PROFESSIONAL DEVELOPMENT FOUNDATION, INC.

Professional Development Foundation, Inc.’s text The Federal Estate Tax: Preparation of the 706 employs a how-to approach to the preparation of Form 706, the federal estate tax return. It leads the reader step by step through the return. At each step, the reader may employ the text as a “desk book” to answer questions which arise during the planning and compliance level, as well as specific questions which arise during preparation of the return.

The text provides information, explanations, and examples of each entry on the return, including reporting requirements, itemizations, elections, deductions, and credits. Form 706 provides an excellent format for studying and understanding the provisions of the Internal Revenue Code. By analyzing the structure of Form 706, the reader not only develops a clear picture of the estate tax, but also learns to apply the underlying rules to various situations.

The subjects listed below provide a brief overview of the text The Federal Estate Tax: Preparation of the 706 and the form and flow of the Form 706. The reader is advised that the text and the information provided here serve as educational supplements only. They are not source material. Nor, are they a substitute for legal and other professional advice. All readers are advised to obtain legal and/or other professional advice on any and all matters related to the subject matter of the text and this website. Readers are advised to consult all original source materials related to or pertaining to, the subject matter of the text and this website including, but not limited to, the Internal Revenue Code, regulations (final, temporary, and proposed), rulings, court decisions, and IRS guidance, notices, and publications.

Given the mutable nature of the laws surrounding the estate tax and other transfer taxes, Professional Development Foundation, Inc. updates the text regularly, taking into account the information and materials available through the date of each revision. The revisions or updates are designed to assist readers in keeping abreast of current developments. The current version of the text includes Update Number 107, revisions through October 21, 2011.

Introduction to The Federal Estate Tax:

Preparation of the 706

New Form 706 (Rev. August 2011)

The IRS has released Form 706 (Rev. August 2011), United States Estate (and Generation-Skipping Transfer) Tax Return, estate of a citizen or resident of the United States and Instructions. This version of the form is to be filed for decedents dying after December 31, 2010, and before January 1, 2012. Part I, of Form 706, is set forth below.

Flow and Format of the Text

The Federal Estate Tax: Preparation of the 706 tracks the flow and format of Form 706. The text begins with an overview of the federal estate tax and addresses the repeal and retroactive reinstatement of the estate tax in 2010 including how to make the special Section 1022 Election to “opt-out” of the estate tax for decedents dying in 2010. Chapter 2 deals with the filing requirements, including the portability election under §2010(c)(5)(A) to allow the decedent’s surviving spouse to use the deceased spousal unused exclusion amount. Chapter 3 discusses elections by the executor and the general information entered at Part 4. The text then addresses the gross estate and items included in Part 5 of the Recapitulation: Schedules A (Real Estate), Schedule B (Stocks and Bonds), Schedule C (Mortgages, Notes, and Cash), Schedule D (Insurance on the Decedent’s Life), Schedule E (Jointly Owned Property), Schedule F (Other Miscellaneous Property), Schedule G (Transfers During Decedent’s Life), Schedule H (Powers of Appointment), and Schedule I (Annuities). The qualified conservation easement exclusion (Schedule U) is also discussed.

Chapters 17 through 21 discuss the deductions allowed against the gross estate to arrive at the tentative taxable estate. The deductions entered at Part 5 of the Recapitulation are reported on the following schedules: Schedule J (Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims), Schedule K (Debts of the Decedent) and (Mortgages and Liens), Schedule L (Net Loss During Administration) and (Expenses Incurred in Administering Property Not Subject to Claims), Schedule M (Bequests to Surviving Spouse), and Schedule O (Charitable, Public, and Similar Gifts and Bequests). The IRS has announced it will soon release Schedule PC for filing a section 2053 protective claim for refund, for decedents dying on or after January 1, 2012.

The text addresses the manner of calculating the adjusted taxable gifts and the total gift tax payable with respect to gifts made by the decedent after December 31, 1976 to arrive at the gross estate tax. The amount of the maximum unified credit (applicable credit amount) is entered at Line 9, Part 2-Tax Computation.

Chapter 22 deals with the credits against the estate tax including the credit for foreign death taxes (Schedule P) and the credit for tax on prior transfers (Schedule Q), to arrive at the net estate tax.

Chapter 25 discusses the generation-skipping transfer (GST) taxes payable (from Schedule R, Part 2) to figure the total transfer taxes due.

Finally, Chapter 23 addresses the payment of tax, extensions of time to pay, and liability for payment.

The text includes two fully completed sample returns: one is for the estate of a decedent who was a resident of a separate property state; and the other for the estate of a decedent who was a resident of a community property state. Readers are advised to consider carefully in reviewing these samples that each sample has been completed based upon a hypothetical decedent dying in a particular year. For estates of decedents dying, generation-skipping transfers, and gifts made, after that date, subsequent amendments to estate, gift and GST tax provisions must be taken into account.