Instructions For Form 706-A - United States Additional Estate Tax Return

property in an arm’s length transaction,

computing the additional estate tax on

How To Complete Form

report in column D the amount realized.

Form 706-A.

706-A

Arm’s length transaction. An

The rules below apply to all qualified

arm’s length transaction is a transaction

heirs, whether or not they made an

You may only file Form 706-A for one

where there is no bargain or gift

election, for involuntary conversions

qualified heir. If a disposition, cessation,

element for affection or other reasons.

and exchanges occurring after 1981.

involuntary conversion, or exchange

Amount realized. The amount

If you are reporting an involuntary

involves more than one qualified heir,

realized is the sum of the money

conversion or exchange, you may not

each heir must file a separate Form

received plus the fair market value of

use the same Form 706-A to report any

706-A.

property (other than money) received.

cessations or other dispositions that are

Complete Form 706-A in this order:

For the real property taxes that must be

not involuntary conversions or

1. Part I,

taken into account, see section

exchanges. Use a separate Form

2. Schedules A and B,

1001(b).

706-A for the cessations or other

3. Part II,

dispositions.

If the qualified heir owned only a part

4. Schedule C.

of the specially valued property, report

You may report conversions and

in column D the pro rata share of the

exchanges together on the same

Note. The qualified heir must sign the

amount realized that is allocable to the

return.

part owned by the qualified heir.

Nontaxable Involuntary

If the specially valued property is

Conversions or Exchanges

disposed of by the qualified heir in

Specific Instructions

other than an arm’s length transaction,

If the qualified heir reinvests all of the

or if the qualified use is discontinued by

involuntary conversion proceeds in

Valuation

the qualified heir, report in column D

qualified replacement property or if the

the fair market value of the specially

qualified heir exchanges qualified real

When computing the amounts to enter

valued property as of the date of

property solely for qualified exchange

on Form 706-A, use the same values

disposition or cessation of qualified use.

property, then there is no additional

and estate tax that the executor

estate tax.

Fair market value. Fair market

reported on the Form 706 filed for the

value is the price at which the property

You should complete Form 706-A,

decedent. However, if the IRS has

would change hands between a willing

even though there is no tax, to notify

completed the audit of the estate tax

buyer and a willing seller, neither being

the IRS that the involuntary conversion

return, use the agreed values and tax

under any compulsion to buy or to sell

or exchange took place. However, you

rather than the reported values and tax.

and both having reasonable knowledge

must complete only Part I, Schedule B,

of relevant facts.

and Schedule A. Write “nontaxable” on

Schedule A. Disposition

line 19 of Part II.

For additional information and

of Specially Valued

examples, see Regulations section

Partially Taxable Involuntary

20.2031-1(b). If the qualified heir owned

Property or Cessation of

Conversions or Exchanges

only a part of the specially valued

Qualified Use

property, report in column D the pro

If the cost of the qualified replacement

rata share of the fair market value

property is less than the amount

On Schedule A, list every specially

allocable to the part owned by the

realized in the involuntary conversion or

valued property interest that the

qualified heir.

if other property in addition to qualified

qualified heir disposed of or

exchange property is received in the

Column E. Report in column E the

discontinued use of since the date of

exchange, the conversion or exchange

special-use value at the date of the

the decedent’s death and for which a

is partially taxable. You should

decedent’s death (or alternate valuation

Form 706-A has not been previously

complete all of Form 706-A and

date) of the specially valued property

filed. Do not list any interests that have

determine the tax using Part II.

that passed from the decedent to the

already been reported on Schedule A

qualified heir who disposed of the

List on Schedule A all specially

or B of a previously filed Form 706-A. In

property or discontinued the qualified

valued property that the qualified heir

general, do not list property interests

use. Use the same special-use value

disposed of or discontinued use of,

disposed of to family members of the

that the executor reported on the Form

regardless of whether he or she

qualified heir. These interests should be

706 filed for the decedent’s estate. If

received replacement or exchange

listed on Schedule C.

the IRS has completed the audit of the

property for it. List on Schedule B only

Column A. Number and list the

estate tax return, use the agreed value

the replacement or exchange property

property interests in chronological order

rather than the reported value. If the

the qualified heir actually received.

of disposition or cessation.

qualified heir owned only a part of the

Qualified Replacement or

specially valued property, report in

Column B. Use the same description

column E the pro rata share of the

Exchange Property

in column B that the executor used for

special-use value allocable to the part

the specially valued property on the

Qualified replacement property means

Form 706 filed for the decedent. Please

owned by the qualified heir.

any real property that is to be used for

include in column B the schedule and

the qualified use and that:

Schedule B. Involuntary

item number where the specially valued

•

Was purchased by the qualified heir

property was reported on the Form 706

Conversions or

within the time specified by section

filed for the decedent’s estate.

1033 to replace the qualified property

Exchanges

Column C. Report in column C the

•

date that the qualified heir disposed of

Is real property into which the

Involuntary conversions of qualified real

the specially valued property or

qualified real property has been

property (under the rules of section

discontinued the qualified use.

converted.

1033) and exchanges of qualified real

Column D. If the qualified heir

property (under the rules of section

Qualified exchange property means

disposed of the specially valued

1031) are treated similarly when

any real property that is to be used for

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Instructions For Form 706-A - United States Additional Estate Tax Return - 2008 Page 3

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