§6166 — Extension of time for payment of estate tax where estate consists largely of interest in closely held business
70 citing cases
Statute Text — 26 U.S.C. §6166
If the value of an interest in a closely held business which is included in determining the gross estate of a decedent who was (at the date of his death) a citizen or resident of the United States exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax imposed by section 2001 in 2 or more (but not exceeding 10) equal installments.
The maximum amount of tax which may be paid in installments under this subsection shall be an amount which bears the same ratio to the tax imposed by section 2001 (reduced by the credits against such tax) as—
the closely held business amount, bears to
the amount of the adjusted gross estate.
If an election is made under paragraph (1), the first installment shall be paid on or before the date selected by the executor which is not more than 5 years after the date prescribed by section 6151(a) for payment of the tax, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.
For purposes of this section, the term “interest in a closely held business” means—
an interest as a proprietor in a trade or business carried on as a proprietorship;
an interest as a partner in a partnership carrying on a trade or business, if—
20 percent or more of the total capital interest in such partnership is included in determining the gross estate of the decedent, or
such partnership had 45 or fewer partners; or
stock in a corporation carrying on a trade or business if—
20 percent or more in value of the voting stock of such corporation is included in determining the gross estate of the decedent, or
such corporation had 45 or fewer shareholders.
For purposes of paragraph (1)—
Determinations shall be made as of the time immediately before the decedent’s death.
Stock or a partnership interest which—
is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or
is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common,
shall be treated as owned by one shareholder or one partner, as the case may be.
Property owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For purposes of the preceding sentence, a person shall be treated as a beneficiary of any trust only if such person has a present interest in the trust.
All stock and all partnership interests held by the decedent or by any member of his family (within the meaning of section 267(c)(4)) shall be treated as owned by the decedent.
For purposes of the 35-percent requirement of subsection (a)(1), an interest in a closely held business which is the business of farming includes an interest in residential buildings and related improvements on the farm which are occupied on a regular basis by the owner or lessee of the farm or by persons employed by such owner or lessee for purposes of operating or maintaining the farm.
For purposes of this section, value shall be value determined for purposes of chapter 11 (relating to estate tax).
For purposes of this section, the term “closely held business amount” means the value of the interest in a closely held business which qualifies under subsection (a)(1).
For purposes of this section, the term, “adjusted gross estate” means the value of the gross estate reduced by the sum of the amounts allowable as a deduction under section 2053 or 2054. Such sum shall be determined on the basis of the facts and circumstances in existence on the date (including extensions) for filing the return of tax imposed by section 2001 (or, if earlier, the date on which such return is filed).
If the executor elects the benefits of this paragraph (at such time and in such manner as the Secretary shall by regulations prescribe), then—
for purposes of paragraph (1)(B)(i) or (1)(C)(i) (whichever is appropriate) and for purposes of subsection (c), any capital interest in a partnership and any non-readily-tradable stock which (after the application of paragraph (2)) is treated as owned by the decedent shall be treated as included in determining the value of the decedent’s gross estate,
the executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a), and
for purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.
For purposes of this paragraph, the term “non-readily-tradable stock” means stock for which, at the time of the decedent’s death, there was no market on a stock exchange or in an over-the-counter market.
If the executor elects the benefits of this paragraph, then—
For purposes of this section, the portion of the stock of any holding company which represents direct ownership (or indirect ownership through 1 or more other holding companies) by such company in a business company shall be deemed to be stock in such business company.
The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).
For purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.
No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stock (within the meaning of paragraph (7)(B)).
If the requirements of clause (i) are not met, but all of the stock of each holding company taken into account is non-readily-tradable, then this paragraph shall apply, but subsection (a)(1) shall be applied by substituting “5” for “10”.
For purposes of clause (i) of paragraph (1)(C), the deemed stock resulting from the application of subparagraph (A) shall be treated as voting stock to the extent that voting stock in the holding company owns directly (or through the voting stock of 1 or more other holding companies) voting stock in the business company.
For purposes of this paragraph—
The term “holding company” means any corporation holding stock in another corporation.
The term “business company” means any corporation carrying on a trade or business.
For purposes of subsection (a)(1) and determining the closely held business amount (but not for purposes of subsection (g)), the value of any interest in a closely held business shall not include the value of that portion of such interest which is attributable to passive assets held by the business.
For purposes of this paragraph—
The term “passive asset” means any asset other than an asset used in carrying on a trade or business.
The term “passive asset” includes any stock in another corporation unless—
such stock is treated as held by the decedent by reason of an election under paragraph (8), and
such stock qualified under subsection (a)(1).
If—
a corporation owns 20 percent or more in value of the voting stock of another corporation, or such other corporation has 45 or fewer shareholders, and
80 percent or more of the value of the assets of each such corporation is attributable to assets used in carrying on a trade or business,
then such corporations shall be treated as 1 corporation for purposes of clause (ii). For purposes of applying subclause (II) to the corporation holding the stock of the other corporation, such stock shall not be taken into account.
If the executor elects the benefits of this paragraph, then—
For purposes of this section, any asset used in a qualifying lending and finance business shall be treated as an asset which is used in carrying on a trade or business.
