What Is Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return?
Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return is an Internal Revenue Service (IRS) form used by an executor of a decedent’s estate to calculate the estate tax owed, according to Chapter 11 of the Internal Revenue Code (IRC). The tax is levied on the entire taxable estate, not just on the share a specific beneficiary receives. Executors also use Form 706 to calculate the generation-skipping transfer tax (GSTT) imposed by Chapter 13 of the IRC.
- Form 706 is used by an executor of a decedent’s estate to calculate?estate tax owed, according to Chapter 11 of the Internal Revenue Code (IRC), and to calculate the generation-skipping transfer tax (GSTT) imposed by Chapter 13 of the IRC.
- Form 706 must be filed on behalf of a deceased U.S. citizen or resident whose gross estate, adjusted taxable gifts, and specific exemptions exceed $12.06 million in 2022 (adjusted to $12.92 million in 2023, to account for inflation).
- Form 706-GS(D) is used to calculate taxes due on trust distributions subject to the generation-skipping transfer tax (GSTT).
Form 706 is used by an executor of an estate to calculate the amount of tax owed on estates valued at more than $12.06 million if the decedent died in 2022 ($12.92 million in 2023).
Form 706 also helps executors determine the overall value of an estate prior to distributing any assets to beneficiaries as outlined in the decedent’s will or trust. The IRS treats any inheritance on a stepped-up valuation—or a step-up basis. That means the cost basis is adjusted to the fair market value of the inherited property as of the date of death.
Using the stepped-up valuation methodology allows heirs to minimize capital gains taxes. The method also allows for a cleaner valuation process in terms of limiting the number of administrative tasks associated with the estate.
Who Can File Form 706?
Form 706 must be filed by the executor of the estate of every U.S. citizen or resident:
- Whose gross estate, adjusted taxable gifts, and specific exemptions total more than the exclusion amount: $12.06 million for decedents who died in 2022 ($12.92 million in 2023), or
- Whose executor elects to transfer the “deceased spousal unused exclusion” (DSUE) amount to the surviving spouse, regardless of the size of the decedent’s gross estate.
To determine if the estate exceeds the exclusion amount, add together amounts 1, 2, and 3 below.
- The adjusted taxable gifts made by the decedent after Dec. 31, 1976
- The total specific exemption allowed under Section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after Sept. 8, 1976
- The decedent’s gross estate valued as of the date of death
The gross estate includes:
- All property in which the decedent had an interest (including real property outside the U.S.)
- Certain transfers made during the decedent’s life without adequate consideration
- The includable part of joint estates with rights of survivorship
- The includable part of tenancies by the entirety
- Certain life insurance proceeds
- Property over which the decedent had a general power of appointment
- Dower or curtesy (or statutory estate) of the surviving spouse
- Community property in which the decedent had an interest
The IRS uses a stepped-up valuation methodology in determining the value of an estate.
Form 706 is available on the IRS webpage.
Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, is used to calculate estate tax and GSTT liability for nonresident alien decedents.
Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions, is used to calculate taxes due on trust distributions subject to the GSTT. Any skip person who receives a taxable distribution coming from a trust must use Form 706-GS(D) to calculate and report the tax due.
A generation-skipping transfer tax (GST) is a transfer of money or property, either as an inheritance or a gift, to someone who is two or more generations below the grantor. The person who receives the inheritance or gift is called the “skip person.” While a skip person is often a grandchild, it could be anyone who’s at least 37? years younger than the grantor.
The GSTT is imposed on gifts and inheritances that a skip person receives. This ensures that taxes are paid at each generational level. The GSTT has the same lifetime exemption as the federal estate and gift taxes—$12.06 million for 2022 ($12.92 million for 2023).
Trustees must report taxable distributions to skip persons using Form 706-GS(D-1), Notification of Distribution From a Generation-Skipping Trust. Note that trustees must also provide the skip person with the information needed to figure the tax due on the distribution.
Where to Mail Form 706
You must file a paper Form 706 to report estate or GSTT within nine months of the date of the decedent’s death. If you can’t file Form 706 by the due date, you can apply for an automatic six-month extension using Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.
File Form 706 at the following address:
- Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999
If you’re using a private delivery service (including DHL Express, FedEx, and UPS), send Form 706 to:
- Internal Revenue Submission Processing Center, 333 W. Pershing Road, Kansas City, MO 64108
If you’re filing an amended Form 706, use the following address (even if you’re using a private delivery service):
- Internal Revenue Service Center, Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915
The estate tax and the GSTT are due within nine months of the date of the decedent’s death. Make checks payable to “United States Treasury” and note the decedent’s name, Social Security number, and “Form 706” on the check. Alternatively, you can pay online through the Electronic Federal Tax Payments System (EFTPS).
Does Every Estate Have to File a Form 706?
Not all estates must file a Form 706. A form has to be filed on behalf of someone who has died when the gross estate, adjusted taxable gifts and tax exemption surpasses the filing limit for the year of the person's death.
What's the Difference Between IRS Form 706 and IRS Form 709?
IRS Form 706 is filed by the executor of an estate on behalf of someone who has died to determine what taxes are owed, while IRS Form 709 is filed by an individual to report to the government any gifts that have surpassed the annual limit.
What Triggers an Estate Tax Return?
An estate that pulls in more than $600 in annual gross income must file Form 1041, U.S. Income Tax Return?for Estates and Trusts. The estate may also have to pay quarterly estimated taxes.