Form 706-A - United States Additional Estate Tax Return

Tax Forms & Publications
Work Request Notification (WRN)/Circulation
Product I706 A
Title

Instructions for Form 706-A, United States Additional Estate Tax Return

Tax year 2016

Processing year 2017

This is the 1st circulation of this product for your review and comments. This circulation can be used to support any necessary work
requests.
Authority for changes that may impact a Unified Work Request (UWR) (For changes, see Description of Major Changes below)

Signature of Approving Official

Circulation signature date

Patrick Shaughness

Digitally signed by Patrick Shaughness
DN: c=US, o=U.S. Government, ou=Department of the Treasury, ou=Internal Revenue Service,
ou=People, serialNumber= NSWMB, cn=Patrick Shaughness
Date: 2016.06.22 10:27:02 -0400

06/22/2016

Description of major changes (A description of changes to a form's instructions that may impact a UWR is also included, as applicable)
Update revision year

Add paragraph under What's New about the consistent basis reporting requirement and filing Form 8971.

Comments: Comments are due 30 days after the date this circulation is signed and issued, unless a different date is specified here:
Comments should be sent via email to both the Tax Law Specialist and Reviewer listed below. We will accept comments after the due date, but may not
be able to consider any comments (timely or not) for this revision if implementing the comments would require a late UWR. If we need to make
significant changes based on comments or other new information received, we normally will issue a subsequent circulation of this product; otherwise,
these changes are final unless indicated otherwise in the Description of Major Changes.

Name of Tax Law Specialist CHARLES W MANGRUM

Name of Reviewer PATRICK SHAUGHNESS

Email address charles.w.mangrum@irs.gov

Email address Patrick.Shaughness@irs.gov

Form 14216 (Rev. 6-2014)

Catalog Number 57440M

publish.no.irs.gov

Department of Treasury - Internal Revenue Service

Userid: CPM

AH XSL/XML

Page 1 of 5

Schema:
Leadpct: 100%
instrx
Fileid: … ns/I706A/201609/A/XML/Cycle01/source

Pt. size: 9.5

Draft

Ok to Print

(Init. & Date) _______

14:29 - 8-Jun-2016

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Instructions for Form 706-A

Department of the Treasury
Internal Revenue Service

(Rev. September 2016)

United States Additional Estate Tax Return

To report dispositions or cessations of qualified use under section 2032A of the Internal Revenue Code
Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments
For the latest information about
developments related to Form 706 and
its instructions, such as legislation
enacted after they were published, go to
www.irs.gov/form706.

What's New

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.

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.

6
0

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

Jun 08, 2016

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.

s
a
6
1
t
f 0

Who Must File

2
a
/
r
8
D /0

Consistent basis reporting. On July
31, 2015, the Surface Transportation
and Veterans Health Care Choice
Improvement Act of 2015 (Public Law
114-41) was enacted. Section 2004 of
the Act requires that certain estates
report, both to the IRS and the recipient,
the estate tax value of each asset
included in the gross estate within 30
days of filing Form 706. Filing Form
706-A may trigger the consistent basis
reporting requirement if specially valued
assets undergo a taxable event and
need to be assigned an estate tax basis
equal to the fair market value. It also
requires that the basis of certain assets
when sold or otherwise disposed of
must be consistent with the basis
(estate tax value) of the asset when it
was received by the beneficiary. Any
person required to file Form 706-A may
also be required to file Form 8971,
Information Regarding Beneficiaries
Acquiring Property From a Decedent, to
satisfy the new consistent basis
reporting requirement. Additional
guidance and other information
regarding consistent basis reporting are
being developed. If you believe the new
requirements impact this estate or its
beneficiaries, please check
www.irs.gov/form706 for additional
information.

f
o

receives notice that the qualified heir
disposed of the specially valued
property or ceased to use it for the
qualified use.

When To File and Pay

Lien

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.

Penalties

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

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.

Where To File

Definitions

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.

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
Cat. No. 10142D

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

Page 2 of 5

14:29 - 8-Jun-2016

Fileid: … ns/I706A/201609/A/XML/Cycle01/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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.

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.

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.)

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).

6
0

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

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.

f
o

s
a
6
1
t
f 0

2
a
/
r
8
D /0

Taxable Events

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.

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

-2-

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

Basis

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

Page 3 of 5

Fileid: … ns/I706A/201609/A/XML/Cycle01/source

14:29 - 8-Jun-2016

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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

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.

6
0

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.
Note. The qualified heir must sign the
return.

Specific Instructions
Valuation

When computing the amounts to enter
on Form 706-A, use the same values

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.

f
o

s
a
6
1
t
f 0

2
a
/
r
8
D /0

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.

qualified heir, report in column D the
FMV of the specially valued property as
of the date of disposition or cessation of
qualified use.

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
-3-

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.

Page 4 of 5

Fileid: … ns/I706A/201609/A/XML/Cycle01/source

14:29 - 8-Jun-2016

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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.

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

2
/
8

D 6/0
0

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

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.

f
o

s
a
6
1
t
f 0

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.

a
r

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.

How To Complete
Schedule C

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.
-4-

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

Page 5 of 5

Fileid: … ns/I706A/201609/A/XML/Cycle01/source

14:29 - 8-Jun-2016

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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.
Privacy Act and Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the
Internal Revenue laws of the United
States. We need it to figure and collect
the right amount of tax. Subtitle B,
Estate and Gift Taxes, of the Internal
Revenue Code, imposes a tax in some
cases on qualified heirs who dispose of
property valued under special valuation
rules. This form is used to determine the
amount of the taxes that you owe.
Section 6011 requires you to provide
the requested information if the tax is
applicable to you. Section 6109 requires
you to provide your identifying number.

by section 6103. However, section 6103
allows or requires the Internal Revenue
Service to disclose or give such
information shown on your Form 706-A
to the Department of Justice to enforce
the tax laws, both civil and criminal, and
to cities, states, the District of Columbia,
U.S. commonwealths or possessions,
and certain foreign governments for use
in administering their tax laws. We may
also disclose this information to other
countries under a tax treaty, to federal
nontax criminal laws, or to federal law
enforcement and intelligence agencies
to combat terrorism. If you fail to provide
this information in a timely manner, you
may be subject to penalties and interest.

Recordkeeping . . . . . . .

3 hr., 17 min.

Learning about the law
or the form . . . . . . . .

2 hr., 11 min.

Preparing the form . . . .

1 hr., 39 min.

Copying, assembling,
and sending the form
to the IRS . . . . . . . . .

1 hr., 3 min.

f
o

If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. You can send your comments
to:

s
a
6
1
t
f 0

You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions must
be retained as long as their contents
may become material in the
administration of any Internal Revenue
law.

2
a
/
r
8
D /0

Generally, tax returns and return
information are confidential, as required

individual circumstances. The estimated
average time is:

The time needed to complete and file
this form will vary depending on

6
0

-5-

Internal Revenue Service
Tax Forms and Publications
Division
1111 Constitution Ave. NW,
IR-6526
Washington, DC 20224

Do not send the tax form to this office.
Instead, see Where To File.