The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).
For purposes of applying subsection (a)(1), “5” shall be substituted for “10”.
For purposes of this paragraph—
The term “qualifying lending and finance business” means a lending and finance business, if—
based on all the facts and circumstances immediately before the date of the decedent’s death, there was substantial activity with respect to the lending and finance business, or
during at least 3 of the 5 taxable years ending before the date of the decedent’s death, such business had at least 1 full-time employee substantially all of whose services were the active management of such business, 10 full-time, nonowner employees substantially all of whose services were directly related to such business, and $5,000,000 in gross receipts from activities described in clause (ii).
The term “lending and finance business” means a trade or business of—
making loans,
purchasing or discounting accounts receivable, notes, or installment obligations,
engaging in rental and leasing of real and tangible personal property, including entering into leases and purchasing, servicing, and disposing of leases and leased assets,
rendering services or making facilities available in the ordinary course of a lending or finance business, and
rendering services or making facilities available in connection with activities described in subclauses (I) through (IV) carried on by the corporation rendering services or making facilities available, or another corporation which is a member of the same affiliated group (as defined in section 1504 without regard to section 1504(b)(3)).
The term “qualifying lending and finance business” shall not include any interest in an entity, if the stock or debt of such entity or a controlled group (as defined in section 267(f)(1)) of which such entity was a member was readily tradable on an established securities market or secondary market (as defined by the Secretary) at any time within 3 years before the date of the decedent’s death.
For purposes of this section, interest in 2 or more closely held businesses, with respect to each of which there is included in determining the value of the decedent’s gross estate 20 percent or more of the total value of each such business, shall be treated as an interest in a single closely held business. For purposes of the 20-percent requirement of the preceding sentence, an interest in a closely held business which represents the surviving spouse’s interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent’s gross estate.
Any election under subsection (a) shall be made not later than the time prescribed by section 6075(a) for filing the return of tax imposed by section 2001 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax.
If an election is made under subsection (a) to pay any part of the tax imposed by section 2001 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.
If the time for payment of any amount of tax has been extended under this section—
Interest payable under section 6601 of any unpaid portion of such amount attributable to the first 5 years after the date prescribed by section 6151(a) for payment of the tax shall be paid annually.
Interest payable under section 6601 on any unpaid portion of such amount attributable to any period after the 5-year period referred to in paragraph (1) shall be paid annually at the same time as, and as a part of, each installment payment of the tax.
In the case of a deficiency to which subsection (e) applies which is assessed after the close of the 5-year period referred to in paragraph (1), interest attributable to such 5-year period, and interest assigned under paragraph (2) to any installment the date for payment of which has arrived on or before the date of the assessment of the deficiency, shall be paid upon notice and demand from the Secretary.
If the executor has selected a period shorter than 5 years under subsection (a)(3), such shorter period shall be substituted for 5 years in paragraphs (1), (2), and (3) of this subsection.
If—
any portion of an interest in a closely held business which qualifies under subsection (a)(1) is distributed, sold, exchanged, or otherwise disposed of, or
money and other property attributable to such an interest is withdrawn from such trade or business, and
the aggregate of such distributions, sales, exchanges, or other dispositions and withdrawals equals or exceeds 50 percent of the value of such interest,
then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary.
In the case of a distribution in redemption of stock to which section 303 (or so much of section 304 as relates to section 303) applies—
the redemption of such stock, and the withdrawal of money and other property distributed in such redemption, shall not be treated as a distribution or withdrawal for purposes of subparagraph (A), and
for purposes of subparagraph (A), the value of the interest in the closely held business shall be considered to be such value reduced by the value of the stock redeemed.
This subparagraph shall apply only if, on or before the date prescribed by subsection (a)(3) for the payment of the first installment which becomes due after the date of the distribution (or, if earlier, on or before the day which is 1 year after the date of the distribution), there is paid an amount of the tax imposed by section 2001 not less than the amount of money and other property distributed.
Subparagraph (A)(i) does not apply to an exchange of stock pursuant to a plan of reorganization described in subparagraph (D), (E), or (F) of section 368(a)(1) nor to an exchange to which section 355 (or so much of section 356 as relates to section 355) applies; but any stock received in such an exchange shall be treated for purposes of subparagraph (A)(i) as an interest qualifying under subsection (a)(1).
Subparagraph (A)(i) does not apply to a transfer of property of the decedent to a person entitled by reason of the decedent’s death to receive such property under the decedent’s will, the applicable law of descent and distribution, or a trust created by the decedent. A similar rule shall apply in the case of a series of subsequent transfers of the property by reason of death so long as each transfer is to a member of the family (within the meaning of section 267(c)(4)) of the transferor in such transfer.
If any stock in a holding company is treated as stock in a business company by reason of subsection (b)(8)(A)—
any disposition of any interest in such stock in such holding company which was included in determining the gross estate of the decedent, or
any withdrawal of any money or other property from such holding company attributable to any interest included in determining the gross estate of the decedent,
shall be treated for purposes of subparagraph (A) as a disposition of (or a withdrawal with respect to) the stock qualifying under subsection (a)(1).
