Instructions for Form 706 (09/2023)

United States Estate (and Generation-Skipping Transfer) Tax Return

Section references are to the Internal Revenue Code unless otherwise noted.

Instructions for Form 706 - Introductory Material

Revisions of Form 706

Future Developments

For the latest information about developments related to Form 706 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form706.

What's New

Various dollar amounts and limitations in Form 706 are indexed for inflation. For decedents dying in 2023, the following amounts are applicable.

• The basic exclusion amount is $12,920,000.
• The ceiling on special-use valuation is $1,310,000.
• The amount used in figuring the 2% portion of estate tax payable in installments is $1,750,000.
• The basic credit amount is $5,113,800.

The IRS will publish amounts for future years in annual revenue procedures.

Reminders

Schedule R-1 is a separate form.

Schedule R-1 isn’t part of Form 706; instead, you will need to obtain a separate Schedule R-1 to complete and file with Form 706.

Identifying exhibits.

Copies of tax returns filed with Form 706 must be identified as exhibits to the Form 706.

Estate tax closing letter fee.

Effective October 28, 2021, a user fee of $67 was established for persons requesting the issuance of an estate tax closing letter (ETCL). See ETCL fee , later, for more information.

Extension of time to elect portability.

Effective July 8, 2022, Rev. Proc. 2022-32 provides a simplified method for certain estates to obtain an extension of time to file a return on or before the fifth anniversary of the decedent’s death to elect portability of the deceased spousal unused exclusion (DSUE) amount. See Extension to elect portability , later, for more information.

General Instructions

Purpose of Form

The executor of a decedent's estate uses Form 706 to figure the estate tax imposed by chapter 11 of the Internal Revenue Code. This tax is levied on the entire taxable estate and not just on the share received by a particular beneficiary. Form 706 is also used to figure the generation-skipping transfer (GST) tax imposed by chapter 13 on direct skips (transfers to skip persons of interests in property included in the decedent's gross estate).

Which Estates Must File

For decedents who died in 2023, Form 706 must be filed by the executor of the estate of every U.S. citizen or resident:

a. Whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $12,920,000; or

b. Whose executor elects to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, regardless of the size of the decedent's gross estate. See the instructions for Part 6—Portability of Deceased Spousal Unused Exclusion , later, and sections 2010(c)(4) and (c)(5).

To determine whether you must file a return for the estate under (a) above, add:

1. The adjusted taxable gifts (as defined in section 2503) made by the decedent after December 31, 1976;
2. The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and
3. The decedent's gross estate valued as of the date of death.

Gross Estate

The gross estate includes all property in which the decedent had an interest (including property outside the United States). It also includes:

• Certain transfers made during the decedent's life without an adequate and full consideration in money or money's worth,
• Annuities,
• The includible portion of joint estates with right of survivorship (see the instructions for Schedule E),
• The includible portion of tenancies by the entirety (see the instructions for Schedule E),
• Certain life insurance proceeds (even though payable to beneficiaries other than the estate) (see the instructions for Schedule D),
• Digital assets (see the instructions for Schedule F),
• Property over which the decedent possessed a general power of appointment,
• Dower or curtesy (or statutory estate) of the surviving spouse, and
• Community property to the extent of the decedent's interest as defined by applicable law.

Note.

Under the special rule of Regulations section 20.2010-2(a)(7)(ii), executors of estates who are not required to file Form 706 under section 6018(a), but who are filing to elect portability of the DSUE amount to the surviving spouse, are not required to report the value of certain property eligible for the marital deduction under section 2056 or 2056A or the charitable deduction under section 2055. However, the value of those assets must be estimated and included in the total value of the gross estate. See the instructions for Part 5—Recapitulation, items 10 and 23, later, for more information.

For more specific information, see the instructions for Schedules A through I.

U.S. Citizens or Residents; Nonresident Noncitizens

File Form 706 for the estates of decedents who were either U.S. citizens or U.S. residents at the time of death. For estate tax purposes, a resident is someone who had a domicile in the United States at the time of death. A person acquires a domicile by living in a place for even a brief period of time, as long as the person had no intention of moving from that place. See Regulations section 20.0-1(b).

Decedents who were neither U.S. citizens nor U.S. residents at the time of death file Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States.

Residents of U.S. Possessions

All references to citizens of the United States are subject to the provisions of sections 2208 and 2209, relating to decedents who were U.S. citizens and residents of a U.S. possession on the date of death. If such decedents became U.S. citizens only because of their connections with a possession, then the decedents are considered nonresidents not citizens of the United States for estate tax purposes, and you should file Form 706-NA. If such decedents became U.S. citizens wholly independently of their connections with a possession, then the decedents are considered U.S. citizens for estate tax purposes, and you should file Form 706.

Executor

The term “executor” includes the executor, personal representative, or administrator of the decedent's estate. If none of these is appointed, qualified, and acting in the United States, every person in actual or constructive possession of any property of the decedent is considered an executor and must file a return.

Executors must provide documentation proving their status. Documentations will vary but may include documents such as certified copies of wills or court orders designating the executor(s). Statements by executors attesting to their status are insufficient.

When To File

You must file Form 706 to report estate and/or GST tax within 9 months after the date of the decedent's death. If you are unable to file Form 706 by the due date, you may receive an extension of time to file. Use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an automatic 6-month extension of time to file.

Portability election.

An executor can only elect to transfer the DSUE amount to the surviving spouse if the Form 706 is filed timely, that is, within 9 months of the decedent's date of death or, if you have received an extension of time to file, before the 6-month extension period ends.

Extension to elect portability.

Executors who did not have a filing requirement under section 6018(a) but failed to timely file Form 706 to make the portability election may be eligible for an extension under Rev. Proc. 2022-32, 2022-30 I.R.B. 101 (superseding Rev. Proc. 2017-34, 2017-26 I.R.B. 1282). Executors filing to elect portability may now file Form 706 on or before the fifth anniversary of the decedent’s death.

An executor wishing to elect portability under this extension must state at the top of the Form 706 being filed that the return is “Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under section 2010(c)(5)(A).” For more information on this extension, see Rev. Proc. 2022-32.

Note.

Any estate that is filing an estate tax return only to elect portability and did not file timely or within the extension provided in Rev. Proc. 2022-32 may seek relief under Regulations section 301.9100-3 to make the portability election.

Where To File

File Form 706 at the following address.

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

If you’re using a private delivery service (PDS), file at this address.

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

If you’re filing an amended Form 706, use the following address.

Internal Revenue Service Center
Attn: E&G, Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915

If you’re using a PDS for your amended Form 706, use this address.

Internal Revenue Service Center
Attn: E&G, Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915

Paying the Tax

The estate and GST taxes are due within 9 months of the date of the decedent's death. You may request an extension of time for payment by filing Form 4768. You may also elect under section 6166 to pay in installments or under section 6163 to postpone the part of the tax attributable to a reversionary or remainder interest. These elections are made by checking “Yes” on lines 3 and 4 (respectively) of Part 3—Elections by the Executor and attaching the required statements.

