us internal revenue service: i706--1999

8/14/2019 US Internal Revenue Service: i706--1999

1/26

Instructions for Form 706(Revised July 1999)United States Estate (and Generation-SkippingTransfer) Tax Return(For decedents dying after December 31, 1998.)Section references are to the Internal Revenue Code unless otherwise noted.

Department of the TreasuryInternal Revenue Service

Paperwork Reduction Act Notice. We ask for the information on this form to carry out theInternal Revenue laws of the United States. You are required to give us the information. We needit to ensure that you are complying with these laws and to allow us to figure and collect the rightamount of tax.

You are not required to provide the information requested on a form that is subject to thePaperwork Reduction Act unless the form displays a valid OMB control number. Books or recordsrelating to a form or its instructions must be retained as long as their contents may becomematerial in the administration of any Internal Revenue law. Generally, tax returns and returninformation are confidential as required by section 6103.

The time needed to complete and file this form and related schedules will vary depending onindividual circumstances. The estimated average times are:

If you have comments concerning the accuracy of these time estimates or suggestions formaking this form simpler, we would be happy to hear from you. You can write to the Tax FormsCommittee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. DO NOT sendthe tax form to this address. Instead, see Where To File on page 2.

General Instructions

Changes To Noteq See the Instructions for Part 2. TaxComputation, line 11, for unified credit(applicable credit amounts) and applicableexclusion amounts for years 1987 through

2006 and after.q Various dollar amounts and limitationsrelevant to Form 706 are now indexed forinflation. For decedents dying in 1999, thefollowing amounts have increased:

the ceiling on special use valuation is$760,000; the generation-skipping transfer taxexemption is $1,010,000; and the amount used in computing the 2%portion of estate tax payable in installmentsis $1,010,000.

The IRS will publish amounts for futureyears in an annual revenue procedure.

Part 1 ................................................ 4

Part 2 ................................................ 4

Part 3 ................................................ 5

Part 4 ................................................ 9

Part 5................................................ 10

Schedule A*...................................... 11

Schedule A-1*................................... 11

Schedule B ....................................... 11

Schedule C*...................................... 11

Form Recordkeeping

Learning aboutthe law or the

formPreparingthe form

Copying,assembling, andsending the form

to the IRS

Schedule D*...................................... 11

Schedule E*...................................... 11

Schedule F* ...................................... 11706 2 hr., 11 min. 1 hr., 25 min. 3 hr., 35 min. 49 min.Sch. A 20 min. 16 min. 10 min. 20 min.

Schedule G....................................... 11A-1 46 min. 25 min. 59 min. 49 min. Schedule H ....................................... 14B 20 min. 16 min. 20 min. 20 min.

C 13 min. 2 min. 8 min. 20 min. Schedule I......................................... 14D 7 min. 6 min. 8 min. 20 min.

Schedule J*....................................... 16E 40 min. 7 min. 24 min. 20 min.F 33 min. 8 min. 21 min. 20 min. Schedule K ....................................... 16G 26 min. 23 min. 11 min. 14 min.

Schedule L........................................ 17H 26 min. 7 min. 10 min. 14 min.I 26 min. 27 min. 11 min. 20 min. Schedule M* ..................................... 17J 26 min. 7 min. 16 min. 20 min.

Schedule O....................................... 17K 26 min. 10 min. 10 min. 20 min.

Schedule P ....................................... 18L 13 min. 5 min. 10 min. 20 min.M 13 min. 31 min. 24 min. 20 min.

Schedule Q....................................... 18O 20 min. 11 min. 18 min. 17 min.

Schedules R, R-1 ............................. 19P 7 min. 14 min. 18 min. 14 min.Q 7 min. 10 min. 11 min. 14 min. Schedule T........................................ 22Q Wksheet 7 min. 10 min. 59 min. 20 min.

Schedule U ....................................... 23R 20 min. 34 min. 1 hr., 2 min. 49 min.

R-1 7 min. 29 min. 24 min. 20 min. Continuation Schedule...................... 24T 1 hr., 12 min. 27 min. 1 hr., 14 min. 1 hr., 3 min.

Worksheet for Schedule Q ............... 25U 20 min. 3 min. 29 min. 20 min.Cont. Sch. 20 min. 3 min. 7 min. 20 min. Index ................................................. 26

*For Schedules A, A-1, C, D, E, F, J, and M,see instructions in the Form 706 itself.

AfterFor Decedents Dying

and BeforeUse Revision ofForm 706 Dated

........................ January 1, 1982 November 1981December 31, 1981 October 23, 1986 November 1987December 31, 1989 October 9, 1990 October 1988October 8, 1990 January 1, 1998 April 1997December 31, 1997 January 1, 1999 July 1998

December 31, 1998 ............................ July 1999

F Paying the Tax.................................. 2Contents Page

G Signature and Verification ................ 2 General Instructions.......................... 1

H Amending Form 706......................... 3 Changes To Note ............................. 1

I Supplemental Documents................. 3A Purpose of Form............................... 2

J Rounding Off to Whole Dollars......... 3B Which Estates Must File................... 2

K Penalties ........................................... 3C Executor ............................................ 2

L Obtaining Forms and Publications... 3D When To File .................................... 2

Specific Instructions.......................... 3E Where To File................................... 2

Cat. No. 16779E


2/26

q See the instructions for Schedule U on page23 for the table showing the exclusion limitationfor the qualified conservation easementexclusion for the years 1999 through 2002 orthereafter.

A. Purpose of FormThe executor of a decedent's estate uses Form706 to figure the estate tax imposed by Chapter11 of the Internal Revenue Code. This tax islevied on the entire taxable estate, not just onthe share received by a particular beneficiary.Form 706 is also used to compute the

generation-skipping transfer (GST) taximposed by Chapter 13 on direct skips(transfers to skip persons of interests inproperty included in the decedent's grossestate).

B. Which Estates Must FileFor decedents dying in 1999, Form 706 must

be filed by the executor for the estate of everyU.S. citizen or resident whose gross estate,plus adjusted taxable gifts and specificexemption, is more than $650,000 in 1999.

To determine whether you must file a returnfor the estate, add:

1. The adjusted taxable gifts (under section2001(b)) made by the decedent afterDecember 31, 1976;

2. The total specific exemption allowedunder section 2521 (as in effect before itsrepeal by the Tax Reform Act of 1976) for giftsmade by the decedent after September 8,1976; and

3. The decedent's gross estate valued atthe date of death.

For dates of death after 1999, the executormust file Form 706 for any estate in which thesum of these items exceeds the applicableexclusion amount for that year. See the tablefor line 11 on page 4 for the applicableexclusion amounts.

Gross Estate

The gross estate includes all property in whichthe decedent had an interest (including realproperty outside the United States). It also

includes:q Certain transfers made during the decedent'slife without an adequate and full considerationin money or money's worth;q Annuities;q The includible portion of joint estates withright of survivorship (see the instructions on theback of Schedule E);q The includible portion of tenancies by theentirety (see the instructions on the back ofSchedule E);q Certain life insurance proceeds (even thoughpayable to beneficiaries other than the estate)(see the instructions on the back of ScheduleD);q Property over which the decedent possesseda general power of appointment;q Dower or curtesy (or statutory estate) of thesurviving spouse;q Community property to the extent of thedecedent's interest as defined by applicablelaw.

For more specific information, see theinstructions for Schedules A through I.

U. S. Citizens or Residents;Nonresident Noncitizens

File Form 706 for the estates of decedents whowere either U.S. citizens or U.S. residents atthe time of death. For estate tax purposes, aresident is someone who had a domicile in the

United States at the time of death. A personacquires a domicile by living in a place for evena brief period of time, as long as the personhad no intention of moving from that place.

File Form 706-NA, United States Estate(and Generation-Skipping Transfer) TaxReturn, Estate of nonresident not a citizen ofthe United States, for the estates ofnonresident alien decedents (decedents whowere neither U.S. citizens nor residents at thetime of death).

Residents of U. S. Possessions

All references to citizens of the United Statesare subject to the provisions of sections 2208and 2209, relating to decedents who were U.S.citizens and residents of a U.S. possession onthe date of death. If such a decedent becamea U.S. citizen only because of his or herconnection with a possession, then thedecedent is considered a nonresident aliendecedent for estate tax purposes, and youshould file Form 706-NA. If such a decedentbecame a U.S. citizen wholly independently ofhis or her connection with a possession, thenthe decedent is considered a U.S. citizen forestate tax purposes, and you should file Form706.

C. ExecutorThe term executor means the executor,

personal representative, or administrator of thedecedent's estate. If none of these isappointed, qualified, and acting in the UnitedStates, every person in actual or constructivepossession of any property of the decedent isconsidered an executor and must file a return.