If any stock in a holding company is treated as stock in a business company by reason of subsection (b)(8)(A)—
any disposition of any interest in such stock in the business company by such holding company, or
any withdrawal of any money or other property from such business company attributable to such stock by such holding company owning such stock,
shall be treated for purposes of subparagraph (A) as a disposition of (or a withdrawal with respect to) the stock qualifying under subsection (a)(1).
If an election is made under this section and the estate has undistributed net income for any taxable year ending on or after the due date for the first installment, the executor shall, on or before the date prescribed by law for filing the income tax return for such taxable year (including extensions thereof), pay an amount equal to such undistributed net income in liquidation of the unpaid portion of the tax payable in installments.
For purposes of subparagraph (A), the undistributed net income of the estate for any taxable year is the amount by which the distributable net income of the estate for such taxable year (as defined in section 643) exceeds the sum of—
the amounts for such taxable year specified in paragraphs (1) and (2) of section 661(a) (relating to deductions for distributions, etc.);
the amount of tax imposed for the taxable year on the estate under chapter 1; and
the amount of the tax imposed by section 2001 (including interest) paid by the executor during the taxable year (other than any amount paid pursuant to this paragraph).
For purposes of this paragraph, if any stock in a corporation is treated as stock in another corporation by reason of subsection (b)(8)(A), any dividends paid by such other corporation to the corporation shall be treated as paid to the estate of the decedent to the extent attributable to the stock qualifying under subsection (a)(1).
Except as provided in subparagraph (B), if any payment of principal or interest under this section is not paid on or before the date fixed for its payment by this section (including any extension of time), the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary.
If any payment of principal or interest under this section is not paid on or before the date determined under subparagraph (A) but is paid within 6 months of such date—
the provisions of subparagraph (A) shall not apply with respect to such payment,
the provisions of section 6601(j) shall not apply with respect to the determination of interest on such payment, and
there is imposed a penalty in an amount equal to the product of—
5 percent of the amount of such payment, multiplied by
the number of months (or fractions thereof) after such date and before payment is made.
The penalty imposed under clause (iii) shall be treated in the same manner as a penalty imposed under subchapter B of chapter 68.
If—
a deficiency in the tax imposed by section 2001 is assessed,
the estate qualifies under subsection (a)(1), and
the executor has not made an election under subsection (a),
the executor may elect to pay the deficiency in installments. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.
An election under this subsection shall be made not later than 60 days after issuance of notice and demand by the Secretary for the payment of the deficiency, and shall be made in such manner as the Secretary shall by regulations prescribe.
If an election is made under this subsection, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments which would have been due if an election had been timely made under subsection (a) at the time the estate tax return was filed. The part of the deficiency so prorated to any installment the date for payment of which would have arrived shall be paid at the time of the making of the election under this subsection. The portion of the deficiency so prorated to installments the date for payment of which would not have so arrived shall be paid at the time such installments would have been due if such an election had been made.
To the extent that an interest in a closely held business is the subject of a direct skip (within the meaning of section 2612(c)) occurring at the same time as and as a result of the decedent’s death, then for purposes of this section any tax imposed by section 2601 on the transfer of such interest shall be treated as if it were additional tax imposed by section 2001.
The Secretary shall prescribe such regulations as may be necessary to the application of this section.
For authority of the Secretary to require security in the case of an extension under this section, see section 6165.
For special lien (in lieu of bond) in the case of an extension under this section, see section 6324A.
For extension of the period of limitation in the case of an extension under this section, see section 6503(d).
For provisions relating to interest on tax payable in installments under this section, see subsection (j) of section 6601.
For special rule for qualifying an estate under this section where property has been transferred within 3 years of decedent’s death, see section 2035(c)(2).
Treasury Regulations
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Treas. Reg. §20.6166-1Election of alternate extension of time for payment of estate tax where estate consists largely of interest in closely held business
(a) In general. Section 6166 allows an executor to elect to extend payment of part or all of the portion of the estate tax which is attributable to a closely held business interest (as defined in section 6166(b)(1)). If it is made at the time the estate tax return is filed, the election is applicable both to the tax originally determined to be due and to certain deficiencies. If no election is made when the estate tax return is filed, up to the full amount of certain later deficiencies (but not any tax originally determined to be due) may be paid in installments.
(b) Time and manner of election. The election provided under section 6166(a) is made by attaching to a timely filed estate tax return a notice of election containing the following information:
(1) The decedent's name and taxpayer identification number as they appear on the estate tax return;
(2) The amount of tax which is to be paid in installments;
(3) The date selected for payment of the first installment;
(4) The number of annual installments, including the first installment, in which the tax is to be paid;
(5) The properties shown on the estate tax return which constitute the closely held business interest (identified by schedule and item number); and
(6) The facts which formed the basis for the executor's conclusion that the estate qualifies for payment of the estate tax in installments.
In the absence of a statement in the notice of election as to the amount of tax to be paid in installments, the date selected for payment of the first installment, or the number of installments, the election is presumed to be for the maximum amount so payable and for payment thereof in 10 equal installments, the first of which is due on the date which is 5 years after the date prescribed in section 6151(a) for payment of estate tax.
