Table of Contents
- Part 1—Decedent and Executor
- Part 2—Tax Computation
- Part 3—Elections by the Executor
- Part 4—General Information
- Part 5—Recapitulation
- Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE)
- Schedule A—Real Estate
- Schedule A-1—Section 2032A Valuation
- Schedule B—Stocks and Bonds
- Schedule C—Mortgages, Notes, and Cash
- Schedule D—Insurance on the Decedent's Life
- Schedule E—Jointly Owned Property
- Schedule F—Other Miscellaneous Property
- Decedent Who Was a Surviving Spouse
- Schedule G—Transfers During Decedent's Life
- Schedule H—Powers of Appointment
- Schedule I—Annuities
- Schedule J—Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims
- Schedule K—Debts of the Decedent and Mortgages and Liens
- Schedule L—Net Losses During Administration and Expenses Incurred in Administering Property Not Subject to Claims
- Schedule M—Bequests, etc., to Surviving Spouse (Marital Deduction)
- Schedule O—Charitable, Public, and Similar Gifts and Bequests
- Schedule P—Credit for Foreign Death Taxes
- Schedule Q—Credit for Tax on Prior Transfers
- Schedules R and R-1—Generation-Skipping Transfer Tax
- Schedule U—Qualified Conservation Easement Exclusion
- Schedule PC—Protective Claim for Refund
- Continuation Schedule
You must file the first four pages of Form 706 and all required schedules. File Schedules A through I, as appropriate, to support the entries in items 1 through 9 of Part 5—Recapitulation.
|IF . . .||THEN . . .|
|you enter zero on any item of the Recapitulation,||you need not file the schedule (except for Schedule F) referred to on that item.|
|you are estimating the value of one or more assets pursuant to the special rule of Regulations section 20.2010–2T(a)(7)(ii),||you must report the asset on the appropriate schedule, but you are not required to enter a value for the asset. Include the estimated value of the asset in the totals entered on lines 10 and 23 of Part 5— Recapitulation.|
|you claim an exclusion on item 11,||complete and attach Schedule U.|
|you claim any deductions on items 14 through 22 of the Recapitulation,||complete and attach the appropriate schedules to support the claimed deductions.|
|you claim credits for foreign death taxes or tax on prior transfers,||complete and attach Schedule P or Q.|
|there is not enough space on a schedule to list all the items,||attach a Continuation Schedule (or additional sheets of the same size) to the back of the schedule (see the Continuation Schedule
at the end of Form 706);
photocopy the blank schedule before completing it, if you will need more than one copy.
Also consider the following:
Form 706 has 31 numbered pages. The pages are perforated so that you can remove them for copying and filing.
Number the items you list on each schedule, beginning with the number “1” each time, or using the numbering convention as indicated on the schedule (for example, Schedule M).
Total the items listed on the schedule and its attachments, Continuation Schedules, etc.
Enter the total of all attachments, Continuation Schedules, etc., at the bottom of the printed schedule, but do not carry the totals forward from one schedule to the next.
Enter the total, or totals, for each schedule on page 3, Part 5—Recapitulation.
Do not complete the “Alternate valuation date” or “Alternate value” columns of any schedule unless you elected alternate valuation on line 1 of Part 3—Elections by the Executor.
When you complete the return, staple all the required pages together in the proper order.
Enter the SSN assigned specifically to the decedent. You cannot use the SSN assigned to the decedent's spouse. If the decedent did not have an SSN, the executor should obtain one for the decedent by filing Form SS-5, with a local Social Security Administration office.
If there is more than one executor, enter the name of the executor to be contacted by the IRS and see line 6d.
Only one executor should complete this line. If there is more than one executor, see line 6d.
Check here if there is more than one executor. On an attached statement, provides the names, addresses, telephone numbers, and SSNs of any executor other than the one named on line 6a.
In general, the estate tax is figured by applying the unified rates shown in Table A to the total of transfers both during life and at death, and then subtracting the gift taxes, as refigured based on the date of death rates. See Worksheet TG, Line 4 Worksheet, and Line 7 Worksheet.
Taxable amount over
Taxable amount not over
Tax on amount in Column A
Rate of tax on excess over amount in Column A
|500,000||- - - -||155,800||35%|
If you elected alternate valuation on line 1, Part 3—Elections by the Executor, enter the amount you entered in the “Alternate value” column of item 13 of Part 5—Recapitulation. Otherwise, enter the amount from the “Value at date of death” column.
You may take a deduction on line 3b for estate, inheritance, legacy, or succession taxes paid as the result of the decedent's death to any state or the District of Columbia.
You may claim an anticipated amount of deduction and figure the federal estate tax on the return before the state death taxes have been paid. However, the deduction cannot be finally allowed unless you pay the state death taxes and claim the deduction within 4 years after the return is filed, or later (see section 2058(b)) if:
A petition is filed with the Tax Court of the United States,
You have an extension of time to pay, or
You file a claim for refund or credit of an overpayment which extends the deadline for claiming the deduction.
Certificate of the proper officer of the taxing state, or the District of Columbia, showing the:
Total amount of tax imposed (before adding interest and penalties and before allowing discount),
Amount of discount allowed,
Amount of penalties and interest imposed or charged,
Total amount actually paid in cash, and
Date of payment.
Any additional proof the IRS specifically requests.
File the evidence requested above with the return, if possible. Otherwise, send it as soon as possible after the return is filed.
To figure the tentative tax on the amount on line 5, use Table A—Unified Rate Schedule, above, and put the result on this line.
Three worksheets are provided to help you figure the entries for these lines. Worksheet TG—Taxable Gifts Reconciliation allows you to reconcile the decedent's lifetime taxable gifts to figure totals that will be used for the Line 4 Worksheet and the Line 7 Worksheet.
You must have all of the decedent's gift tax returns (Forms 709) before completing Worksheet TG—Taxable Gifts Reconciliation. The amounts needed for Worksheet TG can usually be found on the filed returns that were subject to tax. However, if any of the returns were audited by the IRS, use the amounts that were finally determined as a result of the audits.
In addition, you must make a reasonable effort to discover any gifts in excess of the annual exclusion made by the decedent (or on behalf of the decedent under a power of attorney) for which no Forms 709 were filed. Include the value of such gifts in column b of Worksheet TG. The annual exclusion per donee for 1977 through 1981 was $3,000, $10,000 for 1981 through 2001, $11,000 for 2002 through 2005, and $12,000 for 2006 through 2008. For 2009 through 2012, the annual exclusion for gifts of present interest is $13,000 per donee.
|Line 7 Worksheet – Used to Determine Applicable Credit Allowable for Prior Periods|
|Period||Taxable Gifts for Current Period||Taxable Gifts for Prior Periods1||Cumulative Taxable Gifts Including Current Period
(Col. (b) + Col. (c))
|Tax Based on 2012 Rates for Prior Gifts
(Col. (c)) 2
|Tax on Cumulative Gifts Including Current Period
|Tax on Gifts for Current Period
(Col. (f) – Col. (e))
|DSUE from Predeceased Spouse Applied to Prior Gifts||Exclusion Amount for Current Period||Total
(Col. (h) + Col. (i))
|Maximum Applicable Credit based on amount Column J||Applicable Credit Amount Used in Prior Periods3||Available Credit in Current Period
(Col. (k) – Col. (l))
(Lesser of Col. (g) and Col. (m))
|Tax Payable for Current Period
(Col. (g) – Col. (n))
|1. Total gift taxes payable on gifts after 1976 (add amounts in column (o)).|
|2. Gift taxes paid by the decedent on gifts that qualify for “special treatment.” Enter the amount from Worksheet TG, line 2.|
|3. Subtract line 2 from line 1.|
|4. Gift tax paid by decedent's spouse on split gifts included on Schedule G. Enter amount from Worksheet TG, line 4.|
|5. Add lines 3 and 4. Enter here and on Part 2—Tax Computation, line 7.|
|1. Column (c): Enter amount from column (d) of the
2. Column (e): Enter amount from column (f) of the previous row.
3. Column (l): Enter the sum of column (l) and column (n) from the previous row.
Column (a). Beginning with the earliest year in which taxable gifts were made, enter the quarter/year of the prior gift(s).
Column (b). Enter all taxable gifts made in the specified year. Enter all pre-1977 gifts on the pre-1977 row.
Column (c). Enter the amount from column (d) of the previous row.
Column (d). Enter the sum of column (b) and column (c) from the current row.
Column (e). Enter the amount from column (f) of the previous row.
Column (f). Enter the tax based on the amount in column (d) of the current row from Table A — Unified Rate Schedule, above.
Column (g). Subtract the amount in column (e) from the amount in column (f) for the current row.
Column (h). Complete this column only if a DSUE amount was received from predeceased spouse(s) and was applied to lifetime gifts. See line 2 of Schedule C on the Form 709 filed for the year listed in column (a) for the amount to be entered in this column.
Column (i). Enter the applicable amount from the Table of Basic Credit Amounts, below.
Note. The entries in each row of column (i) must be reduced by 20 percent of the amount allowed as a specific exemption for gifts made after September 8, 1976, and before January 1, 1977 (but no more than $6,000).
Column (j). Enter the sum of columns (h) and column (i).
Column (k). Calculate the applicable credit on the amount in column (j) using Table A — Unified Rate Schedule, above, and enter here.
Column (l). Add the amounts in column (l) and column (n) from the previous row.
Column (m). Subtract the amount in column (l) from the amount in column (k) to determine the amount of any available credit. Enter result in column (m).
Column (n). Enter the lesser of the amounts in column (g) or column (m).
Column (o). Subtract the amount in column (n) for the current period from the amount column (g).
Repeat for each year in which taxable gifts were made.
Basic Exemption Amounts
at 2012 rates
|1977 (Quarters 1 and 2)||$30,000||$6,000|
|1977 (Quarters 3 and 4)||$120,667||$30,000|
|1987 through 1997||$600,000||$190,800|
|2000 and 2001||$675,000||$217,050|
|2002 through 2010||$1,000,000||$330,800|
The decedent's spouse predeceased the decedent;
The decedent's spouse made gifts that were “split” with the decedent under the rules of section 2513;
The decedent was the “consenting spouse” for those split gifts, as that term is used on Form 709; and
The split gifts were included in the decedent's spouse's gross estate under section 2035.
The applicable credit amount is allowable credit against estate and gift taxes. It is calculated by determining the tentative tax on the applicable exclusion amount, which is the amount that can be transferred before an estate tax liability will be incurred.
The applicable exclusion amount equals the total of:
Line 9a: The basic exclusion amount. In 2012, the basic exclusion amount, as adjusted for inflation under 2010(c)(3), is $5,120,000.
Line 9b: The deceased spousal unused exclusion amount (DSUE). If the decedent had a spouse who died on or after January 1, 2011, whose estate did not use all of its applicable exclusion against gift or estate tax liability, a DSUE amount may be available for use by the decedent's estate. If the predeceased spouse died in 2011, the DSUE amount was calculated and attached to his or her Form 706. If the predeceased spouse died in 2012, this amount is found in Part 6, Section C of the Form 706 filed by the estate of the decedent's predeceased spouse. The amount to be entered on line 9b is calculated in Part 6, Section D.
If the decedent made gifts (including gifts made by the decedent's spouse and treated as made by the decedent by reason of gift splitting) after September 8, 1976, and before January 1, 1977, for which the decedent claimed a specific exemption, the applicable credit amount on this estate tax return must be reduced. The reduction is figured by entering 20% of the specific exemption claimed for these gifts.
If the decedent did not make any gifts between September 8, 1976, and January 1, 1977, or if the decedent made gifts during that period but did not claim the specific exemption, enter zero.
Generally, line 15 is used to report the total of credit for foreign death taxes (line 13) and credit for tax on prior transfers (line 14).
However, you may also use line 15 to report credit taken for federal gift taxes imposed by Chapter 12 of the Code, and the corresponding provisions of prior laws, on certain transfers the decedent made before January 1, 1977, that are included in the gross estate. The credit cannot be more than the amount figured by the following formula:
|Gross estate tax minus (the sum of the state death taxes and unified credit)||
Value of included
|Value of gross estate minus (the sum of the deductions for charitable, public, and similar gifts and bequests and marital deduction)|
When taking the credit for pre-1977 federal gift taxes:
Include the credit in the amount on line 15 and
Identify and enter the amount of the credit you are taking on the dotted line to the left of the entry space for line 15 on page 1 of Form 706 with a notation, “section 2012 credit.”
For more information, see the regulations under section 2012. This computation may be made using Form 4808. Attach a copy of a completed Form 4808 or the computation of the credit. Also, attach all available copies of Forms 709 filed by the decedent to help verify the amounts entered on lines 4 and 7, and the amount of credit taken (on line 15) for pre-1977 federal gift taxes.
Include the credit in the amount on line 15 and
Identify and enter the amount of the credit you are taking on the dotted line to the left of the entry space for line 15 on page 1 of Form 706 with a notation, “Canadian marital credit.”
The election to allow the decedent's surviving spouse to use the decedent's unused exclusion amount is made by filing a timely and complete Form 706. See instructions for Part 6—Portability of Deceased Spousal Unused Exclusion, below, and sections 2010(c)(4) and (c)(5).
Unless you elect at the time the return is filed to adopt alternate valuation as authorized by section 2032, value all property included in the gross estate as of the date of the decedent's death. Alternate valuation cannot be applied to only a part of the property.
You may elect special-use valuation (line 2) in addition to alternate valuation.
You may not elect alternate valuation unless the election will decrease both the value of the gross estate and the sum (reduced by allowable credits) of the estate and GST taxes payable by reason of the decedent's death for the property includible in the decedent's gross estate.
Elect alternate valuation by checking “Yes,” on line 1 and filing Form 706. You may make a protective alternate valuation election by checking “Yes,” on line 1, writing the word “protective,” and filing Form 706 using regular values.
Once made, the election may not be revoked. The election may be made on a late-filed Form 706 provided it is not filed later than 1 year after the due date (including extensions actually granted). Relief under sections 301.9100-1 and 301.9100-3 may be available to make an alternate valuation election or a protective alternate valuation election, provided a Form 706 is filed no later than 1 year after the due date of the return (including extensions actually granted).
If alternate valuation is elected, value the property included in the gross estate as of the following dates as applicable:
Any property distributed, sold, exchanged, or otherwise disposed of or separated or passed from the gross estate by any method within 6 months after the decedent's death is valued on the date of distribution, sale, exchange, or other disposition. Value this property on the date it ceases to be a part of the gross estate; for example, on the date the title passes as the result of its sale, exchange, or other disposition.
Any property not distributed, sold, exchanged, or otherwise disposed of within the 6-month period is valued as of 6 months after the date of the decedent's death.
Any property, interest, or estate that is affected by mere lapse of time is valued as of the date of decedent's death or on the date of its distribution, sale, exchange, or other disposition, whichever occurs first. However, you may change the date of death value to account for any change in value that is not due to a “mere lapse of time” on the date of its distribution, sale, exchange, or other disposition.
The property included in the alternate valuation and valued as of 6 months after the date of the decedent's death, or as of some intermediate date (as described above) is the property included in the gross estate on the date of the decedent's death. Therefore, you must first determine what property was part of the gross estate at the decedent's death.
On Schedules A through I, you must show:
What property is included in the gross estate on the date of the decedent's death;
What property was distributed, sold, exchanged, or otherwise disposed of within the 6-month period after the decedent's death, and the dates of these distributions, etc. (These two items should be entered in the “Description” column of each schedule. Briefly explain the status or disposition governing the alternate valuation date, such as: “Not disposed of within 6 months following death, ” “Distributed,” “Sold,” “Bond paid on maturity,” etc. In this same column, describe each item of principal and includible income);
The date of death value, entered in the appropriate value column with items of principal and includible income shown separately; and
The alternate value, entered in the appropriate value column with items of principal and includible income shown separately. (In the case of any interest or estate, the value of which is affected by lapse of time, such as patents, leaseholds, estates for the life of another, or remainder interests, the value shown under the heading “Alternate value” must be the adjusted value; for example, the value as of the date of death with an adjustment reflecting any difference in its value as of the later date not due to lapse of time.)
If any property on Schedules A through I is being valued pursuant to the special rule of Regulations section 20.2010–2T(a)(7)(ii), values for those assets are not required to be reported on the Schedule. See Part 5—Recapitulation, line 10.
Distributions, sales, exchanges, and other dispositions of the property within the 6-month period after the decedent's death must be supported by evidence. If the court issued an order of distribution during that period, you must submit a certified copy of the order as part of the evidence. The IRS may require you to submit additional evidence, if necessary.
