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Section 6166(h) - Example 4 (Based on CCA 201302037)
Tax Assessed on the Original Return is Fully Paid
A Deficiency Results From Increases to Non - §6166 Assets Only
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| Feb-17-2016 | Date of death | |
| Nov-17-2016 | The estate tax return is timely filed. It reports a taxable estate of $11,124,400 and estate tax of $2,269,760.00, which is paid in full. A closely held business is included in the gross estate at a value of $5,000,000 (44.9462 % of the adjusted gross estate). Neither a §6166 election nor a protective §6166 election is filed with the return. | |
| Apr-26-2018 | An IRS field examination is completed. There are 5 adjustments to the return. | |
| • Schedule A non-§6166 asset values increase by $1,100,000. | ||
| • Schedule B non-§6166 asset values increase by $900,000. | ||
| • Schedule C non-§6166 asset values increase by $1,000,000. | ||
| • Schedule J attorney fees increase by $150,000. | ||
| • Schedule J administration expenses increase by $65,931.48 for interest accrued on Federal estate tax through the catch-up payment date of Apr-26-2018. | ||
| • The closely held business value remains unchanged at $5,000,000, which is 35.7797% of the adjusted gross estate as corrected on examination. | ||
| 6166(h) Example 4, Comment 1: This example illustrates the 2-step analysis required in a §6166(h) computation. First, the gross amount of the deficiency that may be paid in installments pursuant to §6166(a)(2) must be determined. Second, the portion of the deficiency attributable to the §6166 closely held business adjustments, if any, must be determined. The §6166(h) election would be applicable to the lesser of these two amounts. |
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Section 6166(h) - Example 4 (Based on CCA 201302037) Report of Estate Tax Examination Changes
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| Form 1273 | ||||||
| Estate of: Decedent SSN: 999-99-9999V D/D: Feb-17-2016 | ||||||
| 1 | Tentative Taxable Estate Shown on Return or Previously Adjusted | 11,124,400.00 | ||||
| 2 | Increase/Decrease in Tentative Taxable Estate | 2,784,068.52 | ||||
| 3a | Tentative Taxable Estate as Corrected (Line 1 plus/minus Line 2) | 13,908,468.52 | ||||
| Shown on Return/ As Previously Assessed | As Corrected | |||||
| 3b | State Death Tax Deduction | 0.00 | 0.00 | |||
| 3c | Taxable Estate as Corrected (Line 3a - Line 3b) | 11,124,400.00 | 13,908,468.52 | |||
| 4 | Adjusted taxable gifts | 0.00 | 0.00 | |||
| 5 | Total | 11,124,400.00 | 13,908,468.52 | |||
| 6 | Tentative Tax | 4,395,560.00 | 5,509,187.41 | |||
| 7 | Aggregate Gift Tax Payable (After Dec. 31, 1976) | 0.00 | 0.00 | |||
| 8 | Tax Before Unified Credit (Line 6 - Line 7) | 4,395,560.00 | 5,509,187.41 | |||
| 9a | Basic Exclusion Amount | 5,450,000.00 | 5,450,000.00 | |||
| 9b | Deceased Spousal Unused Exclusion (DSUE) | 0.00 | 0.00 | |||
| 9c | Applicable Exclusion Amount (Line 9a + Line 9b) | 5,450,000.00 | 5,450,000.00 | |||
| 9d | Applicable Credit Amount (From Table A, using Line 9c) | 2,125,800.00 | 2,125,800.00 | |||
| 10 | Adjustment to Unified Credit | 0.00 | 0.00 | |||
| 11 | Allowable Applicable Credit Amount | 2,125,800.00 | 2,125,800.00 | |||
| 12 | Tax Before SDTC (Line 8 - Line 11)*Cannot be < 0 | 2,269,760.00 | 3,383,387.41 | |||
| 13 | State Death Tax Credit | 0.00 | 0.00 | |||
| Tentatively Allowed | ||||||
| Submit Evidence by | ||||||
| 14 | Net Tax Post State Death Tax Credit (Line 12 - Line 13) | 2,269,760.00 | 3,383,387.41 | |||
| 15 | Gift Tax Credit (Pre-1977 Gifts) | 0.00 | 0.00 | |||
| 16 | Foreign Death Tax Credit (Statutory) | 0.00 | 0.00 | |||
| 17 | Prior Transfer Credit | 0.00 | 0.00 | |||
| 18 | Foreign Death Tax Credit (Treaty)/Canadian Marital Credit | 0.00 | 0.00 | |||
| 19 | Total Credits (Sum of Lines 15 through 18) | 0.00 | 0.00 | |||
| 20 | Net Estate Tax Payable | 2,269,760.00 | 3,383,387.41 | |||
