6166(b)(1)(C) Example 10

Section 6166(b)(1)(C)  - Example 10
Decedent owned 30% of the voting stock in Corporation C and 40% of the voting stock in Corporation D. Both corporations have more than 45 shareholders. More than 20% in value of the voting stock in each corporation is included in the Decedent's gross estate, satisfying the requirements of §6166(b)(1)(C)(i). The estate tax value of the Corporation C stock is less than 35% of the §6166(b)(6) adjusted gross estate, while the estate tax value of the Corporation D stock exceeds 35% of the adjusted gross estate.
The estate wishes to combine the estate tax values of each Corporation to be treated as an interest in a single closely held business under §6166(c). Section 6166(c) requires that 20% or more of the total values of Corporation C and Corporation D must be included in Decedent's gross estate.
However, Corporation C has 3 classes of stock, only one of which is voting stock. The estate tax value of Decedent's interest in Corporation C is less than 20% of the total value of Corporation C.
Result:  The estate tax values of Decedent's interests in Corporations C and D cannot be combined to be treated as an interest in a single closely held business for purposes of §6166 even though the requirements of §6166(b)(1)(C)(i) have been satisfied. Only the tax attributable to Corporation D may be extended under §6166, but not the tax attributable to both; the estate must choose which closely held business is to be the subject of an extension under §6166.

 

Section 6166(b)(1)(C)  - Example 10 
§6166(c) Election Requires a §6166(b)(7) Election
Corporation C - 50 Shareholders
Stock Class Shares Outstanding Shares Owned by Decedent
Voting common 10,000 3,000
Non-voting common 10,000 0
Non-voting preferred 1,000 0
Corporation D - 60 Shareholders
Voting common 10,000 4,000
Corporation C - §6166(b)(1)(C)(i) 20% Test
Full value of Corporation C voting common stock 50,000,000.00
Outstanding shares of voting common stock 10,000
Per-share value of Corporation C voting common stock 5,000.00
Valuation discounts 28%
§6166(b)(4) discounted estate tax value per share 3,600.00
Shares of Corporation C voting common stock owned by Decedent at date of death (30% of the total outstanding) 3,000
§6166(b)(4) estate tax value of Decedent's 3,000 shares of voting stock of Corporation C 10,800,000.00
Percentage in value of Corporation C voting common stock included in determining Decedent's gross estate - the 20% test of §6166(b)(1)(C)(i) is satisfied 21.60%
§6166(b)(6) Adjusted Gross Estate Computation
Gross estate 38,300,000.00
Sections J, K, and L deductions - §2053 and §2054 5,250,000.00
§6166(b)(6) adjusted gross estate 15,590,000.00
§6166(a)(2) Ratio Computation
Section 6166 closely held business amount - Corporation C alone 10,800,000.00
Section 6166(b)(6) adjusted gross estate 33,050,000.00
Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments - does not qualify for a §6166 extension - ratio is less than 0.350000. 0.326778
Corporation D - §6166(b)(1)(C)(i) 20% Test
Full value of Corporation D voting common stock 45,000,000.00
Outstanding shares of voting common stock - 40% owned by Decedent 10,000
Per-share value of Corporation D voting common stock 4,500.00
Valuation discounts 25%
§6166(b)(4) discounted estate tax value per share 3,375.00
Shares of Corporation D voting common stock owned by Decedent at date of death (40% of the total outstanding) 4,000
§6166(b)(4) estate tax value of Decedent's 4,000 shares of voting stock of Corporation D 13,500,000.00
Percentage in value of Corporation D voting common stock included in determining Decedent's gross estate - the 20% test of §6166(b)(1)(C)(i) is satisfied 30.00%
The §6166(c) 20% Determinations
Corporation C
Corporation C voting common stock full value 50,000,000.00
Corporation C non-voting common stock full value 35,000,000.00
Corporation C non-voting preferred stock full value 15,000,000.00
Total value of Corporation C 100,000,000.00
§6166(b)(4) estate tax value of Decedent's 3,000 shares of voting stock of Corporation C included in determining Decedent's gross estate 10,800,000.00
Percentage of total value of Corporation C included in determining Decedent's gross estate - does not satisfy the 20% of total value test of §6166(c) 10.80%
Corporation D
Total value of Corporation D 45,000,000.00
§6166(b)(4) estate tax value of Decedent's 4,000 shares of voting stock of Corporation D included in determining Decedent's gross estate 13,500,000.00
Percentage of total value of Corporation D included in determining Decedent's gross estate - satisfies the 20% of total value test of §6166(c) 30.00%
The estate tax values of Decedent's interests in Corporation C and Corporation D cannot be combined to be treated as an interest in a single closely held business - the 20% test of §6166(c) is not satisfied as to Corporation C. The estate can file a regular §6166(a) 14-year election only for the estate tax attributable to Corporation D, as the estate tax value of Decedent's interest in Corporation C is less than 35% of the adjusted gross estate.
§6166(b)(6) Adjusted Gross Estate Computation
Gross estate 38,300,000.00
Sections J, K, and L deductions - §2053 and §2054 5,250,000.00
§6166(b)(6) adjusted gross estate 15,590,000.00
§6166(a)(2) Ratio Computation
Section 6166 closely held business amount - Corporation D alone 13,500,000.00
Section 6166(b)(6) adjusted gross estate 33,050,000.00
Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments - Qualifies for a §6166(a) 14-year Extension - ratio is greater than 0.350000. 0.408472

 

6166(b)(1)(C) Example 10, Comment 1:  Section 6166(b)(4) provides that for purposes of section 6166, "value" shall be the value determined for purposes of determining the Decedent's gross estate.