On Schedule A, list every QFOBI or portion thereof that the qualified heir disposed of, or in which material participation has ended, since the date of the decedent's death and for which a Form 706-D has not been previously filed. You must also report any disqualifying act regarding the QFOBI (i.e., the principal place of the qualified family-owned business is no longer located in the United States, or the qualified heir lost United States citizenship and the QFOBI property was neither placed into a qualified trust, nor was a security arrangement made).

Do not list any interests that have already been reported on a previously filed Form 706-D. In general, do not list property interests disposed of to family members of the qualified heir. These interests should be listed on Schedule C.

Column (A).   Within each part, list and number the property interests in chronological order of disposition, failure to materially participate, or disqualification.

Column (B).   Use the same description in column (B) that the executor used for the QFOBI on the Form 706 filed for the decedent's estate. Include in column (B) the schedule and item number where the QFOBI was reported on the Form 706.

Column (C).   Report in column (C) the date that the qualified heir disposed of the QFOBI, material participation ended, or a disqualifying act occurred.

Column (D).   You only need to complete column (D) if you are reporting an involuntary conversion or exchange. If the qualified heir disposed of the QFOBI in an arm's length transaction, report the amount realized in column (D).

  If the QFOBI is disposed of by the qualified heir in other than an arm's length transaction, report in column (D) the FMV of the QFOBI as of the date of its disposition.

  If the qualified heir owned only a part of the QFOBI, report in column (D) the pro rata share of the amount realized or the FMV allocable to the part owned by the qualified heir.

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

Amount realized.   The “amount realized” is the sum of the money received plus the FMV of property (other than money) received. For the real property taxes that must be taken into account, see section 1001(b).

Fair market value.   “Fair market value” (FMV) is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

Column (E).   Report in column (E) the value at the date of the decedent's death (or alternate valuation date, if applicable) of the QFOBI property that passed from the decedent to the qualified heir who disposed of the property, in which material participation has ended, or incurred a disqualifying act. If you are reporting part of your total QFOBI, include only that pro rata share in column (E).

  In general, use the value that the executor reported on the Form 706 filed for the decedent's estate. However, if the IRS has completed the audit of the estate tax return, use the agreed value rather than the reported value.

If the qualified heir reinvests all of the involuntary conversion proceeds in qualified replacement property, or if the qualified heir exchanges qualified property solely for qualified exchange property, then there is no additional estate tax.

You should complete Form 706-D, even though there is no tax, to notify the IRS that the involuntary conversion or exchange took place. However, you need to complete only Part I, Schedule A, and Schedule B. Write “nontaxable” on line 15 of Part II.

Rules similar to those under sections 2032A(e)(14), 2032A(h) and 2032A(i) are applicable. Also, see section 2057(i).

If the cost of the qualified replacement property is less than the amount realized in the involuntary conversion; or if other property, in addition to qualified exchange property, is received in the exchange, the conversion or exchange is partially taxable. You should complete all of Form 706-D and determine the tax using Part II.

List on Schedule A the QFOBI that the qualified heir disposed of, in which material participation ended, or with regard to which the disqualifying act occurred, regardless of whether he or she received replacement or exchange property for the interest. List on Schedule B only the replacement or exchange property the qualified heir actually received.

The term “qualified replacement property” means any property which is—

The period of the decedent's or family member's ownership or material participation with respect to replaced or exchanged property is treated as the period of ownership or material participation with respect to the qualified replacement or exchange property. This applies only to that part of the FMV of the replacement or exchange property (at the date of acquisition) that does not exceed the FMV of the replaced or exchanged property (at the date of disposition).

Enter the qualified heir's share of the QFOBIs shown on line 4 of the decedent's Form 706, Schedule T.

Enter the total reported value of the QFOBIs shown on line 6 of the decedent's Form 706, Schedule T.

Multiply the amount of gross additional estate tax entered on line 3c by the qualified heir's percentage of QFOBIs entered on line 4 of this Form 706-D. The result is the qualified heir's share of the total reduction in estate tax.

See the Applicable Percentage table on page 2.

Multiply line 8 by the applicable percentage entered on line 9. If you completed Schedule B, complete lines 11 through 15. If you did not complete Schedule B, skip lines 11 through 14 and enter the amount from line 10 on line 15.

Enter the additional estate tax due.

Show, on the dotted line for line 15, interest at the underpayment rate established under section 6621 for the period beginning on the date the estate tax liability was due and ending on the date such additional estate tax is due.

