treatment, no Form 706 was required. The carryover basis election replaced the traditional step-up in basis under Section 1014. This election was available exclusively for 2010 decedents. Executors who chose to file Form 706 instead of Form 8939 had an applicable exclusion amount of $5,000,000, a corresponding unified credit of $1,730,800, and a maximum estate tax rate of 35 percent.
Ten-Step Form 706 Filing Checklist
Step 1: Determine Filing Obligation and Election Choice
Verify whether the decedent was a United States citizen or resident at the time of death. Confirm that the date of death occurred in the calendar year 2010. Calculate whether the gross estate, plus adjusted taxable gifts made after December 31, 1976, plus specific exemption for gifts made after September 8, 1976, and before January 1, 1977, exceeds $5,000,000. If the total exceeds this threshold, Form 706 must be filed unless the executor makes the irrevocable Section 1022 election by filing Form 8939.
The executor must decide which reporting path to take. Filing Form 8939 eliminates the federal estate tax but applies carryover basis rules. Filing Form 706 subjects the estate to Chapter 11 estate tax with a $5,000,000 exclusion and a maximum rate of 35 percent, but provides a full step-up in basis under Section 1014. This choice is irrevocable and determines all subsequent reporting requirements. Obtain the certified death certificate and the decedent’s social security number.
Step 2: Compile Complete Gross Estate Documentation
Gather documentation for all property owned by the decedent or in which the decedent held incidents of ownership as of the date of death. Real estate must be reported on Schedule A with legal descriptions, appraisals, and title documentation. Stocks and bonds are reported on Schedule B, accompanied by CUSIP numbers and valuation statements. Mortgages, notes, and cash holdings are reported on Schedule C. Life insurance policies on the decedent’s life require Schedule D, with Form 712 attached to each policy.
Jointly owned property is reported on Schedule E, accompanied by documentation that shows ownership percentages and the source of consideration for the acquisition. Other miscellaneous property, including business interests, digital assets, vehicles, collections, and intellectual property, is reported on Schedule F. Transfers made during the decedent’s life within three years of death or transfers with retained interests under Sections 2035, 2036, 2037, or 2038 require Schedule G. Powers of appointment are reported on Schedule H. Annuities are reported on Schedule I.
If the executor elects alternate valuation on Part 3, line 1, property must be valued as of six months after the date of death or the date of disposition, if earlier. The alternate valuation election may be made only if it decreases both the value of the gross estate and the sum of estate and generation-skipping transfer taxes payable.
Step 3: Calculate Gross Estate and Apply Filing Threshold
Determine the total value of the gross estate by summing the values from Schedules A through I as entered in Part 5, Recapitulation, items 1 through 9. Enter the total on line 10 of Part 5. Add adjusted taxable gifts, which are all taxable gifts made by the decedent after December 31, 1976, that are not otherwise includible in the gross estate. Include any specific exemption allowed under Section 2521 for gifts made after September 8, 1976, and before January 1, 1977.
If the combined total of gross estate plus adjusted taxable gifts plus specific exemption exceeds $5,000,000, Form 706 must be filed unless the executor elects Section 1022 treatment by filing Form 8939. The gross estate valuation drives all subsequent calculations and determines deduction limitations and credit applications.
Step 4: Complete Tax Computation Using 2010 Rates
Enter the gross estate amount from Part 5, line 12, on Part 2, line 1. This amount equals the total gross estate from line 10 minus any qualified conservation easement exclusion from line 11. Subtract tentative total allowable deductions from Part 5, line 22, on Part 2, line 2. The result is entered on line 3a. Enter any state death tax deduction on line 3b. Calculate the taxable estate by subtracting line 3b from line 3a and enter the result on line 3c.
Enter adjusted taxable gifts on line 4 using the amount calculated from Worksheet TG, Line 4 Worksheet. Add lines 3c and 4 to determine the total on line 5. Calculate tentative tax on line 6 using Table A, the unified rate schedule applicable to 2010 decedents, which applies rates ranging from 18 percent to 35 percent. These rates are specific to 2010 and differ from rates applicable in other years.
