Instructions for Form 706-A (Rev. August 1999) United States Additional Estate Tax Return Section references are to the Internal Revenue Code unless otherwise noted. Department of the Treasury Internal Revenue Service General Instructions Item You Should Note.   The 10–15 year phasedown of the recapture tax does not apply to the estates of decedents dying after 1981. For these estates, no recapture tax is imposed on dispositions or cessations occurring more than 10 years after the commencement date. (If you are filing this form for the estate of a decedent dying after 1976 and before 1982, see the March 1997 revision of Form 706-A.) Who May Use This Form This Form 706-A may be used for the estates of decedents dying after December 31, 1981, to report all dispositions or cessations of qualified use that occurred after December 31, 1981. 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” (as defined below) 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 extension of time to file. Circle “Form 706-A” at the top of Form 4768. Make the check or money order payable to the United States Treasury and write the qualified heir's social security number on the check or money order. Where To File File Form 706-A with the Internal Revenue Service office where Form 706 for the decedent's estate was filed. 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). 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. Definitions 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. 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: 1. The disposition or cessation of qualified use was before the death of the qualified heir, and 2. The disposition or cessation was within 10 years after the decedent's death. (But see “Two-Year Grace Period” below.) 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. Cat. No. 10142D