Form 706: Who Must File, Valuation, and Payment Options

Form 706 is the federal estate (and generation-skipping transfer) tax return. Executors file it within nine months of a decedent’s death to report the estate, calculate any tax owed, and — when it applies — preserve a surviving spouse’s unused exclusion. For 2026 deaths, filing is required only when the gross estate plus adjusted taxable gifts exceeds $15,000,000, a threshold set by the One, Big, Beautiful Bill signed into law on July 4, 2025.¹ Above that exclusion, the tax reaches 40%.² The tax falls on the transfer of the estate itself, not on what any individual heir receives.

Who Has to File

Filing is required when the gross estate combined with adjusted taxable gifts made during the decedent’s lifetime exceeds the basic exclusion amount for the year of death. For 2026, that figure is $15,000,000.¹ The gross estate is measured before subtracting debts, expenses, or deductions, so estates that ultimately owe zero tax can still cross the filing threshold.

The gross estate includes every asset the decedent had an interest in at death: real estate, stocks and bonds, bank accounts, business interests, life insurance proceeds (even when payable to someone other than the estate), annuities, jointly held property, digital assets, and property over which the decedent held a general power of appointment.³ Executors sometimes underestimate the gross estate by overlooking life insurance or revocable trust assets. Both count, even though neither passes through probate.

Filing Only to Preserve a Spouse’s Exemption

An estate below the filing threshold may still want to file Form 706 to elect portability of the deceased spousal unused exclusion (DSUE). Portability lets a surviving spouse add the decedent’s unused exemption to their own, potentially shielding up to $30,000,000 across both spouses. The election works only if the executor files a complete Form 706 and checks the portability box.⁴

If the normal deadline passes, a simplified method under Revenue Procedure 2022-32 gives estates up to five years from the date of death to file for portability, provided the estate was not otherwise required to file and no return was previously submitted.⁴ The relief costs nothing and requires no user fee. For married couples with combined wealth anywhere near the exemption, skipping this election is one of the costliest oversights in estate planning.

How the Tax Is Calculated

The federal estate tax uses a graduated schedule that starts at 18% and climbs to 40% on taxable amounts above $1,000,000.² In practice the unified credit erases tax on the first $15,000,000 for 2026 deaths, so the effective rate applies only to transfers above that amount. The calculation runs in five steps:

Start with the gross estate: total value of all assets at the chosen valuation date.
Subtract allowable deductions: debts, funeral costs, administration expenses, the marital deduction, and the charitable deduction.
Add back adjusted taxable gifts: gifts made after 1976 that exceeded the annual exclusion.
Apply the rate schedule to compute the tentative tax on the combined total.
Subtract the unified credit (corresponding to the $15,000,000 exclusion), plus credits for gift taxes paid and taxes on prior transfers.

An estate worth $17,000,000 with no deductions beyond the basic exclusion would owe 40% on the $2,000,000 excess, or roughly $800,000. The marital and charitable deductions are unlimited, which is why a decedent who leaves everything to a surviving spouse or to charity often owes nothing regardless of estate size.

Choosing a Valuation Date

Every asset in the gross estate must be valued at fair market value, and the executor picks one date for the whole estate. Mixing dates across assets is not permitted.

The default is the date of death: stock closing prices that day, real estate appraisals reflecting market conditions at that moment, bank balances on that date. Most estates use this method because it is straightforward and requires only one round of valuations.

Under Section 2032, the executor may instead elect to value the entire estate six months after death. Assets sold, distributed, or otherwise disposed of before the six-month mark are valued as of the disposition date. Two conditions apply: the alternate date must reduce both the gross estate value and the total estate tax liability, and if markets rose during those six months the election is unavailable. It is irrevocable once made and can only be made on a return filed within one year of the original due date (including extensions).⁵

There is a trade-off. Choosing the alternate date to lower estate tax also lowers the income tax basis that beneficiaries inherit. If they plan to sell soon, estate tax savings can be offset by higher capital gains later. Model both scenarios before committing.

Section 2032A offers a separate route for qualifying farm or business real property, allowing it to be valued based on actual use rather than highest-and-best-use fair market value. Qualifying is narrow (use tests, heir requirements, and a 10-year recapture risk), so estates that might qualify should consult a specialist before making the election on Schedule T.

Schedules and Supporting Documents

Form 706 is built around lettered schedules, each covering a specific type of asset, deduction, or credit. Complete only the schedules that apply:

Schedule A — Real estate
Schedule B — Stocks and bonds
Schedule C — Mortgages, notes, and cash
Schedule D — Life insurance on the decedent
Schedule E — Jointly owned property
Schedule F — Miscellaneous property, including digital assets
Schedule G — Transfers made during the decedent’s lifetime
Schedule H — Powers of appointment
Schedule I — Annuities
Schedule J — Funeral expenses and administration costs
Schedule K — Debts, mortgages, and liens
Schedule L — Net losses during administration
Schedule M — Bequests to the surviving spouse (marital deduction)
Schedule O — Charitable gifts and bequests
Schedule R — Generation-skipping transfer tax

Additional schedules cover foreign death tax credits (Schedule P), prior transfer credits (Schedule Q), conservation easement exclusions (Schedule U), and special-use valuation (Schedule T).³

Before touching any schedule, collect a certified death certificate, the decedent’s will and any trust agreements, and a full asset inventory. Bank and brokerage statements as of the valuation date establish financial account values. Real estate, closely held business interests, and unusual personal property (art, collectibles, patents) require professional appraisals from qualified appraisers who follow the Uniform Standards of Professional Appraisal Practice (USPAP). For the deduction schedules, gather receipts and invoices for funeral expenses, attorney and accounting fees, executor commissions, outstanding debts, and mortgage balances. The marital deduction on Schedule M requires documentation that assets actually passed to the surviving spouse; the charitable deduction on Schedule O requires proof the gift went to a qualifying organization.⁶