If the tax paid with the return is different from the balance due as figured on the return, explain the difference in an attached statement. If you have made prior payments to the IRS, attach a statement to Form 706 including these facts.

Paying by check.

Make the check payable to “United States Treasury.” Please write the decedent's name, social security number (SSN), and “Form 706” on the check to assist us in posting it to the proper account.

No checks of $100 million or more accepted.

The IRS cannot accept a single check (including a cashier's check) for amounts of $100,000,000 ($100 million) or more. If you're sending $100 million or more by check, you'll need to spread the payments over 2 or more checks, with each check made out for an amount less than $100 million. The $100 million or more amount limit does not apply to other methods of payment (such as electronic payments). Please consider a method of payment other than a check if the amount of the payment is over $100 million.

Paying electronically.

Payment of the tax due shown on Form 706 may be submitted electronically through the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service of the Department of the Treasury.

To be considered timely, payments made through EFTPS must be completed no later than 8 p.m. Eastern time the day before the due date. All EFTPS payments must be scheduled in advance of the due date and, if necessary, may be changed or canceled up to 2 business days before the scheduled payment date.

To get more information about EFTPS or to enroll in EFTPS, visit EFTPS.gov or call 800-555-4477. To contact EFTPS using Telecommunications Relay Service (TRS) for people who are deaf, hard of hearing, or have a speech disability, dial 711 and then provide the TRS assistant the 800-555-4477 number, above, or 800-733-4829. Additional information about EFTPS is available in Pub. 966, Electronic Federal Tax Payment System: A Guide to Getting Started.

Signature and Verification

If there is more than one executor, all listed executors are responsible for the return. However, it is sufficient for only one of the co-executors to sign the return.

All executors are responsible for the return as filed and are liable for penalties imposed for erroneous or false returns.

If two or more persons are liable for filing the return, they should all join together in filing one complete return. However, if they are unable to join in making one complete return, each is required to file a return disclosing all the information the person has about the estate, including the name of every person holding an interest in the property and a full description of the property. If the appointed, qualified, and acting executor is unable to make a complete return, then every person holding an interest in the property must, on notice from the IRS, make a return regarding that interest.

The executor who files the return must, in every case, sign the declaration on page 1 under penalties of perjury.

Generally, anyone who is paid to prepare the return must sign the return in the space provided and fill in the Paid Preparer Use Only area. See section 7701(a)(36)(B) for exceptions.

In addition to signing and completing the required information, the paid preparer must give a copy of the completed return to the executor.

Note.

A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.

Amending Form 706

If you find that you must change something on a return that has already been filed, you should:

• File another Form 706;
• Enter “Supplemental Information” across the top of page 1 of the form;
• Include a statement of what has changed, along with the supporting information; and
• Attach a copy of pages 1, 2, 3, and 4 of the original Form 706 that has already been filed.

For the mailing address for supplemental Form 706, see Filing Estate and Gift Tax Returns.

File the amended Form 706 at the following address.

Internal Revenue Service Center
Attn: E&G, Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915

If you’re using a PDS, file at this address.

Internal Revenue Service Center
Attn: E&G, Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915

If you have already been notified that the return has been selected for examination, you should provide the additional information directly to the office conducting the examination.

Supplemental Documents

Note.

You must attach the death certificate to the return.

If the decedent was a citizen or resident of the United States and died testate (leaving a valid will), attach a certified copy of the will to the return. If you cannot obtain a certified copy, attach a copy of the will and an explanation of why it is not certified. Other supplemental documents may be required, as explained later. Examples include Form 712, Life Insurance Statement; Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return; Form 706-CE, Certificate of Payment of Foreign Death Tax; trust and power of appointment instruments; and state certification of payment of death taxes. If you do not file these documents with the return, the processing of the return will be delayed.

If the decedent was a U.S. citizen but not a resident of the United States, you must attach the following documents to the return.

1. A copy of the inventory of property and the schedule of liabilities, claims against the estate, and expenses of administration filed with the foreign court of probate jurisdiction, certified by a proper official of the court.
2. A copy of the return filed under the foreign inheritance, estate, legacy, succession tax, or other death tax act, certified by a proper official of the foreign tax department, if the estate is subject to such a foreign tax.
3. If the decedent died testate, a certified copy of the will.

Rounding Off to Whole Dollars

You may round off cents to whole dollars on the return and schedules. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.

Penalties

Late filing and late payment.

Section 6651 provides for penalties for both late filing and for late payment unless there is reasonable cause for the delay. The law also provides for penalties for willful attempts to evade payment of tax. The late filing penalty will not be imposed if the taxpayer can show that the failure to file a timely return is due to reasonable cause.

Reasonable-cause determinations.

If you receive a notice about penalties after you file Form 706, send an explanation and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file Form 706. Explanations attached to the return at the time of filing will not be considered.

Valuation understatement.

Section 6662 provides a 20% penalty for the underpayment of estate tax that exceeds $5,000 when the underpayment is attributable to valuation understatements. A valuation understatement occurs when the value of property reported on Form 706 is 65% or less of the actual value of the property.

This penalty increases to 40% if there is a gross valuation understatement. A gross valuation understatement occurs if any property on the return is valued at 40% or less of the value determined to be correct.

Penalties also apply to late filing, late payment, and underpayment of GST taxes.

Return preparer.

Estate tax return preparers who prepare any return or claim for refund which reflects an understatement of tax liability due to an unreasonable position are subject to a penalty equal to the greater of $1,000 or 50% of the income earned (or to be earned) for the preparation of each such return.

Estate tax return preparers who prepare a return or claim for refund which reflects an understatement of tax liability due to willful or reckless conduct are subject to a penalty of $5,000 or 75% of the income earned (or income to be earned), whichever is greater, for the preparation of each such return.

Estate tax return preparers who prepare any return or claim for a refund are required to furnish a copy to the taxpayer, sign the return, and provide their PTIN, but who fail to do so, are subject to a penalty of $50 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect.

See sections 6694 and 6695, the related regulations, and Announcement 2009-15, 2009-11 I.R.B. 687, available at Announcement 2009-15, for more information.

Consistent Basis Reporting

Certain estates are required to report to the IRS and the recipient, the estate tax value of each asset included in the gross estate within 30 days of the due date (including extensions) of Form 706 or the date of filing Form 706 if the return is filed late. The basis of certain assets when sold or otherwise disposed of must be consistent with the basis (estate tax value) of the asset when it was received by the beneficiary. To satisfy the consistent basis reporting requirements, the estate must file Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, separately from the Form 706. Failure to file Form 8971, when required, is subject to information return penalties under sections 6721 and 6722. See Form 8971 and its instructions for more information.

