Part I. GST Exemption Reconciliation

Part I; Part II, line 7; Part III, line 7; and Schedule R-1 (Form 706), Part II, line 7, are used to allocate the decedent’s GST exemption. This allocation is made by filing Form 706 and attaching a completed Schedule R (Form 706) and/or Schedule R-1 (Form 706). Once made, the allocation is irrevocable. You are not required to allocate all of the decedent’s GST exemption. However, the portion of the exemption that you do not allocate will be allocated by the IRS under the deemed allocation of unused GST exemption rules of section 2632(e).

For transfers made through 1998, the GST exemption was $1 million. The current GST exemption is $15,000,000. The exemption amounts for 1999 through 2026 are as follows.

In general, each annual increase of GST exemption can only be allocated to transfers made during or after the year of the increase, cannot be applied retroactively to GST transfers (thus to direct skips, taxable distributions, or taxable terminations) made in a year prior to the effective date of the increase, and cannot cause a refund of GST tax owed on a prior GST. (But see section 2632(d) and the availability of retroactive allocations of exemption in the event a non-skip person predeceases the transferor.) The increase in GST exemption can generally be applied to prior transfers (such as a transfer to a GST trust) as a late allocation and such allocation applies prospectively. See section 2632, section 2642, Regulations section 26.2632-1, and Regulations section 26.2642-2.

Special QTIP election. In the case of property for which a marital deduction is allowed to the decedent’s estate under section 2056(b)(7) (QTIP election), section 2652(a) (3) allows you to treat such property for purposes of the GST tax as if the election to be treated as QTIP had not been made.

The section 2652(a)(3) election must include the value of all property in the trust for which a QTIP election was allowed under section 2056(b)(7).

If a section 2652(a)(3) election is made, then the decedent will, for GST tax purposes, be treated as the transferor of all the property in the trust for which a marital deduction was allowed to the decedent’s estate

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under section 2056(b)(7). In this case, the executor of the decedent’s estate may allocate part or all of the decedent’s GST exemption to the property.

You make the election simply by listing qualifying property on Part I, line 9.

where section 2032A property is involved, it may be appropriate to allocate additional exemption amounts to the property. See the instructions for Line 11 , later.

Line 2. These allocations will have been made either on Forms 709 filed by the decedent or on Notices of Allocation made by the decedent for inter vivos transfers that were not direct skips but to which the decedent allocated the GST exemption. These allocations by the decedent are irrevocable.

Also include on this line allocations deemed to have been made by the decedent under the rules of section 2632. Unless the decedent elected out of the deemed allocation rules, allocations are deemed to have been made in the following order.

1. To inter vivos direct skips.

2. Beginning with transfers made after December 31, 2000, to lifetime transfers to certain trusts, by the decedent, that constituted indirect skips that were subject to the gift tax.

For more information, see section 2632 and related regulations.

Line 3. Make an entry on this line if you are filing Form(s) 709 for the decedent and wish to allocate any exemption.

Lines 4, 5, and 6. These lines represent your allocation of the GST exemption to direct skips made by reason of the decedent’s death. Complete Parts II and III, and Schedule R-1 (Form 706) before completing these lines.

Line 9. Line 9 is used to allocate the remaining unused GST exemption (from line 8) and to help you figure the trust’s inclusion ratio. Line 9 is a Notice of Allocation for allocating the GST exemption to trusts as to which the decedent is the transferor and from which a GST could occur after the decedent’s death.

If line 9 is not completed, the deemed allocation at death rules will apply to allocate the decedent’s remaining unused GST exemption. The exemption will first be allocated to property that is the subject of a direct skip occurring at the decedent’s death, and then to trusts as to which the decedent is the transferor. To avoid the application of the deemed allocation rules, you should enter on line 9 every trust (except certain trusts entered on Schedule R-1 (Form 706), as described later) to which you wish to allocate any part of the decedent’s GST exemption. Unless you enter a trust on line 9, the unused GST exemption will be allocated to it under the deemed allocation rules.

