IRS Form 706 (Schedule B) – Navigating estate taxes can be complex, especially when dealing with assets like stocks and bonds. IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, requires detailed reporting of a decedent’s assets. Schedule B specifically focuses on stocks and bonds, ensuring accurate valuation and inclusion in the gross estate. This SEO-optimized guide covers everything you need to know about IRS Form 706 Schedule B, including valuation methods, filing requirements, and step-by-step instructions. Whether you’re an executor, tax professional, or beneficiary, understanding this schedule is crucial for compliance.
What Is IRS Form 706?
IRS Form 706 is filed for estates of U.S. citizens or residents whose gross estate exceeds the basic exclusion amount, which is $13,990,000 for decedents dying in 2025. It’s used to calculate estate taxes and report generation-skipping transfers. The form includes various schedules to itemize assets, deductions, and credits. Schedule B is one such attachment, dedicated to financial securities like stocks and bonds.
Understanding Schedule B: Stocks and Bonds
Schedule B (Form 706) is required if the decedent’s gross estate includes any stocks or bonds. This includes common or preferred shares in corporations, mutual fund shares, corporate bonds, municipal bonds, government bonds, and even accrued interest or dividends. Even tax-exempt bonds, such as municipals, must be reported at full value, as they are not exempt from estate taxes.
The schedule supports entries in Part V of Form 706 (Recapitulation), specifically item 2. If there are no stocks or bonds, you still attach Schedule B and enter zero on the relevant lines. For estates filed solely for portability of the deceased spousal unused exclusion (DSUE) amount, a special rule allows estimated values without detailed reporting, provided the estate is below the exclusion threshold.
When Do You Need to File Schedule B?
File Schedule B as part of Form 706 if:
- The gross estate value exceeds the basic exclusion amount.
- Stocks or bonds are part of the estate, including jointly owned property (which may also require Schedule E).
- Foreign death taxes were paid on these assets (group and label them accordingly).
Form 706 is generally due nine months after the date of death, with possible extensions. Penalties apply for undervaluation or negligence, up to 20% or more under IRC section 6662.
How to Value Stocks and Bonds for Estate Tax Purposes?
Valuation is at fair market value (FMV) on the date of death, unless alternate valuation (six months later) is elected on Form 706, Part III. Here’s a breakdown:
Listed Stocks and Bonds
- Use the mean between the highest and lowest selling prices on the valuation date.
- If no sales that day, prorate prices from nearest trading dates before and after.
- For bonds, follow Regulations section 20.2031-2(b).
Closely Held or Inactive Stocks
- Value based on net worth, earning capacity, goodwill, and other factors per Regulations section 20.2031-2.
- Attach five years of balance sheets, earnings statements, and dividends.
Mutual Funds
- Treat as stocks; use net asset value (NAV) as FMV.
Accrued Interest and Dividends
- Include as separate line items; dividends declared before death but payable after are excluded if not to the decedent.
For alternate valuation, show both date-of-death and alternate values, and describe any dispositions within six months.
Step-by-Step Guide to Completing IRS Form 706 Schedule B
The form features a table for itemizing assets, with lines for totals. Use Schedule W (Form 706) or additional sheets if more space is needed.
- Enter Decedent’s Information: Name and SSN at the top.
- Line 1 Table:
- (i) Item Number: Sequential numbering starting from 1.
- (ii) Description: Include face amount for bonds, shares and par value for stocks, corporation name, issue type, restrictions, and accrued items.
- (iii) CUSIP or EIN: Nine-digit CUSIP for securities; EIN for trusts or closely held entities.
- (iv) Unit Value: Price per share or bond.
- (v) Alternate Valuation Date: If elected.
- (vi) Alternate Value: If applicable.
- (vii) Value at Date of Death: FMV.
- Line 2: Sum of column (vi) or (vii).
- Line 3: Totals from attachments.
- Line 4: Grand total; transfer to Form 706, Part V, item 2.
For portability-only filings, identify assets but skip value columns if not required.
Required Documentation and Attachments
Retain evidence like broker statements, market quotes, or appraisals for IRS review. For closely held stocks, include company details, financials, and business activity. Report consistent basis to beneficiaries via Form 8971.
Common Mistakes to Avoid When Filing Schedule B
- Undervaluing assets, leading to penalties.
- Forgetting accrued interest or dividends.
- Misclassifying closely held entities (report on Schedule B unless unincorporated).
- Not attaching required financial data for inactive stocks.
- Ignoring alternate valuation rules if elected.
Frequently Asked Questions About IRS Form 706 Schedule B
What if the estate has no stocks or bonds?
Attach Schedule B and enter zero on line 4 and Form 706, Part V, item 2.
How do I find CUSIP numbers?
From stock certificates, brokers, or custodians.
Are mutual funds reported on Schedule B?
Yes, treat them as stocks.
What about bonds in foreign currencies?
Convert to U.S. dollars using exchange rates on the valuation date.
Where can I download Schedule B?
Directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f706sb.pdf.
Conclusion
Properly completing IRS Form 706 Schedule B ensures accurate estate tax reporting for stocks and bonds. By following official guidelines and valuing assets correctly, you can avoid penalties and streamline the process. Always consult a tax professional for complex estates. For the latest updates, refer to IRS publications, as rules may change annually.