General Instructions

Purpose of Form

An heir must use Form 706-A to report the additional estate tax imposed by section 2032A(c) for an early disposition of specially valued property or for an early cessation of a qualified use of specially valued property.

The recapture tax is limited to the tax savings attributable to the property actually disposed of (or for which qualified use ceased) rather than to the tax savings attributable to all the specially valued property received by the heir.

Who Must File

The qualified heir must file Form 706-A if there was any taxable event (see Taxable Events later) with respect to the specially valued property even if no tax is ultimately due. Further, the qualified heir must file Form 706-A if there was any involuntary conversion or exchange of the specially valued property even if the conversion or exchange is nontaxable.

When To File and Pay

File Form 706-A and pay any additional taxes due within 6 months after the taxable disposition or cessation of the qualified use unless an extension of time has been granted.

Use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an automatic extension of time to file. Check the “Form 706-A” box in Part II of Form 4768.

Make the check or money order payable to the “United States Treasury” and write “Form 706-A” and the qualified heir's social security number on the check or money order.

If you are making an election to increase basis, see Basis on page 2 for information on paying interest.

Where To File

File Form 706-A at the following address.

Department of the Treasury 
Internal Revenue Service Center 
Cincinnati, OH 45999

Statute of Limitations

The additional estate tax may be assessed until 3 years after the IRS receives notice that the qualified heir disposed of the specially valued property or ceased to use it for the qualified use.

However, if the property was disposed of in an involuntary conversion or in an exchange, the tax may be assessed up to 3 years after the IRS receives notice that the property was replaced or will not be replaced. See section 2032A(f) for details.


If the estate elected special-use valuation, section 6324B establishes a special lien against the specially valued property equal to the adjusted tax difference attributable to the special-use valuation.


Return preparer.   The Small Business and Work Opportunity Tax Act of 2007 (Act) extends the application of return preparer penalties to preparers of estate tax returns. Under section 6694, as amended by the Act, and the transitional relief provided by Notice 2007-54, 2007-27 I.R.B. 12, and the final Regulations contain in Treasury Decision 9436; 2009-1 CB 268, estate tax return preparers, who prepare any return or claim for refund which reflects an understatement of tax liability due to willful or reckless conduct, are subject to a penalty of $5,000 or 50% of the income derived (or income to be derived), whichever is greater, for the preparation of each such return. See section 6694, T.D. 9436; 2009-3 I.R.B. 268, Notice 2008-11, 2008-3 I.R.B. 279; Notice 2008-13, 2008-3 I.R.B. 282; and Notice 2008-46, 2008-18 I.R.B. 868 for more details.


Specially valued property.   The term “specially valued property” means farm or closely held business property that the executor elected to value at actual use rather than fair market value (FMV) (defined on page 3). The executor makes the election on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, filed for the decedent. Specially valued property refers to the qualified real property described in section 2032A and includes qualified real property owned indirectly, such as interests in certain partnerships, corporations, and trusts as described in section 2032A.

  If special valuation was elected on Form 706, each qualified heir consented in writing to his or her personal liability for the additional estate tax attributable to his or her interest in the specially valued property.

Qualified heir.   The term “qualified heir” means, for any property, a member of the decedent's family who acquired the property (or to whom the property passes) from the decedent. If a qualified heir disposes of any interest in qualified real property to any member of his or her family, that member shall thereafter be treated as the qualified heir for the interest.

Taxable Events

The qualified heir causes a taxable event by disposing of any interest in the specially valued property or ceasing to use the specially valued property for its qualified use if:

  • The disposition or cessation of qualified use was before the death of the qualified heir and

  • The disposition or cessation was within 10 years after the decedent's death. (But see Two-Year Grace Period—Commencement Date on page 3.)

Only one additional estate tax will be imposed with respect to any one part of specially valued property. For example, if additional estate tax is imposed for early cessation of a qualified use, a second additional estate tax will not be imposed for a subsequent early disposition of the same part of the specially valued property.

Disposition to family member.   A disposition of an interest in property to a family member of the qualified heir is a taxable event that must be reported on Form 706-A. If the transferee enters into an agreement to be personally liable for any additional tax under section 2032A(c), the disposition is nontaxable and you should enter it on Schedule C.

  If the family member does not enter into the agreement, the disposition is taxable and you should enter it on Schedule A.

