The IRS on March 25 announced problem areas and changes with Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return.
Form 706 must be filed for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $5 million.
The IRS noted that for estate tax returns after Dec. 31, 1976, Line 4 of Form 706 lists the cumulative amount of adjusted taxable gifts within the meaning of IRC section 2503. The computation of gift tax payable (Line 7 of Form 706) uses the IRC section 2001(c) rate schedule in effect as of the date of the decedent's death, rather than the actual amount of gift taxes paid with respect to the gifts.
With the top bracket tax rates decreasing from 55% (in 2001) down to 35% (in 2010) and a periodic drop in rates in between, the IRS said, it has encountered situations where gift taxes paid were greater than the tax calculated using the rate in effect at the date of death.