Effective on September 28, 2007, the Internal Revenue Service released a revision to the "United States Estate (and Generation-Skipping Transfer) Tax Return -- Form 706" (PDF, 40 pages). Accompanying, new & updated Instructions for Form 706 (Rev. September 2007) (PDF, 32 pages) were also issued by the IRS.
However, the IRS did not yet issue a new Form 709, "United States Gift (and Generation-Skipping Transfer) Tax Return, or its Instructions, for the year 2007. Only the 2006 Form 709 and its Instructions are posted on the IRS website, which lists all IRS "Estate and Gift -- Forms and Publications".
The IRS references these forms in its general explanation about "Estate and Gift Taxes".
On October 2, 2007, Vincent F. Lackner, Jr., Esq., founder & President of The Lackner Group, Inc., of Pittsburgh, PA, posted onto the Pennsylvania Bar Association's "Probate & Trust" Law Division Listserv, his detailed analysis of the changes of the new 2007 Form 706, in comparison to the 2006 Form 706.
Last week, he had given me permission to post his analysis; and I do so now.
On page one of the new 2007 Form 706 Instructions, under the heading "Which Estates Must File", the IRS notes:Summary of 706 Changes from 2006 Final to 2007 Final
by Lackner Group
1) All Pages: Revision date changed from 2006 to 2007 (upper left corner and/or lower right corner)
2) Top of Page 1: Decedent date of death: after 2006, before 2008
3) Page 2, Part 3, Line 3: Inserted "you may be required" (in place of "you agree")
4) Page 2, Part 4, Line 4c: Changed instruction page reference from 10 to 11
5) Page 2, Part 4, Bottom: Moved Questions #8a and 8b from top of Page 3 to bottom of Page 2
6) Page 3, Part 4: Changed "10" to "10a" and changed text
7) Page 3, Part 4: Added Question #10b (regarding valuation discounts). Per the instructions, this affects Schedules A, F, and G (with instructions for all three schedules appearing only in the instructions on the back of Schedule F (Page 20 of the forms set).
8) Page 3, Part 4: Changed Question #14 from marital deduction (under transitional rule) to interests in foreign accounts
9) All Schedules: Added block in upper right corner for "Decedent's Social Security Number"
10) Schedule R, Part 2, Line 8: Changed factor from 3.173913 to 3.222222 (based on new marginal rate of 45%)
11) Schedule R, Part 3, Line 8: Changed marginal rate from 46% to 45%
12) Schedule R-1, Part 2, Line 6: Changed factor from 3.173913 to 3.222222 (based on new marginal rate of 45%)
13) Decedent's Social Security Number: Added block for this in upper right corner of most schedules.
The following page and schedules do not have a line for the name of decedent or social security number at the top (this is not a change from prior years):
Schedule A-1 (Page 9)
Schedule R (first page)
Presumably, the addition of the social security number at the top of most of the schedules was done to help identify a page/schedule if it becomes separated from the rest of the return. We have suggested to the IRS that it add blocks for this information on these three pages in a future version of the form.
Back of Schedule F (Page 20 of the forms set)
Valuation discounts are separated into two types
Schedule A: "effective discount"
Schedule F: "total accumulated discount"
Schedule G: "total accumulated discount"
The IRS is looking for the reduction from gross to net (expressed as a percentage).
An example of "effective discount" is provided for Schedule A. It includes a "grid" that displays multiple discounts:
a. Pro-rata value of fractional interest (before any discounts)
b. Minus: 10% discount for lack of control
c. Marketable minority interest value
d. Minus: 15% discount for lack of marketability
e. Non-marketable minority interest value
Effective discount equals (a minus e) divided by a [($100 - $76.50) / $100 = 23.50%]
Apparently the IRS wants this level of detail to appear at least on the attachment for Schedule A.
No example is provided for "total accumulated discount" (Schedules F and G).
Without a second example, it is not entirely clear what distinction the IRS is trying to draw between the two types of discounts. We are hoping to receive clarification from the IRS on this point in the near future.
The IRS specifically listed Schedules A, F, and G only because they are the schedules where valuation discounts most commonly appear. Discounts may also have to reported on other asset schedule, as appropriate, with a corresponding attachment that shows either "effective discount" or "total accumulated discount".
Alternate Valuation -- If the estate elects Alternative Valuation, it can get a little more complicated because then there are two asset values and two discounts (although it's possible that the percentage discount would be the same in both cases).
Some changes of note
Page 3. Return Preparer Penalties: income tax return penalties extended to estate tax return preparers.
Page 4. Maximum Rate on Table A: 45%. This somewhat simplifies the calculation and proof of interrelated taxes because, for the first time, there is only one tax rate above the applicable exclusion amount.
Page 12. Foreign Accounts: Must check the box on Page 3, Part 4, Line 14, if decedent had interest in/signature over such accounts.
For Decedents dying in 2007, Form 706 must be filed by the executor for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $2,000,000.In view of this threshold, the text in the online banner at the top of the new posted Form 706 (September 2007 Revision) might appear as a humorous invitation: "Please fill out the following form. You can save data typed into this form."