Section 6166(b)(2) Overview

Section 6166(b)(2) provides rules for purposes of paragraph (1):

(2) Rules for applying paragraph (1)

For purposes of paragraph (1)-

(A) Time for testing

Determinations shall be made as of the time immediately before the decedent's death.

(B) Certain interests held by husband and wife

Stock or a partnership interest which-

(i) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or

(ii) is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common,

shall be treated as owned by one shareholder or one partner, as the case may be.

(C) Indirect ownership

Property owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For purposes of the preceding sentence, a person shall be treated as a beneficiary of any trust only if such person has a present interest in the trust.

(D) Certain interests held by members of decedent's family

All stock and all partnership interests held by the decedent or by any member of his family (within the meaning of section 267(c)(4)) shall be treated as owned by the decedent.

6166(b)(2) Comment 1:   These attribution rules are applicable only for purposes of determining the extent and nature of a decedent's interest at the time of death in a sole proprietorship, or whether a partnership or corporation has 45 or fewer partners or shareholders at the time of death; they do not change the value of a closely held business interest included in a decedent's gross estate. More detailed treatment is provided under each subsection as shown below.
6166(b)(2) Comment 2:  These rules are applied automatically - an election is not required.
6166(b)(2)(A) - Time for testing
6166(b)(2)(B) - Certain interests held by husband and wife
6166(b)(2)(C) - Indirect ownership
6166(b)(2)(D) - Certain interests held by members of a decedent's family
IRS Rulings
PLR 8428088 The attribution rules in section 6166(b)(2) of the Code apply for purposes of determining whether a partnership or corporation has 15 or fewer partners or shareholders within the meaning of section 6166(b)(1). The attribution rules do not apply for purposes of the 35% test of section 6166(a)(1), the 20% test in sections 6166(b)(1)(B)(i) and 6166(b)(1)(C)(i), or the formula used in determining the maximum amount of tax that may be paid in installments set forth in section 6166(a)(2).
  The decedent died in May 1982. The decedent's gross estate included 18.03% of the value of the voting common stock and voting preferred stock of Corporation A, which had more than 15 shareholders. Another 24.86% of the total value of the voting stock of Corporation A was held by the decedent's spouse or in trusts for the benefit of decedent's children, grandson, and brother, all of whom held present interests in the trusts. None of the stock of Corporation A was traded on a stock exchange or an over-the-counter market. The decedent made taxable gifts within 3 years of the date of death. Held: The 35% test of §6166(a)(1) is satisfied if the estate makes a §6166(b)(7) election, which will satisfy the 20% requirement of §6166(b)(1)(C)(i). Held further, the estate meets the 35% test of §6166(a)(1) both with and without the inclusion of gifts made by the decedent within 3 years of the date of death.
  This PLR concerns computations determined under the following current Code sections:
  • §6166(b)(1)(C)(i)
  • §6166(b)(2)(B)
  • §6166(b)(2)(C)
  • §6166(b)(2)(D)
  • §6166(a)(1)
  • §6166(a)(2)
  • §6166(b)(7) and §267(c)(4)
  • §6166(k)(5) and §2035(c)(2)
  This PLR also points out that a §6166(b)(7) election could not have been made had the Corporation A stock been publicly traded.


6166(b)(2) Comment 3:  Many PLRs cited in the subsections listed under §6166(b)(2) incorporate references to multiple subsections of §6166(b)(2), as demonstrated in PLR 8428088, above. See e.g. Section 6166(b)(2)(C) - Indirect Ownership.