If a trust is entered on Schedule R-1 (Form 706), the amount you entered on Schedule R-1 (Form 706), line 7, serves as a Notice of Allocation and you need not enter the trust on line 9 unless you wish to allocate more than the Schedule R-1 (Form 706), line 7, amount to the trust. However, you must enter the trust on line 9 if you wish to allocate any of the unused GST exemption amount to it. Such an additional allocation would not ordinarily be appropriate in the case of a trust entered on Schedule R-1 (Form 706) when the trust property passes outright (rather than to another trust) at the decedent’s death. However,

Caution: To avoid application of the deemed allocation rules, Form 706 and Schedule R (Form 706) should be filed to allocate the exemption to trusts that may later have taxable terminations or distributions under section 2612 even if the form is not required to be filed to report estate or GST tax.

Line 9, column C. Enter the GST exemption, included on Schedule R (Form 706), Part I, lines 2 through 6 (discussed above), that was allocated to the trust.

Line 9, column D. Allocate the amount from Part I, line 8, on Part I, line 9, column D of Schedule R (Form 706). This amount may be allocated to transfers into trusts that are not otherwise reported on Form 706. For example, the line 8 amount may be allocated to an inter vivos trust established by the decedent during the decedent’s lifetime and not included in the gross estate. This allocation is made by identifying the trust on line 9 and making an allocation to it using column D. If the trust is not included in the gross estate, value the trust as of the date of death. Inform the trustee of each trust listed on line 9 of the total GST exemption you allocated to the trust. The trustee will need this information to figure the GST tax on future distributions and terminations.

Example. In 2022, Alex established a trust and made a $13,000,000 transfer to the trust that was not a direct skip, but from which GSTs could be made in the future. On Alex’s 2022 Form 709, Alex applies (and can only apply based on his available exemption) $12,060,000 of exemption to the $13,000,000 transfer. Alex makes no additional transfers to the trust, and makes no late allocation of exemption to the trust on a Form 709 filed in a later year. Alex dies in 2026 and the trust is not includible in Alex’s gross estate. The executor of the estate could decide whether to allocate a portion or all of the unused exemption at death as a late allocation to the transfer to the trust established by Alex in 2022 that is not included in Alex’s gross estate.

Line 9, column E. Trust’s inclusion ratio. The trustee must know the trust’s inclusion ratio to figure the trust’s GST tax for future distributions and terminations. You are not required to inform the trustee of the inclusion ratio and may not have enough information to figure it. Therefore, you are not required to make an entry in column E. However, column E and the worksheet later are provided to assist you in figuring the inclusion ratio for the trustee if you wish to do so.

Inform the trustee of the amount of the GST exemption you allocated to the trust. Line 9, columns C and D, may be used to figure this amount for each trust.

Note: This worksheet will figure an accurate inclusion ratio only if the decedent was the only settlor of the trust. Use a separate worksheet for each trust (or a separate share of a trust that is treated as a separate trust).

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WORKSHEET (Inclusion Ratio)

1. Total estate and gift tax value of all of the property interests that passed to the trust . . . . . . . . . 2. Estate taxes, state death taxes, and other charges actually recovered from the trust . . . . . . . . . 3. GST taxes imposed on direct skips to skip persons other than this trust and borne by the property transferred to this trust . . . . . . . . . . 4. GST taxes actually recovered from this trust (from Schedule R (Form 706), Part II, line 9; or Schedule R-1 (Form 706), Part II, line 9) . . . . 5. Add lines 2 through 4 . . . . . . . . . . . . . . . . 6. Subtract line 5 from line 1 . . . . . . . . . . . . . . 7. Add columns C and D of Schedule R (Form 706), Part I, line 9 . . . . . . . . . . . . . . . . . . . . . . 8. Divide line 7 by line 6 . . . . . . . . . . . . . . . . 9. Trust’s inclusion ratio. Subtract line 8 from 1.000 . . . . . . . . . . . . . . . . . . . . . . . . . .

Line 11. Special-use allocation. For skip persons who receive an interest in section 2032A special-use property, you may allocate more GST exemption than the direct skip amount to reduce the additional GST tax that would be due when the interest is later disposed of or qualified use ceases. See Schedule T (Form 706) , earlier, for more details about this additional GST tax.

