Specific Instructions

Valuation

When computing the amounts to enter on Form 706-A, use the same values and estate tax that the executor reported on the Form 706 filed for the decedent. However, if the IRS has completed the audit of the estate tax return, use the agreed values and tax rather than the reported values and tax.

Schedule A. Disposition of Specially Valued Property or Cessation of Qualified Use

On Schedule A, list every specially valued property interest that the qualified heir disposed of or discontinued use of since the date of the decedent's death and for which a Form 706-A has not been previously filed. Do not list any interests that have already been reported on Schedule A or B of a previously filed Form 706-A. In general, do not list property interests disposed of to family members of the qualified heir. These interests should be listed on Schedule C.

Column A.   Number and list the property interests in chronological order of disposition or cessation.

Column B.   Use the same description in column B that the executor used for the specially valued property on the Form 706 filed for the decedent. Please include in column B the schedule and item number where the specially valued property was reported on the Form 706 filed for the decedent's estate.

Column C.   Report in column C the date that the qualified heir disposed of the specially valued property or discontinued the qualified use.

Column D.   If the qualified heir disposed of the specially valued property in an arm's length transaction, report in column D the amount realized.

Arm's length transaction.

An arm's length transaction is a transaction where there is no bargain or gift element for affection or other reasons.

Amount realized.

The amount realized is the sum of the money received plus the FMV of property (other than money) received. For the real property taxes that must be taken into account, see section 1001(b).

  If the qualified heir owned only a part of the specially valued property, report in column D the pro rata share of the amount realized that is allocable to the part owned by the qualified heir.

  If the specially valued property is disposed of by the qualified heir in other than an arm's length transaction, or if the qualified use is discontinued by the qualified heir, report in column D the FMV of the specially valued property as of the date of disposition or cessation of qualified use.

Fair market value.

Fair market value (FMV) is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

  For additional information and examples, see Regulations section 20.2031-1(b). If the qualified heir owned only a part of the specially valued property, report in column D the pro rata share of the FMV allocable to the part owned by the qualified heir.

Column E.   Report in column E the special-use value at the date of the decedent's death (or alternate valuation date) of the specially valued property that passed from the decedent to the qualified heir who disposed of the property or discontinued the qualified use. Use the same special-use value that the executor reported on the Form 706 filed for the decedent's estate. If the IRS has completed the audit of the estate tax return, use the agreed value rather than the reported value. If the qualified heir owned only a part of the specially valued property, report in column E the pro rata share of the special-use value allocable to the part owned by the qualified heir.

Schedule B. Involuntary Conversions or Exchanges

Involuntary conversions of qualified real property (under the rules of section 1033) and exchanges of qualified real property (under the rules of section 1031) are treated similarly when computing the additional estate tax on Form 706-A.

The rules later apply to all qualified heirs, whether or not they made an election, for involuntary conversions and exchanges occurring after 1981.

If you are reporting an involuntary conversion or exchange, you may not use the same Form 706-A to report any cessations or other dispositions that are not involuntary conversions or exchanges. Use a separate Form 706-A for the cessations or other dispositions.

You may report conversions and exchanges together on the same return.

Nontaxable Involuntary Conversions or Exchanges

If the qualified heir reinvests all of the involuntary conversion proceeds in qualified replacement property or if the qualified heir exchanges qualified real property solely for qualified exchange property, then there is no additional estate tax.

You should complete Form 706-A, even though there is no tax, to notify the IRS that the involuntary conversion or exchange took place. However, you must complete only Part I, Schedule B, and Schedule A. Write “nontaxable” on line 19 of Part II.

Partially Taxable Involuntary Conversions or Exchanges

If the cost of the qualified replacement property is less than the amount realized in the involuntary conversion or if other property in addition to qualified exchange property is received in the exchange, the conversion or exchange is partially taxable. You should complete all of Form 706-A and determine the tax using Part II.

