Section 6166(b)(2)(B), Example 2

Section 6166(b)(2)(B), Example 2 - Basic Information
Decedent owned fractional interests in 2 closely held businesses. The estate tax value of Business A did not meet the 35% test of §6166(a)(1) while the value of Business B did meet the 35% test.
Decedent's wife owned an equal 25% interest in Business A but did not own an interest in Business B.
Decedent's estate wishes to combine the estate tax values of both businesses under §6166(c) to treat them as an interest in a single closely held business for purposes of §6166. Section 6166(c) requires that the estate tax value of each business interest must be 20% or more of the total value of each such business.
The estate tax value of Business A is less than 20% of the total value of Business A.
Section 6166(b)(2)(B) does not attribute the wife's interest to Decedent for purposes of satisfying the 20% test of §6166(c). Without more, the only way to do so would be by electing to attribute the wife's interest to Decedent under §6166(b)(7), which would shorten the extension period to 9 years instead of 14; would deny application of the special 2% interest rate; and would require that the first installment be paid on the return due date determined without regard to any filing extensions.
However, §6166(c) provides:

c) Special rule for interest in 2 or more closely held businesses

For purposes of this section, interest in 2 or more closely held businesses, with respect to each of which there is included in determining the value of the decedent's gross estate 20 percent or more of the total value of each such business, shall be treated as an interest in a single closely held business. For purposes of the 20-percent requirement of the preceding sentence, 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 estate can use §6166(c) to combine the estate tax values of Business A and Business B to be treated as an interest in a single closely held business for purposes of §6166 without making a §6166(b)(7) election.

 

Section 6166(b)(2)(B)  - Example 2 
Closely Held Business A
Full value of Closely Held Business A 50,000,000.00
50% owned by Decedent's brother 25,000,000.00
25% owned by Decedent 12,500,000.00
25% owned by Decedent's wife 12,500,000.00
Closely Held Business Value A Included in Decedent's Gross Estate
25% interest owned by Decedent at the proportionate full value 12,500,000.00
Total valuation discount 25%
Estate tax value of Decedent's interest in Closely Held Business A 9,375,000.00
Estate tax value as a percentage of the total business value of $50,000,000 18.75%
§6166(a)(2) Ratio Computation for Business A
Section 6166 business value 9,375,000.00
Gross estate 43,562,500.00 40,812,500.00
Schedules J, K, and L §2053 and §2054 deductions 2,750,000.00
Section 6166(b)(6) adjusted gross estate 40,812,500.00
Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments - Does Not Qualify for §6166 Extension by itself - ratio is less than 0.350000 0.229709

 

Section 6166(b)(2)(B)  - Example 2
Closely Held Business B
Full value of Closely Held Business B 35,000,000.00
50% owned by Decedent's brother 17,500,000.00
50% owned by Decedent 17,500,000.00
Closely Held Business B Value Included in Decedent's Gross Estate
50% interest owned by Decedent at the proportionate full value 17,500,000.00
Total valuation discount 22.5%
Estate tax value of Decedent's interest in Closely Held Business B 13,562,500.00
Estate tax value as a percentage of the total business value of $35,000,000 38.75%
§6166(a)(2) Ratio Computation for Business B
Section 6166 business value 13,562,500.00
Section 6166(b)(6) adjusted gross estate 40,812,500.00
Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments - Qualifies for §6166 Extension by itself - ratio is greater than 0.350000 0.428790

 

6166(b)(2)(B) Example 2, Comment 1:   Section 6166(b)(2)(B) automatically attributes the wife's 25% ownership interest to the Decedent for purposes of paragraph (1) so that the stock or partnership interests they hold shall be treated as owned by one shareholder or one partner, as the case may be. The wife's 25% interest is attributed to Decedent solely for purposes of determining the total number of partners or shareholders.

 

6166(b)(2)(B) Example 2, Comment 2:   Because the estate tax value of Business A is less than 35% of the §6166(b)(6) adjusted gross estate, the estate cannot elect to bifurcate the tax that might otherwise be eligible for a §6166 extension; bifurcation can occur only when the estate tax value of each of two closely held business interests exceeds 35% of the adjusted gross estate. Further, see the discussion on Bifurcation Concepts.

 

Section 6166(b)(2)(B)  - Example 2
§6166(c) Closely Held Business Value
Estate tax value of Decedent's interest in Business A 9,375,000.00
Estate tax value of Decedent's interest in Business B 13,562,500.00
Value treated as an interest in a single closely held business interest under §6166(c) 22,937,500.00
§6166(a)(2) Ratio Computation for the §6166(c) Closely Held Business Value
Section 6166(c) closely held business value 22,937,500.00
Section 6166(b)(6) adjusted gross estate 40,812,500.00
Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments 0.562021

 

6166(b)(2)(B) Example 2, Comment 3:   The estate can make a regular §6166(a) 14-year election in this case solely because Decedent's wife owned a 25% interest in Business A. However, if another §267(c)(4) family member had owned that 25% interest, the estate could have filed under §6166(c) only with a §6166(b)(7) election, which would have restricted the maximum extension period to 9 years without benefit of the 2% special interest rate, and the first installment would have been due on the return due date determined without regard to any extensions of time to file.