Enter on line 11 the total additional GST exemption available to allocate to all skip persons who received any interest in section 2032A property. Attach a special-use allocation statement listing each such skip person and the amount of the GST exemption allocated to that person.

If you do not allocate the GST exemption, it will automatically be allocated under the deemed allocation at death rules. To the extent any amount is not so allocated, it will be automatically allocated to the earliest disposition or cessation that is subject to the GST tax. Under certain circumstances, post-death events may cause the decedent to be treated as a transferor for purposes of chapter 13.

Line 11 may be used to set aside an exemption amount for such an event. Attach a statement listing each such event and the amount of exemption allocated to that event.

Parts II and III

Use Part II to figure the GST tax on transfers in which the property interests transferred are to bear the GST tax on the transfers. Use Part III to report the GST tax on transfers in which the property interests transferred do not bear the GST tax on the transfers.

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

You may enter a transfer on Part III only if the will or trust instrument directs, by specific reference, that the GST tax is not to be paid from the transferred property interests.

Part II, line 4. Enter zero on this line unless the will or trust instrument specifies that the GST taxes will be paid by property other than that constituting the transfer (as described above). Enter on line 4 the total of the GST taxes shown on Part III and Schedule(s) R-1 (Form 706) that are payable out of the property interests shown on Part II, line 2.

Part II, line 7. Do not enter more than the amount on line 6. Additional allocations may be made using Part I.

Part III, line 4. See the instructions for Part II, line 4, above. Enter only the total of the GST taxes shown on Schedule(s) R-1 (Form 706) that are payable out of the property interests shown on Part III, line 2.

Part III, line 7. See the instructions for Part II, line 7, above.

How To Complete Schedule R-1 (Form 706)

Part I, line 8. Filing due date. Enter the due date of Form 706. You must send the copies of Schedule R-1 (Form 706) to the fiduciary before this date.

Part II, line 7. Do not enter more than the amount on line 6. If you wish to allocate an additional GST exemption, you must use Schedule R (Form 706), Part I. Making an entry on line 7 constitutes a Notice of Allocation of the decedent’s GST exemption to the trust.

Line 9. If the property interests entered on line 2 will not bear the GST tax, multiply line 9 by 40% (0.40).

Signature. The executor(s) must sign Schedule R-1 (Form 706) in the same manner as Form 706. See Signature(s), earlier.

Filing Schedule R-1 (Form 706). Attach to Form 706 one copy of each Schedule R-1 (Form 706) that you prepare and send a copy of each Schedule R-1 (Form 706) to the fiduciary.

Caution: If at the time of the contribution of the conservation easement, the value of the easement, the value of the land subject to the easement, or the value of any retained development right was different from the estate tax value, you must complete a separate computation in addition to completing Schedule U (Form 706). Use a copy of Schedule U (Form 706) as a worksheet for this separate computation. Complete lines 4 through 14 of the worksheet Schedule U (Form 706). However, the value you use on lines 4, 5, 7, and 10 of the worksheet is the value for these items as of the date of the contribution of the easement, not the estate tax value. If the date of contribution and the estate tax values are the same, you do not need to do a separate computation. After completing the worksheet, enter the amount from line 14 of the worksheet on line 14 of Schedule U (Form 706). Finish completing Schedule U (Form 706) by entering amounts on lines 4, 7, and 15 through 20, following the instructions later for those lines. At the top of Schedule U (Form 706), enter “worksheet attached.” Attach the worksheet to the return.

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Under section 2031(c), you may elect to exclude a portion of the value of land that is subject to a qualified conservation easement. You make the election by filing Schedule U (Form 706) with all of the required information and excluding the applicable value of the land that is subject to the easement on Form 706, Part V, item 12. To elect the exclusion, include on Schedule A, B, E, F, G, or H of Form 706, as appropriate, the decedent’s interest in the land that is subject to the exclusion. You must make the election on a timely filed Form 706, including extensions.

The exclusion is the lesser of:

• The applicable percentage of the value of land (after certain reductions) subject to a qualified conservation easement, or

• $500,000.

