Instructions For Schedule T. Qualified Family-Owned Business Interest Deduction And Schedule U. Qualified Conservation Easement Exclusion


transferred do not bear the GST tax on the
If the amount of the QFOBI deduction is less
decedent's family, any qualified heir, or any
than $675,000, increase the applicable
member of the qualified heir's family owns an
exclusion amount by the difference between
interest in a business, and by reason of that
Section 2603(b) requires that unless the
$675,000 and the amount of the QFOBI
ownership the person is treated as owning an
governing instrument provides otherwise, the
deduction (but not to exceed the maximum
interest in any other business, the ownership
GST tax is to be charged to the property
applicable exclusion amount in effect for the
interest in the other business is disregarded in
constituting the transfer. Therefore, you will
year of death).
determining the ownership interest in the first
usually enter all of the direct skips on Part 2.
business. Likewise, you must apply the
For example, if the estate of a decedent
You may enter a transfer on Part 3 only if the
ownership rules separately in determining
dying in 1999 claimed a QFOBI deduction of
will or trust instrument directs, by specific
ownership of the other business.
$665,000, the applicable exclusion amount for
reference, that the GST tax is not to be paid
the estate would be $635,000 (($675,000 −
from the transferred property interests.
665,000) + 625,000). But if the QFOBI
Part 2—Line 3. Enter zero on this line unless
deduction was $575,000, the applicable
“Qualified family-owned business interests”
the will or trust instrument specifies that the
exclusion amount would be $650,000, the
shall not include the following:
GST taxes will be paid by property other than
maximum for 1999.
Any interest in a trade or business if its
that constituting the transfer (as described
principal place of business is located outside
above). Enter on line 3 the total of the GST
General Requirements
the United States.
taxes shown on Part 3 and Schedule(s) R-1
Business interests may qualify for the exclusion
that are payable out of the property interests
Any interest in an entity if the stock or debt
if the following requirements are met:
shown on Part 2, line 1.
of the entity (or a controlled group of which the
The decedent was a citizen or resident of the
entity is a member) was readily tradable on an
Part 2—Line 6. Do not enter more than the
United States at the date of death.
established securities market or secondary
amount on line 5. Additional allocations may
market at any time within 3 years of the date
be made using Part 1.
The business interests are includible in the
of the decedent's death.
gross estate.
Part 3—Line 3. See the instructions to Part
Any interest in a trade or business (excluding
2, line 3, above. Enter only the total of the GST
The interests must have passed to or been
banks and domestic building and loan
taxes shown on Schedule(s) R-1 that are
acquired by a qualified heir from the decedent.
associations) if more than 35% of its adjusted
payable out of the property interests shown on
The adjusted value of the qualified
ordinary gross income for the taxable year that
Part 3, line 1.
family-owned business interests must exceed
includes the date of the decedent's death
50% of the adjusted gross estate (see below
Part 3—Line 6. See the instructions to Part
would qualify as personal holding company
2, line 6, above.
for a discussion of these terms).
income (as defined in section 2057(e)(2)(C)) if
The interest must be in a trade or business
such trade or business was a corporation.
How To Complete Schedule R-1
that has its principal place of business in the
The portion of an interest in a trade or
United States.
Filing due date. Enter the due date of
business that is attributable to:
Schedule R, Form 706. You must send the
The business interest was owned by the
1. Cash and/or marketable securities in
copies of Schedule R-1 to the fiduciary by this
decedent or a member of the decedent's family
excess of the reasonably expected day-to-day
during 5 of the 8 years before the decedent's
working capital needs, and
Line 4. Do not enter more than the amount
2. Any other assets (other than assets held
For 5 of the 8 years before the decedent's
on line 3. If you wish to allocate an additional
in the active conduct of a bank or domestic
GST exemption, you must use Schedule R,
death, there was material participation by the
building and loan) that produce or are held for
Part 1. Making an entry on line 4 constitutes a
decedent or a member of the decedent's family
the production of personal holding company
in the business to which the ownership interest
Notice of Allocation of the decedent's GST
income and most types of foreign personal
exemption to the trust.
holding company income. See section
Line 6. If the property interests entered on line
2057(e)(2)(D) for more information.
