PLR 8846001 Computation Illustration 3 - The Estate's calculation of deferred tax and the annual installments payable


PLR 8846001 - §6166(h) Computation Illustration 3
Analysis Of The Estate's Argument in PLR 8846001
Finally determined estate tax 182,736.60
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) 74.1835%
Tax deferred under section 6166 (per PLR 8846001) 135,560.36
Tax not deferred and due on the return due date 47,176.24
Tax paid on the return due date 115,287.42
Overpayment of non-deferred tax, available as a prepayment credit (rounded to the nearest dollar in the Estate's statement) against installments of tax as they come due 68,111.00
Estate's Calculation of the Annual Installment
Total tax deferred under section 6166 135,560.36
Number of installments elected 10
Annual Installment 13,556.04
Estate's Calculation of the Application of the Prepayment Credit
Installment Number Date Prepayment Credit Available Annual Installment Due Annual Installment Payable
1 Feb-17-1986 68,111.00 13,556.04 0.00
2 Feb-17-1987 54,554.96 13,556.03 0.00
3 Feb-17-1988 40,998.93 13,556.04 0.00
4 Feb-17-1989 27,442.89 13,556.03 0.00
5 Feb-17-1990 13,886.86 13,556.04 0.00
6 Feb-17-1991 330.82 13,556.03 13,225.21
7 Feb-17-1992 0.00 13,556.04 13,556.04
8 Feb-17-1993 0.00 13,556.03 13,556.03
9 Feb-17-1994 0.00 13,556.04 13,556.04
10 Feb-17-1995 0.00 13,556.04 13,556.04
Total payments 135,560.36 67,449.36
Application of the prepayment credit 68,111.00
Total payments of annual installments from Feb-17-1991 through Feb-17-1995, plus application of the existing prepayment credit 135,560.36


PLR 8846001 Comment 1:  The Estate based its argument on Reg. §20.6166-1(i), Example (1)(i), which provides:

(i) Based upon values shown on decedent A's timely filed estate tax return, 60 percent of the value of A's adjusted gross estate consisted of a farm which was a closely held business within the meaning of section 6166. A's executor, B, made a protective election under section 6166 when he filed A's estate tax return. B also applied for an extension of time under section 6161 to pay $15,000 of the $30,000 of estate tax shown due on the return. The requested extension was granted and was renewed at the end of 1 year. Eighteen months after the return was filed and after examination of A's estate tax return, the value of the farm was found to constitute 67 percent of the adjusted gross estate. B entered into an agreement consenting to the values as established on examination and to a deficiency of $5,000. B then filed a final notice of election under section 6166, choosing a 5-year deferral followed by 10 annual installment payments and thereby terminated his extension under section 6161 because that amount of tax was then included under the section 6166 election. B could have extended payment of 67 percent of the total estate tax, or $23,450. $23,450 is eligible for installment payments under section 6166 and the section section 6166 election is considered to be for that amount. B is considered to have prepaid $3,450 of tax since only $20,000 of tax remained unpaid. The $3,450 is attributed to the first installment of $2,345 and to $1,105 of the second installment which would have been payable under the section 6166 election.

The critical distinction is that in Example (1)(i) the estate had filed a protective §6166 election with the return, whereas in the PLR the estate had not.