Once made, the election is irrevocable.

General Requirements

Qualified Land

Land may qualify for the exclusion if all of the following requirements are met.

• The decedent or a member of the decedent’s family must have owned the land for the 3-year period ending on the date of the decedent’s death.

• No later than the date the election is made, a qualified conservation easement on the land has been made by the decedent, a member of the decedent’s family, the executor of the decedent’s estate, or the trustee of a trust that holds the land.

• The land is located in the United States or one of its territories.

Member of Family

Members of the decedent’s family include the decedent’s spouse; ancestors; lineal descendants of the decedent, of the decedent’s spouse, and of the parents of the decedent; and the spouse of any lineal descendant. A legally adopted child of an individual is considered a child of the individual by blood.

Indirect Ownership of Land

The qualified conservation easement exclusion applies if the land is owned indirectly through a partnership, corporation, or trust, if the decedent owned (directly or indirectly) at least 30% of the entity. For the rules on determining ownership of an entity, see Ownership rules next.

Ownership rules. An interest in property owned, directly or indirectly, by or for a corporation, partnership, or trust is considered proportionately owned by or for the entity’s shareholders, partners, or beneficiaries. A person is the beneficiary of a trust only if the person has a present interest in the trust. For additional information, see the ownership rules in section 2057(e)(3) (as in effect before its repeal).

Qualified Conservation Easement

A qualified conservation easement is one that would qualify as a qualified conservation contribution under section 170(h). It must be a contribution:

• Of a qualified real property interest,

• To a qualified organization, and

• Exclusively for conservation purposes.

Qualified real property interest. A qualified real property interest is any of the following.

• The entire interest of the donor, other than a qualified mineral interest.

• A remainder interest.

• A restriction granted in perpetuity on the use that may be made of the real property. The restriction must include a prohibition on more than a de minimis use for commercial recreational activity.

Qualified organization. A qualified organization includes the following.

• Corporations and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals, without net earnings benefitting any individual shareholder and without activity with the purpose of influencing legislation or political campaigning, which:

a. Receives more than one-third of its support from gifts, contributions, membership fees, or receipts from sales, admissions fees, or performance of services; or

b. Is controlled by such an organization.

• Any entity that qualifies under section 170(b)(1)(A)(v) or (vi).

Conservation purpose. An easement has a conservation purpose if it is for:

• The preservation of land areas for outdoor recreation by or for the education of the public;

• The protection of a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem; or

• The preservation of open space (including farmland and forest land) where such preservation is for the scenic enjoyment of the general public, or under a clearly delineated federal, state, or local conservation policy and will yield a significant public benefit.

How to Complete Schedule U (Form 706)

Line 1

If the land is reported as one or more item numbers on a Form 706 schedule, simply list the schedule, line numbers, and item numbers. If the land subject to the easement is only part of an item, however, list the schedule, line number, and item number and describe the part subject to the easement. See the instructions for Schedule A (Form 706), earlier, for information on how to describe the land.

58 Instructions for Form 706 (Rev. 7-2026)

Line 3

Using the general rules for describing real estate, provide enough information so the IRS can value the easement. Give the date the easement was granted and by whom it was granted.

Line 4

Enter on this line the gross value at which the land was reported on the applicable asset schedule on this Form 706. Do not reduce the value by the amount of any mortgage outstanding. Report the estate tax value even if the easement was granted by the decedent (or someone other than the decedent) prior to the decedent’s death.

Note: If the value of the land reported on line 4 was different at the time the easement was contributed from that reported on Form 706, see the Caution at the beginning of the Schedule U (Form 706) instructions.

Line 5

The amount on line 5 should be the date of death value of any qualifying conservation easements granted prior to the decedent’s death, whether granted by the decedent or someone other than the decedent, for which the exclusion is being elected.

Note: If the value of the easement reported on line 5 was different at the time the easement was contributed than at the date of death, see the Caution at the beginning of the Schedule U (Form 706) instructions.

Line 7

You must reduce the land value by the value of any development rights retained by the donor in the conveyance of the easement. A development right is any right to use the land for any commercial purpose that is not subordinate to or directly supportive of the use of the land as a farm for farming purposes.

