I noticed that in Noel Ice's Excel template for the 706 Worksheet the IRD deduction is calculated based upon the average estate tax rather than the marginal estate tax. I also noticed that the prior accumulated taxable gifts were not used in the total calculation. Shouldn't the IRD deduction be based upon the marginal estate tax increase?

According to the third addition of Natalie Choate's book "Life and Death Planning for Retirement Benefits" (p. 78), it appears you are right. She says "The estate tax attributable to the IRD is the difference between the actual federal estate tax due on the estate, and the federal estate tax that would have been due had all the IRD been excluded from the estate." This is the amount of the 691© deduction, which works out to the taxpayer's advantage vs. using the average rate.

I haven't reviewed Noel Ice's spreadsheet to see how it calculates these figures.