Section 6166(b)(1)(C) Computation Examples
6166(b)(1)(C) Example 1 | Decedent owned 19% of the voting stock of Corporation A. There are 45 or fewer shareholders. The gross value of Decedent's 19% interest is discounted 28% to arrive at its §6166(b)(4) estate tax value, which is more than 35% of the adjusted gross estate. This is the only business interest for which a §6166 election is contemplated. Result: The discounted estate tax value of Decedent's 19% portion of the voting stock qualifies for a 14-year §6166 election under §6166(b)(1)(C)(ii). |
6166(b)(1)(C) Example 2 | Same facts as in Example 1 except Corporation A has more than 45 shareholders. None of the other shareholders are family members described in §267(c)(4). Result: The discounted estate tax value of Decedent's 19% portion of the voting stock does not qualify for a §6166 election. It does not meet the 20% test of §6166(b)(1)(C)(i). |
6166(b)(1)(C) Example 3 | Same facts as in Example 2, except three of the other shareholders are family members described in §267(c)(4) who own a total of 15% of the voting stock in Corporation A. When their ownership interests are automatically attributed to Decedent under §6166(b)(2)(D) there are 45 or fewer shareholders. Result: The discounted estate tax value of Decedent's 19% portion of the voting stock qualifies for a 14-year §6166 election under §6166(b)(1)(C)(ii). |
6166(b)(1)(C) Example 4 | Same facts as in Example 3, except that even after the automatic attribution of §6166(b)(2)(D) there are still more than 45 shareholders. Result: The discounted estate tax value of Decedent's 19% portion of the voting stock does not qualify for a §6166 election. It does not meet the 20% test of §6166(b)(1)(C)(i). |
6166(b)(1)(C) Example 5 | Same facts as in Example 4, except that Decedent's estate makes a §6166(b)(7) election to attribute the 3 family members' interests to Decedent for purposes of §6166(b)(1)(C)(i). Result: The discounted estate tax value of Decedent's 19% portion of the voting stock qualifies for a §6166 election under §6166(b)(1)(C)(i). However, the maximum deferral period is 9 years, no part of the deferred tax draws interest at the special 2% rate, and the first installment is due on the return due date determined without regard to any extensions of time to file. |
6166(b)(1)(C) Example 6 | Decedent and his wife each owned 19% of the voting stock of Corporation A at his death. There are 46 shareholders. The gross value of Decedent's 19% interest is discounted 28% to arrive at its §6166(b)(4) estate tax value, which is more than 35% of the adjusted gross estate. This is the only business interest for which a §6166 election is contemplated. Result: The discounted estate tax value of Decedent's 19% portion of the voting stock qualifies for a 14-year §6166 election under §6166(b)(1)(C)(ii). |
The wife's ownership interest is automatically attributed to Decedent under §6166(b)(2)(B) for purposes of determining the number of shareholders, thereby reducing the number to 45. It is therefore not necessary to attribute her percentage of the voting stock to Decedent by way of a §6166(b)(7) election, since it is not necessary to satisfy the 20% test of §6166(b)(1)(C)(i). The value of the wife's interest does not affect the estate tax value of Decedent's interest for purposes of the §6166(a)(2) tax computation. | |
6166(b)(1)(C) Example 7 | Same facts as in Example 6, except that Decedent also owned 100% of Corporation B, the estate tax value of which is less than 35% of the adjusted gross estate. Decedent's estate wants to combine the discounted estate tax value of Decedent's interest in Corporation A with the estate tax value of Corporation B, to treat the total value as an interest in a single closely held business under §6166(c). However, the discounted estate tax value of Decedent's interest in Corporation A is less than 20% of the full value of Corporation A. |
While §6166(c) requires that 20% of the full value of Corporation A be included in Decedent's gross estate in order for the combined value to be treated as an interest in a single closely held business, it also provides that an interest in a closely held business which represents the surviving spouse's interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent's gross estate. | |
Result: The combined estate tax values of Decedent's interests in Corporation A and Corporation B qualify for treatment as an interest in a single closely held business. The estate tax attributable to this interest is eligible for a 14-year §6166(a) extension. | |
6166(b)(1)(C) Example 8 | Same facts as in Example 7 except that there are more than 45 shareholders in Corporation A after the §6166(b)(2)(B) automatic attribution of the surviving spouse's interest therein to the Decedent. The surviving spouse's interest is also automatically attributed to Decedent for purposes of the 20% test of §6166(c). However, the estate must nevertheless make a §6166(b)(7) election in order to attribute the surviving spouse's interest to Decedent for purposes of meeting the 20% test of §6166(b)(1)(C)(i). |
Result: The combined estate tax values of Decedent's interests in Corporation A and Corporation B qualify for treatment as an interest in a single closely held business, but the maximum deferral period is 9 years, no part of the deferred tax draws interest at the special 2% rate, and the first installment is due on the return due date determined without regard to any extensions of time to file. | |
6166(b)(1)(C) Example 9 | Same facts as in Example 8 except that Decedent's brother, not his surviving spouse, owns 19% of the voting stock in Corporation A. |
Result: The estate's §6166(b)(7) election must be expanded to attribute the brother's interest in Corporation A to Decedent for purposes of the 20% test of §6166(c). | |
6166(b)(1)(C) Example 10 | Decedent owns 30% of the voting stock in Corporation C and 40% of the voting stock in Corporation D. Both corporations have more than 45 shareholders. More than 20% in value of the voting stock in each corporation is included in the Decedent's gross estate, satisfying the requirements of §6166(b)(1)(C)(i). The estate tax value of the Corporation C stock is less than 35% of the §6166(b)(6) adjusted gross estate, while the estate tax value of the Corporation D stock exceeds 35% of the adjusted gross estate. |
The estate wishes to combine the estate tax values of each closely held business to be treated as an interest in a single closely held business under §6166(c). Section 6166(c) requires that 20% or more of the total values of Corporation C and Corporation D must be included in Decedent's gross estate. | |
However, Corporation C has 3 classes of stock, only one of which is voting stock. The estate tax value of Decedent's interest in Corporation C is less than 20% of the total value of Corporation C. | |
Result: The estate tax values of Decedent's interests in Corporations C and D cannot be combined to be treated as an interest in a single closely held business under §6166(c) for purposes of §6166 even though the requirements of §6166(b)(1)(C)(i) are satisfied. Only the tax attributable to Corporation D may be extended under §6166. | |
6166(b)(1)(C) Example 11 | Same facts as in Example 10 except that the estate tax value of Decedent's interest in Corporation C also exceeds 35% of the adjusted gross estate. The estate tax value of Decedent's interest in Corporation C is still less than 20% of the total value of Corporation C. |
Result: The estate could elect to bifurcate the tax extended under §6166, in which case §6166(c) would not be applicable. With bifurcation, it is enough that the estate tax value of each closely held business interest satisfies the requirement of §6166(b)(1)(C)(i) and exceeds 35% of the adjusted gross estate. The estate tax attributable to both closely held business would independently qualify for separate 14-year §6166(a) extensions. | |
Note: When both bifurcated elections are regular 14-year §6166(a) extensions, the IRS may limit the amount of tax that is extended at the special 2% interest rate. For dates of death in 2016, the first $592,000 of deferred tax draws interest at the 2% rate; the balance of deferred tax, if any, draws interest at 45% of R% rates. The 2% portion in a bifurcation election would probably be apportioned between the two elections so that the total of both 2% portions equals $592,000. IRS clarification is needed. |