Estate Tax Closing Letters

An estate tax closing letter (ETCL) will not be issued unless a request is made via Pay.gov. To allow time for processing, please wait at least 9 months after filing Form 706 to request an ETCL.

ETCL fee.

Effective October 28, 2021, final regulations TD 9957 established a user fee of $67 for persons requesting the issuance of an ETCL. To make an ETCL request after October 28, 2021, you must go to Pay.gov to submit a request and pay the user fee. Go to Frequently Asked Questions on the Estate Tax Closing Letter, for instructions and more information related to ETCLs.

Account transcript in lieu of ETCL.

Instead of an ETCL, the executor of the estate may request an account transcript, which reflects transactions including the acceptance of Form 706 or the completion of an examination. Account transcripts are available online to registered tax professionals using the Transcript Delivery System (TDS) or to authorized representatives making requests using Form 4506-T. Go to Transcripts in Lieu of Estate Tax Closing Letters for specific instructions to request online transcripts using the TDS or hardcopy transcripts using Form 4506-T.

Note.

For information about the release of nonresident U.S. citizen decedents' assets using transfer certificates under Regulations section 20.6325-1, go to Transfer Certificate Filing Requirements for the Estates of Nonresident Citizens of the United States or write to:

Internal Revenue Service Center
Attn: E&G, Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915

Obtaining Forms and Publications To File or Use

Internet.

You can access the IRS website at IRS.gov 24 hours a day, 7 days a week to:

• Download forms, including talking tax forms, instructions, and publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or keyword;
• Use the online Internal Revenue Code, regulations, or other official guidance;
• View Internal Revenue Bulletins (IRBs) published in the last few years; and
• Sign up to receive local and national tax news by email.

Other forms that may be required.

• Form SS-5, Application for a Social Security Card.
• Form 706-CE, Certificate of Payment of Foreign Death Tax.
• Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States.
• Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
• Form 712, Life Insurance Statement.
• Form 2848, Power of Attorney and Declaration of Representative.
• Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.
• Form 4808, Computation of Credit for Gift Tax.
• Form 8821, Tax Information Authorization.
• Form 8822, Change of Address.
• Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent.

Additional Information.

Pub. 559, Survivors, Executors, and Administrators, may assist you in learning about and preparing Form 706.

Specific Instructions

You must file the first four pages of Form 706 and all required schedules. File Schedules A through I, as appropriate, to support the entries in items 1 through 9 of Part 5—Recapitulation.

Make sure to complete the required pages and schedules in their entirety. Returns filed without entries in each field will not be processed.

Also consider the following.

• Form 706 has 29 numbered pages.
• Number the items you list on each schedule, beginning with the number “1” each time, or using the numbering convention as indicated on the schedule (for example, Schedule M).
• Total the items listed on the schedule and its attachments, Continuation Schedules, etc.
• Enter the total of all attachments, Continuation Schedules, etc., at the bottom of the printed schedule, but do not carry the totals forward from one schedule to the next.
• Enter the total, or totals, for each schedule on page 3, Part 5—Recapitulation.
• Do not complete the “Alternate valuation date” or “Alternate value” columns of any schedule unless you elected alternate valuation on Part 3—Elections by the Executor , line 1.
• When you complete the return, staple all the required pages together in the proper order.

Part 1—Decedent and Executor

Line 2

Enter the SSN assigned specifically to the decedent. You cannot use the SSN assigned to the decedent's spouse. If the decedent did not have an SSN, the executor should obtain one for the decedent by filing Form SS-5 with a local Social Security Administration (SSA) office.

Line 6a. Name of Executor

If there is more than one executor, enter the name of the executor to be contacted by the IRS and see line 6d.

Line 6b. Executor's Address

Use Form 8822 to report a change of the executor's address.

Line 6c. Executor's Social Security Number

Only one executor should complete this line. If there is more than one executor, see line 6d.

Line 6d. Multiple Executors

Check here if there is more than one executor. On an attached statement, provide the name, address, telephone number, and SSN of any executor other than the one named on line 6a.

Line 11. Special Rule

If the estate is estimating the value of assets under the special rule of Regulations section 20.2010-2(a)(7)(ii), check here and see the instructions for Part 5—Recapitulation , items 10 and 23.

Part 2—Tax Computation

In general, the estate tax is figured by applying the unified rates shown in Table A to the total of transfers both during life and at death, and then subtracting the gift taxes, as refigured based on the date of death rates. See Worksheet TG, the Line 4 Worksheet, and the Line 7 Worksheet.

Note.

You must complete Part 2—Tax Computation.

Table A—Unified Rate Schedule

Line 1

If you elected alternate valuation on Part 3—Elections by the Executor , line 1, enter the amount you entered in the “Alternate value” column of Part 5—Recapitulation , item 13. Otherwise, enter the amount from the “Value at date of death” column.

Line 3b. State Death Tax Deduction

You may take a deduction on line 3b for estate, inheritance, legacy, or succession taxes paid on any property included in the gross estate as the result of the decedent's death to any state or the District of Columbia.

You may claim an anticipated amount of deduction and figure the federal estate tax on the return before the state death taxes have been paid. However, the deduction cannot be finally allowed unless you pay the state death taxes and claim the deduction within 4 years after the return is filed, or later (see section 2058(b)) if:

• A petition is filed with the Tax Court of the United States,
• You have an extension of time to pay, or
• You file a claim for refund or credit of an overpayment which extends the deadline for claiming the deduction.

Note.

The deduction is not subject to dollar limits.

If you make a section 6166 election to pay the federal estate tax in installments and make a similar election to pay the state death tax in installments, see section 2058(b) for exceptions and periods of limitation.

If you transfer property other than cash to the state in payment of state inheritance taxes, the amount you may claim as a deduction is the lesser of the state inheritance tax liability discharged or the fair market value (FMV) of the property on the date of the transfer. For more information on the application of such transfers, see the principles discussed in Rev. Rul. 86-117, 1986-2 C.B. 157, prior to the repeal of section 2011.

Send the following evidence to the IRS.

1. Certificate of the proper officer of the taxing state, or the District of Columbia, showing the following.

1. Total amount of tax imposed (before adding interest and penalties and before allowing discount).
2. Amount of discount allowed.
3. Amount of penalties and interest imposed or charged.
4. Total amount actually paid in cash.
5. Date of payment.

Line 6

To figure the tentative tax on the amount on line 5, use Table A—Unified Rate Schedule and put the result on this line.

Lines 4 and 7

Three worksheets are provided to help you figure the entries for these lines. Worksheet TG—Taxable Gifts Reconciliation allows you to reconcile the decedent's lifetime taxable gifts to figure totals that will be used for the Line 4 Worksheet and the Line 7 Worksheet.

You must have all of the decedent's gift tax returns (Forms 709) before completing Worksheet TG—Taxable Gifts Reconciliation. The amounts needed for Worksheet TG can usually be found on the filed returns that were subject to tax. However, if any of the returns were audited by the IRS, use the amounts that were finally determined as a result of the audits.