D. When To FileYou must file Form 706 to report estate and/orgeneration-skipping transfer tax within 9months after the date of the decedent's deathunless you receive an extension of time to file.Use Form 4768, Application for Extension ofTime To File a Return and/or Pay U.S. Estate(and Generation-Skipping Transfer) Taxes, toapply for an extension of time to file. If youreceived an extension, attach a copy of it toForm 706.Private delivery services. You can usecertain private delivery services designated bythe IRS to meet the timely mailing as timelyfiling/paying rule for tax returns and payments.The most recent list of designated privatedelivery services was published by the IRS inSeptember 1998. The list includes only thefollowing:q Airborne Express (Airborne): Overnight AirExpress Service, Next Afternoon Service,Second Day Service.q DHL Worldwide Express (DHL): DHL SameDay Service, DHL USA Overnight.q Federal Express (FedEx): FedEx PriorityOvernight, FedEx Standard Overnight, FedEx2Day.q United Parcel Service (UPS): UPS Next Day

Air, UPS Next Day Air Saver, UPS 2nd DayAir, UPS 2nd Day Air A.M.The private delivery service can tell you how

to get written proof of the mailing date.

E. Where To FileUnless the return is hand carried to the officeof the District Director, please mail it to theInternal Revenue Service Center indicatedbelow for the state where the decedent wasdomiciled at the time of death. If you are filinga return for the estate of a nonresident U.S.citizen, mail it to the Internal Revenue ServiceCenter, Philadelphia, PA 19255, USA.

F. Paying the TaxThe estate and GST taxes are due within 9

months after the date of the decedent's deathunless an extension of time for payment hasbeen granted, or unless you have properlyelected under section 6166 to pay ininstallments, or under section 6163 to postponethe part of the tax attributable to a reversionaryor remainder interest. These elections aremade by checking lines 3 and 4 (respectively)of Part 3, Elections by the Executor, andattaching the required statements.

If the tax paid with the return is different fromthe balance due as figured on the return,explain the difference in an attached statement.If you have made prior payments to IRS orredeemed certain marketable United StatesTreasury bonds to pay the estate tax (see thelast paragraph of the instructions to ScheduleB), attach a statement to Form 706 including

these facts. If an extension of time to pay hasbeen granted, attach a copy of the approvedForm 4768 to Form 706.Paying by check. Make the check payable tothe United States Treasury. Please write thedecedent's name, social security number, andForm 706 on the check to assist us in postingit to the proper account.

G. Signature and VerificationIf there is more than one executor, all listedexecutors must verify and sign the return.All executors are responsible for the return asfiled and are liable for penalties provided forerroneous or false returns.

Florida, Georgia, SouthCarolina

Atlanta, GA 39901

Illinois, Iowa, Minnesota,Missouri, Wisconsin

Kansas City, MO 64999

New Jersey, New York (NewYork City and counties ofNassau, Rockland, Suffolk,and Westchester)

Holtsville, NY 00501

New York (all othercounties), Connecticut,

Maine, Massachusetts, NewHampshire, Rhode Island,Vermont

Andover, MA 05501

Delaware, District ofColumbia, Maryland,Pennsylvania, Virginia

Philadelphia, PA 19255

Indiana, Kentucky, Michigan,Ohio, West Virginia

Cincinnati, OH 45999

Kansas, New Mexico,Oklahoma, Texas

Austin, TX 73301

Alaska, Arizona, California(counties of Alpine, Amador,Butte, Calaveras, Colusa,Contra Costa, Del Norte, ElDorado, Glenn, Humboldt,Lake, Lassen, Marin,Mendocino, Modoc, Napa,Nevada, Placer, Plumas,Sacramento, San Joaquin,Shasta, Sierra, Siskiyou,Solano, Sonoma, Sutter,Tehama, Trinity, Yolo, andYuba), Colorado, Idaho,Montana, Nebraska,Nevada, North Dakota,Oregon, South Dakota,Utah, Washington, Wyoming

Ogden, UT 84201

California (all othercounties), Hawaii

Fresno, CA 93888

Alabama, Arkansas,Louisiana, Mississippi, NorthCarolina, Tennessee

Memphis, TN 37501

Page 2 General Instructions


3/26

If two or more persons are liable for filing thereturn, they should all join together in filing onecomplete return. However, if they are unableto join in making one complete return, each isrequired to file a return disclosing all theinformation the person has in the case,including the name of every person holding aninterest in the property and a full description ofthe property. If the appointed, qualified, andacting executor is unable to make a completereturn, then every person holding an interest inthe property must, on notice from the IRS,make a return regarding that interest.

The executor who files the return must, in

every case, sign the declaration on page 1under penalties of perjury. If the return isprepared by someone other than the personwho is filing the return, the preparer must alsosign at the bottom of page 1.

H. Amending Form 706If you find that you must change something ona return that has already been filed, you shouldfile another Form 706 and write SupplementalInformation across the top of page 1 of theform. If you have already been notified that thereturn has been selected for examination, youshould provide the additional informationdirectly to the office conducting theexamination.

I. Supplemental DocumentsYou must attach the death certificate to thereturn.

If the decedent was a citizen or resident anddied testate, attach a certified copy of the willto the return. If you cannot obtain a certifiedcopy, attach a copy of the will and anexplanation of why it is not certified. Othersupplemental documents may be required asexplained below. Examples include Forms 712,709, 709-A, and 706-CE, trust and power ofappointment instruments, death certificate, andstate certification of payment of death taxes. Ifyou do not file these documents with the return,the processing of the return will be delayed.

If the decedent was a U.S. citizen but not aresident of the United States, you must attachthe following documents to the return:

1. A copy of the inventory of property andthe schedule of liabilities, claims against theestate, and expenses of administration filedwith the foreign court of probate jurisdiction,certified by a proper official of the court;

2. A copy of the return filed under theforeign inheritance, estate, legacy, successiontax, or other death tax act, certified by a properofficial of the foreign tax department, if theestate is subject to such a foreign tax; and

3. If the decedent died testate, a certifiedcopy of the will.

J. Rounding Off to WholeDollarsYou may show the money items on the return

and accompanying schedules as whole-dollaramounts. To do so, drop any amount less than50 cents and increase any amount from 50cents through 99 cents to the next higherdollar.

K. PenaltiesLate filing and late payment. Section 6651provides for penalties for both late filing and forlate payment unless there is reasonable causefor the delay. The law also provides forpenalties for willful attempts to evade paymentof tax. The late filing penalty will not beimposed if the taxpayer can show that thefailure to file a timely return is due toreasonable cause. Executors filing late (afterthe due date, including extensions) shouldattach an explanation to the return to showreasonable cause.

Valuation understatement. Section 6662provides a 20% penalty for the underpaymentof estate tax of $5,000 or more when theunderpayment is attributable to valuationunderstatements. A valuation understatementoccurs when the value of property reported onForm 706 is 50% or less of the actual value ofthe property.

This penalty increases to 40% if there is agross valuation understatement. A grossvaluation understatement occurs if anyproperty on the return is valued at 25% or lessof the value determined to be correct.

These penalties also apply to late filing, latepayment, and underpayment of GST taxes.

L. Obtaining Forms and

Publications To File or UsePersonal computer. Access the IRS'sInternet web site at www.irs.gov to do thefollowing:q Download forms, instructions, andpublications.q Search publications on-line by topic orkeyword.

You can also reach us using:q Telnet at iris.irs.ustreas.govq File transfer protocol at ftp.irs.ustreas.govq Direct dial (by modem) 703-321-8020.CD-ROM. Order Pub. 1796, Federal TaxProducts on CD-ROM, and get:q Current year forms, instructions, andpublications, andq

Prior year forms and instructions.Buy the CD-ROM on the Internet atwww.irs.ustreas.gov/cdorders from theNational Technical Information Service (NTIS),or call 1-877-CDFORMS (1-877-233-6767)toll-free to buy the CD-ROM. (Prices may differat each of these locations.)By phone and in person. You can orderforms and publications 24 hours a day, 7 daysa week, by calling 1-800-TAX-FORM(1-800-829-3676). You can also get most formsand publications at your local IRS office.

Forms and Publications to file or use.q Forms: The title for forms to file or use aregiven within these instructions.q Publications:

Publication 910. Guide to Free TaxServicesPublication 559. Survivors, Executors,and Administrators

Specific Instructionsq You must file the first three pages of Form706 and all required schedules.q File Schedules A through I, as appropriate,to support the entries in items 1 through 9 ofthe Recapitulation.

q Form 706 has 44 numbered pages. Thepages are perforated so that you can removethem for copying and filing.q When you complete the return, staple all therequired pages together in the proper order.q Number the items you list on each schedule,beginning with the number 1 each time.q Total the items listed on the schedule and itsattachments, Continuation Schedules, etc.q Enter the total of all attachments,Continuation Schedules, etc., at the bottom ofthe printed schedule, but do not carry the totals

forward from one schedule to the next.q Enter the total, or totals, for each scheduleon the Recapitulation, page 3, Form 706q Do not complete the Alternate valuationdate or Alternate value columns of anyschedule unless you elected alternate valuationon line 1 of Part 3, Elections by the Executor.

IF . . . THEN . . .

you enter zero on anyitem of the Recapitulation,

you need not file theschedule (except for

Schedule F) referred toon that item.

you claim an exclusion onitem 11,

complete and attachSchedule U.

you claim any deductionson items 13 through 23of the Recapitulation,

complete and attach theappropriate schedules tosupport the claimeddeductions.

you claim the credits forforeign death taxes or taxon prior transfers,

complete and attachSchedule P or Q.

there is not enough spaceon a schedule to list allthe items,

attach a ContinuationSchedule (or additionalsheets of the same size)to the back of theschedule;(see the end of the Form706 package for theContinuation Schedule);photocopy the blankschedule beforecompleting it, if you willneed more than one copy.

