Column A.   Within each Part, list and number 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.

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

  The amount realized is the sum of the money received plus the fair market value 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 fair market value of the specially valued property as of the date of disposition or cessation of qualified use.

  Fair market value 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 fair market value 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.

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.

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 property means any real property that is to be used for the qualified use and that (a) was purchased by the qualified heir within the time specified by section 1033 to replace the qualified property, or (b) into which the qualified real property is 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 fair market value of the replacement or exchange property (at the date of acquisition) that does not exceed the fair market value of the replaced or exchanged property (at the date of disposition).

Note that the 10-year recapture period is extended under certain circumstances.

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 fair market value.

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

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 for 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.

See the instructions for completing columns A, B, and C of Schedule A, beginning on page 2.