IRS Form 706 Instructions: Deadline, Deductions, and Payment

To file IRS Form 706, the estate tax return, the executor gathers date-of-death valuations for everything the decedent owned, completes the asset and deduction schedules, calculates the tax against the unified credit, and mails the paper return with payment to the IRS in Kansas City within nine months of the date of death. For deaths in 2026, filing is required only when the gross estate plus lifetime taxable gifts exceeds $15,000,000, though many executors of smaller estates file anyway to preserve unused exclusion for a surviving spouse.¹

When Filing Is Required

An executor must file Form 706 when the decedent was a U.S. citizen or resident and the combined value of the gross estate, adjusted taxable gifts made during life, and any specific exemption exceeds the basic exclusion amount for the year of death.² The gross estate captures everything the decedent had an ownership interest in at death: real estate, investments, bank accounts, retirement accounts, and life insurance proceeds, whether or not the asset passes through probate.

For 2026 deaths, the exclusion is $15,000,000, up from $13,990,000 in 2025 following the One, Big, Beautiful Bill signed on July 4, 2025.³ An estate below $15 million still needs to file if lifetime taxable gifts push the combined figure over the threshold.

Filing to Elect Portability

When a married person dies without using their full exclusion, the executor can transfer the leftover amount, called the Deceased Spousal Unused Exclusion (DSUE), to the surviving spouse by filing a complete Form 706 by the deadline, even if no tax is owed.² Skipping this election for a couple with combined wealth near the exclusion can cost the survivor millions later.

If the deadline was missed and the estate was not otherwise required to file, Revenue Procedure 2022-32 lets the executor make a late portability election up to five years after the date of death by filing Form 706 with the statement “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)” written at the top.⁴ Estates that were required to file based on value do not qualify for this simplified method.

The Nine-Month Deadline

Form 706 is due nine months after the date of death. A death on March 15, 2026, produces a December 15, 2026 filing deadline.²

Filing Form 4768 before the original deadline gets an automatic six-month extension to file, with no explanation required.⁵ The extension to file does not extend the time to pay. Any tax owed is still due nine months after death. If the executor needs extra time to pay as well, Part III of Form 4768 requires a written explanation of why timely payment is impossible or impractical, and the IRS grants these sparingly.

Interest runs on any unpaid tax from the original due date whether or not filing was extended.⁶ The underpayment rate for the first quarter of 2026 is 7%, compounded daily.⁷

Documents and Valuations to Gather First

Before touching any schedule, pull together the certified death certificate, the last will, and any trust agreements. Copies of the decedent’s prior gift tax returns (Form 709) show which taxable gifts were already made and how much exclusion was used during life.

Then pin down fair market value as of the date of death for every asset. Brokerage and bank statements dated at death usually cover liquid holdings. Real estate, closely held business interests, artwork, collectibles, and unusual personal property need independent appraisals from qualified professionals. The IRS scrutinizes valuations closely, and an appraisal that looks inflated or deflated is one of the fastest ways to draw additional review.

For life insurance, the executor obtains a completed Form 712 from each insurance company and attaches it to Form 706.⁸ Every policy on the decedent’s life needs its own Form 712, whether or not the proceeds are includible in the gross estate.

Alternate Valuation Date

The default is date-of-death value. If asset values fell during the six months after death, the executor can elect the alternate valuation date under IRC Section 2032.⁹ Assets still held at the six-month mark are valued then; anything sold or distributed earlier is valued on the disposition date. The election is only available if it produces both a lower gross estate and a lower total estate tax, and once made it is irrevocable. It must be made on a return filed no later than one year after the filing deadline including extensions. An estate that owes no tax cannot use alternate valuation to manage stepped-up basis for beneficiaries.

Completing the Asset Schedules

Form 706 sorts the gross estate into lettered schedules. Each requires a description of the property, its date-of-death value (or alternate value if elected), and supporting documentation.

Schedule A covers real property the decedent owned, from the family home to rental properties and vacant land.²
Schedule B is for publicly traded stocks, bonds, and mutual funds.
Schedule C reports mortgages and notes owed to the decedent, plus cash on hand and in bank accounts.
Schedule D captures life insurance proceeds on the decedent’s life, including policies payable to a named beneficiary if the decedent held any incidents of ownership.
Schedule E is jointly owned property; how much is included depends on who paid for it and the type of joint ownership.
Schedule F is the catch-all for everything else, including household goods, vehicles, jewelry, collections, and partnership or LLC interests.²
Schedule G pulls back certain lifetime transfers, such as transfers with a retained life estate or transfers made within three years of death.
Schedule H reports property over which the decedent held a general power of appointment at death.
Schedule I covers survivor annuity benefits and retirement plan payouts includible in the gross estate.

The totals from these schedules add up to the gross estate figure on page 3 of the return.

Valuation Discounts on Business Interests

A minority interest in a closely held business, partnership, or LLC can legitimately be reported for less than a pro-rata share of the entity’s value. A lack-of-control discount reflects that a minority owner cannot force a sale, set distributions, or direct management. A lack-of-marketability discount accounts for the difficulty of selling a private interest compared with public stock. Together these can reduce reported value by 25% to 40% or more depending on the facts. The IRS challenges aggressive discounts often, so the appraiser’s methodology and supporting data need to hold up.

Deductions That Reduce the Taxable Estate

After the gross estate is totaled, deduction schedules bring it down to the taxable estate. Careful documentation on these schedules directly reduces the tax bill.

Schedule J covers funeral costs and administration expenses, including executor commissions, attorney fees, accountant fees, and appraisal costs.² Amounts can be listed as estimated, agreed, or actually paid. Schedule K reports debts of the decedent along with mortgages and liens on estate property. Schedule L covers net losses from casualty or theft during administration.