If the alternate valuation method is used, the values of life estates, remainders, and similar interests are figured using the age of the recipient on the date of the decedent's death and the value of the property on the alternate valuation date.
The total value of the property valued under section 2032A may not be decreased from FMV by more than $1,040,000 for decedents dying in 2012.
Real property may qualify for the section 2032A election if:
The decedent was a U.S. citizen or resident at the time of death;
The real property is located in the United States;
At the decedent's death, the real property was used by the decedent or a family member for farming or in a trade or business, or was rented for such use by either the surviving spouse or a lineal descendant of the decedent to a family member on a net cash basis;
The real property was acquired from or passed from the decedent to a qualified heir of the decedent;
The real property was owned and used in a qualified manner by the decedent or a member of the decedent's family during 5 of the 8 years before the decedent's death;
There was material participation by the decedent or a member of the decedent's family during 5 of the 8 years before the decedent's death; and
The property meets the following percentage requirements:
At least 50% of the adjusted value of the gross estate must consist of the adjusted value of real or personal property that was being used as a farm or in a closely-held business and that was acquired from, or passed from, the decedent to a qualified heir of the decedent, and
At least 25% of the adjusted value of the gross estate must consist of the adjusted value of qualified farm or closely-held business real property.
For this purpose, adjusted value is the value of property determined without regard to its special-use value. The value is reduced for unpaid mortgages on the property or any indebtedness against the property, if the full value of the decedent's interest in the property (not reduced by such mortgage or indebtedness) is included in the value of the gross estate. The adjusted value of the qualified real and personal property used in different businesses may be combined to meet the 50% and 25% requirements.
The property is considered to have been acquired from or to have passed from the decedent under section 1014(b) (relating to basis of property acquired from a decedent);
The property is acquired by any person from the estate; or
The property is acquired by any person from a trust, to the extent the property is includible in the gross estate.
An ancestor (parent, grandparent, etc.) of the individual;
The spouse of the individual;
The lineal descendant (child, stepchild, grandchild, etc.) of the individual, the individual's spouse, or a parent of the individual; or
The spouse, widow, or widower of any lineal descendant described above.
To elect special-use valuation, either the decedent or a member of his or her family must have materially participated in the operation of the farm or other business for at least 5 of the 8 years ending on the date of the decedent's death. The existence of material participation is a factual determination, but passively collecting rents, salaries, draws, dividends, or other income from the farm or other business does not constitute material participation. Neither does merely advancing capital and reviewing a crop plan and financial reports each season or business year.
In determining whether the required participation has occurred, disregard brief periods (that is, 30 days or less) during which there was no material participation, as long as such periods were both preceded and followed by substantial periods (more than 120 days) during which there was uninterrupted material participation.
The date the decedent began receiving social security benefits or
The date the decedent became disabled.
The primary method of valuing special-use property that is used for farming purposes is the annual gross cash rental method. If comparable gross cash rentals are not available, you can substitute comparable average annual net share rentals. If neither of these are available, or if you so elect, you can use the method for valuing real property in a closely-held business.
Subtract the average annual state and local real estate taxes on actual tracts of comparable real property from the average annual gross cash rental for that same comparable property and
Divide the result in (1) by the average annual effective interest rate charged for all new Federal Land Bank loans. See Effective interest rate, below.
Generally, gross cash rental is the total amount of cash received in a calendar year for the use of actual tracts of comparable farm real property in the same locality as the property being specially valued. You may not use:
Appraisals or other statements regarding rental value or areawide averages of rentals, or
Rents paid wholly or partly in-kind, or
Property for which the amount of rent is based on production.
The rental must have resulted from an arm's-length transaction and the amount of rent may not be reduced by the amount of any expenses or liabilities associated with the farm operation or the lease.
Comparable property must be situated in the same locality as the qualified real property as determined by generally accepted real property valuation rules. The determination of comparability is based on a number of factors, none of which carries more weight than the others. It is often necessary to value land in segments where there are different uses or land characteristics included in the specially valued land.
The following list contains some of the factors considered in determining comparability:
Similarity of soil;
Whether the crops grown would deplete the soil in a similar manner;
Types of soil conservation techniques that have been practiced on the two properties;
Whether the two properties are subject to flooding;
Slope of the land;
For livestock operations, the carrying capacity of the land;
For timbered land, whether the timber is comparable;
Whether the property as a whole is unified or segmented. If segmented, the availability of the means necessary for movement among the different sections;
Number, types, and conditions of all buildings and other fixed improvements located on the properties and their location as it affects efficient management, use, and value of the property; and
Availability and type of transportation facilities in terms of costs and of proximity of the properties to local markets.
You must specifically identify on the return the property being used as comparable property. Use the type of descriptions used to list real property on Schedule A.
See Tables 1 and 2 of Revenue Ruling 2012-26, 2012-39 I.R.B. 358, available atwww.irs.gov/pub/irs-irbs/irb12-39.pdf , for the average annual effective interest rates in effect for 2012.
You may use average annual net share rental from comparable land only if there is no comparable land from which average annual gross cash rental can be determined. Net share rental is the difference between the gross value of produce received by the lessor from the comparable land and the cash operating expenses (other than real estate taxes) of growing the produce that, under the lease, are paid by the lessor. The production of the produce must be the business purpose of the farming operation. For this purpose, produce includes livestock.
The gross value of the produce is generally the gross amount received if the produce was disposed of in an arm's-length transaction within the period established by the Department of Agriculture for its price support program. Otherwise, the value is the weighted average price for which the produce sold on the closest national or regional commodities market. The value is figured for the date or dates on which the lessor received (or constructively received) the produce.
The capitalization of income that the property can be expected to yield for farming or for closely-held business purposes over a reasonable period of time with prudent management and traditional cropping patterns for the area, taking into account soil capacity, terrain configuration, and similar factors;
The capitalization of the fair rental value of the land for farming or for closely-held business purposes;
The assessed land values in a state that provides a differential or use value assessment law for farmland or closely-held business;
Comparable sales of other farm or closely-held business land in the same geographical area far enough removed from a metropolitan or resort area so that nonagricultural use is not a significant factor in the sales price; and
Any other factor that fairly values the farm or closely-held business value of the property.
Include the words “section 2032A valuation” in the “Description” column of any Form 706 schedule if section 2032A property is included in the decedent's gross estate.
An election under section 2032A need not include all the property in an estate that is eligible for special-use valuation, but sufficient property to satisfy the threshold requirements of section 2032A(b)(1)(B) must be specially valued under the election.
If joint or undivided interests (that is, interests as joint tenants or tenants in common) in the same property are received from a decedent by qualified heirs, an election for one heir's joint or undivided interest need not include any other heir's interest in the same property if the electing heir's interest plus other property to be specially valued satisfies the requirements of section 2032A(b)(1)(B).
If successive interests (that is, life estates and remainder interests) are created by a decedent in otherwise qualified property, an election under section 2032A is available only for that property (or part) in which qualified heirs of the decedent receive all of the successive interests, and such an election must include the interests of all of those heirs.
For example, if a surviving spouse receives a life estate in otherwise qualified property and the spouse's brother receives a remainder interest in fee, no part of the property may be valued under a section 2032A election.
Where successive interests in specially valued property are created, remainder interests are treated as being received by qualified heirs only if the remainder interests are not contingent on surviving a nonfamily member or are not subject to divestment in favor of a nonfamily member.
You may make a protective election to specially value qualified real property. Under this election, whether or not you may ultimately use special-use valuation depends upon final values (as shown on the return determined following examination of the return) meeting the requirements of section 2032A.
To make a protective election, check “Yes,” on line 2 and complete Schedule A-1 according to the instructions for Protective Election.
If you make a protective election, complete the initial Form 706 by valuing all property at its FMV. Do not use special-use valuation. Usually, this will result in higher estate and GST tax liabilities than will be ultimately determined if special-use valuation is allowed. The protective election does not extend the time to pay the taxes shown on the return. If you wish to extend the time to pay the taxes, file Form 4768 in adequate time before the due date of the return.
If the estate qualifies for special-use valuation based on the values as finally determined, you must file an amended Form 706 (with a complete section 2032A election) within 60 days after the date of this determination. Prepare the amended return using special-use values under the rules of section 2032A, complete Schedule A-1, and attach all of the required statements.
If the gross estate includes an interest in a closely-held business, you may be able to elect to pay part of the estate tax in installments under section 6166.
The maximum amount that can be paid in installments is that part of the estate tax that is attributable to the closely-held business; see Determine how much of the estate tax may be paid in installments under section 6166, below. In general, that amount is the amount of tax that bears the same ratio to the total estate tax that the value of the closely-held business included in the gross estate bears to the adjusted gross estate.
The value used for meeting the percentage requirements is the same value used for determining the gross estate. Therefore, if the estate is valued under alternate valuation or special-use valuation, you must use those values to meet the percentage requirements.
Generally, gifts made before death are not included in the gross estate. However, the estate must meet the 35% requirement by both including in and excluding from the gross estate any gifts made by the decedent in the 3-year period ending on the date of death.
In determining the value of a closely-held business and whether the 35% requirement is met, do not include the value of any passive assets held by the business. A passive asset is any asset not used in carrying on a trade or business. Any asset used in a qualifying lending and financing business is treated as an asset used in carrying on a trade or business; see section 6166(b)(10) for details. Stock in another corporation is a passive asset unless the stock is treated as held by the decedent because of the election to treat holding company stock as business company stock; see Holding company stock, below.
If a corporation owns at least 20% in value of the voting stock of another corporation, or the other corporation had no more than 45 shareholders and at least 80% of the value of the assets of each corporation is attributable to assets used in carrying on a trade or business, then these corporations will be treated as a single corporation, and the stock will not be treated as a passive asset. Stock held in the other corporation is not taken into account in determining the 80% requirement.
Ownership of a trade or business carried on as a proprietorship,
An interest as a partner in a partnership carrying on a trade or business if 20% or more of the total capital interest was included in the gross estate of the decedent or the partnership had no more than 45 partners, or
Stock in a corporation carrying on a trade or business if 20% or more in value of the voting stock of the corporation is included in the gross estate of the decedent or the corporation had no more than 45 shareholders.
The executor may elect to treat as business company stock the portion of any holding company stock that represents direct ownership (or indirect ownership through one or more other holding companies) in a business company. A holding company is a corporation holding stock in another corporation. A business company is a corporation carrying on a trade or business.
In general, this election applies only to stock that is not readily tradable. However, the election can be made if the business company stock is readily tradable, as long as all of the stock of each holding company is not readily tradable.
For purposes of the 20% voting stock requirement, stock is treated as voting stock to the extent the holding company owns voting stock in the business company.
If the executor makes this election, the first installment payment is due when the estate tax return is filed. The 5-year deferral for payment of the tax, as discussed below under Time for payment, does not apply. In addition, the 2% interest rate, discussed below under Interest computation, will not apply. Also, if the business company stock is readily tradable, as explained above, the tax must be paid in five installments.
|1||What is the value of the decedent's interest in closely-held business(es) included in the gross estate (less value of passive assets, as mentioned in section 6166(b)(9))?|
|2||What is the value of the gross estate (Form 706, page 3, Part 5,
|3||Add lines 18, 19, and 20 from Form 706, page 3, Part 5.|
|4||Subtract line 3 from line 2 to calculate the adjusted gross estate.|
|5||Divide line 1 by line 4 to calculate the value the business interest bears to the value of the adjusted gross estate. For purposes of this calculation, carry the decimal to the sixth place; the IRS will make this adjustment for purposes of determining the correct amount. If this amount is less than 0.350000, the estate does not qualify to make the election under section 6166.|
|6||Multiply line 5 by the amount on line 16 of Form 706, page 1, Part 2. This is the maximum amount of estate tax that may be paid in installments under section 6166. (Certain GST taxes may be deferred as well; see section 6166(i) for more information.)|
The amount of the estate tax that is attributable to the closely-held business and that is payable in installments.
The 2% portion is an amount equal to the amount of the tentative estate tax (on $1,000,000 plus the applicable exclusion amount in effect) minus the applicable credit amount in effect. However, if the amount of estate tax extended under section 6166 is less than the amount figured above, the 2% portion is the lesser amount.
The $1,000,000 amount used to calculate the 2% portion is indexed for inflation for the estates of decedents who died in a calendar year after 1998. For an estate of a decedent who died in 2012, the dollar amount used to determine the “2% portion” of the estate tax payable in installments under section 6166 is $1,390,000.
Interest on the portion of the tax in excess of the 2% portion is figured at 45% of the annual rate of interest on underpayments. This rate is based on the federal short-term rate and is announced quarterly by the IRS in the Internal Revenue Bulletin.
If you elect installment payments and the estate tax due is more than the maximum amount to which the 2% interest rate applies, each installment payment is deemed to comprise both tax subject to the 2% interest rate and tax subject to 45% of the regular underpayment rate. The amount of each installment that is subject to the 2% rate is the same as the percentage of total tax payable in installments that is subject to the 2% rate.
The decedent's name and taxpayer identification number as they appear on the estate tax return;
The amount of tax that is to be paid in installments;
The date selected for payment of the first installment;
The number of annual installments, including first installment, in which the tax is to be paid;
The properties shown on the estate tax return that are the closely-held business interest (identified by schedule and item number); and
The facts that formed the basis for the executor's conclusion that the estate qualifies for payment of the estate tax in installments.
Completing the authorization will authorize one attorney, accountant, or enrolled agent to represent the estate and receive confidential tax information, but will not authorize the representative to enter into closing agreements for the estate. If you would like to authorize your representative to enter into agreements or perform other designated acts on behalf of the estate, you must file Form 2848 with Form 706.
If you intend for the representative to represent the estate before the IRS, he or she must complete and sign this authorization.
Complete and attach Form 2848 if you would like to authorize:
Persons other than attorneys, accountants, or enrolled agents to represent the estate, or
More than one person to receive confidential information or represent the estate, or
Someone to sign agreements, consents, waivers or other documents for the estate.
Filing a completed Form 2848 with this return may expedite processing of the Form 706.
If you wish only to authorize someone to inspect and/or receive confidential tax information (but not to represent you before the IRS), complete and file Form 8821.
Enter the marital status of the decedent at the time of death by checking the appropriate box on line 3a. If the decedent was married at the time of death, complete line 4. If the decedent had one or more prior marriages, complete line 3b by providing the name and SSN of each former spouse, the date(s) the marriage ended, and specify whether the marriage ended by annulment, divorce decree, or death of spouse. If the prior marriage ended in death and the predeceased spouse died after December 31, 2010, complete Part 6 — Portability of Deceased Spousal Unused Exclusion, Section D if the estate of the predeceased spouse elected to allow the decedent to use any unused exclusion amount. For more information, see section 2010(c)(4) and related regulations.
Complete line 4 whether or not there is a surviving spouse and whether or not the surviving spouse received any benefits from the estate. If there was no surviving spouse on the date of decedent's death, enter “None” in line 4a and leave lines 4b and 4c blank. The value entered in line 4c need not be exact. See the instructions for “Amount” under line 5 below.
Do not include any DSUE amount transferred to the surviving spouse in the total entered on line 4c.
If you answered “Yes,” complete Schedule PC for each claim. Two copies of each Schedule PC must be filed with the return.
A protective claim for refund may be filed when there is an unresolved claim or expense that will not be deductible under section 2053 before the expiration of the period of limitation under section 6511(a). To preserve the estate's right to a refund once the claim or expense has been finally determined, the protective claim must be filed before the end of the limitations period. For more information on how to file a protective claim for refund with this Form 706, see the instructions for Schedule PC, below.
If you answered “Yes,” these assets must be shown on Schedule F.
Section 2044 property is property for which a previous section 2056(b)(7) election (QTIP election) has been made, or for which a similar gift tax election (section 2523) has been made. For more information, see the instructions for Schedule F, below.
If you answered “Yes,” to either 9a or 9b, for each policy you must complete and attach Schedule D, Form 712, and an explanation of why the policy or its proceeds are not includible in the gross estate.
If you answered “Yes,” on line 11a, you must include full details for partnerships (including family limited partnerships), unincorporated businesses, and limited liability companies on Schedule F (Schedule E if the partnership interest is jointly owned). Also include full details for fractional interests in real estate on Schedule A and for stock of inactive or close corporations on Schedule B.
Value these interests using the rules of Regulations section 20.2031-2 (stocks) or 20.2031-3 (other business interests).
A close corporation is a corporation whose shares are owned by a limited number of shareholders. Often, one family holds the entire stock issue. As a result, little, if any, trading of the stock takes place. There is, therefore, no established market for the stock, and those sales that do occur are at irregular intervals and seldom reflect all the elements of a representative transaction as defined by FMV.