General and Specific Instructions Page 3


4/26

Instructions for Part 1.Decedent and Executor (Page 1of Form 706)

Line 2

Enter the social security number assignedspecifically to the decedent. You cannot usethe social security number assigned to thedecedent's spouse. If the decedent did nothave a social security number, the executorshould obtain one for the decedent by filingForm SS-5, Application for Social SecurityCard, with a local Social SecurityAdministration office.

Line 6aName of Executor

If there is more than one executor, enter thename of the executor to be contacted by theIRS. List the other executors' names,addresses, and SSNs (if applicable) on anattached sheet.

Line 6bExecutor's Address

Use Form 8822, Change of Address, to reporta change of the executor's address.

Line 6cExecutor's Social SecurityNumber

Only individual executors should complete thisline. If there is more than one individualexecutor, all should list their social securitynumbers on an attached sheet.

Instructions for Part 2. TaxComputation (Page 1 of Form706)In general, the estate tax is figured by applyingthe unified rates shown in Table A, on page12, to the total of transfers both during life andat death, and then subtracting the gift taxes.You must complete the Tax Computation.

Line 1

If you elected alternate valuation on line 1, Part3, Elections by the Executor, enter the amountyou entered in the Alternate value column ofitem 12 of Part 5, Recapitulation. Otherwise,enter the amount from the Value at date ofdeath column.

Lines 4 and 9

Three worksheets are provided to help youcompute the entries for these lines. You neednot file these worksheets with your return butshould keep them for your records. WorksheetTGTaxable Gifts Reconciliation, on page5, allows you to reconcile the decedent'slifetime taxable gifts to compute totals that willbe used for the line 4 and line 9 worksheets.

You must get all of the decedent's gift taxreturns (Form 709, United States Gift (andGeneration-Skipping Transfer) Tax Return)

before you complete Worksheet TG. Theamounts you will enter on Worksheet TG canusually be derived from these returns as filed.However, if any of the returns were audited bythe IRS, you should use the amounts that werefinally determined as a result of the audits.

In addition, you must include in column b ofWorksheet TG any gifts in excess of the annualexclusion made by the decedent (or on behalfof the decedent under a power of attorney) butfor which no Forms 709 were filed. You mustmake a reasonable inquiry as to the existenceof any such gifts. The annual exclusion for1977 through 1981 was $3,000 per donee peryear and $10,000 for years after 1981.

For tax years beginning after1998 theannual $10,000 exclusion for gifts is indexedfor inflation. For calendar year 1999, the annualexclusion for gifts remained at $10,000,however. See Rev. Proc. 98-61, 1998-52I.R.B. 23.

Note:In figuring the line 9 amount, do notinclude any tax paid or payable on gifts madebefore 1977. The line 9 amount is ahypothetical figure based only on gifts madeafter 1976 and used to calculate the estate tax.

Special treatment of split gifts. Thesespecial rules apply only if:

1. The decedent's spouse predeceased thedecedent;

2. The decedent's spouse made gifts thatwere split with the decedent under the rulesof section 2513;

3. The decedent was the consentingspouse for those split gifts, as that term isused on Form 709; and

4. The split gifts were included in thedecedent's spouse's gross estate under section2035.

If all four conditions above are met, do notincludethese gifts on line 4 of the TaxComputation and do not includethe gift taxespayable on these gifts on line 9 of the TaxComputation. These adjustments areincorporated into the worksheets.

Line 7Lines 7a-c are used to calculate the phaseoutof the graduated rates. The phaseout appliesonly to estates in which the amount thetentative tax is computed on exceeds $10million.

Line 11 Unified Credit (Applicablecredit amount)

The Taxpayer Relief Act of 1997 replaced theunified credit amountwith an applicable creditamount, effective for the estates of decedentsdying, and gifts made, after December 31,1997. The applicable credit amount willincrease as shown in the table below until2006, when $1 million will be exempted fromtransfer tax. The amount of the credit cannotexceed the amount of estate tax imposed.

The unified credit and exemption equivalent(applicable exclusion amount) for 1987 andlater are as follows:

Important: If the estate is claiming a qualifiedfamily-owned business interest deduction, seeCoordination with unified crediton page 22before completing line 11.

Line 12 Adjustment to Unified credit(applicable credit amount)

If the decedent made gifts (including gifts madeby the decedent's spouse and treated as madeby the decedent by reason of gift splitting) afterSeptember 8, 1976, and before January 1,1977, for which the decedent claimed a specificexemption, the unified credit (applicable creditamount) on this estate tax return must be

reduced. The reduction is figured by entering20% of the specific exemption claimed forthese gifts.

Note: (The specific exemption was allowedby section 2521 for gifts made before January1, 1977.)

If the decedent did not make any giftsbetween September 8, 1976, and January 1,1977, or if the decedent made gifts during thatperiod but did not claim the specific exemption,enter zero.

Line 15Credit for state death taxes

You may take a credit on line 15 for estate,inheritance, legacy, or succession taxes paidas the result of the decedent's death to anystate or the District of Columbia. However, seesection 2053(d) and the related regulations forexceptions and limits if you elected to deductthe taxes from the value of the gross estate.

If you make a section 6166 election to paythe Federal estate tax in installments and makea similar election to pay the state death tax ininstallments, see Rev. Rul. 86-38, 1986-1 C.B.296, for the method of computing the creditallowed with this Form 706.

If you have elected to extend the time to paythe tax on a reversionary or remainder interest,you may take a credit against that portion of theFederal estate tax for state death taxesattributable to the reversionary or remainderinterest. The state death taxes must be paidand claimed before the expiration of theextended time for paying the estate tax.

The credit may not be more than the amountfigured by using Table B, on page 12, basedon the value of the adjusted taxable estate. Theadjusted taxable estate is the amount of theFederal taxable estate (line 3 of the TaxComputation) reduced by $60,000. You mayclaim an anticipated amount of credit and figurethe Federal estate tax on the return before thestate death taxes have been paid. However,the credit cannot be finally allowed unless youpay the state death taxes and claim the creditwithin 4 years after the return is filed (or lateras provided by the Code if a petition is filedwith the Tax Court of the United States, or ifyou have an extension of time to pay) andsubmit evidence that the tax has been paid. If

you claim the credit for any state death tax thatis later recovered, see Regulations section20.2016-1 for the notice you are required togive the IRS within 30 days.

If you transfer property other than cash tothe state in payment of state inheritance taxes,the amount you may claim as a credit is thelesser of the state inheritance tax liabilitydischarged or the fair market value of theproperty on the date of the transfer.

For more details, see Rev. Rul. 86-117,1986-2 C.B. 157.

You should send the following evidence tothe IRS:

1. Certificate of the proper officer of thetaxing state, or the District of Columbia,showing the:

a. total amount of tax imposed (beforeadding interest and penalties and beforeallowing discount);

b. amount of discount allowed;c. amount of penalties and interest imposed

or charged;d. total amount actually paid in cash; ande. date of payment.2. Any additional proof the IRS specifically

requests.You should file the evidence requested

above with the return if possible. Otherwise,send it as soon after you file the return aspossible.

Year Applicable Applicablecredit exclusion

amounts amount

1987 through1997 ................... $192,800 $600,000

1998 ................... 202,050 625,000

1999 ................... 211,300 650,000

2000 and 2001... 220,550 675,000

2002 and 2003... 229,800 700,000

2004 ................... 287,300 850,000

2005 ................... 326,300 950,000

2006 and after 345,800 1,000,000

Page 4 Part Instructions


5/26

Worksheet TGTaxable Gifts Reconciliation(To be used for lines 4 and 9 of the Tax Computation)

Calendar year orcalendar quarter

Total taxable gifts forperiod (see Note)

Note: For the definition of a taxable gift see section 2503. Ignore the old specificexemption. Follow Form 709. That is, include only the decedents one-half of splitgifts, whether the gifts were made by the decedent or the decedents spouse. Inaddition to gifts reported on Form 709, you must include any taxable gifts inexcess of the annual exclusion that were not reported on Form 709.

b.a.

Taxable amountincluded in col. b forgifts that qualify for

special treatment ofsplit gifts described

above

Taxable amountincluded in col. b

for gifts includedin the gross estate

Gift tax paid bydecedent on gifts

in col. d

Gift tax paid bydecedents spouse on

gifts in col. cGiftsmadeafterJune6,

1932,andbefore1977

Total taxable giftsmade before 1977

1.

f.e.d.c.

Giftsmade

after1976

Totals for gifts made after 19762.

Line 4 WorksheetAdjusted Taxable Gifts Made After 1976

1. Taxable gifts made after 1976. Enter the amount from line 2, column b, Worksheet TGTaxable gifts made after 1976 reportable on Schedule G. Enter the amount

from line 2, column c, Worksheet TG

2.

Taxable gifts made after 1976 that qualify for special treatment. Enter the

amount from line 2, column d, Worksheet TG

3.

