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Page 2 of 5 Fileid: … ns/I706A/201908/A/XML/Cycle04/source 14:30 - 8-Aug-2019
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
for the additional estate tax attributable exchange at arm's length, the FMV of If a qualified heir dies before the
to his or her interest in the specially the interest disposed of); or required period has passed, any
valued property. • The amount of additional estate tax material participation requirement ends
that would have been imposed if the for that heir's portion of the property,
Qualified heir. The term “qualified
entire interest of the qualified heir in the provided the heir received a separate or
heir” means, for any property, a member
qualified woodland had been disposed other undivided interest from the
of the decedent's family who acquired
of, minus any additional estate tax decedent.
the property (or to whom the property
imposed on all earlier transactions
passes) from the decedent. If a qualified If qualified heirs receive successive
involving the woodland.
heir disposes of any interest in qualified interests in specially valued property
real property to any member of his or Cessation of qualified use. The (for example, a life estate and
her family, that member shall thereafter specially valued real property must be remainder interests), the material
be treated as the qualified heir for the used as a farm for farming purposes, or participation requirement does not end
interest. used in a trade or business other than for any part of the property until the later
the trade or business of farming. For of the expiration of the recapture period
Taxable Events more details, see the Instructions for or the death of the last qualified heir.
The qualified heir causes a taxable Form 706. In determining whether the required
event by disposing of any interest in the The qualified use ceases if the participation has occurred, disregard
specially valued property or ceasing to specially valued real property is not brief periods (30 days or less) during
use the specially valued property for its used for the qualified use described which there was no material
qualified use if: earlier. Use of the property as a farm or participation. But you may disregard
• The disposition or cessation of other business is also considered to these periods only if they were both
qualified use was before the death of cease if, during any 8-year period that preceded and followed by substantial
the qualified heir, and ends after the decedent's death, there periods (more than 120 days) in which
• The disposition or cessation was were periods totaling more than 3 years there was uninterrupted material
within 10 years after the decedent's during which: participation.
death. (But see Two-Year Grace 1. Neither the decedent nor any Required activities for material par-
Period—Commencement Date, later.) member of the decedent's family ticipation. See the Instructions for
Only one additional estate tax will be materially participated in the operation Form 706.
imposed with respect to any one part of of the farm or other business (while the
specially valued property. For example, decedent held the property), and Basis
if additional estate tax is imposed for 2. Neither the qualified heir nor any See section 1014(a) for the basis of
early cessation of a qualified use, a member of the qualified heir's family property acquired from a decedent.
second additional estate tax will not be materially participated in the operation Election to increase basis. A
imposed for a subsequent early of the farm or other business (while the qualified heir may elect to increase the
disposition of the same part of the heir held the property). basis of specially valued property when
specially valued property.
If the decedent was retired or a taxable event (as defined earlier)
Disposition to family member. A disabled before death, there are special occurs. If this election is made, the
disposition of an interest in property to a rules for applying the 8-year period to basis of the property shall increase to
family member of the qualified heir is a paragraph (1) above. See section the excess of the FMV amount on the
taxable event that must be reported on 2032A(b)(4) and the Instructions for decedent's date of death (or alternate
Form 706-A. If the transferee enters into Form 706. valuation date, if applicable) over the
an agreement to be personally liable for value amount determined under section
any additional tax under section Member of family. The term “member 2032A. Once the election is made, it is
2032A(c), the disposition is nontaxable of the family” includes only: irrevocable.
and you should enter it on Schedule C. • An ancestor (parent, grandparent,
etc.) of the individual (where individual To make the election, the qualified
If the family member does not enter refers to either the decedent or a heir must:
into the agreement, the disposition is qualified heir); • Check the box on line 7 of Part I;
taxable and you should enter it on • The spouse of the individual; • Enter on line 20 of Part II the amount
Schedule A. • A lineal descendant (child, stepchild, of interest being paid on the additional
Disposition of timber. If the executor grandchild, etc.) of the individual, the estate tax due; and
made a qualified woodlands election individual's spouse, or a parent of the • File with Form 706-A, a statement
(section 2032A(e)(13)(A)), the individual; or that:
disposition or severing of timber from • The spouse, widow, or widower of a. Contains the name, address, and
the woodland is a disposition of a any lineal descendant described above. taxpayer identification number of the
portion of the interest in the property. A legally adopted child of an qualified heir and of the estate;
The disposition of a right to sever is individual is treated as a child of that b. Identifies the election as the
treated as a disposition of the standing individual by blood. election under section 1016(c); and
timber. c. Specifies the property with
Period of material participation. respect to which the election is
The additional estate tax on this To determine whether the material made.
disposition is the amount equal to the participation requirement is satisfied,
A qualified heir who makes this
lesser of: include periods during which the
election must pay interest on the
• The amount realized on the decedent's estate held the property.
disposition (or, if other than a sale or additional estate tax calculated from the
date that is 9 months after the date of
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