6166(b)(9)(A) and 35% Test; 6166(g) Consequences, Comment 1:   While post-death events might cause active business assets in a closely held business to become passive assets, or change the elements that initially qualified for a §6166(a) 14-year election to now qualify for only a 9-year (b)(8) election (as in PLR 9427029), such changed conditions did not exist at the time immediately before the decedent's death and are ignored for the §6166(a)(1) 35% test computation pursuant to section 6166(b)(2)(A).

The phrase "( but not for purposes of subsection (g))" in section 6166(b)(9)(A) prevents a violation of subsection (g) from occurring. If, in the example above, the estate tax value of the qualifying section 6166 business interest were to be reduced by the value of assets sold shortly after death, such reduction would constitute a partial acceleration of tax deferred under the 6166 election. But subsection (g)(1)(A) provides for acceleration only if the aggregate value of all withdrawals or dispositions of 6166 property equals or exceeds 50% of the value of the Decedent's interest. Further, a (g(1)(A) acceleration is for the entire balance of unpaid tax, not just a portion of the tax. In the example above, post-death changes in the nature of assets that qualified for section 6166 at the time immediately before death do constitute "distributions, sales, exchanges, or other dispositions and withdrawals" of such interests and must be counted in determining whether the 50% acceleration threshold has been breached. But in that event, subsection (g)(1)(A) would control, not subsection (b)(9).

6166(b)(9)(A) and 35% Test; 6166(g) Consequences, Comment 2:   Does the phrase "( but not for purposes of subsection (g))" in section 6166(b)(9)(A) include passive assets owned by a closely held business immediately before death for purposes of the §6166(g)(1)(A) 50% threshold computation? In other words, if a closely held business owned passive assets immediately before the decedent's death, they would not qualify for the initial section 6166 election. Nevertheless, would their sale or disposition after death count toward the (g)(1)(A) 50% acceleration threshold?

The answer is no, they would not be included in that computation. Section 6166(g)(1)(A) applies only to "any portion of an interest in a closely held business which qualifies under subsection (a)(1)". Since passive assets existing immediately before the decedent's death are not qualified under section 6166(a)(1), they are not included in the (g)(1)(A) 50% acceleration computation.

Note: The Conference Committee Report on implementation of section 6166(b)(8) - P.L. 98-369 (Deficit Reduction Act of 1984) - contains the following statement:

Additionally, the conference agreement retains the rule that in the case of all corporations and partnerships, only active business assets are considered for purposes of the installment payment provision. The conference agreement does not apply to this rule, however, for purposes of the acceleration rules of section 6166(g).

The Conference Committee statement would be consistent with the concepts mentioned above, however, when one considers that such passive assets would be those that formerly qualified for installment payments at the moment immediately before the decedent's death, but which became passive at some point thereafter.

6166(b)(9)(A) and 35% Test; 6166(g) Consequences, Comment 3:   The same results would occur if, for example, one of several buildings that were used in a qualifying business on the date of death was to be abandoned two years after date of death and left vacant thereafter. While not a sale, the cessation of business use would constitute a "withdrawal" from the business for purposes of section 6166(g)(1)(A). The tax initially deferred under the section 6166 election would not be affected by such post-death changes until the aggregate of all such changes equalled 50% or more of the total closely held business value included in the decedent's estate, at which point the 6166 election would be automatically terminated.