Add lines 2 and 34.Adjusted taxable gifts. Subtract line 4 from line 1. Enter here and on line 4 of the

Tax Computation of Form 706

5.

1

2

3

4

5

Line 17 Credit for Federal Gift Taxes

You may take a credit for Federal gift taxesimposed by Chapter 12 of the Code, and thecorresponding provisions of prior laws, oncertain transfers the decedent made beforeJanuary 1, 1977, that are included in the gross

estate. The credit cannot be more than theamount figured by the following formula:

For more information, see the regulationsunder section 2012. This computation may bemade using Form 4808, Computation of Creditfor Gift Tax. Attach a copy of a completed Form4808 or the computation of the credit. Alsoattach all available copies of Forms 709 filedby the decedent to help verify the amountsentered on lines 4, 9, and 17.

Line 25 United States TreasuryBonds

You may not use these bonds to pay the GSTtax.

Instructions for Part 3.Elections by the Executor (Page2 of Form 706)

Line 1Alternate Valuation

Unless you elect at the time you file the returnto adopt alternate valuation as authorized bysection 2032, you must value all propertyincluded in the gross estate on the date of the

decedent's death. Alternate valuation cannotbe applied to only a part of the property.

You may elect special use valuation (line 2)in addition to alternate valuation.

You may not elect alternate valuation unlessthe election will decrease both the value of the

gross estate and the total net estate and GSTtaxes due after application of all allowablecredits.

You elect alternate valuation by checkingYes on line 1 and filing Form 706. Oncemade, the election may not be revoked. Theelection may be made on a late filed Form 706provided it is not filed later than 1 year after thedue date (including extensions).

If you elect alternate valuation, value theproperty that is included in the gross estate asof the applicable dates as follows:

1. Any property distributed, sold,exchanged, or otherwise disposed of orseparated or passed from the gross estate byany method within 6 months after thedecedent's death is valued on the date ofdistribution, sale, exchange, or other

disposition, whichever occurs first. Value thisproperty on the date it ceases to form a partof the gross estate; i.e., on the date the titlepasses as the result of its sale, exchange, orother disposition.

2. Any property not distributed, sold,exchanged, or otherwise disposed of within the6-month period is valued on the date 6 monthsafter the date of the decedent's death.

3. Any property, interest, or estate that isaffected by mere lapse of time is valued asof the date of decedent's death or on the dateof its distribution, sale, exchange, or otherdisposition, whichever occurs first. However,you may change the date of death value toaccount for any change in value that is not due

to a mere lapse of time on the date of itsdistribution, sale, exchange, or otherdisposition.

The property included in the alternatevaluation and valued as of 6 months after thedate of the decedent's death, or as of some

intermediate date (as described above) is theproperty included in the gross estate on thedate of the decedent's death. Therefore, youmust first determine what property constitutedthe gross estate at the decedent's death.

Interest. Interest accrued to the date of thedecedent's death on bonds, notes, and otherinterest-bearing obligations is property of thegross estate on the date of death and isincluded in the alternate valuation.

Rent. Rent accrued to the date of thedecedent's death on leased real or personalproperty is property of the gross estate on thedate of death and is included in the alternatevaluation.

Dividends. Outstanding dividends thatwere declared to stockholders of record on orbefore the date of the decedent's death are

considered property of the gross estate on thedate of death, and are included in the alternatevaluation. Ordinary dividends declared tostockholders of record after the date of thedecedent's death are not property of the grossestate on the date of death and are notincluded in the alternate valuation. However, ifdividends are declared to stockholders ofrecord after the date of the decedent's deathso that the shares of stock at the later valuationdate do not reasonably represent the sameproperty at the date of the decedent's death,include those dividends (except dividends paidfrom earnings of the corporation after the dateof the decedent's death) in the alternatevaluation.

Gross estate tax minus (the sum of thestate death taxes and unified credit)

Value ofincluded gift

Value of gross estate minus (the sumof the deductions for charitable, public,and similar gifts and bequests andmarital deduction)

Part Instructions Page 5


6/26

Line 9 WorksheetGift Tax on Gifts Made After 1976

Total taxable gifts for priorperiods (from Form 709,Tax Computation, line 2)

Calendar yearor calendar

quarter Unused unified credit(applicable credit amount)

for this period(see below)

Taxable gifts for thisperiod (from Form 709,

Tax Computation, line 1)(see below)

Tax payable for thisperiod (subtract

col. e from col. d)

Tax payable usingTable A (on page 12)

(see below)

b.a.

Total pre-1977taxable gifts. Enterthe amount from

line 1, Worksheet TG

f.e.d.c.

1. Total gift taxes payable on gifts made after 1976 (combine the amounts in column f)

Gift taxes paid by the decedent on gifts that qualify for special treatment. Enter the amount fromline 2, column e, Worksheet TG on page 5

2.

Subtract line 2 from line 13.

Gift tax paid by decedents spouse on split gifts included on Schedule G. Enter the amount fromline 2, column f, Worksheet TG on page 5

4.

Add lines 3 and 4. Enter here and on line 9 of the Tax Computation of Form 7065.

Columns b and cIn addition to gifts reported on Form 709, you must include in these columns any taxable gifts in excess ofthe annual exclusion that were not reported on Form 709.

If the amount in columns b and c combined exceeds $10 million for any given calendar year, then you must calculate the taxin column d for that year using the Form 709 revision in effect for the year of the decedents death.

To calculate the tax, enter the amount for the appropriate year from column c of the worksheet on line 1 of the TaxComputation of the Form 709. Enter the amount from column b on line 2 of the Tax Computation. Complete the TaxComputation through the tax due before any reduction for the unified credit (applicable credit amount) and enter that amount incolumn d, above.

Column eTo figure the unused unified credit, (applicable credit amount), use the unified credit (applicable credit amount) ineffect for the year the gift was made. This amount should be on line 12 of the Tax Computation of the Form 709 filed for the gift.

Column dTo figure the tax payable for this column, you must use Table A in these instructions, as it applies to the year ofthe decedents death rather than to the year the gifts were actually made. To compute the entry for col. d, you should figure thetax payable on the amount in col. b and subtract it from the tax payable on the amounts in cols. b and c added together.Enter the difference in col. d.

Tax payable as used here is an hypothetical amount and does not necessarily reflect tax actually paid. Figure tax payableonly on gifts made after 1976. Do not include any tax paid or payable on gifts made before 1977. Pre-1977 gifts are listed onlyto exclude them from the calculation.

1

2

3

4

5

As part of each Schedule A through I, youmust show:

1. what property is included in the grossestate on the date of the decedent's death;

2. what property was distributed, sold,exchanged, or otherwise disposed of within the6-month period after the decedent's death, andthe dates of these distributions, etc.(These two items should be entered in the

Description column of each schedule. Brieflyexplain the status or disposition governing thealternate valuation date, such as: Notdisposed of within 6 months following death,Distributed, Sold, Bond paid on maturity,etc. In this same column, describe each itemof principal and includible income);

3. the date of death value, entered in theappropriate value column with items of principaland includible income shown separately; and

4. the alternate value, entered in theappropriate value column with items of principaland includible income shown separately.(In the case of any interest or estate, the valueof which is affected by lapse of time, such aspatents, leaseholds, estates for the life ofanother, or remainder interests, the valueshown under the heading Alternate value

must be the adjusted value; i.e., the value asof the date of death with an adjustmentreflecting any difference in its value as of thelater date not due to lapse of time.)

Distributions, sales, exchanges, and otherdispositions of the property within the 6-monthperiod after the decedent's death must besupported by evidence. If the court issued anorder of distribution during that period, youmust submit a certified copy of the order aspart of the evidence. The District Director mayrequire you to submit additional evidence ifnecessary.

If the alternate valuation method is used, thevalues of life estates, remainders, and similarinterests are figured using the age of the

recipient on the date of the decedent's deathand the value of the property on the alternatevaluation date.

Line 2Special Use Valuation ofSection 2032A

In general. Under section 2032A, you mayelect to value certain farm and closely heldbusiness real property at its farm or business

use value rather than its fair market value. Youmay elect both special use valuation andalternate valuation.

To elect this valuation you must checkYes to line 2 and complete and attachSchedule A-1 and its required additionalstatements. You must file Schedule A-1 andits required attachments with Form 706 forthis election to be valid. You may make theelection on a late filed return so long as it is thefirst return filed.

The total value of the property valued undersection 2032A may not be decreased fromFMV by more than $760,000 for decedentsdying in 1999 (subject to inflation in lateryears).

Real property may qualify for the section2032A election if:

1. The decedent was a U.S. citizen orresident at the time of death;

2. The real property is located in the UnitedStates;

3. At the decedent's death the real propertywas used by the decedent or a family memberfor farming or in a trade or business, or wasrented for such use by either the survivingspouse or a lineal descendant of the decedentto a family member on a net cash basis;

4. The real property was acquired from orpassed from the decedent to a qualified heirof the decedent;

5. The real property was owned and usedin a qualified manner by the decedent or a

member of the decedent's family during 5 of the8 years before the decedent's death;

6. There was material participation by thedecedent or a member of the decedent's familyduring 5 of the 8 years before the decedent'sdeath; and

7. The qualified property meets thefollowing percentage requirements:

a. At least 50% of the adjusted value of the

gross estate must consist of the adjusted valueof real or personal property that was beingused as a farm or in a closely held businessand that was acquired from, or passed from,the decedent to a qualified heir of thedecedent, and

b. At least 25% of the adjusted value of thegross estate must consist of the adjusted valueof qualified farm or closely held business realproperty.

For this purpose, adjusted value is the valueof property determined without regard to itsspecial-use value. The value is reduced forunpaid mortgages on the property or anyindebtedness against the property, if the fullvalue of the decedent's interest in the property(not reduced by such mortgage orindebtedness) is included in the value of the

gross estate. The adjusted value of thequalified real and personal property used indifferent businesses may be combined to meetthe 50% and 25% requirements.

Qualified Real Property

Qualified use. The term qualified use meansthe use of the property as a farm for farmingpurposes or the use of property in a trade orbusiness other than farming. Trade or businessapplies only to the active conduct of abusiness. It does not apply to passiveinvestment activities or the mere passive rentalof property to a person other than a memberof the decedent's family. Also, no trade or



7/26

business is present in the case of activities notengaged in for profit.Ownership. To qualify as special-useproperty, the decedent or a member of thedecedent's family must have owned and usedthe property in a qualified use for 5 of the last8 years before the decedent's death.Ownership may be direct or indirect through acorporation, a partnership, or a trust.

If the ownership is indirect, the businessmust qualify as a closely held business undersection 6166. The ownership, when combinedwith periods of direct ownership, must meet therequirements of section 6166 on the date of thedecedent's death and for a period of time thatequals at least 5 of the 8 years precedingdeath.

If the property was leased by the decedentto a closely held business, it qualifies as longas the business entity to which it was rentedwas a closely held business with respect to thedecedent on the date of the decedent's deathand for sufficient time to meet the 5 in 8years test explained above.Structures and other real propertyimprovements. Qualified real propertyincludes residential buildings and otherstructures and real property improvementsregularly occupied or used by the owner orlessee of real property (or by the employeesof the owner or lessee) to operate the farm orbusiness. A farm residence which the decedent

had occupied is considered to have beenoccupied for the purpose of operating the farmeven when a family member and not thedecedent was the person materiallyparticipating in the operation of the farm.

Qualified real property also includes roads,buildings, and other structures andimprovements functionally related to thequalified use.

Elements of value such as mineral rightsthat are not related to the farm or business useare not eligible for special-use valuation.Property acquired from the decedent.Property is considered to have been acquiredfrom or to have passed from the decedent ifone of the following applies:q The property is considered to have beenacquired from or to have passed from thedecedent under section 1014(b) (relating tobasis of property acquired from a decedent).q The property is acquired by any person fromthe estate.q The property is acquired by any person froma trust, to the extent the property is includiblein the gross estate.Qualified heir. A person is a qualified heir ofproperty if he or she is a member of thedecedent's family and acquired or received theproperty from the decedent. If a qualified heirdisposes of any interest in qualified realproperty to any member of his or her family,that person will then be treated as the qualifiedheir with respect to that interest.

The term member of the family includesonly:

1. An ancestor (parent, grandparent, etc.)of the individual;2. The spouse of the individual;3. The lineal descendant (child, stepchild,

grandchild, etc.) of the individual, theindividual's spouse, or a parent of theindividual; or

4. The spouse, widow, or widower of anylineal descendant described above.A legally adopted child of an individual istreated as a child of that individual by blood.

Material Participation

To elect special-use valuation, either thedecedent or a member of his or her family must

have materially participated in the operation ofthe farm or other business for at least 5 of the8 years ending on the date of the decedent'sdeath. The existence of material participationis a factual determination, but passivelycollecting rents, salaries, draws, dividends, orother income from the farm or other businessdoes not constitute material participation.Neither does merely advancing capital andreviewing a crop plan and financial reportseach season or business year.

In determining whether the requiredparticipation has occurred, disregard briefperiods (e.g., 30 days or less) during which

there was no material participation, as long assuch periods were both preceded and followedby substantial periods (more than 120 days)during which there was uninterrupted materialparticipation.Retirement or disability. If, on the date ofdeath, the time period for material participationcould not be met because the decedent hadretired or was disabled, a substitute period mayapply. The decedent must have retired onSocial Security or been disabled for acontinuous period ending with death. A personis disabled for this purpose if he or she wasmentally or physically unable to materiallyparticipate in the operation of the farm or otherbusiness.

The substitute time period for materialparticipation for these decedents is a period

totaling at least 5 years out of the 8-year periodthat ended on the earlier of (1) the date thedecedent began receiving social securitybenefits, or (2) the date the decedent becamedisabled.Surviving spouse. A surviving spouse whoreceived qualified real property from thepredeceased spouse is considered to havematerially participated if he or she wasengaged in the active management of the farmor other business. If the surviving spouse diedwithin 8 years of the first spouse's death, youmay add the period of material participation ofthe predeceased spouse to the period of activemanagement by the surviving spouse todetermine if the surviving spouse's estatequalifies for special-use valuation. To qualify forthis, the property must have been eligible for

special-use valuation in the predeceasedspouse's estate, though it does not have tohave been elected by that estate.

For additional details regarding materialparticipation, see Regulations section20.2032A-3(e).

Valuation Methods

The primary method of valuing special-usevalue property that is used for farmingpurposes is the annual gross cash rentalmethod. If comparable gross cash rentals arenot available, you can substitute comparableaverage annual net share rentals. If neither ofthese are available, or if you so elect, you canuse the method for valuing real property in aclosely held business.Average annual gross cash rental.

Generally, the special-use value of propertythat is used for farming purposes is determinedas follows:

1. Subtract the average annual state andlocal real estate taxes on actual tracts ofcomparable real property from the averageannual gross cash rental for that samecomparable property, and

2. Divide the result in 1 by the averageannual effective interest rate charged for allnew Federal Land Bank loans.

The computation of each average annualamount is based on the 5 most recent calendaryears ending before the date of the decedent'sdeath.

Gross cash rental. Generally, gross cashrental is the total amount of cash received in acalendar year for the use of actual tracts ofcomparable farm real property in the samelocality as the property being specially valued.You may not use appraisals or otherstatements regarding rental value or areawideaverages of rentals. You may not use rents thatare paid wholly or partly in kind, and theamount of rent may not be based onproduction. The rental must have resulted froman arm's-length transaction. Also, the amountof rent is not reduced by the amount of anyexpenses or liabilities associated with the farm

operation or the lease.Comparable property. Comparable

property must be situated in the same localityas the specially valued property as determinedby generally accepted real property valuationrules. The determination of comparability isbased on all the facts and circumstances. It isoften necessary to value land in segmentswhere there are different uses or landcharacteristics included in the specially valuedland. The following list contains some of thefactors considered in determiningcomparability.q Similarity of soil.q Whether the crops grown would deplete thesoil in a similar manner.q Types of soil conservation techniques thathave been practiced on the 2 properties.q Whether the 2 properties are subject toflooding.q Slope of the land.q For livestock operations, the carryingcapacity of the land.q For timbered land, whether the timber iscomparable.q Whether the property as a whole is unifiedor segmented; if segmented, the availability ofthe means necessary for movement among thedifferent sections.q Number, types, and conditions of all buildingsand other fixed improvements located on theproperties and their location as it affectsefficient management, use, and value of theproperty.q Availability and type of transportation

facilities in terms of costs and of proximity ofthe properties to local markets.You must specifically identify on the return

the property being used as comparableproperty. Use the type of descriptions used tolist real property on Schedule A.

Effective interest rate. To get the effectiveannual interest in effect for the year of deathand the area in which the property is located,contact your IRS District Director.

Net share rental. You may use averageannual net share rental from comparable landonly if there is no comparable land from whichaverage annual gross cash rental can bedetermined. Net share rental is the differencebetween the gross value of produce receivedby the lessor from the comparable land and thecash operating expenses (other than real

estate taxes) of growing the produce that,under the lease, are paid by the lessor. Theproduction of the produce must be the businesspurpose of the farming operation. For thispurpose, produce includes livestock.

The gross value of the produce is generallythe gross amount received if the produce wasdisposed of in an arm's-length transactionwithin the period established by theDepartment of Agriculture for its price supportprogram. Otherwise, the value is the weightedaverage price for which the produce sold on theclosest national or regional commoditiesmarket. The value is figured for the date ordates on which the lessor received (orconstructively received) the produce.



8/26

Valuing a real property interest in closelyheld business. Use this method to determinethe special-use valuation for qualifying realproperty used in a trade or business other thanfarming. You may also use this method forqualifying farm property if there is nocomparable land or if you elect to use it. Underthis method, the following factors areconsidered:q The capitalization of income that the propertycan be expected to yield for farming or forclosely held business purposes over areasonable period of time with prudentmanagement and traditional cropping patterns

for the area, taking into account soil capacity,terrain configuration, and similar factors.q The capitalization of the fair rental value ofthe land for farming or for closely held businesspurposes.q The assessed land values in a state thatprovides a differential or use value assessmentlaw for farmland or closely held business.q Comparable sales of other farm or closelyheld business land in the same geographicalarea far enough removed from a metropolitanor resort area so that nonagricultural use is nota significant factor in the sales price.q Any other factor that fairly values the farmor closely held business value of the property.