| 21 | Generation-Skipping Transfer Taxes (Schedule R, Part 2, Line 12) | 0.00 | 0.00 | |||
| 22 | Increased Estate Tax (Section 4980A, Schedule S) | 0.00 | 0.00 | |||
| 23 | Total Federal Estate Tax (Sum of Lines 20 through 22) | 2,269,760.00 | 3,383,387.41 | |||
| 24 | Total Transfer Tax Previously Assessed | 2,269,760.00 | ||||
| 25 | Total Transfer Tax Increase/Decrease (Line 23 - Line 24) | 1,113,627.41 | ||||
| 26 | Penalties Previously Assessed - Code(s) | 0.00 | ||||
| 27 | Penalties as Corrected - Code(s) | 0.00 | ||||
| 28 | Net Penalties Increase/Decrease (Line 27 - Line 28) | 0.00 | ||||
| 29 | Net Tax and Penalties Payable Increase/Decrease (Line 25 + Line 28) | 1,113,627.41 | ||||
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Section 6166(h) - Example 4 (Based on CCA 201302037) Line Adjustment - Estate Tax
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| Form 6180 | ||||
| Estate of: Decedent SSN: 999-99-9999V D/D: Feb-17-2016 | ||||
| Shown on Return/ As Previously Assessed | Change | As Corrected | ||
| 1 | Schedule A - Real Estate | 4,000,000.00 | 1,100,000.00 | 5,100,000.00 |
| 2 | Schedule B - Stocks and Bonds | 1,000,000.00 | 900,000.00 | 1,900,000.00 |
| 3 | Schedule C - Mortgages, Notes, and Cash | 500,000.00 | 1,000,000.00 | 1,500,000.00 |
| 4 | Schedule D - Life Insurance | 1,200,000.00 | 0.00 | 1,200,000.00 |
| 5 | Schedule E - Jointly Owned Property | 0.00 | 0.00 | 0.00 |
| 6 | Schedule F - Other Miscellaneous Property | 5,000,000.00 | 0.00 | 5,000,000.00 |
| 7 | Schedule G - Transfers During Decedent's Life | 0.00 | 0.00 | 0.00 |
| 8 | Schedule H - Powers of Appointment | 0.00 | 0.00 | 0.00 |
| 9 | Schedule I - Annuities | 0.00 | 0.00 | 0.00 |
| 10 | Gross estate | 11,700,000.00 | 3,000,000.00 | 14,700,000.00 |
| 11 | Schedule U - Qualified Conservation Easement Exclusion | 0.00 | 0.00 | 0.00 |
| 12 | Gross Estate less exclusion | 11,700,000.00 | 3,000,000.00 | 14,700,000.00 |
| 13 | Schedule J - Funeral and Administration Expenses | 450,000.00 | 215,931.48 | 665,931.48 |
| 14 | Schedule K - Debts of Decedent | 125,600.00 | 0.00 | 125,600.00 |
| 15 | Schedule K - Mortgages | 0.00 | 0.00 | 0.00 |
| 16 | Total of Schedules J and K | 575,600.00 | 215,931.48 | 791,531.48 |
| 17 | Allowable deductions from Schedules J and K | 575,600.00 | 215,931.48 | 791,531.48 |
| 18 | Schedule L - Net Losses During Administration | 0.00 | 0.00 | 0.00 |
| 19 | Schedule L - Expenses on Property Not Subject to Claims | 0.00 | 0.00 | 0.00 |
| 20 | Total - Lines 17, 18, and 19 | 575,600.00 | 215,931.48 | 791,531.48 |
| 21 | Schedule M - Marital Deduction | 0.00 | 0.00 | 0.00 |
| 22 | Schedule O - Charitable Deduction | 0.00 | 0.00 | 0.00 |
| 23 | ESOP Deduction | 0.00 | 0.00 | 0.00 |
| 24 | Schedule T - QFOBI Deduction | 0.00 | 0.00 | 0.00 |
| 25 | Total allowable deductions | 575,600.00 | 215,931.48 | 791,531.48 |
| 26 | Tentative taxable estate | 11,124,400.00 | 2,784,068.52 | 13,908,468.52 |
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Section 6166(h) - Example 4 (Based on CCA 201302037) Form 886-A - EXPLANATION OF ITEMS
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| Schedule A - Real Estate | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 1 | Real estate parcel A | 350,000.00 | 425,000.00 |
| 2 | Real estate parcel C | 275,000.00 | 400,000.00 |
| 4 | Real estate parcel D | 225,000.00 | 725,000.00 |
| 5 | Real estate parcel G | 0.00 | 400,000.00 |
| Total of these Items | 850,000.00 | 1,950,000.00 | |
| Shown on Return | 850.000.00 | ||
| Change to Schedule | 1,100,000.00 | ||
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Section 6166(h) - Example 4 (Based on CCA 201302037) Form 886-A - EXPLANATION OF ITEMS
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| Schedule B - Stocks and Bonds | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 3 | Value of publicly-traded stock in Business A | 175,000.00 | 280,000.00 |
| 6 | Value of publicly-traded stock in Business D | 200,000.00 | 220,000.00 |
