Friday, September 23, 2011

IRS Issues Revised 706 Instructions & Preparer Requirements

On September 22, 2011, the IRS issued revised Instructions for the recently-finalized Form 706, according to Vincent F. Lackner, Jr., Esq., who sent an email to customers of The Lackner Group, Inc. today.  

As a software developer, he has tracked the development of that form and its instructions carefully.
Early yesterday [09/22/11] evening, the IRS authorized a final draft of the US 706 Instructions for 2011 for release to the general public.
Please feel free to download it from the following link and to circulate it to interested parties:

The IRS's ability to post new forms and instructions to its website has been temporarily interrupted due to scheduled maintenance. When it is again able to post to its website next Wednesday morning (9/28/2011), the "Draft" watermark will be removed from this version.

The key change in these instructions relates to the portability of an unused exclusion amount for a married couple from the 1st estate to the 2nd estate. This feature is currently available only for 2011 and 2012 estates. * * *
Once finalized, those Form 706 Instructions should be updated on the IRS Online Instructions for Forms web page.

Vince also sent a detailed comparison of prior Form 706 Instructions and the latest issuance, which relates to the revised Form 706, issued on September 8, 2011.  See: PA EE&F Law Blog postings Revised IRS 706 Form Released (09/12/11) and 2010 Decedent Estates Granted Federal Filing & Payment Relief (09/13/11).

Vince emphasized an important point regarding filing of a Form 706 under certain circumstances:
Even for a married 2011 decedent with a gross estate of $5m or less (there are about 950,000 of these annually), you would need to file a timely and complete 706 in the 1st estate in order to preserve the unused exclusion amount for the 2nd estate.
You might consider filing an extension request (Form 4768) to gain more time to analyze this issue pending the IRS' release of the final 706 Instructions for 2011 sometime next week. * * *
Separately, on September 21, 2011, the IRS issued a Press Release entitled IRS Issues Guidance to Further Implement Return Preparer Oversight, IR-2011-96, which provided "clarification for tax return preparers about when to renew their preparer tax identification numbers (PTINs), how suitability testing will be conducted, and when the continuing education requirement will begin."

Key points include:
  • The return preparer initiative requires anyone who is paid to prepare all or substantially all of any federal tax return or claim for refund to register with the IRS and obtain a PTIN. PTINs must now be renewed on a calendar year basis. 
  • Certain preparers (individuals who are not attorneys, certified public accountants, or enrolled agents) also must pass a competency examination, undergo a suitability check and complete continuing education courses annually. 
  • The IRS will designate individuals who meet these requirements as a Registered Tax Return Preparer, who will be authorized to prepare federal tax returns and claims for refunds and to represent their clients during an IRS examination of a tax return or claim for refund that the individual signed as the paid tax return preparer.
  • All PTIN holders must renew their numbers using the online PTIN application or paper Form W-12 and pay the required fee ($64.25 for 2012) after Oct. 15 and before Jan. 1 annually.
  • Certain tax return preparers who must pass a suitability check will have to provide their fingerprints so that a Federal Bureau of Investigation database search can be conducted. Generally, the fingerprint requirement will affect those preparers who currently have provisional PTINs.
  • Attorneys, certified public accountants, enrolled agents, enrolled retirement plan agent and enrolled actuaries also are expected to be exempt from the fingerprinting requirement at this time.  However, these individuals also must answer all the suitability questions asked on the PTIN application, such as whether they have been convicted of a felony in the previous 10 years.
Also on September 21, 2011, the IRS published proposed regulations (REG-116284-11) that would establish user fees for fingerprinting and taking the competency examination. 
As proposed, the IRS portion of the fingerprinting fee would be $33, and the IRS portion of the testing fee would be $27. These user fees are in addition to any fees charged by the third-party vendors administering the programs. The fees to be charged by third-party vendors are not being announced at this time, but the total fees, including the IRS user fees, are expected to be between $60 and $90 for fingerprinting and $100 and $125 for testing.
For IRS guidance regarding its PTIN program, visit  You can watch an introductory video here (01/11).