Form 706 Changes

The unified credit equivalent is $1,500,000 (2004 – 2005), $2,000,000 (2006 – 2008) and increases to $3,500,000 for decedents dying on or after January 1, 2009.

For Estate Tax returns after 12/31/1976, Line 4 of Form 706 lists the cumulative amount of adjusted taxable gifts within the meaning of IRC section 2503. The computation of gift tax payable (Line 7 of Form 706) uses the IRC section 2001(c) rate schedule in effect as of the date of the decedent’s death, rather than the actual amount of gift taxes paid with respect to the gifts.

With the top bracket tax rates decreasing from 55% (in 2001) down to 45% (in 2007) and an annual drop in rates in-between, Estate Tax Attorneys have encountered situations where gift taxes paid were greater than the tax calculated using the rate in effect at the date of death.

It appears that some Form 706 software used by practitioners require a manual input of the gift tax payable line. Some preparers are 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. (Posted 6-5-06)

Exclusions

• The annual exclusion for gifts is $11,000 (2004 – 2005), $12,000 (2006 – 2008), $13,000 (effective January 1, 2009 per IR 2008 -117).
• The applicable exclusion amount is increased to $3,500,000 for estates effective for decedents dying on or after January 1, 2009 and remains at $1,000,000 for gifts.

Federal Transfer Certificates (International)

Estate and Gift has received many questions about Federal Transfer Certificates (regarding international issues.)  For instructions about obtaining transfer certificates, contact:

Estate Tax Group S:SE:SP:EG:EC:1205
I.R.S. SB/SE Estate and Gift Tax Program
820 First St., N.E.: UCP-CNN-730
Washington, DC 20002-4243

For questions about transfer certificates or about the estate and gift taxation of nonresidents of the United States, use (202) 874-1660.  For all other estate and gift tax questions, use (800) 829-1040.

Form 706

The instructions (which include rate schedules) may be found at the “Forms and Publications” link, below.

There are few significant changes to Form 706.  The one change that will impact all filers is the elimination of  the allowable State Death Tax Credit; for decedents dying in 2005 and later years, it is a deduction.

Important information for Form 709/709A

Time for filing clarification: Page 4 of the instructions for Form 709 states (Under When to File) that “…you must file the 2003 Form 709 on or after January 1…). It may not be clear, but this means that returns should not be filed until January 1 through the due date of the year following the year in which the gift is made. In other words, any gifts made in 2004 will not be due (and cannot be processed) until after December 31, 2004.

Individuals who make certain qualifying gifts are required to file Form 709, United States Gift Tax Return.

Form 709-A is Now Obsolete

Form 709-A, United States Short Form Gift Tax Return, is obsolete and should not be filed. All gift tax returns must now be filed using Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If you are filing a request for an extension of time to file an estate or gift tax return, remember that the request must go to the Cincinnati Service Center, even if you file your income or other tax returns elsewhere.