Line 1. $900,000 (the qualified heir's share of the total QFOBIs as shown on line 4 of the Schedule T, Form 706).

Line 2. $900,000 (the total reported value of all the decedent's QFOBIs shown on line 6 of the decedent's Schedule T, Form 706.

Line 3c. $355,000 (gross additional estate tax).

Line 4. 100%

Line 5. $355,000 (qualified heir's share of total reduction in estate tax).

Line 6. $200,000 from column (E), Schedule A of this Form 706-D (estate tax value of the QFOBI disposed of).

Line 7. 22.2%

Line 8. $78,810

Line 9. 100% as the applicable percentage (the recapture event occurred within 4 years of the decedent's death).

Line 10. $78,810, total additional estate tax.

Line 15. $78,810, additional estate tax due (there were no entries on lines 11 through 14).

Interest was not entered on the dotted line of line 15. June Green, the qualified heir, chose to have the Internal Revenue Service compute the interest on the additional estate tax due.

Disposition to family member.   You may enter a disposition to a family member of the qualified heir on Schedule C only if you file this Form 706-D on time (including extensions) and attach an agreement by the transferee to be personally liable for any additional estate tax under section 2057(f) on the QFOBI received. For a format for such an agreement, see Form 706, Schedule T (section 2057(h)).

  If you are not filing this Form 706-D on time, or if the transferee does not enter into the agreement, you must enter the disposition(s) on Schedule A instead of Schedule C.

Qualified conservation contribution.   Enter a disposition made through a qualified conservation contribution under section 170(h). In general, the term “qualified conservation contribution” means a contribution—

  Attach a copy of the Form 8283, Noncash Charitable Contributions, that was filed.

  As stated in the Instructions for Form 8283, if your donation qualifies as a “qualified conservation contribution” under section 170(h), attach a statement showing the FMV of the underlying property before and after the gift and the conservation purpose furthered by the gift. See Pub. 561, Determining the Value of Donated Property.

Loss of U.S. citizenship.   A qualified heir who loses U.S. citizenship (and, in some circumstances, a long-term resident who ceases to be treated as such) may avoid additional estate tax by placing the qualified family-owned business assets into a trust meeting certain requirements, or by furnishing a bond in lieu of personal liability. See section 2057(g) for details.

  Show in Schedule C if the qualified heir lost U.S. citizenship (or long-term residency), and such heir complied with the requirements of section 2057(g)). Attach a copy of the qualified trust agreement or evidence of the bond. See section 2057(f)(1)(C) for more information.

See the instructions for completing columns (A) and (B) of Schedule A, beginning on page 3. Report the applicable dates in column (C).

Disclosure, Privacy Act, and Paperwork Reduction Act Notice.   We ask for the information on this form to carry out the Internal Revenue laws of the United States. We need the information to figure and collect the right amount of tax. Subtitle B, Estate and Gift Taxes, of the Internal Revenue Code, imposes a tax in some cases on qualified heirs when a section 2057(f) “taxable event” occurs with respect to a QFOBI. Form 706-D is used to determine the amount, if any, of taxes owed.

  Our legal right to ask for the information request on this form is sections 6001, 6011, and their regulations. You are required to provide the information requested on this form. Section 6109 requires that you provide your social security number; this is so we know who you are, and can process your Form 706-D.

  Generally, tax returns and return information are confidential, as stated in section 6103. However, section 6103 allows or requires the Internal Revenue Service to disclose or give such information shown on your Form 706-D to the Department of Justice to enforce the tax laws, both civil and criminal, and to cities, states, the District of Columbia, U.S. commonwealths or possessions, and certain foreign governments for use in administering their tax laws. We may also disclose this information to other countries under a tax treaty, or to Federal and state agencies to enforce Federal nontax criminal laws and to combat terrorism.

  We may disclose the information on your Form 706-D to the Department of the Treasury and contractors for tax administration purposes; and to other persons as necessary to obtain information which we cannot get in any other way for purposes of determining the amount of or to collect the tax you owe. We may disclose the information on your Form 706-D to the Comptroller General to review the Internal Revenue Service. We may also disclose the information on your Form 706-D to Committees of Congress; Federal, state and local child support agencies; and to other Federal agencies for the purpose of determining entitlement for benefits or the eligibility for, and the repayment of loans.

  If you are required to but do not file a Form 706-D, or do not provide the information requested on the form, or provide fraudulent information, you may be charged penalties and be subject to criminal prosecution.

  You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law.

  The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

   If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Products Coordinating Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the tax form to this office. Instead, see Where To File on page 1.