In addition, you must make a reasonable effort to discover any gifts in excess of the annual exclusion made by the decedent (or on behalf of the decedent under a power of attorney) for which no Forms 709 were filed. Include the value of such gifts in column b of Worksheet TG. The annual exclusion per donee is as follows.

Worksheet TG—Taxable Gifts Reconciliation

Line 7 Worksheet—Submit a copy with Form 706

Taxable Gift Amount Table

How to complete the Line 7 Worksheet.

Row (a). Beginning with the earliest year in which the taxable gifts were made, enter the tax period of prior gifts. If you filed returns for gifts made after 1981, enter the calendar year in Row (a) as (YYYY). If you filed returns for gifts made after 1976 and before 1982, enter the calendar quarters in Row (a) as (YYYY-Q).
Row (b). Enter all taxable gifts made in the specified year. Enter all pre-1977 gifts in the pre-1977 column.
Row (c). Enter the amount from Row (d) of the previous column.
Row (d). Enter the sum of Row (b) and Row (c) from the current column.
Row (e). Enter the amount from Row (f) of the previous column.
Row (f). Enter the tax based on the amount in Row (d) of the current column using Table A—Unified Rate Schedule.
Row (g). Subtract the amount in Row (e) from the amount in Row (f) for the current column.
Row (h). Complete this row only if a DSUE amount was received from predeceased spouse(s) and was applied to lifetime gifts or if a Restored Exclusion Amount on taxable gifts to a same-sex spouse was applied to lifetime gifts (or both). Enter the sum of lines 2 and 3 from Schedule C on the Form 709 filed for the year listed in Row (a) for the amount to be entered in this row.
Row (i). Enter the applicable amount from the Table of Basic Exclusion Amounts.
Row (j). Enter the sum of Row (h) and Row (i).
Row (k). Figure the applicable credit on the amount in Row (j) using Table A—Unified Rate Schedule, and enter here.
Note. The entries in each column of Row (k) must be reduced by 20% of the amount allowed as a specific exemption for gifts made after September 8, 1976, and before January 1, 1977 (but no more than $6,000).
Row (l). Add the amounts in Row (l) and Row (n) from the previous column.
Row (m). Subtract the amount in Row (l) from the amount in Row (k) to determine the amount of any available credit. Enter the result in Row (m).
Row (n). Enter the lesser of the amounts in Row (g) or Row (m).
Row (o). Subtract the amount in Row (n) from the amount in Row (g) for the current column.
Row (p). Subtract the amount in Row (o) from the amount in Row (f) for the current column.
Row (q). Enter the Cumulative Taxable Gift amount based on the amount in Row (p) using the Taxable Gift Amount Table.
Row (r). If Row (o) is greater than zero in the applicable period, subtract Row (q) from Row (d). If Row (o) is not greater than zero, enter -0-.
Repeat for each year in which taxable gifts were made.

Remember to submit a copy of the Line 7 Worksheet when you file Form 706. If additional space is needed to report prior gifts, please attach additional sheets.

Table of Basic Exclusion Amounts

Note.

In figuring the line 7 amount, do not include any tax paid or payable on gifts made before 1977. The line 7 amount is a hypothetical figure used to figure the estate tax.

Special treatment of split gifts.

These special rules apply only if:

• The decedent's spouse predeceased the decedent;
• The decedent's spouse made gifts that were “split” with the decedent under the rules of section 2513;
• The decedent was the “consenting spouse” for those split gifts, as that term is used on Form 709; and
• The split gifts were included in the decedent's spouse's gross estate under section 2035.

If all four conditions above are met, do not include these gifts on line 4 of the Tax Computation and do not include the gift taxes payable on these gifts on line 7 of the Tax Computation. These adjustments are incorporated into the worksheets.

Lines 9a Through 9e. Applicable Credit Amount (Formerly Unified Credit Amount)

The applicable credit amount is allowable credit against estate and gift taxes. It is figured by determining the tentative tax on the applicable exclusion amount , which is the amount that can be transferred before an estate tax liability will be incurred.

The applicable exclusion amount equals the total of lines 9a, 9b, and 9c. See Lines 9d and 9e, applicable exclusion and credit amount , later, for more information.

Line 9a, basic exclusion amount.

In 2023, the basic exclusion amount, as adjusted for inflation under section 2010(c)(3), is $12,920,000.

Line 9b, DSUE.

If the decedent had a spouse who died after 2010, whose estate did not use all of its applicable exclusion against gift or estate tax liability, a DSUE amount may be available for use by the decedent's estate. If the predeceased spouse died in 2011, the DSUE amount was figured and attached to the predeceased spouse’s Form 706. If the predeceased spouse died in 2012 or after, this amount is found in Part 6, Section C, of the Form 706 filed by the estate of the decedent's predeceased spouse. The amount to be entered on line 9b is figured in Part 6, Section D.

Line 9c, restored exclusion amount.

If a decedent made a taxable gift during the decedent's lifetime to the decedent's same-sex spouse and that transfer resulted in a reduction of the decedent's available applicable exclusion amount, the amount of the applicable exclusion that was reduced can be restored. If the applicable exclusion was previously restored on a Form 709, enter the value on Schedule C, line 3, of Form 709. If the applicable exclusion has not yet been previously restored, follow the directions in the instructions for Form 709, Schedule C, to determine the Restored Exclusion Amount. The Restored Exclusion Amount is entered on line 9c.

Lines 9d and 9e, applicable exclusion and credit amount.

The total of lines 9a, 9b, and 9c is entered on line 9d. If the amounts entered on both lines 9b and 9c are zero, enter $5,113,800 on line 9e. Otherwise, determine the applicable credit on the amount on line 9d by using Table A—Unified Rate Schedule and enter the result on line 9e.

Line 10. Adjustment to Applicable Credit

If the decedent made gifts (including gifts made by the decedent's spouse and treated as made by the decedent by reason of gift splitting) after September 8, 1976, and before January 1, 1977, for which the decedent claimed a specific exemption, the applicable credit amount on this estate tax return must be reduced. The reduction is figured by entering 20% of the specific exemption claimed for these gifts.

Note.

The specific exemption was allowed by section 2521 for gifts made before January 1, 1977.

If the decedent did not make any gifts between September 8, 1976, and January 1, 1977, or if the decedent made gifts during that period but did not claim the specific exemption, enter zero.

Line 15. Total Credits

Generally, line 15 is used to report the total of credit for foreign death taxes (line 13) and credit for tax on prior transfers (line 14).

However, you may also use line 15 to report credit taken for federal gift taxes imposed by chapter 12 of the Code, and the corresponding provisions of prior laws, on certain transfers the decedent made before January 1, 1977, that are included in the gross estate. The credit cannot be more than the amount figured by the following formula.