If you answered “Yes,” on either line 13a or line 13b, attach a copy of the trust instrument for each trust.
Complete Schedule G if you answered “Yes,” on line 13a and Schedule F if you answered “Yes,” on line 13b.
If estimating the value of one or more assets pursuant to the special rule of Regulations section 20.2010–2T(a)(7)(ii) , do not enter values for those assets in items 1 through 9. Total the estimated values for those assets and follow the instructions for item 10.
Schedule F. Answer its questions even if you report no assets on it;
Schedules A, B, and C, if the gross estate includes any (1) Real Estate, (2) Stocks and Bonds, or (3) Mortgages, Notes, and Cash, respectively;
Schedule D, if the gross estate includes any life insurance or if you answered “Yes,” to question 9a of Part 4—General Information;
Schedule E, if the gross estate contains any jointly-owned property or if you answered “Yes,” to question 10 of Part 4;
Schedule G, if the decedent made any of the lifetime transfers to be listed on that schedule or if you answered “Yes,” to question 12 or 13a of Part 4;
Schedule H, if you answered “Yes,” to question 14 of Part 4; and
Schedule I, if you answered “Yes,” to question 16 of Part 4.
The special rule does not apply if the valuation of the asset is needed to determine the estate's eligibility for the provisions of sections 2032, 2032A, 2652(a)(3), 6166, or any other provision of the Code or Regulations.
As applies to all other values reported on Form 706, estimates of the value of property subject to the special rule of Regulations section 20.2010-2T(a)(7)(ii) must result from the executor’s exercise of due diligence and are subject to penalties of perjury.
Table of Estimated Values
|If the total estimated value of the assets eligible for the special rule under Reg. section 20.2010–2T(a)(7)(ii) is more than||But less than or equal to||Include this amount on lines 10 and 23:|
The value of the property subject to claims or
The amount actually paid at the time the return is filed.
Section 303 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 authorized estates of decedents dying on or after January 1, 2011, to elect to transfer any unused exclusion to the surviving spouse. The amount received by the surviving spouse is called the deceased spousal unused exclusion, or DSUE, amount. If the executor of the decedent’s estate elects transfer, or portability, of the DSUE amount, the surviving spouse can apply the DSUE amount received from the estate of his or her last deceased spouse (defined below) against any tax liability arising from subsequent lifetime gifts and transfers at death.
A nonresident surviving spouse who is not a citizen of the United States may not take into account the DSUE amount of a deceased spouse, except to the extent allowed by treaty with his or her country of citizenship.
The last deceased spouse is the most recently deceased person who was married to the surviving spouse at the time of that person’s death. The identity of the last deceased spouse is determined as of the day a taxable gift is made, or in the case of a transfer at death, the date of the surviving spouse's death. The identity of the last deceased spouse is not impacted by whether the decedent's estate elected portability or whether the last deceased spouse had any DSUE amount available. Remarriage also does not affect the designation of the last deceased spouse and does not prevent the surviving spouse from applying the DSUE amount to taxable transfers.
When a taxable gift is made, the DSUE amount received from the last deceased spouse is applied before the surviving spouse’s basic exclusion amount. A surviving spouse may use the DSUE amount of the last deceased spouse to offset the tax on any taxable transfer made after the deceased spouse's death. A surviving spouse who has more than one predeceased spouse is not precluded from using the DSUE amount of each spouse in succession. A surviving spouse may not use the sum of DSUE amounts from multiple predeceased spouses at one time nor may the DSUE amount of a predeceased spouse be applied after the death of a subsequent spouse.
A timely-filed and complete Form 706 is required to elect portability of the DSUE amount to a surviving spouse. The filing requirement applies to all estates of decedents choosing to elect portability of the DSUE amount, regardless of the size of the estate. A timely-filed return is one that is filed on or before the due date of the return, including extensions.
The timely filing of a complete Form 706 with DSUE will be deemed a portability election if there is a surviving spouse. The election is effective as of the decedent’s date of death, so the DSUE amount received by a surviving spouse may be applied to any transfer occurring after the decedent’s death. A portability election is irrevocable, unless an adjustment or amendment to the election is made on a subsequent return filed on or before the due date.
Under Regulations section 20.2010-2T(a)(5), the executor of an estate of a nonresident decedent who was not a citizen of the United States at the time of death cannot make a portability election.
If an executor is appointed, qualified, and acting with the United States on behalf of the decedent’s estate, only that executor may make or opt out of a portability election. If there is no executor, see Regulations section 20.2010-2T(a)(6)(ii).
If an estate files a Form 706 but does not wish to make the portability election, the executor can opt out of the portability election by checking the box indicated in Section A of this Part. If no return is required under section 6018(a), not filing Form 706 will avoid making the election.
Regulations section 20.2010-2T(b)(1) requires that a decedent's DSUE be computed on the estate tax return. The DSUE amount is the lesser of (A) the basic exclusion amount in effect on the date of death of the decedent whose DSUE is being computed, or (B) the decedent's applicable exclusion amount less the amount on line 5 of Part 2-Tax Computation on the Form 706 for the estate of the decedent. Amounts on which gift taxes were paid are excluded from adjusted taxable gifts for the purpose of this computation.
When a surviving spouse applies the DSUE amount to a lifetime gift or bequest at death, the IRS may examine any return of a predeceased spouse whose executor elected portability to verify the allowable DSUE amount. The DSUE amount may be adjusted or eliminated as a result of the examination; however, the IRS may only make an assessment of additional tax on the return of the predeceased spouse within the applicable limitations period under section 6501.
The temporary regulations provide that executors of estates who are not otherwise required to file Form 706 under section 6018(a) do not have to report the value of certain property qualifying for the marital or charitable deduction. For such property, the executor may estimate the value in good faith and with the due diligence to be afforded all assets includible in the gross estate. The amount reported on Form 706 will correspond to a range of dollar values and will be included in the value of the gross estate shown on line 1 of Part 2-Tax Computation. See instructions for lines 10 and 23 of Part 5-Recapitulation, above, for more details.
|In this example, alternate valuation is not adopted; the date of death is January 1, 2012.|
|Item Number||Description||Alternate Valuation Date||Alternate Value||Value at date of death|
|1||House and lot, 1921 William Street, NW, Washington, DC (lot 6, square 481). Rent of $8,100 due at the end of each quarter, February 1, May 1, August 1, and November 1. Value based on appraisal, copy of which is attached||$550,000|
|Rent due on item 1 for quarter ending November 1, 2011, but not collected at date of death||8,100|
|Rent accrued on Item 1 for November and December 2011||5,400|
|2||House and lot, 304 Jefferson Street, Alexandria, VA (lot 18, square 40). Rent of $1,800 payable monthly. Value based on appraisal, copy of which is attached||375,000|
|Rent due on Item 2 for December 2011, but not collected at death||1,800|
|In this example, alternate valuation is adopted; the date of death is January 1, 2012|
|Item Number||Description||Alternate Valuation Date||Alternate Value||Value at date of death|
|1||House and lot, 1921 William Street, NW, Washington, DC (lot 6, square 481). Rent of $8,100 due at the end of each quarter, February 1, May 1, August 1, and November 1. Value based on appraisal, copy of which is attached. Not disposed of within 6 months of date of death||7/1/12||$535,000||$550,000|
|Rent due on item 1 for quarter ending November 1, 2011, but not collected until February 1, 2012||2/1/12||8,100||8,100|
|Rent accrued on Item 1 for November and December 2011, collected on February 1, 2012||2/1/12||5,400||5,400|
|2||House and lot, 304 Jefferson Street, Alexandria, VA (lot 18, square 40). Rent of $1,800 payable monthly. Value based on appraisal, copy of which is attached. Property exchanged for farm on May 1, 2012||5/1/12||369,000||375,000|
|Rent due on Item 2 for December 2011, but not collected until February 1, 2012||2/1/12||1,800||1,800|
If the total gross estate contains any real estate, complete Schedule A and file it with the return. On Schedule A, list real estate the decedent owned or had contracted to purchase. Number each parcel in the left-hand column.
Describe the real estate in enough detail so that the IRS can easily locate it for inspection and valuation. For each parcel of real estate, report the area and, if the parcel is improved, describe the improvements. For city or town property, report the street and number, ward, subdivision, block and lot, etc. For rural property, report the township, range, landmarks, etc.
If any item of real estate is subject to a mortgage for which the decedent's estate is liable, that is, if the indebtedness may be charged against other property of the estate that is not subject to that mortgage, or if the decedent was personally liable for that mortgage, you must report the full value of the property in the value column. Enter the amount of the mortgage under “Description” on this schedule. The unpaid amount of the mortgage may be deducted on Schedule K.
If the decedent’s estate is not liable for the amount of the mortgage, report only the value of the equity of redemption (or value of the property less the indebtedness) in the value column as part of the gross estate. Do not enter any amount less than zero. Do not deduct the amount of indebtedness on Schedule K.
Also list on Schedule A real property the decedent contracted to purchase. Report the full value of the property and not the equity in the value column. Deduct the unpaid part of the purchase price on Schedule K.
Report the value of real estate without reducing it for homestead or other exemption, or the value of dower, curtesy, or a statutory estate created instead of dower or curtesy.
Explain how the reported values were determined and attach copies of any appraisals.
The election to value certain farm and closely-held business property at its special-use value is made by checking “Yes,” on Form 706, Part 3—Elections by the Executor, line 2. Schedule A-1 is used to report the additional information that must be submitted to support this election. In order to make a valid election, you must complete Schedule A-1 and attach all of the required statements and appraisals.
For definitions and additional information concerning special-use valuation, see section 2032A and the related regulations.
To figure the additional GST tax due upon disposition (or cessation of qualified use) of the property, each “skip person” (as defined in the instructions to Schedule R) who receives an interest in the specially valued property must know the total GST tax savings all interests in specially valued property received. The GST tax savings is the difference between the total GST tax that was imposed on all interests in specially valued property received by the skip person valued at their special-use value and the total GST tax that would have been imposed on the same interests received by the skip person had they been valued at their FMV.
Because the GST tax depends on the executor's allocation of the GST exemption and the grandchild exclusion, the skip person who receives the interests is unable to figure this GST tax savings. Therefore, for each skip person who receives an interest in specially valued property, you must attach a calculation of the total GST tax savings attributable to that person's interests in specially valued property.
On Schedule R, Parts 2 and 3, lines 2 through 4 and 6, enter -0-.
Completing the fair market value worksheets.
Schedule R, Parts 2 and 3, lines 2 and 3, fixed taxes and other charges. If valuing the interests at FMV (instead of special-use value) causes any of these taxes and charges to increase, enter the increased amount (only) on these lines and attach an explanation of the increase. Otherwise, enter -0-.
Schedule R, Parts 2 and 3, line 6—GST exemption allocation. If you completed Schedule R, Part 1, line 10, enter on line 6 the amount shown for the skip person on the line 10 special-use allocation schedule you attached to Schedule R. If you did not complete Schedule R, Part 1, line 10, enter -0- on line 6.
The agreement to special valuation is required under sections 2032A(a)(1)(B) and (d)(2) and must be signed by all parties who have any interest in the property being valued based on its qualified use as of the date of the decedent's death.
An interest in property is an interest that, as of the date of the decedent's death, can be asserted under applicable law so as to affect the disposition of the specially valued property by the estate. Any person who at the decedent's death has any such interest in the property, whether present, future, vested, or contingent, must enter into the agreement. Included are owners of remainder and executory interests; the holders of general or special powers of appointment; beneficiaries of a gift over in default of exercise of any such power; joint tenants and holders of similar undivided interests when the decedent held only a joint or undivided interest in the property or when only an undivided interest is specially valued; and trustees of trusts and representatives of other entities holding title to or any interests in the property. An heir who has the power under local law to challenge a will and thereby affect disposition of the property is not, however, considered to be a person with an interest in property under section 2032A solely by reason of that right. Likewise, creditors of an estate are not such persons solely by reason of their status as creditors.
If any person required to enter into the agreement either desires that an agent act for him or her or cannot legally bind himself or herself due to infancy or other incompetency, or due to death before the election under section 2032A is timely exercised, a representative authorized by local law to bind the person in an agreement of this nature may sign the agreement on his or her behalf.
The IRS will contact the agent designated in the agreement on all matters relating to continued qualification under section 2032A of the specially valued real property and on all matters relating to the special lien arising under section 6324B. It is the duty of the agent as attorney-in-fact for the parties with interests in the specially valued property to furnish the IRS with any requested information and to notify the IRS of any disposition or cessation of qualified use of any part of the property.
To have a valid special-use valuation election under section 2032A, you must file, in addition to the federal estate tax return, (a) a notice of election (Schedule A-1, Part 2), and (b) a fully executed agreement (Schedule A-1, Part 3). You must include certain information in the notice of election. To ensure that the notice of election includes all of the information required for a valid election, use the following checklist. The checklist is for your use only. Do not file it with the return.
||Does the notice of election include the decedent's name and social security number as they appear on the estate tax return?
||Does the notice of election include the relevant qualified use of the property to be specially valued?
||Does the notice of election describe the items of real property shown on the estate tax return that are to be specially valued
and identify the property by the Form 706 schedule and item number?
||Does the notice of election include the FMV of the real property to be specially valued and also include its value based on
the qualified use (determined without the adjustments provided in section 2032A(b)(3)(B))?
||Does the notice of election include the adjusted value (as defined in section 2032A(b)(3)(B)) of (a) all real property that
both passes from the decedent and is used in a qualified use, without regard to whether it is to be specially valued, and
(b) all real property to be specially valued?
||Does the notice of election include (a) the items of personal property shown on the estate tax return that pass from the decedent
to a qualified heir and that are used in qualified use and (b) the total value of such personal property adjusted under section
||Does the notice of election include the adjusted value of the gross estate? (See section 2032A(b)(3)(A).)
||Does the notice of election include the method used to determine the special-use value?
||Does the notice of election include copies of written appraisals of the FMV of the real property?
||Does the notice of election include a statement that the decedent and/or a member of his or her family has owned all of the
specially valued property for at least 5 years of the 8 years immediately preceding the date of the decedent's death?
||Does the notice of election include a statement as to whether there were any periods during the 8-year period preceding the
decedent's date of death during which the decedent or a member of his or her family did not (a) own the property to be specially
valued, (b) use it in a qualified use, or (c) materially participate in the operation of the farm or other business? (See
||Does the notice of election include, for each item of specially valued property, the name of every person who has an interest
in that item of specially valued property and the following information about each such person: (a) the person's address,
(b) the person's taxpayer identification number, (c) the person's relationship to the decedent, and (d) the value of the property
interest passing to that person based on both FMV and qualified use?
||Does the notice of election include affidavits describing the activities constituting material participation and the identity
of the material participants?
||Does the notice of election include a legal description of each item of specially valued property?
|(In the case of an election made for qualified woodlands, the information included in the notice of election must include the reason for entitlement to the Woodlands election.)|
Any election made under section 2032A will not be valid unless a properly executed agreement (Schedule A-1, Part 3) is filed with the estate tax return. To ensure that the agreement satisfies the requirements for a valid election, use the following checklist:
||Has the agreement been signed by each qualified heir having an interest in the property being specially valued?
||Has every qualified heir expressed consent to personal liability under section 2032A(c) in the event of an early disposition
or early cessation of qualified use?
||Is the agreement that is actually signed by the qualified heirs in a form that is binding on all of the qualified heirs having
an interest in the specially valued property?
||Does the agreement designate an agent to act for the parties to the agreement in all dealings with the IRS on matters arising
under section 2032A?
||Has the agreement been signed by the designated agent and does it give the address of the agent?
If the total gross estate contains any stocks or bonds, you must complete Schedule B and file it with the return.
On Schedule B, list the stocks and bonds included in the decedent's gross estate. Number each item in the left-hand column.
Unless specifically exempted by an estate tax provision of the Code, bonds that are exempt from federal income tax are not exempt from estate tax. You should list these bonds on Schedule B.
Public housing bonds includible in the gross estate must be included at their full value.
If you paid any estate, inheritance, legacy, or succession tax to a foreign country on any stocks or bonds included in this schedule, group those stocks and bonds together and label them “Subjected to Foreign Death Taxes.”
List interest and dividends on each stock or bond on a separate line.
