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Treat the decedent's annuity as a beneficiary-designation matter and the estate inclusion gets skipped entirely. That is the quiet failure on Schedule I, and it surfaces during reconciliation when line 5 will not tie to Form 706, Part V, item 9. Schedule I (Form 706) reports every annuity includible in the gross estate under IRC §2039, employer pensions, IRAs with annuity features, purchased commercial annuities, and private annuities.
For deaths after December 31, 1984, no exclusion is generally allowed; the old §2039(c) exclusion was repealed by P.L. 98-369. Report the entire annuity value in column (ii), and use column (iv) only when the §2032 alternate-valuation election is made. The return is due 9 months after death and is extendable 6 months with Form 4768, not Form 4868.
Key Takeaways
- Schedule I (Form 706) reports every annuity that may be includible in the decedent’s gross estate under IRC §2039 – employer pensions, IRAs with annuity features, purchased commercial annuities, and private annuities.
- Generally, no exclusion is allowed for decedents dying after December 31, 1984. The old §2039(c) exclusion was repealed by the Deficit Reduction Act of 1984 (P.L. 98-369); only the narrow grandfathered §2039(f)(2) lump-sum exclusion survives, and it requires a “Yes” on line 1 plus Schedule W or supporting statements.
- Report the entire annuity value in column (ii). Use column (iv) (includible alternate value) only when the §2032 alternate-valuation election is made on Form 706; otherwise use column (v) (value at date of death). Never complete both.
- Total line 3 (plus any line 4 carryover from Schedule W) to line 5, and carry line 5 to Form 706, Part V (Recapitulation), item 9.
- File Form 706 within 9 months of death, or request a 6-month filing extension on Form 4768 (not Form 4868, which extends individual income tax returns). The 2025 basic exclusion amount that triggers a filing requirement is $13,990,000.
What Schedule I actually covers
The purpose of Schedule I
Schedule I collects every annuity that may be includible in the decedent’s gross estate. Think employer pensions, IRAs with annuity features, purchased commercial annuities, and private annuities. You include items that are wholly, partially, or not includible, because the IRS wants visibility and support for the inclusion decision.
When an annuity is includible
In general, all or part of an annuity is includible if:
- It pays to someone because they survived the decedent (paying directly to a named beneficiary outside probate does not remove the annuity from the gross estate – §2039 still applies),
- The agreement is post‑March 3, 1931,
- The decedent had the right to receive payments for life or a period tied to death, and
- It is not a life insurance policy.
If the decedent paid only part of the purchase price, you include that proportion of the survivor’s annuity value. Employer contributions tied to employment are treated as if contributed by the decedent for this test.
Special situations you will see
- Approved plans and exclusions, including historic plans such as section 401(a), 403(b), certain IRAs, and older arrangements, have specific exclusion mechanics and a possible 100,000 cap in narrow legacy cases (generally, no exclusion is allowed for decedents dying after December 31, 1984 – the §2039(c) exclusion was repealed by the Deficit Reduction Act of 1984, and only the narrow grandfathered §2039(f)(2) lump-sum exclusion survives, which requires Schedule W or supporting statements). Read the plan terms and the instructions.
- Social Security benefits do not fall on Schedule I, even if a spouse continues receiving benefits.
- Joint and survivor pensions that benefited the decedent during life often trigger partial inclusion. For QTIP interactions on joint and survivor annuities, cross‑reference Schedule M.
A quick Schedule I checklist
- Pull all employer plan statements, IRA contracts, and annuity policy pages.
- Confirm who receives post‑death payments, the survivor percentage, and payment start dates.
- Document who funded the contract, what portion was employee versus employer, and any employee after‑tax amounts.
- Compute the includible share based on the decedent’s contribution ratio, then tie that value back to Schedules A through I totals.
Completing Schedule I with confidence
How to value what is includible
- Start with the survivor benefit that is payable because of death, then apply the decedent’s contribution ratio. If the survivor’s annuity value is 200,000 and the decedent funded 60%, you include 120,000. Keep your actuarial support or provider valuation on file.
- If the annuity is under an approved plan with no decedent contribution, the survivor’s benefit can be excludable within the specific rules, so list it and show why it is out.
Field note: We often prepare a one‑page “Annuity Inclusion Summary” for reviewers. It lists the contract, payer, survivor, decedent contribution percentage, includible value, and where it ties out on the return. That single page cuts review time, and it prevents back‑and‑forth the week before filing.
Documentation to keep ready
- Plan documents, payout elections, beneficiary designations, contribution histories, and any employer confirmations about who funded what portion.
- Valuation statements showing the survivor annuity present value, if provided by the plan or insurer.
- Notes on whether any part is payable to the executor, since that portion is usually includible.
How Schedule I interacts with GST schedules
A survivor annuity that is includible on Schedule I and payable to a skip person can create a direct skip reportable on Schedule R‑1 when the payer’s combined tentative maximum direct skips cross the threshold. This is easy to miss if your annuity team and your GST team sit in different lanes. Build a handoff checklist between the two.
