Looking for a Form 706 Templates? Download it for free!

meeting the requirements of section

equal to the total deferred tax plus four

business, then these corporations will

2032A.

years of interest. The property must be

be treated as a single corporation, and

expected to survive the deferral period,

the stock will not be treated as a

To make a protective election, check

and does not necessarily have to be

passive asset. Stock held in the other

“Yes” on line 2 and complete Schedule

property of the estate. In addition, all of

corporation is not taken into account in

A-1 according to its instructions for

the persons having an interest in the

determining the 80% requirement.

“Protective election.”

designated property must consent to

Interest in closely held business.

If you make a protective election,

the creation of this lien on the property

For purposes of the installment

you should complete this Form 706 by

pledged.

payment election, an interest in a

valuing all property at its fair market

Percentage requirements. To qualify

closely held business means:

value. Do not use special-use valuation.

•

for installment payments, the value of

Ownership of a trade or business

Usually, this will result in higher estate

the interest in the closely held business

carried on as a proprietorship,

and GST tax liabilities than will be

•

that is included in the gross estate must

An interest as a partner in a

ultimately determined if special-use

be more than 35% of the adjusted

partnership carrying on a trade or

valuation is allowed. The protective

gross estate (the gross estate less

business if 20% or more of the total

election does not extend the time to

expenses, indebtedness, taxes, and

capital interest was included in the

pay the taxes shown on the return. If

losses — Schedules J, K, and L of Form

gross estate of the decedent or the

you wish to extend the time to pay the

706 (do not include any portion of the

partnership had no more than 45

taxes, you should file Form 4768 in

state death tax deduction)).

partners, or

adequate time before the return due

•

Stock in a corporation carrying on a

date.

Interests in two or more closely held

trade or business if 20% or more in

businesses are treated as an interest in

If it is found that the estate qualifies

value of the voting stock of the

a single business if at least 20% of the

for special-use valuation based on the

corporation is included in the gross

total value of each business is included

values as finally determined (or agreed

estate of the decedent or the

in the gross estate. For this purpose,

to following examination of the return),

corporation had no more than 45

include any interest held by the

you must file an amended Form 706

shareholders.

surviving spouse that represents the

(with a complete section 2032A

surviving spouse’s interest in a

The partnership or corporation must

election) within 60 days after the date

business held jointly with the decedent

be carrying on a trade or business at

of this determination. Complete the

as community property or as joint

the time of the decedent’s death. For

amended return using special-use

tenants, tenants by the entirety, or

further information on whether certain

values under the rules of section

tenants in common.

partnerships or corporations owning

2032A, and complete Schedule A-1

real property interests constitute a

and attach all of the required

Value. The value used for meeting

closely held business, see Rev. Rul.

statements.

the percentage requirements is the

2006-34, 2006-26 I.R.B. 1171.

same value used for determining the

Additional information

gross estate. Therefore, if the estate is

In determining the number of

For definitions and additional informa-

valued under alternate valuation or

partners or shareholders, a partnership

tion, see section 2032A and the related

special-use valuation, you must use

or stock interest is treated as owned by

regulations.

those values to meet the percentage

one partner or shareholder if it is

requirements.

community property or held by a

Line 3. Section 6166

Transfers before death. Generally,

husband and wife as joint tenants,

Installment Payments

gifts made before death are not

tenants in common, or as tenants by

If the gross estate includes an interest

included in the gross estate. However,

the entirety.

in a closely held business, you may be

the estate must meet the 35%

Property owned directly or indirectly

able to elect to pay part of the estate

requirement by both including in and

by or for a corporation, partnership,

tax in installments under section 6166.

excluding from the gross estate any

estate, or trust is treated as owned

gifts made by the decedent in the

The maximum amount that can be

proportionately by or for its

3-year period ending on the date of

paid in installments is that part of the

shareholders, partners, or beneficiaries.

death.

estate tax that is attributable to the

For trusts, only beneficiaries with

closely held business; see Determine

Passive assets. In determining the

present interests are considered.

how much of the estate tax may be

value of a closely held business and

The interest in a closely held farm

paid in installments under section 6166

whether the 35% requirement is met,

business includes the interest in the

on page 11. In general, that amount is

do not include the value of any passive

residential buildings and related

the amount of tax that bears the same

assets held by the business. A passive

improvements occupied regularly by the

ratio to the total estate tax that the

asset is any asset not used in carrying

owners, lessees, and employees

value of the closely held business

on a trade or business. Any asset used

operating the farm.

included in the gross estate bears to

in a qualifying lending and financing

the adjusted gross estate.

Holding company stock. The

business is treated as an asset used in

executor may elect to treat as business

carrying on a trade or business; see

Bond or lien. The IRS may require

company stock the portion of any

that an estate furnish a surety bond

section 6166(b)(10) for details. Stock in

holding company stock that represents

another corporation is a passive asset

when granting the installment payment

direct ownership (or indirect ownership

unless the stock is treated as held by

election. In the alternative, the executor

through one or more other holding

may consent to elect the special lien

the decedent because of the election to

companies) in a business company. A

treat holding company stock as

provisions of section 6324A, in lieu of

holding company is a corporation

business company stock; see Holding

the bond. The IRS will contact you

holding stock in another corporation. A

regarding the specifics of furnishing the

company stock below.

business company is a corporation

bond or electing the special lien. The

If a corporation owns at least 20% in

carrying on a trade or business.

IRS will make this determination on a

value of the voting stock of another

case-by-case basis, and you may be

corporation, or the other corporation

In general, this election applies only

asked to provide additional information.

had no more than 45 shareholders and

to stock that is not readily tradable.

If you elect the lien provisions,

at least 80% of the value of the assets

However, the election can be made if

section 6324A requires that the lien be

of each corporation is attributable to

the business company stock is readily

placed on property having a value

assets used in carrying on a trade or

tradable, as long as all of the stock of

-10-

Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2008 Page 10

Related Articles

Related forms

Related Categories