Schedule M handles the marital deduction. Property passing outright to a surviving U.S. citizen spouse qualifies for an unlimited marital deduction.² Property passing in trust generally has to qualify as a QTIP trust, elected on Schedule M and irrevocable once made. If the surviving spouse is not a U.S. citizen, the marital deduction is only available through a Qualified Domestic Trust that has at least one U.S. citizen or domestic corporation as trustee with authority to withhold estate tax on principal distributions.¹⁰

Schedule O reports bequests to qualifying public, religious, or charitable organizations, which are fully deductible with no dollar limit.

Calculating the Tax and Applying the Credit

Taxable estate equals gross estate minus allowable deductions. Add adjusted taxable gifts (lifetime taxable gifts not already in the gross estate) to reach the tax base. The estate tax runs on a graduated schedule starting at 18% on the first $10,000 and topping out at 40% on amounts over $1 million.¹¹ Because the $15 million exclusion far exceeds the top-bracket threshold, every taxable dollar above the exclusion is effectively taxed at 40%.

The unified credit offsets estate tax dollar-for-dollar up to the amount corresponding to the basic exclusion. In 2026 it shelters the first $15 million.³ If portability was elected on a predeceased spouse’s return, the DSUE is added to the surviving spouse’s own exclusion.

Two additional credits come up less often. A credit for tax on prior transfers prevents double taxation of property inherited from someone who died within the preceding ten years and paid estate tax on it. The foreign death tax credit on Schedule P offsets foreign death tax paid on assets located abroad, documented on Form 706-CE with taxes converted at the exchange rate on each payment date.²

Generation-Skipping Transfer Tax

If any property passes to a grandchild or a trust for grandchildren, generation-skipping transfer (GST) tax may apply at a flat 40% on top of the estate tax. Each individual has a GST exemption, which matches the estate tax exclusion at $15 million for 2026.¹ The executor allocates the exemption on Schedule R.¹² For a direct skip through a trust, the trustee pays the GST tax using Schedule R-1 as a payment voucher; that payment is due nine months after death, with an automatic two-month extension beyond the extended filing deadline.¹³

Even when no GST tax is owed, filing Schedule R to affirmatively allocate exemption keeps the IRS’s automatic allocation rules from producing unintended results.

Installment Payments When the Estate Is a Business

Estates that consist largely of a closely held business often owe tax on wealth that cannot be quickly sold. Section 6166 lets the executor pay the estate tax attributable to the business interest in installments over up to 14 years, with interest-only payments for the first four years and then ten annual principal installments.¹⁴

To qualify, the business interest in the gross estate must exceed 35% of the adjusted gross estate. A business counts as closely held if the estate owns at least 20% of the capital interest in a partnership (or the partnership has 45 or fewer partners), or 20% or more of the voting stock in a corporation (or the corporation has 45 or fewer shareholders). A special 2% interest rate applies to the tax on the first portion of the business value, with the remainder at 45% of the normal underpayment rate.

Where to Send the Return and How to Pay

Form 706 cannot be e-filed. The completed return plus every supporting schedule, the will, trust documents, appraisals, Form 712 for each policy, and any other required attachments goes by mail to:

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

Private delivery services (FedEx, UPS) use a different address:

Internal Revenue Submission Processing Center
333 W. Pershing Road
Kansas City, MO 64108

Payment can go through EFTPS, IRS Direct Pay from a bank account, or by check mailed with the return.¹⁵ EFTPS gives immediate confirmation, which matters for large balances. Any tax owed is due nine months after death regardless of a filing extension.

Penalties for Filing or Paying Late

Missing the deadline triggers two separate penalties that can run at once.¹⁶

Failure-to-file runs at 5% of unpaid tax per month or partial month, capped at 25%.¹⁷ Failure-to-pay adds 0.5% per month or partial month the tax remains outstanding, also capped at 25%. When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount.

If the return is more than 60 days late, the minimum failure-to-file penalty is the lesser of $525 or 100% of the tax due.⁶ Both penalties can be waived for reasonable cause, but not knowing about the deadline rarely qualifies. Interest is almost never abated.

After Filing: Closing Letter and Audit Risk

Once the IRS processes Form 706, the executor can request an Estate Tax Closing Letter (Letter 627) confirming the return has been accepted. States, courts, and title companies often require this letter before final distribution or property transfers.

The letter is requested by paying a user fee on Pay.gov under “Estate Tax Closing Letter.”¹⁸ It is mailed to the executor’s address on file, not the address entered on Pay.gov. Before requesting, check the account transcript for Transaction Code 421, which shows the return was accepted or that an examination has concluded. If that code has not posted, the IRS recommends waiting at least nine months after filing. The agency researches the request within about three weeks of payment; if the return is still being processed, the request is rechecked every 60 days.

The IRS uses automated scoring, data algorithms, and examiner review to select Form 706 returns for audit.¹⁹ Returns with large valuation discounts, unusual deductions, alternate valuation elections, or Section 6166 installment elections draw closer review. Thorough documentation and well-supported appraisals are the practical defense.

State Estate and Inheritance Taxes Are Separate

Filing Form 706 does not settle state obligations. About a dozen states and the District of Columbia impose their own estate tax, often with much lower thresholds ranging from roughly $2 million up to the federal amount. An estate that owes nothing federally can still owe substantial state tax. A handful of states impose an inheritance tax based on the beneficiary’s relationship to the decedent rather than estate size, and one state imposes both. Check with the relevant state tax authority early; state deadlines and payment rules do not always match the federal schedule.

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