Timelines, elections, and portability, without the panic
Filing deadlines to calendar
- File Form 706 by 9 months after death. If needed, file Form 4768 by the original due date for an automatic 6‑month filing extension. An extension to file does not extend time to pay. Interest continues to accrue on unpaid amounts.
- If you are filing purely to elect portability and you had no filing requirement, you can often file by the fifth anniversary of death under Rev. Proc. 2022‑32. Use the precise legend at the top of the return.
2024 and 2025 numbers to anchor your planning
- The 2024 basic exclusion amount is 13,610,000.
- The 2025 basic exclusion amount is 13,990,000 – the gross-estate-plus-adjusted-taxable-gifts threshold above which Form 706 (with Schedule I attached) must be filed for 2025 deaths.
- The 2025 annual gift exclusion is 19,000. These are IRS‑published figures.
Schedule I line items, at a glance
| Line / column | What it captures | Notes |
| Line 1 | Yes/No – are you excluding a lump-sum distribution under §2039(f)(2)? | If “Yes,” attach Schedule W or supporting statements. The exclusion is a narrow grandfather; default is “No.” |
| Column (i) / (ii) | Item number, then the description and the entire value of the annuity before any exclusions | Always show the gross value in column (ii); never net out an exclusion here. |
| Column (iii) | Alternate valuation date | Used only when the §2032 alternate-valuation election is made on Form 706. |
| Column (iv) / (v) | Includible alternate value (iv) or includible value at date of death (v) | Mutually exclusive – use (iv) only with the §2032 election, otherwise (v). |
| Lines 3, 4, 5 | Total of column (iv) or (v) (line 3), plus any Schedule W carryover (line 4), summed on line 5 | Line 5 carries to Form 706, Part V (Recapitulation), item 9. |
Documentation and workpaper flow that stands up in review
Build your file like an auditor will read it
- A master index that links each Schedule I item to its plan statement, annuity contract, and valuation support.
- A contribution-history file showing who funded each contract – the employee versus employer split, and any employee after-tax amounts – so the includible portion can be traced.
- Copies of any §2039(f)(2) lump-sum exclusion support, including the Schedule W or formal statements that back a “Yes” on line 1.
What to keep with each annuity entry
- Identify the contract, the payer, the survivor, and the decedent’s contribution percentage, then show how the includible value in column (iv) or (v) was computed.
- Note whether any part is payable to the executor, since that portion is usually includible, and attach the actuarial or provider valuation. Keep signed copies with calculations.
Reviewer hint: We include a one‑paragraph “Annuity Inclusion Summary” at the top of the Schedule I workpapers that tells the story – which contracts are includible, the contribution ratio applied, the includible value, and where line 5 ties out to Form 706 Part V, item 9. It is simple, and it is gold during an IRS inquiry.
Closing thought
You do not need heroics to finish these returns, you need clarity and a calm, repeatable process. Treat Schedule I as the home for annuities: locate every contract, settle the §2032 valuation election, compute the includible portion from the contribution ratio, and tie line 5 back to Form 706 Part V, item 9. Keep your support crisp and file on time. Your reviewers will breathe easier, your clients will feel the certainty of a well‑run process, and you will have a file that stands tall if anyone takes a closer look.
Common Mistakes We See Every Season
Every season the same five or six errors surface across Schedule I files, and most trace back to outdated guidance, a stale §2039(c) exclusion claim, or a column (iv) versus (v) mix-up. Here are the recurring ones worth scrubbing from your SOP.
Reusable Checklists
Three checklists my team runs on every 706 with annuity exposure. Copy them straight into your SOP and tick through during the close.
Schedule I preparation packet
- Pull every annuity contract the decedent received: pension, IRA annuity, joint and survivor, deferred private annuity.
- Determine whether the §2032 alternate-valuation election will be made on Form 706 (drives column (iv) vs column (v) on line 2).
- Calculate the entire value of each annuity at date of death for column (ii), before any exclusion.
- Decide whether the §2039(f)(2) lump-sum exclusion (line 1) applies; if yes, draft Schedule W support before checking the box.
- Confirm the decedent's name and SSN on the Schedule I header match Form 706 exactly.
- Total column (iv) or (v) on line 3; pull any Schedule W carryover into line 4; sum to line 5.
- Reconcile line 5 to Form 706, Part V (Recapitulation), item 9.
Annuity inclusion and valuation
- Confirm each annuity meets the §2039 inclusion test: payable to someone because they survived the decedent, under a post-March 3, 1931 agreement, with the decedent holding a right to payments for life or a period tied to death, and not a life insurance policy.
- Document who funded each contract – the employee versus employer split – and apply the decedent’s contribution ratio to the survivor benefit to get the includible value.
- Default to no exclusion for deaths after December 31, 1984; the §2039(c) exclusion was repealed by the Deficit Reduction Act of 1984 (P.L. 98-369).