Indicate as a separate item dividends that have not been collected at death and are payable to the decedent or the estate because the decedent was a stockholder of record on the date of death. However, if the stock is being traded on an exchange and is selling ex-dividend on the date of the decedent's death, do not include the amount of the dividend as a separate item. Instead, add it to the ex-dividend quotation in determining the FMV of the stock on the date of the decedent's death. Dividends declared on shares of stock before the death of the decedent but payable to stockholders of record on a date after the decedent's death are not includible in the gross estate for federal estate tax purposes and should not be listed here.
|Example showing use of Schedule B where the alternate valuation is not adopted; date of death, January 1, 2012|
|Item number||Description, including face amount of bonds or number of shares and par value where needed for identification. Give CUSIP number. If trust, partnership, or closely-held entity, give EIN.||Unit value||Alternate valuation date||Alternate value||Value at date of death|
|CUSIP number or EIN, where applicable|
|1||$60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds, due 2013. Interest payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1; N.Y. Exchange||XXXXXXXXX||100||- - - - - - -||$- - - - - - -||$ 60,000|
|Interest coupons attached to bonds, item 1, due and payable on Nov. 1, 2011, but not cashed at date of death||- - - - - - -||- - - - - - -||- - - - - - -||600|
|Interest accrued on item 1, from Nov. 1, 2011, to Jan. 1, 2012||- - - - - - -||- - - - - - -||- - - - - - -||400|
|2||500 shares Public Service Corp., common; N.Y. Exchange||XXXXXXXXX||110||- - - - - - -||- - - - - - -||55,000|
|Dividend on item 2 of $2 per share declared Dec. 10, 2011, payable on Jan. 9, 2012, to holders of record on Dec. 30, 2011||- - - - - - -||- - - - - - -||- - - - - - -||1,000|
|Example showing use of Schedule B where the alternate valuation is adopted; date of death, January 1, 2012|
|Item number||Description, including face amount of bonds or number of shares and par value where needed for identification. Give CUSIP number. If trust, partnership, or closely-held entity, give EIN.||Unit value||Alternate valuation date||Alternate value||Value at date of death|
|CUSIP number or EIN, where applicable|
|1||$60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds, due 2013. Interest payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1; N.Y. Exchange||XXXXXXXXX||100||- - - - - -||$- - - - - -||$ 60,000|
|$30,000 of item 1 distributed to legatees on Apr. 1, 2012||99||4/1/12||29,700||- - - - - -|
|$30,000 of item 1 sold by executor on May 1, 2012||98||5/1/12||29,400||- - - - - -|
|Interest coupons attached to bonds, item 1, due and payable on Nov. 1, 2011, but not cashed at date of death. Cashed by executor on Feb. 2, 2012||- - - - - -||2/2/12||600||600|
|Interest accrued on item 1, from Nov. 1, 2011, to Jan. 1, 2012. Cashed by executor on Feb. 2, 2012||- - - - - -||2/2/12||400||400|
|2||500 shares Public Service Corp., common; N.Y. Exchange||XXXXXXXXX||110||- - - - - -||- - - - - -||55,000|
|Not disposed of within 6 months following death||90||7/1/12||45,000||- - - - - -|
Dividend on item 2 of $2 per share declared Dec. 10, 2011, paid on Jan. 9, 2012, to holders of record on Dec. 30, 2011
|- - - - - -||1/9/12||1,000||1,000|
For stocks, indicate:
Number of shares;
Whether common or preferred;
Par value where needed for identification;
Price per share;
Exact name of corporation;
Principal exchange upon which sold, if listed on an exchange; and
Nine-digit CUSIP number (defined below).
For bonds, indicate:
Quantity and denomination;
Name of obligor;
Date of maturity;
Interest due date;
Principal exchange, if listed on an exchange; and
Nine-digit CUSIP number.
If the stock or bond is unlisted, show the company's principal business office.
If the gross estate includes any interest in a trust, partnership, or closely-held entity, provide the employer identification number (EIN) of the entity in the description column on Schedules B, E, F, G, M, and O. You must also provide the EIN of an estate (if any) in the description column on the above-noted schedules, where applicable.
The CUSIP (Committee on Uniform Security Identification Procedure) number is a nine-digit number that is assigned to all stocks
and bonds traded on major exchanges and many unlisted securities. Usually, the CUSIP number is printed on the face of the
stock certificate. If you do not have a stock certificate, the CUSIP may be found on the broker's or custodian's statement
or by contacting the company's transfer agent.
List the FMV of the stocks or bonds. The FMV of a stock or bond (whether listed or unlisted) is the mean between the highest and lowest selling prices quoted on the valuation date. If only the closing selling prices are available, then the FMV is the mean between the quoted closing selling price on the valuation date and on the trading day before the valuation date.
If there were no sales on the valuation date, figure the FMV as follows:
Find the mean between the highest and lowest selling prices on the nearest trading date before and the nearest trading date after the valuation date. Both trading dates must be reasonably close to the valuation date.
Prorate the difference between the mean prices to the valuation date.
Add or subtract (whichever applies) the prorated part of the difference to or from the mean price figured for the nearest trading date before the valuation date.
If no actual sales were made reasonably close to the valuation date, make the same computation using the mean between the bona fide bid and asked prices instead of sales prices. If actual sales prices or bona fide bid and asked prices are available within a reasonable period of time before the valuation date but not after the valuation date, or vice versa, use the mean between the highest and lowest sales prices or bid and asked prices as the FMV.
For example, assume that sales of stock nearest the valuation date (June 15) occurred 2 trading days before (June 13) and 3 trading days after (June 18). On those days, the mean sale prices per share were $10 and $15, respectively. Therefore, the price of $12 is considered the FMV of a share of stock on the valuation date. If, however, on June 13 and 18, the mean sale prices per share were $15 and $10, respectively, the FMV of a share of stock on the valuation date is $13.
If only closing prices for bonds are available, see Regulations section 20.2031-2(b).
Apply the rules in the section 2031 regulations to determine the value of inactive stock and stock in close corporations. Attach to Schedule B complete financial and other data used to determine value, including balance sheets (particularly the one nearest to the valuation date) and statements of the net earnings or operating results and dividends paid for each of the 5 years immediately before the valuation date.
Securities reported as of no value, of nominal value, or obsolete should be listed last. Include the address of the company and the state and date of the incorporation. Attach copies of correspondence or statements used to determine the “no value.”
If the security was listed on more than one stock exchange, use either the records of the exchange where the security is principally traded or the composite listing of combined exchanges, if available, in a publication of general circulation. In valuing listed stocks and bonds, you should carefully check accurate records to obtain values for the applicable valuation date.
If you get quotations from brokers, or evidence of the sale of securities from the officers of the issuing companies, attach to the schedule copies of the letters furnishing these quotations or evidence of sale.
Complete Schedule C and file it with your return if the total gross estate contains any:
List on Schedule C:
Mortgages and notes payable to the decedent at the time of death.
Cash the decedent had at the date of death.
Do not list mortgages and notes payable by the decedent on Schedule C. (If these are deductible, list them on Schedule K.)
List the items on Schedule C in the following order:
Contracts by decedent to sell land;
Cash in possession; and
Cash in banks, savings and loan associations, and other types of financial organizations.
For mortgages, list:
Date of mortgage,
Name of maker,
Date of maturity,
Interest rate, and
Name of purchaser,
Amounts of installment payment,
Unpaid balance of principal, and
Name and address of each financial organization,
Amount in each account,
Serial or account number,
Nature of account—checking, savings, time deposit, etc., and
Unpaid interest accrued from date of last interest payment to the date of death.
If you obtain statements from the financial organizations, keep them for IRS inspection.
If you are required to file Form 706 and there was any insurance on the decedent's life, whether or not included in the gross estate, you must complete Schedule D and file it with the return.
Insurance on the decedent's life receivable by or for the benefit of the estate; and
Insurance on the decedent's life receivable by beneficiaries other than the estate, as described below.
The right of the insured or estate to its economic benefits;
The power to change the beneficiary;
The power to surrender or cancel the policy;
The power to assign the policy or to revoke an assignment;
The power to pledge the policy for a loan;
The power to obtain from the insurer a loan against the surrender value of the policy; and
A reversionary interest if the value of the reversionary interest was more than 5% of the value of the policy immediately before the decedent died. (An interest in an insurance policy is considered a reversionary interest if, for example, the proceeds become payable to the insured's estate or payable as the insured directs if the beneficiary dies before the insured.)
You must list every insurance policy on the life of the decedent, whether or not it is included in the gross estate.
Under “Description,” list:
The name of the insurance company, and
The number of the policy.
For every life insurance policy listed on the schedule, request a statement on Form 712, Life Insurance Statement, from the company that issued the policy. Attach the Form 712 to Schedule D.
If the policy proceeds are paid in one sum, enter the net proceeds received (from Form 712, line 24) in the value (and alternate value) columns of Schedule D. If the policy proceeds are not paid in one sum, enter the value of the proceeds as of the date of the decedent's death (from Form 712, line 25).
If part or all of the policy proceeds are not included in the gross estate, explain why they were not included.
If you are required to file Form 706, complete Schedule E and file it with the return if the decedent owned any joint property at the time of death, whether or not the decedent's interest is includible in the gross estate.
Enter on this schedule all property of whatever kind or character, whether real estate, personal property, or bank accounts, in which the decedent held at the time of death an interest either as a joint tenant with right to survivorship or as a tenant by the entirety.
Do not list on this schedule property that the decedent held as a tenant in common, but report the value of the interest on Schedule A if real estate, or on the appropriate schedule if personal property. Similarly, community property held by the decedent and spouse should be reported on the appropriate Schedules A through I. The decedent's interest in a partnership should not be entered on this schedule unless the partnership interest itself is jointly-owned. Solely owned partnership interests should be reported on Schedule F, “Other Miscellaneous Property Not Reportable Under Any Other Schedule.”
Tenants by the entirety, or
Joint tenants with right of survivorship if the decedent and the decedent's spouse are the only joint tenants.
You cannot claim the special treatment under section 2040(b) for property held jointly by a decedent and a surviving spouse who is not a U.S. citizen. Report these joint interests on Part 2 of Schedule E, not Part 1.
On Schedule F, list all items that must be included in the gross estate that are not reported on any other schedule, including:
Debts due the decedent (other than notes and mortgages included on Schedule C);
Interests in business;
Any interest in an Archer medical savings account (MSA) or health savings account (HSA), unless such interest passes to the surviving spouse; and
Insurance on the life of another (obtain and attach Form 712, for each policy).
Note (for single premium or paid-up policies).
In certain situations (for example, where the surrender value of the policy exceeds its replacement cost), the true economic value of the policy will be greater than the amount shown on line 59 of Form 712. In these situations, report the full economic value of the policy on Schedule F. See Revenue Ruling 78-137, 1978-1 C.B. 280 for details.
Section 2044 property (see Decedent Who Was a Surviving Spouse, below);
Claims (including the value of the decedent's interest in a claim for refund of income taxes or the amount of the refund actually received);
Reversionary or remainder interests;
Shares in trust funds (attach a copy of the trust instrument);
Household goods and personal effects, including wearing apparel;
Farm products and growing crops;
Farm machinery; and
If you answered “Yes,” to Part 4—General Information, line 11b for any interest in a partnership, an unincorporated business, a limited liability company, or stock in a closely-held corporation, attach a statement that lists the item number from Schedule F and identifies the total effective discount taken (that is, XX.XX%) on such interest.
Example of effective discount:
|a||Pro-rata value of limited liability company (before any discounts)||$100.00|
|b||Minus: 10% discounts for lack of control||(10.00)|
|c||Marketable minority interest value (as if freely traded minority interest value)||$90.00|
|d||Minus: 15% discount for lack of marketability||(13.50)|
|e||Non-marketable minority interest value||$76.50|
Calculation of effective discount:
|(a minus e) divided by a = effective discount|
|($100.00 - $76.50) ÷ $100.00 = 23.50%|
The amount of discounts are based on the factors pertaining to a specific interest and those discounts shown in the example are for demonstration purposes only.
If you answered “Yes,” to line 11b for any transfer(s) described in (1) through (5) in the Schedule G instructions (and made by the decedent), attach a statement to Schedule G which lists the item number from that schedule and identifies the total effective discount taken (that is, XX.XX%) on such transfer(s).
If the decedent was a surviving spouse, he or she may have received qualified terminable interest property (QTIP) from the predeceased spouse for which the marital deduction was elected either on the predeceased spouse's estate tax return or on a gift tax return, Form 709. The election is available for transfers made and decedents dying after December 31, 1981. List such property on Schedule F.
If this election was made and the surviving spouse retained his or her interest in the QTIP property at death, the full value of the QTIP property is includible in his or her estate, even though the qualifying income interest terminated at death. It is valued as of the date of the surviving spouse's death, or alternate valuation date, if applicable. Do not reduce the value by any annual exclusion that may have applied to the transfer creating the interest.
The value of such property included in the surviving spouse's gross estate is treated as passing from the surviving spouse. It therefore qualifies for the charitable and marital deductions on the surviving spouse's estate tax return if it meets the other requirements for those deductions.
For additional details, see Regulations section 20.2044-1.
Complete Schedule G and file it with the return if the decedent made any of the transfers described in (1) through (5) below, or if you answered “Yes,” to question 12 or 13a of Part 4—General Information.
Report the following types of transfers on this schedule:
|IF. . .||AND . . .||THEN . . .|
|the decedent made a transfer from a trust,||at the time of the transfer, the transfer was from a portion of the trust that was owned by the grantor under section 676 (other than by reason of section 672(e)) by reason of a power in the grantor,||for purposes of sections 2035 and 2038, treat the transfer as made directly by the decedent.|
|Any such transfer within the annual gift tax exclusion is not includible in the gross estate.|
Certain gift taxes (section 2035(b)). Enter at item A of Schedule G the total value of the gift taxes that were paid by the decedent or the estate on gifts made by the decedent or the decedent's spouse within 3 years of death.
The date of the gift, not the date of payment of the gift tax, determines whether a gift tax paid is included in the gross estate under this rule. Therefore, you should carefully examine the Forms 709 filed by the decedent and the decedent's spouse to determine what part of the total gift taxes reported on them was attributable to gifts made within 3 years of death.
For example, if the decedent died on July 10, 2012, you should examine gift tax returns for 2012, 2011, 2010, and 2009. However, the gift taxes on the 2009 return that are attributable to gifts made on or before July 10, 2009, are not included in the gross estate.
Explain how you figured the includible gift taxes if the entire gift taxes shown on any Form 709 filed for gifts made within 3 years of death are not included in the gross estate. Also attach copies of any relevant gift tax returns filed by the decedent's spouse for gifts made within 3 years of death.
Other transfers within 3 years of death (section 2035(a)). These transfers include only the following:
Any transfer by the decedent with respect to a life insurance policy within 3 years of death; or
Any transfer within 3 years of death of a retained section 2036 life estate, section 2037 reversionary interest, or section 2038 power to revoke, etc., if the property subject to the life estate, interest, or power would have been included in the gross estate had the decedent continued to possess the life estate, interest, or power until death.
These transfers are reported on Schedule G, regardless of whether a gift tax return was required to be filed for them when they were made. However, the amount includible and the information required to be shown for the transfers are determined:
For insurance on the life of the decedent using the instructions to Schedule D (attach Forms 712);
For insurance on the life of another using the instructions to Schedule F (attach Forms 712); and
For sections 2036, 2037, and 2038 transfers, using paragraphs (3), (4), and (5) of these instructions.
Transfers with retained life estate (section 2036). These are transfers by the decedent in which the decedent retained an interest in the transferred property. The transfer can be in trust or otherwise, but excludes bona fide sales for adequate and full consideration.
Interests or rights. Section 2036 applies to the following retained interests or rights:
The right to income from the transferred property;
The right to the possession or enjoyment of the property; and
The right, either alone or with any person, to designate the persons who shall receive the income from, possess, or enjoy, the property.
Retained annuity, unitrust, and other income interests in trusts. If a decedent transferred property into a trust and retained or reserved the right to use the property, or the right to an annuity, unitrust, or other interest in such trust for the property for decedent's life, any period not ascertainable without reference to the decedent's death, or for a period that does not, in fact, end before the decedent's death, then the decedent's right to use the property or the retained annuity, unitrust, or other interest (whether payable from income and/or principal) is the retention of the possession or enjoyment of, or the right to the income from, the property for purposes of section 2036. See Regulations section 20.2036-1(c)(2).
Retained voting rights. Transfers with a retained life estate also include transfers of stock in a controlled corporation after June 22, 1976, if the decedent retained or acquired voting rights in the stock. If the decedent retained direct or indirect voting rights in a controlled corporation, the decedent is considered to have retained enjoyment of the transferred property. A corporation is a controlled corporation if the decedent owned (actually or constructively) or had the right (either alone or with any other person) to vote at least 20% of the total combined voting power of all classes of stock. See section 2036(b)(2). If these voting rights ceased or were relinquished within 3 years of the decedent's death, the corporate interests are included in the gross estate as if the decedent had actually retained the voting rights until death.
