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part of the gross estate at the

difference in its value as of the later

a. At least 50% of the adjusted

decedent’s death.

date not due to lapse of time.)

value of the gross estate must consist

of the adjusted value of real or personal

Interest. Interest accrued to the date

Distributions, sales, exchanges, and

property that was being used as a farm

of the decedent’s death on bonds,

other dispositions of the property within

or in a closely held business and that

notes, and other interest-bearing

the 6-month period after the decedent’s

was acquired from, or passed from, the

obligations is property of the gross

death must be supported by evidence.

decedent to a qualified heir of the

estate on the date of death and is

If the court issued an order of

decedent, and

included in the alternate valuation.

distribution during that period, you must

b. At least 25% of the adjusted

Rent. Rent accrued to the date of the

submit a certified copy of the order as

value of the gross estate must consist

decedent’s death on leased real or

part of the evidence. The IRS may

of the adjusted value of qualified farm

personal property is property of the

require you to submit additional

or closely held business real property.

gross estate on the date of death and is

evidence, if necessary.

included in the alternate valuation.

For this purpose, adjusted value is

If the alternate valuation method is

the value of property determined

Dividends. Outstanding dividends that

used, the values of life estates,

without regard to its special-use value.

were declared to stockholders of record

remainders, and similar interests are

The value is reduced for unpaid

on or before the date of the decedent’s

figured using the age of the recipient on

mortgages on the property or any

death are considered property of the

the date of the decedent’s death and

indebtedness against the property, if

gross estate on the date of death, and

the value of the property on the

the full value of the decedent’s interest

are included in the alternate valuation.

alternate valuation date.

in the property (not reduced by such

Ordinary dividends declared to

mortgage or indebtedness) is included

stockholders of record after the date of

Line 2. Special-Use Valuation

in the value of the gross estate. The

the decedent’s death are not property

of Section 2032A

adjusted value of the qualified real and

of the gross estate on the date of death

personal property used in different

and are not included in the alternate

In general. Under section 2032A, you

businesses may be combined to meet

valuation. However, if dividends are

may elect to value certain farm and

the 50% and 25% requirements.

declared to stockholders of record after

closely held business real property at

the date of the decedent’s death so that

its farm or business use value rather

Qualified Real Property

the shares of stock at the later

than its fair market value (FMV). You

valuation date do not reasonably

may elect both special-use valuation

Qualified use. Qualified use means

represent the same property at the date

and alternate valuation.

the use of the property as a farm for

of the decedent’s death, include those

farming purposes or the use of property

To elect this valuation, you must

dividends (except dividends paid from

in a trade or business other than

check “Yes” on line 2 and complete and

earnings of the corporation after the

farming. Trade or business applies only

attach Schedule A-1 and its required

date of the decedent’s death) in the

to the active conduct of a business. It

additional statements. You must file

alternate valuation.

does not apply to passive investment

Schedule A-1 and its required

activities or the mere passive rental of

As part of each Schedule A through

attachments with Form 706 for this

property to a person other than a

I, you must show:

election to be valid. You may make the

member of the decedent’s family. Also,

election on a late-filed return so long as

1. What property is included in the

no trade or business is present in the

it is the first return filed.

gross estate on the date of the

case of activities not engaged in for

decedent’s death;

The total value of the property

profit.

2. What property was distributed,

valued under section 2032A may not be

Ownership. To qualify as special-use

sold, exchanged, or otherwise disposed

decreased from FMV by more than

property, the decedent or a member of

of within the 6-month period after the

$1,000,000 for decedents dying in

the decedent’s family must have owned

decedent’s death, and the dates of

2010.

and used the property in a qualified use

these distributions, etc.

Real property may qualify for the

for 5 of the last 8 years before the

(These two items should be entered in

section 2032A election if:

decedent’s death. Ownership may be

the “Description” column of each

direct or indirect through a corporation,

schedule. Briefly explain the status or

1. The decedent was a U.S. citizen

a partnership, or a trust.

disposition governing the alternate

or resident at the time of death;

valuation date, such as: “Not disposed

2. The real property is located in the

If the ownership is indirect, the

of within 6 months following death,”

United States;

business must qualify as a closely held

“Distributed,” “Sold,” “Bond paid on

3. At the decedent’s death, the real

business under section 6166. The

maturity,” etc. In this same column,

property was used by the decedent or a

ownership, when combined with

describe each item of principal and

family member for farming or in a trade

periods of direct ownership, must meet

includible income);

or business, or was rented for such use

the requirements of section 6166 on the

3. The date of death value, entered

by either the surviving spouse or a

date of the decedent’s death and for a

in the appropriate value column with

lineal descendant of the decedent to a

period of time that equals at least 5 of

items of principal and includible income

family member on a net cash basis;

the 8 years preceding death.

shown separately; and

4. The real property was acquired

If the property was leased by the

4. The alternate value, entered in

from or passed from the decedent to a

decedent to a closely held business, it

the appropriate value column with items

qualified heir of the decedent;

qualifies as long as the business entity

of principal and includible income

5. The real property was owned and

to which it was rented was a closely

shown separately.

used in a qualified manner by the

held business for the decedent on the

(In the case of any interest or estate,

decedent or a member of the

date of the decedent’s death and for

the value of which is affected by lapse

decedent’s family during 5 of the 8

sufficient time to meet the “5 in 8 years”

of time, such as patents, leaseholds,

years before the decedent’s death;

test explained above.

estates for the life of another, or

6. There was material participation

Structures and other real property

remainder interests, the value shown

by the decedent or a member of the

under the heading “Alternate value”

decedent’s family during 5 of the 8

improvements. Qualified real

must be the adjusted value; for

years before the decedent’s death; and

property includes residential buildings

example, the value as of the date of

7. The qualified property meets the

and other structures and real property

death with an adjustment reflecting any

following percentage requirements:

improvements regularly occupied or

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Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2011 Page 8

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