The basic requirements for making a section 6166 election are set out in Reg. section 20.6166-1(b).
An executor makes the election by checking the box on Line 3, page 2, of the estate tax return and attaching a statement to a timely filed return that gives the information required by Reg. section 20.6166-1(b). The notice of election must contain:
- The decedent’s name and SSN;
- The amount of tax which is to be paid in installments;
- The date selected for payment of the first installment;
- The number of annual installments, including the first installment, in which the tax is to be paid;
- The properties shown on the estate tax return which constitute the closely held business (identified by schedule and item number); and
- The facts which formed the basis for the executor’s conclusion that the estate qualifies for payment of the estate tax in installments.
If the election statement omits items 2, 3, or 4, the election is presumed to be for the maximum amount payable and for payment in 10 equal installments, the first of which is due on the fifth anniversary date.
This provision could be significant in cases where there is an overpayment of non-deferred tax on the return due date and the election statement omits item 2, above. The Service would then be justified in assuming that the estate is electing to defer the maximum amount of tax eligible for deferral and in treating the overpayment of non-deferred tax as a prepayment of the tax payable in installments. In most cases, however, the Service will simply consider the estate to have elected to defer only the unpaid balance of tax, not the greater amount equal to the maximum amount of tax eligible for deferral under section 6166.
If the election statement omits items 5 or 6, the normal practice is for Cincinnati Campus to correspond with the executor to obtain the missing information while the return is being processed and the section 6166 billing account is being set up.
Note: This regulation was published long before the enactment of sections 6166(b)(8)(B)(ii) and 6166(b)(10), which provide for a maximum of only 5 installments. Section 6166(b)(8)(B)(ii) relates to a holding company election where only the holding company stock is non-readily tradable within the meaning of section 6166(b)(7)(B), and section 6166(b)(10) relates to stock in a qualifying lending and finance business. The regulation has to be read in light of these two subsequently enacted Code provisions.
Notices of Election filed with estate tax returns often contain lengthy narrative explanations of the facts forming the basis for the executor's conclusion that the estate qualifies for payment of the estate tax in installments.