When taking the credit for pre-1977 federal gift taxes:

• Include the credit in the amount on line 15; and
• Identify and enter the amount of the credit you are taking on the dotted line to the left of the entry space for line 15 on page 1 of Form 706 with a notation, “Section 2012 credit.”

For more information, see the regulations under section 2012. This computation may be made using Form 4808. Attach a copy of a completed Form 4808 or the computation of the credit. Also, attach all available copies of Forms 709 filed by the decedent, with "Exhibit to Estate Tax Return" entered across the top of the first page of each, to help verify the amounts entered on lines 4 and 7, and the amount of credit taken (on line 15) for pre-1977 federal gift taxes.

Canadian marital credit.

In addition to using line 15 to report credit for federal gift taxes on pre-1977 gifts, you may also use line 15 to claim the Canadian marital credit, where applicable.

When taking the marital credit under the 1995 Canadian Protocol:

• Include the credit in the amount on line 15; and
• Identify and enter the amount of the credit you are taking on the dotted line to the left of the entry space for line 15 on page 1 of Form 706 with a notation, “Canadian marital credit.”

Also, attach a statement to the return that refers to the treaty, waives qualifying domestic trust (QDOT) rights, and shows the computation of the marital credit. See the 1995 Canadian income tax treaty protocol for details on figuring the credit.

Part 3—Elections by the Executor

Note.

The election to allow the decedent's surviving spouse to use the decedent's unused exclusion amount is made by filing a timely and complete Form 706. See the instructions for Part 6—Portability of Deceased Spousal Unused Exclusion , later, and sections 2010(c)(4) and (c)(5).

Line 1. Alternate Valuation

See the example showing the use of Schedule B where the alternate valuation is adopted, later.

Unless you elect at the time the return is filed to adopt alternate valuation, as authorized by section 2032, value all property included in the gross estate as of the date of the decedent's death. Alternate valuation cannot be applied to only a part of the property.

You may elect special-use valuation (line 2) in addition to alternate valuation.

You may not elect alternate valuation unless the election will decrease both the value of the gross estate and the sum (reduced by allowable credits) of the estate and GST taxes payable by reason of the decedent's death for the property includible in the decedent's gross estate.

Elect alternate valuation by checking “Yes” on line 1 and filing Form 706. You may make a protective alternate valuation election by checking “Yes” on line 1, writing the word “protective,” and filing Form 706 using regular values.

Once made, the election may not be revoked. The election may be made on a late-filed Form 706, provided it is not filed later than 1 year after the due date (including extensions actually granted). Relief under Regulations sections 301.9100-1 and 301.9100-3 may be available to make an alternate valuation election or a protective alternate valuation election, provided a Form 706 is filed no later than 1 year after the due date of the return (including extensions actually granted).

If alternate valuation is elected, value the property included in the gross estate as of the following dates, as applicable.

• Any property distributed, sold, exchanged, or otherwise disposed of or separated or passed from the gross estate by any method within 6 months after the decedent's death is valued on the date of distribution, sale, exchange, or other disposition. Value this property on the date it ceases to be a part of the gross estate; for example, on the date the title passes as the result of its sale, exchange, or other disposition.
• Any property not distributed, sold, exchanged, or otherwise disposed of within the 6-month period is valued as of 6 months after the date of the decedent's death.
• Any property, interest, or estate that is affected by mere lapse of time is valued as of the date of the decedent's death or on the date of its distribution, sale, exchange, or other disposition, whichever occurs first. However, you may change the date of death value to account for any change in value that is not due to a “mere lapse of time” on the date of its distribution, sale, exchange, or other disposition.

The property included in the alternate valuation and valued as of 6 months after the date of the decedent's death, or as of some intermediate date (as described above), is the property included in the gross estate on the date of the decedent's death. Therefore, you must first determine what property was part of the gross estate at the decedent's death.

Interest.

Interest accrued to the date of the decedent's death on bonds, notes, and other interest-bearing obligations is property of the gross estate on the date of death and is included in the alternate valuation.

Rent.

Rent accrued to the date of the decedent's death on leased real or personal property is property of the gross estate on the date of death and is included in the alternate valuation.

Dividends.

Outstanding dividends that were declared to stockholders of record on or before the date of the decedent's death are considered property of the gross estate on the date of death and are included in the alternate valuation. Ordinary dividends declared to stockholders of record after the date of the decedent's death are not included in the gross estate on the date of death and are not eligible for alternate valuation. However, if dividends are declared to stockholders of record after the date of the decedent's death so that the shares of stock at the later valuation date do not reasonably represent the same property at the date of the decedent's death, include those dividends (except dividends paid from earnings of the corporation after the date of the decedent's death) in the alternate valuation.

On Schedules A through I, you must show the following.

1. What property is included in the gross estate on the date of the decedent's death.
2. What property was distributed, sold, exchanged, or otherwise disposed of within the 6-month period after the decedent's death, and the dates of these distributions, etc. (These two items should be entered in the “Description” column of each schedule. Briefly explain the status or disposition governing the alternate valuation date, such as “Not disposed of within 6 months following death,” “Distributed,” “Sold,” “Bond paid on maturity,” etc. In this same column, describe each item of principal and includible income.)
3. The date of death value, entered in the appropriate value column with items of principal and includible income shown separately.
4. The alternate value, entered in the appropriate value column with items of principal and includible income shown separately. (In the case of any interest or estate, the value of which is affected by lapse of time, such as patents, leaseholds, estates for the life of another, or remainder interests, the value shown under the heading “Alternate value” must be the adjusted value, for example, the value as of the date of death with an adjustment reflecting any difference in its value as of the later date not due to lapse of time.)

Note.

If any property on Schedules A through I is being valued pursuant to the special rule of Regulations section 20.2010-2(a)(7)(ii), values for those assets are not required to be reported on the schedule. See Part 5—Recapitulation, item 10, later.

Distributions, sales, exchanges, and other dispositions of the property within the 6-month period after the decedent's death must be supported by evidence. If the court issued an order of distribution during that period, you must submit a certified copy of the order as part of the evidence. The IRS may require you to submit additional evidence, if necessary.

If the alternate valuation method is used, the values of life estates, remainders, and similar interests are figured using the age of the recipient on the date of the decedent's death and the value of the property on the alternate valuation date.

Line 2. Special-Use Valuation of Section 2032A

In general.

Under section 2032A, you may elect to value certain farm and closely held business real property at its farm or business use value rather than its FMV. Both special-use valuation and alternate valuation may be elected.

To elect special-use valuation, check “Yes” on line 2 and complete and attach Schedule A-1 and its required additional statements. You must file Schedule A-1 and its required attachments with Form 706 for this election to be valid. You may make the election on a late-filed return so long as it’s the first return filed.

The total value of the property valued under section 2032A may not be decreased from FMV by more than $1,310,000 for decedents dying in 2023.