The amount includible in the gross estate is the value of the transferred property at the time of the decedent's death. If the decedent kept or reserved an interest or right to only a part of the transferred property, the amount includible in the gross estate is a corresponding part of the entire value of the property.
A retained life estate does not have to be legally enforceable. What matters is that a substantial economic benefit was retained. For example, if a mother transferred title to her home to her daughter but with the informal understanding that she was to continue living there until her death, the value of the home would be includible in the mother's estate even if the agreement would not have been legally enforceable.
Transfers taking effect at death (section 2037). A transfer that takes effect at the decedent's death is one under which possession or enjoyment can be obtained only by surviving the decedent. A transfer is not treated as one that takes effect at the decedent's death unless the decedent retained a reversionary interest (defined below) in the property that immediately before the decedent's death had a value of more than 5% of the value of the transferred property. If the transfer was made before October 8, 1949, the reversionary interest must have arisen by the express terms of the instrument of transfer.
A reversionary interest is, generally, any right under which the transferred property will or may be returned to the decedent or the decedent's estate. It also includes the possibility that the transferred property may become subject to a power of disposition by the decedent. It does not matter if the right arises by the express terms of the instrument of transfer or by operation of law. For this purpose, reversionary interest does not include the possibility that the income alone from the property may return to the decedent or become subject to the decedent's power of disposition.
Revocable transfers (section 2038). The gross estate includes the value of any transferred property which was subject to the decedent's power to alter, amend, revoke, or terminate the transfer at the time of the decedent's death. A decedent's power to change beneficiaries and to increase any beneficiary's enjoyment of the property are examples of this.
It does not matter whether the power was reserved at the time of the transfer, whether it arose by operation of law, or whether it was later created or conferred. The rule applies regardless of the source from which the power was acquired, and regardless of whether the power was exercisable by the decedent alone or with any person (and regardless of whether that person had a substantial adverse interest in the transferred property).
The capacity in which the decedent could use a power has no bearing. If the decedent gave property in trust and was the trustee with the power to revoke the trust, the property would be included in his or her gross estate. For transfers or additions to an irrevocable trust after October 28, 1979, the transferred property is includible if the decedent reserved the power to remove the trustee at will and appoint another trustee.
If the decedent relinquished within 3 years of death any of the includible powers described above, figure the gross estate as if the decedent had actually retained the powers until death.
Only the part of the transferred property that is subject to the decedent's power is included in the gross estate.
For more detailed information on which transfers are includible in the gross estate, see Regulations section 20.2038-1.
Sections 2701 through 2704 provide rules for valuing certain transfers to family members.
Section 2701 deals with the transfer of an interest in a corporation or partnership while retaining certain distribution rights, or a liquidation, put, call, or conversion right.
Section 2702 deals with the transfer of an interest in a trust while retaining any interest other than a qualified interest. In general, a qualified interest is a right to receive certain distributions from the trust at least annually, or a noncontingent remainder interest if all of the other interests in the trust are distribution rights specified in section 2702.
Section 2703 provides rules for the valuation of property transferred to a family member but subject to an option, agreement, or other right to acquire or use the property at less than FMV. It also applies to transfers subject to restrictions on the right to sell or use the property.
Finally, section 2704 provides that in certain cases, the lapse of a voting or liquidation right in a family-owned corporation or partnership will result in a deemed transfer.
These rules have potential consequences for the valuation of property in an estate. If the decedent (or any member of his or her family) was involved in any such transactions, see sections 2701 through 2704 and the related regulations for additional details.
All transfers (other than outright transfers not in trust and bona fide sales) made by the decedent at any time during life must be reported on Schedule G, regardless of whether you believe the transfers are subject to tax. If the decedent made any transfers not described in these instructions, the transfers should not be shown on Schedule G. Instead, attach a statement describing these transfers by listing:
The date of the transfer,
The amount or value of the transferred property, and
The type of transfer.
Complete the schedule for each transfer that is included in the gross estate under sections 2035(a), 2036, 2037, and 2038 as described in the Instructions for Schedule G.
In the “Item number” column, number each transfer consecutively beginning with “1.” In the “Description” column, list the name of the transferee and the date of the transfer, and give a complete description of the property. Transfers included in the gross estate should be valued on the date of the decedent's death or, if alternate valuation is elected, according to section 2032.
If only part of the property transferred meets the terms of section 2035(a), 2036, 2037, or 2038, then only a corresponding part of the value of the property should be included in the value of the gross estate. If the transferee makes additions or improvements to the property, the increased value of the property at the valuation date should not be included on Schedule G. However, if only a part of the value of the property is included, enter the value of the whole under the column headed “Description” and explain what part was included.
Complete Schedule H and file it with the return if you answered “Yes,” to question 14 of Part 4—General Information.
On Schedule H, include in the gross estate:
The value of property for which the decedent possessed a general power of appointment (defined below) on the date of his or her death and
The value of property for which the decedent possessed a general power of appointment that he or she exercised or released before death by disposing of it in such a way that if it were a transfer of property owned by the decedent, the property would be includible in the decedent's gross estate as a transfer with a retained life estate, a transfer taking effect at death, or a revocable transfer.
With the above exceptions, property subject to a power of appointment is not includible in the gross estate if the decedent released the power completely and the decedent held no interest in or control over the property.
If the failure to exercise a general power of appointment results in a lapse of the power, the lapse is treated as a release only to the extent that the value of the property that could have been appointed by the exercise of the lapsed power is more than the greater of $5,000 or 5% of the total value, at the time of the lapse, of the assets out of which, or the proceeds of which, the exercise of the lapsed power could have been satisfied.
A power of appointment determines who will own or enjoy the property subject to the power and when they will own or enjoy it. The power must be created by someone other than the decedent. It does not include a power created or held on property transferred by the decedent.
A power of appointment includes all powers which are, in substance and effect, powers of appointment regardless of how they are identified and regardless of local property laws. For example, if a settlor transfers property in trust for the life of his wife, with a power in the wife to appropriate or consume the principal of the trust, the wife has a power of appointment.
Some powers do not in themselves constitute a power of appointment. For example, a power to amend only administrative provisions of a trust that cannot substantially affect the beneficial enjoyment of the trust property or income is not a power of appointment. A power to manage, invest, or control assets, or to allocate receipts and disbursements, when exercised only in a fiduciary capacity, is not a power of appointment.
A power to consume, invade, or appropriate property for the benefit of the decedent that is limited by an ascertainable standard relating to health, education, support, or maintenance of the decedent.
A power exercisable by the decedent only in conjunction with:
the creator of the power or
a person who has a substantial interest in the property subject to the power, which is adverse to the exercise of the power in favor of the decedent.
May only be exercised by the decedent in conjunction with another person and
Is also exercisable in favor of the other person (in addition to being exercisable in favor of the decedent, the decedent's creditors, the decedent's estate, or the creditors of the decedent's estate).
If the decedent ever possessed a power of appointment, attach a certified or verified copy of the instrument granting the power and a certified or verified copy of any instrument by which the power was exercised or released. You must file these copies even if you contend that the power was not a general power of appointment, and that the property is not otherwise includible in the gross estate.
Complete Schedule l and file it with the return if you answered “Yes,” to question 16 of Part 4—General Information.
Enter on Schedule I every annuity that meets all of the conditions under General, below, and every annuity described in paragraphs (a) through (h) of Annuities Under Approved Plans, even if the annuities are wholly or partially excluded from the gross estate.
For a discussion regarding the QTIP treatment of certain joint and survivor annuities, see the Schedule M, line 3 instructions.
These rules apply to all types of annuities, including pension plans, individual retirement arrangements, purchased commercial annuities, and private annuities.
In general, you must include in the gross estate all or part of the value of any annuity that meets the following requirements:
It is receivable by a beneficiary following the death of the decedent and by reason of surviving the decedent;
The annuity is under a contract or agreement entered into after March 3, 1931;
The annuity was payable to the decedent (or the decedent possessed the right to receive the annuity) either alone or in conjunction with another, for the decedent's life or for any period not ascertainable without reference to the decedent's death or for any period that did not in fact end before the decedent's death; and
The contract or agreement is not a policy of insurance on the life of the decedent.
A private annuity is an annuity issued by a party not engaged in the business of writing annuity contracts, typically a junior generation family member or a family trust.
An annuity contract that provides periodic payments to a person for life and ceases at the person's death is not includible in the gross estate. Social security benefits are not includible in the gross estate even if the surviving spouse receives benefits.
An annuity or other payment that is not includible in the decedent's or the survivor's gross estate as an annuity may still be includible under some other applicable provision of the law. For example, see Powers of Appointment and the instructions for Schedule G—Transfers During Decedent's Life, above. See also Regulations section 20.2039-1(e).
If the decedent retired before January 1, 1985, see Annuities Under Approved Plans, below, for rules that allow the exclusion of part or all of certain annuities.
If the decedent contributed only part of the purchase price of the contract or agreement, include in the gross estate only that part of the value of the annuity receivable by the surviving beneficiary that the decedent's contribution to the purchase price of the annuity or agreement bears to the total purchase price.
For example, if the value of the survivor's annuity was $20,000 and the decedent had contributed three-fourths of the purchase price of the contract, the amount includible is $15,000 (3/4 × $20,000).
Except as provided under Annuities Under Approved Plans, contributions made by the decedent's employer to the purchase price of the contract or agreement are considered made by the decedent if they were made by the employer because of the decedent's employment. For more information, see section 2039(b).
The following are examples of contracts (but not necessarily the only forms of contracts) for annuities that must be included in the gross estate:
A contract under which the decedent immediately before death was receiving or was entitled to receive, for the duration of life, an annuity with payments to continue after death to a designated beneficiary, if surviving the decedent.
A contract under which the decedent immediately before death was receiving or was entitled to receive, together with another person, an annuity payable to the decedent and the other person for their joint lives, with payments to continue to the survivor following the death of either.
A contract or agreement entered into by the decedent and employer under which the decedent immediately before death and following retirement was receiving, or was entitled to receive, an annuity payable to the decedent for life. After the decedent's death, if survived by a designated beneficiary, the annuity was payable to the beneficiary with payments either fixed by contract or subject to an option or election exercised or exercisable by the decedent. However, see Annuities Under Approved Plans, below.
A contract or agreement entered into by the decedent and the decedent's employer under which at the decedent's death, before retirement, or before the expiration of a stated period of time, an annuity was payable to a designated beneficiary, if surviving the decedent. However, see Annuities Under Approved Plans, below.
A contract or agreement under which the decedent immediately before death was receiving, or was entitled to receive, an annuity for a stated period of time, with the annuity to continue to a designated beneficiary, surviving the decedent, upon the decedent's death and before the expiration of that period of time.
An annuity contract or other arrangement providing for a series of substantially equal periodic payments to be made to a beneficiary for life or over a period of at least 36 months after the date of the decedent's death under an individual retirement account, annuity, or bond as described in section 2039(e) (before its repeal by P.L. 98-369).
The following rules relate to whether part or all of an otherwise includible annuity may be excluded. These rules have been repealed and apply only if the decedent either:
On December 31, 1984, was both a participant in the plan and in pay status (for example, had received at least one benefit payment on or before December 31, 1984) and had irrevocably elected the form of the benefit before July 18, 1984, or
Had separated from service before January 1, 1985, and did not change the form of benefit before death.
The amount excluded cannot exceed $100,000 unless either of the following conditions is met:
On December 31, 1982, the decedent was both a participant in the plan and in pay status (for example, had received at least one benefit payment on or before December 31, 1982) and the decedent irrevocably elected the form of the benefit before January 1, 1983, or
The decedent separated from service before January 1, 1983, and did not change the form of benefit before death.
Approved plans may be separated into two categories:
Pension, profit-sharing, stock bonus, and other similar plans and
Individual retirement arrangements (IRAs), and retirement bonds.
Different exclusion rules apply to the two categories of plans.
If an annuity under an approved plan described in (a) through (e) above is receivable by a beneficiary other than the executor and the decedent made no contributions under the plan toward the cost, no part of the value of the annuity, subject to the $100,000 limitation (if applicable), is includible in the gross estate.
If the decedent made a contribution under a plan described in (a) through (e) above toward the cost, include in the gross estate on this schedule that proportion of the value of the annuity which the amount of the decedent's contribution under the plan bears to the total amount of all contributions under the plan. The remaining value of the annuity is excludable from the gross estate subject to the $100,000 limitation (if applicable). For the rules to determine whether the decedent made contributions to the plan, see Regulations section 20.2039-1(c).
These plans are approved plans only if they provide for a series of substantially equal periodic payments made to a beneficiary for life, or over a period of at least 36 months after the date of the decedent's death.
Subject to the $100,000 limitation (if applicable), if an annuity under a “plan” described in (f) through (h) above is receivable by a beneficiary other than the executor, the entire value of the annuity is excludable from the gross estate even if the decedent made a contribution under the plan.
However, if any payment to or for an account or annuity described in paragraph (f), (g), or (h) above was not allowable as an income tax deduction under section 219 (and was not a rollover contribution as described in section 2039(e) before its repeal by P.L. 98-369), include in the gross estate on this schedule that proportion of the value of the annuity which the amount not allowable as a deduction under section 219 and not a rollover contribution bears to the total amount paid to or for such account or annuity. For more information, see Regulations section 20.2039-5.
On December 31, 1984, was both a participant in the plan and in pay status (for example, had received at least one benefit payment on or before December 31, 1984) and had irrevocably elected the form of the benefit before July 18, 1984, or
Had separated from service before January 1, 1985, and did not change the form of benefit before death.
Generally, the entire amount of any lump sum distribution is included in the decedent's gross estate. However, under this special rule, all or part of a lump sum distribution from a qualified (approved) plan will be excluded if the lump sum distribution is included in the recipient's income for income tax purposes.
If the decedent was born before 1936, the recipient may be eligible to elect special “10-year averaging” rules (under repealed section 402(e)) and capital gain treatment (under repealed section 402(a)(2)) in figuring the income tax on the distribution. For more information, see Pub. 575, Pension and Annuity Income. If this option is available, the estate tax exclusion cannot be claimed unless the recipient elects to forego the “10-year averaging” and capital gain treatment in figuring the income tax on the distribution. The recipient elects to forego this treatment by treating the distribution as taxable on his or her income tax return as described in Regulations section 20.2039-4(d). The election is irrevocable.
The amount excluded from the gross estate is the portion attributable to the employer contributions. The portion, if any, attributable to the employee-decedent's contributions is always includible. Also, you may not figure the gross estate in accordance with this election unless you check “Yes” on line A and attach the name, address, and identifying number of the recipients of the lump sum distributions. See Regulations section 20.2039-4(d)(2).
In describing an annuity, give the name and address of the grantor of the annuity. Specify if the annuity is under an approved plan.
|IF . . .||THEN . . .|
|the annuity is under an approved plan,||state the ratio of the decedent's contribution to the total purchase price of the annuity.|
|the decedent was employed at the time of death and an annuity as described in Definitions, Annuity, Example 4, above, became payable to any beneficiary because the beneficiary survived the decedent,||state the ratio of the decedent's contribution to the total purchase price of the annuity.|
|an annuity under an individual retirement account or annuity became payable to any beneficiary because that beneficiary survived the decedent and is payable to the beneficiary for life or for at least 36 months following the decedent's death,||state the ratio of the amount paid for the individual retirement account or annuity that was not allowable as an income tax deduction under section 219 (other than a rollover contribution) to the total amount paid for the account or annuity.|
|the annuity is payable out of a trust or other fund,||the description should be sufficiently complete to fully identify it.|
|the annuity is payable for a term of years,||include the duration of the term and the date on which it began.|
|the annuity is payable for the life of a person other than the decedent,||include the date of birth of that person.|
|the annuity is wholly or partially excluded from the gross estate,||enter the amount excluded under “Description” and explain how you figured the exclusion.|
The value of property subject to claims included in the gross estate, plus
The amount paid out of property included in the gross estate but not subject to claims. This amount must actually be paid by the due date of the estate tax return.
The Estate and Gift Tax Territory Manager is reasonably satisfied that the commissions claimed will be paid;
The amount entered as a deduction is within the amount allowable by the laws of the jurisdiction where the estate is being administered; and
It is in accordance with the usually accepted practice in that jurisdiction for estates of similar size and character.
Executors' commissions are taxable income to the executors. Therefore, be sure to include them as income on your individual income tax return.
If you elect to pay the tax in installments under section 6166, you may not deduct the interest payable on the installments.
