Cat. No. 16779E

Change To Note

General Instructions

Purpose of FormThe executor of a decedent’s estate usesForm 706 to figure the estate tax imposedby Chapter 11 of the Internal RevenueCode. This tax is levied on the entiretaxable estate, not just on the sharereceived by a particular beneficiary. Form706 is also used to compute thegeneration-skipping transfer (GST) taximposed by Chapter 13 on direct skips(transfers to skip persons of interests inproperty included in the decedent’s grossestate).

Which Estates Must FileForm 706 must be filed by the executor forthe estate of every U.S. citizen or residentwhose gross estate, plus adjusted taxablegifts and specific exemption, is more thancertain limits.

To determine whether you must file areturn for the estate, add:

1. The adjusted taxable gifts (undersection 2001(b)) made by the decedentafter December 31, 1976;

2. The total specific exemption allowedunder section 2521 (as in effect before itsrepeal by the Tax Reform Act of 1976) forgifts made by the decedent afterSeptember 8, 1976; and

3. The decedent’s gross estate valuedat the date of death.

You must file a return for the estate ifthe total of 1, 2, and 3 above is more than$600,000 for decedents dying after 1986.For filing requirements for decedents dyingafter 1981 and before 1986, see theNovember 1987 Revision of Form 706.

Gross EstateThe gross estate includes all property inwhich the decedent had an interest(including real property outside the UnitedStates). It also includes:● Certain transfers made during thedecedent’s life without an adequate andfull consideration in money or money’sworth;● Annuities;● Joint estates with right of survivorship;● Tenancies by the entirety;● Life insurance proceeds (even thoughpayable to beneficiaries other than theestate);● Property over which the decedentpossessed a general power ofappointment;● Dower or curtesy (or statutory estate) ofthe surviving spouse;● Community property to the extent of thedecedent’s interest as defined byapplicable law.

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

Instructions for Form 706(Revised August 1993)United States Estate (and Generation-SkippingTransfer) Tax ReturnFor decedents dying after October 8, 1990.Section references are to the Internal Revenue Code unless otherwise noted.

Paperwork Reduction Act Notice.—We ask for the information on this form to carry outthe Internal Revenue laws of the United States. You are required to give us theinformation. We need it to ensure that you are complying with these laws and to allow usto figure and collect the right amount of tax.

The time needed to complete and file this form and related schedules will varydepending on individual circumstances. The estimated average times are:

Copying, assembling,and sending the form

to the IRSPreparingthe form

Learning about the lawor the formRecordkeepingForm

2 hr., 11 min.706 49 min.3 hr., 26 min.1 hr., 9 min.20 min.Sch. A 20 min.10 min.16 min.46 min.A-1 49 min.59 min.25 min.20 min.B 20 min.11 min.10 min.13 min.C 20 min.8 min.2 min.7 min.D 20 min.8 min.6 min.40 min.E 20 min.24 min.7 min.33 min.F 20 min.21 min.6 min.26 min.G 14 min.11 min.18 min.26 min.H 14 min.10 min.6 min.26 min.I 20 min.11 min.25 min.26 min.J 20 min.16 min.5 min.26 min.K 20 min.10 min.9 min.13 min.L 20 min.10 min.5 min.13 min.M 20 min.24 min.31 min.20 min.O 17 min.18 min.9 min.7 min.P 14 min.18 min.14 min.7 min.Q 14 min.11 min.10 min.7 min.Q Wksht. 20 min.59 min.10 min.20 min.R 49 min.1 hr., 1 min.34 min.7 min.R-1 20 min.24 min.29 min.26 min.S 25 min.37 min.22 min.20 min.Contin. 20 min.7 min.3 min.

If you have comments concerning the accuracy of these time estimates or suggestionsfor making this form more simple, we would be happy to hear from you. You can write toboth the Internal Revenue Service, Attention: Reports Clearance Officer, T:FP,Washington, DC 20224; and the Office of Management and Budget, PaperworkReduction Project (1545-0015), Washington, DC 20503. DO NOT send the tax form toeither of these offices. Instead, see Where To File on page 2.

Department of the TreasuryInternal Revenue Service

Use Revision ofForm 706 Dated

For Decedents DyingAfter Beforeand

December 31, 1981 October 23, 1986 November, 1987November, 1981

October, 1988July, 1990October, 1991August, 1993

January 1, 1982

January 1, 1990October 9, 1990January 1, 1993

October 22, 1986December 31, 1989October 8, 1990October 8, 1990

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● The Omnibus Budget Reconciliation Act of 1993 increased the maximum estate taxrate to 53% for taxable estates in excess of $2.5 million and 55% for taxable estates inexcess of $3 million. This increase is permanent and applies to the estates of decedentsdying after December 31, 1992. Because the February 1993 revision of Form 706 isbased on a maximum estate tax rate of 50%, it should not be used.

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U.S. Citizens or Residents;Nonresident NoncitizensFile Form 706 for the estates of decedentswho were either U.S. citizens or U.S.residents at the time of death. File Form706-NA, United States Estate (andGeneration-Skipping Transfer) Tax Return,Estate of nonresident not a citizen of theUnited States, for the estates ofnonresident alien decedents (decedentswho were neither U.S. citizens norresidents at the time of death).

Residents of U.S. PossessionsAll references to citizens of the UnitedStates are subject to the provisions ofsections 2208 and 2209, relating todecedents who were U.S. citizens andresidents of a U.S. possession on the dateof death. If such a decedent became aU.S. citizen only because of his or herconnection with a possession, then thedecedent is considered a nonresident aliendecedent for estate tax purposes, and youshould file Form 706-NA. If such adecedent became a U.S. citizen whollyindependently of his or her connection witha possession, then the decedent isconsidered a U.S. citizen for estate taxpurposes, and you should file Form 706.

ExecutorThe term “executor” means the executor,personal representative, or administrator ofthe decedent’s estate. If none of these isappointed, qualified, and acting in theUnited States, every person in actual orconstructive possession of any property ofthe decedent is considered an executorand must file a return.

When To FileYou must file Form 706 to report estateand/or generation-skipping transfer taxwithin 9 months after the date of thedecedent’s death unless you receive anextension of time to file. Use Form 4768,Application for Extension of Time To File aReturn and/or Pay U.S. Estate (andGeneration-Skipping Transfer) Taxes, toapply for an extension of time. If youreceived an extension, attach a copy of itto Form 706.

Where To FileUnless the return is hand carried to theoffice of the District Director, please mail itto the Internal Revenue Service Centerindicated below for the state where thedecedent was domiciled at the time ofdeath. If you are filing a return for theestate of a nonresident U.S. citizen, mail itto the Internal Revenue Service Center,Philadelphia, PA 19255, USA.Where To File.—

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Florida, Georgia, SouthCarolina Atlanta, GA 39901

New Jersey, New York(New York City andcounties of Nassau,Rockland, Suffolk, andWestchester)

Holtsville, NY 00501

New York (all othercounties), Connecticut,Maine, Massachusetts, NewHampshire, Rhode Island,Vermont

Andover, MA 05501

Illinois, Iowa, Minnesota,Missouri, Wisconsin Kansas City, MO 64999

Delaware, District ofColumbia, Maryland,Pennsylvania, Virginia

Philadelphia, PA 19255

Indiana, Kentucky,Michigan, Ohio, WestVirginia

Cincinnati, OH 45999

Kansas, New Mexico,Oklahoma, Texas Austin, TX 73301

Alaska, Arizona, California(counties of Alpine, Amador,Butte, Calaveras, Colusa,Contra Costa, Del Norte, ElDorado, Glenn, Humboldt,Lake, Lassen, Marin,Mendocino, Modoc, Napa,Nevada, Placer, Plumas,Sacramento, San Joaquin,Shasta, Sierra, Siskiyou,Solano, Sonoma, Sutter,Tehama, Trinity, Yolo, andYuba), Colorado, Idaho,Montana, Nebraska,Nevada, North Dakota,Oregon, South Dakota,Utah, Washington,Wyoming

Ogden, UT 84201

California (all othercounties), Hawaii Fresno, CA 93888

Alabama, Arkansas,Louisiana, Mississippi,North Carolina, Tennessee

Memphis, TN 37501

Paying the TaxThe estate and GST taxes are due within 9months after the date of the decedent’sdeath unless an extension of time forpayment has been granted, or unless youhave properly elected under section 6166to pay in installments, or under section6163 to postpone the part of the taxattributable to a reversionary or remainderinterest. These elections are made bychecking lines 3 and 4 (respectively) ofPart 3, Elections by the Executor, andattaching the required statements.

If the tax paid with the return is differentfrom the balance due as figured on thereturn, explain the difference in anattached statement. If you have made priorpayments to IRS or redeemed certainmarketable United States Treasury bondsto pay the estate tax (see the lastparagraph of the instructions to ScheduleB), attach a statement to Form 706including these facts. If an extension oftime to pay has been granted, attach acopy of the approved Form 4768 to Form706.

Make the check payable to the InternalRevenue Service. Please write thedecedent’s name, social security number,and “Form 706” on the check to assist usin posting it to the proper account.

Signature and VerificationIf there is more than one executor, alllisted executors must verify and sign thereturn. All executors are responsible forthe return as filed and are liable forpenalties provided for erroneous or falsereturns.

If two or more persons are liable for filingthe return, they should all join together infiling one complete return. However, if theyare unable to join in making one completereturn, each is required to file a returndisclosing all the information the personhas in the case, including the name ofevery person holding an interest in theproperty and a full description of theproperty. If the appointed, qualified, andacting executor is unable to make acomplete return, then every person holdingan interest in the property must, on noticefrom the IRS, make a return regarding thatinterest.

The executor who files the return must,in every case, sign the declaration on page1 under penalties of perjury. If the return isprepared by someone other than theperson who is filing the return, the preparermust also sign at the bottom of page 1.

Part 1Line 2Enter the social security number assignedspecifically to the decedent. You cannotuse the social security number assigned tothe decedent’s spouse. If the decedent didnot have a social security number, theexecutor should obtain one for thedecedent by filing Form SS-5 with a localSocial Security Administration office.

Line 6a—Name of ExecutorIf there is more than one executor, enterthe name of the executor to be contactedby the IRS. List the other executors’names, addresses, and SSNs (if applicable)on an attached sheet.

Line 6b—Executor’s AddressUse Form 8822, Change of Address, toreport a change of the executor’s address.

Line 6c—Executor’s SocialSecurity NumberOnly individual executors should completethis line. If there is more than oneindividual executor, all should list theirsocial security numbers on an attachedsheet.

Supplemental DocumentsYou must attach the death certificate tothe return.

If the decedent was a citizen or residentand died testate, attach a certified copy ofthe will to the return. Other supplementaldocuments may be required as explainedbelow. Examples include Forms 712, 709,709-A, and 706CE, trust and power ofappointment instruments, death certificate,and state certification of payment of deathtaxes. If you do not file these documents

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with the return, the processing of thereturn will be delayed.

If the decedent was a U.S. citizen butnot a resident of the United States, youmust attach the following documents tothe return: (1) a copy of the inventory ofproperty and the schedule of liabilities,claims against the estate, and expenses ofadministration filed with the foreign courtof probate jurisdiction, certified by a properofficial of the court; (2) a copy of the returnfiled under the foreign inheritance, estate,legacy, succession tax, or other death taxact, certified by a proper official of theforeign tax department, if the estate issubject to such a foreign tax; and (3) if thedecedent died testate, a certified copy ofthe will.

Rounding Off to WholeDollarsYou may show the money items on thereturn and accompanying schedules aswhole-dollar amounts. To do so, drop anyamount less than 50 cents and increaseany amount from 50 cents through 99cents to the next higher dollar.

PenaltiesSection 6651 provides for penalties forboth late filing and for late payment unlessthere is reasonable cause for the delay.The law also provides for penalties forwillful attempts to evade payment of tax.The late filing penalty will not be imposed ifthe taxpayer can show that the failure tofile a timely return is due to reasonablecause. Executors filing late (after the duedate, including extensions) should attachan explanation to the return to showreasonable cause.

Section 6662 provides a penalty for theunderpayment of estate tax of $5,000 ormore when the underpayment isattributable to valuation understatements.A valuation understatement occurs whenthe value of property reported on Form 706is 50 percent or less of the actual value ofthe property.

These penalties also apply to late filing,late payment, and underpayment of GSTtaxes.

Publication 448Additional information may be found inPub. 448, Federal Estate and Gift Taxes.

Specific InstructionsYou must file the first three pages of Form706 and all required schedules. SchedulesA through I must be filed, as appropriate,to support the entries in items 1 through 9of the Recapitulation.

If you enter zero on any item of theRecapitulation, you need not file theschedule (except for Schedule F) referredto on that item.

If you claim any deductions on items 11through 19 of the Recapitulation, you mustcomplete and attach the appropriate

Schedule(s) to support the claimeddeductions.

If you claim the credits for foreign deathtaxes or tax on prior transfers, you mustcomplete and attach Schedule P or Q.

Form 706 has 41 numbered pages. Thepages are perforated so that you canremove them for copying and filing. Whenyou complete the return, staple all therequired pages together in the properorder.

Number the items you list on eachschedule, beginning with 1 each time.Total the items listed on the schedule andits attachments, Continuation Schedules,etc. Enter the total of all attachments,Continuation Schedules, etc., at thebottom of the printed schedule, but do notcarry the totals forward from one scheduleto the next. Enter the total or totals foreach schedule on the Recapitulation, page3, Form 706.

Do not complete the “Alternate valuationdate” or “Alternate value” columns of anyschedule unless you elected alternatevaluation on line 1 of Part 3, Elections bythe Executor.

If there is not enough space on aschedule to list all the items, attach aContinuation Schedule (or additionalsheets of the same size) to the back of theschedule. The Continuation Schedule islocated at the end of the Form 706package. You should photocopy the blankschedule before completing it if you willneed more than one copy.

Instructions for Part 3.—Elections by the ExecutorLine 1—Alternate ValuationUnless you elect at the time you file thereturn to adopt alternate valuation asauthorized by section 2032, you mustvalue all property included in the grossestate on the date of the decedent’sdeath. Alternate valuation cannot beapplied to only a part of the property. Youmay elect special use valuation (line 2) inaddition to alternate valuation.

You may not elect alternate valuationunless the election will decrease both thevalue of the gross estate and the total netestate and GST taxes due after applicationof all allowable credits.

Alternate valuation is elected bychecking “Yes” on line 1 and filing Form706. Once made, the election may not berevoked. The election may be made on alate filed Form 706 provided it is not filedlater than 1 year after the due date(including extensions).

If you elect alternate valuation, value theproperty that is included in the grossestate as of the applicable dates asfollows:

1. Any property distributed, sold,exchanged, or otherwise disposed of orseparated or passed from the gross estateby any method within 6 months after thedecedent’s death is valued on the date ofdistribution, sale, exchange, or otherdisposition, whichever occurs first. Value

this property on the date it ceases to forma part of the gross estate, that is, on thedate the title passes as the result of itssale, exchange, or other disposition.

2. Any property not distributed, sold,exchanged, or otherwise disposed ofwithin the 6-month period is valued on thedate 6 months after the date of thedecedent’s death.

3. Any property, interest, or estate that is“affected by mere lapse of time” is valuedas of the date of decedent’s death or onthe date of its distribution, sale, exchange,or other disposition, whichever occurs first.However, you may change the date ofdeath value to account for any change invalue that is not due to a “mere lapse oftime” on the date of its distribution, sale,exchange, or other disposition.