Note: If the value of the retained development rights reported on line 7 was different at the time the easement was contributed than at the date of death, see the Caution at the beginning of the Schedule U (Form 706) instructions.

You do not have to make this reduction if everyone with an interest in the land (regardless of whether in possession) agrees to permanently extinguish the retained development right. The agreement must be filed with this return and must include all of the following information and terms.

1. A statement that the agreement is made under section 2031(c)(5).

2. A list of all persons in being, holding an interest in the land that is subject to the qualified conservation easement. Include each person’s name, address, TIN, relationship to the decedent, and a description of their interest.

3. The items of real property shown on the estate tax return that are subject to the qualified conservation

easement (identified by schedule, line number, and item number).

4. A description of the retained development right that is to be extinguished.

5. A clear statement of consent that is binding on all parties under applicable local law:

a. To take whatever action is necessary to

permanently extinguish the retained development rights listed in the agreement; and

b. To be personally liable for additional taxes under

section 2031(c)(5)(C) if this agreement is not implemented by the earlier of:

• The date that is 2 years after the date of the decedent’s death, or

• The date of sale of the land subject to the qualified conservation easement.

6. A statement that in the event this agreement is not timely implemented, that they will report the additional tax on whatever return is required by the IRS and will file the return and pay the additional tax by the last day of the sixth month following the applicable date described above.

All parties to the agreement must sign the agreement.

For an example of an agreement containing some of the same terms, see Schedule T (Form 706), Part III.

Line 10

Enter the total value of the qualified conservation easements on which the exclusion is based. This could include easements granted by the decedent (or someone other than the decedent) prior to the decedent’s death, easements granted by the decedent that take effect at death, easements granted by the executor after the decedent’s death, or some combination of these.

Caution: Use the value of the easement as of the date of death, even if the easement was granted prior to the date of death. But, if the value of the easement was different at the time the easement was contributed than at the date of death, see the Caution at the beginning of the Schedule U (Form 706) instructions.

Explain how this value was determined and attach copies of any appraisals. Normally, the appropriate way to value a conservation easement is to determine the FMV of the land both before and after the granting of the easement, with the difference being the value of the easement.

Reduce the reported value of the easement by the amount of any consideration received for the easement. If the date of death value of the easement is different from the value at the time the consideration was received, reduce the value of the easement by the same proportion that the consideration received bears to the value of the easement at the time it was granted.

For example, assume the value of the easement at the time it was granted was $100,000 and $10,000

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was received in consideration for the easement. If the easement was worth $150,000 at the date of death, you must reduce the value of the easement by $15,000 ($10,000/$100,000 × $150,000) and report the value of the easement on line 10 as $135,000.

Line 15

If a charitable contribution deduction for this land has been taken on Schedule O (Form 706), enter the amount of the deduction here. If the easement was granted after the decedent’s death, a contribution deduction may be taken on Schedule O (Form 706), if it otherwise qualifies, as long as no income tax deduction was or will be claimed for the contribution by any person or entity.

Line 16

Reduce the value of the land by the amount of any acquisition indebtedness on the land at the date of the decedent’s death. Acquisition indebtedness includes the unpaid amount of:

• Any indebtedness incurred by the donor in acquiring the property;

• Any indebtedness incurred before the acquisition if the indebtedness would not have been incurred but for the acquisition;

• Any indebtedness incurred after the acquisition if the indebtedness would not have been incurred but for the acquisition and the incurrence of the indebtedness was reasonably foreseeable at the time of the acquisition; and

• The extension, renewal, or refinancing of acquisition indebtedness.

A protective claim for refund preserves the estate’s right to a refund of tax paid on any amount included in the gross estate that would be deductible under section 2053 but has not been paid or otherwise will not meet the requirements of section 2053 until after the limitations period for filing the claim has passed. See section 6511(a).

Caution: Only use Schedule PC (Form 706) for section 2053 protective claims for refund being filed with Form 706. If the initial notice of the protective claim for refund is being submitted after Form 706 has been filed, use Form 843, Claim for Refund and Request for Abatement, to file the claim.