(c) Treatment of certain deficiencies—(1) No election before assessment of deficiency. Where a deficiency is assessed and no election, including a protective election, has been made under section 6166(a) to pay any tax in installments, the executor may elect under section 6166(h) to pay the portion of the deficiency attributable to the closely held business interest in installments. However, this is true only if the estate qualifies under section 6166 based upon values as finally determined (or agreed to following examination of a return). Such an election is exercised by filing a notice of election with the Internal Revenue Service office where the estate tax return was filed. The notice of election must be filed within 60 days after issuance of notice and demand for payment of the deficiency, and it must contain the same information as is required under paragraph (b) of this section. The notice of election is to be accompanied by payment of the amount of tax and interest, the date for payment of which has arrived as determined under paragraphs (e) and (f) of this section, plus any amount of unpaid tax and interest which is not attributable to the closely held business interest and which is not eligible for further extension (or currently extended) under another section (other than section 6166A).
(2) Election made with estate tax return. If the executor makes an election under section 6166(a) (other than a protective election) at the time the estate tax return is filed and a deficiency is later assessed, the portion of the deficiency which is attributable to the closely held business interest (but not any accrued interest thereon) will be prorated to the installments payable pursuant to the original section 6166(a) election. Any part of the deficiency prorated to an installment, the date for payment of which has arrived, is due upon notice and demand. Interest for any such period, including the deferral period, is payable upon notice and demand.
(3) Portion of deficiency attributable to closely held business interest. Only that portion of any deficiency which is attributable to a closely held business interest may be paid in installments under section 6166. The amount of any deficiency which is so attributable is the difference between the amount of tax which the executor has previously elected to pay in installments under section 6166 and the maximum amount of tax which the executor could have elected to pay in installments on the basis of a return which reflects the adjustments that resulted in the deficiency.
(d) Protective election. A protective election may be made to defer payment of any portion of tax remaining unpaid at the time values are finally determined (or agreed to following examination of a return) and any deficiencies attributable to the closely held business interest (within the meaning of paragraph (c)(3) of this section). Extension of tax payments pursuant to this election is contingent upon final values meeting the requirements of section 6166. A protective election does not, however, extend the time for payment of any amount of tax. Rules for such extensions are contained in sections 6161, 6163, and 6166A. A protective election is made by filing a notice of election with a timely filed estate tax return stating that the election is being made. Within 60 days after values are finally determined (or agreed to following examination of a return), a final notice of election which sets forth the information required under paragraph (b) of this section must be filed with the Internal Revenue Service office where the original estate tax return was filed. That notice of final election is to be accompanied by payment of any amount of previously unpaid tax and interest, the date for payment of which has arrived as determined under paragraphs (e) and (f) of this section, plus any amount of unpaid tax and interest which is not attributable to the closely held business interest and which is not eligible for further extension (or currently extended) under another section (other than section 6166A).
(e) Special rules—(1) Effect of deficiencies and protective elections upon payment. Upon election to extend the time for payment of a deficiency or upon final determination of values following a protective election, the executor must prorate the tax or deficiency attributable to the closely held business interest among all installments. All amounts attributed to installments which would have been due had the election been made at the time the tax was due to be paid under section 6151(a) and all accrued interest must be paid at the time the election is made.
(2) Determination of date for payment of first installment. The executor may defer payment of tax (but not interest) for any period up to 5 years from the date determined under section 6151(a) for payment of the estate tax. The date chosen for payment of the first installment of tax is not required to be on an annual anniversary of the original due date of the tax; however, it must be the date within any month which corresponds to the day of the month determined under section 6151(a).
(f) Rule for computing interest. Section 6601(j) provides a special 4 percent interest rate for the amount of tax (including deficiencies) which is to be paid in installments under section 6166. This special interest rate applies only to that amount of tax which is to be paid in installments and which does not exceed the limitation of section 6601(j)(2). Where payment of a greater amount of tax than is subject to section 6601(j)(2) is extended under section 6166, each installment is deemed to be comprised of both tax subject to the 4 percent interest rate and tax subject to the rate otherwise prescribed by section 6621. The percentage of any installment subject to the special 4 percent rate is equal to the percentage of the total tax payable in installments which is subject to the 4 percent rate. Where an election is made under the provisions of paragraphs (b) or (c) (1) of this section, the 4 percent rate applies from the date on which the estate tax was originally due to be paid. If only a protective election is made, section 6601(j) applies to the amount which is to be paid in installments, limited to the amount of any deficiency, from the due date for payment of estate tax. After the date upon which the section 6166 election is made final, section 6601(j) applies to the entire amount to be paid in installments.
(g) Relation of sections 6166 and 6166A. No election may be made under section 6166 if an election under section 6166A applies with respect to an estate. For example, no election can be made under section 6166(h) where an executor has made an election under section 6166A. If an election is timely made under either section 6166 or section 6166A, however, a protective election can be made under the other section at the same time. If the executor then files a timely notice of final election under the section protectively elected and pays any amounts determined to be due currently following final determination of (or agreement as to) estate tax values, the original election under the other provision will be deemed never to have applied to the estate.