Disposition of timber.   If the executor made a qualified woodlands election (section 2032A(e)(13)(A)), the disposition or severing of timber from the woodland is a disposition of a portion of the interest in the property. The disposition of a right to sever is treated as a disposition of the standing timber.

  The additional estate tax on this disposition is the amount equal to the lesser of:
  • The amount realized on the disposition (or, if other than a sale or exchange at arm's length, the FMV of the interest disposed of) or

  • The amount of additional estate tax that would have been imposed if the entire interest of the qualified heir in the qualified woodland had been disposed of, minus any additional estate tax imposed on all earlier transactions involving the woodland.

Cessation of qualified use.   The specially valued real property must be used as a farm for farming purposes, or used in a trade or business other than the trade or business of farming. For more details, see the Instructions for Form 706.

  The qualified use ceases if the specially valued real property is not used for the qualified use described earlier. Use of the property as a farm or other business is also considered to cease if, during any 8-year period that ends after the decedent's death, there were periods totaling more than 3 years during which:
  1. Neither the decedent nor any member of the decedent's family materially participated in the operation of the farm or other business (while the decedent held the property) and

  2. Neither the qualified heir nor any member of the qualified heir's family materially participated in the operation of the farm or other business (while the heir held the property).

  If the decedent was retired or disabled before death, there are special rules for applying the 8-year period to paragraph (1) above. See section 2032A(b)(4) and the Instructions for Form 706.

Member of family.   The term “member of the family” includes only:
  • An ancestor (parent, grandparent, etc.) of the individual (where individual refers to either the decedent or a qualified heir);

  • The spouse of the individual;

  • A lineal descendant (child, stepchild, grandchild, etc.) of the individual, the individual's spouse, or a parent of the individual; or

  • The spouse, widow, or widower of any lineal descendant described above.

  A legally adopted child of an individual is treated as a child of that individual by blood.

Period of material participation.    
To determine whether the material participation requirement is satisfied, include periods during which the decedent's estate held the property.

  If a qualified heir dies before the required period has passed, any material participation requirement ends for that heir's portion of the property, provided the heir received a separate or other undivided interest from the decedent.

  If qualified heirs receive successive interests in specially valued property (for example, a life estate and remainder interests), the material participation requirement does not end for any part of the property until the later of the expiration of the recapture period or the death of the last qualified heir.

  In determining whether the required participation has occurred, disregard brief periods (30 days or less) during which there was no material participation. But you may disregard these periods only if they were both preceded and followed by substantial periods (more than 120 days) in which there was uninterrupted material participation.

Required activities for material participation.   See the Instructions for Form 706.


See section 1014(a) for the basis of property acquired from a decedent.

Election to increase basis.   A qualified heir may elect to increase the basis of specially valued property when a taxable event (as defined on page 1) occurs. If this election is made, the basis of the property shall increase to the excess of the FMV amount on the decedent's date of death (or alternate valuation date, if applicable) over the value amount determined under section 2032A. Once the election is made, it is irrevocable.

  To make the election, the qualified heir must:
  • Check the box on line 7 of Part I,

  • Enter on line 20 of Part II the amount of interest being paid on the additional estate tax due, and

  • File with Form 706-A, a statement that:

a. Contains the name, address, and taxpayer identification number of the qualified heir and of the estate;

b. Identifies the election as the election under section 1016(c); and

c. Specifies the property with respect to which the election is made.

  A qualified heir who makes this election must pay interest on the additional estate tax calculated from the date that is 9 months after the date of the decedent's death to the date of the payment of the additional estate tax.

Two-Year Grace Period—Commencement Date

For the two years immediately following the date of the decedent's death, the failure by the qualified heir to begin using the property in a qualified use will not be considered a cessation of qualified use and therefore will not trigger the additional estate tax. The date on which the qualified heir begins to use the property in a qualified use is the commencement date.

The 10-year recapture period is extended by the period after the decedent's death and before the commencement date.

For example, if the decedent died February 28, 2011, and the commencement date is August 1, 2012, the recapture period would begin August 1, 2012, and end July 31, 2022.

How To Complete Form 706-A

You may file Form 706-A for only one qualified heir. If a disposition, cessation, involuntary conversion, or exchange involves more than one qualified heir, each heir must file a separate Form 706-A.

Complete Form 706-A in this order:

  1. Part I,

  2. Schedules A and B,

  3. Part II,

  4. Schedule C.


The qualified heir must sign the return.

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