The property included in the alternatevaluation and valued as of 6 months afterthe date of the decedent’s death, or as ofsome intermediate date (as describedabove) is the property included in thegross estate on the date of the decedent’sdeath. Therefore, you must first determinewhat property constituted the gross estateat the decedent’s death.

Interest accrued to the date of thedecedent’s death on bonds, notes, andother interest-bearing obligations isproperty of the gross estate on the date ofdeath and is included in the alternatevaluation. Rent accrued to the date of thedecedent’s death on leased real orpersonal property is property of the grossestate on the date of death and is includedin the alternate valuation.

Outstanding dividends that weredeclared to stockholders of record on orbefore the date of the decedent’s deathare considered property of the gross estateon the date of death, and are included inthe alternate valuation. Ordinary dividendsdeclared to stockholders of record afterthe date of the decedent’s death are notproperty of the gross estate on the date ofdeath and are not included in the alternatevaluation. However, if dividends aredeclared to stockholders of record afterthe date of the decedent’s death so thatthe shares of stock at the later valuationdate do not reasonably represent the sameproperty at the date of the decedent’sdeath, include those dividends (exceptdividends paid from earnings of thecorporation after the date of thedecedent’s death) in the alternatevaluation.

As part of each Schedule A through I,you must show: (1) what property isincluded in the gross estate on the date ofthe decedent’s death; (2) what propertywas distributed, sold, exchanged, orotherwise disposed of within the 6-monthperiod after the decedent’s death, and thedates of these distributions, etc. These twoitems should be entered in the“Description” column of each schedule.Briefly explain the status or dispositiongoverning the alternate valuation date,such as: “Not disposed of within 6 monthsfollowing death,” “Distributed,” “Sold,”“Bond paid on maturity,” etc. In this samecolumn, describe each item of principal

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and includible income; (3) the date ofdeath value, entered in the appropriatevalue column with items of principal andincludible income shown separately;and (4) the alternate value, entered in theappropriate value column with items ofprincipal and includible income shownseparately. In the case of any interest orestate, the value of which is affected bylapse of time, such as patents, leaseholds,estates for the life of another, or remainderinterests, the value shown under theheading “Alternate value” must be theadjusted value (i.e., the value as of thedate of death with an adjustment reflectingany difference in its value as of the laterdate not due to lapse of time).

Distributions, sales, exchanges, andother dispositions of the property withinthe 6-month period after the decedent’sdeath must be supported by evidence. Ifthe court issued an order of distributionduring that period, you must submit acertified copy of the order as part of theevidence. The District Director may requireyou to submit additional evidence ifnecessary.

Line 2—Special Use Valuation ofSection 2032AUnder section 2032A, you may elect tovalue certain farm and closely heldbusiness real property at its farm orbusiness use value rather than its fairmarket value. You may elect both specialuse valuation and alternate valuation. Toelect this valuation you must check “Yes”to line 2 and complete and attachSchedule A-1 and its required additionalstatements. You must file Schedule A-1and its required attachments with Form706 for this election to be valid. You maymake the election on a late filed return solong as it is the first return filed.

The total value of the property valuedunder section 2032A may not bedecreased from fair market value by morethan $750,000.

Real property may qualify for the section2032A election if:

1. The decedent was a U.S. citizen orresident at the time of death;

2. The real property is located in theUnited States;

3. At the decedent’s death the realproperty was used by the decedent or afamily member for farming or in a trade orbusiness or is rented for such use by thesurviving spouse to a family member on anet cash basis;

4. The real property was acquired fromor passed from the decedent to a qualifiedheir of the decedent;

5. The real property was owned andused in a qualified manner by thedecedent or a member of the decedent’sfamily during 5 of the 8 years before thedecedent’s death;

6. There was material participation bythe decedent or a member of thedecedent’s family during 5 of the 8 yearsbefore the decedent’s death; and

7. The qualified property is thepercentage of the decedent’s gross estatespecified in section 2032A.

For definitions and additionalinformation, see section 2032A and therelated regulations.

Include the words “section 2032Avaluation” in the “Description” column ofany Form 706 schedule if section 2032Aproperty is included in the decedent’sgross estate.

An election under section 2032A neednot include all the property in an estatethat is eligible for special use valuation, butsufficient property to satisfy the thresholdrequirements of section 2032A(b)(1)(B)must be specially valued under theelection.

If joint or undivided interests (e.g.,interests as joint tenants or tenants incommon) in the same property arereceived from a decedent by qualifiedheirs, an election with respect to one heir’sjoint or undivided interest need not includeany other heir’s interest in the sameproperty if the electing heir’s interest plusother property to be specially valuedsatisfies the requirements of section2032A(b)(1)(B).

If successive interests (e.g., life estatesand remainder interests) are created by adecedent in otherwise qualified property,an election under section 2032A isavailable only with respect to that property(or part) in which qualified heirs of thedecedent receive all of the successiveinterests, and such an election mustinclude the interests of all of those heirs.

For example, if a surviving spousereceives a life estate in otherwise qualifiedproperty and the spouse’s brother receivesa remainder interest in fee, no part of theproperty may be valued pursuant to anelection under section 2032A.

Where successive interests in speciallyvalued property are created, remainderinterests are treated as being received byqualified heirs only if the remainderinterests are not contingent on surviving anonfamily member or are not subject todivestment in favor of a nonfamily member.Protective Election.—You may make aprotective election to specially valuequalified real property. Under this election,whether or not you may ultimately usespecial use valuation depends upon valuesas finally determined (or agreed tofollowing examination of the return)meeting the requirements of section2032A.

To make a protective election, check“Yes” to line 2 and complete Schedule A-1according to its instructions for “ProtectiveElection.”

If you make a protective election, youshould complete this Form 706 by valuingall property at its fair market value. Do notuse special use valuation. Usually, this willresult in higher estate and GST taxliabilities than will be ultimately determinedif special use valuation is allowed. Theprotective election does not extend thetime to pay the taxes shown on thereturn. If you wish to extend the time to

pay the taxes, you should file Form 4768 inadequate time before the return due date.

If it is found that the estate qualifies forspecial use valuation based on the valuesas finally determined (or agreed tofollowing examination of the return), youmust file an amended Form 706 (with acomplete section 2032A election) within 60days after the date of this determination.Complete the amended return usingspecial use values under the rules ofsection 2032A, and complete ScheduleA-1 and attach all of the requiredstatements.

Line 3—Installment PaymentsIf you check this line to make a protectiveelection, you should attach a notice ofprotective election as described inRegulations section 20.6166-1(d). If youcheck this line to make a final election, youshould attach the notice of electiondescribed in Regulations section20.6166-1(b).

In computing the adjusted gross estateunder section 6166(b)(6) to determinewhether an election may be made undersection 6166, the net amount of any realestate in a closely held business must beused.

You may also elect to pay GST taxes ininstallments. See section 6166(i).

Line 4—Reversionary orRemainder InterestsFor the details of this election, see section6163 and the related regulations.

Instructions for Part 4.—General Information (pages2 and 3)Power of AttorneyCompleting the authorization on page 2 ofForm 706 will authorize one attorney,accountant, or enrolled agent to representthe estate and receive confidential taxinformation, but will not authorize therepresentative to enter into closingagreements for the estate. If you wish torepresent the estate, you must completeand sign the authorization.

If you wish to authorize persons otherthan attorneys, accountants, and enrolledagents, or if you wish to authorize morethan one person, to receive confidentialinformation or represent the estate, youmust complete and attach Form 2848,Power of Attorney and Declaration ofRepresentative.

You must also complete and attachForm 2848 if you wish to authorizesomeone to enter into closing agreementsfor the estate.

If you wish only to authorize someone toinspect and/or receive confidential taxinformation (but not to represent youbefore the IRS), you must complete andfile Form 8821, Tax InformationAuthorization.

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Line 4Complete line 4 whether or not there is asurviving spouse and whether or not thesurviving spouse received any benefitsfrom the estate. If there was no survivingspouse on the date of decedent’s death,enter “None” in line 4a and leave lines 4band 4c blank. The value entered in line 4cneed not be exact. See the instructions for“Amount,” under line 5, below.

Line 5Name.—Enter the name of each individual,trust, or estate who received (or willreceive) benefits of $5,000 or more fromthe estate directly as an heir, next-of-kin,devisee, or legatee; or indirectly (forexample, as beneficiary of an annuity orinsurance policy, shareholder of acorporation, or partner of a partnershipthat is an heir, etc.).Identifying Number.—Enter the socialsecurity number of each individualbeneficiary listed. If the number isunknown, or the individual has no number,please indicate “unknown” or “none.” Fortrusts and other estates, enter theemployer identification number.Relationship.—For each individualbeneficiary enter the relationship (if known)to the decedent by reason of blood,marriage, or adoption. For trust or estatebeneficiaries, indicate TRUST or ESTATE.Amount.—Enter the amount actuallydistributed (or to be distributed) to eachbeneficiary including transfers during thedecedent’s life from Schedule G requiredto be included in the gross estate. Thevalue to be entered need not be exact. Areasonable estimate is sufficient. Forexample, where precise values cannotreadily be determined, as with certainfuture interests, a reasonableapproximation should be entered. The totalof these distributions should approximatethe amount of gross estate reduced byfuneral and administrative expenses, debtsand mortgages, bequests to survivingspouse, charitable bequests, and anyFederal and state estate and GST taxespaid (or payable) relating to the benefitsreceived by the beneficiaries listed on lines4 and 5.

All distributions of less than $5,000 tospecific beneficiaries may be included withdistributions to unascertainablebeneficiaries on the line provided.

Line 6—Section 2044 PropertyIf you answered “Yes,” these assets mustbe shown on Schedule F.

Section 2044 property is property forwhich a previous section 2056(b)(7)election (QTIP election) has been made, orfor which a similar gift tax election (section2523) has been made. For more detailssee Pub. 448.

Line 8—Insurance Not Included inthe Gross EstateIf you checked “Yes” for either 8a or 8b,you must complete and attach Schedule Dand attach a Form 712, Life Insurance

Statement, for each policy and anexplanation of why the policy or itsproceeds are not includible in the grossestate.

Line 10—Partnership Interests andStock in Close CorporationsIf you answered “Yes” to line 10, you mustinclude full details for partnerships andunincorporated businesses on Schedule F(Schedule E if the partnership interest isjointly owned). You must include full detailsfor the stock of inactive or closecorporations on Schedule B.

Value these interests using the rules ofRegulations section 20.2031-2 (stocks) or20.2031-3 (other business interests).

A “close corporation” is a corporationwhose shares are owned by a limitednumber of shareholders. Often, one familyholds the entire stock issue. As a result,little, if any, trading of the stock takesplace. There is, therefore, no establishedmarket for the stock, and those sales thatdo occur are at irregular intervals andseldom reflect all the elements of arepresentative transaction as defined bythe term “fair market value.”

Line 12—TrustsIf you answered “Yes” to either 12a or12b, you must attach a copy of the trustinstrument for each trust.

You must complete Schedule G if youanswered “Yes” to 12a and Schedule F ifyou answered “Yes” to 12b.

Line 14—Transitional MaritalDeduction ComputationYou must check “Yes” if property passesto the surviving spouse under a maximummarital deduction formula provision thatmeets the requirements of section 403(e)(3)of the Economic Recovery Tax Act of 1981(P. L. 97-34; 95 Stat. 305).

If you check “Yes” to line 14, you mustcompute the marital deduction under therules that were in effect before theEconomic Recovery Tax Act of 1981.

For a format for this computation, youshould obtain the November 1981 revisionof Form 706 and its instructions. Thecomputation is items 19 through 26 of theRecapitulation. You should also apply therules of Rev. Rul. 80-148, 1980-1 C.B. 207,if there is property that passes to thesurviving spouse outside of the maximummarital deduction formula provision.

Line 16—Excess RetirementAccumulationIf the decedent did not have any interest ina qualified employer plan or individualretirement plan (defined in section7701(a)(37)), check “No” to this question.Note: The tax on excess retirementaccumulations will not apply to mostdecedents because the present value ofthe hypothetical annuity is usually so largethat very few decedents will have a largertotal interest in qualified plans andindividual retirement plans. The rules beloware a general description of the section

4980A(d) excess retirement accumulation.If it appears, after reading these rules, thatthere is the possibility of such an excess,see the instructions for Schedule S onpage 20 for more information.

A “qualified plan” means any:1. Qualified pension, profit-sharing, or

stock bonus plan described in section401(a) that includes a trust exempt fromtax under section 501(a);

2. Annuity plan described in section403(a);

3. Annuity contract, custodial account,or retirement income account described insection 403(b)(1), 403(b)(7), or 403(b)(9);

4. Qualified bond purchase plandescribed in section 405(a) prior to thatsection’s repeal by section 491(a) of theTax Reform Act of 1984.

To determine if the decedent had anexcess retirement accumulation, you mustfirst total all of the decedent’s interests (asof the date of death) in qualified plans andindividual retirement plans. Then determinethe present (date of death or alternatevaluation date) value of a hypothetical lifeannuity for the decedent. This hypotheticallife annuity must pay the decedent thegreater of $150,000 (unindexed) or$112,500 (indexed) per year, times themultiplier described in the instructions forline 3, Part III, of Schedule S. Thoseinstructions are on page 21.

If the decedent’s total interest in theplans is greater than the value of thishypothetical annuity, then there is anexcess retirement accumulation, and youshould check “Yes” to question 16 andattach Schedule S to your return.

Instructions for Part 5.—Recapitulation (Page 3 ofForm 706)Gross EstateItems 1 through 9.—You must make anentry in each of items 1 through 9. If thegross estate does not contain any assetsof the type specified by a given item, enterzero for that item. Entering zero for any ofitems 1 through 9 is a statement by theexecutor, made under penalties of perjury,that the gross estate does not contain anyincludible assets covered by that item. Donot enter any amounts in the “Alternatevalue” column unless you elected alternatevaluation on line 1 of Elections by theExecutor on page 2.

Which Schedules To Attach for Items 1Through 9.—You must attach Schedule Fto the return and answer its questionseven if you report no assets on it.

You must attach Schedules A, B, and Cif the gross estate includes any RealEstate; Stocks and Bonds; or Mortgages,Notes, and Cash, respectively. You mustattach Schedule D if the gross estateincludes any Life Insurance or if youanswered “Yes” to question 8a. You mustattach Schedule E if the gross estatecontains any Jointly Owned Property or ifyou answered “Yes” to question 9. Youmust attach Schedule G if the decedent

Page 6

made any of the lifetime transfers to belisted on that schedule or if you answered“Yes” to question 11 or 12a. You mustattach Schedule H if you answered “Yes”to question 13. You must attach ScheduleI if you answered “Yes” to question 15.

DeductionsItems 11 Through 19.—You must attachthe appropriate schedules for thedeductions you claim.Item 15.—If item 14 is less than or equalto the value (at the time of the decedent’sdeath) of the property subject to claims,enter the amount from item 14 on item 15.

If the amount on item 14 is more thanthe value of the property subject to claims,enter the greater of (a) the value of theproperty subject to claims, or (b) theamount actually paid at the time the returnis filed.

In no event should you enter more onitem 15 than the amount on item 14. Seesection 2053 and the related regulationsfor more information.

Instructions for Part 2.—TaxComputation (Page 1 ofForm 706)In general, the estate tax is figured byapplying the unified rates shown in Table Ato the total of transfers both during life andat death, and then subtracting the gifttaxes. You must complete the TaxComputation.

Line 1If you elected alternate valuation on line 1,Part 3, Elections by the Executor, enterthe amount you entered in the “Alternatevalue” column of item 10 of Part 5,Recapitulation. Otherwise, enter theamount from the “Value at date of death”column.

