A client dies. The estate may or may not owe federal estate tax. Either way, there’s work to do, and in many cases, a return to file.
Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, governs federal estate tax reporting for U.S. citizens and residents. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, raised the basic exclusion amount to $15,000,000 for decedents dying in 2026, up from $13,990,000 in 2025. That increase affects the filing threshold, but it doesn’t eliminate the practitioner’s job. Understanding when Form 706 is required, what goes into it, and where returns run into problems is foundational to estate administration work.
Form 706 Estate Tax Return: The 2026 Filing Threshold
Form 706 is required when the gross estate of a U.S. citizen or resident, combined with adjusted taxable gifts made after 1976 and any applicable specific gift tax exemption, exceeds the basic exclusion amount for the year of death. For 2026, that threshold is $15,000,000 per individual.
The gross estate is not limited to probate assets. It includes everything the decedent owned or had certain interests in at fair market value on the date of death: cash, securities, real property, closely held business interests, retirement accounts, life insurance proceeds where the decedent held incidents of ownership, annuities, jointly held property, and interests in trusts. Assets that pass by beneficiary designation or operation of law are included alongside those that pass through the will.
Adjusted taxable gifts, meaning post-1976 taxable gifts not already included in the gross estate, are added to the gross estate for purposes of determining the filing obligation. An estate that appears to be well below $15,000,000 can cross the threshold once the client’s lifetime gift history is factored in. Pulling prior Form 709 returns early in the administration is a standard first step.
When Does Filing Make Sense Even Without a Tax Obligation?
The portability election is the reason many estates below the filing threshold still require a Form 706. Under IRC section 2010(c), a surviving spouse can use the deceased spouse’s unused exclusion (DSUE) amount for their own estate and gift tax purposes. With a $15,000,000 exclusion per individual, a properly elected portability can give a surviving spouse a combined effective exclusion of $30,000,000.
The election isn’t automatic.
It requires a timely Form 706.
Timely means within nine months of death, or within a valid six-month extension via Form 4768 filed before the original due date. Revenue Procedure 2022-32 provides late election relief for qualifying estates, allowing portability filings up to five years after death. That window exists as a safety net, not a plan.
Building the Gross Estate: Schedule by Schedule
Form 706 organizes the gross estate across Schedules A through I. Real property, securities, cash, life insurance, jointly held property, and annuities each have a dedicated schedule. Transfers during life, powers of appointment, and other includible interests are addressed in Schedules G, H, and I respectively.
Deductions have their own schedules: funeral and administration expenses, debts, and losses on Schedules J and K; charitable bequests on Schedule O; and the marital deduction on Schedule M.
Every asset is reported at fair market value on the date of death. For publicly traded securities, that’s a defined calculation based on trading prices. For closely held business interests, real property, artwork, and other non-liquid assets, a qualified appraisal is the foundation. Appraisal quality is consistently the first area the IRS scrutinizes during examination, and the difference between a defensible valuation and an unsupported one can be significant.
Deadlines, Extensions, and the Payment Distinction
The estate tax is due within nine months of the decedent’s date of death. An automatic six-month extension to file is available by filing Form 4768 on or before the original due date, extending the filing deadline to 15 months after death.
The filing extension does not extend the payment deadline. Interest accrues on any unpaid tax from the original nine-month due date. Sections 6166 and 6163 allow installment payment and deferral of estate tax for illiquid estates, but both require elections on the return itself.
Where Do Form 706 Filings Run Into Problems?
Valuation disputes are the most common source of IRS examination adjustments on Form 706. Closely held business interests and real property dominate the problem list. Inadequate appraisals, stale valuations, or failure to document discounts for lack of marketability and lack of control are recurring issues. The adequate disclosure standard matters here: returns that meet it generally start the three-year examination period; those that don’t can remain open indefinitely.
Among the schedules that generate the most complexity: Schedule A (real property requiring appraisal), Schedule F and Schedule G for transfers and other includible interests, Schedule M for the marital deduction where QTIP elections are involved, and Schedule R for GST exemption allocation. Each has its own documentation requirements and valuation considerations. Portability errors are the second category. A missed election window, an incomplete return that fails to constitute a valid election, or incorrect DSUE application in subsequent filings all create problems that are difficult to correct. The election language must satisfy IRS requirements.
Schedule coordination errors round out the list.
Misclassifying assets between schedules, omitting non-probate property, and errors in the GST exemption allocation on Schedule R are recurring issues. Practitioners handling Form 706 for the first time benefit from structured preparation.
The OBBBA Context
The OBBBA’s increase to $15,000,000 is permanent in the sense that no sunset provision was included. Going forward, the exclusion is indexed for inflation using 2025 as the new base year. Federal estate tax rates remain unchanged at 40%, and the OBBBA left portability rules, GST exemption structure, and the marital deduction intact.
Federal permanence doesn’t eliminate state-level exposure. Eighteen states and the District of Columbia impose their own estate or inheritance taxes with exemption thresholds that are often a fraction of the federal amount. Estates that fall comfortably below the federal filing threshold can still face state tax obligations, state-specific filing deadlines, and state appraisal requirements that operate on their own timeline.
Preparing the Federal Estate Tax Return (Form 706): A Practical Guide (ETR2) from Surgent CPE covers the full Form 706 preparation process: organizing gross estate information, completing schedules, applying portability and marital deduction rules, handling GST exposures, and managing common compliance risks.
Sources: IRS, What’s New: Estate and Gift Tax (irs.gov); IRS FAQ on Estate Taxes (irs.gov); Instructions for Form 706 (Rev. September 2025); About Form 4768 (irs.gov); IRS Revenue Procedure 2022-32; Public Law 119-21 (One Big Beautiful Bill Act).