| Section 6166(b)(1)(C) - Example 7 |
| Decedent and his wife each owned 19% of the voting stock of Corporation A at his death. There are 46 shareholders. The gross value of Decedent's 19% interest is discounted 28% to arrive at its §6166(b)(4) estate tax value, which is more than 35% of the adjusted gross estate. |
| The wife's ownership interest is automatically attributed to Decedent under §6166(b)(2)(B) for purposes of determining the number of shareholders, thereby reducing the number to 45. It is therefore not necessary to attribute her percentage of the voting stock to Decedent by way of a §6166(b)(7) election to satisfy the 20% test of §6166(b)(1)(C)(i). The value of the wife's interest does not affect the estate tax value of Decedent's interest for purposes of the §6166(a)(2) tax computation. |
| Decedent also owned 100% of Corporation B, the estate tax value of which is less than 35% of the adjusted gross estate. Decedent's estate wants to combine the discounted estate tax value of Decedent's interest in Corporation A with the estate tax value of Corporation B, to treat the total value as an interest in a single closely held business under §6166(c). However, the discounted estate tax value of Decedent's interest in Corporation A is less than 20% of the full value of Corporation A. |
| While §6166(c) requires that 20% of the full value of Corporation A be included in Decedent's gross estate in order for the combined value to be treated as an interest in a single closely held business, it also provides that an interest in a Corporation which represents the surviving spouse's interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent's gross estate. |
| Result: The combined estate tax values of Decedent's interests in Corporation A and Corporation B qualify for treatment as an interest in a single closely held business. A §6166(b)(7) election is not required to satisfy the 20% test of §6166(b)(1)(C)(i), nor is it required to satisfy the 20% test of §6166(c). The estate tax attributable to the combined value is eligible for a 14-year §6166(a) extension. |
|
Section 6166(b)(1)(C) - Example 7
Surviving Spouse Also Owns Voting Stock
§6166(c) Election Does Not Require a §6166(b)(7) Election
|
||||
| Corporation A | One class of stock - voting common. Decedent owned 19% of the voting stock and his survivng wife owned another 19%. | |||
| Corporation B | Decedent owned 100% of the single class of stock - voting common. | |||
| Corporation A | ||||
| Full value of Corporation A | 50,000,000.00 | |||
| Outstanding shares of voting common stock | 10,000 | |||
| Per-share value of voting common stock | 5,000.00 | |||
| Shares of voting common stock owned by Decedent | 1,900 | |||
| Shares of voting common stock owned by Decedent's wife | 1,900 | |||
| Corporation A Shareholders | ||||
| Total number of shareholders including Decedent | 46 | |||
| Wife - §6166(b)(2)(B) attribution to Decedent | 1 | |||
| Number of shareholders after §6166(b)(2)(B) attribution to Decedent | 45 | |||
| Decedent's Interest in Corporation A | ||||
| Per-share value of voting common stock in Corporation A before discounts | 5,000.00 | |||
| Valuation discounts | 28% | |||
| §6166(b)(4) discounted estate tax value per share | 3,600.00 | |||
| Shares of voting common stock owned by Decedent at date of death | 1,900 | |||
| §6166(b)(4) estate tax value of Decedent's 1,900 shares of voting stock | 6,840,000.00 | |||
| Full value of voting common stock in Corporation A | 50,000,000.00 | |||
| Percentage in value of voting stock in Corporation A included in determining Decedent's gross estate | 13.68% | |||
| Wife's Interest in Corporation A | ||||
| Per-share value of voting common stock in Corporation A before discounts | 5,000.00 | |||
| Valuation discounts | 28% | |||
| §6166(b)(4) discounted estate tax value per share | 3,600.00 | |||
| Shares of voting common stock owned by Wife at date of death | 1,900 | |||
| §6166(b)(4) estate tax value of Wife's 1,900 shares of voting stock | 6,840,000.00 | |||
| Full value of voting common stock in Corporation A | 50,000,000.00 | |||