(h) Special rule for estates for which elections under section 6166 are made on or before August 30, 1980. An election to extend payment of estate tax under section 6166 that is made on or before August 30, 1980, may be revoked. To revoke an election, the executor must file a notice of revocation with the Internal Revenue Service office where the original estate tax return was filed on or before January 31, 1981 (or if earlier, the date on which the period of limitation on assessment expires). This notice of revocation must contain the decedent's name, date of death, and taxpayer identification number, and is to be accompanied by remittance of any additional amount of estate tax and interest determined to be due.
(i) Examples. The provisions of this section may be illustrated by the following examples:
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Treas. Reg. §20.6166-1(a)In general.
In general. Section 6166 allows an executor to elect to extend payment of part or all of the portion of the estate tax which is attributable to a closely held business interest (as defined in section 6166(b)(1)). If it is made at the time the estate tax return is filed, the election is applicable both to the tax originally determined to be due and to certain deficiencies. If no election is made when the estate tax return is filed, up to the full amount of certain later deficiencies (but not any tax originally determined to be due) may be paid in installments.
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Treas. Reg. §20.6166-1(b)Time and manner of election.
Time and manner of election. The election provided under section 6166(a) is made by attaching to a timely filed estate tax return a notice of election containing the following information:
(1) The decedent's name and taxpayer identification number as they appear on the estate tax return;
(2) The amount of tax which is to be paid in installments;
(3) The date selected for payment of the first installment;
(4) The number of annual installments, including the first installment, in which the tax is to be paid;
(5) The properties shown on the estate tax return which constitute the closely held business interest (identified by schedule and item number); and
(6) The facts which formed the basis for the executor's conclusion that the estate qualifies for payment of the estate tax in installments.
In the absence of a statement in the notice of election as to the amount of tax to be paid in installments, the date selected for payment of the first installment, or the number of installments, the election is presumed to be for the maximum amount so payable and for payment thereof in 10 equal installments, the first of which is due on the date which is 5 years after the date prescribed in section 6151(a) for payment of estate tax.
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Treas. Reg. §20.6166-1(c)Treatment of certain deficiencies—(1) No election before assessment of deficiency.
Treatment of certain deficiencies—(1) No election before assessment of deficiency. Where a deficiency is assessed and no election, including a protective election, has been made under section 6166(a) to pay any tax in installments, the executor may elect under section 6166(h) to pay the portion of the deficiency attributable to the closely held business interest in installments. However, this is true only if the estate qualifies under section 6166 based upon values as finally determined (or agreed to following examination of a return). Such an election is exercised by filing a notice of election with the Internal Revenue Service office where the estate tax return was filed. The notice of election must be filed within 60 days after issuance of notice and demand for payment of the deficiency, and it must contain the same information as is required under paragraph (b) of this section. The notice of election is to be accompanied by payment of the amount of tax and interest, the date for payment of which has arrived as determined under paragraphs (e) and (f) of this section, plus any amount of unpaid tax and interest which is not attributable to the closely held business interest and which is not eligible for further extension (or currently extended) under another section (other than section 6166A).
(2) Election made with estate tax return. If the executor makes an election under section 6166(a) (other than a protective election) at the time the estate tax return is filed and a deficiency is later assessed, the portion of the deficiency which is attributable to the closely held business interest (but not any accrued interest thereon) will be prorated to the installments payable pursuant to the original section 6166(a) election. Any part of the deficiency prorated to an installment, the date for payment of which has arrived, is due upon notice and demand. Interest for any such period, including the deferral period, is payable upon notice and demand.
(3) Portion of deficiency attributable to closely held business interest. Only that portion of any deficiency which is attributable to a closely held business interest may be paid in installments under section 6166. The amount of any deficiency which is so attributable is the difference between the amount of tax which the executor has previously elected to pay in installments under section 6166 and the maximum amount of tax which the executor could have elected to pay in installments on the basis of a return which reflects the adjustments that resulted in the deficiency.
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Treas. Reg. §20.6166-1(d)Protective election.
Protective election. A protective election may be made to defer payment of any portion of tax remaining unpaid at the time values are finally determined (or agreed to following examination of a return) and any deficiencies attributable to the closely held business interest (within the meaning of paragraph (c)(3) of this section). Extension of tax payments pursuant to this election is contingent upon final values meeting the requirements of section 6166. A protective election does not, however, extend the time for payment of any amount of tax. Rules for such extensions are contained in sections 6161, 6163, and 6166A. A protective election is made by filing a notice of election with a timely filed estate tax return stating that the election is being made. Within 60 days after values are finally determined (or agreed to following examination of a return), a final notice of election which sets forth the information required under paragraph (b) of this section must be filed with the Internal Revenue Service office where the original estate tax return was filed. That notice of final election is to be accompanied by payment of any amount of previously unpaid tax and interest, the date for payment of which has arrived as determined under paragraphs (e) and (f) of this section, plus any amount of unpaid tax and interest which is not attributable to the closely held business interest and which is not eligible for further extension (or currently extended) under another section (other than section 6166A).
