Form 706: United States Estate Tax Return Overview
The United States Estate and Generation-Skipping Transfer Tax Return is filed on Form 706. The federal estate tax and generation-skipping transfer (GST) taxes due by the decedent’s estate are calculated using this tax form.
Read on as we take you through an overview of this tax form, including who can file it, where to get it, and exactly how to file it.
Table of Contents
KEY TAKEAWAYS
- An executor of a decedent’s estate uses Form 706 to compute any estate tax due under Chapter 11 of the Internal Revenue Code (IRC), as well as any generation-skipping transfer tax (GSTT) imposed under Chapter 13 of the IRC.
- An executor of a deceased U.S. citizen or resident must file Form 706 if their gross estate, adjusted taxable gifts, and special exemptions total more than $12.06 million in 2022.
- Taxes due on trust distributions subject to the generation-skipping transfer tax are determined using Form 706-GS(D) (GSTT).
What Is Form 706?
Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return is a form issued by the Internal Revenue Service (IRS) that is used by the executor of an estate. The Internal Revenue Code’s (IRC) Chapter 11 imposes the estate tax liability.
Form 706 is also used to calculate the generation-skipping transfer (GST) tax imposed by Chapter 13 on direct skips.
Taxes are levied on the entire taxable estate. This means that it is not just the portion of the estate that belongs to a particular beneficiary. The generation-skipping transfer tax (GSTT) levied by Chapter 13 of the Internal Revenue Code is also calculated by executors. This is done by using Form 706.
What Are the Types of Form 706?
There are two types of Form 706:
1. Form 706-NA
For nonresident alien decedents, the estate tax and GSTT liability are determined using Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return.
2. Form 706-GS(D)
Using Form 706-GS(D), the Generation-Skipping Transfer Tax Return for Distributions, taxpayers can calculate the taxes owed on trust distributions that are subject to the GSTT. Form 706-GS must be used to calculate and report the relevant tax for every skip individual who receives a taxable distribution from a trust (D) subject to GST tax. This tax is reported on a calendar year basis, on or after January 1 but not later than April 15 of the year following the calendar year in which the distributions were made.
Who Can File Form 706?
Every executor of an estate of a citizen or resident of the United States is required to submit Form 706:
- Whose gross estate ( $12.06 million for decedents who passed away in 2022) exceeds the exclusion level, as well as any adjusted taxable gifts and particular exemptions.
- Whose executor, regardless of the size of the decedent’s gross estate, chooses to distribute the “dead spousal unused exclusion” (DSUE) sum to the surviving spouse.
The gross estate includes all property in which the decedent had an interest (including property located outside the U.S.), annuities, certain life insurance proceeds, or digital assets.
Where to Get Form 706?
You can download Form 706 from the IRS website. On the “About Form 706” “Current Revision” section, PDF versions of the most recent revisions and instructions for each form are accessible for downloading.
Select the form version that corresponds to the relevant decedent’s death date. The dates of death to which the form relates are listed at the beginning of the form’s first page.
How to File Form 706
Within 9 months of the decedent’s passing, you must file a paper Form 706 to report the estate or GSTT. The tax payment may be submitted electronically.
If you can’t submit Form 706, you can use Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to request an automatic six-month extension.
Within 9 months of the decedent’s death, both the estate tax and the GSTT are due.
Checks must be made payable to “United States Treasury” and write “Form 706” on the check along with the decedent’s name and Social Security number. Alternatively, you can use the Electronic Federal Tax Payments System to pay online (EFTPS).
You must also attach a death certificate to the return.
Summary
For U.S. citizens and residents, the IRS Form 706 is the tax return used to determine their estate and GST tax obligations. For non-resident decedents, a different version of the form, Form 760-NA, is available.
FAQS on Form 706
Generally, Form 706 and any taxes owed must be filed within 9 months of the decedent’s passing.
If you want Form 706 filed for you via an agency then costs will vary from $1,000 to $2,500.
If you underpay the estate tax by more than $5,000 and the IRS determines that the underpayment was caused by underestimated appraisals, they will impose a 20 percent penalty. The penalty increases to 40% if there is a gross valuation understatement on the return ( if the reported property is valued at 40% or less of the correct value).
Penalties are also assessed on late filing, late payment, and underreporting of GST taxes.
The failure to file penalty is 5% of the unpaid taxes for each month or part of the month that a tax return is late. The penalty will not exceed 25% of your unpaid taxes.
Share: