| Section 6166(b)(1)(C) - Example 8 |
| Decedent and his wife each owned 19% of the voting stock of Corporation A at his death. There are 50 shareholders. No other §267(c)(4) family members own any voting stock. 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 in the Corporation A voting stock is automatically attributed to Decedent under §6166(b)(2)(B) for purposes of determining the number of shareholders, but the number of shareholders is still greater than 45. It is therefore 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, but the maximum deferral period is 9 years, no part of the deferred tax draws interest at the special 2% rate, and the first installment is due on the return due date determined without regard to any extensions of time to file. |
|
Section 6166(b)(1)(C) - Example 8
Surviving Spouse Also Owns Voting Stock
§6166(c) Election Requires 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 | 50 | |||
| Wife - §6166(b)(2)(B) attribution to Decedent | 1 | |||
| Number of shareholders after §6166(b)(2)(B) attribution to Decedent | 49 | |||
| 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 treated as included in determining Decedent's gross estate for purposes of the 20% test of §6166(b)(1)(C)(i) pursuant to the §6166(b)(7) election | 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 | ||||
| Full value of Corporation A | 50,000,000.00 | |||
| Estate tax value of Decedent's interest | 6,840,000.00 | |||
| Percentage of total value of Corporation A owned by Decedent included in 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% | |||
| 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 values 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) | ||||
| §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) - a §6166(b)(7) election is not required for this attribution | 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(b)(7) 9-year Extension - ratio is greater than 0.350000. The first installment is due on the return due date determined without regard to any extensions of time to file, and the entire amount of tax which may be paid in installments draws interest at 45% of R% (regular underpayment interest rates). | 0.759461 | |||
| 6166(b)(1)(C) Example 8, 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. |