IRS Form 706 Schedule B Guide: Stocks and Bonds Rules

1. Introduction – What is Form 706 (Schedule B)?

IRS Form 706 (Schedule B), officially titled Schedule B – Stocks and Bonds, is an essential supporting schedule attached to IRS Form 706 (United States Estate Tax Return). Governed by the Internal Revenue Service (IRS), it is used by estate executors to report all securities owned solely by a decedent at the date of death.

Securities are often a major asset component in a decedent’s gross estate. Schedule B provides a detailed, itemized accounting of publicly traded equities, corporate bonds, government treasury bonds, municipal bonds, mutual funds, exchange-traded funds (ETFs), and closely held corporate stock.

By disclosing exact CUSIP numbers, share quantities, bond face values, and Fair Market Values (FMV) on Schedule B, executors establish the financial securities tax base reported on the main estate tax return.

2. Purpose of the Form

The primary purpose of Schedule B is to ensure that all investment securities owned by the decedent are disclosed and valued strictly according to federal estate tax Treasury regulations.

Schedule B solves the complex valuation problem associated with daily financial market fluctuations. Under Treasury Regulation Section 20.2031-2, public stocks cannot be valued arbitrarily using closing prices. Schedule B enforces a specific federal valuation formula based on the high and low trading prices on the exact date of death.

Additionally, Schedule B establishes the new income tax cost basis for estate beneficiaries. The date-of-death Fair Market Value reported on Schedule B becomes the stepped-up cost basis for heirs, minimizing future capital gains taxes when the securities are later sold.

3. Who Needs to File This Form

Schedule B must be completed and attached to Form 706 whenever the deceased individual owned stocks, bonds, or investment securities in their individual name at the date of death.

An estate executor must list items on Schedule B for any of the following assets:

• Publicly Traded Stocks: Shares of corporate stock listed on major public stock exchanges (NYSE, NASDAQ, etc.).
• Bonds and Government Notes: Corporate bonds, U.S. Treasury bills/notes, municipal bonds, and state/local government obligations.
• Mutual Funds and ETFs: Holdings in open-end mutual funds, money market funds, or exchange-traded funds held in individual brokerage accounts.
• Closely Held Corporate Stock: Privately held stock in family corporations or non-public business entities.
• Accrued Interest and Dividends: Dividends declared before death with a record date prior to death, and bond interest accrued up to the date of death.

4. Who Is Exempt / Not Required to File

Not every investment account or security is reported on Schedule B. Legal title and ownership structures dictate proper placement across Form 706 schedules.

You should NOT list securities on Schedule B in the following situations:

• Jointly Owned Securities: Brokerage accounts or stocks held in Joint Tenancy with Right of Survivorship (JTWROS) are reported on Schedule E (Jointly Owned Property).
• Trust-Held Securities: Investment portfolios held inside a revocable living trust or irrevocable trust are reported on Schedule G (Transfers During Decedent’s Life).
• Cash Bank Accounts: Direct cash balances, checking accounts, and standard bank savings accounts are reported on Schedule C (Mortgages, Notes, and Cash).
• Partnership or LLC Interests: Equity interests in partnerships or limited liability companies are reported on Schedule F (Miscellaneous Property).

5. When to File

Schedule B is not an independent tax filing; it is an attached supporting schedule to Form 706 and shares its exact filing deadline.

Keep these primary timing deadlines in mind:

• Nine-Month Deadline: Schedule B must be submitted attached to Form 706 within 9 months of the decedent’s date of death.
• Filing Extension: If the executor files Form 4768 to request an automatic 6-month filing extension, Schedule B is submitted when Form 706 is filed (15 months from the date of death).

6. Where and How to File

Schedule B is attached directly behind Form 706 in alphabetical order. It is submitted by paper mail as part of the complete federal estate tax return package.

Mail the complete Form 706 return—including Schedule B, brokerage date-of-death statements, and business valuation reports—to the designated IRS submission center address specified in the official Form 706 instructions (typically the IRS Center in Kansas City, MO).

Because estate tax returns contain sensitive financial data and involve strict legal deadlines, always send the package via certified mail with return receipt requested.

7. Step-by-Step Instructions to Fill the Form

Schedule B consists of a structured disclosure table designed to capture detailed market data for every security. Review the column breakdown below.

Column Number	Column Header	Information Required to Report
Column 1	Item Number	Sequential numbering for each stock, bond, or dividend entry (1, 2, 3…).
Column 2	Description of Stocks and Bonds	Quantity/shares, full company or issuer name, stock class, CUSIP number, exchange, or bond maturity date/interest rate.
Column 3	Alternate Valuation Date	Enter alternate valuation date if Section 2032 alternate valuation is elected (6 months post-death).
Column 4	Alternate Value	Enter Fair Market Value as of the alternate valuation date (if Section 2032 elected).
Column 5	Value at Date of Death	Enter gross Fair Market Value based on federal mean price calculations on the date of death.

Column 2 – Public Stock and Bond Description Rules

For every security, provide complete identifying details:

• Public Stocks: List the exact number of shares, stock ticker symbol, 9-digit CUSIP number, official corporate name, and trading exchange (e.g., “1,000 shares Apple Inc., Common Stock, CUSIP 037833100, NASDAQ”).
• Bonds: List total face value, issuer name, interest rate, maturity date, CUSIP number, and payment call dates.
• Accrued Dividends & Interest: Report accrued bond interest and declared stock dividends as separate, itemized entries directly beneath the primary security.