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Treas. Reg. §20.6166-1(e)Special rules—(1) Effect of deficiencies and protective elections upon payment.
Special rules—(1) Effect of deficiencies and protective elections upon payment. Upon election to extend the time for payment of a deficiency or upon final determination of values following a protective election, the executor must prorate the tax or deficiency attributable to the closely held business interest among all installments. All amounts attributed to installments which would have been due had the election been made at the time the tax was due to be paid under section 6151(a) and all accrued interest must be paid at the time the election is made.
(2) Determination of date for payment of first installment. The executor may defer payment of tax (but not interest) for any period up to 5 years from the date determined under section 6151(a) for payment of the estate tax. The date chosen for payment of the first installment of tax is not required to be on an annual anniversary of the original due date of the tax; however, it must be the date within any month which corresponds to the day of the month determined under section 6151(a).
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Treas. Reg. §20.6166-1(f)Rule for computing interest.
Rule for computing interest. Section 6601(j) provides a special 4 percent interest rate for the amount of tax (including deficiencies) which is to be paid in installments under section 6166. This special interest rate applies only to that amount of tax which is to be paid in installments and which does not exceed the limitation of section 6601(j)(2). Where payment of a greater amount of tax than is subject to section 6601(j)(2) is extended under section 6166, each installment is deemed to be comprised of both tax subject to the 4 percent interest rate and tax subject to the rate otherwise prescribed by section 6621. The percentage of any installment subject to the special 4 percent rate is equal to the percentage of the total tax payable in installments which is subject to the 4 percent rate. Where an election is made under the provisions of paragraphs (b) or (c) (1) of this section, the 4 percent rate applies from the date on which the estate tax was originally due to be paid. If only a protective election is made, section 6601(j) applies to the amount which is to be paid in installments, limited to the amount of any deficiency, from the due date for payment of estate tax. After the date upon which the section 6166 election is made final, section 6601(j) applies to the entire amount to be paid in installments.
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Treas. Reg. §20.6166-1(g)Relation of sections 6166 and 6166A.
Relation of sections 6166 and 6166A. No election may be made under section 6166 if an election under section 6166A applies with respect to an estate. For example, no election can be made under section 6166(h) where an executor has made an election under section 6166A. If an election is timely made under either section 6166 or section 6166A, however, a protective election can be made under the other section at the same time. If the executor then files a timely notice of final election under the section protectively elected and pays any amounts determined to be due currently following final determination of (or agreement as to) estate tax values, the original election under the other provision will be deemed never to have applied to the estate.
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Treas. Reg. §20.6166-1(h)Special rule for estates for which elections under section 6166 are made on or before August 30, 1980.
Special rule for estates for which elections under section 6166 are made on or before August 30, 1980. An election to extend payment of estate tax under section 6166 that is made on or before August 30, 1980, may be revoked. To revoke an election, the executor must file a notice of revocation with the Internal Revenue Service office where the original estate tax return was filed on or before January 31, 1981 (or if earlier, the date on which the period of limitation on assessment expires). This notice of revocation must contain the decedent's name, date of death, and taxpayer identification number, and is to be accompanied by remittance of any additional amount of estate tax and interest determined to be due.
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Treas. Reg. §20.6166-1(i)Examples.
Examples. The provisions of this section may be illustrated by the following examples:
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Treas. Reg. §301.6166-1Extension of time for payment of estate tax where estate consists largely of interest in closely held business
For provisions relating to the extension of time for payment of estate tax where estate consists largely of interest in closely held business, see §§ 20.6166-1 to 20.6166-4, inclusive, of this chapter (Estate Tax Regulations).
70 Citing Cases
They believed that the estate would qualify for a payment deferral under section 6166 -14- [*14] that they understood would allow payment of estate tax over 10 years upon the death of a shareholder of a family-owned business.
1991) ("The deferral [ofestate tax payment] benefits ofsection 6166 are a 'matter oflegislative grace' that is similar to the benefits conferred by other statutoryprovisions dealing with deductions, exemptions and exclusions from tax.
1991) ("The deferral [ofestate tax payment] benefits ofsection 6166 are a 'matter oflegislative grace' that is similar to the benefits conferred by other statutoryprovisions dealing with deductions, exemptions and exclusions from tax.
On this return the estate made an election under section 6166 to defer - 3 - [*3] payment ofa portion ofthe estate tax for five years and to pay the estate tax in installments.
Parties' Cross-Motions for SummaryJudgment Respondentmoves for summaryjudgment on the basis that a valid election under section 6166 can only be made on a timely filed Form 706. Therefore, in respondent's view, because the estate filed its estate tax return late, its election under section 6166 was untimely and denial ofthe section 6166 election was appropriate. The estate opposes respondent's motion and cross-moves for summary judgment. The estate contends that it fully complied with the requir
ity.28 27Mr. Lameti was the appointed trustee ofthe Adell Trust on August 13, 2006, but he resigned and appointed Kevin as trustee on August 14, 2006. Kevin served as trustee ofthe Adell Trust until September 1, 2009. 28The estate expected to make a sec. 6166· election computing the deferred and nondeferred portions ofthe estate tax on the basis ofthe portion attributable to the closely held businesses and was waiting for the valuations ofMr. Adell's closely held businesses, Adell Broadcasting,
1991) (“The deferral [of estate tax payment] benefits of section 6166 are a ‘matter of legislative grace’ that is similar to the benefits conferred by other statutory provisions dealing with deductions, exemptions and exclusions from tax.