List on Schedule A all specially valued property that the qualified heir disposed of or discontinued use of, regardless of whether he or she received replacement or exchange property for it. List on Schedule B only the replacement or exchange property the qualified heir actually received.

Qualified Replacement or Exchange Property

Qualified replacement property means any real property that is to be used for the qualified use and that:

  • Was acquired in an exchange that qualified under section 1031,

  • Was purchased by the qualified heir within the time specified by section 1033 to replace the qualified property, or

  • Is real property into which the qualified real property has been converted.

Qualified exchange property means any real property that is to be used for the same qualified use that the property for which it was exchanged was used.

The period of the decedent's or family member's ownership, qualified use, or material participation with respect to replaced or exchanged property is treated as the period of ownership, qualified use, or material participation with respect to the qualified replacement or exchange property. This applies only to that part of the FMV of the replacement or exchange property (at the date of acquisition) that does not exceed the FMV of the replaced or exchanged property (at the date of disposition).

Note.

The 10-year recapture period is extended under certain circumstances. See Two-Year Grace Period—Commencement Date earlier.

How To Complete Schedule B

Column A.   Make one entry for each item of qualified replacement or exchange property.

Column B.   Describe the qualified replacement property with enough detail so that the IRS can locate and value it. For more information, see the instructions to Schedule A of Form 706.

Column C.   For an involuntary conversion, enter the cost of the replacement property. For an exchange, enter the FMV of the replacement property.

Part II—Tax Computation

Line 2

Enter the total value at the estate tax valuation date of all specially valued property that the executor elected, on the Form 706 filed for the decedent's estate, to value at actual use rather than FMV.

Line 3a

Enter the amount of the estate tax for the decedent's estate that is recomputed using FMV at the estate tax valuation date rather than actual use value. Attach a schedule showing the recomputed estate tax.

Schedule C. Dispositions to Family Members of the Qualified Heir

Agreement by transferee.   You may enter a disposition to a family member of the qualified heir on Schedule C only if you file this Form 706-A on time (including extensions) and attach an agreement by the transferee to be personally liable for any additional estate tax under section 2032A(c) on the interest received. For a format of the agreement, see Form 706,  
Schedule A-1.

  If you are not filing this Form 706-A on time, or if the transferee does not enter into the agreement, you must enter the disposition(s) on Schedule A instead of Schedule C.

How To Complete Schedule C

See the instructions for completing columns A, B, and C of Schedule A on page 3.

Signature(s)

Form 706-A must be signed. The taxpayer (or person filing on his or her behalf) must verify and sign the declaration on page 1 under penalties of perjury. The taxpayer may use Form 2848, Power of Attorney and Declaration of Representative, to authorize another person to act for him or her before the Internal Revenue Service.

Generally, anyone who is paid to prepare the return must sign the return in the space provided and fill in the Paid Preparer's Use Only area. See section 7701(a)(36)(B) for exceptions.

In addition to signing and completing the required information, the paid preparer must give a copy of the completed return to the taxpayer.

Note.

A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.

Paid Preparer Authorization

If the organization wants to allow the IRS to discuss its 2013 tax return with the paid preparer who signed it, check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the Paid Preparer Use Only section of the return. It does not apply to the firm, if any, shown in that section. If the “Yes” box is checked, the organization is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The organization is also authorizing the paid preparer to:

  • Give the IRS any information that is missing from its return,

  • Call the IRS for information about the processing of its return or the status of any refund or payment(s), and

  • Respond to certain IRS notices that the organization may have shared with the preparer about math errors, offsets, and return preparation.

The notices will not be sent to the preparer. The organization is not authorizing the paid preparer to receive any refund check, bind the organization to anything (including any additional tax liability), or otherwise represent it before the IRS. If the organization wants to expand the paid preparer’s authorization, see Pub. 947, Practice Before the IRS and Power of Attorney. However, the authorization will automatically end no later than the due date (excluding extensions) for filing the 2013 tax return. If you want to revoke the authorization before it ends, see Pub. 947.


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