Tax Alert: Changes to Form 706 Estate and Gift Tax Return

The alert noted that some Form 706 software used by practitioners require a manual input of the gift tax payable line. It said that a number of preparers were reporting gift taxes actually paid rather than calculating the gift tax payable under date-of-death rates. These errors result in underpayment of estate tax due. Cases with this issue will involve estates where large gifts were made during life and at a time when tax rates were higher than at date of death.

The alert also noted these exclusions:

• The annual exclusion for gifts is $11,000 (2004−2005), $12,000 (2006−2008 and $13,000 (2009−present).
• The applicable exclusion amount is increased to $5 million for estates of decedents dying on or after Dec. 31, 2009
• The applicable exclusion amount for gifts made after Dec. 31, 2009, is $1 million.  For gifts made after Dec. 31, 2010, the applicable exclusion amount is increased to $5,000,000.

706 Filing Instructions

The IRS said that, although few significant changes have occurred on Form 706, one change will affect all filers: the elimination of the allowable State Death Tax Credit. For decedents dying in 2005 and later years, it is a deduction.

The IRS pointed out that the due date for filing a Form 706 for estates of decedents dying in 2010 is Sep. 19, 2011. As well, a request for an extension of time to file an estate or gift tax return must go to the Cincinnati Service Center, even if income or other tax returns are filed elsewhere.