| Section 6166(b)(1)(C) - Example 11 |
| 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, none of which are §267(c)(4) family members of the Decedent. 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 values of Decedent's interests in the Corporation C stock and the Corporation D stock exceed 35% of the §6166(b)(6) adjusted gross estate. |
| The estate wishes to combine the estate tax values of each Corporation to be treated as an interest in a single Corporation 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, even though it is more than 20% in value of the voting stock. |
| 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. |
| However, the estate could elect to bifurcate the tax extended under §6166. Section 6166(c) would not be applicable. With bifurcation, it is enough that each closely held business interest satisfies the requirement of §6166(b)(1)(C)(i) and that each value for determining the Decedent's gross estate exceeds 35% of the §6166(b)(6) adjusted gross estate. The estate tax attributable to each closely held business would independently qualify for a separate 14-year §6166(a) extension. Each §6166 account should be separately maintained by IRS for billing purposes (bifurcation accounts have been established at Cincinnati Campus for a number of estates.) |
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Section 6166(b)(1)(C) - Example 11
§6166(c) Election Requires a §6166(b)(7) Election
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| 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 | 22% | |||
| §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 | 11,700,000.00 | |||
| 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. However, the 20% test of §6166(c) is not satisfied (see below). | 23.40% | |||
| §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 | 11,700,000.00 | |||
| 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 extension - ratio is greater than 0.350000. However, the 20% test of §6166(c) is not satisfied (see below). | 0.354009 | |||
| 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 | 11,700,000.00 | |||
| 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) | 11.70% | |||
| 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. | ||||
| However, the estate could elect to bifurcate the tax extended under §6166. Section 6166(c) would not be applicable. With bifurcation, it is enough that each closely held business interest satisfies the requirement of §6166(b)(1)(C)(i) and that each value for determining the Decedent's gross estate exceeds 35% of the §6166(b)(6) adjusted gross estate. The estate tax attributable to each closely held business would independently qualify for a separate 14-year §6166(a) extension. | ||||
| §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 11, 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. |