Lines 4 and 9Three worksheets are provided to help youcompute the entries for these lines. Youneed not file these worksheets with yourreturn but should keep them for yourrecords. Worksheet TG allows you to

reconcile the decedent’s lifetime taxablegifts to compute totals that will be used forthe line 4 and line 9 worksheets. You mustget all of the decedent’s gift tax returns(Form 709, United States Gift (andGeneration-Skipping Transfer) Tax Return)before you complete Worksheet TG. Theamounts you will enter on Worksheet TGcan usually be derived from these returnsas filed. However, if any of the returnswere audited by the IRS, you should usethe amounts that were finally determinedas a result of the audits.

Special Treatment of Split Gifts.—Thesespecial rules apply only if:

1. The decedent’s spouse predeceasedthe decedent;

2. The decedent’s spouse made giftsthat were “split” with the decedent underthe rules of section 2513;

3. The decedent was the “consentingspouse” for those split gifts, as that term isused on Form 709; and

4. The split gifts were included in thedecedent’s spouse’s gross estate undersection 2035.

If all four conditions above are met, donot include these gifts on line 4 of the TaxComputation and do not include the gifttaxes payable on these gifts on line 9 ofthe Tax Computation. These adjustmentsare incorporated into the worksheets.

Line 7Lines 7a–c are used to calculate thephaseout of the unified credit andgraduated rates. The phaseout applies onlyto estates in which the amount thetentative tax is computed on exceeds $10million.

Line 12If the decedent made gifts (including giftsmade by the decedent’s spouse andtreated as made by the decedent byreason of gift splitting) after September 8,1976, and before January 1, 1977, forwhich the decedent claimed a specificexemption, the unified credit on this estatetax return must be reduced. The reductionis figured by entering 20% of the specificexemption claimed for these gifts. (Note:

The specific exemption was allowed bysection 2521 for gifts made before January1, 1977.)

If the decedent did not make any giftsbetween September 8, 1976, and January1, 1977, or if the decedent made giftsduring that period but did not claim thespecific exemption, enter zero.

Line 15You may take a credit on line 15 for estate,inheritance, legacy, or succession taxespaid as the result of the decedent’s deathto any state or the District of Columbia.However, see section 2053(d) and therelated regulations for exceptions andlimits if you elected to deduct the taxesfrom the value of the gross estate.

If you make a section 6166 election topay the Federal estate tax in installmentsand make a similar election to pay thestate death tax in installments, see Rev.Rul. 86-38, 1986-1 C.B. 296, for themethod of computing the credit allowedwith this Form 706.

The credit may not be more than theamount figured by using Table B on page9, based on the value of the adjustedtaxable estate. The adjusted taxable estateis the amount of the Federal taxable estate(line 3 of the Tax Computation) reduced by$60,000. You may claim an anticipatedamount of credit and figure the Federalestate tax on the return before the statedeath taxes have been paid. However, thecredit cannot be finally allowed unless youpay the state death taxes and claim thecredit within 4 years after the return is filed(or later as provided by the Code if apetition is filed with the Tax Court of theUnited States, or if you have an extensionof time to pay) and submit evidence thatthe tax has been paid. If you claim thecredit for any state death tax that is laterrecovered, see Regulations section20.2016-1 for the notice you are requiredto give the IRS within 30 days.

If you transfer property other than cashto the state in payment of state inheritancetaxes, the amount you may claim as creditis the lesser of the state inheritance taxliability discharged or the fair market valueof the property on the date of the transfer.

Page 7

Worksheet TG Taxable Gifts ReconciliationTo be used for lines 4 and 9 of the Tax Computation

Calendar year orcalendar quarter

Total taxable giftsreported on Form 709 for

period (see Note)

Note: For the definition of a taxable gift see section 2503. Ignore the old specificexemption. Follow Form 709. That is, include only the decedent’s one-half of splitgifts, whether the gifts were made by the decedent or the decedent’s spouse.

b.a.

Taxable amountincluded in col. b forgifts that qualify for

“special treatment ofsplit gifts” described

above

Taxable amountincluded in col. bfor gifts included

in the gross estate

Gift tax paid bydecedent on gifts

in col. d

Gift tax paid bydecedent’s spouse on

gifts in col. c

Gift

s m

ade

afte

r Ju

ne 6

,19

32,

and

bef

ore

197

7

Total taxable giftsmade before 1977

1.

f.e.d.c.

Gift

s m

ade

afte

r 19

76

Totals for gifts made after 19762.

Line 4 Worksheet Adjusted Taxable Gifts Made After 1976

1. Taxable gifts made after 1976. Enter the amount from line 2, column b, Worksheet TGTaxable gifts made after 1976 reportable on Schedule G. Enter the amount from line 2,column c, Worksheet TG

2.

Taxable gifts made after 1976 that qualify for “special treatment.” Enter the amountfrom line 2, column d, Worksheet TG

3.

Add lines 2 and 34.Adjusted taxable gifts. Subtract line 4 from line 1. Enter here and on line 4 of the Tax Computation of Form706

5.

Page 8

Line 9 Worksheet Gift Tax on Gifts Made After 1976

Total taxable gifts for priorperiods (from Form 709,Tax Computation, line 2)

Calendar yearor calendar

quarter

Unused unified credit forthis period (see below)

Taxable gifts for thisperiod (from Form 709,

Tax Computation, line 1)

Tax payable for thisperiod (subtract col.

e from col. d)

Tax payable using TableA (on page 9)

b.a.

Total pre-1977taxable gifts. Enter

the amount from line1, Worksheet TG

f.e.d.c.

1. Total gift taxes payable on gifts made after 1976 (combine the amounts in column f) Gift taxes paid by the decedent on gifts that qualify for “special treatment.” Enter the amount fromline 2, column e, Worksheet TG on page 7

2.

Subtract line 2 from line 13.

Gift tax paid by decedent’s spouse on split gifts included on Schedule G. Enter the amount from line2, column f, Worksheet TG on page 7

4.

Add lines 3 and 4. Enter here and on line 9 of the Tax Computation of Form 7065.

Column d: To figure the “tax payable” for this column, you must use Table A in these instructions, as it applies to the year of the decedent’s death rather than to theyear the gifts were actually made. To compute the entry for col. d, you should figure the “tax payable” on the amount in col. b and subtract it from the “tax payable”on the amounts in cols. b and c added together. Enter the difference in col. d.

If the amount in columns b and c combined exceeds $10 million for any given calendar year, then you must calculate the tax in column d for that year using theForm 709 revision in effect for the year of the decedent’s death.

To calculate the tax, enter the amount for the appropriate year from column c of the worksheet on line 1 of the Tax Computation of the Form 709. Enter theamount from column b on line 2 of the Tax Computation. Complete the Tax Computation through the tax due before any reduction for the unified credit and enterthat amount in column d, above.Column e: To figure the unused unified credit, use the unified credit in effect for the year the gift was made. This amount should be on line 12 of the TaxComputation of the Form 709 filed for the gift.

For more details, see Rev. Rul. 86-117,1986-2 C.B. 157.

You should send the following evidenceto the IRS:

1. Certificate of the proper officer of thetaxing state, or the District of Columbia,showing: (a) the total amount of taximposed (before adding interest andpenalties and before allowing discount); (b)the amount of discount allowed; (c) theamount of penalties and interest imposedor charged; (d) the total amount actuallypaid in cash; and (e) the date of payment.

2. Any additional proof the IRSspecifically requests.

You should file the evidence requestedabove with the return if possible.Otherwise, send it as soon after you filethe return as possible.

Line 17You may take a credit for Federal gift taxesimposed by Chapter 12 of the Code, andthe corresponding provisions of prior laws,on certain transfers the decedent madebefore January 1, 1977, that are includedin the gross estate. The credit cannot bemore than the amount figured by thefollowing formula:Gross estate tax minus (thesum of the state death taxesand unified credit) 3

Value ofincluded gift

Value of gross estate minus(the sum of the deductions forcharitable, public, and similargifts and bequests and maritaldeduction)

For more information, see the regulationsunder section 2012. This computation maybe made using Form 4808, Computationof Credit for Gift Tax. Attach a copy of acompleted Form 4808 or the computationof the credit. Also attach all availablecopies of Forms 709 filed by the decedentto help verify the amounts entered on lines4, 9, and 17.

Line 23If you answered “Yes” to question 16 ofGeneral Information, you must completeSchedule S. Enter the tax due from line 17of Schedule S on line 23. This increasedestate tax may not be offset by any of theestate tax credits on lines 11–19.

Line 26You may not use these bonds to pay theGST tax. You may use these bonds to paythe increased estate tax shown on line 23.

Instructions for ScheduleA.—Real EstateSee the reverse side of Schedule A onForm 706.

Instructions for ScheduleB.—Stocks and BondsGeneralIf the total gross estate contains anystocks or bonds, you must completeSchedule B and file it with the return.

On Schedule B list the stocks and bondsincluded in the decedent’s gross estate.Number each item in the left-hand column.Bonds that are exempt from Federalincome taxes are not exempt fromestate taxes unless specificallyexempted by an estate tax provision ofthe Code. Therefore, you should list thesebonds on Schedule B.

Public housing bonds includible in thegross estate must be included at their fullvalue.

If you paid any estate, inheritance,legacy, or succession tax to a foreigncountry on any stocks or bonds included

(continued on page 10)

Page 9

Table A—Unified Rate Schedule

Column DColumn CColumn BColumn ARate of tax onexcess overamount incolumn A

Tax onamount incolumn A

Taxableamountnot over

Taxableamount

over

(Percent)

$10,0000 0 182020,000$10,000 $1,800

40,00020,000 3,800 222460,00040,000 8,200

Table B Worksheet

80,00060,000 13,000 26

80,000 2818,200100,000

Federal Adjusted Taxable Estate

30100,000 23,800150,0003238,800250,000150,0003470,800500,000250,000

$

37155,800750,000500,000

60,000

1 Federal taxable estate (from Tax Computation,Form 706, line 3)

1,000,000 39750,000 248,3001,250,000 411,000,000 345,800

3 Federal adjusted taxable estate. Subtract line 2from line 1. Use this amount to computemaximum credit for state death taxes in Table B.

1,500,000 431,250,000 448,3002,000,000 451,500,000 555,8002,500,000 492,000,000 780,800

2,500,000 1,025,800 53

Table B

Computation of Maximum Credit for State Death Taxes

(Based on Federal adjusted taxable estate computed using the worksheet above.)

Rate of credit onexcess over amount

in column (1)

Credit on amountin column (1)

Adjusted taxableestate less than—

Adjusted taxableestate equal to or

more than—

Rate of credit onexcess over amount

in column (1)

Credit on amountin column (1)

Adjusted taxableestate less than—

Adjusted taxableestate equal to or

more than—

(4)(3)(4)(3)(2)(1) (2)(1)

(Percent)(Percent)

0 2,540,0002,040,000$40,000 8.0106,800None0$40,000 3,040,0002,540,00090,000 8.8146,8000.80

90,000 3,540,0003,040,000140,000 9.6190,8001.6$400140,000 4,040,0003,540,000240,000 10.4238,8002.41,200240,000 5,040,0004,040,000440,000 11.2290,8003.23,600

440,000 6,040,0005,040,000640,000 12.0402,8004.010,000640,000 7,040,0006,040,000840,000 12.8522,8004.818,000

8,040,0007,040,0001,040,000840,000 13.6650,8005.627,6001,040,000 9,040,0008,040,0001,540,000 14.4786,8006.438,800

10,040,0009,040,0002,040,0001,540,000 15.2930,8007.270,80010,040,000 16.01,082,800

2 Adjustment

Examples showing use of Schedule B

Example where the alternate valuation is not adopted; date of death, January 1, 1993

Alternatevaluation

date

Alternatevalue

Value at dateof death

Description including face amount of bonds or number of shares and par value whereneeded for identification. Give CUSIP number if available.

Itemnumber

Unit value

$60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds,due 1995. Interest payable quarterly on Feb. 1, May 1, Aug. 1 andNov. 1; N.Y. Exchange, CUSIP No. XXXXXXXXX

1

60,000100

Interest coupons attached to bonds, item 1, due and payable on Nov.1, 1992, but not cashed at date of death 600

400Interest accrued on item 1, from Nov. 1, 1992, to Jan. 1, 1993

500 shares Public Service Corp., common; N.Y. Exchange, CUSIP No.XXXXXXXXX

255,000110

Dividend on item 2 of $2 per share declared Dec. 10, 1992, payableon Jan. 10, 1993, to holders of record on Dec. 30, 1992 1,000

3,000,000551,290,8003,000,000

Page 10

Example where the alternate valuation is adopted; date of death, January 1, 1993Alternatevaluation

date

Alternatevalue

Value at dateof death

Description including face amount of bonds or number of shares and par value whereneeded for identification. Give CUSIP number if available.

Itemnumber Unit value

$60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds,due 1995. Interest payable quarterly on Feb. 1, May 1, Aug. 1 andNov. 1; N.Y. Exchange, CUSIP No. XXXXXXXXX

1

60,00010029,7004/1/9399$30,000 of item 1 distributed to legatees on Apr. 1, 1993 29,4005/2/9398$30,000 of item 1 sold by executor on May 2, 1993

Interest coupons attached to bonds, item 1, due and payable onNov. 1, 1992, but not cashed at date of death. Cashed by executoron Feb. 1, 1993 6006002/1/93

Interest accrued on item 1, from Nov. 1, 1992, to Jan. 1, 1993. Cashedby executor on Feb. 1, 1993 4004002/1/93

500 shares of Public Service Corp., common; N.Y. Exchange, CUSIPNo. XXXXXXXXX

255,000110

45,0007/1/9390Not disposed of within 6 months following death Dividend on item 2 of $2 per share declared Dec. 10, 1992, and paidon Jan. 10, 1993, to holders of record on Dec. 30, 1992 1/10/93 1,0001,000

(Continued from page 8)

in this schedule, group those stocks andbonds together and label them “Subjectedto Foreign Death Taxes.”

List interest and dividends on each stockor bond separately. Indicate as a separateitem dividends that have not beencollected at death, but which are payableto the decedent or the estate because thedecedent was a stockholder of record onthe date of death. However, if the stock isbeing traded on an exchange and is sellingex-dividend on the date of the decedent’sdeath, do not include the amount of thedividend as a separate item. Instead, add itto the ex-dividend quotation in determiningthe fair market value of the stock on thedate of the decedent’s death. Dividendsdeclared on shares of stock before thedeath of the decedent but payable tostockholders of record on a date after thedecedent’s death are not includible in thegross estate for Federal estate taxpurposes.

DescriptionFor stocks indicate:● Number of shares● Whether common or preferred● Issue● Par value where needed for identification● Price per share● Exact name of corporation● Principal exchange upon which sold, iflisted on an exchange● CUSIP number, if availableFor bonds indicate:● Quantity and denomination● Name of obligor● Date of maturity● Interest rate● Interest due date● Principal exchange, if listed on anexchange● CUSIP number, if available

If the stock or bond is unlisted, show thecompany’s principal business office.

The CUSIP (Committee on UniformSecurity Identification Procedure) numberis a nine-digit number that is assigned toall stocks and bonds traded on majorexchanges and many unlisted securities.Usually, the CUSIP number is printed onthe face of the stock certificate. If theCUSIP number is not printed on thecertificate, it may be obtained through thecompany’s transfer agent.

ValuationList the fair market value of the stocks orbonds. The fair market value of a stock orbond (whether listed or unlisted) is themean between the highest and lowestselling prices quoted on the valuation date.If only the closing selling prices areavailable, then the fair market value is themean between the quoted closing sellingprice on the valuation date and on thetrading day before the valuation date. Tofigure the fair market value if there were nosales on the valuation date:

1. Find the mean between the highestand lowest selling prices on the nearesttrading date before and the nearest tradingdate after the valuation date. Both tradingdates must be reasonably close to thevaluation date.