Making the Election

Include the words section 2032A valuation inthe Description column of any Form 706schedule if section 2032A property is includedin the decedent's gross estate.

An election under section 2032A need notinclude all the property in an estate that iseligible for special use valuation, but sufficientproperty to satisfy the threshold requirementsof section 2032A(b)(1)(B) must be speciallyvalued under the election.

If joint or undivided interests (e.g., interestsas joint tenants or tenants in common) in thesame property are received from a decedentby qualified heirs, an election with respect toone heir's joint or undivided interest need notinclude any other heir's interest in the sameproperty if the electing heir's interest plus otherproperty to be specially valued satisfies therequirements of section 2032A(b)(1)(B).

If successive interests (e.g., life estates andremainder interests) are created by a decedentin otherwise qualified property, an electionunder section 2032A is available only withrespect to that property (or part) in whichqualified heirs of the decedent receive all of thesuccessive interests, and such an electionmust include the interests of all of those heirs.

For example, if a surviving spouse receivesa life estate in otherwise qualified property andthe spouse's brother receives a remainderinterest in fee, no part of the property may bevalued pursuant to an election under section2032A.

Where successive interests in speciallyvalued property are created, remainderinterests are treated as being received byqualified heirs only if the remainder interestsare not contingent on surviving a nonfamilymember or are not subject to divestment infavor of a nonfamily member.

Protective Election

You may make a protective election to speciallyvalue qualified real property. Under thiselection, whether or not you may ultimately usespecial use valuation depends upon values asfinally determined (or agreed to followingexamination of the return) meeting therequirements of section 2032A.

To make a protective election, check Yesto line 2 and complete Schedule A-1 accordingto its instructions for Protective Election.

If you make a protective election, you shouldcomplete this Form 706 by valuing all propertyat its fair market value. Do not use special usevaluation. Usually, this will result in higherestate and GST tax liabilities than will beultimately determined if special use valuationis allowed. The protective election does notextend the time to pay the taxes shown onthe return. If you wish to extend the time topay the taxes, you should file Form 4768 inadequate time beforethe return due date.

If it is found that the estate qualifies forspecial use valuation based on the values asfinally determined (or agreed to following

examination of the return), you must file anamended Form 706 (with a complete section2032A election) within 60 days after the dateof this determination. Complete the amendedreturn using special use values under the rulesof section 2032A, and complete Schedule A-1and attach allof the required statements.

Additional information

For definitions and additional information, seesection 2032A and the related regulations.

Line 3Installment Payments

If the gross estate includes an interest in aclosely held business, you may be able to electto pay part of the estate tax in installments.

The maximum amount that can be paid ininstallments is that part of the estate tax that is

attributable to the closely held business. Ingeneral, that amount is the amount of tax thatbears the same ratio to the total estate tax thatthe value of the closely held business includedin the gross estate bears to the total grossestate.Percentage requirements. To qualify forinstallment payments, the value of the interestin the closely held business that is included inthe gross estate must be more than 35% of theadjusted gross estate (the gross estate lessexpenses, indebtedness, taxes, and losses).

Interests in two or more closely heldbusinesses are treated as an interest in asingle business if at least 20% of the total valueof each business is included in the grossestate. For this purpose, include any interestheld by the surviving spouse that represents

the surviving spouse's interest in a businessheld jointly with the decedent as communityproperty or as joint tenants, tenants by theentirety, or tenants in common.

Value. The value used for meeting thepercentage requirements is the same valueused for determining the gross estate.Therefore, if the estate is valued underalternate valuation or special use valuation, youmust use those values to meet the percentagerequirements.

Transfers before death. Generally, giftsmade before death are not included in thegross estate. However, the estate must meetthe 35% requirement by both including andexcluding in the gross estate any gifts madeby the decedent within 3 years of death.

Passive assets. In determining the value

of a closely held business and whether the35% requirement is met, do not include thevalue of any passive assets held by thebusiness. A passive asset is any asset notused in carrying on a trade or business. Stockin another corporation is a passive asset unlessthe stock is treated as held by the decedentbecause of the election to treat holdingcompany stock as business company stock, asdiscussed below.

If a corporation owns at least 20% in valueof the voting stock of another corporation, orthe other corporation had no more than 15shareholders and at least 80% of the value ofthe assets of each corporation is attributable toassets used in carrying on a trade or business,

then these corporations will be treated as asingle corporation, and the stock will not betreated as a passive asset. Stock held in theother corporation is not taken into account indetermining the 80% requirement.Interest in closely held business. Forpurposes of the installment payment election,an interest in a closely held business means:q Ownership of a trade or business carried onas a proprietorship.q An interest as a partner in a partnershipcarrying on a trade or business if 20% or moreof the total capital interest was included in thegross estate of the decedent or the partnershiphad no more than 15 partners.q Stock in a corporation carrying on a trade orbusiness if 20% or more in value of the votingstock of the corporation is included in the grossestate of the decedent or the corporation hadno more than 15 shareholders.

The partnership or corporation must becarrying on a trade or business at the time ofthe decedent's death.

In determining the number of partners orshareholders, a partnership or stock interest istreated as owned by one partner orshareholder if it is community property or heldby a husband and wife as joint tenants, tenantsin common, or as tenants by the entirety.

Property owned directly or indirectly by or fora corporation, partnership, estate, or trust is

treated as owned proportionately by or for itsshareholders, partners, or beneficiaries. Fortrusts, only beneficiaries with current interestsare considered.

The interest in a closely held farm businessincludes the interest in the residential buildingsand related improvements occupied regularlyby the owners, lessees, and employeesoperating the farm.

Holding company stock. The executormay elect to treat as business company stockthe portion of any holding company stock thatrepresents direct ownership (or indirectownership through one or more other holdingcompanies) in a business company. A holdingcompany is a corporation holding stock inanother corporation. A business company isa corporation carrying on a trade or business.

This election applies only to stock that is notreadily tradable. For purposes of the 20%voting stock requirement, stock is treated asvoting stock to the extent the holding companyowns voting stock in the business company.

If the executor makes this election, the firstinstallment payment is due when the estate taxreturn is filed. The 5-year deferral for paymentof the tax, as discussed below under Time forpayment, does not apply. In addition, the 2%interest rate, discussed below under Interestcomputation, will not apply.Time for payment. Under the installmentmethod, the executor may elect to deferpayment of the qualified estate tax, but notinterest, for up to 5 years from the originalpayment due date. After the first installment oftax is paid, you must pay the remaining

installments annually by the date 1 year afterthe due date of the preceding installment.There can be no more than 10 installmentpayments.

Interest on the unpaid portion of the tax isnot deferred and must be paid annually.Interest must be paid at the same time as andas a part of each installment payment of thetax.

For information on the acceleration ofpayment when an interest in the closely heldbusiness is disposed of, see section 6166(g).Interest computation. A special interest rateapplies to installment payments. Fordecedent's dying in 1999, the interest rate is2% on the lesser of:



9/26

q $416,500 (subject to inflation, see below) ORq The amount of the estate tax that isattributable to the closely held business andthat is payable in installments.

2% portion. The 2% portion is an amountequal to the amount of the tentative estate taxon ($1,000,000 + the applicable exclusionamount in effect) minus the applicable creditamount in effect. However, if the amount ofestate tax extended under section 6166 is lessthan the amount computed above, the 2%portion is the lesser amount.

Inflation adjustment. The $1,000,000

amount used to calculate the 2% portion isindexed for inflation for the estates ofdecedents dying in a calendar year after 1998.For an estate of a decedent dying in calendaryear 1999, the dollar amount used to determinethe 2% portion of the estate tax payable ininstallments under section 6166 is $1,010,000.See Rev. Proc. 98-61.

Interest on the portion of the tax in excessof the 2% portion is figured at 45% of theannual rate of interest on underpayments. Thisrate is based on the Federal short-term rateand is announced quarterly by the IRS in theInternal Revenue Bulletin.

If you elect installment payments and theestate tax due is more than the maximumamount to which the 2% interest rate applies,each installment payment is deemed tocomprise both tax subject to the 2% interestrate and tax subject to 45% of the regularunderpayment rate. The amount of eachinstallment that is subject to the 2% rate is thesame as the percentage of total tax payable ininstallments that is subject to the 2% rate.Important: The interest paid on installmentpayments isnotdeductible as anadministrative expense of the estate.

Making the election. If you check this line tomake a protective election, you should attacha notice of protective election as described inRegulations section 20.6166-1(d). If you checkthis line to make a final election, you shouldattach the notice of election described inRegulations section 20.6166-1(b).

In computing the adjusted gross estateunder section 6166(b)(6) to determine whetheran election may be made under section 6166,the net amount of any real estate in a closelyheld business must be used.

You may also elect to pay GST taxes ininstallments. See section 6166(i).

Line 4Reversionary or RemainderInterests

For details of this election, see section 6163and the related regulations.