You must complete and attach Schedule K if you claimed deductions on either item 15 or item 16 of Part 5—Recapitulation.
List under “Debts of the Decedent” only valid debts the decedent owed at the time of death. List any indebtedness secured by a mortgage or other lien on property of the gross estate under the heading “Mortgages and Liens.” If the amount of the debt is disputed or the subject of litigation, deduct only the amount the estate concedes to be a valid claim.
Generally, if the claim against the estate is based on a promise or agreement, the deduction is limited to the extent that the liability was contracted bona fide and for an adequate and full consideration in money or money's worth. However, any enforceable claim based on a promise or agreement of the decedent to make a contribution or gift (such as a pledge or a subscription) to or for the use of a charitable, public, religious, etc., organization is deductible to the extent that the deduction would be allowed as a bequest under the statute that applies.
Certain claims of a former spouse against the estate based on the relinquishment of marital rights are deductible on Schedule K. For these claims to be deductible, all of the following conditions must be met:
The decedent and the decedent's spouse must have entered into a written agreement relative to their marital and property rights.
The decedent and the spouse must have been divorced before the decedent's death and the divorce must have occurred within the 3-year period beginning on the date 1 year before the agreement was entered into. It is not required that the agreement be approved by the divorce decree.
The property or interest transferred under the agreement must be transferred to the decedent's spouse in settlement of the spouse's marital rights.
You may not deduct a claim made against the estate by a remainderman relating to section 2044 property. Section 2044 property is described in the instructions to line 7 in Part 4—General Information.
Include in this schedule notes unsecured by mortgage or other lien and give full details, including:
Name of payee,
Face and unpaid balance,
Date and term of note,
Interest rate, and
Date to which interest was paid before death.
Include the exact nature of the claim as well as the name of the creditor. If the claim is for services performed over a period of time, state the period covered by the claim.
If the amount of the claim is the unpaid balance due on a contract for the purchase of any property included in the gross estate, indicate the schedule and item number where you reported the property. If the claim represents a joint and separate liability, give full facts and explain the financial responsibility of the co-obligor.
Department of the Treasury
Commissioner of Internal Revenue
Washington, DC 20224.
Attach to your request a copy of the will and relevant documents, a statement showing the distribution of the estate under the decedent's will, and a computation of the state or foreign death tax showing any amount payable by a charitable organization.
Under “Mortgages and Liens” list only obligations secured by mortgages or other liens on property included in the gross estate at its full value or at a value that was undiminished by the amount of the mortgage or lien. If the debt is enforceable against other property of the estate not subject to the mortgage or lien, or if the decedent was personally liable for the debt, include the full value of the property subject to the mortgage or lien in the gross estate under the appropriate schedule and deduct the mortgage or lien on the property on this schedule.
However, if the decedent's estate is not liable, include in the gross estate only the value of the equity of redemption (or the value of the property less the amount of the debt), and do not deduct any portion of the indebtedness on this schedule.
Notes and other obligations secured by the deposit of collateral, such as stocks, bonds, etc., also should be listed under “Mortgages and Liens.”
Include under the “Description” column the particular schedule and item number where the property subject to the mortgage or lien is reported in the gross estate.
Include the name and address of the mortgagee, payee, or obligee, and the date and term of the mortgage, note, or other agreement by which the debt was established. Also include the face amount, the unpaid balance, the rate of interest, and date to which the interest was paid before the decedent's death.
Complete Schedule L and file it with the return if you claim deductions on either item 19 or item 20 of Part 5—Recapitulation.
You may deduct only those losses from thefts, fires, storms, shipwrecks, or other casualties that occurred during the settlement of the estate. Deduct only the amount not reimbursed by insurance or otherwise.
Describe in detail the loss sustained and the cause. If you received insurance or other compensation for the loss, state the amount collected. Identify the property for which you are claiming the loss by indicating the schedule and item number where the property is included in the gross estate.
If you elect alternate valuation, do not deduct the amount by which you reduced the value of an item to include it in the gross estate.
Do not deduct losses claimed as a deduction on a federal income tax return or depreciation in the value of securities or other property.
You may deduct expenses incurred in administering property that is included in the gross estate but that is not subject to claims. Only deduct these expenses if they were paid before the section 6501 period of limitations for assessment expired.
The expenses deductible on this schedule are usually expenses incurred in the administration of a trust established by the decedent before death. They may also be incurred in the collection of other assets or the transfer or clearance of title to other property included in the decedent's gross estate for estate tax purposes, but not included in the decedent's probate estate.
The expenses deductible on this schedule are limited to those that are the result of settling the decedent's interest in the property or of vesting good title to the property in the beneficiaries. Expenses incurred on behalf of the transferees (except those described above) are not deductible. Examples of deductible and nondeductible expenses are provided in Regulations section 20.2053-8(d).
List the names and addresses of the persons to whom each expense was payable and the nature of the expense. Identify the property for which the expense was incurred by indicating the schedule and item number where the property is included in the gross estate. If you do not know the exact amount of the expense, you may deduct an estimate, provided that the amount may be verified with reasonable certainty and will be paid before the period of limitations for assessment (referred to above) expires. Keep all vouchers and receipts for inspection by the IRS.
You must complete Schedule M and file it with the return if you claim a deduction on Part 5—Recapitulation, item 21.
The marital deduction is authorized by section 2056 for certain property interests that pass from the decedent to the surviving spouse. You may claim the deduction only for property interests that are included in the decedent's gross estate (Schedules A through I).
The marital deduction is generally not allowed if the surviving spouse is not a U.S. citizen. The marital deduction is allowed for property passing to such a surviving spouse in a qualified domestic trust (QDOT) or if such property is transferred or irrevocably assigned to such a trust before the estate tax return is filed. The executor must elect QDOT status on the return. See the instructions that follow for details on the election.
Generally, you may list on Schedule M all property interests that pass from the decedent to the surviving spouse and are included in the gross estate. However, do not list any nondeductible terminable interests (described below) on Schedule M unless you are making a QTIP election. The property for which you make this election must be included on Schedule M. See Qualified terminable interest property, below.
For the rules on common disaster and survival for a limited period, see section 2056(b)(3).
You may list on Schedule M only those interests that the surviving spouse takes:
As the decedent's legatee, devisee, heir, or donee;
As the decedent's surviving tenant by the entirety or joint tenant;
As an appointee under the decedent's exercise of a power or as a taker in default at the decedent's nonexercise of a power;
As a beneficiary of insurance on the decedent's life;
As the surviving spouse taking under dower or curtesy (or similar statutory interest); and
As a transferee of a transfer made by the decedent at any time.
|Item number||Description of property interests passing to surviving spouse.
For securities, give CUSIP number. If trust, partnership, or closely-held entity, give EIN.
|All other property:|
|B1||One-half the value of a house and lot, 256 South West Street, held by decedent and surviving spouse as joint tenants with right of survivorship under deed dated July 15, 1975 (Schedule E, Part I, item 1)||$182,500|
|B2||Proceeds of Metropolitan Life Insurance Company policy No. 104729, payable in one sum to surviving spouse (Schedule D, item 3)||200,000|
|B3||Cash bequest under Paragraph Six of will||100,000|
Do not list on Schedule M:
The value of any property that does not pass from the decedent to the surviving spouse;
Property interests that are not included in the decedent's gross estate;
The full value of a property interest for which a deduction was claimed on Schedules J through L. The value of the property interest should be reduced by the deductions claimed with respect to it;
The full value of a property interest that passes to the surviving spouse subject to a mortgage or other encumbrance or an obligation of the surviving spouse. Include on Schedule M only the net value of the interest after reducing it by the amount of the mortgage or other debt;
Nondeductible terminable interests (described below); or
Any property interest disclaimed by the surviving spouse.
Certain interests in property passing from a decedent to a surviving spouse are referred to as terminable interests. These are interests that will terminate or fail after the passage of time, or on the occurrence or nonoccurrence of a designated event. Examples are: life estates, annuities, estates for terms of years, and patents.
The ownership of a bond, note, or other contractual obligation, which when discharged would not have the effect of an annuity for life or for a term, is not considered a terminable interest.
Another interest in the same property passed from the decedent to some other person for less than adequate and full consideration in money or money's worth; and
By reason of its passing, the other person or that person's heirs may enjoy part of the property after the termination of the surviving spouse's interest.
A decedent bequeathed $100,000 to the surviving spouse. The general estate includes a term for years (valued at $10,000 in determining the value of the gross estate) in an office building, which interest was retained by the decedent under a deed of the building by gift to a son. Accordingly, the value of the specific bequest entered on Schedule M is $90,000.
The interest in the trust passes from the decedent to the surviving spouse, and
The surviving spouse is the only beneficiary of the trust other than charitable organizations described in section 170(c).
You may elect to claim a marital deduction for qualified terminable interest property or property interests. You make the QTIP election simply by listing the qualified terminable interest property on Schedule M and inserting its value. You are presumed to have made the QTIP election if you list the property and insert its value on Schedule M. If you make this election, the surviving spouse's gross estate will include the value of the qualified terminable interest property. See the instructions for Part 4—General Information, line 7, for more details. The election is irrevocable.
If you file a Form 706 in which you do not make this election, you may not file an amended return to make the election unless you file the amended return on or before the due date for filing the original Form 706.
The effect of the election is that the property (interest) will be treated as passing to the surviving spouse and will not be treated as a nondeductible terminable interest. All of the other marital deduction requirements must still be satisfied before you may make this election. For example, you may not make this election for property or property interests that are not included in the decedent's gross estate.
The trust or other property is listed on Schedule M, and
The value of the trust (or other property) is entered in whole or in part as a deduction on Schedule M,
The marital deduction is allowed for transfers to a surviving spouse who is not a U.S. citizen only if the property passes to the surviving spouse in a qualified domestic trust (QDOT) or if such property is transferred or irrevocably assigned to a QDOT before the decedent's estate tax return is filed.
A QDOT is any trust:
That requires at least one trustee to be either a citizen of the United States or a domestic corporation;
That requires that no distribution of corpus from the trust can be made unless such a trustee has the right to withhold from the distribution the tax imposed on the QDOT;
That meets the requirements of any applicable regulations; and
For which the executor has made an election on the estate tax return of the decedent.
For trusts created by an instrument executed before November 5, 1990, paragraphs 1 and 2 above will be treated as met if the trust instrument requires that all trustees be individuals who are citizens of the United States or domestic corporations.
You make the QDOT election simply by listing the qualified domestic trust or the entire value of the trust property on Schedule M and deducting its value. You are presumed to have made the QDOT election if you list the trust or trust property and insert its value on Schedule M. Once made, the election is irrevocable.
If an election is made to deduct qualified domestic trust property under section 2056A(d), provide the following information for each qualified domestic trust on an attachment to this schedule:
The name and address of every trustee;
A description of each transfer passing from the decedent that is the source of the property to be placed in trust; and
The employer identification number (EIN) for the trust.
The election must be made for an entire QDOT trust. In listing a trust for which you are making a QDOT election, unless you specifically identify the trust as not subject to the election, the election will be considered made for the entire trust.
The determination of whether a trust qualifies as a QDOT will be made as of the date the decedent's Form 706 is filed. If, however, judicial proceedings are brought before the Form 706's due date (including extensions) to have the trust revised to meet the QDOT requirements, then the determination will not be made until the court-ordered changes to the trust are made.
If property passes to the surviving spouse as the result of a qualified disclaimer, check “Yes,” and attach a copy of the written disclaimer required by section 2518(b).
Section 2056(b)(7)(C)(ii) creates an automatic QTIP election for certain joint and survivor annuities that are includible in the estate under section 2039. To qualify, only the surviving spouse can have the right to receive payments before the death of the surviving spouse.
The executor can elect out of QTIP treatment, however, by checking the “Yes,” box on line 3. Once made, the election is irrevocable. If there is more than one such joint and survivor annuity, you are not required to make the election for all of them.
If you make the election out of QTIP treatment by checking “Yes,” on line 3, you cannot deduct the amount of the annuity on Schedule M. If you do not elect out, you must list the joint and survivor annuities on Schedule M.
List each property interest included in the gross estate that passes from the decedent to the surviving spouse and for which a marital deduction is claimed. This includes otherwise nondeductible terminable interest property for which you are making a QTIP election. Number each item in sequence and describe each item in detail. Describe the instrument (including any clause or paragraph number) or provision of law under which each item passed to the surviving spouse. Indicate the schedule and item number of each asset.
In listing otherwise nondeductible property for which you are making a QTIP election, unless you specifically identify a fractional portion of the trust or other property as not subject to the election, the election will be considered made for the entire interest.
Enter the value of each interest before taking into account the federal estate tax or any other death tax. The valuation dates used in determining the value of the gross estate apply also on Schedule M.
If Schedule M includes a bequest of the residue or a part of the residue of the decedent's estate, attach a copy of the computation showing how the value of the residue was determined. Include a statement showing:
The value of all property that is included in the decedent's gross estate (Schedules A through I) but is not a part of the decedent's probate estate, such as lifetime transfers, jointly-owned property that passed to the survivor on decedent's death, and the insurance payable to specific beneficiaries;
The values of all specific and general legacies or devises, with reference to the applicable clause or paragraph of the decedent's will or codicil. (If legacies are made to each member of a class, for example, $1,000 to each of decedent's employees, only the number in each class and the total value of property received by them need be furnished);
The date of birth of all persons, the length of whose lives may affect the value of the residuary interest passing to the surviving spouse; and
Any other important information such as that relating to any claim to any part of the estate not arising under the will.
You must complete Schedule O and file it with the return if you claim a deduction on item 22 of Part 5—Recapitulation.
You can claim the charitable deduction allowed under section 2055 for the value of property in the decedent's gross estate that was transferred by the decedent during life or by will to or for the use of any of the following:
The United States, a state, a political subdivision of a state, or the District of Columbia, for exclusively public purposes;
Any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art, or to foster national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment, unless the organization is a qualified amateur sports organization) and the prevention of cruelty to children and animals. No part of the net earnings may benefit any private individual and no substantial activity may be undertaken to carry on propaganda, or otherwise attempt to influence legislation or participate in any political campaign on behalf of any candidate for public office;
A trustee or a fraternal society, order or association operating under the lodge system, if the transferred property is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. No substantial activity may be undertaken to carry on propaganda or otherwise attempt to influence legislation, or participate in any political campaign on behalf of any candidate for public office;
Any veterans organization incorporated by an Act of Congress or any of its departments, local chapters, or posts, for which none of the net earnings benefits any private individual; or
Employee stock ownership plans, if the transfer qualifies as a qualified gratuitous transfer of qualified employer securities within the meaning provided in section 664(g).
For this purpose, certain Indian tribal governments are treated as states and transfers to them qualify as deductible charitable contributions. See section 7871 and Revenue Procedure 2008-55, on page 768 of 2008-39 I.R.B., www.irs.gov/pub/irs-irbs/irb08-39.pdf, as modified and supplemented by subsequent revenue procedures, for a list of qualifying Indian tribal governments.
You may also claim a charitable contribution deduction for a qualifying conservation easement granted after the decedent's death under the provisions of section 2031(c)(9).
The charitable deduction is allowed for amounts that are transferred to charitable organizations as a result of either a qualified disclaimer (see Line 2. Qualified Disclaimer, below) or the complete termination of a power to consume, invade, or appropriate property for the benefit of an individual. It does not matter whether termination occurs because of the death of the individual or in any other way. The termination must occur within the period of time (including extensions) for filing the decedent's estate tax return and before the power has been exercised.
The deduction is limited to the amount actually available for charitable uses. Therefore, if under the terms of a will or the provisions of local law, or for any other reason, the federal estate tax, the federal GST tax, or any other estate, GST, succession, legacy, or inheritance tax is payable in whole or in part out of any bequest, legacy, or devise that would otherwise be allowed as a charitable deduction, the amount you may deduct is the amount of the bequest, legacy, or devise reduced by the total amount of the taxes.
If you elected to make installment payments of the estate tax, and the interest is payable out of property transferred to charity, you must reduce the charitable deduction by an estimate of the maximum amount of interest that will be paid on the deferred tax.
For split-interest trusts or pooled income funds, only the figure that is passing to the charity should be entered in the “Amount” column. Do not enter the entire amount that passes to the trust or fund.
If you are deducting the value of the residue or a part of the residue passing to charity under the decedent's will, attach a copy of the computation showing how you determined the value, including any reduction for the taxes described above.