Real property may qualify for the section 2032A election if:

1. The decedent was a U.S. citizen or resident at the time of death;
2. The real property is located in the United States;
3. At the decedent's death, the real property was used by the decedent or a family member for farming or in a trade or business, or was rented for such use by either the surviving spouse or a lineal descendant of the decedent to a family member on a net cash basis;
4. The real property was acquired from or passed from the decedent to a qualified heir of the decedent;
5. The real property was owned and used in a qualified manner by the decedent or a member of the decedent's family during 5 of the 8 years before the decedent's death;
6. There was material participation by the decedent or a member of the decedent's family during 5 of the 8 years before the decedent's death; and
7. The property meets the following percentage requirements.

1. At least 50% of the adjusted value of the gross estate must consist of the adjusted value of real or personal property that was being used as a farm or in a closely held business and that was acquired from, or passed from, the decedent to a qualified heir of the decedent.
2. At least 25% of the adjusted value of the gross estate must consist of the adjusted value of qualified farm or closely held business real property.

For this purpose, adjusted value is the value of property determined without regard to its special-use value. The value is reduced for unpaid mortgages on the property or any indebtedness against the property, if the full value of the decedent's interest in the property (not reduced by such mortgage or indebtedness) is included in the value of the gross estate. The adjusted value of the qualified real and personal property used in different businesses may be combined to meet the 50% and 25% requirements.

Qualified Real Property

Qualified use.

Qualified use means use of the property as a farm for farming purposes or in a trade or business other than farming. Trade or business applies only to the active conduct of a business. It does not apply to passive investment activities or the mere passive rental of property to a person other than a member of the decedent's family. Also, no trade or business is present in the case of activities not engaged in for profit.

Ownership.

To qualify as special-use property, the decedent or a member of the decedent's family must have owned and used the property in a qualified use for 5 of the last 8 years before the decedent's death. Ownership may be direct or indirect through a corporation, a partnership, or a trust.

If the ownership is indirect, the business must qualify as a closely held business under section 6166. The indirect ownership, when combined with periods of direct ownership, must meet the requirements of section 6166 on the date of the decedent's death and for a period of time that equals at least 5 of the 8 years preceding death.

Directly owned property leased by the decedent to a separate closely held business is considered qualified real property if the business entity to which it was rented was a closely held business (as defined by section 6166) for the decedent on the date of the decedent's death and for sufficient time to meet the “5 in 8 years” test explained above.

Structures and other real property improvements.

Qualified real property includes residential buildings and other structures and real property improvements regularly occupied or used by the owner or lessee of real property (or by the employees of the owner or lessee) to operate a farm or other closely held business. A farm residence that the decedent occupied is considered to have been occupied for the purpose of operating the farm even when a family member and not the decedent was the person materially participating in the operation of the farm.

Qualified real property also includes roads, buildings, and other structures and improvements functionally related to the qualified use.

Elements of value such as mineral rights that are not related to the farm or business use are not eligible for special-use valuation.

Property acquired from the decedent.

Property is considered to have been acquired from or to have passed from the decedent if one of the following applies.

• The property is considered to have been acquired from or to have passed from the decedent under section 1014(b) (relating to basis of property acquired from a decedent).
• The property is acquired by any person from the estate.
• The property is acquired by any person from a trust, to the extent the property is includible in the gross estate.

Qualified heir.

A person is a qualified heir of property if the person is a member of the decedent's family and acquired or received the property from the decedent. If a qualified heir disposes of any interest in qualified real property to any member of the qualified heir’s family, that person will then be treated as the qualified heir for that interest.

A member of the family includes only:

• An ancestor (parent, grandparent, etc.) of the individual;
• The spouse of the individual;
• The lineal descendant (child, stepchild, grandchild, etc.) of the individual, the individual's spouse, or a parent of the individual; or
• The spouse or surviving spouse of any lineal descendant described above.

Note.

A legally adopted child of an individual is treated as a child of that individual by blood.

Material Participation

To elect special-use valuation, either the decedent or a member of the decedent’s family must have materially participated in the operation of the farm or other business for at least 5 of the 8 years ending on the date of the decedent's death. The existence of material participation is a factual determination. Passively collecting rents, salaries, draws, dividends, or other income from the farm or other business is not sufficient for material participation, nor is merely advancing capital and reviewing a crop plan and financial reports each season or business year.

In determining whether the required participation has occurred, disregard brief periods (that is, 30 days or less) during which there was no material participation, as long as such periods were both preceded and followed by substantial periods (more than 120 days) during which there was uninterrupted material participation.

Retirement or disability.

If, on the date of death, the time period for material participation could not be met because the decedent was retired or disabled, a substitute period may apply. The decedent must have retired on social security or been disabled for a continuous period ending with death. A person is disabled for this purpose if the person was mentally or physically unable to materially participate in the operation of the farm or other business.

The substitute time period for material participation for these decedents is a period totaling at least 5 years out of the 8-year period that ended on the earlier of:

• The date the decedent began receiving social security benefits, or
• The date the decedent became disabled.

Surviving spouse.

A surviving spouse who received qualified real property from the predeceased spouse is considered to have materially participated if the surviving spouse was engaged in the active management of the farm or other business. If the surviving spouse died within 8 years of the first spouse's death, you may add the period of material participation of the predeceased spouse to the period of active management by the surviving spouse to determine if the surviving spouse's estate qualifies for special-use valuation. To qualify for this, the property must have been eligible for special-use valuation in the predeceased spouse's estate, though it does not have to have been elected by that estate.

For additional details regarding material participation, see Regulations section 20.2032A-3(e).

Valuation Methods

The primary method of valuing special-use property that is used for farming purposes is the annual gross cash rental method. If comparable gross cash rentals are not available, you can substitute comparable average annual net share rentals. If neither of these is available, or if you so elect, you can use the method for valuing real property in a closely held business.

Average annual gross cash rental.

Generally, the special-use value of property that is used for farming purposes is determined as follows.

1. Subtract the average annual state and local real estate taxes on actual tracts of comparable real property from the average annual gross cash rental for that same comparable property.
2. Divide the result in (1) by the average annual effective interest rate charged for all new federal land bank loans. See Effective interest rate, later.

The computation of each average annual amount is based on the 5 most recent calendar years ending before the date of the decedent's death.

Gross cash rental.

Generally, gross cash rental is the total amount of cash received in a calendar year for the use of actual tracts of comparable farm real property in the same locality as the property being specially valued. You may not use:

• Appraisals or other statements regarding rental value or areawide averages of rentals,
• Rents paid wholly or partly in-kind, or
• Property for which the amount of rent is based on production.

The rental must have resulted from an arm's-length transaction and the amount of rent may not be reduced by the amount of any expenses or liabilities associated with the farm operation or the lease.

Comparable property.

Comparable property must be situated in the same locality as the qualified real property as determined by generally accepted real property valuation rules. The determination of comparability is based on a number of factors, none of which carries more weight than the others. It is often necessary to value land in segments where there are different uses or land characteristics included in the specially valued land.

