Form 4349 is an internal form used by IRS at Cincinnati Campus for calculating the amount of tax deferred under section 6166. This form - or an analogue - is also used by IRS Appeals when settling estate tax cases (the link to Form 4349, above, shows an example using our computer-generated spreadsheet form). As noted in the Appeals IRM (see excerpt copied below), the Notebook tool is used by IRS Estate Tax Attorneys for report writing and calculation of the estate tax, and the Notebook or Inter-Est section 6166 tax calculation is to be used in lieu of Form 4349. The Inter-Est program is no longer officially used by Estate Tax Attorneys in the field, but it is still being used at Cincinnati Campus for their 6166 computations in conjunction with the Notebook tool, and by Appeals to check the accuracy of the Notebook computations.
Appeals IRM Exhibit 8.7.4-1 shows how Form 4349 is to be prepared if one is necessary. Note that the deferred tax is calculated with reference to the gross estate on line 2a (which refers to section 6166A, which was repealed for dates of death after December 31, 1981), not with reference to the adjusted gross estate on line 2b. We can assume that the $6,000,000 being placed on Line 2a is a typo, as it should have been placed on line 2b for a date of death in 2011. Since the Form 4349 Exhibit is for illustrative purposes only, we should overlook the erroneous reference to section 6166A because Appeals is well aware of its repeal.
Note that Appeals can settle a case with any 6166(a)(2) ratio it desires, even one that is less than the 35% threshold required by section 6166(a)(1). However, if an estate cannot reach a settlement with Appeals when a low qualifying ratio has been proposed, a court would require that the closely held business value exceed 35% of the section 6166(b)(6) adjusted gross estate in order to qualify for a section 6166 election.
Excerpt from Appeals IRM:
Settlement Computations for Estate Cases
- Tax Computation Specialists (TCS) usually prepare the settlement computations for estate tax cases following the general procedures outlined in IRM 8.17.2, General Settlement and Rule 155 Computations.
- Form 3614-A, Estate Tax, is used for the computation on most cases. Form 1273, Report of Estate Tax Examination Changes, may be used for settled cases.
- The Notebook tool is used for report writing for estate and gift tax cases. Until the Inter-Est program is removed from the computers and as long as the program is updated, it may be used for inter-related calculations that Notebook does not have the capability of performing and also as a check of the accuracy of Notebook. It may also be used for revising cases previously prepared using Inter-Est.
Settlement Computations with IRC 6166
- The Inter-Est and Notebook programs can prepare the IRC 6166 election computation. If either of these programs are used, attach a copy of the detailed computation to the settlement computation.
- If the Inter-Est or Notebook programs are not used, prepare Form 4349, Computation of Estate Tax Due With Return and Annual Installment, and attach it to the settlement computation. See Exhibit 8.7.4-3. for an example of a completed Form 4349.