Kerry L. Spindler, Esq, Goulston & Storrs, PC
On June 17, 2011, the IRS released draft Form 706, United States Estate Tax Return for decedents dying in 2010, and draft instructions thereto. On August 4, 2011, the IRS released draft Form 706-NA, United States Estate Tax Return for nonresident decedents not citizens of the United States dying on or after January 1, 2010, and draft instructions thereto.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was to have repealed the federal estate tax for decedents dying in 2010 and replace the step-up in basis traditionally available to property transferred at death with a modified carry-over basis regime. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA) restored the federal estate tax for 2010 decedents, subject to a $5M federal estate tax exemption amount and a 35% maximum federal estate tax rate, and also restored the step-up in basis rules. This notwithstanding, TRA § 301(c) permits the executor or administrator of a 2010 estate to elect into EGTRRA’s zero estate tax/modified carry-over basis rules. This election, as well as any reporting of a GST transfer resulting from a 2010 death, will be made on a timely filed Form 8939 (see IRS Notice 2011-66).
Draft Form 706 & Instructions
This Form 706 is to be used only with respect to decedents who died during calendar year 2010. The Form 706 will be due on or before September 19, 2011 with respect to the estates of decedents who died between January 1, 2010 and December 16, 2010. This is consistent with TRA § 301(d)(1) and § 301(d)(2), which extended the due date for filing the estate tax return, paying estate tax, making qualified disclaimers and allocating GST to no sooner than 9 months from the date of the TRA’s enactment. Also noteworthy are the following:
- As discussed above and pursuant to TRA § 301(c), the executor or administrator of a 2010 estate may elect out of estate tax and elect into EGTRRA’s modified carry-over basis treatment of property acquired or passing from the decedent.
- Pursuant to TRA § 302(a)(1), the federal estate tax exclusion amount is $5,000,000.
- Pursuant to TRA § 302(a)(2), the maximum federal estate tax rate is 35%.
- Pursuant to TRA § 302(c), the applicable rate for generation skipping transfers is zero.
- Pursuant to TRA § 302(d)(1), prior gifts made by the decedent must be calculated at the rate in effect at the date of the decedent’s death.
- Executors and administrators must provide documentation of their status, such as a certified copy of the decedent’s will or a court order designating the executor or administrator.
- The ceiling on special use valuation is $1,000,000.
- The amount used in computing the 2% portion of estate tax payable in installments is $1,340,000.
Draft Form 706-NA & Instructions
An executor or administrator must file Form 706-NA if the non-resident/non-citizen decedent’s gross estate located in the United States is valued at more than $60,000 as of the decedent’s date of death. Like the Form 706, the Form 706-NA will be due on or before September 19, 2011 with respect to the estates of decedents who died between January 1, 2010 and December 16, 2010. Also like the Form 706:
- The maximum federal estate tax rate is 35%.
- The applicable rate for generation skipping transfers is zero with respect to decedents who died in 2010 and 35% for decedents who died after 2010.
- Prior gifts made by the decedent must be calculated at the rate in effect at the date of the decedent’s death.
- Executors and administrators must provide documentation of their status.
Update as of August 29, 2011: The IRS has removed the draft Form 706 for decedents dying in 2010 from its website. The IRS has also updated the draft instructions to Form 706 as of August 1, 2011, and the draft instructions to Form 706-NA as of August 24, 2011.