- If claiming the grandfathered §2039(f)(2) lump-sum exclusion, attach Schedule W or supporting statements before marking “Yes” on line 1.
- Exclude Social Security survivor benefits – they do not belong on Schedule I – and cross-reference Schedule M for QTIP interactions on joint and survivor annuities.
- Keep the actuarial or provider valuation on file for each includible annuity.
Filing window and post-file close
- Calendar the 9-month Form 706 due date from date of death (per IRS Publication 559, Table A).
- If extension is needed, file Form 4768 before the 9-month date for the automatic 6-month extension.
- For portability-only estates under the basic exclusion amount, verify the Rev. Proc. 2022-32 5-year window applies before relying on late relief.
- File Form 8971 and furnish Schedule A to each beneficiary within 30 days of the earlier of the 706 due date (with extensions) or actual filing.
- If wrapping up the executor's role, file Form 4810 (prompt assessment) and Form 5495 (discharge from personal liability).
- Archive the signed 706, Schedule I workpapers, Schedule W support, contribution-history records, and annuity appraisals together.
Keep Schedule I (Form 706) Season From Stalling
Estate tax cycles do not behave like tax season. Every Form 706 runs its own 9-month clock from the decedent's date of death (per IRS Publication 559, Table A), and that window stretches when Schedule I annuities are in play. Each annuity contract has to be located, valued, and reconciled – the survivor benefit, the contribution ratio, the includible portion – before line 3 can tie to Form 706 Part V, item 9, and the 30-day Form 8971 / Schedule A delivery clock starts the moment the 706 is filed.
The fix is not more staff sprinting at the deadline. It is a workpaper architecture that separates the Schedule I inclusion work, the §2032 valuation election, and the post-file 8971 packet into named lanes with named owners.
- Build a Schedule I intake checklist that captures every annuity contract, beneficiary designation, contribution history, and §2039(f)(2) grandfather facts before the preparer opens the form.
- Lock the §2032 alternate-valuation election with a written memo before anyone touches column (iv) versus column (v) on line 2.
- Compute the includible value from the decedent's contribution ratio and attach the actuarial or provider valuation, so line 3 reconciles to Form 706 Part V, item 9 the first time.
- Calendar the Form 8971 / Schedule A 30-day clock the moment the 706 is filed and assign the beneficiary notice packet to a named senior.
- Default to no exclusion for deaths after December 31, 1984, and route any §2039(f)(2) lump-sum claim through a Schedule W review before line 1 is marked.
This is the production discipline Accountably's tax delivery teams bring to firms running multiple 706 engagements in parallel: named preparers, documented review layers, and workpapers that reconcile before they hit a senior reviewer's desk.
FAQs
What does Schedule I (Form 706) report?
Schedule I collects every annuity that may be includible in the decedent’s gross estate under IRC §2039 – employer pensions, IRAs with annuity features, purchased commercial annuities, and private annuities. It does not compute DSUE or GST; those live elsewhere on Form 706 and on Schedules R and R‑1.
When is an annuity includible on Schedule I?
Generally when it pays to someone because they survived the decedent, under a post-March 3, 1931 agreement, where the decedent had the right to receive payments for life or a period tied to death, and it is not a life insurance policy. If the decedent funded only part of the purchase price, you include that proportion of the survivor’s annuity value; employer contributions tied to employment count as if the decedent made them.
Is there still an annuity exclusion?
Generally no. The §2039(c) exclusion was repealed by the Deficit Reduction Act of 1984 (P.L. 98-369) for decedents dying after December 31, 1984. Only the narrow grandfathered §2039(f)(2) lump-sum exclusion survives, and claiming it requires a “Yes” on line 1 plus Schedule W or supporting statements.
Do I report the gross or net annuity value?
Report the entire value of the annuity before any exclusions in column (ii). Any exclusion claim lives separately on Schedule W or attached statements – never net it into the table. Netting understates the disclosure and creates a gap the reviewer or the IRS cannot reconcile against the contracts.
When do I use column (iv) versus column (v)?
Column (iv) is the includible alternate value and is used only when the §2032 alternate-valuation election is made on Form 706 for the entire estate. Column (v) is the includible value at date of death and is the default. The two are mutually exclusive – completing both inflates line 3 and breaks the tie to Form 706.
Where does the Schedule I total go on Form 706?
Total column (iv) or (v) on line 3, add any Schedule W carryover on line 4, and sum to line 5. Line 5 carries to Form 706, Part V (Recapitulation), item 9 – not item 8 or item 10. File Form 706 within 9 months of death, or request a 6-month filing extension on Form 4768.
Where Accountably fits, only if you need it
If you have more complex estates or seasonal spikes, Accountably can slot disciplined workpaper prep into your workflow with named preparers and reviewers who follow your templates. That means your Schedule I documentation lands cleanly, with contribution histories, includible-value calculations, and a clean tie-out to Form 706 Part V, item 9. Use us to stabilize production, not to override your technical judgment.