1991), we observed that the benefits that section 6166 confers "are p ivileges granted to the taxpayer by Congress as a matter oflegislative grace," As a result, we concluded in-Estate of Bell that "the provisions ofsection 6166 which grant such privileges should be . given a strict and narrow construction" Id. Section 6166(g)(3)(A) provides that except as provided in section 6166(g)(3)(B), a provision that does not apply in this case, "ifany payment of principal or interest under this section i
of proposed adjustment, which proposed $49,500,000 as the fair market value of decedent's units as of the valuation date. After unsuccessful settlement negotiations with respondents and an appeal request to 2The personal representatives also made a sec. 6166 election on the return, choosing to defer payment of the qualifying estate tax. SAfter the negotiations failed, respondent sent petitioner an amended notice of proposed adjustment, dated Oct. 4, 2007. (continued...) - 4 - respondent's Appeal
of $200,190, which it enclosed with the return . Mr . Le Caer's estate also mailed a $24,810 check for the payment of the Nevada estate tax to the Nevada Department of Taxation . The estate simultaneously filed a notice of protective election under section 6166 . On November 4, 2004, a Form 706 for Mrs . Le Caer's estate was signed, and on December 7, 2004, it was mailed . The return reported a $4,976,586 . gross estate consisting of Mrs . Le Caer's interest in real estate valued at $1,572,500,
ble of $200,190, which it enclosed with the return. Mr. Le Caer’s estate also mailed a $24,810 check for the payment of the Nevada estate tax to the Nevada Department of Taxation. The estate simultaneously filed a notice of protective election under section 6166. On November 4, 2004, a Form 706 for Mrs. Le Caer’s estate was signed, and on December 7, 2004, it was mailed. The return reported a $4,976,586 gross estate consisting of Mrs. Le Caer’s interest in real estate valued at $1,572,500, three
ion We have jurisdiction to issue declaratory judgments relating to the status, qualification, valuation, or classification of certain section 501(c)(3) organizations, retirement plans, gifts, governmental obligations, and installment payments under section 6166 . Secs . 7428, 7476, 7477, 7478, 7479 . In contrast to section 6015, none of those sections authorizes us to make a determination; instead, those sections authorize this Court, after the Commissioner has made a determination, to make a d
Section 6166 provides for a deferral of the payment of Federal estate taxes where the decedent's interest in a closely held business exceeds 35 percent of the adjusted gross estate .
113 (2007) (holding that by requiring all estates to post a bond to make a section 6166 election regardless of the facts before him, the Commissioner was adopting a bright-line policy that trumped the exercise of his discretion) .
ion We have jurisdiction to issue declaratory judgments relating to the status, qualification, valuation, or classification of certain section 501(c)(3) organizations, retirement plans, gifts, governmental obligations, and installment payments under section 6166. Secs. 7428, 7476, 7477, 7478, 7479. In contrast to section 6015, none of those sections authorizes us to make a determination; instead, those sections authorize this Court, after the Commissioner has made a determination, to make a decl
The parties refer to section 6166, an estate tax provision somewhat related to section 2057, and petitioners argue that the language thereof illustrates how Congress could have limited section 2057 had it intended to do so.
Respondent's attempt to selectively take phrases from the statute and the legislative history to support his narrow reading is unpersuasive .
he Court on the parties’ cross-motions for summary judgment under Rules 121(a) and 217(b)(2). Respondent issued a notice of determination denying the Estate of Edward P. Roski (the estate) the election to pay Federal estate tax in installments under section 6166. The issues before us are: (1) Whether this Court’s jurisdiction under section 7479 includes reviewing respondent’s determination, which was based upon his imposition of a security requirement, that an election may not be made under sect
rimarily for the benefit of his wife, Mr. Wechsler's mother, with Mr. Wechsler and Gilbert (the two sons of the father and mother) as remaindermen. The father's estate elected to pay the Federal estate tax it owed under the installment provisions of section 6166. Mr. Wechsler's mother died on May 3, 1989, and her estate also elected to pay the Federal estate tax it owed under the installment provisions of section 6166. Mr. Wechsler and Gilbert were cofiduciaries of the father's estate, the mothe
iciency and that the estate tax was less than the amount that had been paid. The issue in that case was whether the term “overpayment” in section 6512(b) could include amounts that were paid as interest, pursuant to an installment payment plan under section 6166A. The Commissioner argued that the Court was without jurisdiction to decide issues concerning interest, and that the personal representative had to bring a separate action in a U.S. District Court or in the predecessor of the Court of Fe
This Court has jurisdiction to issue declaratory judgments relating to the status, qualification, valuation, or classification of certain sec. 501(c)(3) organizations, retirement plans, gifts, governmental obligations, and installment payments under sec. 6166. Secs. 7428, 7476, 7477, 7478, 7479. None of those sections authorizes us to make a determination; instead, those provisions authorize this Court, after the Commissioner has made a determination, to make a declaration with respect to the ma
The Court in Estate of La Meres discussed “undue hardship” in the context of a section 6166 election and a closely held business, specifically addressing an example in the regulations.
