IRS Form 706-A – In the complex world of estate planning and taxation, certain IRS forms play a crucial role in ensuring compliance, especially when dealing with specially valued properties like farms or family businesses. One such form is IRS Form 706-A, the United States Additional Estate Tax Return. This form is essential for qualified heirs who need to report additional estate taxes triggered by specific events related to inherited property. Whether you’re an heir navigating estate matters or a tax professional, understanding Form 706-A can help avoid penalties and ensure proper tax recapture. In this guide, we’ll cover what the form is, who must file it, filing requirements, and more.
What Is IRS Form 706-A?
IRS Form 706-A is a specialized tax return used to report and pay additional estate taxes under Internal Revenue Code (IRC) section 2032A(c). It applies when there’s an early disposition of specially valued property or a cessation of its qualified use. Specially valued property typically includes farm real estate or closely held business real property that was valued at its actual use value (rather than fair market value) on the original estate tax return, Form 706. This special-use valuation election, made by the decedent’s executor on Form 706, allows for lower estate taxes initially but requires heirs to maintain qualified use for a set period.
The purpose of Form 706-A is to recapture the tax savings from this special valuation if the property is sold, transferred, or no longer used for its qualified purpose too soon. Qualified use generally means operating the property as a farm for farming purposes or in another trade or business. The recapture period is typically 10 years from the decedent’s death, and the tax is proportional to the original tax savings attributable to the affected property.
For example, if a family farm was valued at its agricultural use value instead of its higher development potential, selling it within 10 years could trigger additional taxes via Form 706-A.
Who Must File IRS Form 706-A?
A qualified heir must file Form 706-A if a taxable event occurs involving the specially valued property. A qualified heir is typically a family member who inherits the property, including:
- Ancestors of the decedent
- Spouse of the decedent
- Lineal descendants (children, grandchildren, etc., including legally adopted ones)
- Spouses of lineal descendants
If the property is disposed of to another family member who agrees to assume liability, that person becomes the qualified heir for that interest. Filing is required even if no additional tax is due, such as in cases of nontaxable involuntary conversions (e.g., eminent domain) or exchanges.
Note that indirect ownership through partnerships, corporations, or trusts may also qualify under section 2032A. If you’re unsure about your status as a qualified heir, consult the original Form 706 filed for the estate.
Taxable Events Triggering Form 706-A
Form 706-A must be filed for the following taxable events, which occur before the qualified heir’s death and within the 10-year recapture period:
- Disposition of the property: This includes selling, gifting, or otherwise transferring any interest in the specially valued property. Exceptions apply for dispositions to family members who sign an agreement to assume liability (reported on Schedule C).
- Cessation of qualified use: If the property is no longer used for farming or the designated business, or if the heir or family member fails to materially participate in operations for more than 3 years in any 8-year period after the decedent’s death.
Special rules apply for timber on qualified woodlands, involuntary conversions under section 1033, or like-kind exchanges under section 1031. There’s also a 2-year grace period after the decedent’s death to begin qualified use, which extends the recapture period accordingly.
When and Where to File Form 706-A?
You must file Form 706-A and pay any additional taxes within 6 months after the taxable disposition or cessation of qualified use. Extensions can be requested using Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, by checking the box for Form 706-A.
File the form with the IRS at:
- Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999
For private delivery services (PDS), use: Internal Revenue Service, 333 W. Pershing Rd., Kansas City, MO 64108. Electronic payments are encouraged via IRS.gov/Payments or EFTPS.
If changes occur after filing, submit a supplemental Form 706-A marked “Supplemental Information” with details of the revisions.
How to Complete IRS Form 706-A?
Form 706-A has been redesigned as of September 2025 for better efficiency. It consists of Part I (General Information), Part II (Tax Computation), and Schedules A, B, and C.
Here’s a high-level overview:
- Part I: Enter the qualified heir’s and decedent’s details, including names, SSNs, addresses, date of death, and commencement date.
- Schedule A: List dispositions or cessations, including descriptions, dates, amounts received, and special-use values.
- Schedule B: For involuntary conversions or exchanges, detail replacement property and costs/FMVs.
- Part II: Compute the additional tax by comparing values with and without the section 2032A election, prorating tax savings, and calculating recapture.
- Schedule C: For dispositions to family members, include transferee details and liability agreements.
Use values from the original Form 706; if audited, use the final determined amounts. An election under section 1016(c) to increase basis is available but irrevocable and requires paying interest. The qualified heir must sign under penalties of perjury.
For detailed line-by-line instructions, refer to the official IRS instructions.
| Section | Key Information Required |
|---|---|
| Part I | Heir’s name, SSN, address; Decedent’s details; Election to increase basis (if applicable) |
| Schedule A | Item numbers from Form 706; Descriptions; Dates of events; Amounts received; Special-use values |
| Schedule B | Descriptions of replacement property; Costs or FMVs |
| Part II | Valuations with/without election; Recomputed estate taxes; Proportional recapture calculations |
| Schedule C | Transferee names, SSNs, relationships; Disposed property details |
Penalties for Non-Compliance
Failure to file or pay on time may result in penalties and interest. Return preparers face penalties of up to $1,000 (or 50% of income derived) for unreasonable positions causing understatements, or $5,000 (or 75% of income) for willful or reckless conduct under section 6694. A special lien under section 6324B attaches to the property until the liability is satisfied.
The statute of limitations for assessment is 3 years from the date the IRS receives notice of the disposition or cessation.
Download IRS Form 706-A
You can download the latest version of Form 706-A directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f706a.pdf. Always use the most current revision, which as of 2025 is August 2025 for the form and September 2025 for instructions.
Conclusion
IRS Form 706-A ensures that tax benefits from special-use valuations are not abused by requiring recapture of savings upon early dispositions or use changes. By understanding its requirements, qualified heirs can maintain compliance and avoid unexpected liabilities. For personalized advice, consult a tax professional or estate attorney, as estate tax rules can be intricate and subject to change. Staying informed with official IRS resources is key to effective estate planning.