IRC Section 6166(a) provides that, if certain conditions within section 6166 are satisfied, payment of the estate tax attributable to the value of a closely held business included in the decedent's gross estate can be paid in installments for a period of time after the estate tax return due date. The number of such installments can range from a minimum of 2 to a maximum of 10. Interest only is payable in each of the first 4 years after the estate tax return due date. The first 4 interest payments are due each year on the date that is one year after the estate tax return due date, determined without regard to any extensions. (The IRS refers to these annual due dates as "anniversary dates.") On the 5th anniversary date interest plus the first installment of deferred tax is due. Interest plus an equal installment of tax is due on each anniversary date thereafter until the end of the deferral period. Interest and the final installment of deferred tax is therefore due 9 years after the 5th anniversary date, for a total deferral period of 14 years after the return due date (determined without regard to any extensions).
This appears to be the general impression of how section 6166 functions, and a great majority of the section 6166 elections filed each year are of this type.
However, there are 4 types of section 6166 deferrals, and section 6166(a) (as further defined in sections 6166(b)(1) through (b)(6)) is just one of them. The other 3 types are:
Section 6166(b)(7), with a maximum of 10 installments, the first of which is due on the estate tax return date (determined without regard to any extensions);
Section 6166(b)(8), with a maximum of 10 installments for a section 6166(b)(8)(B)(i) election, or a maximum of 5 installments for a section 6166(b)(8)(B)(ii) election, the first of which is due in either case on the estate tax return date (determined without regard to any extensions); and
Section 6166(b)(10), with a maximum of 5 installments, the first of which is due on the estate tax return date (determined without regard to any extensions).
Section 6166(h) is not a type of deferral – it is a type of election, which is available only to an estate that did not make a section 6166 election or a protective section 6166 election on the original return. This election applies only to a deficiency that has been assessed and not to the original amount of tax.
Note: The estate must submit a section 6166 election with a timely filed estate tax return. The executor can elect to pay a reduced number of installments to shorten the deferral period, although this election is rarely made. Instead, estates that made the 14-year election often choose to voluntarily pay off the deferral account long before the 14th year. In addition, the executor can elect to pay each installment on a date other than the initially determined anniversary date in accord with cash flow projections, but the payment day within whichever month is chosen must match the day of the month on which the estate tax return was due.