| Percentage in value of voting stock in Corporation A owned by the surviving spouse | 13.68% | |||
| Corporation B Shareholders | ||||
| Full value of Corporation B | 5,000,000.00 | |||
| Outstanding shares of voting common stock - 100% owned by Decedent | 1,000 | |||
| Estate tax value of Decedent's 100% interest in Corporation B | 5,000,000.00 | |||
| The §6166(c) 20% Determinations | ||||
| Corporation A | ||||
| Percentage of total value of Corporation A owned by Decedent included in determining the the gross estate | 13.68% | |||
| Percentage of total value of Corporation A owned by Decedent's wife, which is automatically treated as having been included in determining Decedent's gross estate by §6166(c) | 13.68% | |||
| Percentage of total value of Corporation A that is treated as having been included in determining Decedent's gross estate | 27.36% | |||
| Corporation B | ||||
| Percentage of total value of Corporation B that Decedent owned | 100.00% | |||
| More than 20% of the total values of Corporation A and Corporation B are treated as having been included in determining Decedent's gross estate. The §6166(b)(4) values included in determining the Decedent's gross estate may be combined to be treated as an interest in a single closely held business for purposes of §6166. | ||||
| Closely Held Business Value Included in Decedent's Gross Estate Under §6166(c) | ||||
| Per-share value of voting common stock in Corporation A | 5,000.00 | |||
| Valuation discounts | 28% | |||
| Discounted estate tax value per share | 3,600.00 | |||
| Shares of voting common owned by Decedent at date of death - 19% of the total | 1,900 | |||
| §6166(b)(4) estate tax value of Decedent's interest in Corporation A | 6,840,000.00 | |||
| §6166(b)(4) estate tax value of Decedent's interest in Corporation B | 5,000,000.00 | |||
| Estate tax value of an interest in a single closely held business under §6166(c) after the automatic attribution of the wife's interest to Decedent for purposes of the 20% test of §6166(c) | 11,840,000.00 | |||
| §6166(b)(6) Adjusted Gross Estate Computation | ||||
| Gross estate | 20,840,000.00 | |||
| 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 | 11,840,000.00 | |||
| Section 6166(b)(6) adjusted gross estate | 15,590,000.00 | |||
| 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. | 0.759461 | |||
| 6166(b)(1)(C) Example 7, Comment 1: Section 6166(b)(4) provides that for purposes of section 6166, "value" shall be the value determined for purposes of chapter 11 (relating to estate tax). |
| 6166(b)(1)(C) Example 7, Comment 2: There are more than 45 shareholders in Corporation A and the estate tax value of Decedent's interest in Corporation A exceeds 35% of the adjusted gross estate. Less than 20% in value of the voting stock in Corporation A is included in Decedent's gross estate. Decedent's spouse owns 19% of the voting stock in Corporation A. After the automatic attribution of §6166(b)(2)(B), there are 45 shareholders. It is not necessary for Decedent's estate to make a §6166(b)(7) election to attribute the spouse's percentages in value of the voting stock to Decedent for purposes of the 20% test in §6166(b)(1)(C)(i), since the §6166(b)(1)(C)(ii) exception applies. |
| 6166(b)(1)(C) Example 7, Comment 3: For purposes of §6166(c), Decedent's gross estate must include 20% or more of the total value of Corporation A and of Corporation B. The estate tax value of Corporation A is less than 20% of the total value of the business. Section 6166(b)(2)(B) does not attribute the wife's interest in Corporation A to Decedent for purposes of the 20% test of §6166(c). Such attribution is automatically provided within §6166(c) itself, and the wife's interest is treated as having been included in determining the value of Decedent's gross estate for purposes of §6166. The estate tax value of Decedent's interest in Corporation A can be combined with the value of Corporation B for purposes of §6166(c), and the estate tax attributable to that sum is eligible for a 14-year §6166 extension. |