Section 6166(c) Example 2

 

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.