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Instructions for Form 706 (9/2007)Table of Contents The executor of a decedent's estate uses Form 706 to figure the estate tax imposed by Chapter 11 of the Internal Revenue Code. This tax is levied on the entire taxable estate, not just on the share received by a particular beneficiary. Form 706 is also used to compute the generation-skipping transfer (GST) tax imposed by Chapter 13 on direct skips (transfers to skip persons of interests in property included in the decedent's gross estate). For decedents dying in 2007, Form 706 must be filed by the executor for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $2,000,000. To determine whether you must file a return for the estate, add:
The gross estate includes all property in which the decedent had an interest (including real property outside the United States). It also includes:
For more specific information, see the instructions for Schedules A through I. File Form 706 for the estates of decedents who were either U.S. citizens or U.S. residents at the time of death. For estate tax purposes, a resident is someone who had a domicile in the United States at the time of death. A person acquires a domicile by living in a place for even a brief period of time, as long as the person had no intention of moving from that place. File Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States, for the estates of nonresident alien decedents (decedents who were neither U.S. citizens nor residents at the time of death). All references to citizens of the United States are subject to the provisions of sections 2208 and 2209, relating to decedents who were U.S. citizens and residents of a U.S. possession on the date of death. If such a decedent became a U.S. citizen only because of his or her connection with a possession, then the decedent is considered a nonresident alien decedent for estate tax purposes, and you should file Form 706-NA. If such a decedent became a U.S. citizen wholly independently of his or her connection with a possession, then the decedent is considered a U.S. citizen for estate tax purposes, and you should file Form 706. The term “executor” means the executor, personal representative, or administrator of the decedent's estate. If none of these is appointed, qualified, and acting in the United States, every person in actual or constructive possession of any property of the decedent is considered an executor and must file a return. You must file Form 706 to report estate and/or generation-skipping transfer tax within 9 months after the date of the decedent's death unless you receive an extension of time to file. Use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an automatic 6-month extension of time to file.
Private delivery services. You can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns and payments. These private delivery services include only the following.
File Form 706 at the following address: Department of the Treasury The estate and GST taxes are due within 9 months after the date of the decedent's death unless an extension of time for payment has been granted, or unless you have been granted an election under section 6166 to pay in installments, or under section 6163 to postpone the part of the tax attributable to a reversionary or remainder interest. These elections are made by checking lines 3 and 4 (respectively) of Part 3—Elections by the Executor, and attaching the required statements. If the tax paid with the return is different from the balance due as figured on the return, explain the difference in an attached statement. If you have made prior payments to the IRS, attach a statement to Form 706 including these facts. 
All executors are responsible for the return as filed and are liable for penalties provided for erroneous or false returns. If two or more persons are liable for filing the return, they should all join together in filing one complete return. However, if they are unable to join in making one complete return, each is required to file a return disclosing all the information the person has in the case, including the name of every person holding an interest in the property and a full description of the property. If the appointed, qualified, and acting executor is unable to make a complete return, then every person holding an interest in the property must, on notice from the IRS, make a return regarding that interest. The executor who files the return must, in every case, sign the declaration on page 1 under penalties of perjury. If the return is prepared by someone other than the person who is filing the return, the preparer must also sign and provide the information requested at the bottom of page 1. If you find that you must change something on a return that has already been filed, you should:
If you have already been notified that the return has been selected for examination, you should provide the additional information directly to the office conducting the examination. If the decedent was a citizen or resident and died testate, attach a certified copy of the will to the return. If you cannot obtain a certified copy, attach a copy of the will and an explanation of why it is not certified. Other supplemental documents may be required as explained below. Examples include Forms 712, 709, and 706-CE, trust and power of appointment instruments, death certificate, and state certification of payment of death taxes. If you do not file these documents with the return, the processing of the return will be delayed. If the decedent was a U.S. citizen but not a resident of the United States, you must attach the following documents to the return:
You may show the money items on the return and accompanying schedules as whole-dollar amounts. To do so, drop any amount less than 50 cents and increase any amount from 50 cents through 99 cents to the next higher dollar.
Late filing and late payment. Section 6651 provides for penalties for both late filing and for late payment unless there is reasonable cause for the delay. The law also provides for penalties for willful attempts to evade payment of tax. The late filing penalty will not be imposed if the taxpayer can show that the failure to file a timely return is due to reasonable cause. Executors filing late (after the due date, including extensions) should attach an explanation to the return to show reasonable cause.
Valuation understatement. Section 6662 provides a 20% penalty for the underpayment of estate tax that exceeds $5,000 when the underpayment is attributable to valuation understatements. A valuation understatement occurs when the value of property reported on Form 706 is 65% or less of the actual value of the property. This penalty increases to 40% if there is a gross valuation under-
statement. A gross valuation understatement occurs if any property on the return is valued at 40% or less of the value determined to be correct. These penalties also apply to late filing, late payment, and underpayment of GST taxes.
Return preparer. The Small Business and Work Opportunity Tax Act of 2007 (Act) amended section 6694 to extend the application of income tax return preparer penalties to all tax return preparers, including estate tax return preparers. Under the amended provision and transitional relief provided by Notice 2007-54, 2007-27 I.R.B. 12 estate tax return preparers, who prepare any return or claim for refund which reflects an understatement of tax liability due to willful or reckless conduct, are subject to a penalty of $5,000 or 50% of the income from (or income to be derived from), whichever is greater, for the preparation of each such return. See section 8246 of the Act and Notice 2007-54 for more details.
Internet. You can access the IRS website 24 hours a day, 7 days a week at www.irs.gov to:
CD/DVD for tax products. You can order Publication 1796, IRS Tax Products CD, and obtain:
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