What does a protective special-use valuation election preserve?
Key takeaway
A protective section 2032A election preserves an estate's ability to use special-use valuation while final property values are determined. The initial estate tax return reports all property at fair market value, and the election does not extend the time to pay reported taxes. This explanation covers the federal filing conditions and the supplemental return for owners of businesses, real estate and private investments.
What the protective election preserves
A protective election preserves special-use valuation pending final values. The estate retains the ability to use that valuation if the finally determined values qualify. The election does not extend the time to pay any tax.
What the initial return reports
The initial Form 706 reports all property at fair market value. A protective section 2032A election does not extend the time to pay the reported taxes.
When a supplemental return follows
A supplemental Form 706 is required if finally determined values qualify for special-use valuation. The estate files the supplemental return within 60 days after that determination. The supplemental filing follows the initial return that reported all property at fair market value, and it is tied to the final determination that the values qualify.
Election filing and validity
A section 2032A election is made on the estate tax return and is irrevocable once made. A valid election requires a notice of election and a fully executed agreement filed with the return. These filing elements define the return on which the election is made and the documents that accompany it.
An estate that does not file a recapture agreement with the estate tax return cannot perfect a special-use valuation election, as described in an article reporting federal appeals court holdings.