SEE Part 1 specialized returns explained
Specialized Returns for Individuals is worth 11 of the 85 scored questions on SEE Part 1, about 13%. It covers three areas outside the ordinary Form 1040: estate tax (Form 706), gift tax (Form 709) and international information reporting (FBAR, Form 8938 and related forms). Many candidates have never prepared any of these, which makes it the domain where focused study gains the most per hour.
The good news is that the exam tests structure and filing rules much more than complex estate calculations. Know what is included, what is excluded, who files, when, and what happens if they do not.
Estate tax
The estate tax applies to the transfer of a decedent’s taxable estate.
- Gross estate: everything the decedent owned or had certain interests in at death, at fair market value, including real estate, investments, business interests, retirement accounts, and life insurance if the decedent owned the policy or the proceeds were payable to the estate.
- Jointly held property: for spouses holding property as joint tenants with right of survivorship, generally half is included in the first spouse’s estate. For non-spouse joint owners, the full value is included except to the extent the survivor can show they contributed.
- Deductions reduce the gross estate to the taxable estate: debts, funeral and administration expenses, the unlimited marital deduction for property passing to a US-citizen spouse, and the charitable deduction.
- Unified credit: the credit that covers tax on transfers up to the basic exclusion amount, which is $13,990,000 for decedents dying in 2025. Lifetime taxable gifts use up part of the same exclusion.
- Portability: the executor of a deceased spouse’s estate can elect to pass the unused exclusion (the DSUE amount) to the surviving spouse. The election is made on a Form 706, even if no estate tax return is otherwise required.
Filing: Form 706 is due nine months after the date of death, with an automatic six-month extension available (Form 4768) to file, not to pay. Estate income, such as interest earned after death, is a separate matter reported on Form 1041.
Gift tax
The donor, not the recipient, is responsible for gift tax.
| Concept | The rule |
|---|---|
| Annual exclusion | $19,000 per recipient for 2025, for gifts of a present interest |
| Future interests | Do not qualify for the annual exclusion |
| Gift splitting | Spouses can elect to treat a gift by one as made half by each; both must consent, and a Form 709 is filed |
| Unlimited exclusions | Gifts to a US-citizen spouse, and tuition or medical expenses paid directly to the school or provider |
| Unified credit | Taxable gifts use the lifetime exclusion before any gift tax is paid |
| Generation-skipping transfer tax | A separate tax on transfers to skip persons, such as grandchildren |
| Filing | Form 709, generally due by the individual’s income tax due date |
Most taxpayers who file Form 709 owe no gift tax. They file to report a gift above the annual exclusion, which reduces their remaining lifetime exclusion, or to elect gift splitting.
International information reporting
Two reporting obligations for foreign financial accounts and assets are tested more than anything else here, and the exam often asks how they differ.
| FBAR (FinCEN Form 114) | Form 8938 | |
|---|---|---|
| Who files | US persons, including citizens, residents, trusts, estates and domestic entities | Specified individuals and specified domestic entities |
| Threshold | Aggregate foreign accounts over $10,000 at any time in the year | For an unmarried US resident: over $50,000 at year-end or $75,000 at any time; for a married couple filing jointly in the US: $100,000 / $150,000 (higher thresholds apply to taxpayers living abroad) |
| Where | Electronically through FinCEN’s BSA E-Filing System, not with the tax return | Attached to the income tax return |
| Due | April 15, with an automatic extension to October 15 | With the return, including extensions |
| Covers | Financial accounts | Specified foreign financial assets, which include accounts and also certain non-account assets |
A taxpayer may need to file both, one, or neither, and filing one does not satisfy the other.
Other forms in the outline: Form 3520 (transactions with foreign trusts, and large gifts or bequests received from foreign persons), Form 5471 (certain US persons with interests in foreign corporations), and Form 8865 (certain interests in foreign partnerships).
Consequences of not filing: significant civil penalties for failure to file, higher penalties for wilful failures, and a specific statute of limitations rule: if a required Form 8938 (or certain other international forms) is not filed, the limitations period for assessing tax on the return generally does not start until the information is provided.
Sample questions
Question 1. Liam is a single US citizen living in the US. During 2025 his foreign bank accounts had a combined maximum value of $30,000, and $20,000 on December 31. He has no other foreign assets. What must he file?
- A. Form 8938 only
- B. An FBAR only
- C. Both an FBAR and Form 8938
- D. Neither
Show answer
Answer: B
The FBAR is required because the aggregate value of his foreign accounts exceeded $10,000 at some point in the year. Form 8938 is not required, because for an unmarried taxpayer living in the US the thresholds are more than $50,000 at year-end or more than $75,000 at any time, and he is below both.
Question 2. Carlos died in 2025, leaving his entire estate to his wife, a US citizen. No estate tax is due because of the marital deduction. His wife wants to be able to use his unused exclusion amount later. What must happen?
- A. Nothing; the unused exclusion transfers automatically
- B. She claims it on her next Form 1040
- C. The executor elects it on Form 1041
- D. The executor files a Form 706 electing portability
Show answer
Answer: D
The unused exclusion (the DSUE amount) passes to the surviving spouse only if the executor elects portability on a Form 706, even when no return would otherwise be required because no tax is due. Portability is not automatic, and it is not claimed on Form 1041 or on the survivor’s income tax return.
Question 3. In 2025, Nora, who is unmarried, gave her son $25,000 in cash. She has made no other gifts. Which statement is correct?
- A. She files Form 709 reporting a $6,000 taxable gift, and pays no gift tax because of the unified credit
- B. She owes gift tax on $6,000 when she files her Form 1040
- C. No return is needed, because no gift tax is due
- D. Her son reports the $25,000 as income
Show answer
Answer: A
The 2025 annual exclusion is $19,000 per recipient, so $6,000 is a taxable gift. Nora must file Form 709 to report it. No gift tax is payable because the taxable gift is covered by her unified credit, which reduces the exclusion remaining for later gifts and her estate. The son does not report or pay tax on the gift.
What to practise
Draw the FBAR versus Form 8938 table from memory, including where each is filed. Then list what goes into a gross estate and which deductions reduce it. With these two exercises, most of the 11 questions become straightforward. Then check your progress with the practice test.