2. Prorate the difference between themean prices to the valuation date.

3. Add or subtract (whichever applies)the prorated part of the difference to orfrom the mean price figured for the nearesttrading date before the valuation date.

If no actual sales were made reasonablyclose to the valuation date, make the samecomputation using the mean between thebona fide bid and asked prices instead ofsales prices. If actual sales prices or bonafide bid and asked prices are availablewithin a reasonable period of time beforethe valuation date but not after thevaluation date, or vice versa, use the meanbetween the highest and lowest sales

prices or bid and asked prices as the fairmarket value.

For example, assume that sales of stocknearest the valuation date (June 15)occurred 2 trading days before (June 13)and 3 trading days after (June 18). Onthose days the mean sale prices per sharewere $10 and $15, respectively. Therefore,the price of $12 is considered the fairmarket value of a share of stock on thevaluation date. If, however, on June 13 and18, the mean sale prices per share were$15 and $10, respectively, the fair marketvalue of a share of stock on the valuationdate is $13.

If only closing prices for bonds areavailable, see Regulations section20.2031-2(b).

Apply the rules in the section 2031regulations to determine the value ofinactive stock and stock in closecorporations. Send with the schedulecomplete financial and other data used todetermine value, including balance sheets(particularly the one nearest to thevaluation date) and statements of the netearnings or operating results and dividendspaid for each of the 5 years immediatelybefore the valuation date.

Securities reported as of no value,nominal value, or obsolete should be listedlast. Include the address of the companyand the state and date of theincorporation. Attach copies ofcorrespondence or statements used todetermine the “no value.”

If the security was listed on more thanone stock exchange, use either the recordsof the exchange where the security isprincipally traded or the composite listingof combined exchanges, if available, in apublication of general circulation. In valuinglisted stocks and bonds, you shouldcarefully check accurate records to obtainvalues for the applicable valuation date.

If you get quotations from brokers, orevidence of the sale of securities from theofficers of the issuing companies, attach tothe schedule copies of the letters

Page 11

furnishing these quotations or evidence ofsale.

See Rev. Rul. 69-489, 1969-2 C.B. 172,for the special valuation rules for certainmarketable U.S. Treasury Bonds (issuedbefore March 4, 1971). These bonds,commonly called “flower bonds,” may beredeemed at par plus accrued interest inpayment of the tax at any Federal Reservebank, the office of the Treasurer of theUnited States, or the Bureau of the PublicDebt, as explained in Rev. Proc. 69-18,1969-2 C.B. 300.

Instructions forSchedule D.—Insurance onthe Decedent’s LifeSee the reverse side of Schedule D onForm 706.

Instructions for ScheduleE.—Jointly Owned PropertySee the reverse side of Schedule E onForm 706.

Instructions for ScheduleF.—Other MiscellaneousPropertySee the reverse side of Schedule F onForm 706.

Instructions forSchedule G.—TransfersDuring Decedent’s LifeYou must complete Schedule G and file itwith the return if the decedent made anyof the transfers described below in 1through 5 or if you answered “Yes” on line11 or 12a of Part 4, General Information.

Five types of transfers should bereported on this schedule:

1. Certain gift taxes.—Section 2035(c).Enter at item A of the Schedule the totalvalue of the gift taxes that were paid bythe decedent or the estate on gifts madeby the decedent or the decedent’s spousewithin 3 years before death.

The date of the gift, not the date ofpayment of the gift tax, determineswhether a gift tax paid is included in thegross estate under this rule. Therefore, youshould carefully examine the Forms 709filed by the decedent and the decedent’sspouse to determine what part of the totalgift taxes reported on them wasattributable to gifts made within 3 yearsbefore death. For example, if the decedentdied on July 10, 1993, you should examinegift tax returns for 1993, 1992, 1991, and1990. However, the gift taxes on the 1990returns that are attributable to gifts madebefore July 10, 1990, are not included inthe gross estate.

Attach an explanation of how youcomputed the includible gift taxes if you donot include in the gross estate the entiregift taxes shown on any Form 709 filedwithin 3 years of death. Also attach copies

of any pertinent gift tax returns filed by thedecedent’s spouse within 3 years of death.

2. Other transfers within 3 years beforedeath.—Section 2035(a). These transfersinclude only the following:● Any transfer by the decedent withrespect to a life insurance policy within 3years before death.● Any transfer within 3 years before deathof a retained section 2036 life estate,section 2037 reversionary interest, orsection 2038 power to revoke, etc., if theproperty subject to the life estate, interest,or power would have been included in thegross estate had the decedent continuedto possess the life estate, interest, orpower until death.

These transfers are reported onSchedule G regardless of whether a gifttax return was required to be filed for themwhen they were made. However, theamount includible and the informationrequired to be shown for the transfers aredetermined:● For insurance on the life of the decedentusing the instructions to Schedule D.(Attach Form(s) 712.)● For insurance on the life of another usingthe instructions to Schedule F. (AttachForm(s) 712.)● For sections 2036, 2037, and 2038transfers, using paragraphs 3, 4, and 5 ofthese instructions.

3. Transfers with retained life estate(section 2036).—These are transfers inwhich the decedent retained the incomefrom the transferred property or the right todesignate the person or persons who willpossess or enjoy the transferred property,or the income from the transferred propertyif the transfer was made:

(a) Between March 4, 1931, and June 6,1932, inclusive, and the decedent aloneretained the right to so designate for life,or for any period that did not in fact endbefore the decedent’s death; or

(b) After June 6, 1932, and the decedentretained the right to so designate, eitheralone or with any person, for life, for anyperiod that must be ascertained byreference to the decedent’s death, or forany period that did not in fact end beforethe decedent’s death.

Retained Voting Rights. Transfers with aretained life estate also include transfers ofstock in a “controlled corporation” afterJune 22, 1976, if the decedent retained oracquired voting rights in the stock. If thedecedent retained direct or indirect votingrights in a controlled corporation, thedecedent is considered to have retainedenjoyment of the transferred property. Acorporation is a “controlled corporation” ifthe decedent owned (actually orconstructively) or had the right (either aloneor with any other person) to vote at least20% of the total combined voting power ofall classes of stock. See section 2036(b). Ifthese voting rights ceased or wererelinquished within 3 years before thedecedent’s death, the corporate interestsare included in the gross estate as if thedecedent had actually retained the votingrights until death.

4. Transfers taking effect at death(section 2037).—These are transfers madeon or after September 8, 1916, that tookeffect at the decedent’s death. A transferthat takes effect at the decedent’s death isone under which possession or enjoymentcan be obtained only by surviving thedecedent. A transfer is not treated as onethat takes effect at the decedent’s deathunless the decedent retained areversionary interest in the property thatimmediately before the decedent’s deathhad a value of more than 5% of the valueof the transferred property. If the transferwas made before October 8, 1949, thereversionary interest must have arisen bythe express terms of the instrument oftransfer.

5. Revocable transfers (section 2038).—These are transfers in which the enjoymentof the transferred property was subject atdecedent’s death to any change throughthe exercise of a power to alter, amend,revoke, or terminate, as follows:● If the transfer was made before 4:01p.m., eastern standard time, June 2, 1924,and the power was reserved at the time ofthe transfer and was exercisable by thedecedent alone or with a person who hadno substantial adverse interest in thetransferred property.● If the transfer was made on or after 4:01p.m., eastern standard time, June 2, 1924,and before June 23, 1936, and the powerwas reserved at the time of the transferand was exercisable by the decedentalone or with any person (regardless ofwhether that person had a substantialadverse interest in the transferredproperty), or● If the transfer was made after June 22,1936, regardless of whether the power wasreserved at the time of the transfer or latercreated or conferred, regardless of thesource from which the power wasacquired, regardless of whether the powerwas exercisable by the decedent alone orwith any person, and regardless of whetherthat person had a substantial adverseinterest in the transferred property.● If the decedent relinquished within 3years before death any of the includiblepowers described above, you shoulddetermine the gross estate as if thedecedent had actually retained the powersuntil death.

For more detailed information on whichtransfers are includible in the gross estate,see the Estate Tax Regulations.

Special Valuation Rules for CertainLifetime TransfersNote: Code sections 2701–2704 wereenacted by the Omnibus BudgetReconciliation Act of 1990. These sectionsprovide rules for valuing certain transfers tofamily members and are generally effectivefor transfers occurring after October 8,1990.

Section 2701 deals with the transfer ofan interest in a corporation or partnershipwhile retaining certain distribution rights, ora liquidation, put, call, or conversion right.

Page 12

Section 2702 deals with the transfer ofan interest in a trust while retaining anyinterest other than a qualified interest. Ingeneral, a qualified interest is a right toreceive certain distributions from the trustat least annually, or a noncontingentremainder interest if all of the otherinterests in the trust are distribution rightsspecified in section 2702.

Section 2703 provides rules for thevaluation of property transferred to a familymember but subject to an option,agreement, or other right to acquire or usethe property at less than fair market value.It also applies to transfers subject torestrictions on the right to sell or use theproperty.

Finally, section 2704 provides that incertain cases the lapse of a voting orliquidation right in a family-ownedcorporation or partnership will result in adeemed transfer.

These rules have potential consequensesfor the valuation of property in an estate. Ifthe decedent (or any member of his or herfamily) was involved in any suchtransactions, see Code sections 2701–2704for additional details.

How To CompleteSchedule GAll transfers (other than outright transfersnot in trust and bona fide sales) made bythe decedent at any time during life mustbe reported on the Schedule regardless ofwhether you believe the transfers aresubject to tax. If the decedent made anytransfers not described in the instructionson page 11, the transfers should not beshown on Schedule G. Instead, attach astatement describing these transfers: listthe date of the transfer, the amount orvalue, and the type of transfer.

Complete the schedule for each transferthat is included in the gross estate undersections 2035(a), 2036, 2037, and 2038 asdescribed on page 11.

In the “Item number” column, numbereach transfer consecutively beginning with1. In the “Description” column, list thename of the transferee, the date of thetransfer, and give a complete descriptionof the property. Transfers included in thegross estate should be valued on the dateof the decedent’s death or, if the alternatevaluation is adopted, according to section2032.

If only part of the property transferredmeets the terms of section 2035(a), 2036,2037, or 2038, then only a correspondingpart of the value of the property should beincluded in the value of the gross estate. Ifthe transferee makes additions orimprovements to the property, theincreased value of the property at thevaluation date should not be included onSchedule G. However, if only a part of thevalue of the property is included, enter thevalue of the whole under the columnheaded “Description” and explain whatpart was included.Attachments.—If a transfer, by trust orotherwise, was made by a writteninstrument, attach a copy of the instrument

to the Schedule. If of public record, thecopy should be certified; if not of record,the copy should be verified.

Instructions forSchedule H.—Powers ofAppointmentYou must complete Schedule H and file itwith the return if you answered “Yes” toline 13 of Part 4, General Information.

On Schedule H include in the grossestate:

1. The value of property for which thedecedent possessed a general power ofappointment on the date of his or herdeath; and

2. The value of property for which thedecedent possessed a general power ofappointment which he or she exercised orreleased before death by disposing of it insuch a way that if it were a transfer ofproperty owned by the decedent, theproperty would be includible in thedecedent’s gross estate. (See section 2041and Pub. 448 for more details.)

Powers of AppointmentA power of appointment includes allpowers which are in substance and effectpowers of appointment regardless of howthey are identified and regardless of localproperty laws. For example, if a settlortransfers property in trust for the life of hiswife, with a power in the wife toappropriate or consume the principal of thetrust, the wife has a power of appointment.General Power of Appointment.—Ageneral power of appointment is a powerthat is exercisable in favor of the decedent,the decedent’s estate, the decedent’screditors, or the creditors of thedecedent’s estate, except:

1. A power to consume, invade, orappropriate property for the benefit of thedecedent that is limited by anascertainable standard relating to health,education, support, or maintenance of thedecedent.

2. A power created on or before October21, 1942, that is exercisable by thedecedent only in conjunction with anotherperson.

3. A power created after October 21,1942, exercisable by the decedent only inconjunction with (a) the creator of thepower, or (b) a person who has asubstantial interest in the property subjectto the power, which is adverse to theexercise of the power in favor of thedecedent.

A part of a power created after October21, 1942, is considered a general power ofappointment if the power:

1. May only be exercised by thedecedent in conjunction with anotherperson; and

2. Is also exercisable in favor of theother person (in addition to beingexercisable in favor of the decedent, thedecedent’s creditors, the decedent’sestate, or the creditors of the decedent’sestate).

The part to include in the gross estate asa general power of appointment is figuredby dividing the value of the property by thenumber of persons (including thedecedent) in favor of whom the power isexercisable.Date Power Was Created.—Generally, apower of appointment created by will isconsidered created on the date of thetestator’s death. However, a power ofappointment created by a will executed onor before October 21, 1942, is considereda power created on or before that date ifthe person executing the will died beforeJuly 1, 1949, without having republishedthe will, by codicil or otherwise, afterOctober 21, 1942.

A power of appointment created by aninter vivos instrument is consideredcreated on the date the instrument takeseffect. If the holder of a power exercises itby creating a second power, the secondpower is considered as created at the timeof the exercise of the first.

AttachmentsIf the decedent ever possessed a power ofappointment, attach a certified or verifiedcopy of the instrument granting the powerand a certified or verified copy of anyinstrument by which the power wasexercised or released. You must file thesecopies even if you contend that the powerwas not a general power of appointment,and that the property is not otherwiseincludible in the gross estate.

Instructions forSchedule I.—AnnuitiesYou must complete Schedule l and file itwith the return if you answered “Yes” toquestion 15 of Part 4, General Information.Enter on Schedule I every annuity thatmeets all of conditions 1–4 under General,below, and every annuity described inparagraphs a–h of Annuities UnderApproved Plans, even if the annuities arewholly or partially excluded from the grossestate.

See the instructions for line 3 ofSchedule M for a discussion regarding theQTIP treatment of certain joint and survivorannuities.

