IRS Form 706 is the federal estate tax return an executor files to report a deceased person’s assets and calculate any estate and generation-skipping transfer tax owed. For deaths in 2026, the return is required when the gross estate combined with the decedent’s adjusted taxable lifetime gifts exceeds $15 million.1Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax It is due nine months after the date of death. Many executors also file when no tax is owed, because filing is the only way to preserve a surviving spouse’s right to the unused exclusion.
Who Has to File
An executor must file Form 706 for any U.S. citizen or resident whose gross estate plus adjusted taxable gifts exceeds the basic exclusion amount for the year of death.2Internal Revenue Service. About Form 706, United States Estate and Generation-Skipping Transfer Tax Return For 2026, that amount is $15 million per person, set by the One, Big, Beautiful Bill Act signed on July 4, 2025, which amended Section 2010(c)(3) and raised the exclusion from the 2025 level of $13.99 million. The figure will be adjusted for inflation for deaths after 2026.3Internal Revenue Service. Whats New – Estate and Gift Tax
The gross estate is broader than most people expect. It includes everything the decedent had an ownership interest in at death, valued at fair market value: real estate, bank accounts, investment portfolios, retirement accounts, life insurance proceeds if the decedent owned the policy, business interests, and personal property like vehicles and collectibles.4eCFR. 26 CFR 20.2031-1 – Definition of Gross Estate; Valuation of Property Joint accounts, revocable trusts, and assets the decedent could control or revoke also count.
Filing to Preserve a Spouse’s Unused Exclusion
When a married person dies without using the full $15 million exclusion, the surviving spouse can inherit the leftover portion. This is called the deceased spousal unused exclusion, or DSUE, and it only transfers if the executor files a timely Form 706 and makes the portability election on the return.5Internal Revenue Service. Frequently Asked Questions on Estate Taxes
The math is worth taking seriously. If the first spouse used only $2 million of the exclusion, portability preserves the remaining $13 million for the survivor. Skipping the filing loses that shield permanently, which for a family with growing wealth can translate to $5.2 million in additional estate tax when the second spouse dies.6Internal Revenue Service. Instructions for Form 706 – Section: Part VI Portability of Deceased Spousal Unused Exclusion
Late Portability Relief
If the original deadline was missed and the estate was not otherwise required to file, Revenue Procedure 2022-32 allows a simplified late election. The executor files a complete Form 706 up to five years after the date of death, with a statement at the top reading “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”7Internal Revenue Service. Revenue Procedure 2022-32 Estates that were required to file but did not cannot use this route.
Deadlines, Extensions, and Late Penalties
Form 706 is due nine months after the date of death. Form 4768 requests an automatic six-month extension of the filing deadline, pushing it to 15 months after death, but that extension does not extend time to pay. The estate tax itself is still due at nine months.8Internal Revenue Service. Instructions for Form 706
Filing late without a valid extension triggers a failure-to-file penalty of 5% of the unpaid tax per month or partial month, capped at 25%.9Internal Revenue Service. Failure to File Penalty A separate failure-to-pay penalty of 0.5% per month applies to any tax not paid by the nine-month deadline, also capped at 25%. When both run at once, the IRS reduces the failure-to-file amount by the failure-to-pay amount, but the combined charge still accumulates quickly on a large balance.
How the Tax Is Calculated
The executor totals the gross estate, subtracts allowable deductions (debts, administration costs, charitable bequests, transfers to a surviving spouse), and arrives at the taxable estate. A tentative tax is figured on that amount under the Section 2001 rate schedule and then reduced by the unified credit corresponding to the $15 million exclusion.10Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax For estates that actually owe tax, the practical result is a 40% rate on the portion above $15 million.
The generation-skipping transfer tax applies separately to property passing to grandchildren or others two or more generations below the decedent. Each person has a $15 million GST exemption in 2026, and the GST tax rate is also 40%.11Congress.gov. The Generation-Skipping Transfer Tax (GSTT)
Valuing the Assets
Every asset is reported at fair market value as of the date of death, meaning the price a willing buyer would pay a willing seller with neither under pressure.4eCFR. 26 CFR 20.2031-1 – Definition of Gross Estate; Valuation of Property Publicly traded securities are straightforward. Closely held businesses, real estate, art, and collectibles require written appraisals from qualified appraisers.
Alternate Valuation Date
If asset values dropped in the six months after death, the executor can elect the alternate valuation date under Section 2032. Assets still held six months after death are valued as of that later date; assets sold or distributed within that window are valued on the date of disposition. The election is available only if it reduces both the gross estate and the total estate and GST tax, is made on the return, and is irrevocable.8Internal Revenue Service. Instructions for Form 706
Special Use Valuation for Farms and Businesses
Section 2032A lets families value inherited farm or business real property at its current use rather than highest-and-best-use market value. The farm or business property must make up at least 25% of the adjusted gross estate, and qualified real and personal property together must make up at least 50%. The decedent or a family member must have owned the property and materially participated in the business for at least five of the eight years before death.12Office of the Law Revision Counsel. 26 USC 2032A – Valuation of Certain Farm, Etc., Real Property Everyone with an interest in the property must sign a written agreement consenting to recapture if the property is sold or removed from qualified use within 10 years.