The following list contains some of the factors considered in determining comparability.

• Similarity of soil.
• Whether the crops grown would deplete the soil in a similar manner.
• Types of soil conservation techniques that have been practiced on the two properties.
• Whether the two properties are subject to flooding.
• Slope of the land.
• For livestock operations, the carrying capacity of the land.
• For timbered land, whether the timber is comparable.
• Whether the property as a whole is unified or segmented. If segmented, the availability of the means necessary for movement among the different sections.
• Number, types, and conditions of all buildings and other fixed improvements located on the properties and their location as it affects efficient management, use, and value of the property.
• Availability and type of transportation facilities in terms of costs and of proximity of the properties to local markets.

You must specifically identify on the return the property being used as comparable property. Use the type of descriptions used to list real property on Schedule A.

Effective interest rate.

See Tables 1 and 2 of Rev. Rul. 2023-15, 2023-34 I.R.B. 559, available at Rev. Rul. 2023-15, for the average annual effective interest rates in effect for 2023.

Net share rental.

You may use average annual net share rental from comparable land only if there is no comparable land from which average annual gross cash rental can be determined. Net share rental is the difference between the gross value of produce received by the lessor from the comparable land and the cash operating expenses (other than real estate taxes) of growing the produce that, under the lease, are paid by the lessor. The production of the produce must be the business purpose of the farming operation. For this purpose, produce includes livestock.

The gross value of the produce is generally the gross amount received if the produce was disposed of in an arm's-length transaction within the period established by the Department of Agriculture for its price support program. Otherwise, the value is the weighted average price for which the produce sold on the closest national or regional commodities market. The value is figured for the date or dates on which the lessor received (or constructively received) the produce.

Valuing a real property interest in a closely held business.

Use this method to determine the special-use valuation for qualifying real property used in a trade or business other than farming. You may also use this method for qualifying farm property if there is no comparable land or if you elect to use it. Under this method, the following factors are considered.

• The capitalization of income that the property can be expected to yield for farming or for closely held business purposes over a reasonable period of time with prudent management and traditional cropping patterns for the area, taking into account soil capacity, terrain configuration, and similar factors.
• The capitalization of the fair rental value of the land for farming or for closely held business purposes.
• The assessed land values in a state that provides a differential or use value assessment law for farmland or closely held business.
• Comparable sales of other farm or closely held business land in the same geographical area far enough removed from a metropolitan or resort area so that nonagricultural use is not a significant factor in the sales price.
• Any other factor that fairly values the farm or closely held business value of the property.

Making the Election

Include the words “Section 2032A valuation” in the “Description” column of any Form 706 schedule if section 2032A property is included in the decedent's gross estate.

An election under section 2032A need not include all the property in an estate that is eligible for special-use valuation, but sufficient property to satisfy the threshold requirements of section 2032A(b)(1)(B) must be specially valued under the election.

If joint or undivided interests (that is, interests as joint tenants or tenants in common) in the same property are received from a decedent by qualified heirs, an election for one heir's joint or undivided interest need not include any other heir's interest in the same property if the electing heir's interest plus other property to be specially valued satisfies the requirements of section 2032A(b)(1)(B).

If successive interests (that is, life estates and remainder interests) are created by a decedent in otherwise qualified property, an election under section 2032A is available only for that property (or part) in which qualified heirs of the decedent receive all of the successive interests, and such an election must include the interests of all of those heirs.

For example, if a surviving spouse receives a life estate in otherwise qualified property and the spouse's sibling receives a remainder interest in fee, no part of the property may be valued under a section 2032A election.

Where successive interests in specially valued property are created, remainder interests are treated as being received by qualified heirs only if the remainder interests are not contingent on surviving a nonfamily member or are not subject to divestment in favor of a nonfamily member.

Protective Election

You may make a protective election to specially value qualified real property. Under this election, whether or not you may ultimately use special-use valuation depends upon final values (as shown on the return determined following examination of the return) meeting the requirements of section 2032A.

To make a protective election, check “Yes” on line 2 and complete Schedule A-1 according to the instructions for Protective election , later.

If you make a protective election, complete the initial Form 706 by valuing all property at its FMV. Do not use special-use valuation. Usually, this will result in higher estate and GST tax liabilities than will be ultimately determined if special-use valuation is allowed. The protective election does not extend the time to pay the taxes shown on the return. If you wish to extend the time to pay the taxes, file Form 4768 in adequate time before the due date of the return. See the Instructions for Form 4768.

If the estate qualifies for special-use valuation based on the values as finally determined, you must file an amended Form 706 (with a complete section 2032A election) within 60 days after the date of this determination. Prepare the amended return using special-use values under the rules of section 2032A, complete Schedule A-1, and attach all of the required statements.

Additional Information

For definitions and additional information, see section 2032A and the related regulations.

Line 3. Section 6166 Installment Payments

If the gross estate includes an interest in a closely held business, you may be able to elect to pay part of the estate tax in installments under section 6166.

The maximum amount that can be paid in installments is that part of the estate tax that is attributable to the closely held business; see Determine how much of the estate tax may be paid in installments under section 6166 , later. In general, that amount is the amount of tax that bears the same ratio to the total estate tax that the value of the closely held business included in the gross estate bears to the adjusted gross estate.

Bond or lien.

The IRS may require that an estate furnish a surety bond when granting the installment payment election. In the alternative, the executor may consent to elect the special lien provisions of section 6324A in lieu of the bond. The IRS will contact you regarding the specifics of furnishing the bond or electing the special lien. The IRS will make this determination on a case-by-case basis, and you may be asked to provide additional information.

If you elect the lien provisions, section 6324A requires that the lien be placed on property having a value equal to the total deferred tax plus 4 years of interest. The property must be expected to survive the deferral period, and does not necessarily have to be property of the estate. In addition, all people with an interest in the designated property must consent to the creation of this lien.

Percentage requirements.

To qualify for installment payments, the value of the interest in the closely held business that is included in the gross estate must be more than 35% of the adjusted gross estate (the gross estate less expenses, indebtedness, taxes, and losses—Schedules J, K, and L of Form 706 (do not include any portion of the state death tax deduction)).

Interests in two or more closely held businesses are treated as an interest in a single business if at least 20% of the total value of each business is included in the gross estate. For this purpose, include any interest held by the surviving spouse that represents the surviving spouse's interest in a business held jointly with the decedent as community property or as joint tenants, tenants by the entirety, or tenants in common.

Value.

The value used for meeting the percentage requirements is the same value used for determining the gross estate. Therefore, if the estate is valued under alternate valuation or special-use valuation, you must use those values to meet the percentage requirements.

Transfers before death.

Generally, gifts made before death are not included in the gross estate. However, the estate must meet the 35% requirement by both including in and excluding from the gross estate any gifts made by the decedent in the 3-year period ending on the date of death.