GeneralExcept as otherwise provided underAnnuities Under Approved Plans on page13, include in the gross estate on thisschedule all or part of the value of anannuity receivable by any beneficiaryfollowing the death of the decedent undera contract or agreement that satisfies allfour conditions below:

1. The contract or agreement is not apolicy of insurance on the life of thedecedent;

2. The contract or agreement wasentered into after March 3, 1931;

3. The annuity is receivable by thebeneficiary because he or she survived thedecedent; and

4. Under the contract or agreement, anannuity was payable to the decedent (or

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the decedent possessed the right toreceive the annuity) either alone or inconjunction with another, for thedecedent’s life or for any period notascertainable without reference to thedecedent’s death or for any period that didnot in fact end before the decedent’sdeath.Part Includible.—If the decedentcontributed only part of the purchase priceof the contract or agreement, include inthe gross estate only that part of the valueof the annuity receivable by the survivingbeneficiary that the decedent’s contributionto the purchase price of the annuity oragreement bears to the total purchaseprice. For example, if the value of thesurvivor’s annuity was $20,000 and thedecedent had contributed three-fourths ofthe purchase price of the contract, theamount includible is $15,000 ( 3⁄4 3$20,000). Except as provided underAnnuities Under Approved Plans,contributions made by the decedent’semployer to the purchase price of thecontract or agreement are consideredmade by the decedent if they were madeby the employer because of thedecedent’s employment. For moreinformation, see section 2039.“Annuity” Defined.—The term “annuity”includes one or more payments extendingover any period of time. The paymentsmay be equal or unequal, conditional orunconditional, periodic or sporadic. Thefollowing are examples of contracts (butnot necessarily the only forms of contracts)for annuities that must be included in thegross estate:

1. A contract under which the decedentimmediately before death was receiving orwas entitled to receive, for the duration oflife, an annuity with payments to continueafter death to a designated beneficiary, ifsurviving the decedent;

2. A contract under which the decedentimmediately before death was receiving orwas entitled to receive, together withanother person, an annuity payable to thedecedent and the other person for theirjoint lives, with payments to continue tothe survivor following the death of either;

3. A contract or agreement entered intoby the decedent and employer underwhich the decedent immediately beforedeath and following retirement wasreceiving, or was entitled to receive, anannuity payable to the decedent for lifeand after the decedent’s death to adesignated beneficiary, if surviving thedecedent, whether the payments after thedecedent’s death are fixed by the contractor subject to an option or electionexercised or exercisable by the decedent.However, see Annuities Under ApprovedPlans, below;

4. A contract or agreement entered intoby the decedent and employer underwhich at the decedent’s death, beforeretirement or before the expiration of astated period of time, an annuity waspayable to a designated beneficiary, ifsurviving the decedent. However, seeAnnuities Under Approved Plans, below;

5. A contract or agreement under whichthe decedent immediately before deathwas receiving, or was entitled to receive,an annuity for a stated period of time, withthe annuity to continue to a designatedbeneficiary, surviving the decedent, uponthe decedent’s death before the expirationof that period of time;

6. An annuity contract or otherarrangement providing for a series ofsubstantially equal periodic payments to bemade to a beneficiary for life or over aperiod of at least 36 months after the dateof the decedent’s death under anindividual retirement account, annuity, orbond as described in section 2039(e)(before its repeal by P.L. 98-369).Annuities Under Approved Plans.—Thestatute allowing an exclusion for annuitiesunder approved plans has been repealed.However, under the special rules providedfor the annuities described in a–h below, itmay be possible to exclude part or all ofthe value of these annuities from the grossestate.

No exclusion is allowed for annuitiesunder approved plans unless eithercondition 1 or 2 below is met:

1. On December 31, 1984, the decedentwas both a participant in the plan and inpay status (i.e., had received at least onebenefit payment on or before December31, 1984), and the decedent irrevocablyelected the form of the benefit before July18, 1984; or

2. The decedent separated from servicebefore January 1, 1985, and did notchange the form of benefit before death.

If either of the above conditions is met,an exclusion is allowed. The exclusion maynot exceed $100,000 unless either of thetwo additional conditions below is met:

1. On December 31, 1982, the decedentwas both a participant in the plan and inpay status (i.e., had received at least onebenefit payment on or before December31, 1982), and the decedent irrevocablyelected the form of the benefit beforeJanuary 1, 1983; or

2. The decedent separated from servicebefore January 1, 1983, and did notchange the form of benefit before death.

If either of the above conditions is met,the exclusion is not subject to the$100,000 limitation.

Approved Plans:a. An employees’ trust (or under a

contract purchased by an employees’trust) forming part of a pension, stockbonus, or profit-sharing plan that met allthe requirements of section 401(a), eitherat the time of the decedent’s separationfrom employment (whether by death orotherwise) or at the time of the terminationof the plan (if earlier);

b. A retirement annuity contractpurchased by the employer (but not by anemployees’ trust) under a plan that, at thetime of the decedent’s separation fromemployment (by death or otherwise), or atthe time of the termination of the plan (ifearlier), was a plan described in section403(a);

c. A retirement annuity contractpurchased for an employee by anemployer that is an organization referred toin section 170(b)(1)(A)(ii) or (vi), or that is areligious organization (other than a trust),and that is exempt from tax under section501(a);

d. Chapter 73 of Title 10 of the UnitedStates Code;

e. A bond purchase plan described insection 405 (before its repeal byP.L. 98-369, effective for obligations issuedafter December 31, 1983.)

If an annuity under an “approved plan”described in a–e above is receivable by abeneficiary other than the executor and thedecedent made no contributions under theplan toward the cost, no part of the valueof the annuity, subject to the $100,000limitation (if applicable), is includible in thegross estate. If the decedent made acontribution under a plan described in a–eabove toward the cost, include in the grossestate on this schedule that proportion ofthe value of the annuity which the amountof the decedent’s contribution under theplan bears to the total amount of allcontributions under the plan. Theremaining value of the annuity isexcludable from the gross estate subject tothe $100,000 limitation (if applicable). Forthe rules to determine whether thedecedent made contributions to the plan,see Pub. 448.Note: The accounts, annuities, and bondsdescribed in f–h, below, are “approvedplans” only if they provide for a series ofsubstantially equal periodic payments to bemade to a beneficiary for life, or over aperiod of at least 36 months after the dateof the decedent’s death.

f. An individual retirement accountdescribed in section 408(a);

g. An individual retirement annuitydescribed in section 408(b);

h. A retirement bond described insection 409(a)(before its repeal byP.L. 98-369).

Subject to the $100,000 limitation, ifapplicable, if an annuity under a “plan”described in f–h above is receivable by abeneficiary other than the executor, theentire value of the annuity is excludablefrom the gross estate even if the decedentmade a contribution under the plan.However, if any payment to or for anaccount or annuity described in paragraphf, g, or h above was not allowable as anincome tax deduction under section 219(and was not a rollover contribution asdescribed in section 2039(e) before itsrepeal by P.L. 98-369), include in the grossestate on this schedule that proportion ofthe value of the annuity which the amountnot allowable as a deduction under section219 and not a rollover contribution bearsto the total amount paid to or for suchaccount or annuity. For more information,see Regulations section 20.2039-5.

If any part of an annuity under a “plan”described in a–h above is receivable bythe executor, it is generally includible in thegross estate on this schedule to the extentthat it is receivable by the executor in that

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capacity. In general, the annuity isreceivable by the executor if it is to bepaid to the executor or if there is anagreement (expressed or implied) that itwill be applied by the beneficiary for thebenefit of the estate (such as in dischargeof the estate’s liability for death taxes ordebts of the decedent, etc.) or that itsdistribution will be governed to any extentby the terms of the decedent’s will or thelaws of descent and distribution.

If data available to you does not indicatewhether the plan satisfies the requirementsof section 401(a), 403(a), 408(a), 408(b), or409(a), you may obtain that informationfrom the District Director of InternalRevenue for the district where theemployer’s principal place of business islocated.

Line A—Lump Sum DistributionElectionThe election pertaining to the lump sumdistribution from qualified plans (approvedplans) excludes from the gross estate all orpart of the lump sum distribution thatwould otherwise be includible. When therecipient makes the election to take a lumpsum distribution and include it in his or herincome tax, the amount excluded from thegross estate is the portion attributable tothe employer contributions. The portion, ifany, attributable to theemployee-decedent’s contributions isalways includible. The actual election ismade by the recipient of the distribution bytaking the lump sum distribution and bytreating it as taxable on his or her incometax return as described in Regulationssection 20.2039-4(d). The election isirrevocable. However, you may notcompute the gross estate in accordancewith this election unless you check “Yes”to line A and attach the name, address,and identifying number of the recipients ofthe lump sum distributions. SeeRegulations section 20.2039-4.

How To Complete the ScheduleIn describing an annuity, give the nameand address of the grantor of the annuity.Specify if the annuity is under an approvedplan. If it is under an approved plan, youmust state the ratio of the decedent’scontribution to the total purchase price ofthe annuity. If the decedent was employedat the time of death and an annuity asdescribed in paragraph 4 of AnnuityDefined, on page 13, became payable toany beneficiary because the beneficiarysurvived the decedent, you must state theratio of the decedent’s contribution to thetotal purchase price of the annuity. If anannuity under an individual retirementaccount or annuity became payable to anybeneficiary because that beneficiarysurvived the decedent and is payable tothe beneficiary for life or for at least 36months following the decedent’s death,you must state the ratio of the amountpaid for the individual retirement accountor annuity that was not allowable as anincome tax deduction under section 219(other than a rollover contribution) to thetotal amount paid for the account orannuity. If the annuity is payable out of a

trust or other fund, the description shouldbe sufficiently complete to fully identify it.If the annuity is payable for a term ofyears, include the duration of the term andthe date on which it began, and if payablefor the life of a person other than thedecedent, include the date of birth of thatperson. If the annuity is wholly or partiallyexcluded from the gross estate, enter theamount excluded under “Description” andexplain how you computed the exclusion.

Instructions for ScheduleJ.—Funeral Expenses andExpenses Incurred inAdministering PropertySubject to ClaimsSee the reverse side of Schedule J onForm 706.

Instructions for ScheduleK.—Debts of the Decedentand Mortgages and LiensYou must complete and attach Schedule Kif you claimed deductions on either item 12or item 13 of Part 5, Recapitulation.

Debts of the DecedentList under “Debts of the Decedent” onlyvalid debts the decedent owed at the timeof death. List any indebtedness secured bya mortgage or other lien on property of thegross estate under the heading “Mortgagesand Liens.” If the amount of the debt isdisputed or the subject of litigation, deductonly the amount the estate concedes to bea valid claim. Enter the amount in contestin the column provided.

Generally, if the claim against the estateis based on a promise or agreement, thededuction is limited to the extent that theliability was contracted bona fide and foran adequate and full consideration inmoney or money’s worth. However, anyenforceable claim based on a promise oragreement of the decedent to make acontribution or gift (such as a pledge or asubscription) to or for the use of acharitable, public, religious, etc.,organization is deductible to the extentthat the deduction would be allowed as abequest under the statute that applies.

Certain claims of a former spouseagainst the estate based on therelinquishment of marital rights aredeductible on Schedule K. For theseclaims to be deductible, all of the followingconditions must be met:● The decedent and the decedent’sspouse must have entered into a writtenagreement relative to their marital andproperty rights.● The decedent and the spouse must havebeen divorced before the decedent’s deathand the divorce must have occurred withinthe 3-year period beginning on the date 1year before the agreement was enteredinto. It is not required that the agreementbe approved by the divorce decree.● The property or interest transferredunder the agreement must be transferred

to the decedent’s spouse in settlement ofthe spouse’s marital rights.

You may not deduct a claim madeagainst the estate by a remaindermanrelating to section 2044 property. Section2044 property is described in theinstructions to line 6 of Part 4, GeneralInformation.

Include in this schedule notes unsecuredby mortgage or other lien and give fulldetails, including name of payee, face andunpaid balance, date and term of note,interest rate, and date to which interestwas paid before death. Include the exactnature of the claim as well as the name ofthe creditor. If the claim is for servicesperformed over a period of time, state theperiod covered by the claim. Example:Edison Electric Illuminating Co., for electricservice during December 1992, $150.

If the amount of the claim is the unpaidbalance due on a contract for thepurchase of any property included in thegross estate, indicate the schedule anditem number where you reported theproperty. If the claim represents a joint andseparate liability, give full facts and explainthe financial responsibility of theco-obligor.Property and Income Taxes.—Thededuction for property taxes is limited tothe taxes accrued before the date of thedecedent’s death. Federal taxes on incomereceived during the decedent’s lifetime aredeductible, but taxes on income receivedafter death are not deductible.

Keep all vouchers or original records forinspection by the Internal Revenue Service.Allowable Death Taxes.—If you elect totake a deduction under section 2053(d)rather than a credit under section 2011 orsection 2014, the deduction is subject tothe limitations described in section 2053(d)and its regulations. If you have difficultyfiguring the deduction, you may request acomputation of it. Send your request withina reasonable amount of time before thedue date of the return to the Commissionerof Internal Revenue, Washington, DC20224. Attach to your request a copy ofthe will and relevant documents, astatement showing the distribution of theestate under the decedent’s will, and acomputation of the state or foreign deathtax showing the amount payable bycharity.

Mortgages and LiensList under “Mortgages and Liens” onlyobligations secured by mortgages or otherliens on property that you included in thegross estate at its full value or at a valuethat was undiminished by the amount ofthe mortgage or lien. If the debt isenforceable against other property of theestate not subject to the mortgage or lien,or if the decedent was personally liable forthe debt, you must include the full value ofthe property subject to the mortgage orlien in the gross estate under theappropriate schedule and may deduct themortgage or lien on the property on thisschedule. However, if the decedent’sestate is not liable, include in the grossestate only the value of the equity of

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redemption (or the value of the propertyless the amount of the debt), and do notdeduct any portion of the indebtedness onthis schedule.

Notes and other obligations secured bythe deposit of collateral, such as stocks,bonds, etc., also should be listed under“Mortgages and Liens.”

DescriptionInclude under the “Description” column theparticular schedule and item number wherethe property subject to the mortgage orlien is reported in the gross estate.

Include the name and address of themortgagee, payee, or obligee, and the dateand term of the mortgage, note, or otheragreement by which the debt wasestablished. Also include the face amount,the unpaid balance, the rate of interest,and date to which the interest was paidbefore the decedent’s death.

Instructions for ScheduleL.—Net Losses DuringAdministration andExpenses Incurred inAdministering Property NotSubject to ClaimsYou must complete Schedule L and file itwith the return if you claim deductions oneither item 16 or item 17 of Part 5,Recapitulation.

Net Losses During AdministrationYou may deduct only those losses fromthefts, fires, storms, shipwrecks, or othercasualties that occurred during thesettlement of the estate. You may deductonly the amount not reimbursed byinsurance or otherwise.

Describe in detail the loss sustained andthe cause. If you received insurance orother compensation for the loss, state theamount collected. Identify the property forwhich you are claiming the loss byindicating the particular schedule and itemnumber where the property is included inthe gross estate.

If you elect alternate valuation, do notdeduct the amount by which you reducedthe value of an item to include it in thegross estate.

Do not deduct losses claimed as adeduction on a Federal income tax returnor depreciation in the value of securities orother property.

Expenses Incurred inAdministering Property NotSubject to ClaimsYou may deduct expenses incurred inadministering property that is included inthe gross estate but that is not subject toclaims. You may only deduct theseexpenses if they were paid before thesection 6501 period of limitations forassessment expired.

The expenses deductible on theschedule are usually expenses incurred inthe administration of a trust established by

the decedent before death. They may alsobe incurred in the collection of otherassets or the transfer or clearance of titleto other property included in thedecedent’s gross estate for estate taxpurposes, but not included in thedecedent’s probate estate. The expensesdeductible on this schedule are limited tothose that are the result of settling thedecedent’s interest in the property or ofvesting good title to the property in thebeneficiaries. Expenses incurred on behalfof the transferees (except those describedabove) are not deductible. Examples ofdeductible and nondeductible expensesare provided in Regulations section20.2053-8.

List the names and addresses of thepersons to whom each expense waspayable and the nature of the expense.Identify the property for which the expensewas incurred by indicating the scheduleand item number where the property isincluded in the gross estate. If you do notknow the exact amount of the expense,you may deduct an estimate, provided thatthe amount may be verified withreasonable certainty and will be paidbefore the period of limitations forassessment (referred to above) expires.Keep all vouchers and receipts forinspection by the Internal Revenue Service.

Instructions for ScheduleM.—Bequests, etc. toSurviving Spouse (MaritalDeduction)See pages 28 through 30 of Form 706 forthese instructions.

Instructions forSchedule O.—Charitable,Public, and Similar Gifts andBequestsGeneralYou must complete Schedule O and file itwith the return if you claim a deduction onitem 19 of the Recapitulation.

You can claim the charitable deductionallowed under section 2055 for the value ofproperty in the decedent’s estate that wastransferred by the decedent during life orby will to a charitable institution asexplained in Pub. 448.

