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decedent. However, if the IRS has

would change hands between a willing

You should complete Form 706-A,

completed the audit of the estate tax

buyer and a willing seller, neither being

even though there is no tax, to notify

return, use the agreed values and tax

under any compulsion to buy or to sell

the IRS that the involuntary conversion

rather than the reported values and tax.

and both having reasonable knowledge

or exchange took place. However, you

of relevant facts.

must complete only Part I, Schedule B,

Schedule A. Disposition

and Schedule A. Write “nontaxable” on

For additional information and

line 19 of Part II.

of Specially Valued

examples, see Regulations section

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

Partially Taxable Involuntary

Property or Cessation of

only a part of the specially valued

Conversions or Exchanges

property, report in column D the pro

Qualified Use

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

valued property interest that the

realized in the involuntary conversion or

qualified heir.

qualified heir disposed of or

if other property in addition to qualified

Column E. Report in column E the

discontinued use of since the date of

exchange property is received in the

special-use value at the date of the

the decedent’s death and for which a

exchange, the conversion or exchange

decedent’s death (or alternate valuation

Form 706-A has not been previously

is partially taxable. You should

date) of the specially valued property

filed. Do not list any interests that have

complete all of Form 706-A and

that passed from the decedent to the

already been reported on Schedule A

determine the tax using Part II.

qualified heir who disposed of the

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

List on Schedule A all specially

property or discontinued the qualified

general, do not list property interests

valued property that the qualified heir

use. Use the same special-use value

disposed of to family members of the

disposed of or discontinued use of,

that the executor reported on the Form

qualified heir. These interests should be

regardless of whether he or she

706 filed for the decedent’s estate. If

listed on Schedule C.

received replacement or exchange

the IRS has completed the audit of the

Column A. Number and list the

property for it. List on Schedule B only

estate tax return, use the agreed value

property interests in chronological order

the replacement or exchange property

rather than the reported value. If the

of disposition or cessation.

the qualified heir actually received.

qualified heir owned only a part of the

Column B. Use the same description

specially valued property, report in

Qualified Replacement or

in column B that the executor used for

column E the pro rata share of the

Exchange Property

the specially valued property on the

special-use value allocable to the part

Form 706 filed for the decedent. Please

owned by the qualified heir.

Qualified replacement property means

include in column B the schedule and

any real property that is to be used for

item number where the specially valued

Schedule B. Involuntary

the qualified use and that:

•

property was reported on the Form 706

Was purchased by the qualified heir

Conversions or

filed for the decedent’s estate.

within the time specified by section

1033 to replace the qualified property

Column C. Report in column C the

Exchanges

date that the qualified heir disposed of

•

Involuntary conversions of qualified real

Is real property into which the

the specially valued property or

property (under the rules of section

qualified real property has been

discontinued the qualified use.

1033) and exchanges of qualified real

converted.

Column D. If the qualified heir

property (under the rules of section

disposed of the specially valued

Qualified exchange property means

1031) are treated similarly when

property in an arm’s length transaction,

any real property that is to be used for

computing the additional estate tax on

report in column D the amount realized.

the same qualified use that the property

Form 706-A.

for which it was exchanged was used.

Arm’s length transaction. An

The rules below apply to all qualified

arm’s length transaction is a transaction

The period of the decedent’s or

heirs, whether or not they made an

where there is no bargain or gift

family member’s ownership, qualified

election, for involuntary conversions

element for affection or other reasons.

use, or material participation with

and exchanges occurring after 1981.

respect to replaced or exchanged

Amount realized. The amount

property is treated as the period of

If you are reporting an involuntary

realized is the sum of the money

ownership, qualified use, or material

conversion or exchange, you may not

received plus the fair market value of

participation with respect to the

use the same Form 706-A to report any

property (other than money) received.

cessations or other dispositions that are

qualified replacement or exchange

For the real property taxes that must be

not involuntary conversions or

property. This applies only to that part

taken into account, see section

exchanges. Use a separate Form

of the fair market value of the

1001(b).

706-A for the cessations or other

replacement or exchange property (at

If the qualified heir owned only a part

dispositions.

the date of acquisition) that does not

of the specially valued property, report

exceed the fair market value of the

in column D the pro rata share of the

You may report conversions and

replaced or exchanged property (at the

amount realized that is allocable to the

exchanges together on the same

date of disposition).

part owned by the qualified heir.

return.

Note. The 10-year recapture period is

If the specially valued property is

Nontaxable Involuntary

extended under certain circumstances.

disposed of by the qualified heir in

See Two-Year Grace Period —

Conversions or Exchanges

other than an arm’s length transaction,

Commencement Date on page 2.

or if the qualified use is discontinued by

If the qualified heir reinvests all of the

the qualified heir, report in column D

involuntary conversion proceeds in

How To Complete

the fair market value of the specially

qualified replacement property or if the

Schedule B

valued property as of the date of

qualified heir exchanges qualified real

disposition or cessation of qualified use.

property solely for qualified exchange

Column A. Make one entry for each

Fair market value. Fair market

property, then there is no additional

item of qualified replacement or

value is the price at which the property

estate tax.

exchange property.

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Instructions For Form 706-A - United States Additional Estate Tax Return - Internal Revenue Service - 2007 Page 3

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