Column 5 – Calculating Mean Trading Value

Under Treasury regulations, the date-of-death Fair Market Value for a publicly traded stock is the mean (average) between the highest and lowest quoted selling prices on the date of death:

Mean Price = (Highest Daily Trading Price + Lowest Daily Trading Price) ÷ 2

Multiply this mean price by the number of shares owned. If death occurred on a weekend or holiday, calculate the weighted average of the mean trading prices on the nearest trading days before and after death.

Total Line

Sum all values listed in Column 5 (or Column 4 if alternate valuation is elected). Carry this total over to **Form 706, Part 5 (Recapitulation), Line 2**.

8. Required Documents/Information Needed Before Filling

Preparing Schedule B requires verified financial brokerage records and historical stock price records.

Gather the following verification items before completing the schedule:

• Date-of-Death Brokerage Statements: Official date-of-death valuation statements issued by custodian brokerage firms showing share quantities and CUSIP numbers.
• Historical High/Low Price Logs: Printed financial trading logs proving daily high and low prices for public securities on the date of death.
• Closely Held Valuation Reports: Certified independent business valuation reports for non-public, closely held corporate stocks.
• Dividend Record Schedules: Proof of dividend declaration dates, record dates, and payout dates for all equities.

9. Common Mistakes to Avoid

Valuation and classification errors on Schedule B are frequently flagged during IRS estate tax audits. Avoid these common mistakes:

• Using Closing Stock Prices: Reporting the closing market price on the date of death instead of calculating the mandatory mean between the high and low daily trading prices.
• Assuming Municipal Bonds Are Estate-Tax Free: Believing state or municipal bonds are exempt from federal estate tax. While exempt from *income tax*, municipal bonds are **fully taxable for estate tax** and must be reported on Schedule B.
• Omitting Accrued Dividends and Interest: Failing to report dividends declared prior to death or bond interest accrued up to the date of death.
• Listing Joint Brokerage Accounts: Reporting joint tenancy stock accounts on Schedule B instead of Schedule E.
• Omitting CUSIP Numbers: Leaving out the mandatory 9-digit CUSIP identification number for publicly traded stocks and bonds.

10. Penalties for Non-Filing or Errors

Submitting incorrect security values or omitting taxable bonds on Schedule B carries severe civil tax penalties.

Key penalty risks include:

• Valuation Understatement Penalty (IRC Section 6662(g)): A 20% civil penalty applies if the reported security value is 65% or less of the correct Fair Market Value.
• Gross Valuation Understatement Penalty: A 40% civil penalty applies if the reported security value is 40% or less of the correct Fair Market Value.
• Audit Interest and Reassessments: Undervalued securities trigger IRS field audits, resulting in back taxes, accrued compounding interest, and delayed estate distribution clearances.

11. Related Forms or Schedules

Schedule B works in combination with several core Form 706 schedules and estate reporting requirements:

• Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return.
• Form 706 (Schedule C): Mortgages, Notes, and Cash (for bank accounts and promissory notes).
• Form 706 (Schedule E): Jointly Owned Property.
• Form 706 (Schedule F): Other Miscellaneous Property (for partnership/LLC interests).
• Form 706 (Schedule G): Transfers During Decedent’s Life (for trust portfolios).
• Form 8971: Information Regarding Beneficiaries Acquiring Property From a Decedent.

12. Frequently Asked Questions

1. What is IRS Form 706 Schedule B?

IRS Form 706 Schedule B is the supporting schedule used by estate executors to itemize and report all stocks, corporate bonds, government bonds, and mutual funds owned solely by a decedent at death.

2. How are publicly traded stocks valued on Schedule B?

Publicly traded stocks are valued by calculating the mean (average) between the highest and lowest daily trading prices on the decedent’s date of death, multiplied by the total number of shares owned.

3. Are municipal bonds subject to federal estate tax on Schedule B?

Yes. Municipal and state government bonds are subject to federal estate tax and must be listed on Schedule B at their date-of-death Fair Market Value plus accrued interest.

4. What is a CUSIP number, and is it required on Schedule B?

A CUSIP number is a unique 9-character alphanumeric code assigned to public securities in the U.S. The IRS requires CUSIP numbers on Schedule B to verify security identities.

5. Where are accrued stock dividends reported on Schedule B?

Accrued stock dividends (declared with a record date on or before the date of death) are listed as a separate, itemized line entry directly beneath the associated stock on Schedule B.

6. How is stock in a privately held corporation valued on Schedule B?

Privately held corporate stock requires a comprehensive business valuation report prepared by a qualified independent appraiser based on asset values, earnings capacity, and marketability discounts.

13. Conclusion

IRS Form 706 (Schedule B) is a critical component of estate tax compliance for estates holding investment portfolios. By following Treasury valuation formulas for public securities and securing qualified appraisals for private stock, executors protect the estate from costly tax penalties.

To prepare an error-free Schedule B, request date-of-death valuation statements from brokerage custodians, calculate daily high/low mean trading prices, include CUSIP numbers, report accrued dividends, and carry total values accurately over to Form 706.