A statement that shows the values of all specific and general legacies or devises for both charitable and noncharitable uses. For each legacy or devise, indicate the paragraph or section of the decedent's will or codicil that applies. If legacies are made to each member of a class (for example, $1,000 to each of the decedent's employees), show only the number of each class and the total value of property they received;
The date of birth of all life tenants or annuitants, the length of whose lives may affect the value of the interest passing to charity under the decedent's will;
A statement showing the value of all property that is included in the decedent's gross estate but does not pass under the will, such as transfers, jointly-owned property that passed to the survivor on decedent's death, and insurance payable to specific beneficiaries; and
Any other important information such as that relating to any claim, not arising under the will, to any part of the estate (that is, a spouse claiming dower or curtesy, or similar rights).
The charitable deduction is allowed for amounts that are transferred to charitable organizations as a result of a qualified disclaimer. To be a qualified disclaimer, a refusal to accept an interest in property must meet the conditions of section 2518. These are explained in Regulations sections 25.2518-1 through 25.2518-3. If property passes to a charitable beneficiary as the result of a qualified disclaimer, check the “Yes,” box on line 2 and attach a copy of the written disclaimer required by section 2518(b).
If the charitable transfer was made by will, attach a certified copy of the order admitting the will to probate, in addition to the copy of the will. If the charitable transfer was made by any other written instrument, attach a copy. If the instrument is of record, the copy should be certified; if not, the copy should be verified.
If you claim a credit on line 13 of Part 2—Tax Computation, complete Schedule P and file it with the return. Attach Form(s) 706-CE to Form 706 support any credit you claim.
If the foreign government refuses to certify Form 706-CE, file it directly with the IRS as instructed on the Form 706-CE. See Form 706-CE for instructions on how to complete the form and a description of the items that must be attached to the form when the foreign government refuses to certify it.
The credit for foreign death taxes is allowable only if the decedent was a citizen or resident of the United States. However, see section 2053(d) and the related regulations for exceptions and limitations if the executor has elected, in certain cases, to deduct these taxes from the value of the gross estate. For a resident, not a citizen, who was a citizen or subject of a foreign country for which the President has issued a proclamation under section 2014(h), the credit is allowable only if the country of which the decedent was a national allows a similar credit to decedents who were U.S. citizens residing in that country.
The credit is authorized either by statute or by treaty. If a credit is authorized by a treaty, whichever of the following is the most beneficial to the estate is allowed:
The credit figured under the treaty;
The credit figured under the statute; or
The credit figured under the treaty, plus the credit figured under the statute for death taxes paid to each political subdivision or possession of the treaty country that are not directly or indirectly creditable under the treaty.
Under the statute, the credit is authorized for all death taxes (national and local) imposed in the foreign country. Whether local taxes are the basis for a credit under a treaty depends upon the provisions of the particular treaty.
If a credit for death taxes paid in more than one foreign country is allowable, a separate computation of the credit must be made for each foreign country. The copies of Schedule P on which the additional computations are made should be attached to the copy of Schedule P provided in the return.
The total credit allowable for any property, whether subjected to tax by one or more than one foreign country, is limited to the amount of the federal estate tax attributable to the property. The anticipated amount of the credit may be figured on the return, but the credit cannot finally be allowed until the foreign tax has been paid and a Form 706-CE evidencing payment is filed. Section 2014(g) provides that for credits for foreign death taxes, each U.S. possession is deemed a foreign country.
Convert death taxes paid to the foreign country into U.S. dollars by using the rate of exchange in effect at the time each payment of foreign tax is made.
If a credit is claimed for any foreign death tax that is later recovered, see Regulations section 20.2016-1 for the notice required within 30 days.
The credit for foreign death taxes is limited to those taxes that were actually paid and for which a credit was claimed within the later of 4 years after the filing of the estate tax return, before the date of expiration of any extension of time for payment of the federal estate tax, or 60 days after a final decision of the Tax Court on a timely filed petition for a redetermination of a deficiency.
For the credit allowed by the statute, the question of whether particular property is situated in the foreign country imposing the tax is determined by the same principles that would apply in determining whether similar property of a nonresident not a U.S. citizen is situated within the United States for purposes of the federal estate tax. See the instructions for Form 706-NA.
Situated in that country,
Subjected to these taxes, and
Included in the gross estate.
If you are reporting any items on this return based on the provisions of a death tax treaty, you may have to attach a statement to this return disclosing the return position that is treaty based. See Regulations section 301.6114-1 for details.
The situs rules contained in the treaty apply in determining whether property was situated in the foreign country;
The credit may be allowed only for payment of the death tax or taxes specified in the treaty (but see the instructions above for credit under the statute for death taxes paid to each political subdivision or possession of the treaty country that are not directly or indirectly creditable under the treaty);
If specifically provided, the credit is proportionately shared for the tax applicable to property situated outside both countries, or that was deemed in some instances situated within both countries; and
The amount entered at item 4 of Schedule P is the amount shown on line 12 of Part 2—Tax Computation, less the total of the credits claimed for federal gift taxes on pre-1977 gifts (section 2012) and for tax on prior transfers (line 14 of Part 2—Tax Computation). (If a credit is claimed for tax on prior transfers, it will be necessary to complete Schedule Q before completing Schedule P.) For examples of computation of credits under the treaties, see the applicable regulations.
Complete Schedule Q and file it with the return if you claim a credit on Part 2—Tax Computation, line 14.
The term transferee means the decedent for whose estate this return is filed. If the transferee received property from a transferor who died within 10 years before, or 2 years after, the transferee, a credit is allowable on this return for all or part of the federal estate tax paid by the transferor's estate for the transfer. There is no requirement that the property be identified in the estate of the transferee or that it exist on the date of the transferee's death. It is sufficient for the allowance of the credit that the transfer of the property was subjected to federal estate tax in the estate of the transferor and that the specified period of time has not elapsed. A credit may be allowed for property received as the result of the exercise or nonexercise of a power of appointment when the property is included in the gross estate of the donee of the power.
If the transferee was the transferor's surviving spouse, no credit is allowed for property received from the transferor to the extent that a marital deduction was allowed to the transferor's estate for the property. There is no credit for tax on prior transfers for federal gift taxes paid in connection with the transfer of the property to the transferee.
If you are claiming a credit for tax on prior transfers on Form 706-NA, you should first complete and attach Part 5—Recapitulation from Form 706 before figuring the credit on Schedule Q from Form 706.
Section 2056(d)(3) contains specific rules for allowing a credit for certain transfers to a spouse who was not a U.S. citizen where the property passed outright to the spouse, or to a qualified domestic trust.
The term property includes any interest (legal or equitable) of which the transferee received the beneficial ownership. The transferee is considered the beneficial owner of property over which the transferee received a general power of appointment. Property does not include interests to which the transferee received only a bare legal title, such as that of a trustee. Neither does it include an interest in property over which the transferee received a power of appointment that is not a general power of appointment. In addition to interests in which the transferee received the complete ownership, the credit may be allowed for annuities, life estates, terms for years, remainder interests (whether contingent or vested), and any other interest that is less than the complete ownership of the property, to the extent that the transferee became the beneficial owner of the interest.
The maximum amount of the credit is the smaller of:
The amount of the estate tax of the transferor's estate attributable to the transferred property or
The amount by which:
An estate tax on the transferee's estate determined without the credit for tax on prior transfers exceeds
An estate tax on the transferee's estate determined by excluding from the gross estate the net value of the transfer.
If credit for a particular foreign death tax may be taken under either the statute or a death duty convention, and on this return the credit actually is taken under the convention, then no credit for that foreign death tax may be taken into consideration in figuring estate tax (a) or estate tax (b), above.
|Period of Time
|- - - - -||2 years||100|
|2 years||4 years||80|
|4 years||6 years||60|
|6 years||8 years||40|
|8 years||10 years||20|
|10 years||- - - - -||none|
A worksheet for Schedule Q is provided to allow you to figure the limits before completing Schedule Q. Transfer the appropriate amounts from the worksheet to Schedule Q as indicated on the schedule. You do not need to file the worksheet with Form 706, but keep it for your records.
Most of the information to complete Part I of the worksheet should be obtained from the transferor's Form 706.
Schedule R is used to figure the generation-skipping transfer (GST) tax that is payable by the estate. Schedule R-1 is used to figure the GST tax that is payable by certain trusts that are includible in the gross estate.
The GST tax reported on Form 706 is imposed only on direct skips occurring at death. Unlike the estate tax, which is imposed on the value of the entire taxable estate regardless of who receives it, the GST tax is imposed only on the value of interests in property, wherever located, that actually pass to certain transferees, who are referred to as skip persons (defined below).
For purposes of Form 706, the property interests transferred must be includible in the gross estate before they are subject to the GST tax. Therefore, the first step in figuring the GST tax liability is to determine the property interests includible in the gross estate by completing Schedules A through I of Form 706.
The second step is to determine who the skip persons are. To do this, assign each transferee to a generation and determine whether each transferee is a natural person or a trust for GST purposes. See section 2613 and Regulations section 26.2612–1(d) for details.
The third step is to determine which skip persons are transferees of interests in property. If the skip person is a natural person, anything transferred is an interest in property. If the skip person is a trust, make this determination using the rules under Interest in property, below. These first three steps are described in detail under the main heading, Determining Which Transfers Are Direct Skips, below.
The fourth step is to determine whether to enter the transfer on Schedule R or on Schedule R-1. See the rules under the main heading, Dividing Direct Skips Between Schedules R and R-1.
The fifth step is to complete Schedules R and R-1 using the How To Complete instructions for each schedule.
The GST tax will not apply to any transfer under a trust that was irrevocable on September 25, 1985, but only to the extent that the transfer was not made out of corpus added to the trust after September 25, 1985. An addition to the corpus after that date will cause a proportionate part of future income and appreciation to be subject to the GST tax. For more information, see Regulations section 26.2601-1(b)(1).
If, on October 22, 1986, the decedent was under a mental disability to change the disposition of his or her property and did not regain the competence to dispose of property before death, the GST tax will not apply to any property included in the gross estate (other than property transferred on behalf of the decedent during life and after October 21, 1986). The GST tax will also not apply to any transfer under a trust to the extent that the trust consists of property included in the gross estate (other than property transferred on behalf of the decedent during life and after October 21, 1986).
Under a mental disability means the decedent lacked the competence to execute an instrument governing the disposition of his or her property, regardless of whether there was an adjudication of incompetence or an appointment of any other person charged with the care of the person or property of the transferor.
If the decedent had been adjudged mentally incompetent, a copy of the judgment or decree must be filed with this return.
If the decedent had not been adjudged mentally incompetent, the executor must file with the return a certification from a qualified physician stating that in his opinion the decedent had been mentally incompetent at all times on and after October 22, 1986, and that the decedent had not regained the competence to modify or revoke the terms of the trust or will prior to his death or a statement as to why no such certification may be obtained from a physician.
Subject to the estate tax,
Of an interest in property, and
To a skip person.
Where the beneficiary is a lineal descendant of a grandparent of the decedent (that is, the decedent's cousin, niece, nephew, etc.), the number of generations between the decedent and the beneficiary is determined by subtracting the number of generations between the grandparent and the decedent from the number of generations between the grandparent and the beneficiary.
Where the beneficiary is a lineal descendant of a grandparent of a spouse (or former spouse) of the decedent, the number of generations between the decedent and the beneficiary is determined by subtracting the number of generations between the grandparent and the spouse (or former spouse) from the number of generations between the grandparent and the beneficiary.
A person who at any time was married to a person described in (1) or (2) above is assigned to the generation of that person. A person who at any time was married to the decedent is assigned to the decedent's generation.
A relationship by adoption or half-blood is treated as a relationship by whole-blood.
A person who is not assigned to a generation according to (1), (2), (3), or (4) above is assigned to a generation based on his or her birth date, as follows:
A person who was born not more than 12½ years after the decedent is in the decedent's generation.
A person born more than 12½ years, but not more than 37½ years, after the decedent is in the first generation younger than the decedent.
A similar rule applies for a new generation every 25 years.
A special rule may apply in the case of the death of a parent of the transferee. For terminations, distributions, and transfers after December 31, 1997, the existing rule that applied to grandchildren of the decedent has been extended to apply to other lineal descendants.
If property is transferred to an individual who is a descendant of a parent of the transferor, and that individual's parent (who is a lineal descendant of the parent of the transferor) is deceased at the time the transfer is subject to gift or estate tax, then for purposes of generation assignment, the individual is treated as if he or she is a member of the generation that is one generation below the lower of:
The transferor's generation or
The generation assignment of the youngest living ancestor of the individual, who is also a descendant of the parent of the transferor.
The same rules apply to the generation assignment of any descendant of the individual.
This rule does not apply to a transfer to an individual who is not a lineal descendant of the transferor if the transferor has any living lineal descendants.
If any transfer of property to a trust would have been a direct skip except for this generation assignment rule, then the rule also applies to transfers from the trust attributable to such property.
See examples in Regulations section 26.2651–1(c).
For purposes of determining if an individual's parent is deceased at the time of a testamentary transfer, an individual's parent who dies no later than 90 days after a transfer occurring by reason of the death of the transferor is treated as having predeceased the transferor. The 90-day rule applies to transfers occurring on or after July 18, 2005. See Regulations section 26.2651-1, for more information.
Charitable organizations and trusts described in sections 511(a)(2) and 511(b)(2) are assigned to the decedent's generation. Transfers to such organizations are therefore not subject to the GST tax.
The rules above can be illustrated by the following examples:
Under the will, the decedent's house is transferred to the decedent's daughter for her life with the remainder passing to her children. This transfer is made to a “trust” even though there is no explicit trust instrument. The interest in the property transferred (the present right to use the house) is transferred to a non-skip person (the decedent's daughter). Therefore, the trust is not a skip person because there is an interest in the transferred property that is held by a non-skip person. The transfer is not a direct skip.
The will bequeaths $100,000 to the decedent's grandchild. This transfer is a direct skip that is not made in trust and should be shown on Schedule R.
The will establishes a trust that is required to accumulate income for 10 years and then pay its income to the decedent's grandchildren for the rest of their lives and, upon their deaths, distribute the corpus to the decedent's great-grandchildren. Because the trust has no current beneficiaries, there are no present interests in the property transferred to the trust. All of the persons to whom the trust can make future distributions (including distributions upon the termination of interests in property held in trust) are skip persons (for example, the decedent's grandchildren and great-grandchildren). Therefore, the trust itself is a skip person and you should show the transfer on Schedule R.
The will establishes a trust that is to pay all of its income to the decedent's grandchildren for 10 years. At the end of 10 years, the corpus is to be distributed to the decedent's children. All of the present interests in this trust are held by skip persons. Therefore, the trust is a skip person and you should show this transfer on Schedule R. You should show the estate tax value of all the property transferred to the trust even though the trust has some ultimate beneficiaries who are non-skip persons.
Under section 2603(a)(2), the GST tax on direct skips from a trust (as defined for GST tax purposes) is to be paid by the trustee and not by the estate. Schedule R-1 serves as a notification from the executor to the trustee that a GST tax is due.
For a direct skip to be reportable on Schedule R-1, the trust must be includible in the decedent's gross estate.
If the decedent was a surviving spouse receiving benefits for his or her lifetime from a marital deduction power of appointment (or QTIP) trust created by the decedent's spouse, then transfers caused by reason of the decedent's death from that trust to skip persons are direct skips required to be reported on Schedule R-1.
If a direct skip is made “from a trust” under these rules, it is reportable on Schedule R-1 even if it is also made “to a trust” rather than to an individual.
Similarly, if property in a trust (as defined for GST tax purposes) is included in the decedent's gross estate under sections 2035, 2036, 2037, 2038, 2039, 2041, or 2042 and such property is, by reason of the decedent's death, transferred to skip persons, the transfers are direct skips required to be reported on Schedule R-1.
Part 1, line 6 of both Parts 2 and 3, and line 4 of Schedule R-1 are used to allocate the decedent's GST exemption. This allocation is made by filing Form 706 and attaching a completed Schedule R and/or R-1. Once made, the allocation is irrevocable. You are not required to allocate all of the decedent's GST exemption. However, the portion of the exemption that you do not allocate will be allocated by the IRS under the deemed allocation of unused GST exemption rules of section 2632(e).
For transfers made through 1998, the GST exemption was $1 million. The current GST exemption is $5,120,000. The exemption amounts for 1999 through 2011 are as follows:
|Year of transfer||GST exemption|
|2004 and 2005||1,500,000|
|2006, 2007, and 2008||2,000,000|
|2010 and 2011||5,000,000|
The amount of each increase can only be allocated to transfers made (or appreciation that occurred) during or after the year of the increase. The following example shows the application of this rule:
In 2003, G made a direct skip of $1,120,000 and applied her full $1,120,000 of GST exemption to the transfer. G made a $450,000 taxable direct skip in 2004 and another of $90,000 in 2006. For 2004, G can only apply $380,000 of exemption ($380,000 inflation adjustment from 2004) to the $450,000 transfer in 2004. For 2006, G can apply $90,000 of exemption to the 2006 transfer, but nothing to the transfer made in 2004. At the end of 2006, G would have $410,000 of unused exemption that she can apply to future transfers (or appreciation) starting in 2007.
