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located in the United States, or the

tax return, use the agreed value rather

The period of the decedent's or family

qualified heir lost United States

than the reported value.

member's ownership, or material

citizenship and the QFOBI property was

participation with respect to replaced or

neither placed into a qualified trust, nor

Schedule B. Involuntary

exchanged property is treated as the

was a security arrangement made).

period of ownership, or material

Conversions or Exchanges

participation with respect to the qualified

Do not list any interests that have

replacement or exchange property. This

Involuntary conversions of qualified

already been reported on a previously

applies only to that part of the FMV of the

property (under the rules of section 1033)

filed Form 706-D. In general, do not list

and exchanges of qualified property

replacement or exchange property (at the

property interests disposed of to family

(under the rules of section 1031) are

date of acquisition) that does not exceed

members of the qualified heir. These

treated similarly when computing the

the FMV of the replaced or exchanged

interests should be listed on Schedule C.

property (at the date of disposition).

additional estate tax on Form 706-D.

Column (A). Within each part, list and

If you are reporting an involuntary

Note: The 10-year recapture period is

number the property interests in

extended under certain circumstances.

conversion or exchange, you may not use

chronological order of disposition,

See Two-Year Grace Period on page 2.

the same Form 706-D to report any

cessation, or disqualification.

cessations or other dispositions that are

Column (B). Use the same description

How To Complete Schedule B

not involuntary conversions or exchanges.

in column (B) that the executor used for

Use a separate Form 706-D for the

Column (A). Make one entry for each

the QFOBI on the Form 706 filed for the

cessations or other dispositions.

item of qualified replacement or exchange

decedent's estate. Include in column (B)

You may report conversions and

property.

the schedule and item number where the

exchanges together on the same return.

Column (B). Describe the qualified

QFOBI was reported on the Form 706.

replacement property with enough detail

Column (C). Report in column (C) the

Nontaxable Involuntary

so that the IRS can locate and value it.

date that the qualified heir disposed of the

Conversions or Exchanges

For more information, see the instructions

QFOBI, the interest ceased, or a

to Form 706.

If the qualified heir reinvests all of the

disqualifying act occurred.

involuntary conversion proceeds in

Column (C). For an involuntary

Column (D). You only need to complete

qualified replacement property, or if the

conversion, enter the cost of the

column (D) if you are reporting an

qualified heir exchanges qualified

replacement property. For an exchange,

involuntary conversion or exchange. If the

property solely for qualified exchange

enter the FMV of the replacement

qualified heir disposed of the QFOBI in

property, then there is no additional estate

property.

an arm's length transaction, report the

tax.

amount realized in column (D).

Part II—Tax Computation

You should complete Form 706-D,

If the QFOBI is disposed of by the

even though there is no tax, to notify the

qualified heir in other than an arm's length

IRS that the involuntary conversion or

Line 1

transaction, report in column (D) the FMV

exchange took place. However, you need

of the QFOBI as of the date of its

Enter the qualified heir's share of the

to complete only Part I, Schedule A, and

disposition.

QFOBIs shown on line 4 of the decedent's

Schedule B. Write “nontaxable” on line 15

If the qualified heir owned only a part

Form 706, Schedule T.

of Part II.

of the QFOBI, report in column (D) the pro

Rules similar to those under section

Line 2

rata share of the amount realized or the

2032A(e)(14), 2032A(h) and 2032A(i) are

FMV allocable to the part owned by the

Enter the total reported value of the

applicable. Also, see section 2057(i).

qualified heir.

QFOBIs shown on line 6 of the decedent's

Arm's length transaction. An “arm's

Form 706, Schedule T.

Partially Taxable Involuntary

length transaction” is a transaction where

Conversions or Exchanges

Line 5

there is no bargain or gift element for

If the cost of the qualified replacement

affection or other reasons.

Multiply the amount of gross additional

property is less than the amount realized

Amount realized. The “amount

estate tax entered on line 3c by the

in the involuntary conversion; or if other

realized” is the sum of the money

qualified heir's percentage of QFOBIs

property, in addition to qualified exchange

received plus the FMV of property (other

entered on line 4 of this Form 706-D. The

property, is received in the exchange, the

than money) received. For the real

result is the qualified heir's share of the

conversion or exchange is partially

property taxes that must be taken into

total reduction in estate tax.

taxable. You should complete all of Form

account, see section 1001(b).

706-D and determine the tax using Part

Line 9

Fair market value. “Fair market

II.

value” (FMV) is the price at which the

See the Applicable percentage table on

List on Schedule A the QFOBI that the

property would change hands between a

page 2.

qualified heir disposed of, discontinued

willing buyer and a willing seller, neither

use of, or with regard to which the

Line 10

being under any compulsion to buy or to

disqualifying act occurred, regardless of

sell and both having reasonable

Multiply line 8 by the applicable

whether he or she received replacement

knowledge of relevant facts.

percentage entered on line 9. If you

or exchange property for the interest. List

Column (E). Report in column (E) the

completed Schedule B, complete lines 11

on Schedule B only the replacement or

value at the date of the decedent's death

through 15. If you did not complete

exchange property the qualified heir

(or alternate valuation date, if applicable)

Schedule B, skip lines 11 through 14 and

actually received.

of the QFOBI property that passed from

enter the amount from line 10 on line 15.

the decedent to the qualified heir who

Qualified Replacement or

Line 15

disposed of the property, discontinued the

Exchange Property

qualified use, or incurred a disqualifying

Enter the additional estate tax due.

The term "qualified replacement property"

act. If you are reporting part of your total

Show, on the dotted line for line 15,

means any property which is—

QFOBI, include only that pro rata share in

interest at the underpayment rate

column (E).

1. Acquired in an exchange which

established under section 6621 for the

qualifies under section 1031, or

In general, use the value that the

period beginning on the date the estate

executor reported on the Form 706 filed

2. The acquisition of which results in

tax liability was due and ending on the

the nonrecognition of gain under section

for the decedent's estate. However, if the

1033.

IRS has completed the audit of the estate

Page 3

Instructions For Form 706-D - United States Additional Estate Tax Return Under Code Section 2057 - 2000 Page 3

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