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management, use, and value of the

Comparable sales of other farm or

A-1 according to the instructions for

property; and

closely held business land in the same

Protective election.

•

Availability and type of transportation

geographical area far enough removed

If you make a protective election,

facilities in terms of costs and of

from a metropolitan or resort area so

you should complete the initial Form

proximity of the properties to local

that nonagricultural use is not a

706 by valuing all property at its FMV.

markets.

significant factor in the sales price; and

Do not use special-use valuation.

•

Any other factor that fairly values the

Usually, this will result in higher estate

You must specifically identify on the

farm or closely held business value of

and GST tax liabilities than will be

return the property being used as

the property.

ultimately determined if special-use

comparable property. Use the type of

descriptions used to list real property on

valuation is allowed. The protective

Making the Election

election does not extend the time to

Schedule A.

Include the words “section 2032A

pay the taxes shown on the return. If

Effective interest rate. See Tables

valuation” in the “Description” column of

you wish to extend the time to pay the

1 and 3 of Revenue Ruling 2011-17,

any Form 706 schedule if section

taxes, you should file Form 4768 in

2011 – 33 I.R.B. 160, available at

www.

2032A property is included in the

adequate time before the return due

irs.gov/pub/irs-irbs/irb11-33.pdf, for the

decedent’s gross estate.

date.

average annual effective interest rates

An election under section 2032A

If it is found that the estate qualifies

in effect for 2010 and 2011.

need not include all the property in an

for special-use valuation based on the

Net share rental. You may use

estate that is eligible for special-use

values as finally determined (or agreed

average annual net share rental from

valuation, but sufficient property to

to following examination of the return),

comparable land only if there is no

satisfy the threshold requirements of

you must file an amended Form 706

comparable land from which average

section 2032A(b)(1)(B) must be

(with a complete section 2032A

annual gross cash rental can be

specially valued under the election.

election) within 60 days after the date

determined. Net share rental is the

If joint or undivided interests (that is,

of this determination. Complete the

difference between the gross value of

interests as joint tenants or tenants in

amended return using special-use

produce received by the lessor from the

common) in the same property are

values under the rules of section

comparable land and the cash

received from a decedent by qualified

2032A, and complete Schedule A-1

operating expenses (other than real

heirs, an election for one heir’s joint or

and attach all of the required

estate taxes) of growing the produce

undivided interest need not include any

statements.

that, under the lease, are paid by the

other heir’s interest in the same

lessor. The production of the produce

Additional information

property if the electing heir’s interest

must be the business purpose of the

For definitions and additional

plus other property to be specially

farming operation. For this purpose,

information, see section 2032A and the

valued satisfies the requirements of

produce includes livestock.

related regulations.

section 2032A(b)(1)(B).

The gross value of the produce is

If successive interests (that is, life

Line 3. Section 6166

generally the gross amount received if

estates and remainder interests) are

Installment Payments

the produce was disposed of in an

created by a decedent in otherwise

arm’s-length transaction within the

If the gross estate includes an interest

qualified property, an election under

period established by the Department

section 2032A is available only for that

in a closely held business, you may be

of Agriculture for its price support

able to elect to pay part of the estate

property (or part) in which qualified

program. Otherwise, the value is the

tax in installments under section 6166.

heirs of the decedent receive all of the

weighted average price for which the

successive interests, and such an

The maximum amount that can be

produce sold on the closest national or

election must include the interests of all

paid in installments is that part of the

regional commodities market. The

of those heirs.

estate tax that is attributable to the

value is figured for the date or dates on

closely held business; see Determine

For example, if a surviving spouse

which the lessor received (or

how much of the estate tax may be

receives a life estate in otherwise

constructively received) the produce.

paid in installments under section 6166,

qualified property and the spouse’s

Valuing a real property interest in

below. In general, that amount is the

brother receives a remainder interest in

closely held business. Use this

amount of tax that bears the same ratio

fee, no part of the property may be

method to determine the special-use

to the total estate tax that the value of

valued under a section 2032A election.

valuation for qualifying real property

the closely held business included in

Where successive interests in

used in a trade or business other than

the gross estate bears to the adjusted

specially valued property are created,

farming. You may also use this method

gross estate.

remainder interests are treated as

for qualifying farm property if there is no

Bond or lien. The IRS may require

being received by qualified heirs only if

comparable land or if you elect to use

that an estate furnish a surety bond

the remainder interests are not

it. Under this method, the following

when granting the installment payment

contingent on surviving a nonfamily

factors are considered:

•

election. In the alternative, the executor

member or are not subject to

The capitalization of income that the

may consent to elect the special lien

divestment in favor of a nonfamily

property can be expected to yield for

provisions of section 6324A, in lieu of

member.

farming or for closely held business

the bond. The IRS will contact you

purposes over a reasonable period of

Protective Election

regarding the specifics of furnishing the

time with prudent management and

You may make a protective election to

bond or electing the special lien. The

traditional cropping patterns for the

specially value qualified real property.

IRS will make this determination on a

area, taking into account soil capacity,

Under this election, whether or not you

case-by-case basis, and you may be

terrain configuration, and similar

may ultimately use special-use

asked to provide additional information.

factors;

valuation depends upon values as

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The capitalization of the fair rental

If you elect the lien provisions,

finally determined (or agreed to

value of the land for farming or for

section 6324A requires that the lien be

following examination of the return)

closely held business purposes;

placed on property having a value

meeting the requirements of section

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The assessed land values in a state

equal to the total deferred tax plus 4

2032A.

that provides a differential or use value

years of interest. The property must be

assessment law for farmland or closely

To make a protective election, check

expected to survive the deferral period,

held business;

“Yes” on line 2 and complete Schedule

and does not necessarily have to be

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Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2011 Page 10

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