Deadline, Extensions, and Where to Send It

Form 706 is due nine months after the date of death.⁷ A March 15 death produces a December 15 due date. When the ninth month has no corresponding calendar date, the due date lands on the last day of that month.⁸

Executors who need more time file Form 4768 before the original deadline to receive an automatic six-month extension, pushing filing to 15 months after death.⁹ That extension covers filing only, not payment. Estimated tax is still due at the nine-month mark, and interest and late-payment penalties begin accruing after that. Form 4768 does include a separate section (Part III) for requesting a payment extension, but that request is not automatic and requires reasonable cause.⁸

Form 706 cannot be filed electronically. Mail the completed return and all supporting schedules to:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999

Paying What the Estate Owes

Any estate tax is due at the nine-month mark, even if the executor obtained a filing extension. The IRS accepts payment by check mailed with the return or through the Electronic Federal Tax Payment System (EFTPS). As of early 2026, the IRS stopped accepting new individual EFTPS enrollments, though existing accounts still work.¹⁰ Executors without an existing EFTPS account should plan to pay by check or use another IRS-accepted electronic option.

Installment Payments for Closely Held Businesses

Estates where a closely held business makes up more than 35% of the adjusted gross estate can elect under Section 6166 to pay the portion of tax attributable to the business interest in installments. The executor can defer the first payment for up to five years after the normal due date, then spread the tax across up to 10 annual installments, stretching the total payment period to roughly 14 years.¹¹

A closely held business for this purpose means a sole proprietorship, a partnership with 45 or fewer partners (or where the estate holds at least 20% of the capital interest), or a corporation with 45 or fewer shareholders (or where the estate holds at least 20% of the voting stock).¹¹ Interest accrues during deferral and installments, though a portion of the deferred tax qualifies for a reduced rate.

Penalties and Interest

The IRS imposes separate penalties for late filing and late payment, and both can apply at once.

Failure to file: 5% of the unpaid tax per month or partial month, capped at 25%. If the return is more than 60 days late, the minimum penalty is the lesser of $525 or 100% of the tax owed.¹²
Failure to pay: 0.5% per month, also capped at 25%. That rate rises to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy.¹²
Interest compounds daily on unpaid tax at the federal short-term rate plus three percentage points. For the quarter beginning April 1, 2026, the underpayment rate is 6%.¹³

When both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined charge is 5% per month rather than 5.5%. Filing on time with a reasonable estimate, even if you cannot pay in full, avoids the worst of these charges.

Generation-Skipping Transfer Tax on the Same Return

Form 706 also handles the generation-skipping transfer (GST) tax, which is why the form’s full name includes that phrase. The GST tax applies when assets pass to someone two or more generations below the decedent, typically grandchildren or more remote descendants, either directly or through a trust. Without this tax, families could sidestep a generation of estate tax by leaving assets to grandchildren instead of children.

The GST tax rate equals the top estate tax rate of 40%, and each person has a GST exemption equal to the basic exclusion amount ($15,000,000 for 2026). The executor allocates this exemption on Schedule R. Transfers above the exemption face the flat 40% rate on top of any regular estate tax.¹⁴ Errors in GST exemption allocation compound across generations, so this schedule warrants close attention.

After You File

The IRS generally has three years from the filing date (or the due date, whichever is later) to assess additional tax. If the estate omits more than 25% of the gross estate from the return, that window extends to six years. There is no statute of limitations for fraudulent or unfiled returns.¹⁵

An estate tax closing letter confirms the IRS has accepted the return and will assess no additional tax. The IRS no longer issues these automatically. The executor or an authorized representative requests one through Pay.gov by searching for “estate tax closing letter” and paying a $56 user fee. Do not submit the request until at least nine months after filing the return, unless the estate’s account transcript already shows transaction code 421 (indicating the IRS has closed its review). Once that code appears, the letter can be requested immediately.¹⁶ Many states, title companies, and financial institutions require the closing letter before releasing estate assets. An account transcript obtained via Form 4506-T showing code 421 serves the same practical purpose and often arrives faster.

State Estate Taxes Are Separate

The federal return is only part of the picture. Roughly a dozen states and the District of Columbia impose their own estate taxes, often with exemption thresholds far below the federal level. Some start as low as $1,000,000. An estate that owes nothing to the IRS can still face a significant state bill, and the state return is typically due on the same nine-month timeline. Check whether the decedent’s state of residence, and any state where the decedent owned real property, imposes a separate estate or inheritance tax.

1
Internal Revenue Service. What’s New — Estate and Gift Tax
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Office of the Law Revision Counsel. 26 USC 2001 – Tax Imposed
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Internal Revenue Service. Instructions for Form 706 – United States Estate (and Generation-Skipping Transfer) Tax Return
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Internal Revenue Service. Revenue Procedure 2022-32
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Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation
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Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
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Office of the Law Revision Counsel. 26 USC 6075 – Time for Filing Estate and Gift Tax Returns
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Internal Revenue Service. Instructions for Form 4768 Application for Extension of Time
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eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return
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Internal Revenue Service. EFTPS: The Electronic Federal Tax Payment System
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Office of the Law Revision Counsel. 26 USC 6166 – Extension of Time for Payment of Estate Tax Where Estate Consists Largely of Interest in Closely Held Business
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Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
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Internal Revenue Service. Internal Revenue Bulletin
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Internal Revenue Service. Schedule R (Form 706) Generation-Skipping Transfer Tax
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Internal Revenue Service. Time IRS Can Assess Tax
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Internal Revenue Service. Frequently Asked Questions on the Estate Tax Closing Letter