What Is IRS Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return?

IRS Form 706 from the Internal Revenue Service is used by an executor of a decedent's estate to calculate estate tax owed according to Chapter 11 of the Internal Revenue Code. The tax covers the entire estate, not just any share received by a beneficiary. Executors also use Form 706 to calculate the generation-skipping transfer tax imposed by Chapter 13.

Who Can File IRS Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return?

IRS Form 706 must be filed on behalf of a U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemptions, exceeds $11,180,000 in 2018, which is also known as the exclusion amount. The executor also has to file the form should the executor transfer any amount to the surviving spouse.

Form 706 is the IRS’ way of helping executors determine the overall value of an estate prior to distributing any assets to beneficiaries as outlined in the will. The IRS treats any inheritance on a stepped-up valuation, the cost basis is adjusted to the current fair market value of the inherited property. The stepped-up valuation is as of the date of death or six months after death. For example, any shares someone bought prior to death would be valued at their current level, not the original purchase price.

Using the stepped-up valuation methodology is a way for 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. 

How to File IRS Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return

IRS Form 706 is used to report estate and/or GST tax within nine months after the date of the decedent's death. If you are unable to file Form 706 by the due date, you may receive an extension of time to file. For Forms 706 filed January 1, 2019, through June 30, 2019, use the following address:

  • Department of the Treasury Internal Revenue Service Center, Cincinnati, OH 45999

If using a PDS, send Form 706 to:

  • 201 W. River Center Boulevard Attn: Submission Processing, Stop 31, Covington, Kentucky 41011

For Forms 706 filed after June 30, 2019, use the following address:

  • Department of the Treasury Internal Revenue Service Center, Kansas City, MO 64999

If using a PDS, send Form 706 to:

  • Internal Revenue Service 333 W. Pershing Road, Kansas City, MO 64108

IRS Form 706 and the Generation-Skipping Tax

The generation-skipping transfer tax feature of IRS Form 706 intends to prevent the deceased from lowering a particularly large estate’s tax burden by passing over one generation for the next generation, for example, leaving their estate to their grandchildren instead of their children. If subject to the estate tax, a decedent’s grandchildren may also be subject to the generation-skipping transfer tax. The generation-skipping tax could be as much as 40 percent. 

Notably, if any gift or inheritance is made to a relative, that relative has to be within one generation of the decedent, unless a prior death prevents that from happening. Also, any gifts or inheritances to someone who is not related to the decedent, and who is at least 37½ years younger than the deceased, could be subject to the generation-skipping tax. 

As part of the estate planning process, one option for people looking to lower the tax burden on a particularly large estate is to direct a portion of their wealth to a qualified charitable organization.

Download IRS Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return

Here is a link to a downloadable Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return.

Key Takeaways

  • IRS Form 706 from the Internal Revenue Service is used by an executor of a decedent's estate to calculate estate tax owed according to Chapter 11 of the Internal Revenue Code.
  • IRS Form 706 must be filed on behalf of a U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemptions, exceeds $11,180,000 in 2018.
  • If subject to the estate tax, a decedent’s grandchildren may also be subject to the generation-skipping transfer tax.