The deduction is limited to the amountactually available for charitable uses.Therefore, if under the terms of a will orthe provisions of local law, or for any otherreason, the Federal estate tax, the FederalGST tax, or any other estate, GST,succession, legacy, or inheritance tax ispayable in whole or in part out of anybequest, legacy, or devise that wouldotherwise be allowed as a charitablededuction, the amount you may deduct isthe amount of the bequest, legacy, ordevise reduced by the total amount of thetaxes.

For split-interest trusts (or pooledincome funds) enter in the “Amount”column the amount treated as passing to

the charity. Do not enter the entire amountthat passes to the trust (fund).

If you are deducting the value of theresidue or a part of the residue passing tocharity under the decedent’s will, attach acopy of the computation showing how youdetermined the value, including anyreduction for the taxes described above.

Also include:1. A statement that shows the values of

all specific and general legacies or devisesfor both charitable and noncharitable uses.For each legacy or devise, indicate theparagraph or section of the decedent’s willor codicil that applies. (If legacies aremade to each member of a class (e.g.,$1,000 to each of the decedent’semployees), show only the number of eachclass and the total value of property theyreceived.)

2. The date of birth of all life tenants orannuitants, the length of whose lives mayaffect the value of the interest passing tocharity under the decedent’s will.

3. A statement showing the value of allproperty that is included in the decedent’sgross estate but does not pass under thewill, such as transfers, jointly ownedproperty that passed to the survivor ondecedent’s death, and insurance payableto specific beneficiaries.

4. Any other important information suchas that relating to any claim, not arisingunder the will, to any part of the estate(e.g., a spouse claiming dower or curtesy,or similar rights).

Line 2The charitable deduction is allowed foramounts that are transferred to charitableorganizations as a result of a qualifieddisclaimer. To be a qualified disclaimer, arefusal to accept an interest in propertymust meet the conditions of section 2518.These are explained in Pub. 448 andRegulations sections 25.2518-1 through25.2518-3. If property passes to acharitable beneficiary as the result of aqualified disclaimer, check the “Yes” boxon line 2 and attach a copy of the writtendisclaimer required by section 2518(b).

AttachmentsIf the charitable transfer was made by will,attach a certified copy of the orderadmitting the will to probate, in addition tothe copy of the will. If the charitabletransfer was made by any other writteninstrument, attach a copy. If the instrumentis of record, the copy should be certified; ifnot, the copy should be verified.

ValueThe valuation dates used in determiningthe value of the gross estate apply also onSchedule O.

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Instructions for ScheduleP.—Credit for Foreign DeathTaxesGeneralIf you claim a credit on line 18 of Part 2,Tax Computation, you must completeSchedule P and file it with the return. Youmust attach Form(s) 706CE, Certificateof Payment of Foreign Death Tax, tosupport any credit you claim.

The credit for foreign death taxes isallowable only if the decedent was acitizen or resident of the United States.However, see section 2053(d) and therelated regulations for exceptions andlimitations if the executor has elected, incertain cases, to deduct these taxes fromthe value of the gross estate. For aresident, not a citizen, who was a citizen orsubject of a foreign country for which thePresident has issued a proclamation undersection 2014(h), the credit is allowable onlyif the country of which the decedent was anational allows a similar credit todecedents who were U.S. citizens residingin that country.

The credit is authorized either by statuteor by treaty. If a credit is authorized by atreaty, whichever of the following is themost beneficial to the estate is allowed: (a) the credit computed under the treaty;(b) the credit computed under the statute;or (c) the credit computed under thetreaty, plus the credit computed under thestatute for death taxes paid to eachpolitical subdivision or possession of thetreaty country that are not directly orindirectly creditable under the treaty. Underthe statute, the credit is authorized for alldeath taxes (national and local) imposed inthe foreign country. Whether local taxesare the basis for a credit under a treatydepends upon the provisions of theparticular treaty.

If a credit for death taxes paid in morethan one foreign country is allowable, aseparate computation of the credit mustbe made for each foreign country. Thecopies of Schedule P on which theadditional computations are made shouldbe attached to the copy of Schedule Pprovided in the return.

The total credit allowable in respect toany property, whether subjected to tax byone or more than one foreign country, islimited to the amount of the Federal estatetax attributable to the property. Theanticipated amount of the credit may becomputed on the return, but the creditcannot finally be allowed until the foreigntax has been paid and a Form 706CEevidencing payment is filed. Section2014(g) provides that for credits for foreigndeath taxes, each U.S. possession isdeemed a foreign country.

If a credit is claimed for any foreigndeath tax that is later recovered, seeRegulations section 20.2016-1 for thenotice required within 30 days.

Credit Under the StatuteFor the credit allowed by the statute, thequestion of whether particular property is

situated in the foreign country imposingthe tax is determined by the sameprinciples that would apply in determiningwhether similar property of a nonresidentnot a U.S. citizen is situated within theUnited States for purposes of the Federalestate tax. See the instructions for Form706-NA.

Computation of Credit Under theStatuteItem 1.—Enter the amount of the estate,inheritance, legacy, and succession taxespaid to the foreign country and itspossessions or political subdivisions,attributable to property that is (a) situatedin that country, (b) subjected to thesetaxes, and (c) included in the gross estate.The amount entered at item 1 should notinclude any tax paid to the foreign countrywith respect to property not situated inthat country and should not include anytax paid to the foreign country with respectto property not included in the grossestate. If only a part of the propertysubjected to foreign taxes is both situatedin the foreign country and included in thegross estate, it will be necessary todetermine the portion of the taxesattributable to that part of the property.Also attach the computation of the amountentered at item 1.Item 2.—Enter the value of the grossestate less the total of the deductions onitems 18 and 19 of Part 5, Recapitulation.Item 3.—Enter the value of the propertysituated in the foreign country that issubjected to the foreign taxes andincluded in the gross estate, less thoseportions of the deductions taken onSchedules M and O that are attributable tothe property.Item 4.—Subtract line 17, Part 2, Form706 from line 16, Part 2, Form 706, andenter the balance at item 4 of Schedule P.

Credit Under TreatiesIf you are reporting any items on this returnbased on the provisions of a death taxtreaty, you may have to attach a statementto this return disclosing the return positionthat is treaty based. See Regulationssection 301.6114-1 for details.In General.—If the provisions of a treatyapply to the estate of a U.S. citizen orresident, a credit is authorized for paymentof the foreign death tax or taxes specifiedin the treaty. Death tax conventions are ineffect with the following countries:Australia, Austria, Denmark, Germany,Finland, France, Greece, Ireland, Italy,Japan, Netherlands, Norway, Republic ofSouth Africa, Sweden, Switzerland, and theUnited Kingdom.

A credit claimed under a treaty is ingeneral computed on Schedule P in thesame manner as the credit is computedunder the statute with the followingprincipal exceptions: (a) the situs rulescontained in the treaty apply in determiningwhether property was situated in theforeign country; (b) the credit may beallowed only for payment of the death taxor taxes specified in the treaty (but see theinstructions above for credit under the

statute for death taxes paid to eachpolitical subdivision or possession of thetreaty country that are not directly orindirectly creditable under the treaty); (c) ifspecifically provided, the credit isproportionately shared for the taxapplicable to property situated outsideboth countries, or that was deemed insome instances situated within bothcountries; and (d) the amount entered atitem 4 of Schedule P is the amount shownon line 16 of Part 2, Tax Computation, lessthe total of the amounts on lines 17 and 19of the Tax Computation. (If a credit isclaimed for tax on prior transfers, it will benecessary to complete Schedule Q beforecompleting Schedule P.) For examples ofcomputation of credits under the treaties,see the applicable regulations.Computation of Credit in Cases WhereProperty Is Situated Outside BothCountries or Deemed Situated WithinBoth Countries.—See the appropriatetreaty for details.

Instructions forSchedule Q.—Credit for Taxon Prior TransfersGeneralYou must complete Schedule Q and file itwith the return if you claim a credit on line19 of Part 2, Tax Computation.

The term “transferee” means thedecedent for whose estate this return isfiled. If the transferee received propertyfrom a transferor who died within 10 yearsbefore, or 2 years after, the transferee, acredit is allowable on this return for all orpart of the Federal estate tax paid by thetransferor’s estate with respect to thetransfer. There is no requirement that theproperty be identified in the estate of thetransferee or that it exist on the date of thetransferee’s death. It is sufficient for theallowance of the credit that the transfer ofthe property was subjected to Federalestate tax in the estate of the transferorand that the specified period of time hasnot elapsed. A credit may be allowed withrespect to property received as the resultof the exercise or nonexercise of a powerof appointment when the property isincluded in the gross estate of the doneeof the power.

If the transferee was the transferor’ssurviving spouse, no credit is allowed forproperty received from the transferor to theextent that a marital deduction wasallowed to the transferor’s estate for theproperty. There is no credit for tax on priortransfers for Federal gift taxes paid inconnection with the transfer of theproperty to the transferee.

If you are claiming a credit for tax onprior transfers on Form 706-NA, youshould first complete and attach theRecapitulation from Form 706 beforecomputing the credit on Schedule Q fromForm 706.

Section 2056(d)(3) contains specific rulesfor allowing a credit for certain transfers toa spouse who was not a U.S. citizen where

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the property passed outright to thespouse, or to a “qualified domestic trust.”

PropertyThe term “property” includes any interest(legal or equitable) of which the transfereereceived the beneficial ownership. Thetransferee is considered the beneficialowner of property over which thetransferee received a general power ofappointment. Property does not includeinterests to which the transferee receivedonly a bare legal title, such as that of atrustee. Neither does it include an interestin property over which the transfereereceived a power of appointment that isnot a general power of appointment. Inaddition to interests in which the transfereereceived the complete ownership, thecredit may be allowed for annuities, lifeestates, terms for years, remainderinterests (whether contingent or vested),and any other interest that is less than thecomplete ownership of the property, to theextent that the transferee became thebeneficial owner of the interest.

Maximum Amount of the CreditThe maximum amount of the credit is thesmaller of:

1. The amount of the estate tax of thetransferor’s estate attributable to thetransferred property, or

2. The amount by which (a) an estatetax on the transferee’s estate determinedwithout the credit for tax on prior transfers,exceeds (b) an estate tax on thetransferee’s estate determined byexcluding from the gross estate the netvalue of the transfer. If credit for aparticular foreign death tax may be takenunder either the statute or a death dutyconvention, and on this return the creditactually is taken under the convention,then no credit for that foreign death taxmay be taken into consideration incomputing estate tax (a) or estate tax (b).

Percent AllowableWhere Transferee Predeceased theTransferor.—If not more than 2 yearselapsed between the dates of death, thecredit allowed is 100% of the maximumamount. If more than 2 years elapsedbetween the dates of death, no credit isallowed.Where Transferor Predeceased theTransferee.—The percent of the maximumamount that is allowed as a credit dependson the number of years that elapsedbetween dates of death. It is determinedusing the following table:

Period of Time PercentExceeding Not Exceeding Allowable

- - - - - 2 years 1002 years 4 years 804 years 6 years 606 years 8 years 408 years 10 years 20

10 years - - - - - none

How To Compute the CreditA worksheet is provided on the last pageof these instructions to allow you tocompute the limits before completingSchedule Q. Transfer the appropriateamounts from the worksheet to ScheduleQ as indicated on the schedule. You donot need to file the worksheet with yourForm 706, but should keep it for yourrecords.Cases Involving Transfers From Two orMore Transferors.—Part I of theworksheet and Schedule Q enable you tocompute the credit for as many as threetransferors. The number of transferors isirrelevant to Part II of the worksheet. If youare computing the credit for more thanthree transferors, use more than oneworksheet and Schedule Q, Part I, andcombine the totals for the appropriatelines.Section 2032A Additional Tax.—If thetransferor’s estate elected special usevaluation and the additional estate tax ofsection 2032A(c) was imposed at any timeup to 2 years after the death of thedecedent for whom you are filing thisreturn, check the box on Schedule Q. Onlines 1 and 9 of the worksheet, include theproperty subject to the additional estatetax at its fair market value rather than itsspecial use value. On line 10 of theworksheet, include the additional estatetax paid as a Federal estate tax paid.

How To Complete the WorksheetMost of the information to complete Part Iof the worksheet should be obtained fromthe transferor’s Form 706.Line 5.—Enter on line 5 the applicablemarital deduction claimed for thetransferor’s estate (from the transferor’sForm 706).Lines 10–18.—Enter on these lines theappropriate taxes paid by the transferor’sestate.

If the transferor’s estate elected to paythe Federal estate tax in installments, enteron line 10 only the total of the installmentsthat have actually been paid at the timeyou file this Form 706. See Rev. Rul.83-15, 1983-1 C.B. 224, for more details.Do not include as estate tax any taxattributable to section 4980A.Line 21.—Add lines 13, 15, 17, and 18 ofPart 2, Tax Computation, of this Form 706and subtract this total from line 10 of theTax Computation. Enter the result on line21 of the worksheet.Line 26.—If you computed the maritaldeduction on this Form 706 using the rulesthat were in effect before the EconomicRecovery Tax Act of 1981 (as described inthe instructions to line 14 of Part 4 ofGeneral Information), enter on line 26 thelesser of: the marital deduction youclaimed on line 18 of Part 5 of theRecapitulation; or 50% of the “reducedadjusted gross estate.” If you computedthe marital deduction using the unlimitedmarital deduction in effect for decedentsdying after 1981, for purposes ofdetermining the marital deduction for thereduced gross estate, see Rev. Rul. 90-2,

1990-1 C.B. 170. To determine the“reduced adjusted gross estate,” subtractthe amount on line 25 of the Schedule Qworksheet from the amount on line 24 ofthe worksheet. If community property isincluded in the amount on line 24 of theworksheet, compute the reduced adjustedgross estate using the rules of Regulationssection 20.2056(c)-2 and Rev. Rul. 76-311,1976-2 C.B. 261.

Instructions forSchedules R and R-1.—Generation-SkippingTransfer TaxIntroduction and OverviewSchedule R is used to compute thegeneration-skipping transfer (GST) tax thatis payable by the estate. Schedule R-1(Form 706) is used to compute the GSTtax that is payable by certain trusts thatare includible in the gross estate.

The GST tax that is to be reported onForm 706 is imposed only on “direct skipsoccurring at death.” Unlike the estate tax,which is imposed on the value of the entiretaxable estate regardless of whom it isdistributed to, the GST tax is imposed onlyon the value of interests in property,wherever located, that actually pass tocertain transferees, who are referred to as“skip persons.”

For purposes of Form 706, the propertyinterests transferred must be includible inthe gross estate before they are subject tothe GST tax. Therefore, the first step incomputing the GST tax liability is todetermine the property interests includiblein the gross estate by completingSchedules A–I of Form 706.

The second step is to determine who the“skip persons” are. To do this, assign eachtransferee to a generation and determinewhether each transferee is a “naturalperson” or a “trust” for GST purposes.

The third step is to determine which skippersons are transferees of “interests inproperty.” If the skip person is a “naturalperson,” anything transferred is an“interest in property.” If the skip person isa “trust,” make this determination usingthe rules under Interest in Property, onpage 18. These first three steps aredescribed in detail under the headingDetermining Which Transfers Are DirectSkips.

The fourth step is to determine whetherto enter the transfer on Schedule R or onSchedule R-1. See the rules under theheading Dividing Direct Skips BetweenSchedules R and R-1.

The fifth step is to complete SchedulesR and R-1 using the How To Completeinstructions on page 19, for each schedule.

Determining Which Transfers AreDirect SkipsEffective Dates.—The rules below applyonly for the purpose of determining if atransfer is a direct skip that should bereported on Schedule R or R-1 of Form706.