Schedule PC (Form 706) may be used to file a section 2053 protective claim for refund by estates of decedents who died after December 31, 2011. It will also be used to inform the IRS when the contingency leading to the protective claim for refund is resolved and the refund due the estate is finalized. The estate must indicate whether the Schedule PC (Form 706) being filed is the initial notice of protective claim for refund, notice of partial claim for refund, or notice of the final resolution of the claim for refund.

Because each separate claim or expense requires a separate Schedule PC (Form 706), more than one Schedule PC (Form 706) may be included with Form 706, if applicable.

Note: Filing a section 2053 protective claim for refund on Schedule PC (Form 706) will not suspend the IRS’s review and examination of Form 706, nor will it delay the issuance of a closing letter for the estate.

Initial Notice of Claim The first Schedule PC (Form 706) to be filed is the initial notice of protective claim for refund. The estate will receive a written acknowledgment of receipt of the claim from the IRS. If the acknowledgment is not received within 180 days of filing the protective claim for refund on Schedule PC (Form 706), the fiduciary should contact the IRS at 866-699-4083 to inquire about the receipt and processing of the claim. A certified mail receipt or other evidence of delivery is not sufficient to confirm receipt and processing of the protective claim for refund.

Note: The written acknowledgment of receipt does not constitute a determination that all requirements for a valid protective claim for refund have been met.

In general, the claim will not be subject to substantive review until the amount of the claim has been established. However, a claim can be disallowed at the time of filing. For example, the claim for refund will be rejected if:

• The claim was not timely filed,

• The claim was not filed by the fiduciary or other person with authority to act on behalf of the estate,

• The acknowledgment of the penalties of perjury statement (on Form 706) was not signed, or

• The claim is not adequately described.

If the IRS does not raise such a defect when the claim is filed, it will not be precluded from doing so in the later substantive review.

The estate may be given an opportunity to cure any defects in the initial notice by filing a corrected and signed protective claim for refund before the expiration of the limitations period in section 6511(a) or within 45 days of notice of the defect, whichever is later.

Related Ancillary Expenses If a section 2053 protective claim for refund has been adequately identified on Schedule PC (Form 706), the IRS will presume that the claim includes certain expenses related to resolving, defending, or satisfying the claim. These ancillary expenses may include attorneys’ fees, court costs, appraisal fees, and accounting fees. The estate is not required to separately identify or substantiate these expenses; however, each expense must meet the requirements of section 2053 to be deductible.

Notice of Final Resolution of Claim When an expense that was the subject of a section 2053 protective claim for refund is finally determined, the estate must notify the IRS that the claim for refund is ready for consideration. The notification should provide facts and evidence substantiating the deduction under section 2053 and the resulting recomputation of the estate tax liability.

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A separate notice of final resolution must be filed with the IRS for each resolved section 2053 protective claim for refund.

There are two means by which the estate may notify the IRS of the resolution of the uncertainty that deprived the estate of the deduction when Form 706 was filed. The estate may file a supplemental Form 706 with an updated Schedule PC (Form 706) and include each schedule affected by the allowance of the deduction under section 2053. On Form 706, Part I, check the boxes for lines 13 and 14a. Also enter the filing date(s) of the initial section 2053 protective claim(s) for refund on line 14b. A copy of the initial notice of claim should also be submitted.

Alternatively, the estate may notify the IRS by filing an updated Form 843. Form 843 must contain the notation “Notification of Consideration of Section 2053 Protective Claim(s) for Refund,” including the filing date of the initial notice of protective claim for refund, on page 1. A copy of the initial notice of claim must also be submitted.

The estate should notify the IRS of resolution within 90 days of the date the claim or expense is paid or the date on which the amount of the claim becomes certain and no longer subject to contingency, whichever is later. Separate notifications must be submitted for every section 2053 protective claim for refund that was filed.

If the final section 2053 claim or expense involves multiple or recurring payments, the 90-day period begins on the date of the last payment. The estate may also notify the IRS (not more than annually) as payments are being made and possibly qualify for a partial refund based on the amounts paid through the date of the notice.

How to Complete Schedule PC (Form 706)