Enter the total gift tax paid or payable on gifts made after December 31, 1976, on line 7 using the Line 7 Worksheet. This amount includes gift taxes paid by the decedent and, in limited circumstances involving split gifts included in the gross estate of a predeceased spouse, gift taxes paid by the decedent’s spouse. Subtract line 7 from line 6 to calculate gross estate tax on line 8.
Step 5: Apply Unified Credit and Calculate Net Tax
Enter the maximum unified credit of $1,730,800 on line 9. This credit amount corresponds to the $5,000,000 applicable exclusion amount for 2010 decedents. On line 10, enter any adjustment to the unified credit required for gifts made after September 8, 1976, and before January 1, 1977, for which a specific exemption was claimed under Section 2521. This adjustment equals 20 percent of the particular exemption claimed but may not exceed $6,000.
Calculate the allowable unified credit by subtracting line 10 from line 9 and enter the result on line 11. Subtract line 11 from line 8 to determine the net estate tax before credits on line 12. If line 11 exceeds line 8, enter zero on line 12. The amount on line 12 is subject to reduction by any allowable credits for foreign death taxes or tax on prior transfers.
Step 6: Prepare Required Schedules and Supporting Documentation
Complete all schedules corresponding to items with values greater than zero in Part 5, Recapitulation, items 1 through 9, with one critical exception. Schedule F must be completed and attached to every Form 706, even if no assets are reported on it. The schedule includes required questions about artwork, collectibles, employment bonuses, and safe deposit boxes that must be answered regardless of asset values.
If electing special-use valuation under Section 2032A, complete Schedule A-1 in addition to Schedule A. The special-use valuation election requires a signed agreement from every qualified heir with an interest in the specially valued property. Each qualified heir must sign Part 3 of Schedule A-1, consenting to personal liability for additional estate and generation-skipping transfer taxes that may become due under Section 2032A(c) upon early disposition or cessation of qualified use. The agreement cannot be valid without the signature of each qualified heir on the same agreement form. The election is irrevocable and must be made on a timely filed Form 706, not on an amended return.
Attach a certified copy of the will if the decedent died testate. Attach Form 712 for every life insurance policy reported on Schedules D, E, F, or G. If the executor elects to pay estate tax in installments under Section 6166, attach the required statement and supporting documentation as detailed in the Form 706 instructions.
Step 7: Calculate and Report Allowable Deductions
Report funeral expenses on Schedule J with itemized amounts for services, transportation, burial plot, markers, and related costs. Report debts of the decedent on Schedule K with creditor names, nature of claims, amounts unpaid at death, and amounts in contest. Report mortgages and liens on Schedule K with descriptions and outstanding balances. Report expenses incurred in administering property subject to claims on Schedule J, including executors’ commissions, attorney fees, accountant fees, and miscellaneous administration expenses.
Report net losses during administration and expenses incurred in administering property not subject to claims on Schedule L. Claim the marital deduction on Schedule M for property passing to the surviving spouse that qualifies as deductible under Section 2056. Property passing to the spouse in a nondeductible terminable interest qualifies only if a qualified terminable interest property election is made. Report charitable gifts and bequests on Schedule O for property passing to qualified charitable organizations under Section 2055.
Complete the state death tax deduction calculation and enter the amount on Part 2, line 3b. The state death tax deduction replaced the state death tax credit effective January 1, 2005. Enter the total of all deductions on Part 5, line 22. This amount is entered on Part 2, line 2, as tentative total allowable deductions.
Step 8: Reconcile Lifetime Taxable Gifts Using Required Worksheets
Complete Worksheet TG to reconcile all taxable gifts made by the decedent after 1976. Obtain copies of all Forms 709 filed by the decedent for periods after December 31, 1976. If any Form 709 was audited, use the finally determined amounts from the audit rather than the amounts as originally filed. Conduct a reasonable inquiry to identify any taxable gifts exceeding the annual exclusion for which no Form 709 was filed. Include these unreported taxable gifts in the worksheet calculations.
