Monday, September 24, 2012

As we told you last week, the IRS recently released Draft Instructions for Form 706 for decedents dying in 2012, which can be found here. If you don’t feel like reading all 52 pages yourself, here are some of the highlights:

• The new Form 706 includes a new Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE). This new Part 6 allows the taxpayer to (1) opt out of electing to transfer the decedent’s DSUE to his or her surviving spouse, (2) calculate the amount of DSUE that can be transferred to the surviving spouse if so elected, and/or (3) account for any DSUE amount received by the decedent from his or her predeceased spouse.

• Line 9 of Part 2 was replaced with lines 9a through 9d. The calculation of the applicable exclusion amount and applicable credit amount (formerly unified credit amount) now factors in any DSUE amount received from a predeceased spouse.

• In the case of executors who are merely filing a Form 706 in order to elect portability of the decedent’s DSUE amount to the surviving spouse, while the executor is not required to report the value of certain property eligible for the marital deduction under section 2056 and 2056A or the charitable deduction under section 2055, the executor must estimate the value of those assets in good faith and identify on the return the particular range within which the executor’s best estimate falls. (See the special rule of Reg. section 20.2010-2T(a)(7)(ii) for which assets need not be reported.)

• A new Schedule PC—Protective Claim for Refund, has been added to the Form 706, required to be filed in duplicate, in order to preserve the taxpayer’s right to a refund of estate taxes paid for assets or liabilities subject to unresolved controversy at the time of the filing of the return.

This new release is still in Draft form. As the IRS cautions: “This is an early release draft of an IRS tax form, instructions, or publication, which the IRS is providing for your information as a courtesy. Do not file draft forms. Also, do not rely on draft instructions and publications for filing.”

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