Section 6166(c) - Example 2 | |||||
Decedent died in 2016 owning an interest in 2 closely held businesses. The Decedent's estate wishes to make a §6166 election for the combined value of the two businesses. | |||||
Business 1: Full value is $40,000,000. Decedent owned 20% of the business. There are fewer than 45 partners or shareholders. After valuation discounts of 35%, the estate tax value of the decedent's interest is 13.00% of the full value of the closely held business, which means it is not eligible for aggregation under §6166(c). However, the estate tax value of this business alone is 43.0820% of the adjusted gross estate, which means that a §6166 election could be made for this business alone. | |||||
Business 2: Full value is $12,500,000. Decedent owned 30% of the business. There are fewer than 45 partners or shareholders. After valuation discounts of 30%, the estate tax value is 22.75% of the total business value, which means it is eligible for aggregation under §6166(c). However, the estate tax value of this business alone is 23.5605% of the adjusted gross estate, which means that a §6166 election cannot be made for this business alone. | |||||
Total Value of Closely Held Business | Percentage Owned by Decedent | Gross Value of Decedent's Interest Before Discounts | Total Valuation Discounts | Value Included in Decedent's Gross Estate | Estate Tax Value as a Percentage of Total Value |
40,000,000.00 | 20.00% | 8,000,000.00 | 35% | 5,200,000.00 | 13.00% |
12,500,000.00 | 32.50% | 4,062,500.00 | 30% | 2,843,750.00 | 22.75% |
Gross estate | 14,750,000.00 | ||||
Allowable §2053 and §2054 deductions | 2,680,000.00 | ||||
§6166(b)(6) adjusted gross estate | 12,070,000.00 | ||||
Business 1 - Section 6166(c) is Not Available, But Section 6166(a) is Available | |||||
Closely held Business 1 with 13.00% of full value included in the gross estate | 5,200,000.00 | ||||
§6166(a)(2) ratio for the maximum amount of tax which may be paid in installments for Business 1 alone | .430820 | ||||
Business 2 - Section 6166(c) is Available, But Section 6166(a) is Not Available | |||||
Closely held Business 2 with 22.75% of full value included in the gross estate | 2,843,750.00 | ||||
§6166(a)(2) ratio for the maximum amount of tax which may be paid in installments for Business 2 alone | .235605 | ||||
Conclusion: Section 6166(c) Aggregation is Not Available | |||||
Taxable estate (which in this case happens to be the same as the adjusted gross estate) | 12,070,000.00 | ||||
Net estate tax | 2,648,000.00 | ||||
§6166(a)(2) ratio for the maximum amount of tax which may be paid in installments for Business 1 alone | .430820 | ||||
Maximum amount of tax which may be paid in installments | 1,140,811.36 | ||||
Estate tax not deferred under §6166 and due on the return due date (determined without regard to any extensions of time to file) | 1,507,188.64 |
6166(c) Example 2, Comment 1: Because the estate tax value of Business 2 is less than 35% of the adjusted gross estate, a bifurcated §6166 election cannot be made. Further, see our comments in Bifurcation Concepts. |