Instructions for Part 4. GeneralInformation (Pages 2 and 3 ofForm 706)

Authorization

q Completing the authorization on page 2 ofForm 706 will authorize one attorney,accountant, or enrolled agent to represent theestate and receive confidential tax information,

but will not authorize the representative to enterinto closing agreements for the estate.q If you wish to represent the estate, youmust complete and sign the authorization.q If you wish to authorize persons other thanattorneys, accountants, and enrolled agents,or if you wish to authorize more than oneperson, to receive confidential information orrepresent the estate, you must complete andattach Form 2848, Power of Attorney andDeclaration of Representative.q You must also complete and attach Form2848 if you wish to authorize someone to enterinto closing agreements for the estate.q If you wish only to authorize someone toinspect and/or receive confidential taxinformation (but not to represent you before theIRS), complete and file Form 8821, TaxInformation Authorization.

Line 4

Complete line 4 whether or not there is asurviving spouse and whether or not thesurviving spouse received any benefits fromthe estate. If there was no surviving spouse onthe date of decedent's death, enter None inline 4a and leave lines 4b and 4c blank. Thevalue entered in line 4c need not be exact. Seethe instructions for Amount under line 5,below.

Line 5

Name. Enter the name of each individual,trust, or estate who received (or will receive)benefits of $5,000 or more from the estatedirectly as an heir, next-of-kin, devisee, orlegatee; or indirectly (for example, asbeneficiary of an annuity or insurance policy,shareholder of a corporation, or partner of apartnership that is an heir, etc.).Identifying number. Enter the SSN of eachindividual beneficiary listed. If the number isunknown, or the individual has no number,please indicate unknown or none. For trustsand other estates, enter the EIN.Relationship. For each individual beneficiaryenter the relationship (if known) to thedecedent by reason of blood, marriage, oradoption. For trust or estate beneficiaries,

indicate TRUST or ESTATE.Amount. Enter the amount actually distributed(or to be distributed) to each beneficiaryincluding transfers during the decedent's lifefrom Schedule G required to be included in thegross estate. The value to be entered need notbe exact. A reasonable estimate is sufficient.For example, where precise values cannotreadily be determined, as with certain futureinterests, a reasonable approximation shouldbe entered. The total of these distributionsshould approximate the amount of gross estatereduced by funeral and administrativeexpenses, debts and mortgages, bequests tosurviving spouse, charitable bequests, and anyFederal and state estate and GST taxes paid(or payable) relating to the benefits receivedby the beneficiaries listed on lines 4 and 5.

All distributions of less than $5,000 tospecific beneficiaries may be included withdistributions to unascertainable beneficiarieson the line provided.

Line 6Section 2044 Property

If you answered Yes, these assets must beshown on Schedule F.

Section 2044 property is property for whicha previous section 2056(b)(7) election (QTIPelection) has been made, or for which a similargift tax election (section 2523) has been made.For more information, see the instructions onthe back of Schedule F.

Line 8Insurance Not Included in theGross Estate

If you checked Yes for either 8a or 8b, you

must complete and attach Schedule D andattach a Form 712, Life Insurance Statement,for each policy and an explanation of why thepolicy or its proceeds are not includible in thegross estate.

Line 10Partnership Interests andStock in Close Corporations

If you answered Yes to line 10, you mustinclude full details for partnerships andunincorporated businesses on Schedule F(Schedule E if the partnership interest is jointlyowned). You must include full details for thestock of inactive or close corporations onSchedule B.

Value these interests using the rules ofRegulations section 20.2031-2 (stocks) or20.2031-3 (other business interests).

A close corporation is a corporation whoseshares are owned by a limited number ofshareholders. Often, one family holds the entirestock issue. As a result, little, if any, trading ofthe stock takes place. There is, therefore, noestablished market for the stock, and thosesales that do occur are at irregular intervalsand seldom reflect all the elements of arepresentative transaction as defined by theterm fair market value (FMV).

Line 12Trusts

If you answered Yes to either 12a or 12b,you must attach a copy of the trustinstrument for each trust.

You must complete Schedule G if youanswered Yes to 12a and Schedule F if youanswered Yes to 12b.

Line 14Transitional MaritalDeduction Computation

Check Yes if property passes to the survivingspouse under a maximum marital deductionformula provision that meets the requirementsof section 403(e)(3) of the Economic RecoveryTax Act of 1981 (P.L. 97-34; 95 Stat. 305).

If you check Yes to line 14, compute themarital deduction under the rules that were ineffect before the Economic Recovery Tax Actof 1981.

For a format for this computation, you shouldobtain the November 1981 revision of Form706 and its instructions. The computation isitems 19 through 26 of the Recapitulation. Youshould also apply the rules of Rev. Rul. 80-148,1980-1 C.B. 207, if there is property thatpasses to the surviving spouse outside of themaximum marital deduction formula provision.



10/26

Instructions for Part 5.Recapitulation (Page 3 of Form706)

Gross Estate

Items 1 through 10 You must make anentry in each of items 1 through 9.

If the gross estate does not contain anyassets of the type specified by a given item,enter zero for that item. Entering zero for anyof items 1 through 9 is a statement by theexecutor, made under penalties of perjury, thatthe gross estate does not contain any includibleassets covered by that item.

Do not enter any amounts in the Alternatevalue column unless you elected alternatevaluation on line 1 of Elections by the Executoron page 2 of the Form 706.

Which schedules to attach for items 1through 9. You must attachq Schedule F to the return and answer itsquestions even if you report no assets on it.q Schedules A, B, and C if the gross estateincludes any Real Estate; Stocks and Bonds;or Mortgages, Notes, and Cash, respectively.q Schedule D if the gross estate includes anyLife Insurance or if you answered Yes toquestion 8a of Part 4, General Information.q Schedule E if the gross estate contains anyJointly Owned Property or if you answeredYes to question 9 of Part 4.q

Schedule G if the decedent made any of thelifetime transfers to be listed on that scheduleor if you answered Yes to question 11 or 12aof Part 4.q Schedule H if you answered Yes toquestion 13 of Part 4.q Schedule I if you answered Yes to question15 of Part 4.

Exclusion

Item 11Conservation easement exclusion.You must complete and attach Schedule U(along with any required attachments) to claimthe exclusion on this line.

Deductions

Items 13 through 22 You must attach theappropriate schedules for the deductions youclaim.Item 17 If item 16 is less than or equal to thevalue (at the time of the decedent's death) ofthe property subject to claims, enter the

amount from item 16 on item 17.If the amount on item 16 is more than the

value of the property subject to claims, enterthe greater of (a) the value of the propertysubject to claims, or (b) the amount actuallypaid at the time the return is filed.

In no event should you enter more on item17 than the amount on item 16. See section2053 and the related regulations for moreinformation.



11/26

Instructions for Schedule A.Real EstateSee the reverse side of Schedule A on Form706.

Schedule A-1. Section 2032AValuationSee Schedule A-1 on Form 706.

Instructions for Schedule B.Stocks and Bonds

General

If the total gross estate contains any stocks orbonds, you must complete Schedule B and fileit with the return.

On Schedule B list the stocks and bondsincluded in the decedent's gross estate.Number each item in the left-hand column.Bonds that are exempt from Federal incometax are not exempt from estate tax unlessspecifically exempted by an estate taxprovision of the Code. Therefore, you shouldlist these bonds on Schedule B.

Public housing bonds includible in the grossestate must be included at their full value.

If you paid any estate, inheritance, legacy,or succession tax to a foreign country on anystocks or bonds included in this schedule,group those stocks and bonds together andlabel them Subjected to Foreign DeathTaxes.

List interest and dividends on each stock orbond separately. Indicate as a separate itemdividends that have not been collected atdeath, but which are payable to the decedentor the estate because the decedent was astockholder of record on the date of death.However, if the stock is being traded on anexchange and is selling ex-dividend on the dateof the decedent's death, do not include theamount of the dividend as a separate item.Instead, add it to the ex-dividend quotation indetermining the fair market value of the stockon the date of the decedent's death. Dividends

declared on shares of stock before the deathof the decedent but payable to stockholders ofrecord on a date after the decedent's death arenot includible in the gross estate for Federalestate tax purposes.

Description

Stocks. For stocks indicate:q Number of sharesq Whether common or preferredq Issueq Par value where needed for identificationq Price per shareq Exact name of corporationq Principal exchange upon which sold, if listedon an exchangeq Nine-digit CUSIP number

Bonds. For bonds indicate:q Quantity and denominationq Name of obligorq Date of maturityq Interest rateq Interest due dateq Principal exchange, if listed on an exchangeq Nine-digit CUSIP number

If the stock or bond is unlisted, show thecompany's principal business office.

The CUSIP (Committee on Uniform SecurityIdentification Procedure) number is a nine-digitnumber that is assigned to all stocks and bondstraded on major exchanges and many unlisted

securities. Usually, the CUSIP number isprinted on the face of the stock certificate. If theCUSIP number is not printed on the certificate,it may be obtained through the company'stransfer agent.

