Issue: I received the following question from a Caller:
My mother recently died and I have just learned that I am the Executor of her Estate. My wife told me that she thinks I will have to file a “706,” which she says is used to pay taxes on my mother’s estate. Is this true? What is a “706”? Where does it have to be filed, and with whom? The IRS? When is it due? Is this something I can do on my own or do I need a CPA?
A Federal Estate Tax Return (which is commonly referred to as “IRS Form 706“) is generally due within nine (9) months from the date of death of the decedent whose estate is at issue. In this case, the Form 706 is normally due nine (9) months from your mother’s date of death. However, it is possible to request—and automatically obtain—a six-month extension of time to file the Form 706. To obtain the automatic extension of time to file the Form 706, you, since you are the Executor of your mother’s estate, will need to complete and send to the Internal Revenue Service IRS Form 4768 (which is entitled, “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation Skipping Transfer) Taxes“), which is the proper manner by which to request the automatic 6-month extension of time to file the estate tax return. NOTE: The IRS MUST RECEIVE the Form 4768 PRIOR to the date that is nine (9) months from your mother’s date of death. Thus, if you need an extension of time to file Form 706, don’t delay! If you miss the deadline to request an extension of time to file Form 706, penalties and interest will begin to accrue.
Important: You should understand that there is a significant difference between asking the IRS for an extension of time to FILE the Form 706 and asking the IRS for an extension of time to PAY the estate tax that is due. Generally, it is much more difficult to receive an extension of time to PAY the estate tax that is due than it is to receive an extension of time to FILE the Form 706. Form 4768 can be also be used to ask the IRS for an extension of time to PAY the estate tax; just be sure to complete Part III of Form 4768. Part III of Form 4786 is entitled, Extension of Time to Pay—Section 6161 and this section must be completed accurately. In addition, there are additional “hoops” that you will have to jump through and certain criteria your mother’s estate has to satisfy to get an extension of time to PAY the estate tax.
Any estate tax that is due to the IRS is calculated and reported on Form 706. The IRS’s current version of Form 706 and the Instructions for Form 706 are available at http://www.irs.gov. Be careful to use the appropriate version of the Form 706 since these forms are revised often, usually annually, by the IRS. How do you know you’re using the correct version of Form 706? Look under the title of Form 706 at the top of the first page of the form. You will find a statement indicating for which year or years that version of the Form 706 applies. The most current version of Form 706 must be used for persons who died in the preceding year. Importantly, as you may know, Congress just enacted and (on December 17, 2010) the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This law makes substantial changes to the manner in which estate taxes are assessed against a decedent’s estate. The IRS may not yet have prepared the Form 706 that should be used in your mother’s estate.
As you may have gathered by now, the estate tax return is quite complicated and involved. Very few publications provide detailed information on how to complete a Form 706. The IRS does publish Instructions for Form 706 as well as several other publications dealing with estates and estate tax issues, such as IRS Pub 559 (Survivors, Executors, and Administrators) and IRS Pub 950 (Introduction to Estate and Gift Taxes). This should be a good starting place for you.
Finally, it is very important for you, as the Executor of your mother’s estate to retain the services of either (1) an Accountant (a CPA or an Enrolled Agent, sometimes called “EAs”) or (2) an Estates & Trusts Attorney to prepare the Form 706 for your signature as the Executor. The Accountant or the Attorney should have SUBSTANTIAL AND PROVEN EXPERIENCE completing the federal estate tax return; they are not for the “faint of heart.” There are many traps for the unwary.
I am sorry to hear of your mother’s passing. I know that this is a difficult time for you. However, please take your job as the Executor of her estate seriously. Do not wait to get started with the administration of her estate. There are many decisions that you may have to make as the Executor. Fortunately, you can and should seek legal and accounting advice from qualified professionals.
Disclaimer: Please note that the information in this blog post does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact-specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. Finally, the information provided to you in this blog post does not create an attorney-client relationship.
Notwithstanding the disclaimer, I hope this information has been helpful. Please leave a comment about this post if you have the time. Thank you. James B. Creighton, Esq., Creighton Law Offices