Qualified Family-Owned Business
1 will not bear the GST tax, multiply line 6 by
Net cash lease. If the decedent leased
55% (.55).
property on a net cash basis to a member of
Signature. The executor(s) must sign
In general. To qualify for the deduction, the
the decedent's family, income from the lease is
Schedule R-1 in the same manner as Form
business interest must be either an interest as
not considered personal holding company
706. See Signature and Verification on page
a proprietor in a trade or business carried on
income for this purpose, and the property is not
as a proprietorship, or an interest in an entity
considered asset producing or held for the
carrying on a trade or business in which:
Filing Schedule R-1. Attach to Form 706 one
production of personal holding company
copy of each Schedule R-1 that you prepare.
At least 50% of the entity is owned by the
income. However, if the income or property
decedent or members of the decedent's family;
Send two copies of each Schedule R-1 to the
would have been personal holding company
At least 70% of the entity is owned by
income or property if the decedent had
members of two families, and at least 30% is
engaged directly in the activities of the lessee,
Schedule T. Qualified
owned by the decedent or members of the
then this net cash lease rule does not apply.
decedent's family; or
Family-Owned Business
Qualified Heir
At least 90% of the entity is owned by
Interest Deduction
members of three families, and at least 30% is
A person is a qualified heir of property if he or
owned by the decedent or members of the
Under section 2057, you may elect to deduct
she is a member of the decedent's family and
decedent's family.
the value of certain family-owned business
acquired or received the interest from the
In all cases, ownership may be either direct
interests from the gross estate. You make the
or indirect.
election by filing Schedule T, attaching all
If a qualified heir disposes of any qualified
required statements, and deducting the value
Ownership rules. Ownership of the business
family-owned business interest to any member
interest may either be direct, or indirect through
of the qualifying business interests on Part 5,
of his or her family, that person will then be
a corporation, partnership, or a trust. An
Recapitulation, page 3, at item 22. You can
treated as the qualified heir with respect to that
only deduct the value of property that you have
interest owned, directly or indirectly, by or for
such an entity is considered owned
also reported on Schedule A, B, C, E, F, G, or
The term member of the family includes
proportionately by or for the entity's
H of Form 706.
shareholders, partners, or beneficiaries. A
The amount of the deduction cannot exceed
An ancestor (parent, grandparent, etc.) of the
person is the beneficiary of a trust only if he
the lesser of:
or she has a present interest in the trust.
The adjusted value of the qualified
The spouse of the individual;
Corporations. Ownership of a corporation
family-owned business interests (QFOBI) of the
The lineal descendent (child, stepchild,
is determined by holding stock that has the
decedent otherwise includible in the gross
grandchild, etc.) of the individual, the
appropriate percentage of the total combined
estate, or
individual's spouse, or a parent of the
voting power of all classes of stock entitled to
individual; and
vote and the appropriate percentage of the total
Coordination with unified credit. The sum
The spouse, widow, or widower of any lineal
value of shares of all classes of stock.
of the QFOBI deduction and the applicable
descendent described above.
Partnerships. Ownership of a partnership
exclusion amount cannot exceed $1.3 million.
A legally adopted child of an individual is
is based on owning the appropriate percentage
Thus, if the maximum QFOBI deduction of
treated as a child of that individual by blood.
of the capital interest in the partnership.
$675,000 is claimed, the applicable exclusion
For the purpose of this deduction, qualified
Tiered entities. For the purpose of
amount would be limited to $625,000, and the
heir also includes any active employee of the
determining ownership of a business under
credit entered on line 11 of Part 2 - Tax
trade or business to which the qualified
section 2057, if the decedent, a member of the
Computation, would be $202,050.
Page 22
Instructions for Schedules


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