IRS Form 706 (Schedule O) – When planning an estate, charitable giving can play a significant role in reducing estate taxes while supporting causes close to the decedent’s heart. IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, includes Schedule O specifically for reporting charitable, public, and similar gifts and bequests. This schedule allows estates to claim deductions under section 2055 of the Internal Revenue Code, potentially lowering the taxable estate. In this guide, we’ll explore what Schedule O entails, who qualifies, how to fill it out, and key considerations for 2025 filings.
What Is IRS Form 706?
IRS Form 706 is filed for estates of U.S. citizens or residents where the gross estate exceeds the basic exclusion amount, which for decedents dying in 2025 is $13,990,000. It’s also used to elect portability of the deceased spousal unused exclusion (DSUE) amount, even if no tax is due. The form reports the decedent’s assets, deductions, and taxes, including generation-skipping transfer (GST) taxes. Schedules like O detail specific deductions, ensuring accurate computation of the taxable estate.
Purpose of Schedule O on Form 706
Schedule O is attached to Form 706 to itemize charitable deductions for gifts and bequests made by the decedent. These include transfers during life or by will that are irrevocably vested in qualified recipients. The primary goal is to deduct the value of these transfers from the gross estate, reducing estate tax liability. Unlike income tax deductions, there are no percentage limits on estate tax charitable deductions—they can offset the entire taxable estate if all assets go to charity. However, the deduction cannot exceed the value of the transferred property included in the gross estate.
Key scenarios for using Schedule O:
- Bequests in a will to qualified charities.
- Transfers via trusts or funds where the charity receives a portion.
- Property passing to charity through a qualified disclaimer under section 2518.
If the estate is below the exclusion threshold and filed solely for DSUE portability, you may not need to report full values for charitable assets—identify the property but leave the amount blank if applicable.
Eligibility for Charitable Deductions Under Section 2055
To qualify for a deduction on Schedule O, the recipient must be a qualified organization, and the transfer must be for eligible purposes. Qualified entities include:
- Governments (U.S., states, territories, or political subdivisions) for public purposes.
- Religious, charitable, scientific, literary, or educational organizations.
- Groups preventing cruelty to children or animals.
- Veterans’ organizations incorporated by Congress.
- Certain employee stock ownership plans or Indian tribal governments treated as states.
Eligible purposes encompass religious activities, education, science, literature, art encouragement, amateur sports (without facilities), and public benefits. Transfers must be outright or through qualifying structures like split-interest trusts, where only the charitable portion is deductible.
Non-eligible items:
- Gifts to individuals or for private purposes.
- Conditional gifts where the charity’s interest isn’t irrevocable.
- Transfers where an income tax deduction was claimed for the same property (e.g., certain conservation easements).
Special cases include qualified conservation contributions, such as easements granted after death, which require an irrevocable election on Form 706.
How to Complete IRS Form 706 Schedule O?
Filling out Schedule O requires careful documentation. The form includes questions and a table for listing gifts.
Step-by-Step Guide
- Header Information: Enter the decedent’s name and Social Security Number as on Form 706.
- Questions Section:
- 1a: Indicate if any action contests or interprets will provisions affecting charitable deductions. If yes, attach details.
- 1b: Note if such action is planned. Attach explanations if yes.
- 2: Check if property passed to charity via qualified disclaimer. Attach the disclaimer copy.
- Gifts and Bequests Table:
- (i) Item Number: Sequential numbering for each gift.
- (ii) Name and Address of Beneficiary: Full details of the recipient.
- (iii) Character of Institution: Describe the type (e.g., religious, educational).
- (iv) Amount: Fair market value at death or alternate valuation date, reduced by liabilities or taxes payable from the transfer.
- Calculations:
- Line 4: Sum of column (iv) amounts.
- Line 5: Totals from additional sheets if needed.
- Line 6: Total of lines 4 and 5.
- Line 7: Deduct federal estate taxes, GST taxes, and other death taxes payable from the charitable property.
- Line 8: Net value (line 6 minus line 7d), transferred to Form 706, Part V, line 22.
Use additional sheets or Schedule W if space is insufficient. For residues, attach computations showing reductions for taxes and other legacies.
Required Attachments
- Certified will copy.
- Instrument copies for non-will transfers.
- Computations for values, especially for trusts or partial interests.
- Basis reporting via Form 8971 if applicable.
Deductions and Limitations
The deduction equals the property’s fair market value, minus:
- Liabilities assumed by the charity.
- Taxes (estate, GST, inheritance) payable from the transfer.
- Estimated interest on installment payments if elected.
For split-interest trusts or pooled income funds, deduct only the actuarial value of the charitable share. The overall limit is the gross estate value minus other deductions like marital. Charitable deductions interact with credits, such as the unified credit, but provide unlimited relief for qualifying transfers.
Recent Updates for 2025 Filings
The 2025 revision of Form 706 includes inflation-adjusted figures: basic exclusion at $13,990,000 and credit at $5,541,800. Schedules are now separate from the main form for easier filing. No major changes to Schedule O, but ensure compliance with basis consistency rules and portability elections. Always check IRS.gov for the latest revisions, as forms are updated annually.
Tips and Common Mistakes to Avoid
- Valuation Accuracy: Use the same date as the gross estate; perjury penalties apply for inaccurate estimates.
- Documentation: Always attach required copies to avoid delays or audits.
- Common Errors: Forgetting to reduce for taxes payable from charity’s share; including non-qualified recipients; double-dipping deductions (estate and income tax).
- Professional Help: Consult a tax advisor for complex estates involving trusts or conservation easements.
- Filing Threshold: Even if no tax due, file for portability to benefit the surviving spouse.
By leveraging Schedule O, estates can maximize tax savings through philanthropy. For the official form, download from the IRS website. Always refer to the latest instructions to ensure compliance.