CCA 201304006

On Jan-25-2013 the IRS released Chief Counsel emailed advice 201304006 dated Nov-29-2012 in which it denied an estate's request to expand its §6166 election to include its entire interest in the qualifying business once IRS field examination had determined a deficiency, none of which was attributable to the §6166 business.

Apparent facts:

1.  The estate filed a §6166 election with the return. It elected to use only a portion of the qualifying business interest included in the gross estate as the numerator in the §6166(a)(2) ratio computation, not the entire value. (The qualifying business value is in the numerator and the §6166(b)(6) adjusted gross estate is in the denominator of the §6166(a)(2) ratio computation.)

2.  The Examination deficiency was entirely attributable to the non-6166 portion of the estate.This increased the denominator in the §6166(a)(2) ratio computation. However, since the value of the §6166 business interest did not increase, the ratio of tax eligible for deferral under §6166 decreased.

3.  To offset this result, the estate requested that, as part of the Examination adjustments to the return, the original §6166 election be changed to include 100% of the business value in the §6166(a)(2) ratio computation, not the smaller percentage that had originally been elected.

IRS Counsel denied the estate's request, concluding that "[t]he estate remains eligible to defer [tax attributable to] the closely held business value but none of the deficiency, because the portion of the deficiency attributable to the closely-held business is zero." (Emphasis added.) The estate could not expand its §6166 election.

Left unresolved is what would have happened had the value of the §6166 business interest also been increased. The Advice seems to indicate that only a proportionate part of the business value increase (i.e., only the same percentage of the total business value included in the gross estate (as corrected) as was originally elected could be used in the numerator of the §6166(a)(2) ratio computation).