Valuation

List the fair market value (FMV) of the stocksor bonds. The FMV of a stock or bond(whether listed or unlisted) is the meanbetween the highest and lowest selling pricesquoted on the valuation date. If only the closingselling prices are available, then the FMV is themean between the quoted closing selling price

on the valuation date and on the trading daybefore the valuation date.

To figure the FMV if there were no sales onthe valuation date:

1. Find the mean between the highest andlowest selling prices on the nearest tradingdate before and the nearest trading date afterthe valuation date. Both trading dates must bereasonably close to the valuation date.

2. Prorate the difference between the meanprices to the valuation date.

3. Add or subtract (whichever applies) theprorated part of the difference to or from themean price figured for the nearest trading datebefore the valuation date.

If no actual sales were made reasonablyclose to the valuation date, make the same

computation using the mean between the bonafide bid and asked prices instead of salesprices. If actual sales prices or bona fide bidand asked prices are available within areasonable period of time before the valuationdate but not after the valuation date, or viceversa, use the mean between the highest andlowest sales prices or bid and asked prices asthe FMV.

For example, assume that sales of stocknearest the valuation date (June 15) occurred2 trading days before (June 13) and 3 tradingdays after (June 18). On those days the meansale prices per share were $10 and $15,respectively. Therefore, the price of $12 isconsidered the FMV of a share of stock on thevaluation date. If, however, on June 13 and 18,the mean sale prices per share were $15 and$10, respectively, the FMV of a share of stockon the valuation date is $13.

If only closing prices for bonds are available,see Regulations section 20.2031-2(b).

Apply the rules in the section 2031regulations to determine the value of inactivestock and stock in close corporations. Sendwith the schedule complete financial and otherdata used to determine value, includingbalance sheets (particularly the one nearest tothe valuation date) and statements of the netearnings or operating results and dividendspaid for each of the 5 years immediately beforethe valuation date.

Securities reported as of no value, nominalvalue, or obsolete should be listed last. Includethe address of the company and the state anddate of the incorporation. Attach copies ofcorrespondence or statements used todetermine the no value.

If the security was listed on more than onestock exchange, use either the records of theexchange where the security is principallytraded or the composite listing of combinedexchanges, if available, in a publication ofgeneral circulation. In valuing listed stocks andbonds, you should carefully check accuraterecords to obtain values for the applicablevaluation date.

If you get quotations from brokers, orevidence of the sale of securities from theofficers of the issuing companies, attach to theschedule copies of the letters furnishing thesequotations or evidence of sale.

See Rev. Rul. 69-489, 1969-2 C.B. 172, forthe special valuation rules for certainmarketable U.S. Treasury Bonds (issuedbefore March 4, 1971). These bonds,commonly called flower bonds, may beredeemed at par plus accrued interest inpayment of the tax at any Federal Reservebank, the office of the Treasurer of the UnitedStates, or the Bureau of the Public Debt, asexplained in Rev. Proc. 69-18, 1969-2 C.B.300.

Instructions for Schedule C.

Mortgages, Notes, and CashSee the reverse side of Schedule C on Form706.

Instructions for Schedule D.Insurance on the Decedent'sLifeSee the reverse side of Schedule D on Form706.

Instructions for Schedule E.Jointly Owned PropertySee the reverse side of Schedule E on Form706.

Instructions for Schedule F.Other Miscellaneous PropertySee the reverse side of Schedule F on Form706.

Instructions for Schedule G.Transfers During Decedent'sLifeComplete Schedule G and file it with the returnif the decedent made any of the transfersdescribed in 1 through 5 below, or if youanswered Yes on line 11 or 12a of Part 4,General Information.

Report the following types of transfers onthis schedule.

Beginning with the estates of decedentsdying after August 5, 1997:

1.Certain gift taxes (section 2035(b)).Enter at item A of the Schedule the total valueof the gift taxes that were paid by the decedentor the estate on gifts made by the decedent orthe decedent's spouse within 3 years beforedeath.

The date of the gift, not the date of paymentof the gift tax, determines whether a gift taxpaid is included in the gross estate under thisrule. Therefore, you should carefully examinethe Forms 709 filed by the decedent and thedecedent's spouse to determine what part ofthe total gift taxes reported on them wasattributable to gifts made within 3 years beforedeath.

IF. . . AND . . . THEN . . .

the decedentmade a transferfrom a trust,

at the time of thetransfer, thetransfer wasfrom a portion ofthe trust thatwas owned bythe grantorunder section676 (other thanby reason ofsection 672(e))by reason of apower in thegrantor,

for purposes ofsections 2035and 2038, treatthe transfer asmade directly bythe decedent.

Any suchtransfer withinthe annual gifttax exclusion isnot includible inthe gross estate.

Instructions for Schedules Page 11


12/26

Table AUnified Rate Schedule

Column DColumn CColumn BColumn A

Rate of tax onexcess overamount incolumn A

Tax onamount incolumn A

Taxableamountnot over

Taxableamount

over

(Percent)

$10,0000 0 182020,000$10,000 $1,800

40,00020,000 3,800 22

2460,00040,000 8,200

Table B Worksheet

80,00060,000 13,000 26

80,000 2818,200100,000

Federal Adjusted Taxable Estate

30100,000 23,800150,0003238,800250,000150,0003470,800500,000250,000

$

37155,800750,000500,000

60,000

1 Federal taxable estate (from TaxComputation, Form 706, line 3)

1,000,000 39750,000 248,3001,250,000 411,000,000 345,800

3 Federal adjusted taxable estate.Subtract line 2 from line 1. Use thisamount to compute maximum credit

for state death taxes in Table B.

1,500,000 431,250,000 448,3002,000,000 451,500,000 555,8002,500,000 492,000,000 780,800

2,500,000 1,025,800 53

Table B

Computation of Maximum Credit for State Death Taxes

(Based on Federal adjusted taxable estate computed using the worksheet above.)

Rate of credit on

excess over amount

in column (1)

Credit on amountin column (1)

Adjusted taxableestate less than

Adjusted taxableestate equal to or

more than

Rate of credit onexcess over amount

in column (1)

Credit on amountin column (1)

Adjusted taxableestate less than

Adjusted taxableestate equal to or

more than

(4)(3)(4)(3)(2)(1) (2)(1)

(Percent)(Percent)

0 2,540,0002,040,000$40,000 8.0106,800None0$40,000 3,040,0002,540,00090,000 8.8146,8000.80

90,000 3,540,0003,040,000140,000 9.6190,8001.6$400140,000 4,040,0003,540,000240,000 10.4238,8002.41,200240,000 5,040,0004,040,000440,000 11.2290,8003.23,600

440,000 6,040,0005,040,000640,000 12.0402,8004.010,000640,000 7,040,0006,040,000840,000 12.8522,8004.818,000

8,040,0007,040,0001,040,000840,000 13.6650,8005.627,6001,040,000 9,040,0008,040,0001,540,000 14.4786,8006.438,800

10,040,0009,040,0002,040,0001,540,000 15.2930,8007.270,80010,040,000 16.01,082,800

2 Adjustment

Examples showing use of Schedule B

Example where the alternate valuation is not adopted; date of death, January 1, 1999

Alternatevaluation

date

Alternatevalue

Value at dateof death

Description including face amount of bonds or number of shares and par value whereneeded for identification. Give CUSIP number.

Itemnumber

Unit value

$60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds,due 2001. Interest payable quarterly on Feb. 1, May 1, Aug. 1 andNov. 1; N.Y. Exchange, CUSIP No. XXXXXXXXX

1

60,000100

Interest coupons attached to bonds, item 1, due and payable onNov. 1, 1998, but not cashed at date of death 600

400Interest accrued on item 1, from Nov. 1, 1998, to Jan. 1, 1999

500 shares Public Service Corp., common; N.Y. Exchange, CUSIP No.XXXXXXXXX

255,000110

Dividend on item 2 of $2 per share declared Dec. 10, 1998, payableon Jan. 10, 1999, to holders of record on Dec. 30, 1998 1,000

3,000,000551,290,8003,000,000

$ $

Page 12 Instructions for Schedules


13/26

Example where the alternate valuation is adopted; date of death, January 1, 1999

Alternatevaluation

date

Alternatevalue

Value at dateof death

Description including face amount of bonds or number of shares and par value whereneeded for identification. Give CUSIP number.

Itemnumber

Unit value

$60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds,due 2001. Interest payable quarterly on Feb. 1, May 1, Aug. 1 andNov. 1; N.Y. Exchange, CUSIP No. XXXXXXXXX

1

60,000100

29,7004/1/9999$30,000 of item 1 distributed to legatees on Apr. 1, 1999

29,4005/2/9998$30,000 of item 1 sold by executor on May 2, 1999

Interest coupons attached to bonds, item 1, due and payable on

Nov. 1, 1998, but not cashed at date of death. Cashed by executoron Feb. 1, 1999 6006002/1/99

Interest accrued on item 1, from Nov. 1, 1998, to Jan. 1, 1999. Cashedby executor on Feb. 1, 1999 4004002/1/99

500 shares of Public Service Corp., common; N.Y. Exchange, CUSIPNo. XXXXXXXXX

255,000110

45,0007/1/9990Not disposed of within 6 months following death

Dividend on item 2 of $2 per shar