| 14 | Value of publicly-traded stock in Business H | 25,000.00 | 50,000.00 |
| 16 | Additional asset discovered after the return was filed | 0.00 | 750,000.00 |
| Total of these Items | 400,000.00 | 1,300,000.00 | |
| Shown on Return | 400,000.00 | ||
| Change to Schedule | 900,000.00 | ||
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Section 6166(h) - Example 4 (Based on CCA 201302037) Form 886-A - EXPLANATION OF ITEMS
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| Schedule C - Mortgages, Notes and Cash | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 1 | Receivable from MNO Corporation | 0.00 | 1,000,000.00 |
| Total of these Items | 0.00 | 1,000,000.00 | |
| Shown on Return | 0.00 | ||
| Change to Schedule | 1,000,000.00 | ||
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Section 6166(h) - Example 4 (Based on CCA 201302037) Form 886-A - EXPLANATION OF ITEMS
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| Schedule J - Funeral and Administrative Expenses | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| B-2 Attorney fees | 150,000.00 | 300,000.00 | |
| B-4(d) Interest on Federal estate tax | 0.00 | 65,931.48 | |
| Total of these Items | 150,000.00 | 365,931.48 | |
| Shown on Return | 150,000.00 | ||
| Change to Schedule | 215,931.48 | ||
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Section 6166(h) - Example 4 (Based on CCA 201302037)
§6166(b)(6) Adjusted Gross Estate Computation
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| Gross estate | 14,700,000.00 | |||||
| Schedule J - Funeral and Administrative Expenses | 665,931.48 | |||||
| Schedule K - Debts of Decedent | 125,600.00 | |||||
| Schedule K - Mortgages and Liens | 0.00 | |||||
| Total Schedules J and K debts and expenses | 791,531.48 | |||||
| Allowable amount of deductions | 791,531.48 | |||||
| Schedule L - Net Losses | 0.00 | |||||
| Schedule L - Expenses on property not subject to claims | 0.00 | |||||
| Total Schedules J, K, and L debts and expenses | 791,531.48 | |||||
| Adjustment for expenses incurred after the return was filed | (65,931.48) | |||||
| Adjusted Schedules J, K, and L debts and expenses | 725,600.00 | 725,600.00 | ||||
| Section 6166(b)(6) adjusted gross estate | 13,974,400.00 | |||||
| The return was filed on the return due date; an extension of time to file had not been requested. Any interest on Federal estate tax allowable as a Schedule J deduction therefore accrued for periods occurring after the date the return was filed and cannot be included in the §6166(b)(6) adjusted gross estate computation. | ||||||
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Section 6166(h) - Example 4 (Based on CCA 201302037)
§6166(a)(2) Ratio Computation
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| Section 6166 business value | 5,000,000.00 | |||
| Section 6166(b)(6) adjusted gross estate | 13,974,400.00 | |||
| Section 6166(a)(2) ratio for the maximum amount of tax which may be paid in installments | .357797 | |||
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Section 6166(h) - Example 4 (Based on CCA 201302037)
§6166(a)(2) Maximum Amount of Tax Which May be Paid in Installments
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| Total deficiency | 1,113,627.41 |
| Section 6166(a)(2) ratio expressed as a percentage | 35.7797% |
| Maximum amount of deficiency which may be paid in installments (aka "the cap") | 398,452.55 |
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Section 6166(h) - Example 4 (Based on CCA 201302037)
Apportionment of the Deficiency to the Closely Held Business Value
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| Changes to the Taxable Estate | ||||
| 1,100,000.00 | Increase in value of Schedule A non-§6166 assets | |||
| 900,000.00 | Increase in value of Schedule B non-§6166 assets | |||
| 1,000,000.00 | Increase in value of Schedule C non-§6166 assets | |||
| (150,000.00) | Decrease for Schedule J Attorney fee increase | |||