Passive assets.

In determining the value of a closely held business and whether the 35% requirement is met, do not include the value of any passive assets held by the business. A passive asset is any asset not used in carrying on a trade or business. Any asset used in a qualifying lending and financing business is treated as an asset used in carrying on a trade or business; see section 6166(b)(10) for details. Stock in another corporation is a passive asset unless the stock is treated as held by the decedent because of the election to treat holding company stock as business company stock; see Holding company stock , later.

If a corporation owns at least 20% in value of the voting stock of another corporation, or the other corporation had no more than 45 shareholders and at least 80% of the value of the assets of each corporation is attributable to assets used in carrying on a trade or business, then these corporations will be treated as a single corporation and the stock will not be treated as a passive asset. Stock held in the other corporation is not taken into account in determining the 80% requirement.

Interest in a closely held business.

For purposes of the installment payment election, an interest in a closely held business means:

• Ownership of a trade or business carried on as a proprietorship;
• An interest as a partner in a partnership carrying on a trade or business, if 20% or more of the total capital interest was included in the gross estate of the decedent or the partnership had no more than 45 partners; or
• Stock in a corporation carrying on a trade or business, if 20% or more in value of the voting stock of the corporation is included in the gross estate of the decedent or the corporation had no more than 45 shareholders.

The partnership or corporation must be carrying on a trade or business at the time of the decedent's death. For further information on whether certain partnerships or corporations owning real property interests constitute a closely held business, see Rev. Rul. 2006-34, 2006-26 I.R.B. 1171, available at Rev. Rul. 2006-34.

In determining the number of partners or shareholders, a partnership or stock interest is treated as owned by one partner or shareholder if it is community property or held by spouses as joint tenants, tenants in common, or tenants by the entirety.

Property owned directly or indirectly by or for a corporation, partnership, estate, or trust is treated as owned proportionately by or for its shareholders, partners, or beneficiaries. For trusts, only beneficiaries with present interests are considered.

The interest in a closely held farm business includes the interest in the residential buildings and related improvements occupied regularly by the owners, lessees, and employees operating the farm.

Holding company stock.

The executor may elect to treat as business company stock the portion of any holding company stock that represents direct ownership (or indirect ownership through one or more other holding companies) in a business company. A holding company is a corporation holding stock in another corporation. A business company is a corporation carrying on a trade or business.

In general, this election applies only to stock that is not readily tradable. However, the election can be made if the business company stock is readily tradable, as long as all of the stock of each holding company is not readily tradable.

For purposes of the 20%-voting-stock requirement, stock is treated as voting stock to the extent the holding company owns voting stock in the business company.

If the executor makes this election, the first installment payment is due when the estate tax return is filed. The 5-year deferral for payment of the tax, as discussed later under Time for payment, does not apply. In addition, the 2% interest rate, discussed later under Interest computation, will not apply. Also, if the business company stock is readily tradable, as explained above, the tax must be paid in five installments.

Determine how much of the estate tax may be paid in installments under section 6166.

To determine whether the election may be made, you must figure the adjusted gross estate. (See the Line 3 Worksheet—Adjusted Gross Estate below.) To determine the value of the adjusted gross estate, subtract the deductions (Schedules J, K, and L) from the value of the gross estate.

Line 3 Worksheet—Adjusted Gross Estate

To determine over how many installments the estate tax may be paid, please refer to sections 6166(a), (b)(7), (b)(8), and (b)(10).

Time for payment.

Under the installment method, the executor may elect to defer payment of the qualified estate tax, but not interest, for up to 5 years from the original payment due date. After the first installment of tax is paid, you must pay the remaining installments annually by the date 1 year after the due date of the preceding installment. There can be no more than 10 installment payments.

Interest on the unpaid portion of the tax is not deferred and must be paid annually. Interest must be paid at the same time as and as a part of each installment payment of the tax.

Acceleration of payments.

If the estate fails to make payments of tax or interest within 6 months of the due date, the IRS may terminate the right to make installment payments and force an acceleration of payment of the tax upon notice and demand. Upon notice and demand, a penalty will be imposed for an amount that is 5% of the payment multiplied by the number of months (or fractions thereof) after the due date and before the payment is made.

Generally, if any portion of the interest in the closely held business which qualifies for installment payments is distributed, sold, exchanged, or otherwise disposed of, or money and other property attributable to such an interest is withdrawn, and the aggregate of those events equals or exceeds 50% of the value of the interest, then the right to make installment payments will be terminated, and the unpaid portion of the tax will be due upon notice and demand. See section 6166(g)(1)(A).

Interest computation.

A special interest rate applies to installment payments. For decedents dying in 2023, the interest rate is 2% on the lesser of:

• $700,000, or
• The amount of the estate tax that is attributable to the closely held business and that is payable in installments.

2% portion.

The 2% portion is an amount equal to the amount of the tentative estate tax (on $1 million plus the applicable exclusion amount in effect) minus the applicable credit amount in effect. However, if the amount of estate tax extended under section 6166 is less than the amount figured above, the 2% portion is the lesser amount.

Inflation adjustment.

The $1 million amount used to figure the 2% portion is indexed for inflation for the estates of decedents who died in a calendar year after 1998. For an estate of a decedent who died in 2023, the dollar amount used to determine the “2% portion” of the estate tax payable in installments under section 6166 is $1,750,000.

Computation.

Interest on the portion of the tax in excess of the 2% portion is figured at 45% of the annual rate of interest on underpayments. This rate is based on the federal short-term rate and is announced quarterly by the IRS in the Internal Revenue Bulletin.

If you elect installment payments and the estate tax due is more than the maximum amount to which the 2% interest rate applies, each installment payment is deemed to comprise both tax subject to the 2% interest rate and tax subject to 45% of the regular underpayment rate. The amount of each installment that is subject to the 2% rate is the same as the percentage of total tax payable in installments that is subject to the 2% rate.

The interest paid on installment payments is not deductible as an administrative expense of the estate.

Making the election.

If you check this line to make a final election, you must attach the notice of election described in Regulations section 20.6166-1(b). If you check this line to make a protective election, you must attach a notice of protective election as described in Regulations section 20.6166-1(d). Regulations section 20.6166-1(b) requires that the notice of election is made by attaching to a timely filed estate tax return the following information.

• The decedent's name and taxpayer identification number (TIN) as they appear on the estate tax return.
• The amount of tax that is to be paid in installments.
• The date selected for payment of the first installment.
• The number of annual installments, including first installment, in which the tax is to be paid.
• The properties shown on the estate tax return that are the closely held business interest (identified by schedule and item number).
• The facts that formed the basis for the executor's conclusion that the estate qualifies for payment of the estate tax in installments.

You may also elect to pay certain GST taxes in installments. See section 6166(i).

Line 4. Reversionary or Remainder Interests

For details of this election, see section 6163 and the related regulations.