Monday, September 12, 2011

Revised IRS 706 Form Released

On September 8, 2011, the IRS released its long-awaited, really final Form 706 United States Estate (and Generation Skipping Transfer) Tax Return (PDF 2.52 MB, 28 pages) for decedents dying in 2010, along with revised (July 2011) Instructions (PDF 441K, 48 pages).  The Form 706 is in a fillable PDF format that applies to decedents who died in 2010.

Why is this the "really" final form?  Because the IRS issued an initial July 2011 form on September 3, 2011, then revised it somewhat, and reissued it again on September 8, 2011.  See:  Estate Taxes Are Back! Are You Prepared? (09/12/11) by Julie Garber, posted on the Wills & Estates section of

Vince Lackner, of The Lackner Group, explained at least some of the errors made in the initial version:
The IRS released the final version of the 706 for 2010 at 1:05 am this past Saturday morning (September 3, 2011). This version of the 706 is included in the current 6-in-1 [software] update. * * * 
Yesterday we brought two issues to the attention of the IRS. As a result, it will be re-posting the 706 within the next 12 hours:

    (1) The "penalties of perjury" statement at the bottom of Page 1 should not have the second sentence (" in the United States"). This was evidently a copy/paste from the 706-NA, and will be removed by the IRS. We contemplated this change in the update currently posted on our website. * * *

    (2) Schedule F (Question #1 at the top) should no longer have a reference to "collections whose artistic or collectible value combined at date of death exceeded $10,000." There appears to have been no statutory or regulatory authority for this additional reporting threshold (Reg. 20.2031-6(b)). This reference was removed from the instructions for Schedule F, but inadvertently left on Schedule F itself. * * *
The "What's New" section of the July 2011 revised Instructions summarizes the updates from the prior form:
  • Use this revision of Form 706 only for the estates of decedents dying in calendar year 2010.
  • The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Act) included several provisions affecting the 2010 Form 706. They are:
    • a. Executors of estates of decedents who died in 2010 may make a special election to apply modified carryover basis treatment (within the meaning of section 1022) under section 301 of the Act. If the special election is made, the estate will not be subject to federal estate tax and Form 706 should not be filed. See Notice 2011-66, 2011-35 I.R.B. 184 ( irb11-35.pdf) and Form 8939 and its instructions for further information on the time and manner of making the special election.
    • b. For decedents dying between January 1, 2010, and December 16, 2010, the due date for Form 706 is September 19, 2011.
    • c. The applicable exclusion amount is $5,000,000 (a credit equivalent of $1,730,800).
    • d. The maximum estate tax rate is 35%.
    • e. The applicable rate for generation-skipping transfers is zero.
    • f. Prior gifts must be calculated at the rate in effect at the decedent’s date of death.
  • Various dollar amounts and limitations relevant to Form 706 are indexed for inflation. For decedents dying in 2010, the following amounts are applicable:
    • a. The ceiling on special-use valuation is $1,000,000.
    • b. The amount used in computing the 2% portion of estate tax payable in installments is $1,340,000. The IRS will publish amounts for future years in annual revenue procedures.
  • Executors must provide documentation of their status.
The need for the 706 form to be revised in compliance with applicable law and in advance of a firm upcoming deadline, is explained in Alert: IRS Releases Final Form 706 and Instructions With Respect to 2010 Deaths (09/09/11), by Kerry L. Spindler, Esq,of Goulston & Storrs, PC, posted by the Boston Bar Association Trusts & Estates Section:
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was to have repealed the federal estate tax for decedents dying in 2010 and replace the step-up in basis traditionally available to property transferred at death with a modified carry-over basis regime.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA) restored the federal estate tax for 2010 decedents, subject to a $5M federal estate tax exemption amount and a 35% maximum federal estate tax rate, and also restored the step-up in basis rules.
This notwithstanding, TRA § 301(c) permits the executor or administrator of a 2010 estate to elect into EGTRRA’s zero estate tax/modified carry-over basis rules. This election (a § 1022 Election) will be made on a timely filed Form 8939 (see IRS Notice 2011-66).
This Form 706 is to be used only with respect to decedents who died during calendar year 2010 where the executor or administrator is not making a § 1022 Election. * * *
An excellent summary regarding the new form and its crucial filing deadline was posted by the Journal of Accountancy in Estate Tax Form, Instructions Finalized for 2010; Due Sept. 19 (09/08/11).

The American Institute of Certified Public Accountants, in its August 8, 2011 letter to the Department of the Treasury and the IRS (Doc, 4 pages, with links to sources), has requested extension of, or relief from, the looming deadlines for filing and tax payment, which could occur as early as September 19, 2011.

Update: 2011-09-13:

The IRS has granted relief in application of filing and payment deadlines.  See: PA EE&F Law Blog posting 2010 Decedent Estates Granted Federal Filing & Payment Relief (09/13/2011).