To inter vivos direct skips and
Beginning with transfers made after December 31, 2000, to lifetime transfers to certain trusts, by the decedent, that constituted indirect skips that were subject to the gift tax.
Enter the GST exemption, included on lines 2 through 6 of Part 1 of Schedule R (discussed above), that was allocated to the trust.
Allocate the amount on line 8 of Part 1 of Schedule R in line 9, column D. This amount may be allocated to transfers into trusts that are not otherwise reported on Form 706. For example, the line 8 amount may be allocated to an inter vivos trust established by the decedent during his or her lifetime and not included in the gross estate. This allocation is made by identifying the trust on line 9 and making an allocation to it using column D. If the trust is not included in the gross estate, value the trust as of the date of death. Inform the trustee of each trust listed on line 9 of the total GST exemption you allocated to the trust. The trustee will need this information to figure the GST tax on future distributions and terminations.
The trustee must know the trust's inclusion ratio to figure the trust's GST tax for future distributions and terminations. You are not required to inform the trustee of the inclusion ratio and may not have enough information to figure it. Therefore, you are not required to make an entry in column E. However, column E and the worksheet below are provided to assist you in figuring the inclusion ratio for the trustee if you wish to do so.
Inform the trustee of the amount of the GST exemption you allocated to the trust. Line 9, columns C and D may be used to figure this amount for each trust.
This worksheet will figure an accurate inclusion ratio only if the decedent was the only settlor of the trust. Use a separate worksheet for each trust (or separate share of a trust that is treated as a separate trust).
WORKSHEET (inclusion ratio):
|1||Total estate and gift tax value of all of the property interests that passed to the trust|
|2||Estate taxes, state death taxes, and other charges actually recovered from the trust|
|3||GST taxes imposed on direct skips to skip persons other than this trust and borne by the property transferred to this trust|
|4||GST taxes actually recovered from this trust (from Schedule R, Part 2, line 8 or Schedule R-1, line 6)|
|5||Add lines 2 through 4|
|6||Subtract line 5 from line 1|
|7||Add columns C and D of line 9|
|8||Divide line 7 by line 6|
|9||Trust's inclusion ratio. Subtract line 8 from 1.000|
Use Part 2 to figure the GST tax on transfers in which the property interests transferred are to bear the GST tax on the transfers. Use Part 3 to report the GST tax on transfers in which the property interests transferred do not bear the GST tax on the transfers.
Section 2603(b) requires that unless the governing instrument provides otherwise, the GST tax is to be charged to the property constituting the transfer. Therefore, you will usually enter all of the direct skips on Part 2.
You may enter a transfer on Part 3 only if the will or trust instrument directs, by specific reference, that the GST tax is not to be paid from the transferred property interests.
Under section 2031(c), you may elect to exclude a portion of the value of land that is subject to a qualified conservation easement. You make the election by filing Schedule U with all of the required information and excluding the applicable value of the land that is subject to the easement on Part 5—Recapitulation, at item 12. To elect the exclusion, include on Schedule A, B, E, F, G, or H, as appropriate, the decedent's interest in the land that is subject to the exclusion. You must make the election on a timely filed Form 706, including extensions.
The exclusion is the lesser of:
The applicable percentage of the value of land (after certain reductions) subject to a qualified conservation easement or
Once made, the election is irrevocable.
Land may qualify for the exclusion if all of the following requirements are met:
The decedent or a member of the decedent's family must have owned the land for the 3-year period ending on the date of the decedent's death.
No later than the date the election is made, a qualified conservation easement on the land has been made by the decedent, a member of the decedent's family, the executor of the decedent's estate, or the trustee of a trust that holds the land.
The land is located in the United States or one of its possessions.
Members of the decedent's family include the decedent's spouse; ancestors; lineal descendants of the decedent, of the decedent's spouse, and of the parents of the decedent; and the spouse of any lineal descendant. A legally adopted child of an individual is considered a child of the individual by blood.
The qualified conservation easement exclusion applies if the land is owned indirectly through a partnership, corporation, or trust, if the decedent owned (directly or indirectly) at least 30% of the entity. For the rules on determining ownership of an entity, see Ownership rules, below.
A qualified conservation easement is one that would qualify as a qualified conservation contribution under section 170(h). It must be a contribution:
Of a qualified real property interest,
To a qualified organization, and
Exclusively for conservation purposes.
The entire interest of the donor, other than a qualified mineral interest;
A remainder interest; or
A restriction granted in perpetuity on the use that may be made of the real property. The restriction must include a prohibition on more than a de minimis use for commercial recreational activity.
Corporations and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals, without net earnings benefitting any individual shareholder and without activity with the purpose of influencing legislation or political campaigning, which
a. Receives more than one-third of its support from gifts, contributions, membership fees, or receipts from sales, admissions fees, or performance of services, or
b. Is controlled by such an organization.
Any entity that qualifies under section 170(b)(1)(A)(v) or (vi).
The preservation of land areas for outdoor recreation by, or for the education of, the public;
The protection of a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem; or
The preservation of open space (including farmland and forest land) where such preservation is for the scenic enjoyment of the general public, or under a clearly delineated federal, state, or local conservation policy and will yield a significant public benefit.
If the land is reported as one or more item numbers on a Form 706 schedule, simply list the schedule and item numbers. If the land subject to the easement is only part of an item, however, list the schedule and item number and describe the part subject to the easement. See the Instructions for Schedule A — Real Estate for information on how to describe the land.
Using the general rules for describing real estate, provide enough information so the IRS can value the easement. Give the date the easement was granted and by whom it was granted.
Enter on this line the gross value at which the land was reported on the applicable asset schedule on this Form 706. Do not reduce the value by the amount of any mortgage outstanding. Report the estate tax value even if the easement was granted by the decedent (or someone other than the decedent) prior to the decedent's death.
The amount on line 5 should be the date of death value of any qualifying conservation easements granted prior to the decedent's death, whether granted by the decedent or someone other than the decedent, for which the exclusion is being elected.
You must reduce the land value by the value of any development rights retained by the donor in the conveyance of the easement. A development right is any right to use the land for any commercial purpose that is not subordinate to or directly supportive of the use of the land as a farm for farming purposes.
You do not have to make this reduction if everyone with an interest in the land (regardless of whether in possession) agrees to permanently extinguish the retained development right. The agreement must be filed with this return and must include the following information and terms:
A statement that the agreement is made under section 2031(c)(5);
A list of all persons in being holding an interest in the land that is subject to the qualified conservation easement. Include each person's name, address, tax identifying number, relationship to the decedent, and a description of their interest;
The items of real property shown on the estate tax return that are subject to the qualified conservation easement (identified by schedule and item number);
A description of the retained development right that is to be extinguished;
A clear statement of consent that is binding on all parties under applicable local law:
To take whatever action is necessary to permanently extinguish the retained development rights listed in the agreement and
To be personally liable for additional taxes under section 2031(c)(5)(C) if this agreement is not implemented by the earlier of:
• The date that is 2 years after the date of the decedent's death or
• The date of sale of the land subject to the qualified conservation easement;
A statement that in the event this agreement is not timely implemented, that they will report the additional tax on whatever return is required by the IRS and will file the return and pay the additional tax by the last day of the 6th month following the applicable date described above.
All parties to the agreement must sign the agreement.
For an example of an agreement containing some of the same terms, see Part 3 of Schedule A-1 (Form 706).
Enter the total value of the qualified conservation easements on which the exclusion is based. This could include easements granted by the decedent (or someone other than the decedent) prior to the decedent's death, easements granted by the decedent that take effect at death, easements granted by the executor after the decedent's death, or some combination of these.
Explain how this value was determined and attach copies of any appraisals. Normally, the appropriate way to value a conservation easement is to determine the FMV of the land both before and after the granting of the easement, with the difference being the value of the easement.
Reduce the reported value of the easement by the amount of any consideration received for the easement. If the date of death value of the easement is different from the value at the time the consideration was received, reduce the value of the easement by the same proportion that the consideration received bears to the value of the easement at the time it was granted. For example, assume the value of the easement at the time it was granted was $100,000 and $10,000 was received in consideration for the easement. If the easement was worth $150,000 at the date of death, you must reduce the value of the easement by $15,000 ($10,000/$100,000 × $150,000) and report the value of the easement on line 10 as $135,000.
If a charitable contribution deduction for this land has been taken on Schedule O, enter the amount of the deduction here. If the easement was granted after the decedent's death, a contribution deduction may be taken on Schedule O, if it otherwise qualifies, as long as no income tax deduction was or will be claimed for the contribution by any person or entity.
Reduce the value of the land by the amount of any acquisition indebtedness on the land at the date of the decedent's death. Acquisition indebtedness includes the unpaid amount of:
Any indebtedness incurred by the donor in acquiring the property;
Any indebtedness incurred before the acquisition if the indebtedness would not have been incurred but for the acquisition;
Any indebtedness incurred after the acquisition if the indebtedness would not have been incurred but for the acquisition and the incurrence of the indebtedness was reasonably foreseeable at the time of the acquisition; and
The extension, renewal, or refinancing of acquisition indebtedness.
A protective claim for refund preserves the estate’s right to a refund of tax paid on any amount included in the gross estate which would be deductible under section 2053 but has not been paid or otherwise will not meet the requirements of section 2053 until after the limitations period for filing the claim has passed. See section 6511(a).
Schedule PC may be used to file a section 2053 protective claim for refund by estates of decedents who died after December 31, 2011. It will also be used to inform the IRS when the contingency leading to the protective claim for refund is resolved and the refund due the estate is finalized. The estate must indicate whether the Schedule PC being filed is the initial notice of protective claim for refund, notice of partial claim for refund, or notice of the final resolution of the claim for refund.
Because each separate claim or expense requires a separate Schedule PC, more than one Schedule PC may be included with Form 706, if applicable. Two copies of each Schedule PC must be included with Form 706.
Filing a section 2053 protective claim for refund on Schedule PC will not suspend the IRS’ review and examination of Form 706, nor will it delay the issuance of a closing letter for the estate.
The first Schedule PC to be filed is the initial notice of protective claim for refund. The estate will receive a written acknowledgment of receipt of the claim from the IRS. If the acknowledgement is not received within 180 days of filing the protective claim for refund on Schedule PC, the fiduciary should contact the IRS at (866) 699-4083 to inquire about the receipt and processing of the claim. A certified mail receipt or other evidence of delivery is not sufficient to confirm receipt and processing of the protective claim for refund.
The written acknowledgment of receipt does not constitute a determination that all requirements for a valid protective claim for refund have been met.
In general, the claim will not be subject to substantive review until the amount of the claim has been established. However, a claim can be disallowed at the time of filing. For example, the claim for refund will be rejected if:
The claim was not timely filed;
The claim was not filed by the fiduciary or other person with authority to act on behalf the estate;
The acknowledgment of the penalties of perjury statement (on page 1 of Form 706) was not signed; or,
The claim is not adequately described.
If the IRS does not raise such a defect when the claim is filed, it will not be precluded from doing so in the later substantive review.
The estate may be given an opportunity to cure any defects in the initial notice by filing a corrected and signed protective claim for refund before the expiration of the limitations period in section 6511(a) or within 45 days of notice of the defect, whichever is later.
If a Section 2053 protective claim for refund has been adequately identified on Schedule PC, the IRS will presume that the claim includes certain expenses related to resolving, defending or satisfying the claim. These ancillary expenses may include attorneys’ fees, court costs, appraisal fees, and accounting fees. The estate is not required to separately identify or substantiate these expenses; however, each expense must meet the requirements of section 2053 to be deductible.
When an expense that was the subject of a section 2053 protective claim for refund is finally determined, the estate must notify the IRS that the claim for refund is ready for consideration. The notification should provide facts and evidence substantiating the deduction under section 2053 and the resulting recomputation of the estate tax liability. A separate notice of final resolution must be filed with the IRS for each resolved section 2053 protective claim for refund.
There are two means by which the estate may notify the IRS of the resolution of the uncertainty that deprived the estate of the deduction when Form 706 was filed. The estate may file a supplemental Form 706 with an updated Schedule PC and including each schedule affected by the allowance of the deduction under section 2053. Page 1 of Form 706 should contain the notation “Supplemental Information – Notification of Consideration of Section 2053 Protective Claim(s) for Refund” and include the filing date of the initial notice of protective claim for refund. A copy of the initial notice of claim should also be submitted.
Alternatively, the estate may notify the IRS by filing an updated Form 843, Claim for Refund and Request for Abatement. Form 843 must contain the notation “Notification of Consideration of Section 2053 Protective Claim(s) for Refund,” including the filing date of the initial notice of protective claim for refund, on page 1. A copy of the initial notice of claim must also be submitted.
The estate should notify the IRS of resolution within 90 days of the date the claim or expense is paid or the date on which the amount of the claim becomes certain and no longer subject to contingency, whichever is later. Separate notifications must be submitted for every section 2053 protective claim for refund that was filed.
If the final section 2053 claim or expense involves multiple or recurring payments, the 90-day period begins on the date of the last payment. The estate may also notify the IRS (not more than annually) as payments are being made and possibly qualify for a partial refund based on the amounts paid through the date of the notice.
Complete Part 1 by providing information that is correct and complete as of the time Schedule PC is filed. If filing an updated Schedule PC with a supplemental Form 706 or as notice of final resolution of the protective claim for refund, be sure to update the information from the original filing to ensure that it is accurate. Be particularly careful to verify that contact information (addresses and telephone numbers) and the reason for filing Schedule PC are indicated correctly. If the fiduciary is different from the executor identified on page 1 of Form 706 or has changed since the initial notice of protective claim for refund was filed, attach letters testamentary, letters of administration, or similar documentation evidencing the fiduciary's authority to file the protective claim for refund on behalf of the estate. Include a copy of Form 56, Notice Concerning Fiduciary Relationship, if it has been filed.
For a protective claim for refund to be properly filed and considered, the claim or expense forming the basis of the potential 2053 deduction must be clearly identified. Using the check boxes provided, indicate whether you are filing the initial claim for refund, a claim for partial refund or a final claim. On the chart in Part 2, give the Form 706 schedule and item number of the claim or expense. List any amounts claimed under exceptions for ascertainable amounts (Regulations section 20.2053-1(d)(4)), claims and counterclaims in related matters (Regulations section 20.2053-4(b)), or claims under $500,000 (Regulations section 20.2053-4(c)). Provide all relevant information as described including, most importantly, an explanation of the reasons and contingencies delaying the actual payment to be made in satisfaction of the claim or expense. Complete columns E and F only if filing a notice of partial or final resolution. Show the amount of ancillary or related expenses to be included in the claim for refund and indicate whether this amount is estimated, agreed upon, or has been paid. Also show the amount being claimed for refund.
On the chart in Part 3, provide information on other protective claims for refund that have been previously filed on behalf of the estate (if any), whether on other Schedules PC or on Form 843. When the initial claim for refund is filed, only information from Form(s) 843 need be included in Part 3. However, when filing a partial or final claim for refund, complete Part 3 by including the status of all claims filed by or on behalf of the estate, including those filed on other Schedules PC with Form 706. For each such claim, give the place of filing, date of filing and amount of the claim.
When you need to list more assets or deductions than you have room for on one of the main schedules, use the Continuation
Schedule at the end of Form 706. It provides a uniform format for listing additional assets from Schedules A through I and
additional deductions from Schedules J, K, L, M, and O.
Please remember to:
Use a separate Continuation Schedule for each main schedule you are continuing. Do not combine assets or deductions from different schedules on one Continuation Schedule.
Make copies of the blank schedule before completing it if you expect to need more than one.
Use as many Continuation Schedules as needed to list all the assets or deductions.
Enter the letter of the schedule you are continuing in the space at the top of the Continuation Schedule.
Use the Unit value column only if continuing Schedule B, E, or G. For all other schedules, use this space to continue the description.
Carry the total from the Continuation Schedules forward to the appropriate line on the main schedule.
|If continuing||Report||Where on Continuation Schedule|
|Schedule E, Pt. 2||Percentage includible||Alternate valuation date|
|Schedules J, L, M||Continued description of deduction||Alternate valuation date and Alternate value|
|Schedule O||Character of institution||Alternate valuation date and Alternate value|
|Schedule O||Amount of each deduction||Amount deductible|
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