Undervaluation Penalties
If the IRS finds property was reported at 65% or less of its actual value, a 20% accuracy-related penalty applies to the resulting tax underpayment. If the reported value was 40% or less of the correct figure, the penalty doubles to 40%. No penalty applies unless the underpayment caused by the misvaluation exceeds $5,000.13Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
What Goes on the Return
Form 706 organizes the estate into lettered schedules covering each asset type or deduction, with detailed descriptions and values for every item.
- Schedule A reports real estate with address, legal description, and appraised value for each property.14Internal Revenue Service. Schedule A (Form 706) – Real Estate
- Schedule B lists stocks and bonds with CUSIP numbers, share counts, and date-of-death values.15Internal Revenue Service. Schedule B (Form 706) – Stocks and Bonds
- Schedule J covers funeral expenses and administration costs, including executor fees, attorney fees, and court costs.
- Schedule K reports debts the decedent owed at death, such as mortgages, credit card balances, and outstanding loans, supported by contracts or final billing statements.
- Schedule M claims the marital deduction for property passing outright to a surviving spouse or into a qualifying trust. There is no dollar cap.
- Schedule O reports charitable bequests, which are also fully deductible without limit.
Each schedule needs supporting documents: death certificates, trust instruments, appraisals, loan statements, and brokerage records. Missing attachments invite IRS follow-up requests that delay closing the estate.
Reporting Basis to Beneficiaries
An executor who files Form 706 must also report the estate tax value of inherited property to each beneficiary under Section 6035. This is done on Form 8971, with a Schedule A for each beneficiary listing the assets received and the values reported on the return.16eCFR. 26 CFR 1.6035-1 – Basis Information to Persons Acquiring Property From Decedent
Form 8971 is due 30 days after the Form 706 due date or 30 days after the return is filed, whichever is earlier. Beneficiaries must use the reported value as their tax basis when they later sell. A beneficiary who claims a different basis faces a 20% penalty on any resulting underpayment, or 40% if the claimed basis is double or more the correct amount.17Internal Revenue Service. Instructions for Form 8971 and Schedule A Executors who miss the Form 8971 deadline face separate penalties under Sections 6721 and 6722.
Where to Send It and How to Pay
Form 706 cannot be e-filed. The executor mails the completed return with all schedules and documentation to the IRS. The address for standard postal delivery is:
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999
For private delivery services like FedEx or UPS, use the Internal Revenue Submission Processing Center, 333 W. Pershing Road, Kansas City, MO 64108.18Internal Revenue Service. Instructions for Form 706 Certified mail or a trackable service is worth the small extra cost as proof of the filing date.
The IRS accepts several methods for paying the estate tax:
- EFTPS, the Electronic Federal Tax Payment System, a free Treasury service for electronic payments.
- Same-day wire through your financial institution, which may charge a bank fee.
- Check made payable to “United States Treasury” with the decedent’s name, Social Security number, and “Form 706” written on it.
Installments for Closely Held Business Estates
When a closely held business makes up more than 35% of the adjusted gross estate, the executor can elect under Section 6166 to pay the business-related portion of the tax in installments. The first installment can be deferred up to five years, then spread over up to 10 annual installments, stretching payment to nearly 15 years total.19Office of the Law Revision Counsel. 26 US Code 6166 – Extension of Time for Payment of Estate Tax Interest accrues on the unpaid balance. The election is often essential for family businesses whose value is tied up in an operating company rather than liquid assets.
Getting the Estate Tax Closing Letter
After processing the return, the IRS issues Letter 627, the Estate Tax Closing Letter, confirming that it has accepted the return and that federal estate tax liability is settled. Many courts and title companies require it before approving final distributions or property transfers.
The letter is not automatic. The executor requests it through Pay.gov by searching for “Estate Tax Closing Letter” and paying a $56 user fee.20Internal Revenue Service. Estate Tax Closing Letter Fee Reduced to $56 Effective May 21, 2025 The IRS suggests waiting at least nine months after filing before submitting the request, unless the estate’s account transcript already confirms the return has been accepted. Processing takes several additional weeks after the request. If the return is under examination, the closing letter will not issue until the audit is resolved.21Internal Revenue Service. Frequently Asked Questions on the Estate Tax Closing Letter
State Taxes Are Separate
Filing Form 706 satisfies the federal obligation only. Roughly a dozen states impose their own estate taxes, often at thresholds well below $15 million, and a handful of states also impose inheritance taxes on beneficiaries at rates that vary by relationship to the deceased. An estate that owes nothing federally can still face a substantial state bill, and state filing deadlines and payment schedules do not always match the federal timeline.