IRS Releases Final Form 706 for 2010 decedents

IRS has released the final version of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return for estates of decedents dying after Dec. 31, 2009 and before Jan. 1, 2011, and its accompanying instructions. They reflect law changes made by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act), as well as indexing and other changes.

Items reflected on the final form and instructions. The instructions stress that the current revision is to be used only for decedents dying in calendar year 2010. They note that the 2010 Tax Relief Act included these changes affecting the 2010 Form 706:

• Estates of decedents dying in 2010 may elect to apply modified carryover basis treatment (within the meaning of Code Sec. 1022) under Sec. 301 of the Act.

The instructions note that, if the election is made, the estate will not be subject to estate tax and Form 706 should not be filed. The instructions direct readers to Notice 2011-66, 2011-35 IRB 184 and Form 8939 and its instructions for further information on the time and manner of making the special election.

• For decedents dying between Jan. 1, 2010 and Dec. 16, 2010, the due date for Form 706 is Sept. 19, 2011.

The instructions point out that taxpayers may apply for an automatic six-month extension of time to file via Form 4768, “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.”

• The applicable exclusion amount is $5 million (a credit equivalent of $1,730,800).
• The maximum estate tax rate is 35%.
• The applicable rate for generation-skipping transfers (GSTs) is zero.
• Prior gifts must be calculated at the rate in effect at the decedent's date of death.

Some changes first apply for decedents dying after 2010 and thus are not reflected on the 2010 Form 706. For example, effective for estates of decedents dying after 2010 and before 2013, the 2010 Tax.

Indexing changes. The instructions also note that various dollar amounts and limitations relevant to Form 706 are indexed for inflation. For decedents dying in 2010, (a) the ceiling on special-use valuation is $1 million (same as for decedents dying in 2009); and (b) the amount used in computing the 2% portion of estate tax payable in installments is $1.34 million (up from $1.33 million for decedents dying in 2009). IRS says it will publish amounts for future years in an annual revenue procedure.

Executor documentation. The instructions state that executors must provide documentation of their status. Documentation will vary, but it may be a certified copy of the will or a court order designating the executor(s). A statement by the executor attesting to his status is insufficient.

Executor declaration. The verbiage just above the signature line (where the executor declares, under penalties of perjury, that the return is correct and complete) has been expanded by adding a statement that the executor (i) understands that IRS will share the executor's name and address with any other person who files a Form 706 or Form 8939 (Allocation of Increase in Basis for Property Acquired From a Decedent) for the estate, and (ii) requests IRS to share, with the executor, the name and address of any such person.

This contemplates that there may be conflicting filings such as the filing of a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and a Form 8939, for the same decedent. Indeed, Notice 2011-66, Sec. I.A. contains detailed information on how IRS will proceed in such cases.

Reminder. The instructions also point out that, in 2008, IRS added a worksheet to help executors figure how much of the estate tax may be paid in installments under Code Sec. 6166.

Paying the tax. The instructions state that the estate and GST taxes are due within nine months after the date of the decedent's death. They point out, however, for estates of decedents dying after Dec. 31, 2009 and before Jan. 1, 2011, the due date for payment is Sept. 19, 2011.

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return for estates of decedents dying after Dec. 31, 2009 and before Jan. 1, 2011can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/f706.pdf.  The Instructions for Form 706 can be viewed at http://www.irs.gov/pub/irs-pdf/i706.pdf.