| (65,931.48) | Decrease for Schedule J interest deduction as a new item | |||
| 2,784,068.52 | Net increase in the Taxable Estate | |||
| The §6166 Deficiency Fraction Numerator | ||||
| 0.00 | Increase in value of Schedule F closely held business | |||
| 0.00 | Decrease for Schedule J interest deduction as a new item in the §6166 stand-alone computation only (computation not shown). | |||
| 0.00 | Net increase in the taxable estate attributable to the closely held business value adjustment | |||
| The Non-§6166 Deficiency Fraction Numerator | ||||
| 1,100,000.00 | Increase in value of Schedule A non-§6166 assets | |||
| 900,000.00 | Increase in value of Schedule B non-§6166 assets | |||
| 1,000,000.00 | Increase in value of Schedule C non-§6166 assets | |||
| (150,000.00) | Decrease for Schedule J Attorney fee increase | |||
| (65,931.48) | Decrease for Schedule J interest deduction as a new item, adjusted to reflect the amount allocated to the §6166 Numerator from above | |||
| 2,784,068.52 | Net increase in the taxable estate attributable to the non-§6166 adjustments | |||
| Apportionment | ||||
| Apportionment of Deficiency to the non-§6166 adjustments | ||||
| 2,784,068.52 | x | 1,113,627.41 | = | 1,113,627.41 |
| 2,784,068.52 | ||||
| Apportionment of Deficiency to the §6166 adjustments | ||||
| 0.00 | x | 1,113,627.41 | = | 0.00 |
| 2,784,068.52 | ||||
| Total amount apportioned | 1,113,627.41 | |||
| Portion of the Deficiency Payable in Installments | ||||
| 1. §6166(a)(2) maximum amount of deficiency which may be paid in installments | 398,452.54 | |||
| 2. Amount of the deficiency apportioned to the closely held business adjustments | 0.00 | |||
| Maximum amount of deficiency which may be paid in installments under the §6166(h) election - the lesser of Line 1 or Line 2. | 0.00 | |||
| 6166(h) Example 4, Comment 2: Apportioning the deficiency in this fashion seems to be the best method of doing so. Running separate stand-alone computations with and without the §6166 adjustments would be proper only when one of the two amounts - total non-§6166 changes or total §6166 changes - is zero, as here; otherwise, the sum of the two independently obtained deficiency amounts will not equal the gross deficiency amount because the §6166(b)(6) adjusted gross estate will not be the same in each computation. |
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Section 6166(h) - Example 4 (Based on CCA 201302037) - Reconciliations |
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| Finally determined estate tax | 3,383,387.41 | |||
| Section 6166(a)(2) ratio - maximum amount of tax payable in installments (carried to 6 decimal places pursuant to the current Instructions for Form 706) | 35.7797% | |||
| Maximum amount of tax that could have been deferred under §6166 | 1,210,565.86 | |||
| Portion of the §6166(a)(2) Maximum Amount Not Eligible For the §6166(h) Election | ||||
| Tax originally assessed for which neither a §6166 election nor a protective §6166 election was filed | 2,269,760.00 | |||
| Section 6166(a)(2) ratio - maximum amount of orginally assessed tax that could have been payable in installments | 35.7797% | |||
| Portion of the originally assessed tax that could have been deferred with a §6166 election, but which does not qualify for the §6166(h) election | 812,113.32 | |||
| Portion of the Deficiency That is Eligible For the §6166(h) Election | ||||
| Deficiency | 1,113,627.41 | |||
| Section 6166(a)(2) ratio - maximum amount of tax payable in installments | 35.7797% | |||
| Maximum amount of the deficiency that could have been payable in installments, but is not | 398,452.54 | |||
| Reconciliation | ||||
| Portion of the originally assessed tax that is not eligible for a §6166(h) election | 812,113.32 | |||
| Portion of the deficiency that could have been eligible for a §6166(h) election, but is not | 398,452.54 | |||
| The maximum amount of tax that could have been deferred under §6166 but none of which is eligible | 1,210,565.86 | |||