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In General.—The GST tax is effective forthe estates of decedents dying afterOctober 22, 1986.

Wills and revocable trusts.—For theestates of decedents dying before January1, 1987, the GST tax will not apply totransfers under wills and revocable trustsexecuted before October 22, 1986.

Irrevocable trusts.—The GST tax will notapply to any transfer under a trust that wasirrevocable on September 25, 1985, butonly to the extent that the transfer was notmade out of corpus added to the trustafter September 25, 1985. An addition tothe corpus after that date will cause aproportionate part of future income andappreciation to be subject to the GST tax.For more information, see TemporaryRegulations section 26.2601-1(b)(1)(ii).

Mental disability.—If the decedent was,on October 22, 1986, under a mentaldisability to change the disposition of hisor her property and did not regain thecompetence to dispose of property beforedeath, the GST tax will not apply to anyproperty included in the gross estate (otherthan property transferred on behalf of thedecedent during life and after October 21,1986). The GST tax will also not apply toany transfer under a trust to the extent thatthe trust consists of property included inthe gross estate (other than propertytransferred on behalf of the decedentduring life and after October 21, 1986).

The term “mental disability” means thedecedent’s mental incompetence toexecute an instrument governing thedisposition of his or her property, whetheror not there has been an adjudication ofincompetence and whether or not therehas been an appointment of any otherperson charged with the care of the personor property of the transferor.

If the decedent had been adjudgedmentally incompetent, a copy of thejudgment or decree must be filed with thisreturn.

If the decedent had not been adjudgedmentally incompetent, the executor mustfile with the return a certification from aqualified physician stating that in hisopinion the decedent had been mentallyincompetent at all times on and afterOctober 22, 1986, and that the decedenthad not regained the competence tomodify or revoke the terms of the trust orwill prior to his death or a statement as towhy no such certification may be obtainedfrom a physician.Direct Skip.—The GST tax reported onForm 706 and Schedule R-1 (Form 706) isimposed only on direct skips. For purposesof Form 706, a direct skip is a transfer thatis: (1) subject to the estate tax, (2) of aninterest in property, and (3) to a skipperson. All three requirements must be metbefore the transfer is subject to the GSTtax. A transfer is “subject to the estate tax”if you are required to list it on any ofSchedules A–I of Form 706. To determineif a transfer is of an “interest in property”and to a “skip person,” you must firstdetermine if the transferee is a “naturalperson” or a “trust” as defined below.

Trust.—For purposes of the GST tax, a“trust” includes not only an explicit trust(as defined in Special Rule for TrustsOther than Explicit Trusts on page 19),but also any other arrangement (other thanan estate) which, although not explicitly atrust, has substantially the same effect asa trust. For example, “trust” includes lifeestates with remainders, terms for years,and insurance and annuity contracts.

Substantially separate and independentshares of different beneficiaries in a trustare treated as separate trusts.Interest in Property.—If a transfer is madeto a “natural person,” it is alwaysconsidered a transfer of an interest inproperty for purposes of the GST tax.

If a transfer is made to a “trust,” aperson will have an interest in the propertytransferred to the trust if that person eitherhas a present right to receive income orcorpus from the trust (such as an incomeinterest for life) or is a permissible currentrecipient of income or corpus from thetrust (e.g., may receive income or corpusat the discretion of the trustee).Skip Person.—A transferee who is a“natural person” is a “skip person” if thattransferee is assigned to a generation thatis two or more generations below thegeneration assignment of the decedent.See Determining the Generation of aTransferee, below.

A transferee who is a “trust” is a “skipperson” if all the “interests in the property”(as defined above) transferred to the trustare held by skip persons. Thus, whenevera non-skip person has an interest in atrust, the trust will not be a skip personeven though a skip person also has aninterest in the trust.

A trust will also be a “skip person” ifthere are no “interests in the property”transferred to the trust held by any person,and future distributions or terminationsfrom the trust can be made only to skippersons.Non-Skip Person.—A non-skip person isany transferee who is not a skip person.Determining the Generation of aTransferee.—Generally, a generation isdetermined along family lines as follows:

1. Where the beneficiary is a linealdescendant of a grandparent of thedecedent (for example, the decedent’scousin, niece, nephew, etc.), the number ofgenerations between the decedent and thebeneficiary is determined by subtractingthe number of generations between thegrandparent and the decedent from thenumber of generations between thegrandparent and the beneficiary.

2. Where the beneficiary is a linealdescendant of a grandparent of a spouse(or former spouse) of the decedent, thenumber of generations between thedecedent and the beneficiary is determinedby subtracting the number of generationsbetween the grandparent and the spouse(or former spouse) from the number ofgenerations between the grandparent andthe beneficiary.

3. A person who at any time wasmarried to a person described in 1 or 2

above is assigned to the generation of thatperson. A person who at any time wasmarried to the decedent is assigned to thedecedent’s generation.

4. A relationship by adoption orhalf-blood is treated as a relationship bywhole-blood.

5. A person who is not assigned to ageneration according to 1, 2, 3, or 4 aboveis assigned to a generation based on his orher birth date, as follows:

a. A person who was born not morethan 12 1⁄2 years after the decedent is in thedecedent’s generation.

b. A person born more than 12 1⁄2 years,but not more than 37 1⁄2 years, after thedecedent is in the first generation youngerthan the decedent.

c. A similar rule applies for a newgeneration every 25 years.

If more than one of the rules forassigning generations applies to atransferee, that transferee is generallyassigned to the youngest of thegenerations that would apply.

If an estate, trust, partnership,corporation, or other entity (other thancertain charitable organizations and trustsdescribed in sections 511(a)(2) and511(b)(2)) is a transferee, then each personwho indirectly receives the propertyinterests through the entity is treated as atransferee and is assigned to a generationas explained in the above rules. However,this look-thru rule does not apply for thepurpose of determining whether a transferto a trust is a direct skip.Generation Assignment Where InterveningParent Is Dead.—If property is transferredto the decedent’s grandchild, and at thedate of death, the grandchild’s parent (whois the decedent’s or the decedent’sspouse’s or the decedent’s formerspouse’s child) is dead, then for purposesof generation assignment the grandchildwill be considered to be the decedent’schild rather than the decedent’sgrandchild. Thus, the transfer of theproperty will not be a direct skip. Thegrandchild’s children will be treated as thedecedent’s grandchildren rather than thedecedent’s great-grandchildren.

This rule is also applied to thedecedent’s lineal descendants below thelevel of grandchild. For example, if thedecedent’s grandchild is dead, thedecedent’s great-grandchildren who arelineal descendants of the dead grandchildare considered the decedent’sgrandchildren for purposes of the GST tax.

If any transfer of property to a trustwould have been a direct skip except forthis generation assignment rule, then therule also applies to transfers from the trustattributable to such property.Charitable Organizations.—Charitableorganizations and trusts described insections 511(a)(2) and 511(b)(2) areassigned to the decedent’s generation.Transfers to such organizations aretherefore not subject to the GST tax.Charitable Remainder Trusts.—Transfers toor in the form of charitable remainder

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annuity trusts, charitable remainderunitrusts, and pooled income funds are notconsidered made to skip persons and,therefore, are not direct skips even if all ofthe life beneficiaries are skip persons.Estate Tax Value.—Estate tax value is thevalue shown on Schedules A–I of this Form706.Examples.—The rules above can beillustrated by the following examples:

Example 1.—Under the will, thedecedent’s house is transferred to thedecedent’s daughter for her life with theremainder passing to her children. Thistransfer is made to a “trust” even thoughthere is no explicit trust instrument. Theinterest in the property transferred (thepresent right to use the house) istransferred to a nonskip person (thedecedent’s daughter). Therefore, the trustis not a skip person because there is aninterest in the transferred property that isheld by a nonskip person. The transfer isnot a direct skip.

Example 2.—The will bequeaths$100,000 to the decedent’s grandchild.This transfer is a direct skip that is notmade in trust and should be shown onSchedule R.

Example 3.—The will establishes a trustthat is required to accumulate income for10 years and then pay its income to thedecedent’s grandchildren for the rest oftheir lives and, upon their deaths, distributethe corpus to the decedent’sgreat-grandchildren. Because the trust hasno current beneficiaries, there are nopresent interests in the property transferredto the trust. All of the persons to whom thetrust can make future distributions(including distributions upon thetermination of interests in property held intrust) are skip persons (i.e., the decedent’sgrandchildren and great-grandchildren).Therefore, the trust itself is a skip personand you should show the transfer onSchedule R.

Example 4.—The will establishes a trustthat is to pay all of its income to thedecedent’s grandchildren for 10 years. Atthe end of 10 years, the corpus is to bedistributed to the decedent’s children. Allof the interests in this trust are held byskip persons. Therefore, the trust is a skipperson and you should show this transferon Schedule R. You should show theestate tax value of all the propertytransferred to the trust even though thetrust has some ultimate beneficiaries whoare nonskip persons.

Dividing Direct Skips BetweenSchedules R and R-1Report all generation-skipping transferson Schedule R unless the rules belowspecifically provide that they are to bereported on Schedule R-1.

Under section 2603(a)(2), the GST tax ondirect skips from a trust (as defined forGST tax purposes on page 18) is to bepaid by the trustee and not by the estate.Schedule R-1 serves as a notification fromthe executor to the trustee that a GST taxis due.

For a direct skip to be reportable onSchedule R-1, the trust must be includiblein the decedent’s gross estate.

If the decedent was the surviving spouselife beneficiary of a marital deductionpower of appointment (or QTIP) trustcreated by the decedent’s spouse, thentransfers caused by reason of thedecedent’s death from that trust to skippersons are direct skips required to bereported on Schedule R-1.

If a direct skip is made “from a trust”under these rules, it is reportable onSchedule R-1 even if it is also made “to atrust” rather than to an individual.

Similarly, if property in a trust (as definedfor GST tax purposes on page 18) isincluded in the decedent’s gross estateunder section 2035, 2036, 2037, 2038,2039, 2041, or 2042 and such property is,by reason of the decedent’s death,transferred to skip persons, the transfersare direct skips required to be reported onSchedule R-1.Special Rule For Trusts Other ThanExplicit Trusts.—An explicit trust is atrust as defined in Regulations section301.7701-4(a) as “an arrangement createdby a will or by an inter vivos declarationwhereby trustees take title to property forthe purpose of protecting or conserving itfor the beneficiaries under the ordinaryrules applied in chancery or probatecourts.” Direct skips from explicit trusts arerequired to be reported on Schedule R-1regardless of their size unless the executoris also a trustee (see below).

Direct skips from trusts that are trustsfor GST tax purposes but are not explicittrusts are to be shown on Schedule R-1only if the total of all tentative maximumdirect skips from the entity is more than$100,000. If this total is $100,000 or less,the skips should be shown on Schedule R.For purposes of the $100,000 limit,“tentative maximum direct skips” is theamount you would enter on line 5 ofSchedule R-1 if you were to file thatschedule.

A liquidating trust (such as a bankruptcytrust) under Regulations section301.7701-4(d) is not treated as an explicittrust for the purposes of this special rule.

If the proceeds of a life insurance policyare includible in the gross estate and arepayable to a beneficiary who is a skipperson, the transfer is a direct skip from atrust that is not an explicit trust. It shouldbe reported on Schedule R-1 if the total ofall the tentative maximum direct skips fromthe company is more than $100,000.Otherwise, it should be reported onSchedule R.

Similarly, if an annuity is includible onSchedule I and its survivor benefits arepayable to a beneficiary who is a skipperson, then the estate tax value of theannuity should be reported as a direct skipon Schedule R-1 if the total tentativemaximum direct skips from the entitypaying the annuity is more than $100,000.Executor as Trustee.—If any of theexecutors of the decedent’s estate aretrustees of the trust, then all direct skips

with respect to that trust must be shownon Schedule R and not on Schedule R-1even if they would otherwise have beenrequired to be shown on Schedule R-1.This rule applies even if the trust has othertrustees who are not executors of thedecedent’s estate.

How To Complete Schedules Rand R-1Valuation.—Enter on Schedules R and R-1the estate tax value of the propertyinterests subject to the direct skips. If youelected alternate valuation (section 2032)and/or special use valuation (section2032A), you must use the alternate and/orspecial values on Schedules R and R-1.

How To Complete Schedule RPart 1—GST Exemption Reconciliation.—Part 1, line 6 of both Parts 2 and 3, andline 4 of Schedule R-1 are used to allocatethe decedent’s $1 million GST exemption.This allocation is made by filing Form 706.Once made, the allocation is irrevocable.You are not required to allocate all of thedecedent’s GST exemption. However, theportion of the exemption that you do notallocate will be allocated by IRS under thedeemed allocation at death rules of section2632(c).

Special QTIP election.—In the case ofproperty for which a marital deduction isallowed to the decedent’s estate undersection 2056(b)(7) (QTIP election), section2652(a)(3) allows you to treat such propertyfor purposes of the GST tax as if theelection to be treated as qualifiedterminable interest property had not beenmade.

The 2652(a)(3) election must include thevalue of all property in the trust for which aQTIP election was allowed under section2056(b)(7).

If a section 2652(a)(3) election is made,then the decedent will for GST taxpurposes be treated as the transferor of allthe property in the trust for which a maritaldeduction was allowed to the decedent’sestate under section 2056(b)(7). In thiscase, the executor of the decedent’sestate may allocate part or all of thedecedent’s GST exemption to the property.Line 2.—These allocations will have beenmade either on Forms 709 filed by thedecedent or on Notices of Allocation madeby the decedent for inter vivos transfersthat were not direct skips but to which thedecedent allocated the GST exemption.These allocations by the decedent areirrevocable.Line 3.—Make an entry on this line if youare filing Form(s) 709 for the decedent andwish to allocate any exemption.Lines 4, 5, and 6.—These lines representyour allocation of the GST exemption todirect skips made by reason of thedecedent’s death. Complete Parts 2 and 3and Schedule R-1 before completing theselines.Line 9.—Line 9 is used to allocate theremaining unused GST exemption (fromline 8) and to help you compute the trust’sinclusion ratio. Line 9 is a Notice of

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Allocation for allocating the GST exemptionto trusts as to which the decedent is thetransferor and from which ageneration-skipping transfer could occurafter the decedent’s death. If line 9 is notcompleted, the deemed allocation at deathrules will apply to allocate the decedent’sremaining unused GST exemption, first toproperty that is the subject of a direct skipoccurring at the decedent’s death, andthen to trusts as to which the decedent isthe transferor. If you wish to avoid theapplication of the deemed allocation rules,you should enter on line 9 every trust(except certain trusts entered on ScheduleR-1, as described below) to which youwish to allocate any part of the decedent’sGST exemption. Unless you enter a truston line 9, the unused GST exemption willbe allocated to it under the deemedallocation rules.