The annual exclusion per donee was $3,000 for gifts made from 1977 through 1981, $10,000 for gifts made from 1982 through 2001, $11,000 for gifts made from 2002 through 2005, $12,000 for gifts made from 2006 through 2008, and $13,000 for gifts made in 2009 and 2010. Enter column totals from the Worksheet TG on the Line 4 Worksheet and the Line 7 Worksheet to determine adjusted taxable gifts and gift taxes paid.
Apply special treatment rules if the decedent’s spouse predeceased the decedent, the predeceased spouse made split gifts with the decedent under Section 2513, the decedent was the consenting spouse, and the divided gifts were included in the predeceased spouse’s gross estate under Section 2035. These gifts receive different treatment in the adjusted taxable gifts and gift tax calculations.
Step 9: Complete Generation-Skipping Transfer Tax Reporting
Suppose the estate includes property subject to the generation-skipping transfer tax. Complete Schedule R and Schedule R-1. The GST tax applies to direct skips, which are transfers of interests in property to skip individuals. A skip person is generally a person two or more generations younger than the decedent or a trust for the benefit of such individuals. Calculate the GST tax using the applicable rate and exemption available under Section 2631.
For 2010 decedents, the GST tax rate is zero. However, executors must still report direct skips and allocate the decedent’s GST exemption to property transferred at death. The GST exemption amount for 2010 is $5,000,000. Enter GST exemption allocations on Schedule R, Part 2. Report any GST tax payable on Schedule R, Part 2, line 10, and carry this amount to Part 2, line 17, of Form 706.
Step 10: Finalize, Sign, and File the Return
The executor must sign the declaration on page 1 of Form 706 under penalties of perjury. If there are multiple executors, all are responsible for the return, but only one signature is required for filing. The executor must provide documentation proving executor status, such as a certified copy of letters testamentary or court appointment orders. A self-attestation statement is insufficient.
If a paid preparer assisted with the return, the preparer must sign in the designated area, provide a tax identification number, complete the “Paid Preparer Use Only” section, and give the executor a copy of the completed return. Assemble pages 1 through 3 of Form 706 and all required schedules in the proper order. Staple all pages together. Do not file schedules for gross estate items with zero values except Schedule F, which must always be filed.
For decedents dying between January 1, 2010, and December 16, 2010, the due date for Form 706 is September 19, 2011. Form 706 must be filed at the address specified in the 2010 Form 706 instructions. Refer to the IRS Where to File page for Form 706 to determine the correct mailing address. If you are unable to file by the due date, file Form 4768 to request an automatic six-month extension. Estate and generation-skipping transfer taxes are due on the same date the return is due.
Form-Specific Limitations and Prohibited Filers
Organizations with gross estates exceeding $5,000,000 after adding adjusted taxable gifts and specific exemptions must file Form 706 unless the executor makes the Section 1022 election. Particular organizations and estates are prohibited from electing Section 1022 treatment and must use standard estate tax rules even if the gross estate is less than $5,000,000. These include nonresident alien decedents, who must file Form 706-NA instead of Form 706.
Estates with unrelated business gross income of $1,000 or more must file Form 990-T in addition to Form 706. This requirement applies to estates receiving trade or business income unrelated to the estate’s exempt function as an estate. The Form 990-T filing obligation is independent of the Form 706 filing requirement.
Final Compliance Requirements
Use only the July 2011 revision of Form 706 and its instructions for decedents dying in the 2010 calendar year. Do not use forms or instructions from other years, as exclusion amounts, unified credits, tax rates, and procedural requirements differ significantly. All dollar amounts, credit computations, and tax calculations must come directly from the 2010 Form 706 instructions and IRS publications referenced therein.
Maintain complete records supporting all values, deductions, and elections claimed on the return. The IRS may examine the return and request substantiation for any item reported on it. Penalties apply for late filing, late payment, substantial understatement of value, and failure to provide accurate information. Executors are personally liable for properly administering the estate and filing correct returns.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