Election To Defer Tax Payments On April 1, 1999, the executors elected under section 6166 to pay Federal estate tax in 10 annual installments, beginning on 4 As part of the sale of Gilman Paper Co.
This Court has jurisdiction to issue declaratory judgments relating to the status, qualification, valuation, or classification of certain sec. 501(c)(3) organizations, retirement plans, gifts, governmental obligations, and installment payments under sec. 6166. Secs. 7428, 7476, 7477, 7478, 7479. None of those sections authorizes us to make a determination; instead, those provisions authorize this Court, after the Commissioner has made a determination, to make a declaration with respect to the ma
714, 728 (1989) (an estate which elected to defer estate tax under section 6166 is entitled to a determination of the overpayment of interest, as well as a determination of the overpayment of tax), affd.
r loss from a passive activity of the taxpayer, (D) any qualified residence interest within the meaning of paragraph (3)), and (E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163 or 6166 or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981).
Pursuant to section 6166, the estate elected to defer payment of the balance ($3,870,721.36) for 5 years and to thereafter pay the balance in 10 annual installments of $387,072.14 each.
n the $488,190 interest expense deduction is taken into account, the net adjustment to the taxable estate is negative. Thus, the settlement produced an estate tax liability that was lower than that reported on the 6 The estate made an election under sec. 6166 to pay the estate tax liability on a deferred basis. The estate of a decedent dying prior to 1998 is entitled to deduct interest expense on a deferred estate tax obligation as an administrative expense under sec. 2053(a)(2). See Estate of B
filing due date had passed, C contacted H to get the necessary real property appraisals. The estate tax return was filed on Feb. 4, 1994, 6 months after the extended filing due date. On the untimely filed estate tax return, the estate elected under sec. 6166, I.R.C. 1986, to pay in installments the estate tax related to certain of D’s real estate interests. R tentatively allowed the sec. 6166, I.R.C. 1986, election. Ten months later, R notified H that the sec. 6166, I.R.C. 1986, election was den
68, Application for Extension of Time to File a Return and/or Pay U.S. Estate Taxes. Respondent also assessed interest and an addition to tax for late payment under sec. 6651(a)(2). These amounts are not in dispute. The estate made an election under sec. 6166 to pay the estate tax liability on a deferred basis. The estate of a decedent dying prior to 1998 is entitled to deduct interest expense on a deferred estate tax obligation as an administrative expense under sec. 2053(a)(2). See Estate of B
There has been no case like the present one where: (1) The parties have resolved the estate tax liability by agreement; (2) no section 6161 extension is in effect or application pending; (3) no deferred payment under section 6166 is in effect; and (4) the taxpayer seeks an extended delay (up to 20 years) so that a nonparty (family trusts of beneficiaries) can benefit from improved market conditions that may or may not occur.
e estate. Petitioner also noted on the return that additional cattle ranch expenses would be deducted as incurred, on supplemental filings of the Federal estate tax return. Petitioner elected to pay Federal estate tax in installments, as provided by section 6166. Under the election, the first payment was due on February 17, 1997, 5 years after February 17, 1992, the date the estate tax return was due. On February 3, 1995, respondent issued a notice of deficiency to petitioner. Petitioner’s petit
loss from a passive activity of the taxpayer, (D) any qualified residence interest (within the meaning of paragraph (3)), and (E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163 or 6166 or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981).
loss from a passive activity of the taxpayer, (D) any qualified residence interest (within the meaning of paragraph (3)), and (E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163 or 6166 or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981).
rom a passive activity of the taxpayer, - 6 - (D) any qualified residence interest (within the meaning of paragraph (3)), and (E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163 or 6166 or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981).
loss from a passive activity of the taxpayer, (D) any qualified residence interest (within the meaning of paragraph (3)), and (E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163 or 6166 or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981).
We disagree with respondent's view that such a result is improper.
ion, the term "personal interest" means any interest allowable as a deduction under this chapter other than-- (A) interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee), (B) any investment interest (within the meaning of subsection (d)), (C) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer, (D) any qualified residence i
pays its Federal tax liability and related interest, whichever occurs first. This is a case of first impression. However, in a related context, we delayed entry of decision where the taxpayer elected to defer payment of estate tax for 10 years under section 6166. Estate of Bailly v. Commissioner, 81 T.C. 949 (1983). Section references are to the Internal Revenue Code as amended. Rule references are to the Tax Court Rules of Practice and Procedure. Background Mary K. Wetherington (decedent) died
Under the terms of article VII of each stock restriction agreement in effect on decedent’s date of death, an executor of the deceased shareholder whose estate qualified to make a section 6166 election, which allows certain estates to pay all or a portion of their Federal estate tax in installments, had two choices with respect to Company stock not transferred in accordance with article III of the agreements.