If a trust is entered on Schedule R-1, theamount you entered on line 4 of ScheduleR-1 serves as a Notice of Allocation andyou need not enter the trust on line 9unless you wish to allocate more than theSchedule R-1, line 4 amount to the trust.However, you must enter the trust on line9 if you wish to allocate any of the unusedGST exemption amount to it. Such anadditional allocation would not ordinarily beappropriate in the case of a trust enteredon Schedule R-1 when the trust propertypasses outright (rather than to anothertrust) at the decedent’s death. However,where section 2032A property is involved itmay be appropriate to allocate additionalexemption amounts to the property. Seethe instructions for line 10.Note: To avoid application of the deemedallocation rules, Form 706 and Schedule Rshould be filed to allocate the exemption totrusts that may later have taxableterminations or distributions under section2612 even if the form is not required to befiled to report estate or GST tax.Line 9, Column C.—Enter the GSTexemption included on lines 2–6, above,that was allocated to the trust.Line 9, Column D.—The line 8 amount is tobe allocated in column D of line 9. Thisamount may be allocated to transfers intotrusts that are not otherwise reported onForm 706. For example, the line 8 amountmay be allocated to an inter vivos trustestablished by the decedent during his orher lifetime and not included in the grossestate. This allocation is made byidentifying the trust on line 9 and makingan allocation to it using column D. If thetrust is not included in the gross estate,value the trust as of the date of death. Youshould inform the trustee of each trustlisted on line 9 of the total GST exemptionyou allocated to the trust. The trustee willneed this information to compute the GSTtax on future distributions andterminations.Line 9, Column E.—Trust’s InclusionRatio.—The trustee must know the trust’sinclusion ratio to figure the trust’s GST taxfor future distributions and terminations.You are not required to inform the trusteeof the inclusion ratio and may not haveenough information to compute it.Therefore, you are not required to make an

entry in column E. However, column E andthe worksheet below are provided to assistyou in computing the inclusion ratio for thetrustee if you wish to do so.

You should inform the trustee of theamount of the GST exemption youallocated to the trust. Line 9, columns Cand D may be used to compute thisamount for each trust.

This worksheet will compute an accurateinclusion ratio only if the decedent was theonly settlor of the trust. You should use aseparate worksheet for each trust (orseparate share of a trust that is treated asa separate trust).

1 Total estate and gift tax value of all ofthe property interests that passed tothe trust

2 Estate taxes, state death taxes, andother charges actually recovered fromthe trust

3 GST taxes imposed on direct skips toskip persons other than this trust andborne by the property transferred tothis trust

4 GST taxes actually recovered from thistrust (from Schedule R, Part 2, line 8or Schedule R-1, line 6)

5 Add lines 2–4 6 Subtract line 5 from line 1 7 Add columns C and D of line 9 8 Divide line 7 by line 6 9 Trust’s inclusion ratio. Subtract line 8

from 1.000

Line 10.—Special Use Allocation.—For skippersons who receive an interest in section2032A special use property, you mayallocate more GST exemption than thedirect skip amount to reduce the additionalGST tax that would be due when theinterest is later disposed of or qualified useceases. See Schedule A-1 of this Form706 for more details about this additionalGST tax.

Enter on line 10 the total additional GSTexemption you are allocating to all skippersons who received any interest insection 2032A property. Attach a specialuse allocation schedule listing each suchskip person and the amount of the GSTexemption allocated to that person.

If you do not allocate the GSTexemption, it will be automaticallyallocated under the deemed allocation atdeath rules. To the extent any amount isnot so allocated it will be automaticallyallocated (under regulations to bepublished) to the earliest disposition orcessation that is subject to the GST tax.Under certain circumstances, post-deathevents may cause the decedent to betreated as a transferor for purposes ofChapter 13.

Line 10 may be used to set aside anexemption amount for such an event. Youmust attach a schedule listing each suchevent and the amount of exemptionallocated to that event.

Parts 2 and 3.—Part 2 is used to computethe GST tax on transfers in which theproperty interests transferred are to bearthe GST tax on the transfers. Part 3 is tobe used to report the GST tax on transfers

in which the property interests transferreddo not bear the GST tax on the transfers.

Section 2603(b) requires that unless thegoverning instrument provides otherwise,the GST tax is to be charged to theproperty constituting the transfer.Therefore, you will usually enter all of thedirect skips on Part 2.

You may enter a transfer on Part 3 onlyif the will or trust instrument directs, byspecific reference, that the GST tax is notto be paid from the transferred propertyinterests.

Part 2—Line 3.—Enter -0- on this lineunless the will or trust instrument specifiesthat the GST taxes will be paid by propertyother than that constituting the transfer (asdescribed above). Enter on line 3 the totalof the GST taxes shown on Part 3 andSchedule(s) R-1 that are payable out of theproperty interests shown on Part 2, line 1.Part 2—Line 6.—Do not enter more thanthe amount on line 5. Additional allocationsmay be made using Part 1.

Part 3—Line 3.—See the instructions toPart 2, line 3, above. Enter only the total ofthe GST taxes shown on Schedule(s) R-1that are payable out of the propertyinterests shown on Part 3, line 1.Part 3—Line 6.—See the instructions toPart 2, line 6, above.

How To Complete Schedule R-1Filing Due Date.—Enter the due date ofSchedule R, Form 706. You must send thecopies of Schedule R-1 to the fiduciary bythis date.Line 4.—Do not enter more than theamount on line 3. If you wish to allocate anadditional GST exemption, you must useSchedule R, Part 1. Making an entry in line4 constitutes a Notice of Allocation of thedecedent’s GST exemption to the trust.Line 6.—If the property interests enteredon line 1 will not bear the GST tax, multiplyline 6 by 55% (.55).Signature.—The executor(s) must signSchedule R-1 in the same manner as Form706. See Signature and Verification onpage 2.Filing Schedule R-1.—Attach one copy ofeach Schedule R-1 that you prepare toForm 706. Send two copies of eachSchedule R-1 to the fiduciary.

Instructions for ScheduleS.—Increased Estate Tax onExcess RetirementAccumulationsThe executor uses Schedule S to figure theincreased estate tax imposed by section4980A(d) on excess accumulations inqualified employer plans (plans) andindividual retirement plans (IRAs). ScheduleS may be filed only as an attachment toForm 706.

Which Estates Must FileAll estates must file Schedule S if theestate has any excess accumulation (ascalculated on line 16 of the Tax

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Computation of Schedule S). Schedule Smust be filed regardless of the size of thegross estate and regardless of whether theestate is otherwise required to file Form706.

The section 4980A(d) tax also applies tothe estates of nonresident alien decedentswhether or not they are otherwise requiredto file Form 706-NA. In these instructions,references to Form 706 should beconstrued as references to Form 706-NA ifthe decedent was a nonresident alien.

When To FileSchedule S is considered an integral partof Form 706 and you must file it with theestate’s Form 706. Therefore, the due dateis determined by the due date, withextensions, of the estate’s Form 706.

Where To FileSchedule S must be attached to and filedwith the Form 706.

Paying the TaxThe increased estate tax shown onSchedule S is due at the same time as theestate tax (if any) shown on the Form 706.

You may not make a section 6166 or6163 election to defer the payment of theincreased estate tax.

Part I.—Tax ComputationLine 1.—Spousal Election.—Section4980A(d)(5) provides that if a survivingspouse is the beneficiary of all of thedecedent’s retirement accumulations(subject to a de minimis exception), thenthe spouse may elect not to have theexcess accumulation rules apply to thedecedent but to have section 4980A applyto such interests and any distributionsattributable to such interests as if theywere the surviving spouse’s.

To make the election, the spouse mustattach a statement to the decedent’s Form706. The statement must be signed by thespouse and must indicate clearly that thespouse is making the election provided forin section 4980A(d)(5).

If the spouse makes the election, checkthe box on line 1 and complete lines 2–12of Part I, Schedule S.Line 2.—List each plan and IRA in whichthe decedent had any interest at the timeof death. If you need more space, list theadditional plans and IRAs on an attachedsheet. Also list any plans in which thedecedent was an alternate payee ifpayments to the decedent would havebeen includible in the decedent’s grossincome under a qualified domesticrelations order within the meaning ofsection 414(p).

If an IRA does not have an EIN, enter“None” in the EIN column.Rollover IRAs.—If the decedent was asurviving spouse who rolled over adistribution from a plan or IRA of thepredeceased spouse into an IRAestablished in the surviving spouse’s own

name, do not list the IRA on line 2 unlesscontributions or transfers other than therollover amount were made to the IRA. Ifsuch other contributions or transfers weremade, then you must list the IRA on line 2and include the entire value of thedecedent’s interest in the IRA on line 3.

If the decedent was a surviving spousewho elected to treat an inherited IRA(described in section 408(d)(3)(C)(ii)) as hisor her own IRA and made no furthercontributions to it, do not list the IRA online 2.

If the decedent (whether or not asurviving spouse) elected to treat an IRAas subject to the distribution requirementsof section 408(a)(6) (before its amendmentby section 521(b) of the Tax Reform Act of1984), under Regulations section1.408-2(b)(7)(ii), do not list the IRA on line 2if it meets those distribution requirements.Lines 3–10.—Consolidate all of thedecedent’s IRAs in column D. If there aremore than three plans, compute their valueon an attached sheet following the sameformat as lines 3–10.Line 3.—Value of Decedent’s Interest.—Value the decedent’s interest in the plan orIRA using the estate tax valuation rules,including the alternate valuation electionunder section 2032. See page 3 for detailson making this election. Do not reduce thisvalue by any of the credits, deductions,exclusions, etc., that otherwise apply forestate tax purposes. Do not applycommunity property rules to reduce thevalue of the decedent’s interest.

You should include in the value allamounts payable to beneficiaries of thedecedent under the plan or IRA (includingamounts payable to a surviving spouseunder a qualified joint and survivor annuityor qualified preretirement survivor annuity),whether or not these amounts areotherwise included in valuing thedecedent’s gross estate.

Exclude from the value the excess (ifany) of interests payable immediately afterdeath over the value of the same interestsimmediately before death.Line 4.—Post-Death Rollovers.—Enter onthis line any amounts that: (1) weredistributed from the plan or account within60 days before the decedent’s death, and(2) were rolled over into an IRA after thedate of death and within 60 days after thedistribution. Value the rolled over amountsas of the date they were received by theIRA.Line 6.—Alternate Payees.—Enter on thisline the amount of any portion of thedecedent’s interest in the plan that ispayable to an alternate payee and isincluded in the payee’s gross incomeunder a qualified domestic relations order(within the meaning of section 414(p)).Line 8.—Excess Life InsuranceAmounts.—If the plan held a life insurancepolicy on the decedent’s life, enter herethe amount excludable from thebeneficiary’s income under section 101(a).This is the amount by which the death

benefit payable under the policy exceedsthe cash surrender value of the policyimmediately before the decedent’s death.Do not enter on this line amounts that areexcludable from gross income undersection 101(b) (employee death benefits).Line 9.—Decedent’s Interest as aBeneficiary.—Enter on this line the amountof the decedent’s interest in a plan or IRAby reason of the death of anotherindividual.

Do not enter on this line any plans orIRAs that are reported on line 2 of Part I asa result of the decedent having made aspousal election under section 4980A(d)(5).Line 17.—Increased Estate Tax.—The taxshown on line 17 may not be reduced oroffset by any of the estate tax credits.Enter the line 17 amount on line 23 of theTax Computation on page 1 of Form 706.(If you are filing Schedule S with Form706-NA, enter the line 17 amount on line16 of the Tax Computation of Form706-NA.)

Part II.—Grandfather ElectionLine 1.—If you checked “Yes,” attach theForm 5329, Return for Additional TaxesAttributable to Qualified Retirement Plans(Including IRAs), Annuities, and ModifiedEndowment Contracts, on which theelection was made.Line 2.—Initial Grandfather Amount.—Ifyou checked “Yes” on line 1, enter theinitial grandfather amount shown on theForm 5329 on which the grandfatherelection was made.Line 3.—Previously RecoveredAmounts.—Enter the total of the amountstreated as recoveries of the grandfatheramount from previously filed Forms 5329.

Part III.—Computation ofHypothetical Life AnnuityLine 1.—Decedent’s Attained Age.—Enter the decedent’s attained age in wholeyears on the date of death. For example, ifthe decedent was 60 years and 11 monthsold on the date of death, enter “60” on line1.Line 2.—Annual Annuity Amount.—If youdid not check “Yes” to line 1 of Part II,enter the greater of $150,000 or $112,500indexed for inflation as described in Temp.Regs. section 54.4981A-1T(a-9).

If you checked “Yes” to line 1 of Part II,enter $112,500 indexed for inflation asdescribed in Temp. Regs. section54.4981A-1T(a-9).Line 3.—Present Value Multipliers.—Section 5031 of the Technical andMiscellaneous Revenue Act of 1988required the IRS to issue new presentvalue tables using revised mortality figures.Also, to determine the present valuemultiplier under the new procedure, youmust use an interest rate that is revisedmonthly. The IRS will announce theapplicable rate in a news release and willpublish it in a revenue ruling in the InternalRevenue Bulletin.

Page 22

The IRS has published new presentvalue tables for some interest rates inNotice 89-60, 1989-1 C.B. 700. Thecomplete tables have been printed in Pub.1457, Actuarial Values—Alpha Volume,

which can be purchased from theSuperintendent of Documents, U.S.Government Printing Office, Washington,DC 20402.

To calculate the present value of anannuity if the tables are not available, andfor additional information on the new rules,see Notice 89-60 as noted above, andNotice 89-24, 1989-1 C.B. 660.

Page 23

Worksheet for Schedule Q—Credit for Tax on Prior TransfersTransferor’s tax on prior transfers

Total for all transfersTransferor (From Schedule Q)

Item (line 8 only)CBA

1. Gross value of prior transfer to this transferee

2. Death taxes payable from prior transfer

3. Encumbrances allocable to prior transfer

4. Obligations allocable to prior transfer

Marital deduction applicable to line 1 above,as shown on transferor’s Form 706

5.

6. Total (Add lines 2, 3, 4, and 5)

Net value of transfers (Subtract line 6from line 1)

7.

Net value of transfers (Add columns A,B, and C of line 7)

8.

9. Transferor’s taxable estate

10. Federal estate tax paid

State death taxes paid11.

Foreign death taxes paid12.

Other death taxes paid13.

Total taxes paid (Add lines 10, 11,12, and 13)

14.

Value of transferor’s estate (Subtractline 14 from line 9)

15.

Net Federal estate tax paid ontransferor’s estate

16.

Credit for gift tax paid on transferor’s estate17.

Credit allowed transferor’s estate for tax on priortransfers from prior transferor(s) who died within10 years before death of decedent

18.

Tax on transferor’s estate (Add lines 16,17, and 18)

19.

Transferor’s tax on prior transfers ((Line 74line 15) 3 line 19 of respective estates)

20.

Transferee’s tax on prior transfersAmountItem

21. Transferee’s actual tax before allowance of credit for prior transfers (see instructions)

22. Total gross estate of transferee (from line 1 of the Tax Computation, page 1, Form 706)

23. Net value of all transfers (from line 8 of this worksheet)

24. Transferee’s reduced gross estate (subtract line 23 from line 22)

Total debts and deductions (not including marital and charitable deductions) (items 15,16, and 17 of the Recapitulation, page 3, Form 706)

25.

26. Marital deduction (from item 18, Recapitulation, page 3, Form 706) (see instructions)

27. Charitable bequests (from item 19, Recapitulation, page 3, Form 706)

28. Charitable deduction proportion ( [ line 23 4 (line 22–line 25) ] 3 line 27)

29. Reduced charitable deduction (subtract line 28 from line 27)

30. Transferee’s deduction as adjusted (add lines 25, 26, and 29)

31. (a) Transferee’s reduced taxable estate (subtract line 30 from line 24)

(b) Adjusted taxable gifts

(c) Total reduced taxable estate (add lines 31(a) and 31(b))

32. Tentative tax on reduced taxable estate

33. (a) Post-1976 gift taxes paid

(b) Unified credit

(c) Section 2011 state death tax credit

(d) Section 2012 gift tax credit

(e) Section 2014 foreign death tax credit

(f) Total credits (add lines 33(a) through 33(e))Net tax on reduced taxable estate (subtract line 33(f) from line 32)34.Transferee’s tax on prior transfers (subtract line 34 from line 21)35.

Part I

Part II